<PAGE>
This Prospectus is filed
pursuant to RULE NO. 424(b)(1)
and relates to REGISTRATION NO. 33-99612
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION. THESE SECURITIES MAY +
+NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME A FINAL +
+PROSPECTUS IS DELIVERED. THIS PROSPECTUS SUPPLEMENT 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, DECEMBER 4, 1995
PROSPECTUS SUPPLEMENT
- --------------------------------------------------------------------------------
(To Prospectus Dated December 4, 1995)
- --------------------------------------------------------------------------------
$1,278,320,000 (Approximate)
CS First Boston Mortgage Securities Corp.
Depositor
Adjustable Rate Conduit Mortgage Pass-Through Certificates, Series 1995-1
Class A-1 Certificates
-----------
The Adjustable Rate Conduit Mortgage Pass-Through Certificates, Series 1995-1
(the "Certificates") will be comprised of three classes of certificates: Class
A-1, Class IO and Class R. Only the Class A-1 Certificates are offered hereby.
The Certificates evidence 100% of the beneficial ownership interest in a
trust fund (the "Trust Fund") to be created by CS First Boston Mortgage
Securities Corp. (the "Depositor"), the assets of which will consist
primarily of (a) 21 classes (or portions of classes) of mortgage pass-
through certificates (the "Mortgage Certificates"), each of which is part
of one of 14 series of mortgage pass-through certificates initially sold
by the Resolution Trust Corporation and acquired by the Depositor in the
secondary market, (b) a Reserve Fund and (c) a Yield Support Agreement
provided by Norwest Corporation. The Certificates will be issued
pursuant to a Pooling Trust Agreement (the "Pooling Agreement") among
the Depositor, Norwest Bank Minnesota, National Association, as
Certificate Administrator and The Chase Manhattan Bank, N.A., as
Trustee. See "Description of the Certificates."
As more fully described herein, commencing with a rate of % per annum,
interest will accrue, to the extent of funds available therefor, on the Class
A-1 Certificates at a per annum rate of 0.30% in excess of the London
interbank offered rate for three-month Eurodollar deposits ("LIBOR"),
determined quarterly as set forth herein. The amount of interest accrued on
the Class A-1 Certificates will be reduced by the amount of certain
prepayment interest shortfalls and deferred interest as described herein
under "Description of Certificates--Distributions--Interest
Distributions." Interest generally will be paid quarterly, to the
extent funds are available therefor as described herein on the 28th
day of each February, May, August and November or, if any such day is
not a business day on the following business day, beginning in
February 1996. Each such day is referred to as a "Distribution
Date." See "Summary of Terms--Distribution Date" and "Description
of the Certificates" herein.
Principal payments on the Class A-1 Certificates will be made on each
Distribution Date to the extent funds are available therefor, as
described herein, until the principal balance of the Class
A-1 Certificates has been reduced to zero. See
"Description of the Certificates--
Distributions--Principal Distributions."
Prospective investors in the Certificates should consider the factors
discussed under "Special Considerations" in this Prospectus
Supplement on Page S-13.
(cover continued on next page)
THE CLASS A-1 CERTIFICATES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF
CS FIRST BOSTON MORTGAGE SECURITIES CORP., THE TRUSTEE, THE CERTIFICATE
ADMINISTRATOR OR ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES NOR
THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER
PARTY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------
The Class A-1 Certificates will be offered by CS First Boston Corporation
("First Boston") from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Class A-1 Certificates are anticipated to be
approximately $ , plus accrued interest thereon at the Certificate Rate from
November 28, 1995, but before deducting expenses payable by the Depositor,
estimated to be $ .
The Class A-1 Certificates are offered by First Boston when, as and if
delivered to and accepted by First Boston, subject to prior sale, withdrawal or
modification of the offer without notice, the approval of counsel and other
conditions. It is expected that the Class A-1 Certificates will be delivered
only through the same day funds settlement system of the Depository Trust
Company on or about December [ ], 1995.
CS First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is December [ ], 1995
<PAGE>
Prior to the Distribution Date occurring in November 2000 and on each
succeeding Distribution Date until successful, the Trustee will attempt to
sell the Mortgage Certificates at auction for a price which, together with
amounts on deposit in the Reserve Fund, is at least equal to the then-
outstanding Principal Balance of the Class A-1 Certificates, plus interest
accrued and unpaid thereon. The proceeds of any such sale of the Mortgage
Certificates, together with funds on deposit in the Reserve Fund (to the
extent needed), will be used to retire the Class A-1 Certificates. See
"Description of the Certificates--Mandatory Auctions."
Prospective investors should consider:
. The yield on the Class A-1 Certificates will be sensitive to, among
other things, the rate and timing of principal payments on the
Mortgage Certificates (which likely will be different for different
Mortgage Certificates) and the level of LIBOR.
. As described under "Special Consideration--Basis Risk" and "Yield and
Prepayment Considerations--Basis Risk; LIBOR" herein, under some
prepayment and interest rate scenarios, an investor may not receive
all interest accrued at the Class A-1 Pass-Through Rate on the Class
A-1 Certificates with respect to one or more Distribution Dates on
such Distribution Dates, or in certain cases, prior to the retirement
of the Class A-1 Certificates.
The description of the Mortgage Certificates and the Mortgage Loans
contained in this Prospectus Supplement is qualified in its entirety by
reference to the actual terms and provisions of the Prospectuses and
Prospectus Supplements related to each of the Mortgage Certificates
(collectively, the "Underlying Disclosure Documents") and the Pooling and
Servicing Agreements relating to each of the Mortgage Certificates
(collectively, the "Underlying Pooling Agreements"). Copies of the Underlying
Disclosure Documents and the Underlying Pooling Agreements are available from
First Boston by calling Richard Eimbinder at (212) 909-3574. Investors are
urged to obtain copies of such documents and read this Prospectus Supplement
in conjunction therewith.
The Class A-1 Certificates will be issued only in book-entry form, and the
purchasers thereof will not be entitled to receive definitive certificates
except in the limited circumstances set forth herein. The Class A-1
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.
The Class A-1 Certificates may not be an appropriate investment for
individual investors. There is currently no secondary market for the Class A-1
Certificates and there can be no assurance that a secondary market will
develop or, if it does develop, that it will provide Certificateholders with
liquidity of investment at any particular time or for the life of the Class A-
1 Certificates. First Boston intends to act as a market maker in the Class A-1
Certificates, subject to applicable provisions of federal and state securities
laws and other regulatory requirements, but is under no obligation to do so
and any such market making may be discontinued at any time. There can be no
assurance that any investor will be able to sell a Class A-1 Certificate at a
price which is equal to or greater than the price at which such Certificate
was purchased.
An election will be made to treat the portion of the Trust Fund consisting
of the Mortgage Certificates as a real estate mortgage investment conduit (the
"REMIC") for federal income tax purposes. As described more fully herein and
in the Prospectus, the payments on the Class A-1 Certificates which are
derived from the Mortgage Certificates and the Class IO Certificates will
constitute "regular interests" in the REMIC and the Class R Certificate will
constitute the "residual interest" in the REMIC. See "Summary Information--
Federal Income Tax Status" and "Certain Federal Income Tax Consequences"
herein and "Certain Federal Income Tax Consequences" in the Prospectus.
The Class A-1 Certificates represent one Class of a separate Series of
Certificates, which Class is being offered by the Depositor pursuant to the
Prospectus dated December 4, 1995 accompanying this Prospectus Supplement. The
Prospectus shall not be considered complete without this Prospectus Supplement
and any prospective investor shall not purchase any Certificate offered hereby
unless it shall have received both the Prospectus and this Prospectus
Supplement. The Prospectus contains important information regarding this
offering which is not contained herein, and prospective investors are urged to
read the Prospectus and this Prospectus Supplement in full.
------------
UNTIL MARCH , 1996 ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A-1
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.
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used herein and not defined shall have the
meaning given in the Prospectus. See "Index" herein and "Index of Terms" in the
Prospectus.
Securities Offered.......... $1,278,320,000 (approximate) initial Principal
Balance of Adjustable Rate Conduit Mortgage
Pass-Through Certificates, Series 1995-1, Class
A-1, evidencing a class of "regular interests"
in the REMIC and the rights to certain amounts
from the Reserve Fund. The initial Principal
Balance of the Class A-1 Certificates is subject
to an upward or downward variance of 5%.
Other Securities............ Adjustable Rate Conduit Mortgage Pass-Through
Certificates, Series 1995-1, Class IO,
evidencing a class of "regular interests" in the
REMIC, and the Class R Certificate, evidencing
the "residual interest" in the REMIC. The Class
IO Certificates and the Class R Certificate are
not offered hereby.
The Class A-1, Class IO and Class R Certificates
are referred to collectively herein as the
"Certificates."
Forms of Certificates;
Denominations.............. The Class A-1 Certificates will be issued as
book-entry certificates, through the facilities
of The Depository Trust Company. See
"Description of the Certificates--Book-Entry
Form" herein. The Class A-1 Certificates will be
issued, maintained and transferred in book-entry
form only in minimum denominations of $1,000
initial principal balance and integral multiples
of $1,000 initial principal balance in excess
thereof.
Depositor................... CS First Boston Mortgage Securities Corp.
Certificate Administrator... Certain administrative functions with respect to
the Certificates will be performed by Norwest
Bank Minnesota, National Association.
Trustee..................... The Chase Manhattan Bank, N.A.
Cut-off Date................ November 28, 1995 (after giving effect to
distributions on the Mortgage Certificates on
such date).
Closing Date................ On or about December , 1995.
Final Scheduled
Distribution Date.......... September 28, 2029. The Final Scheduled
Distribution Date has been determined to be the
28th day of the month succeeding the latest
maturity date of any Mortgage Loan in any
Underlying Mortgage Pool.
The Trust Fund.............. The Class A-1 Certificates evidence interests in
a trust fund (the "Trust Fund"), the assets of
which will consist primarily of (a) 21 classes
(or portions of classes) of mortgage pass-
through certificates (the "Mortgage
Certificates"), each of which is part
S-3
<PAGE>
of one of 14 series of mortgage pass-through
certificates initially sold by the Resolution
Trust Corporation and which were acquired by the
Depositor in the secondary market, (b) a Reserve
Fund and (c) a Yield Support Agreement provided
by Norwest Corporation. See "--The Reserve Fund"
and "--The Yield Support Agreement" below. The
Trust Fund will be established and the
Certificates will be issued pursuant to a
Pooling Trust Agreement (the "Pooling
Agreement"), dated as of December [ ], 1995. See
"Description of the Class A Certificates--
General" herein.
Distribution Date........... Distributions on the Certificates will be made
quarterly on the 28th day of each February, May,
August and November, beginning in February 1996,
or, if any such day is not a business day, the
following business day. Each such day on which
distributions are made, a "Distribution Date."
Record Date................. The "Record Date" for each Distribution Date will
be the close of business on the last day of the
calendar month preceding the month in which such
Distribution Date occurs or, if such last day is
not a business day, the preceding business day.
Distributions on
Certificates............... Interest Distributions on the Class A-1
Certificates. The amount of interest payable on
the Class A-1 Certificates on each Distribution
Date will be equal to the sum of (x) the lesser
of the Interest Accrual Amount (as defined
below) of the Class A-1 Certificates for such
Distribution Date and Interest Available Funds
(as defined herein under "Description of the
Certificates--Distributions--Interest
Distributions") for such Distribution Date and
(y) the lesser of the Interest Shortfall Amount
(as defined below) of the Class A-1 Certificates
and the excess, if any, of the Interest
Available Funds for such Distribution Date over
the Interest Accrual Amount of the Class A-1
Certificates for such Distribution Date. The
"Interest Accrual Amount" for the Class A-1
Certificates on each Distribution Date will
equal the product of (i) one-fourth of the Class
A-1 Pass-Through Rate for such Distribution Date
and (ii) the outstanding Principal Balance
thereof (subject to reduction in respect of
Deferred Interest and Prepayment Interest
Shortfalls incurred with respect to the Mortgage
Loans underlying the Mortgage Certificates). The
"Interest Shortfall Amount" of the Class A-1
Certificates is equal to the sum of the amounts
for all previous Distribution Dates by which the
Interest Accrual Amount of the Class A-1
Certificates exceeded the Interest Available
Funds for such Distribution Dates (to the extent
such amounts have not been paid on subsequent
Distribution Dates), together with interest
accrued thereon at the Class A-1 Pass-Through
Rate in effect from time to time. See
"Description of the Certificates--
Distributions."
S-4
<PAGE>
The "Class A-1 Pass-Through Rate" during the
initial Interest Accrual Period will be % per
annum. During each succeeding Interest Accrual
Period, the Class A-1 Pass-Through Rate will be
0.30% in excess of the London interbank offered
rate quotations for three-month Eurodollar
deposits ("LIBOR") on the second day prior to
the first day of such Interest Accrual Period,
or, if such second day is not a business day,
the preceding business day (each, a "Reset
Date"), determined as described herein under
"Description of the Class A Certificates--
Determination of LIBOR." The "Interest Accrual
Period" with respect to each Distribution Date
is the period from the 28th day of the third
month preceding the month in which such
Distribution Date occurs through the 27th day of
the month in which such Distribution Date
occurs. Interest on the Certificates will be
calculated on the basis of actual days elapsed
in a 360-day year.
See "Description of the Certificates--
Distributions."
DUE TO THE FACTORS DISCUSSED UNDER "SPECIAL
CONSIDERATIONS--BASIS RISK," INTEREST AVAILABLE
FUNDS MAY NOT ALWAYS BE SUFFICIENT TO PAY THE
FULL INTEREST ACCRUAL AMOUNT WITH RESPECT TO THE
CLASS A-1 CERTIFICATES ON EACH DISTRIBUTION
DATE.
Principal Distributions on the Class A-1
Certificates. Distributions in respect of
principal on the Class A-1 Certificates will be
made on each Distribution Date in an amount
equal to the sum of all amounts distributed in
respect of principal on the Mortgage
Certificates during the Collection Period ending
on such Distribution Date.
Interest Distributions on the Class IO
Certificates. The Interest Accrual Amount for
the Class IO Certificates on each Distribution
Date will equal the product of (i) one-fourth of
the Class IO Pass-Through Rate for such
Distribution Date and (ii) the outstanding
Principal Balance of the Class A-1 Certificates,
subject to reduction in respect of Deferred
Interest and Prepayment Interest Shortfalls.
During each Interest Accrual Period the "Class IO
Pass-Through Rate" will be equal to the excess,
if any, of (X) the weighted average of the
Weighted Average Mortgage Certificate Pass-
Through Rate for each of the Underlying Series
Distribution Dates that occurs in the Collection
Period related to such Interest Accrual Period
(determined as described herein) (such weighted
average, the "Quarterly Mortgage Certificate
Pass-Through Rate") over (Y) the Class A-1 Pass-
Through Rate for such Interest Accrual Period.
The "Weighted Average Mortgage Certificate Pass-
Through Rate" with respect to any Underlying
Series Distribution Date will be equal to the
weighted average of the pass-through rates of
the Mortgage Certificates applicable to
S-5
<PAGE>
such Underlying Series Distribution Date,
weighted on the basis of the outstanding
principal balances thereof prior to
distributions on such Underlying Series
Distribution Date. The Weighted Average Mortgage
Certificate Pass-Through Rate with respect to
the Underlying Series Distribution Date in
November 1995 is approximately 7.6%. The
"Collection Period" with respect to each
Distribution Date is the period commencing on
the day after the previous Distribution Date
(or, in the case of the first Collection Period,
on November 28, 1995) and ending on such
Distribution Date. See "Description of the
Certificates--Distributions."
Reserve Fund................ On the Closing Date, the Depositor will deposit
or cause to be deposited into an account (the
"Reserve Fund") maintained by the Certificate
Administrator (i) cash in the amount of $1.5
million and (ii) the Class IO Certificates. All
distributions on the Class IO Certificates will
be made to the Certificate Administrator for
deposit into the Reserve Fund. Amounts on
deposit in the Reserve Fund from time to time
will be available on each Distribution Date to
be paid to holders of the Class A-1 Certificates
to the extent that distributions on account of
interest received on the Mortgage Certificates
in the related Collection Period are
insufficient to pay such holders' Interest
Accrual Amount for such date together with any
overdue interest. NO ASSURANCE CAN BE GIVEN THAT
AMOUNTS ON DEPOSIT IN THE RESERVE FUND FROM TIME
TO TIME WILL, TOGETHER WITH THE BALANCE OF
INTEREST AVAILABLE FUNDS ON ANY DISTRIBUTION
DATE, BE SUFFICIENT TO ALLOW THE DISTRIBUTION OF
THE FULL INTEREST ACCRUAL AMOUNT WITH RESPECT TO
THE CLASS A-1 CERTIFICATES ON ANY SUCH
DISTRIBUTION DATE. The Reserve Fund will be an
asset of the Trust Fund, but will not be an
asset of the REMIC. See "Description of the
Certificates--Reserve Fund" herein.
The Yield Support
Agreement.................. On the Closing Date, the Trustee will enter into
a yield support agreement (the "Yield Support
Agreement") with Norwest Corporation, a Delaware
corporation, and the parent of the Certificate
Administrator (the "Yield Support
Counterparty").
Pursuant to the terms of the Yield Support
Agreement, in the event that LIBOR on any Reset
Date (determined as described herein under
"Description of the Certificates--Determination
of LIBOR") exceeds % (which rate is equal to
LIBOR as set with respect to the first Interest
Accrual Period plus 2.0%) (the "Strike Rate"),
the Yield Support Counterparty will be obligated
to pay to the Certificate Administrator, for the
benefit of the holders of the Class A-1
Certificates, on the Distribution Date related
to the Interest Accrual Period following such
Reset Date, an amount equal to one-fourth of the
product of (x) the difference between LIBOR at
such Reset Date (determined as described above)
and the Strike Rate and (y) the Principal
Balance of the Class A-1 Certificates
outstanding prior to distributions on such
Distribution Date. Amounts paid by the Yield
Support Counterparty on any Distribution Date
will be paid to the Certificate Administrator
for
S-6
<PAGE>
deposit into the Reserve Fund. NO ASSURANCE CAN
BE GIVEN THAT AMOUNTS PAID BY THE YIELD SUPPORT
COUNTERPARTY ON ANY DISTRIBUTION DATE WILL,
TOGETHER WITH THE BALANCE OF THE INTEREST
AVAILABLE FUNDS FOR SUCH DISTRIBUTION DATE, BE
SUFFICIENT TO ALLOW FULL DISTRIBUTIONS IN
RESPECT OF INTEREST ON THE CLASS A-1
CERTIFICATES ON SUCH DISTRIBUTION DATE OR ON ANY
FUTURE DISTRIBUTION DATES.
The Yield Support Agreement will terminate upon
the reduction of the Principal Balance of the
Class A-1 Certificates to zero. The Yield
Support Agreement may also be terminated by the
Trustee under the circumstances described herein
under "Description of the Certificates--The
Yield Support Agreement--Termination."
Mandatory Auction........... Prior to the Distribution Date occurring in
November 2000, the Trustee will cause the
Certificate Administrator to hold an auction
(the "Auction") for the sale of the Mortgage
Certificates following the procedures outlined
herein under the heading "Description of the
Certificates--Mandatory Auction." If the highest
bid obtained, together with amounts on deposit
in the Reserve Fund, is at least equal to the
Class A-1 Retirement Amount (as defined herein)
the Trustee will sell the Mortgage Certificates
to such bidder at such price and pay the Class
A-1 Retirement Amount to the Class A-1
Certificates on November 28, 2000. The excess of
the proceeds of any such sale over the Class A-1
Retirement Amount outstanding will be
distributed to the holder of the Class R
Certificate. If no such sale occurs, the Trustee
will continue to hold the Mortgage Certificates
and the Trust Fund will continue to operate
pursuant to the Pooling Agreement. The auction
procedure will be repeated with respect to each
succeeding Distribution Date until a
sufficiently high bid is obtained.
Optional Repurchase of the
Mortgage Certificates...... The beneficial owner of the Class IO Certificates
will have the option to purchase the Mortgage
Certificates from the Trust Fund on any
Distribution Date on which the Mortgage
Certificate Balance is equal to 5% or less of
the Mortgage Certificate Balance as of the Cut-
off Date. See "Description of the Certificates--
Optional Repurchase of the Mortgage
Certificates" herein.
Ratings..................... It is a condition of the issuance of the
Certificates that the Class A-1 Certificates be
rated "Aaa" by Moody's Investors Service, Inc.
("Moody's") and "AAAr" by Standard & Poor's
("S&P" and, collectively with Moody's, the
"Rating Agencies").
The ratings of Moody's and S&P on mortgage
securities address the likelihood of the receipt
by the holders thereof of all distributions of
principal and interest to which such holders are
entitled. THE RATING AGENCIES NOTE THAT THE
ENTITLEMENT OF THE CLASS A-1
S-7
<PAGE>
CERTIFICATES TO INTEREST AT A RATE IN EXCESS OF
THE QUARTERLY MORTGAGE CERTIFICATE PASS-THROUGH
RATE IS SUBJECT TO THE AVAILABILITY OF INTEREST
AVAILABLE FUNDS. There is no assurance that such
ratings will continue for any period of time or
that they will not be revised or withdrawn
entirely by such rating agency if, in its
judgment, circumstances so warrant. A revision
or withdrawal of such ratings may have an
adverse effect on the market price of the Class
A-1 Certificates. A security rating is not a
recommendation to buy, sell or hold securities.
Neither the ratings of S&P nor the ratings of
Moody's represent any assessment of the Mortgage
Loan Servicers' ability to repurchase any
Convertible Mortgage Loans that are converted to
fixed Mortgage Interest Rates; S&P has so
indicated by appending "r" to its ratings of the
Class A-1 Certificates.
The Depositor has not requested a rating on the
Class A-1 Certificates from any other rating
agency, although data with respect to the
Mortgage Loans and Mortgage Certificates may
have been provided to other agencies solely for
their informational purposes. There can be no
assurance that if a rating is assigned to the
Class A-1 Certificates by any other rating
agency, such rating will be as high as that
assigned by Moody's and S&P. See "Ratings."
Mortgage Certificates....... The assets of the REMIC will consist primarily of
21 classes (or a portion of such classes) of
senior mortgage pass-through certificates (the
"Mortgage Certificates"), each of which is a
part of one of 14 separate series of mortgage
pass-through certificates sold by the Resolution
Trust Corporation ("RTC") (each an "Underlying
Series"), identified in the following table.
--------------------------------------------------
UNDERLYING SERIES
<TABLE>
<CAPTION>
SERIES DESIGNATION CLASS OF MORTGAGE CERTIFICATES
------------------ ------------------------------
<S> <C>
Series 1992-1................. A-1
Series 1992-4................. A-2
Series 1992-6................. A-3
Series 1992-7................. A-3
Series 1992-8................. A-3
Series 1992-9................. A-4
Series 1992-10................ A-2
Series 1992-10................ A 3
Series 1992-10................ A-5
Series 1992-11................ A-2
Series 1992-11................ A-4
Series 1992-12................ A-3
Series 1992-14................ A-4
Series 1992-14................ A-5
Series 1992-15................ A-4
Series 1992-15................ A-6
Series 1992-16................ A-4
Series 1992-16................ A-5
Series 1993-3................. A-7
Series 1994-1................. A-3
Series 1994-1................. A-4
</TABLE>
--------------------------------------------------
S-8
<PAGE>
Each of the Mortgage Certificates evidences a
senior interest in a mortgage pool (each, an
"Underlying Mortgage Pool") previously formed by
the RTC. Payments on each Class of Mortgage
Certificates will be made on the 25th day of
each month (or if such day is not a business
day, the succeeding business day) (each, an
"Underlying Series Distribution Date") primarily
from amounts received in respect of the mortgage
loans that constitute the corpus of the related
Underlying Mortgage Pool (in the aggregate, the
"Mortgage Loans"). Such amounts, together, with
any payments under the Yield Support Agreement
and payments from the Reserve Fund, are the sole
source of funds for payments on the Class A-1
Certificates. As of the Underlying Series
Distribution Date occurring in November 1995,
after giving effect to distributions and
principal balance reductions on such date, the
Mortgage Certificates had approximately the
characteristics set forth under "The Mortgage
Certificates."
The Mortgage Loans.......... The Mortgage Loans are contained in 21 separate
pools of adjustable interest rate, conventional,
residential first mortgage loans having
approximately the characteristics set forth in
the table entitled "Selected Mortgage Loan Data"
under "Description of the Mortgage Loans." The
interest rate on each Mortgage Loan is subject
to adjustment periodically (as specified in the
related mortgage note) to a rate equal to the
sum (subject to rounding) of (i) a specified
index and (ii) an individual gross margin,
subject to certain limitations. With respect to
five of the Underlying Mortgage Pools, the index
used is the monthly weighted average cost of
funds for member institutions of the Eleventh
District of the Federal Home Loan Bank System,
as published by the Federal Home Loan Bank of
San Francisco ("COFI"). Such Mortgage Loans are
referred to herein as "COFI Mortgage Loans." For
the remaining Underlying Mortgage Pools, the
index generally used is the weekly average yield
on U.S. Treasury securities adjusted to a
constant maturity ("CMT") of one year or the
weekly auction average (investment) rate on U.S.
Treasury Bills with a six-month maturity
("CBE"), each as published by the Federal
Reserve Board in Statistical Release H.15 (519),
or a comparable release. Some of the Mortgage
Loans use a CMT yield of two, three or five
years. Such Mortgage Loans using CMT or CBE are
referred to herein as "CMT Mortgage Loans."
The Mortgage Loans are subject to overall maximum
interest rates. Some of the Mortgage Loans are
also subject to a minimum interest rate. Some of
the Mortgage Loans are subject to negative
amortization.
Some of the Mortgage Loans have mortgage interest
rates that may be converted to fixed interest
rates at the option of the mortgagor.
S-9
<PAGE>
Upon conversion to a fixed rate, such Mortgage
Loans generally are required to be purchased by
the servicer of the related Underlying Mortgage
Pool. See "Description of the Mortgage Loans"
and "Yield and Prepayment Considerations."
The Underlying Disclosure Documents do not
provide information sufficient to determine the
percentage distribution of Mortgage Loans
exhibiting the various characteristics described
herein.
Optional Repurchase of Mortgage Loans. The
Underlying Mortgage Pool with respect to each
Mortgage Certificate is subject to special
termination (a "Special Termination") at such
time as the aggregate outstanding principal
balance of all the mortgage loans underlying all
the mortgage certificates of the related
Underlying Series is equal to or less than 25%
of the initial aggregate principal balance of
such mortgage loans. See "The Mortgage
Certificates--Special Termination" herein. In
addition, the Mortgage Loan Servicer with
respect to each Underlying Series has the option
to repurchase the Mortgage Loans from the
related Underlying Mortgage Pool at such time as
the aggregate scheduled principal balance
thereof is reduced to less than 10% of the
original aggregate principal balance thereof.
See "The Mortgage Certificates--Optional
Termination" herein. Any such repurchase may
accelerate the rate at which principal payments
are made on the Class A-1 Certificates.
Certain Prepayment and
Yield Considerations....... NO INVESTMENT SHOULD BE MADE IN THE CLASS A-1
CERTIFICATES UNLESS AN INVESTOR HAS CONSIDERED
CAREFULLY THE ASSOCIATED RISKS OF INVESTING IN
SUCH CLASS A-1 CERTIFICATES AS DISCUSSED BELOW
AND UNDER "SPECIAL CONSIDERATIONS" AND "YIELD
AND PREPAYMENT CONSIDERATIONS" HEREIN.
Prepayments and Excess Cash. The rate of
principal payments on the Class A-1 Certificates
will be affected by the rate of principal
payments on the Mortgage Loans (including, for
this purpose, prepayments, which may include
amounts received by virtue of condemnation,
insurance or foreclosure) and by the application
of Excess Cash to the principal balance of the
Mortgage Certificates. If a Class A-1
Certificate is purchased at a discount from its
initial principal balance by a purchaser that
calculates its anticipated yield to maturity
based on an assumed rate of payment of principal
that is faster than that actually experienced on
the Mortgage Loans, the actual yield to maturity
will be lower than that so calculated.
Furthermore, if a Certificate is purchased at a
premium by a purchaser that calculates its
anticipated yield to maturity based on an
assumed rate of payment of principal that is
slower than that actually experienced on the
Mortgage Loans, the actual yield to maturity
will be lower than that so calculated.
S-10
<PAGE>
Timing of Payments. The timing and amount of
payments, including prepayments, on the Mortgage
Loans may significantly affect an investor's
yield. In general, the earlier a prepayment of
principal on the Mortgage Loans, the greater
will be the effect on an investor's yield to
maturity. As a result, the effect on an
investor's yield of principal prepayments
occurring at a rate higher (or lower) than the
rate anticipated by the investor during the
period immediately following the issuance of the
Class A-1 Certificates will not be offset by a
subsequent like reduction (or increase) in the
rate of principal prepayments.
Basis Risk; LIBOR. The interest rate payable to
the Holders of the Class A-1 Certificates is
based on LIBOR. However, the Mortgage
Certificates bear interest at adjustable rates
based on COFI, CMT and CBE. LIBOR and such other
indices may respond to different economic and
market factors, and there is no necessary
correspondence between them. NO ASSURANCE CAN BE
GIVEN THAT AMOUNTS ON DEPOSIT IN THE RESERVE
FUND FROM TIME TO TIME OR PAYMENTS UNDER THE
YIELD SUPPORT AGREEMENT WILL BE SUFFICIENT TO
MAKE UP ANY AMOUNT BY WHICH THE INTEREST
COLLECTED ON THE MORTGAGE CERTIFICATES IS LESS
THAN THE INTEREST ACCRUAL AMOUNT OF THE CLASS A-
1 CERTIFICATES.
Auction Risk. There can be no assurance that the
Trustee will, on November 28, 2000 or on any
date thereafter, be able to sell the Mortgage
Certificates for a price sufficient (together
with amounts on deposit in the Reserve Fund) to
allow the Class A-1 Certificates to be paid in
full. Therefore, there can be no assurance that
the Class A-1 Certificates will be retired prior
to their stated maturity.
See "Special Considerations" and "Yield and
Prepayment Considerations" herein for a fuller
discussion of the factors affecting the yield to
maturity of the Class A-1 Certificates.
Liquidity................... There is currently no secondary market for the
Class A-1 Certificates and there can be no
assurance that a secondary market will develop
or, if it does develop, that it will provide
Certificateholders with liquidity of investment
at any particular time or for the life of the
Class A-1 Certificates. There is no assurance
that any such market, if established, will
continue. Each Certificateholder will receive
monthly reports pertaining to the Class A-1
Certificates and the Mortgage Certificates.
There are a limited number of sources which
provide certain information about mortgage-
backed securities in the secondary market;
however, there can be no assurance that any of
these sources will provide information about the
Class A-1 Certificates or the Mortgage
Certificates. Investors should consider the
effect of limited information on the liquidity
of the Class A-1 Certificates.
S-11
<PAGE>
Federal Income Tax Status... An election will be made to treat the portion of
the Trust Fund consisting of the Mortgage
Certificates as a REMIC for federal income tax
purposes. The payments on the Class A-1
Certificates which are derived from the Mortgage
Certificates, and the Class IO Certificates,
will be designated as regular interests in the
REMIC, and the Class R Certificate will be
designated as the residual interest in the
REMIC.
An investor in the Class A-1 Certificates will be
treated for federal income tax purposes as
purchasing a REMIC regular interest and a
contractual right to receive amounts from the
Reserve Fund. See "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
ERISA Considerations........ A fiduciary of any employee benefit plan subject
to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or Section 4975
of the Internal Revenue Code of 1986, as amended
(the "Code"), or a governmental plan subject to
any federal, state or local law ("Similar Law")
which is, to a material extent, similar to the
foregoing provisions of ERISA or the Code
(collectively, a "Plan"), should carefully
review with its legal advisors whether the
purchase or holding of Class A-1 Certificates
could give rise to a transaction prohibited or
not otherwise permissible under ERISA, the Code
or Similar Law. See "ERISA Considerations" in
this Prospectus Supplement and in the
Prospectus.
Legal Investment............ The Class A-1 Certificates will constitute
"mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") so long as they are rated in one
of the two highest rating categories by at least
one nationally recognized statistical rating
organization. As such, the Class A-1
Certificates are legal investments for certain
entities to the extent provided in SMMEA.
However, there are regulatory requirements and
considerations applicable to regulated financial
institutions and restrictions on the ability of
such institutions to invest in certain types of
mortgage related securities. Prospective
purchasers of the Class A-1 Certificates should
consult their own legal, tax and accounting
advisors in determining the suitability of and
consequences to them of the purchase, ownership
and disposition of the Class A-1 Certificates.
See "Legal Investment Considerations" in this
Prospectus Supplement and "Legal Investment" in
the Prospectus.
S-12
<PAGE>
SPECIAL CONSIDERATIONS
Prospective investors should consider the following factors in connection
with a purchase of the Class A-1 Certificates.
1. Troubled Originators. The Mortgage Loans in each Underlying Mortgage Pool
were originated or purchased by one or more depository institutions (each a
"Depository Institution") for which the Resolution Trust Corporation ("RTC")
was appointed as conservator or receiver or from which the RTC acquired the
Mortgage Loans. Each of such Depository Institutions was either insolvent and
in the process of liquidation or in serious financial difficulty and being
operated under a conservatorship with a significant likelihood of subsequently
being placed in receivership and liquidated. It is possible that the financial
difficulties experienced by certain Depository Institutions may have adversely
affected either or both of (i) the standards and procedures by which the
Mortgage Loans were originated by such Depository Institutions or, if
purchased from another originator, the standards and procedures by which the
Depository Institutions selected such Mortgage Loans for purchase and reviewed
them prior to purchase and (ii) the manner in which such Mortgage Loans were
serviced prior to assumption of servicing responsibilities by the servicer of
the related Mortgage Certificates. The RTC, usually acting in its capacity as
conservator or receiver of a Depository Institution, made certain
representations and warranties regarding the Mortgage Loans and is obligated
to repurchase or replace or provide indemnification to the Trustee and the
holders of the related Underlying Series with respect to Mortgage Loans as to
which there is a breach of such representations and warranties. The RTC,
acting in its corporate capacity guaranteed the obligations incurred in
connection with such representations and warranties. There can be no
assurance, however, that such remedy will apply to all problems that may arise
with respect to a Mortgage Loan by reason of the financial difficulties
experienced by the related Depository Institution. If there are a large number
of Mortgage Loans in any given Underlying Mortgage Pool which the RTC is
obligated to replace or repurchase, the average life and yield on the related
Mortgage Certificates could be adversely affected.
2. Limited Information; Incomplete Mortgage Files. In preparing the
information regarding the Mortgage Certificates and the Mortgage Loans
contained in this Prospectus Supplement, the Depositor has relied upon
information provided by the RTC in the Prospectus Supplements applicable to
each Underlying Series and on information as to each such Underlying Series
subsequently provided by the various servicers of the Mortgage Certificates.
The Depositor is unable to verify such information and there can be no
assurance of its accuracy or completeness or the accuracy or completeness of
the information presented herein which is derived from information provided by
the RTC and such servicers. Information available to the RTC and disclosed in
the Prospectus Supplement with respect to an Underlying Mortgage Pool
generally was derived solely from the records of one or more Depository
Institutions without independent review. In many cases, the information
available to the RTC concerning the Depository Institutions did not permit the
RTC to determine fully the origination, credit appraisal and underwriting
practices of such institution or the manner of servicing of the Mortgage
Loans. In many Depository Institutions the mortgage files were incomplete, and
did not contain original notes, appraisal information, or information
regarding whether the mortgaged properties were owner-occupied, whether there
had been modifications, waivers or amendments with respect to such Mortgage
Loans or whether such Mortgage Loans otherwise had terms inconsistent with
information used by the RTC to prepare related disclosure (which disclosure
has been relied on by the Depositor, in preparing this Prospectus Supplement).
In particular, available information did not make it feasible for the RTC to
determine what proportion of the Mortgage Loans were originated using notes
having terms different from those generally described in the Underlying
Disclosure Documents. Thus, investors should be aware that no exact
information can be given as to the limitations on interest payments or the
potential amount of negative amortization on the Mortgage Loans.
In addition, the Depositor has no information as to whether the RTC or any
Mortgage Loan Servicer or any Mortgage Loan Trustee has complied with its
obligations under any Underlying Pooling Agreement.
3. General. An investment in certificates (such as the Class A-1
Certificates) evidencing interests in mortgage loans may be affected, among
other things, by a decline in real estate values or a decline in mortgage
S-13
<PAGE>
market rates. Recently such declines in real estate values have been
experienced in several significant market areas within the United States. If
relevant residential real estate markets should experience an overall decline
in property values such that the outstanding balances of the Mortgage Loans in
a particular Underlying Mortgage Pool become equal to or greater than the
value of the related 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 classes of certificates which are subordinate to the Mortgage
Certificates from that pool and the cash available in the related Underlying
Reserve Funds, holders of the Class A-1 Certificates will bear all risk of
loss resulting from default by mortgagors and will have to depend primarily on
the value of the mortgaged properties for recovery of the outstanding
principal and unpaid interest of the defaulted Mortgage Loans.
4. Limited Obligations. The Certificates will not represent an interest in
or obligation of the Depositor, the Trustee, the Certificate Administrator,
the RTC or any of the Depository Institutions. The Certificates will not be
insured or guaranteed by any government agency or instrumentality. With
respect to the Mortgage Certificates, however, the RTC, acting in its
corporate capacity, has guaranteed the obligation of the RTC, acting in its
capacity as receiver or conservator of the various Depository Institutions,
pursuant to its representations and warranties, to repurchase Mortgage Loans
or to indemnify against loss under certain circumstances.
5. Basis Risk. The interest rate payable to the holders of the Class A-1
Certificates is based on LIBOR. However, the underlying Mortgage Loans bear
interest based on COFI, CMT and CBE (the "Indices") calculated at various
frequencies. LIBOR and the Indices respond to different economic and market
factors, and there is not necessarily a correlation between them. Thus, it is
possible, for example, that LIBOR may rise during periods in which the Indices
are stable or are falling or that, even if both LIBOR and the Indices rise
during the same period, LIBOR may rise much more sharply than the Indices. NO
ASSURANCE CAN BE GIVEN THAT AMOUNTS ON DEPOSIT IN THE RESERVE FUND FROM TIME
TO TIME OR PAYMENTS UNDER THE YIELD SUPPORT AGREEMENT WILL BE SUFFICIENT TO
MAKE UP ANY AMOUNT BY WHICH THE INTEREST COLLECTED ON THE MORTGAGE
CERTIFICATES IS LESS THAN THE INTEREST ACCRUAL AMOUNT OF THE CLASS A-1
CERTIFICATES.
6. Auction Risk. There can be no assurances that the Trustee will, on
November 28, 2000 or on any date thereafter, be able to sell the Mortgage
Certificates for a price sufficient (together with amounts on deposit in the
Reserve Fund) to allow the Class A-1 Certificates to be paid in full prior to
their stated maturity.
7. Limited Liquidity. There is currently no secondary market for the Class
A-1 Certificates and there can be no assurance that a secondary market will
develop or, if it does develop, that it will provide Certificateholders with
liquidity of investment at any particular time or for the life of the Class A-
1 Certificates. First Boston intends to act as a market maker in the Class A-1
Certificates, subject to applicable provisions of federal and state securities
laws and other regulatory requirements, but is under no obligation to do so
and any such market making may be discontinued at any time. There can be no
assurance that any investor will be able to sell a Class A-1 Certificate at a
price which is equal to or greater than the price at which such Certificate
was purchased.
8. Prepayment and Yield Considerations. The prepayment experience on the
Mortgage Loans will affect the average life of the Class A-1 Certificates.
Prepayments on the Mortgage Loans may be influenced by a variety of economic,
geographic, social and other factors, including the difference between the
interest rates on the Mortgage Loans and prevailing mortgage interest rates.
Other factors affecting prepayment of Mortgage Loans include changes in
housing needs, job transfers, unemployment and servicing decisions. See "Yield
and Prepayment Considerations." In addition, the yield on the Class A-1
Certificates will be sensitive to, among other things, the level of LIBOR.
9. Calculation of Mortgage Interest Rate. As described herein, the Mortgage
Loans are generally adjustable rate Mortgage Loans which provide for periodic
adjustments of the mortgage interest rate and the Monthly Payment. The RTC
disclosed in the Underlying Disclosure Documents that, as of the dates of
issuance of the Mortgage Certificates, with respect to certain of such
Mortgage Loans the interest component of the Monthly Payments had been
incorrectly calculated and was lower or higher than it would be if it had been
S-14
<PAGE>
correctly calculated. The RTC disclosed in the Underlying Disclosure Documents
that, to the extent the RTC determined, based upon limited review, that a
Mortgage Loan had been the subject of incorrect calculations, it would cause
such errors to be corrected. The RTC made a representation in each of the
Underlying Pooling Agreements to the effect that if any such incorrect
calculation caused a Monthly Payment to be greater than it should be, such
Monthly Payment would be corrected by the third Monthly Payment due after the
date of issuance of the related Mortgage Certificate or as promptly thereafter
as possible; if such incorrect calculation caused a Monthly Payment to be less
that it should be, such Monthly Payment would be corrected (to the extent
permitted by law) by the next related adjustment date occurring no more than
four months after the Underlying Series Cut-off Date related to such Mortgage
Certificate. The Depositor has no information as to the amount of Mortgage
Loans that have been the subject of incorrect calculations or whether the RTC
complied with such representation and warranty.
10. Co-op Loans. Many of the Underlying Mortgage Pools contain Mortgage
Loans made in connection with a purchase or refinancing of cooperative
apartments. Such loans ("Co-op Loans") are not secured by liens on real
estate. The "owner" of a cooperative apartment does not own the real estate
constituting the apartment, but owns shares of stock in a corporation which
holds title to the building in which the apartment is located, and by virtue
of owning such stock is entitled to a proprietary lease to occupy the specific
apartment (the "Lease"). Thus, a Co-op Loan is a personal loan secured by a
lien on the shares and assignment of the Lease. If the borrower defaults on a
Co-op Loan, the lender's remedies are similar to the remedies which apply to a
foreclosure of a mortgage or deed of trust, in that the lender can foreclose
upon the loan and assume "ownership" of the apartment.
There are certain risks which arise as a result of the cooperative form of
ownership which differentiate Co-op Loans from other types of Mortgage Loans.
For example, the power of the board of directors of most cooperative
corporations to reject a proposed purchaser of a unit owner's shares (and
prevent the sale of an apartment) for any reason (other than reasons based
upon unlawful discrimination), or for no reason, significantly reduces the
universe of potential purchasers in the event of a foreclosure. Moreover,
cooperative apartment owners run a special risk in buildings where the
"sponsor" (i.e., the owner of the unsold shares in the corporation) holds a
significant number of unsold apartments that the sponsor may go into default
on a loan which is secured by a mortgage on the building. In such event, the
unit owners would be forced by special assessment to make the payments on the
delinquent loan or risk losing their apartments in a foreclosure proceeding
brought by the holder of the mortgage on the building. Not only would the
value attributable to the right to occupy a particular apartment be adversely
affected by the special assessment, but the foreclosure of a mortgage on the
building in which the apartment is located could result in a total loss of the
shareholder's equity in the building (and a corresponding loss of the lender's
security for its Co-op Loan).
11. Geographic Concentration. Each of the Underlying Mortgage Pools has one
or more geographic concentrations (each, a "Concentration") of Mortgage Loans
related to mortgaged properties which are located in particular states. In
general, such Concentrations increase the exposure of the Mortgage Pool to any
adverse economic, regulatory or other developments that may occur in that
location. California as well as certain other regions have recently
experienced natural disasters, including earthquakes and flooding, which may
adversely affect property values. The Depositor has made no effort to
determine whether the mortgaged property relating to any Mortgage Loan has
been affected by any natural disaster. If the value of mortgaged properties in
such geographic areas has declined since the origination of the related
Mortgage Loans, liquidations of such Mortgage Loans would be more likely to
produce realized losses. Furthermore, a general deterioration in economic
conditions in a geographic area may adversely affect the ability of borrowers
in such area to make payments on their Mortgage Loans.
S-15
<PAGE>
The following table sets forth the Concentrations by state for each of the
Underlying Mortgage Pools that exceed 10% of the original aggregate principal
balance thereof as of the Underlying Series Cut-off Date. Such information was
derived from the Underlying Disclosure Documents and the Depositor cannot
provide any assurances as to the accuracy or completeness of such information.
GEOGRAPHIC CONCENTRATION
(GREATER THAN 10% OF PRINCIPAL BALANCE)
<TABLE>
<CAPTION>
PERCENTAGE
AS OF
UNDERLYING
SERIES
SERIES CUT-OFF
DESIGNATION STATE DATE
----------- ------------- ----------
<S> <C> <C>
Series 1992-1,
Class A-1...... Florida 62.8
Alabama 23.4
Series 1992-4,
Class A-2...... Kansas 12.6
California 10.6
Series 1992-6,
Class A-3...... Georgia 18.6
Virginia 11.1
Ohio 10.4
Series 1992-7,
Class A-3...... Florida 14.0
Texas 12.7
Series 1992-8,
Class A-3...... Florida 32.1
Texas 12.0
Series 1992-9,
Class A-4...... Virginia 20.9
Series 1992-10,
Class A-2...... California 100.0
Series 1992-10,
Class A-3...... California 99.8
Series 1992-10,
Class A-5...... Florida 18.9
Massachusetts 17.4
Texas 11.3
Series 1992-11,
Class A-2...... New York 17.7
Texas 14.9
Series 1992-11,
Class A-4...... California 71.5
Michigan 10.3
Series 1992-12,
Class A-3...... Florida 23.7
Connecticut 14.1
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE
AS OF
UNDERLYING
SERIES
CUT-OFF
SERIES DESIGNATION STATE DATE
------------------ -------------- ----------
<S> <C> <C>
Series 1992-14, Class A-4....................... Florida 18.9
California 17.7
New Jersey 15.2
Series 1992-14, Class A-5....................... Florida 32.4
Ohio 14.4
Texas 11.1
Series 1992-15, Class A-4....................... Oklahoma 21.1
South Carolina 20.3
Texas 10.8
Series 1992-15, Class A-6....................... California 56.0
Florida 12.0
Series 1992-16, Class A-4....................... California 72.0
Georgia 12.7
Series 1992-16, Class A-5....................... California 99.5
Series 1993-3, Class A-7........................ Ohio 21.1
Florida 10.8
California 10.7
Series 1994-1, Class A-3........................ Florida 31.4
Rhode Island 21.4
New Jersey 11.8
Series 1994-1, Class A-4........................ Virginia 22.9
New Jersey 20.6
Florida 17.7
Rhode Island 15.8
</TABLE>
S-16
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Adjustable Rate Conduit Mortgage Pass-Through Certificates, Series 1995-
1 will include the following three classes: the Class A-1 Certificates, the
Class IO Certificates and the Class R Certificates (collectively, the
"Certificates"). Only the Class A-1 Certificates are offered hereby.
The Certificates evidence 100% of the beneficial ownership interest in a
trust fund (the "Trust Fund"), the assets of which will consist primarily of
(a) 21 classes (or portions of classes) of mortgage pass-through certificates
(the "Mortgage Certificates"), each of which is part of one of 14 series of
mortgage pass-through certificates initially sold by the Resolution Trust
Corporation and acquired by the Depositor in the secondary market, (b) a
Reserve Fund and (c) a Yield Support Agreement provided by Norwest
Corporation. See "--The Reserve Fund" and "--The Yield Support Agreement"
below. The Trust Fund will be established and the Certificates will be issued
pursuant to a Pooling Trust Agreement (the "Pooling Agreement"), dated as of
December [ ], 1995 among the Depositor, the Certificate Administrator and
the Trustee.
The Class A-1 Certificates will be issued as book-entry certificates (the
"Book-Entry Certificates") through the facilities of The Depository Trust
Company. See "--Book-Entry Form" below. The Class A-1 Certificates will be
issued, maintained and transferred only in minimum denominations of $1,000
initial principal balance and integral multiples of $1,000 initial principal
balance in excess thereof. The "Record Date" for distributions on the Class A-
1 Certificates is January 31, 1996, with respect to the initial Distribution
Date, and with respect to each subsequent Distribution Date, the last day of
the calendar month immediately preceding the month in which the applicable
Distribution Date occurs or, if such last day is not a business day, the
preceding business day. The undivided percentage interest (the "Percentage
Interest") represented by any Class A-1 Certificate will be equal to the
percentage obtained by dividing the initial Principal Balance of such Class A-
1 Certificate by the aggregate initial Principal Balance of all Class A-1
Certificates.
DISTRIBUTIONS
Distributions on the Certificates will be made quarterly on the 28th day of
each February, May, August and November, beginning in February 1996 or, if any
such day is not a business day, the following business day (each such day on
which distributions are made, a "Distribution Date"). Distributions to a
holder of a Class A-1 Certificate will be made on each Distribution Date in an
amount equal to such holder's Percentage Interest multiplied by the amount, if
any, to be distributed to the Class A-1 Certificates. Distributions will be
made on each Distribution Date to holders of record on the related Record
Date, which, unless Definitive Certificates are issued under the circumstances
described below under "--Book Entry Form", will be Cede & Co. as nominee for
DTC.
Interest Distributions. Distributions in respect of interest on each Class
of Certificates (other than the Class R Certificates) on each Distribution
Date will be made only up to the amount of the Interest Available Funds for
such Distribution Date. The amount of interest payable on the Class A-1
Certificates on each Distribution Date will be equal to the sum of (x) the
lesser of the Interest Accrual Amount of the Class A-1 Certificates for such
Distribution Date and Interest Available Funds for such Distribution Date and
(y) the lesser of the Interest Shortfall Amount of the Class A-1 Certificates
and the excess, if any, of the Interest Available Funds for such Distribution
Date over the Interest Accrual Amount of the Class A-1 Certificates for such
Distribution Date.
The "Interest Accrual Period" with respect to each Distribution Date is the
period commencing on the 28th day of the third month preceding the month in
which such Distribution Date occurs and ending on the 27th day of the month in
which such Distribution Date occurs.
S-17
<PAGE>
The "Interest Accrual Amount" for the Class A-1 Certificates on each
Distribution Date will equal the product of (i) one-fourth of the Class A-1
Pass-Through Rate for such Distribution Date and (ii) the outstanding
Principal Balance thereof, subject to reduction in respect of Deferred
Interest and Prepayment Interest Shortfalls incurred with respect to the
Mortgage Loans underlying the Mortgage Certificates. The "Class A-1 Pass-
Through Rate" during the initial Interest Accrual Period will be % per
annum. During each succeeding Interest Accrual Period, the Class A-1 Pass-
Through Rate will be 0.30% in excess of the London interbank offered rate
quotations for three-month Eurodollar deposits determined (as described below
under "--Determination of LIBOR") ("LIBOR") on the second day prior to the
first day of such Interest Accrual Period or, if such second day is not a
business day, the preceding business day (each, a "Reset Date"). The "Interest
Shortfall Amount" of the Class A-1 Certificates is equal to the sum of the
amounts for all previous Distribution Dates by which the Interest Accrual
Amount of the Class A-1 Certificates exceeded the Interest Available Funds for
such Distribution Dates (to the extent such amounts have not been paid on
subsequent Distribution Dates), together with interest accrued thereon at the
Class A-1 Pass-Through Rate in effect from time to time.
"Interest Available Funds" with respect to any Distribution Date will be
equal to the sum of (a) all payments in respect of interest received by the
Certificate Administrator on the Mortgage Certificates during the related
Collection Period, (b) interest earned on amounts invested in the Certificate
Account and (c) all amounts on deposit in the Reserve Fund (including any
payments made by the Yield Support Counterparty on such Distribution Date
under the Yield Support Agreement) (up to the excess of the Interest Accrual
Amount and the Interest Shortfall Amount of the Class A-1 Certificates over
the amount described in clauses (a) and (b) above). Interest Available Funds
will be distributed on each Distribution Date first to pay the Interest
Accrual Amount of the Class A-1 Certificates and next to pay the Interest
Shortfall Amount of the Class A-1 Certificates. Any Interest Available Funds
remaining after such distributions will be deposited in the Reserve Fund.
DUE TO THE FACTORS DISCUSSED UNDER "SPECIAL CONSIDERATIONS--BASIS RISK,"
INTEREST AVAILABLE FUNDS MAY NOT ALWAYS BE SUFFICIENT TO PAY THE FULL INTEREST
ACCRUAL AMOUNT WITH RESPECT TO CLASS A-1 CERTIFICATES ON EACH DISTRIBUTION
DATE.
The Interest Accrual Amount for the Class IO Certificates on each
Distribution Date will equal the product of (i) one-fourth of the Class IO
Pass-Through Rate for such Distribution Date and (ii) the outstanding
Principal Balance of the Class A-1 Certificates, subject to reduction in
respect of Deferred Interest and Prepayment Interest Shortfalls. The Class R
Certificates are not entitled to distributions in respect of interest and,
therefore, have no Interest Accrual Amount. During each Interest Accrual
Period the "Class IO Pass-Through Rate" will be equal to the excess, if any,
of (X) the weighted average of the Weighted Average Mortgage Certificate Pass-
Through Rate for each of the Underlying Series Distribution Dates that occurs
during the Collection Period related to such Interest Accrual Period
(determined as described herein) (such weighted average, the "Quarterly
Mortgage Certificate Pass-Through Rate") over (Y) the Class A-1 Pass-Through
Rate for such Interest Accrual Period. The "Weighted Average Mortgage
Certificate Pass-Through Rate" with respect to any Underlying Series
Distribution Date will be equal to the weighted average of the pass-through
rates of the Mortgage Certificates applicable to such Underlying Series
Distribution Date, weighted on the basis of the outstanding principal balances
of such classes prior to distributions on such Underlying Series Distribution
Date. The Weighted Average Mortgage Certificate Pass-Through Rate with respect
to the Underlying Series Distribution Date in November 1995 is approximately
7.6%. The "Collection Period" with respect to a Distribution Date is the
period commencing on the day after the preceding Distribution Date (or, in the
case of the first Collection Period, on November 28, 1995) and ending on such
Distribution Date.
Interest on the Certificates will be calculated on the basis of actual days
elapsed in a 360-day year.
Deferred Interest allocated to the Mortgage Certificates on each Underlying
Series Distribution Date occurring during the Collection Period related to any
Distribution Date (as reported on the remittance reports
S-18
<PAGE>
relating to such Mortgage Certificates) will be allocated between the Class A-
1 Certificates and the Class IO Certificates on the related Distribution Date,
pro rata, based on the Interest Accrual Amounts of each thereof (before
reduction for such Deferred Interest). See "Description of the Underlying
Mortgage Loans" and "The Mortgage Certificates--Distributions on the Mortgage
Certificates." The amount of Deferred Interest allocated in reduction of the
Interest Accrual Amount of the Class A-1 Certificates will be added to the
Principal Balance of such Class as of such Distribution Date.
Prepayment Interest Shortfalls allocated to the Mortgage Certificates on
each Underlying Series Distribution Date occurring during the Collection
Period related to any Distribution Date (as reported on the remittance reports
relating to such Mortgage Certificates) will be allocated between the Class A-
1 Certificates and the Class IO Certificates on the related Distribution Date,
pro rata, based on the Interest Accrual Amounts thereof (before reduction for
such interest shortfall on such Distribution Date). See "The Mortgage
Certificates--Distributions on the Mortgage Certificates" herein.
The "Principal Balance" of the Class A-1 Certificates as of any Distribution
Date will be equal to the Mortgage Certificate Balance as of the preceding
Distribution Date. The "Mortgage Certificate Balance" as of any Distribution
Date will be equal to the sum of the Mortgage Certificate Balances (after
giving effect to all distributions and other principal balance reductions on
the Mortgage Certificates and any Deferred Interest added to the principal
balance thereof during the Collection Period ending on such Distribution
Date). Neither the Class IO Certificates nor the Class R Certificate have any
Principal Balance and, therefore, neither is entitled to distributions in
respect of principal.
Determination Of LIBOR. On each Reset Date, the Certificate Administrator
will determine LIBOR for the succeeding Interest Accrual Period on the basis
of the offered LIBOR quotations of the Reference Banks, as such quotations are
provided to the Certificate Administrator as of 11:00 a.m. (London time) on
such Reset Date. As used in this section with respect to a Reset Date,
"business day" means a day on which banks are open for dealing in foreign
currency and exchange in London and New York City; "Reference Banks" means
four leading banks engaged in transactions in Eurodollar deposits in the
International Eurocurrency market (i) with an established place of business in
London, (ii) whose quotations appear on the Reuters Screen LIBO Page on the
Rate Determination Date in question and (iii) which have been designated as
such by the Certificate Administrator and are able and willing to provide such
quotations to the Certificate Administrator on each Reset Date; and "Reuters
Screen LIBO Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO page
on that service for the purpose of displaying London interbank offered rate
quotations or major banks). If any Reference Bank should be removed from the
Reuters Screen LIBO Page or in any other way fails to meet the qualifications
of a Reference Bank, the Certificate Administrator may, in its sole
discretion, designate an alternative Reference Bank.
On each Reset Date, LIBOR for the next Interest Accrual Period will be
established by the Certificate Administrator as follows:
(i) If on any Reset Date two or more of the Reference Banks provide such
offered quotations, LIBOR for the next Interest Accrual Period will be the
arithmetic mean of such offered quotations (rounding such arithmetic mean
upwards if necessary to the nearest whole multiple of 1/16%).
(ii) If on any Reset Date only one or none of the Reference Banks
provides such offered quotations, LIBOR for the next Interest Accrual
Period will be the higher of (x) LIBOR as determined on the previous Reset
Date or (y) the Reserve Interest Rate. The "Reserve Interest Rate" will be
the rate per annum which the Certificate Administrator determines to be
either (A) the arithmetic mean (rounding such arithmetic mean upwards if
necessary to the nearest whole multiple of 1/16%) of the one-month
Eurodollar lending rate that New York City banks selected by the
Certificate Administrator are quoting, on the relevant Reset Date, to the
principal London offices of at least two leading banks in the London
interbank market or (B) in the event that the Certificate Administrator can
determine no such arithmetic mean, the lowest one-month Eurodollar lending
rate that the New York City banks selected by the Certificate Administrator
are quoting on such Reset Date to leading European banks.
S-19
<PAGE>
(iii) If on any Reset Date the Certificate Administrator is required but
is unable to determine the Reserve Interest Rate in the manner provided in
paragraph (ii) above, LIBOR for the next Interest Accrual Period will be
LIBOR as determined on the Previous Reset Date.
The establishment of LIBOR by the Certificate Administrator and the
Certificate Administrator's subsequent calculation of the rates of interest
applicable to the Class A-1 Certificates for the relevant Interest Accrual
Period (in the absence of manifest error) will be final and binding. The Class
A-1 Pass-Through Rate for any Interest Accrual Period may be obtained by
telephoning the Certificate Administrator at .
Historical LIBOR. Listed below are historical values of Three-Month LIBOR
since January 1991:
3 MONTH LIBOR
MONTHLY AVERAGES
<TABLE>
<CAPTION>
YEAR
----------------------------
MONTH(1) 1995 1994 1993 1992 1991
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January..................................... 6.43% 3.32% 3.39% 4.24% 7.44%
February.................................... 6.35 3.60 3.80 4.23 6.81
March....................................... 6.36 3.93 3.29 4.45 6.66
April....................................... 6.32 4.19 3.27 4.23 6.31
May......................................... 6.21 4.71 3.29 4.02 6.14
June........................................ 6.09 4.70 3.38 4.05 6.29
July........................................ 5.98 4.93 3.34 3.57 6.22
August...................................... 5.98 4.99 3.31 3.50 5.85
September................................... 5.95 5.20 3.25 3.33 5.70
October..................................... -- 5.70 3.43 3.48 5.55
November.................................... -- 5.96 3.54 3.85 5.15
December.................................... -- 6.47 3.42 3.69 4.67
</TABLE>
Historical LIBOR experience is not a predictor of future LIBOR rates, which
are influenced by numerous factors, the impact of which cannot be predicted.
The foregoing rates do not purport to be a prediction of the value of LIBOR on
any Reset Date or for the lives of the Class A-1 Certificates.
Principal Distributions. Distributions in respect of principal on the Class
A-1 Certificates will be made on each Distribution Date in an amount equal to
the sum of all amounts distributed in respect of principal on the Mortgage
Certificates during the Collection Period ending on such Distribution Date.
Principal payments on the Class A-1 Certificates will be made on each
Distribution Date to the extent funds are available therefor until the
Principal Balance of the Class A-1 Certificates has been reduced to zero.
RESERVE FUND
The Pooling Agreement will require the Certificate Administrator to
establish a separate trust account, which it will hold for the benefit of the
Trustee on behalf of the holders of the Class A-1 Certificates (the "Reserve
Fund").
On the Closing Date, the Depositor will deposit or cause to be deposited
into the Reserve Fund, (i) cash in the amount of $1.5 million and (ii) the
Class IO Certificates. All distributions on the Class IO Certificates will be
made to the Certificate Administrator for deposit into the Reserve Fund. In
addition, all payments by the Yield Support Counterparty pursuant to the Yield
Support Agreement will be deposited in the Reserve Fund. Amounts on deposit in
the Reserve Fund from time to time will be available on each Distribution Date
to be paid to holders of the Class A-1 Certificates to the extent that amounts
described in clauses (a) and (b) of the definition of Interest Available Funds
are insufficient to pay the Interest Accrual Amount and Interest Shortfall
Amount of the Class A-1 Certificates for such Distribution Date. The Reserve
Fund will be an asset of the Trust Fund, but will not be an asset of the
REMIC. Amounts in the Reserve Fund will be invested in "eligible assets," as
defined in the Pooling Agreement, at the discretion of the Certificate
Administrator, provided each such investment matures no later than the
succeeding Distribution Date.
S-20
<PAGE>
The Depositor will not have any obligation to deposit additional monies in
the Reserve Fund after the Closing Date.
NO ASSURANCE CAN BE GIVEN THAT AMOUNTS ON DEPOSIT IN THE RESERVE FUND FROM
TIME TO TIME WILL, TOGETHER WITH THE BALANCE OF INTEREST AVAILABLE FUNDS ON
ANY DISTRIBUTION DATE, BE SUFFICIENT TO ALLOW THE DISTRIBUTION OF THE FULL
INTEREST ACCRUAL AMOUNT WITH RESPECT TO THE CLASS A-1 CERTIFICATES ON ANY SUCH
DISTRIBUTION DATE.
Due to the factors described under "Special Considerations--Basis Risk" and
"Yield and Prepayment Considerations--Basis Risk; LIBOR," changes in the
levels of COFI, CMT and CBE may not necessarily correlate with changes in
LIBOR. Accordingly, the Class IO Certificates (payments on which, together
with payments under the Yield Support Agreement, are the sole source of
payments into the Reserve Fund after the Closing Date) will not be entitled to
any payments under certain interest rate scenarios. See "--Distributions"
above. In addition, the Yield Support Counterparty will not be obligated to
make any payments under the Yield Support Agreement unless LIBOR exceeds the
Strike Rate. See "--The Yield Support Agreement" below. The following table,
which was prepared on the basis of the Modeling Assumptions, illustrates the
balances that would be available in the Reserve Fund on the date indicated
under the interest rate scenarios (the "Rate Scenarios") described in the
following paragraph and at the various percentages of CPR indicated. Each of
the Rate Scenarios set forth below assumes (i) an initial rate of LIBOR equal
to 5.8750%, (ii) an initial rate of CMT equal to 5.4314%, (iii) an initial
rate of COFI equal to 5.1110% and (iv) that the Reinvestment Rate with respect
to each Interest Accrual Period will be 5.3125%.
"Rate Scenario I" assumes that, with respect to the Interest Accrual
Period beginning in February 1996, the level of LIBOR increases to 7.8750%,
the level of CMT increases to 7.4314% and the level of COFI increases to
7.1110% and that each such index remains constant until the stated maturity
of the Class A-1 Certificates.
"Rate Scenario II" assumes that the level of LIBOR increases to 7.8750%
with respect to the Interest Accrual Period beginning in February 1996 and
that the level of CMT increases to 7.4314% and the level of COFI increases
to 7.1110% with respect to the Interest Accrual Period beginning in
November 1996 and that each such index remains constant until the stated
maturity of the Class A-1 Certificates.
"Rate Scenario III" assumes that the level of LIBOR increases to 7.8750%
with respect to the Interest Accrual Period beginning in February 1996 and
that the level of CMT increases to 7.4314% and the level of COFI increases
to 7.1110% with respect to the Interest Accrual Period beginning in May
1998 and that each such index remains constant until the stated maturity of
the Class A-1 Certificates.
PROJECTED BALANCE AVAILABLE AT NOVEMBER 28, 2000(1)(2)
<TABLE>
<CAPTION>
PERCENT OF CPR
-----------------------------------
12% 18% 24%
----------- ----------- -----------
<S> <C> <C> <C>
Rate Scenario I........................ $49,500,000 $39,300,000 $30,800,000
Rate Scenario II....................... 27,300,000 18,800,000 11,800,000
Rate Scenario III...................... 0 0 0
</TABLE>
- --------
(1) Date on which first Auction is to be held.
(2) The projected Principal Balance of the Class A-1 Certificates as of
November 28, 2000 under each of the Rate Scenarios and percentages of CPR
assumed in the above table is indicated in the table on page S-48. See
"Yield and Prepayment Considerations--CPR Model" and "--Weighted Average
Life and Pre-Tax Yield Tables."
S-21
<PAGE>
THE YIELD SUPPORT AGREEMENT
The following is a summary of certain features of the Yield Support
Agreement (as defined below).
General. On the Closing Date, the Trustee, acting on behalf of the holders
of the Class A-1 Certificates, will enter into a yield support agreement (the
"Yield Support Agreement") with Norwest Corporation, a Delaware corporation,
and the parent of the Certificate Administrator (the "Yield Support
Counterparty"). The Yield Support Agreement will be governed by and construed
in accordance with the law of the State of New York.
Payment Terms. Pursuant to the terms of the Yield Support Agreement, in the
event that LIBOR on any Reset Date (determined as described below under "--
Determination of LIBOR") exceeds % (which rate is equal to LIBOR as set with
respect to the first Interest Accrual Period plus 2.0%) (the "Strike Rate"),
the Yield Support Counterparty will be obligated to pay to the Certificate
Administrator, for the benefit of the holders of the Class A-1 Certificates,
on the Distribution Date related to the Interest Accrual Period following such
Reset Date, an amount equal to one-fourth of the product of (x) the difference
between LIBOR at such Reset Date (determined as described above) and the
Strike Rate and (y) the Principal Balance of the Class A-1 Certificates
outstanding prior to distributions on such Distribution Date. Amounts paid by
the Yield Support Counterparty on any Distribution Date will be paid to the
Certificate Administrator for deposit into the Reserve Fund.
NO ASSURANCE CAN BE GIVEN THAT AMOUNTS PAID BY THE YIELD SUPPORT
COUNTERPARTY ON ANY DISTRIBUTION DATE WILL, TOGETHER WITH THE BALANCE OF THE
INTEREST AVAILABLE FUNDS FOR SUCH DISTRIBUTION DATE, BE SUFFICIENT TO ALLOW
FULL DISTRIBUTIONS IN RESPECT OF INTEREST ON THE CLASS A-1 CERTIFICATES ON
SUCH DISTRIBUTION DATE OR ON ANY FUTURE DISTRIBUTION DATES. THE OBLIGATIONS OF
THE YIELD SUPPORT COUNTERPARTY WITH RESPECT TO THE SECURITIES OFFERED HEREBY
ARE LIMITED TO THOSE SPECIFICALLY SET FORTH IN THE YIELD SUPPORT AGREEMENT AND
ARE SUBJECT TO CERTAIN CONDITIONS AS DESCRIBED IN THE YIELD SUPPORT AGREEMENT.
Termination. Unless earlier terminated as described below, the Yield Support
Agreement will terminate upon the reduction of the Principal Balance of the
Class A-1 Certificates to zero.
Pursuant to the Yield Support Agreement, certain events may occur in respect
of the Yield Support Counterparty that will give the Trustee the right to
terminate the Yield Support Agreement subject to the terms and provisions
thereof. The Trustee will have the right to terminate the Yield Support
Agreement if any of the following events occur:
(i) the Yield Support Counterparty fails to make any payment due under
the Yield Support Agreement and such nonpayment continues for three
business days after notice from the Trustee;
(ii) the Yield Support Counterparty fails to perform or observe its
obligations under such Yield Support Agreement (other than its obligation
to make any payment due under such Yield Support Agreement) and such
failure continues for a period of 30 days after notice from the Trustee;
(iii) any representation made by the Yield Support Counterparty under
such Yield Support Agreement proves to have been incorrect or misleading in
any material respect as of the time it was made;
(iv) certain events of bankruptcy or insolvency occur with respect to the
Yield Support Counterparty;
(v) the Yield Support Counterparty undertakes certain mergers,
consolidations or transfers of its assets or is dissolved;
(vi) a withholding tax is imposed on payments by the Yield Support
Counterparty under such Yield Support Agreement; or
(vii) a change in law occurs after the Closing Date which makes it
unlawful for the Yield Support Counterparty to perform its obligations in
respect of the Yield Support Agreement.
Breakage Fee. If the Yield Support Agreement is terminated by the Trustee,
the market value of the Yield Support Agreement will be established by the
Trustee on the basis of market quotations of the cost to the Trust
S-22
<PAGE>
Fund of entering into a replacement yield support agreement, in accordance
with the procedures set forth in the Yield Support Agreement (such amount, the
"Breakage Fee"). The Yield Support Counterparty will be required to pay the
Trustee, for the benefit of the holders of the Class A-1 Certificates the
amount of any Breakage Fee. Upon any such termination of the Yield Support
Agreement, the Trustee will apply any Breakage Fee paid by the Yield Support
Counterparty to the purchase of a similar yield support agreement from another
counterparty.
The Yield Support Counterparty.
As of December 31, 1994, the end of its most recent fiscal year, the Yield
Support Counterparty and its subsidiaries had, on a consolidated basis, total
assets of approximately $59.3 billion, total liabilities of approximately
$55.5 billion, and Stockholders' equity of approximately $3.8 billion.
The Yield Support Counterparty's outstanding senior unsecured indebtedness
has been rated Aa3 by Moody's, AA- by S&P, and AA by Fitch Investors Service,
L.P. ("Fitch").
Copies of the Yield Support Counterparty's annual reports are available from
Norwest Corporation by contacting Laurel A. Holschuh, Secretary, at (612) 667-
8655.
The above information was provided by the Yield Support Counterparty. No
other information contained herein (including but not limited to the
statements concerning the Yield Support Agreement and the rights under the
Yield Support Agreement of the holders of the securities offered hereby) has
been provided by the Yield Support Counterparty.
MANDATORY AUCTION
Prior to the Distribution Date occurring in November 2000, the Trustee will
cause the Certificate Administrator, to hold an auction following the
procedures outlined below (the "Auction") for the sale of the Mortgage
Certificates.
If the highest bid obtained, together with amounts on deposit in the Reserve
Fund, is at least equal to the Class A-1 Retirement Amount, the Trustee will
sell the Mortgage Certificates and pay the Class A-1 Retirement Amount to the
Class A-1 Certificates on November 28, 2000. The "Class A-1 Retirement Amount"
will generally be the then outstanding Principal Balance of the Class A-1
Certificates, together with interest at the then-applicable Class A-1 Pass-
Through Rate on such Principal Balance for the Interest Accrual Period
relating to such Distribution Date together with any unpaid Interest Shortfall
of the Class A-1 Certificates. If, following distributions on the Class A-1
Certificates on the Distribution Date preceding any Auction Date, there is an
unpaid Interest Shortfall for the Class A-1 Certificates, the Certificate
Administrator will solicit the vote of all holders of the Class A-1
Certificates (utilizing the procedures established by DTC for any such
solicitation) to determine whether the majority of such holders wish to
require the Class A-1 Retirement Amount to include the amount of such Interest
Shortfall. If holders representing 51% of the Voting Interests of all Class A-
1 Certificates vote to exclude such Interest Shortfalls from the Class A-1
Retirement Amount, then the Class A-1 Retirement Amount for the succeeding
Auction Date will be equal the sum of (i) the then-outstanding Principal
Balance of the Class A-1 Certificates, together with interest at the then-
applicable Class A-1 Pass-Through Rate on such Principal Balance for the
Interest Accrual Period relating to such Distribution Date and (ii) only to
the extent that proceeds of any sale pursuant to such Auction is in excess of
the amount described in clause (i), the amount of such excess. The excess of
the proceeds of any such sale over the Class A-1 Retirement Amount will be
distributed to the holder of the Class R Certificates. If no such sale occurs,
the Trustee will continue to hold the Mortgage Certificates and the Trust Fund
will continue to operate pursuant to the Pooling Agreement. The auction
procedure will be repeated with respect to each succeeding Distribution Date
until a sufficiently high bid is obtained. Each Distribution Date beginning
with the Distribution Date in November 2000 until the Distribution Date on
which the Class A-1 Certificates are retired is referred to herein as an
"Auction Date."
In connection with the Auction, the Certificate Administrator will, prior to
each Auction Date, solicit bids for the sale of the then-outstanding Mortgage
Certificates on such Auction Date. Bids will be solicited by notice to broker-
dealers who commonly make a market in securities similar to the Mortgage
Certificates and from such other parties as the Certificate Administrator may
determine. Bids will be accepted for all the Mortgage Certificates ("All or
Nothing Bids") as well as for one or more of the Mortgage Certificates on an
individual basis ("Line Item Bids"). If two or more identical All or Nothing
Bids are received or two or more identical Line Item Bids are received for the
same Mortgage Certificates, the Certificate Administrator will solicit and
S-23
<PAGE>
resolicit new bids from all participating bidders until only one All or
Nothing Bid and/or only one Line Item Bid for each Mortgage Certificate
remains or the remaining bidders decline to resubmit bids. The Trustee will
accept the highest bid or bids, provided such bid, or the sum of such bids,
meets the requirements of the preceding paragraph. The highest bid shall be
the greater of the sum of the highest Line Item Bid for each of the Mortgage
Certificates (including a bid of $0 for each Mortgage Certificate as to which
no Line Item Bid was received) and the highest All or Nothing Bid.
Neither the Certificate Administrator nor any affiliate thereof may purchase
any Mortgage Certificates pursuant to the Auction.
There can be no assurances that the Trustee will, on November 28, 2000 or on
any date thereafter, be able to sell the Mortgage Certificates for a price
equal to or greater than the Class A-1 Retirement Amount. See "--Reserve Fund"
above for a projection, based on certain assumptions, of the balance available
in the Reserve Fund as of November 28, 2000 under the various scenarios noted.
OPTIONAL REPURCHASE OF THE MORTGAGE CERTIFICATES
The beneficial owner of the Class IO Certificates will have the option, but
not the obligation, to purchase the Mortgage Certificates from the Trust Fund
on any Distribution Date on which the Mortgage Certificate Balance is equal to
5% or less of the Mortgage Certificate Balance as of the Cut-off Date at a
price equal to the outstanding Principal Balance of the Class A-1 Certificates
together with accrued interest thereon at the then-applicable Class A-1 Pass-
Through Rate through the following Distribution Date.
DENOMINATIONS
The Class A-1 Certificates will be issued in minimum denominations of $1,000
initial principal balance and integral multiples of $1,000 initial principal
balance in excess thereof.
BOOK-ENTRY FORM
The Class A-1 Certificates initially will be represented by one physical
certificate registered in the name of Cede & Co. ("Cede"), as nominee of DTC,
which will be the "holder" or "Certificateholder" of such Certificates, as
such terms are used herein. No person acquiring an interest in the Class A-1
Certificates (a "Beneficial Owner") will be entitled to receive a Class A-1
Certificate in certificated form (a "Definitive Certificate") representing
such person's interest in the Class A-1 Certificates, except as set forth
below. Unless and until Definitive Certificates are issued under the limited
circumstances described herein, all references to actions taken by
Certificateholders or holders shall refer to actions taken by DTC upon
instructions from its DTC Participants (as defined below), and all references
herein to distributions, notices, reports and statements to Certificateholders
or holders shall refer to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the Class A-1 Certificates, as the
case may be, for distribution to Beneficial Owners in accordance with DTC
procedures.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC and a "clearing agency" registered
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities for its participating organizations ("DTC
Participants") and to facilitate the clearance and settlement of securities
transactions among DTC Participants through electronic book-entries, thereby
eliminating the need for physical movement of certificates. DTC Participants
include securities brokers and dealers (including First Boston), banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to banks, brokers, dealers, trust companies and other institutions
that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly ("Indirect DTC Participants").
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make Class A-1 transfers of
Class A-1 Certificates among DTC Participants on whose behalf it acts with
respect to the Class A-1 Certificates and to receive and transmit
distributions of principal of and interest on the Class A-1 Certificates. DTC
Participants and Indirect DTC Participants with which Beneficial Owners have
accounts with respect to the Class A-1 Certificates similarly are required to
make Class A-1 transfers and receive and transmit such payments on behalf of
their respective Beneficial Owners.
S-24
<PAGE>
Beneficial Owners that are not DTC Participants or Indirect DTC Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Class A-1 Certificates may do so only through DTC Participants
and Indirect DTC Participants. In addition, Beneficial Owners will receive all
distributions of principal and interest from the Certificate Administrator, or
a paying agent on behalf of the Certificate Administrator, through DTC
Participants. DTC will forward such distributions to its DTC Participants,
which thereafter will forward them to Indirect DTC Participants or Beneficial
Owners. Beneficial Owners will not be recognized by the Trustee, the
Certificate Administrator or any paying agent as Certificateholders, as such
term is used in the Pooling and Servicing Agreement, and Beneficial Owners
will be permitted to exercise the rights of Certificateholders only indirectly
through DTC and its DTC Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Beneficial Owner to pledge Class A-1 Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Class A-1 Certificates, may be limited due to the lack of a physical
certificate for such Class A-1 Certificates. In addition, under a Class A-1
format, Beneficial Owners may experience delays in their receipt of payments,
since distributions will be made by the Certificate Administrator, or a paying
agent on behalf of the Certificate Administrator, to Cede, as nominee for DTC.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under the Pooling Agreement only at the direction
of one or more DTC Participants to whose accounts with DTC the Class A-1
Certificates are credited. Additionally, DTC has advised the Depositor that it
will take such actions with respect to specified voting interests only at the
direction of and on behalf of DTC Participants whose holdings of Class A-1
Certificates evidence such specified voting interests. DTC may take
conflicting actions with respect to voting interests to the extent that DTC
Participants whose holdings of Class A-1 Certificates evidence such voting
interests authorize divergent action.
Neither the Depositor, the Certificate Administrator nor the Trustee will
have any responsibility for any aspect of the records relating to or payments
made on account of beneficial ownership interests of the Class A-1
Certificates held by Cede, as nominee for DTC, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests. In
the event of the insolvency of DTC, a DTC Participant or an indirect DTC
Participant in whose name Class A-1 Certificates are registered, the ability
of the Beneficial Owners of such Class A-1 Certificates to obtain timely
payment and, if the limits of applicable insurance coverage by the Securities
Investor Protection Corporation are exceeded or if such coverage is otherwise
unavailable, ultimate payment, of amounts distributable with respect to such
Class A-1 Certificates may be impaired.
The Class A-1 Certificates will be converted to Definitive Certificates and
re-issued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Certificate Administrator is advised that DTC is no
longer willing or able to discharge properly its responsibilities as
depository with respect to the Class A-1 Certificates and the Certificate
Administrator is unable to locate a qualified successor, (ii) the Certificate
Administrator, at its option, elects to terminate the book-entry system
through DTC or (iii) after the occurrence of a dismissal or resignation of the
Certificate Administrator under the Pooling Agreement, Beneficial Owners
representing not less than 51% of the voting interests of the outstanding
Class A-1 Certificates advise the Trustee through DTC, in writing, that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the Beneficial Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Certificate Administrator (or, if the Certificate Administrator
has been dismissed, the Trustee) will be required to notify all Beneficial
Owners through DTC Participants of the availability of Definitive
Certificates. Upon surrender by DTC of the physical certificates representing
the Class A-1 Certificates and receipt of instructions for re-registration,
the Certificate Administrator will reissue the Class A-1 Certificates as
Definitive Certificates to Beneficial Owners.
S-25
<PAGE>
TERMINATION
The Trust Fund will terminate upon the earlier of (a) the distribution to
holders of the Certificates of all amounts required to be distributed to them
pursuant to the Pooling Agreement and (b) the termination of the Pooling
Agreement.
CERTIFICATE ACCOUNT
All payments and collections in respect of the Mortgage Certificates will be
deposited in an account maintained by the Certificate Administrator (the
"Certificate Account") in the name of the Trustee with a depository
institution (which may be the Certificate Administrator) and in a manner
acceptable to each Rating Agency. See "Description of the Certificates--
Payments on the Mortgage Loans" and "--Collection of Payments on Mortgage
Certificates" in the Prospectus.
Any earnings on investment of amounts in the Certificate Account will be
available for distribution to the holders of the Certificates as Interest
Available Funds. The rate at which such funds are invested from time to time
is referred to herein as the "Reinvestment Rate."
ACTIONS IN RESPECT OF THE MORTGAGE CERTIFICATES
If at any time the Trustee, as the Mortgage Certificateholder, is requested
in such capacity to take any action or to give any consent, approval or
waiver, including without limitation in connection with an amendment of an
Underlying Pooling Agreement or if an event of default occurs under an
Underlying Pooling Agreement with respect to the Mortgage Loan Servicer or the
Mortgage Loan Trustee thereunder, the Pooling Agreement provides that the
Trustee, in its capacity as certificateholder, may take action in connection
with the enforcement of any rights and remedies available to it in such
capacity with respect thereto, will promptly notify all of the holders of the
Certificates and will act only in accordance with written directions of
holders of the Certificates evidencing in excess of 50% of the Voting Rights.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by holders of
the Certificates evidencing a specified percentage of all undivided interests
in the Trust Fund may be taken by holders of the Certificates entitled in the
aggregate to such percentage of the Voting Rights. At any time that any
Certificates are outstanding, the "Voting Rights" under the Pooling Agreement
will be allocated 1% to the Class R Certificate, 1% to the Class IO
Certificate and the remainder to the Class A-1 Certificate.
CERTIFICATE ADMINISTRATOR
Norwest Bank Minnesota, National Association will act as Certificate
Administrator. Norwest is a national banking association which is a wholly
owned subsidiary of Norwest Corporation, a multibank holding company. Norwest
engages in general commercial banking and trust business, offering a
comprehensive range of corporate, commercial, correspondent and individual
banking services, both domestic and international, as well as a wide range of
trust and custodial services.
TRUSTEE
Chase Manhattan Bank, N.A. ("Chase") will act as the Trustee. Chase is a
national banking association which is a wholly-owned subsidiary of The Chase
Manhattan Corporation. Chase provides a comprehensive range of trust, custody,
information and other financial services, including trust services through its
Institutional Trust Group ("ITG"). The ITG has been providing global corporate
trust services for over 100 years. The ITG is supported by 370 employees
located in New York, Los Angeles, London, Luxembourg and Hong Kong. Chase acts
as trustee, paying agent and registrar on over 8,300 issues for 2,300 issuers
representing more than a trillion dollars principal amount issued in the U.S.
and Euromarkets.
S-26
<PAGE>
THE MORTGAGE CERTIFICATES
GENERAL
The description of the Mortgage Certificates contained in this Prospectus
Supplement is a general summary of certain characteristics of the Mortgage
Certificates and does not purport to be complete. Such description is subject
to, and is qualified in its entirety by reference to, the actual terms and
provisions of the Prospectuses and Prospectus Supplements related to each of
the Mortgage Certificates (collectively, the "Underlying Disclosure
Documents") and the Pooling and Servicing Agreements relating to each of the
Mortgage Certificates (collectively, the "Underlying Pooling Agreements").
Copies of the Underlying Disclosure Documents and the Underlying Pooling
Agreements are available from First Boston by calling Richard Eimbinder at
(212) 909-3574. Investors are urged to obtain copies of such documents and
read this Prospectus Supplement in conjunction therewith.
The assets of the REMIC will consist primarily of 21 classes (or portions of
classes) of senior mortgage pass-through certificates (the "Mortgage
Certificates"), each of which is a part of one of 14 separate series of
mortgage pass-through certificates (each an "Underlying Series").
Each of the Mortgage Certificates was issued pursuant to a separate
Underlying Pooling Agreement, generally dated as of the first day of the month
of initial issuance of the related Underlying Series (as to each, the
"Underlying Series Cut-off Date"), generally among the RTC, the servicer or
master servicer of the related Mortgage Loans (each, a "Mortgage Loan
Servicer") and the trustee of the related Mortgage Certificates (each, a
"Mortgage Loan Trustee").
Certain characteristics of the Mortgage Certificates are described below.
Certain of the information with respect to the Mortgage Certificates has been
derived from the original offering documents relating to such Mortgage
Certificates and from publicly available data and other data available to the
Depositor with respect thereto. IT SHOULD BE NOTED THAT THERE MAY HAVE BEEN
MATERIAL CHANGES IN FACTS AND CIRCUMSTANCES SINCE THE DATES SUCH DOCUMENTS
WERE PREPARED, INCLUDING, BUT NOT LIMITED TO, CHANGES IN PREPAYMENT SPEEDS AND
PREVAILING INTEREST RATES AND OTHER ECONOMIC FACTORS, WHICH MAY LIMIT THE
USEFULNESS OF, AND BE DIRECTLY CONTRARY TO THE ASSUMPTIONS USED IN PREPARING,
THE INFORMATION SET FORTH IN SUCH DOCUMENTS.
The Mortgage Certificates were each issued on the dates set forth in the
following table for each such Mortgage Certificate, each in an offering
registered by the RTC under the Securities Act of 1933, as amended (the
"Securities Act").
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES DATE OF ISSUANCE
--------------------- ----------------
<S> <C>
Series 1992-1, Class A-1.............................. January 30, 1992
Series 1992-4, Class A-2.............................. March 25, 1992
Series 1992-6, Class A-3.............................. April 29, 1992
Series 1992-7, Class A-3.............................. May 28, 1992
Series 1992-8, Class A-3.............................. June 29, 1992
Series 1992-9, Class A-4.............................. August 27, 1992
Series 1992-10, Class A-2............................. August 31, 1992
Series 1992-10, Class A-3............................. August 31, 1992
Series 1992-10, Class A-5............................. August 31, 1992
Series 1992-11, Class A-2............................. September 29, 1992
Series 1992-11, Class A-4............................. September 29, 1992
Series 1992-12, Class A-3............................. September 29, 1992
Series 1992-14, Class A-4............................. September 29, 1992
Series 1992-14, Class A-5............................. September 29, 1992
Series 1992-15, Class A-4............................. October 29, 1992
Series 1992-15, Class A-6............................. October 29, 1992
</TABLE>
S-27
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES DATE OF ISSUANCE
--------------------- ----------------
<S> <C>
Series 1992-16, Class A-4.............................. November 24, 1992
Series 1992-16, Class A-5.............................. November 24, 1992
Series 1993-3, Class A-7............................... February 26, 1993
Series 1994-1, Class A-3............................... December 22, 1994
Series 1994-1, Class A-4............................... December 22, 1994
</TABLE>
Each Underlying Series consists of multiple classes of mortgage pass-through
certificates representing interests in separate trusts (each, an "Underlying
Trust Fund"), previously formed by the RTC, each such Underlying Trust Fund
consisting, in part, of multiple mortgage pools. Each of the Mortgage
Certificates evidences a senior interest in a separate mortgage pool (each, an
"Underlying Mortgage Pool"), which is part of one of the Underlying Trust
Funds, consisting primarily of adjustable interest rate, conventional, one- to
four-family, residential first mortgage loans (the "Mortgage Loans"), sold by
the RTC to the related Mortgage Loan Trustee for the benefit of holders of the
certificates of the related Underlying Series. Except as set forth in the
following sentence, the Underlying Series relating to each class of Mortgage
Certificates includes at least one class of certificates (as to each
Underlying Series, the "Related Subordinated Certificates") which represents
an interest in the same Underlying Mortgage Pool as such class of Mortgage
Certificates and which is subordinated to such class of Mortgage Certificates.
Each of the Mortgage Certificates has been assigned the ratings set forth in
the following table by the rating agencies identified therein:
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES MOODY'S S&P FITCH
--------------------- ------- --- -----
<S> <C> <C> <C>
Series 1992-1, Class A-1................................ Aaa AAAr AAA
Series 1992-4, Class A-2................................ Aaa AAAr nr
Series 1992-6, Class A-3................................ Aaa AAAr AAA
Series 1992-7, Class A-3................................ nr AAAr AAA
Series 1992-8, Class A-3................................ nr AAAr AAA
Series 1992-9, Class A-4................................ Aaa AAAr nr
Series 1992-10, Class A-2............................... nr AAAr AAA
Series 1992-10, Class A-3............................... nr AAAr AAA
Series 1992-10, Class A-5............................... nr AAAr AAA
Series 1992-11, Class A-2............................... nr AAAr AAA
Series 1992-11, Class A-4............................... nr AAAr AAA
Series 1992-12, Class A-3............................... Aaa nr AAA
Series 1992-14, Class A-4............................... nr AAAr AAA
Series 1992-14, Class A-5............................... nr AAAr AAA
Series 1992-15, Class A-4............................... nr AAAr AAA
Series 1992-15, Class A-6............................... nr AAAr AAA
Series 1992-16, Class A-4............................... nr AAAr AAA
Series 1992-16, Class A-5............................... nr AAA AAA
Series 1993-3, Class A-7................................ Aaa AAAr nr
Series 1994-1, Class A-3................................ Aaa AAA AAA
Series 1994-1, Class A-4................................ Aaa AAA AAA
</TABLE>
- --------
nr = not rated
Neither the S&P nor the Moody's ratings represent any assessment of the
Mortgage Loan Servicer's ability to repurchase any Convertible Mortgage Loans
that are converted to fixed Mortgage Interest Rates; S&P has so indicated by
appending "r" to its ratings of the Underlying Series. See "Description of the
Mortgage Loans--Convertible Mortgage Loans."
S-28
<PAGE>
The following table sets forth expected approximate characteristics of the
Mortgage Certificates based on remittance reports received with respect to the
Underlying Series Distribution Dates occurring in November 1995.
SUMMARY DESCRIPTION OF THE MORTGAGE CERTIFICATES
(BASED ON THE NOVEMBER 1995 REMITTANCE REPORTS)
<TABLE>
<CAPTION>
MORTGAGE
CERTIFICATE
PERCENTAGE PASS-
INTEREST OF CLASS CURRENT THROUGH
REPRESENTED CURRENT MORTGAGE RATE
ORIGINAL BY MORTGAGE UNDERLYING CURRENT CERTIFICATE AS OF THE
CLASS CERTIFICATE IN MORTGAGE CLASS BALANCE IN PREDOMINANT CUT-OFF
NDERLYING SERIESU CLASS BALANCE TRUST FUND POOL BALANCE BALANCE TRUST FUND INDEX(1) DATE
- ----------------- ----- -------------- ----------------- -------------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series 1992-1... A-1 $ 362,467,000 6.90% $ 196,327,745 $ 145,955,068 $ 10,066,783 1 Yr CMT 7.7%
Series 1992-4... A-2 631,076,000 48.01% 375,470,345 314,684,348 151,090,134 1 Yr CMT 7.8
Series 1992-6... A-3 438,347,000 59.31% 252,486,090 209,123,179 124,038,779 1 Yr CMT 7.8
Series 1992-7... A-3 164,546,000 48.78% 92,393,718 80,474,252 39,252,631 1 Yr CMT 7.5
Series 1992-8... A-3 210,192,000 68.12% 132,184,516 114,524,538 78,019,133 1 Yr CMT 7.7
Series 1992-9... A-4 263,297,000 84.43% 157,684,810 134,006,116 113,138,994 1 Yr CMT 7.6
Series 1992-10.. A-2 127,446,000 63.91% 70,523,464 60,189,962 38,465,167 COFI 7.0
Series 1992-10.. A-3 156,675,000 87.23% 73,494,922 67,812,162 59,155,751 COFI 6.5
Series 1992-10.. A-5 40,338,000 100.00% 22,569,480 16,541,650 16,541,650 1 Yr CMT 7.3
Series 1992-11.. A-2 371,131,000 71.40% 206,674,875 185,073,021 132,148,354 1 Yr CMT 7.7
Series 1992-11.. A-4 81,092,000 18.61% 42,118,654 38,073,074 7,085,765 COFI 7.0
Series 1992-12.. A-3 341,440,000 67.34% 206,889,255 192,661,922 129,746,610 1 Yr CMT 7.8
Series 1992-14.. A-4 17,959,000 100.00% 8,762,360 7,305,379 7,305,379 1 Yr CMT 7.7
Series 1992-14.. A-5 138,420,000 74.71% 77,589,699 63,898,727 47,741,702 1 Yr CMT 7.8
Series 1992-15.. A-4 170,944,000 94.15% 103,738,382 90,870,579 85,554,769 1 Yr CMT 7.7
Series 1992-15.. A-6 48,214,000 33.41% 23,697,915 21,159,066 7,068,675 COFI 6.4
Series 1992-16.. A-4 217,400,000 75.90% 127,703,614 100,142,732 76,005,293 1 Yr CMT 7.8
Series 1992-16.. A-5 302,829,000 54.16% 204,041,360 156,775,972 84,903,557 COFI 7.2
Series 1993-3... A-7 291,866,000 34.73% 183,889,344 156,941,395 54,506,251 1 Yr CMT 8.0
Series 1994-1... A-3 160,048,000 9.65% 204,486,311 138,538,868 13,365,857 1 Yr CMT 8.1
Series 1994-1... A-4 30,022,000 11.66% 38,219,311 26,752,723 3,118,864 3 Yr CMT 8.2
-------------- -------------- -------------- --------------
Totals/Weighted
Averages(2).... $4,565,749,000 $2,800,946,169 $2,321,504,732 $1,278,320,095 7.6%
============== ============== ============== ==============
</TABLE>
- --------
(1) The index indicated as the Predominant Index is applicable to at least 80%
of the Underlying Mortgage Pool, as reported in the Underlying Disclosure
Documents.
(2) Based on current Mortgage Certificate Balance in the Trust Fund.
On the Closing Date, the Principal Balance of the Class A-1 Certificates
will equal the aggregate principal balance of the Mortgage Certificates. In
the event that any of the actual characteristics as of the Cut-off Date of the
Mortgage Certificates varies materially from those described herein, revised
information regarding the Mortgage Certificates will be made available to
purchasers of the Class A-1 Certificates on or before the Closing Date.
DISTRIBUTIONS ON THE MORTGAGE CERTIFICATES
The following is a discussion of the characteristics of the Mortgage
Certificates in general. The precise characteristics of specific Mortgage
Certificates may vary from the general descriptions set forth below. There are
substantial variations among the Underlying Pooling Agreements for the various
Underlying Series. The following discussion does not purport to describe with
specificity the terms of any specific Underlying Pooling Agreement, but is
instead a general description of the major economic terms of the Mortgage
Certificates, with certain major variations from the general descriptions with
respect to certain Mortgage Certificates or groups of Mortgage Certificates
noted. Investors are urged to obtain the Underlying Pooling Agreements and the
Underlying Disclosure Documents from First Boston and read such agreements in
conjunction with this Prospectus Supplement.
Distributions of interest and in reduction of principal balance of each
class of Mortgage Certificates are made on the 25th day of each month or, if
such 25th day is not a business day, on the succeeding business day (each, an
"Underlying Series Distribution Date").
S-29
<PAGE>
In general, for each Underlying Mortgage Pool, the related class of Mortgage
Certificates evidences, in the aggregate, the right to receive all of the
principal payments on the Mortgage Loans in such Underlying Mortgage Pool, the
right to receive the interest payments on such Mortgage Loans at the
applicable Mortgage Certificate Pass-Through Rate and, in some cases as
discussed below, the right to receive Excess Cash attributable to such
Mortgage Loans, in each case until the related Mortgage Certificate Principal
Amounts have been reduced to zero. However, two of the Mortgage Certificates
(which have an aggregate Mortgage Certificate Principal Amount as of the Cut-
off Date of $16,484,721) evidence the right to receive, in addition to
payments in respect of interest and certain payments in respect of Excess
Cash, only their pro rata share (based on the principal balances of such
Mortgage Certificates and the Related Subordinated Certificates) of all of the
principal payments on the Mortgage Loans in the related Underlying Mortgage
Pools until the related Mortgage Certificate Principal Amounts have been
reduced to zero (rather than all such principal payments).
Distributions on each Mortgage Certificate (other than distributions in
respect of Excess Cash) will generally be made from the Mortgage Pool
Available Distribution Amount. For each Underlying Mortgage Pool, the related
"Mortgage Pool Available Distribution Amount" with respect to any Underlying
Series Distribution Date will equal the sum of: (i) all previously
undistributed amounts received before the related Determination Date with
respect to the Mortgage Loans in such Mortgage Pool and (ii) all Advances made
by the Mortgage Loan Servicer or the Mortgage Loan Trustee (or amounts
withdrawn from the related Reserve Fund in respect of delinquent mortgage loan
payments), and any other payments required to be made by the Mortgage Loan
Servicer with respect to such Underlying Series Distribution Date, less (x)
the portion of the related servicing fee payable to the Mortgage Loan Servicer
and (y) all other amounts which are due or reimbursable to the Mortgage Loan
Servicer with respect to such Mortgage Loans; provided, however, that the
Mortgage Pool Available Distribution Amount with respect to any Underlying
Series Distribution Date shall not include:
(a) Monthly Payments due on the related Mortgage Loans on a date
subsequent to the related Due Period;
(b) principal prepayments received after the related Prepayment Period
(together with any interest payments received with such prepayments to the
extent that they represent the payment of interest accrued on the Mortgage
Loans in the related Mortgage Pool for the period subsequent to the related
Prepayment Period); and
(c) liquidation proceeds, insurance proceeds and proceeds of the sale of
any Mortgage Loans in the related Mortgage Pool received after the related
Prepayment Period.
The due period (the "Due Period") relating to each Underlying Series
Distribution Date commences on the second day of the month preceding the month
in which such Underlying Series Distribution Date occurs and ends on the Due
Date in the month of such Underlying Series Distribution Date. The due date
(the "Due Date") for any Mortgage Loan is the date in each month on which its
Monthly Payment is due. Generally, for each Underlying Series Distribution
Date, the prepayment period (the "Prepayment Period") is the calendar month
preceding the month in which such Underlying Series Distribution Date occurs.
With respect to certain Mortgage Loans, however, the Prepayment Period with
respect to each Underlying Series Distribution Date is the period beginning on
the Determination Date in the month preceding the month in which such
Underlying Series Distribution Date occurs and ending on the day preceding the
Determination Date in the month in which such Underlying Series Distribution
Date occurs. The Determination Date for each Underlying Series is generally
the 15th day (or if such day is not a business day, the preceding business
day) of the month in which the related Underlying Series Distribution Date
occurs.
INTEREST DISTRIBUTIONS
The "Mortgage Certificate Interest Distribution Amount" for any class of
Mortgage Certificates on any Underlying Series Distribution Date is generally
the amount of interest accrued during the preceding Mortgage Certificate
Interest Accrual Period for such class at the related Mortgage Certificate
Pass-Through Rate on the
S-30
<PAGE>
Mortgage Certificate Principal Amount of such class immediately preceding such
Underlying Series Distribution Date, less any allocable Prepayment Interest
Shortfall and allocable Deferred Interest, each as described below. The
"Mortgage Certificate Interest Accrual Period" for any Underlying Series
Distribution Date is generally the preceding calendar month. Interest on the
Mortgage Certificates is calculated on the basis of a 360-day year assumed to
consist of twelve 30-day months.
The Mortgage Certificate Principal Amount with respect to any Mortgage
Certificate and any Underlying Series Distribution Date is equal to the
initial principal amount of such Mortgage Certificate plus (x) any Deferred
Interest allocated to such Mortgage Certificate and less (y) the amount of any
principal distributions previously made on such Mortgage Certificate.
The Mortgage Certificate Pass-Through Rates will be a variable rate equal
with respect to each Mortgage Certificate Interest Accrual Period to a per
annum rate equal to the weighted average of the Mortgage Interest Rates on
each of the Mortgage Loans in the related Mortgage Pool as in effect prior to
the Due Date in the Due Period immediately preceding the related Underlying
Series Distribution Date minus the excess rate set forth for such class in the
succeeding table (each such amount, the "Excess Rate") and minus the weighted
average servicing fee for the related Underlying Mortgage Pool. The Excess
Rate with respect to each Mortgage Certificate generally represents amounts to
be distributed as Excess Cash.
EXCESS RATES
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES EXCESS RATES
--------------------- ------------
<S> <C>
Series 1992-1, Class A-1................................... .55000%
Series 1992-4, Class A-2................................... .82500%(1)
Series 1992-6, Class A-3................................... .69644%(1)
Series 1992-7, Class A-3................................... .58425%
Series 1992-8, Class A-3................................... .44000%
Series 1992-9, Class A-4................................... .59600%
Series 1992-10, Class A-2.................................. .00000%
Series 1992-10, Class A-3.................................. .00000%
Series 1992-10, Class A-5.................................. .29000%
Series 1992-11, Class A-2.................................. .00000%
Series 1992-11, Class A-4.................................. .17509%
Series 1992-12, Class A-3.................................. .46460%
Series 1992-14, Class A-4.................................. .00000%
Series 1992-14, Class A-5.................................. .00000%
Series 1992-15, Class A-4.................................. .00000%
Series 1992-15, Class A-6.................................. .00000%
Series 1992-16, Class A-4.................................. .50000%
Series 1992-16, Class A-5.................................. .05000%
Series 1993-3, Class A-7................................... .00000%
Series 1994-1, Class A-3................................... .00000%
Series 1994-1, Class A-4................................... .00000%
</TABLE>
- --------
(1) Includes both Excess Rate and weighted average servicing fee.
If either (x) an adjustment to the Mortgage Interest Rate on any interest
adjustment date without a simultaneous adjustment of the Monthly Payment or
(y) the limitation on adjustments to Monthly Payments due to a Payment
Adjustment Cap or the graduated Monthly Payments of certain graduated payment
mortgage loans ("GPM") causes the amount of interest accrued on the principal
balance of a Mortgage Loan during any period
S-31
<PAGE>
to exceed the related Monthly Payment, the payment of such excess interest
("Deferred Interest") may be deferred and the amount thereof added to the
principal balance of such Mortgage Loan. To the extent any Deferred Interest
is added to the principal balance of the Mortgage Loans in any Mortgage Pool,
an allocable portion of such Deferred Interest will reduce the interest
payable to, and will be added to the Mortgage Certificate Principal Amount of,
the related Mortgage Certificates (such allocable portion based upon the
proportion that the interest payable on such class of Mortgage Certificates
bears to the total amount of interest payable on all classes of certificates
related to such Mortgage Pool).
The "Monthly Payment" is, with respect to any Mortgage Loan and any month,
the scheduled Monthly Payment of principal and interest, excluding any Balloon
Payment, on such Mortgage Loan which is either payable by a borrower in such
month under the related note, or in the case of Mortgage Loans which have been
discharged and the related mortgaged property is held as part of the
Underlying Trust Fund ("REO Property"), would otherwise have been payable
under the note relating to such REO Property. A "Balloon Payment" is the final
scheduled payment of principal and interest on a Balloon Mortgage Loan.
When a borrower makes a full or partial prepayment of a Mortgage Loan
between Due Dates, the borrower pays interest on the amount prepaid only from
the last scheduled Due Date to the date of prepayment. In order to mitigate
any shortfall in interest resulting from such prepayments prior to a scheduled
Due Date, subject to certain limitations in the Underlying Pooling Agreements,
the portion of the servicing fee payable to the Mortgage Loan Servicer (less a
portion thereof reserved for payment of certain fees and expenses) will be
reduced by the amount necessary to provide the interest payable on the related
Mortgage Loans for the entire Prepayment Period in which the prepayments
occurred, adjusted to the Mortgage Interest Rate less the applicable servicing
fee. To the extent that reductions in the portion of the servicing fee payable
to the related Mortgage Loan Servicer are insufficient to offset such interest
shortfalls, the amount of such insufficiency (a "Prepayment Interest
Shortfall"), will be allocated to the classes of Mortgage Certificates in
proportion to the interest accrued thereon. The servicing fees payable to any
Mortgage Loan Servicer with respect to any Underlying Series will be available
to offset interest shortfalls relating to mortgage pools other than the
Underlying Mortgage Pools, and to the extent that such shortfalls occur with
respect to more than one mortgage pool relating to any Underlying Series on an
Underlying Series Distribution Date, such servicing fee will be allocated to
offset such interest shortfalls pro rata based on the amounts of the interest
shortfalls in each mortgage pool.
PRINCIPAL DISTRIBUTIONS
Distributions in reduction of the Mortgage Certificate Principal Amounts of
the Mortgage Certificates on each Underlying Series Distribution Date are
generally required to be made (subject to the availability of funds) in an
aggregate amount equal to the Pool Principal Distribution Amount for the
related Underlying Mortgage Pool on such Underlying Series Distribution Date.
However, with respect to the two of the Mortgage Certificates (which have an
aggregate Mortgage Certificate Principal Amount as of the Cut-off Date of
$16,484,721), distributions in reduction of the Mortgage Certificate Principal
Amounts thereof are required to be made (subject to the availability of funds)
in an amount equal to the pro rata share of each such class of the related
Pool Principal Distribution Amount for the related Underlying Mortgage Pool on
each Underlying Series Distribution Date. The pro rata share of each such
class will be determined by dividing the principal balance of such class by
the sum of the principal balance of such class and the principal balances of
the Related Subordinated Certificates. With respect to such Mortgage
Certificates, if certain levels of realized losses are experienced in the
related Mortgage Pools, the Related Subordinated Certificates will not be
entitled to distributions in respect of prepayments on the related Mortgage
Loans and all such prepayments will be allocated to the Mortgage Certificates
in reduction of their Mortgage Certificate Principal Amounts.
The "Pool Principal Distribution Amount" for each Underlying Mortgage Pool
on any Underlying Series Distribution Date generally equals the sum of (i) the
principal component of all scheduled Monthly Payments due on each Mortgage
Loan in such Underlying Mortgage Pool in the preceding Due Period (the
"Scheduled
S-32
<PAGE>
Principal Distribution Amount"), (ii) the principal component of each Balloon
Payment received on any Balloon Mortgage Loan in such Underlying Mortgage Pool
during the related Due Period, (iii) the scheduled principal balance of each
Mortgage Loan in such Underlying Mortgage Pool that either was sold or became
a liquidated mortgage loan during the related Prepayment Period, (iv) all full
or partial principal prepayments received on each Mortgage Loan in such
Underlying Mortgage Pool during the related Prepayment Period and (v) with
respect to two of the Mortgage Certificates, the Excess Cash, if any, related
to such Underlying Mortgage Pool.
CROSSOVER AMOUNTS
On each Underlying Series Distribution Date (other than with respect to the
Underlying Series relating to the Excess Cash Allocation Certificates)
following the retirement of all classes of certificates related to a mortgage
pool that is part of one of the Underlying Trust Funds, all payments and other
recoveries in respect of such mortgage pool ("Crossover Amounts") will be
applied to cover shortfalls in principal and interest on the remaining
certificates relating to the other mortgage pools that are part of the same
Underlying Trust Fund (which may include one or more classes of Mortgage
Certificates) on a pro rata basis in proportion to the respective amount of
such shortfalls.
Any remaining Crossover Amounts after the application thereof to cover
shortfalls will be allocated among the related mortgage pools, pro rata, based
on the aggregate principal balances of all classes of senior certificates in
the related mortgage pools, and applied on each Underlying Series Distribution
Date in reduction of the principal balances of each class of senior
certificates currently entitled to distribution of principal.
EXCESS CASH
The "Excess Cash" in respect of any Underlying Mortgage Pool for any
Underlying Series Distribution Date is generally the excess, if any, of the
Mortgage Pool Available Distribution Amount (together, in the case of the
Excess Cash Preservation Certificates, with amounts withdrawn from the related
Underlying Series Reserve Fund in respect of realized losses) for such
Underlying Mortgage Pool over the sum of (1) the Mortgage Certificate Interest
Distribution Amount for the related class of Mortgage Certificates and the
Related Subordinated Certificates and (2) the amounts set forth in clauses (i)
through (iv) of the definition of Pool Principal Distribution Amount, as set
forth above.
In the case of the two Mortgage Certificates described above under the
definition of Pool Principal Distribution Amount, Excess Cash in respect of
the related Mortgage Pools is distributed on each Underlying Series
Distribution Date to such Mortgage Certificates in reduction of their Mortgage
Certificate Principal Amounts. With respect to the remaining Mortgage
Certificates (the "Excess Cash Allocation Certificates"), Excess Cash is not
allocated exclusively to the related Mortgage Certificates. Instead, the
Underlying Pooling Agreements relating to such Mortgage Certificates provide
that Excess Cash will be distributed to one or more classes of certificates
relating to such Underlying Series other than the Mortgage Certificates (as
described in greater detail in the related Underlying Disclosure Documents) in
some cases in respect of interest, in some cases in respect of losses and
other shortfalls and in some cases as payments in reduction of principal
amount in excess of the amount of principal received in respect of the related
mortgage loans, prior to being distributed in reduction of the Mortgage
Certificate Principal Amount of the related Mortgage Certificates. The classes
of Excess Cash Allocation Certificates may also receive amounts in respect of
Excess Cash with respect to one or more mortgage pools contained in the same
Underlying Trust Funds in addition to Excess Cash from the related Underlying
Mortgage Pool. The allocation of Excess Cash in reduction of the Underlying
Certificate Principal Balances of the Mortgage Certificates is not expected to
have a significant effect on the weighted average lives of the Class A-1
Certificates.
UNDERLYING SERIES RESERVE FUNDS
To increase the likelihood of full distributions of interest and principal
to holders of the certificates issued in each Underlying Series, the RTC
established with various collateral agents one or more reserve funds with
respect to each Underlying Series. The reserve funds relating to each
Underlying Series that are available to cover
S-33
<PAGE>
realized losses and, in some cases, other shortfalls (such realized losses and
other cover shortfalls, "Covered Amounts") on the related Underlying Mortgage
Pools are each referred to herein as the "Underlying Series Reserve Fund" with
respect to each Underlying Series. Each Underlying Series Reserve Fund
originally consisted of an initial deposit by the RTC of securities, cash or
other property (the "Initial Deposits") equal in value to the amounts set
forth in the following table under the heading "Original Reserve Fund
Balance". The current values of the securities, cash and other property
contained in each of the Underlying Series Reserve Funds, as reported by the
Mortgage Loan Servicers, is set forth in the following table under the heading
"Current Reserve Fund Balance". Such Underlying Series Reserve Funds were
established pursuant to collateral security agreements (each, a "Collateral
Security Agreement") generally among the RTC, the related Mortgage Loan
Trustee and a collateral agent. The amounts held in each Underlying Series
Reserve Fund are required to be invested, at the direction of the RTC, in
certain permitted investments acceptable to the related rating agencies. The
earnings, if any, resulting from the investment of amounts held in the
Underlying Series Reserve Funds are remitted to the RTC.
Amounts on deposit in the related Underlying Series Reserve Funds are used
to offset Covered Amounts relating to each Underlying Mortgage Pool prior to
the allocation of such amounts to the Related Subordinated Certificates. Each
of the Underlying Series Reserve Funds is available to cover not only Covered
Amounts relating to the related Underlying Mortgage Pools, but also other
mortgage pools contained in the same Underlying Trust Funds. The aggregate
outstanding principal balances of all mortgage loans (including mortgage loans
not contained in the Underlying Mortgage Pools) as to which Covered Amounts
will be covered by each of the Underlying Series Reserve Funds is set forth in
the following table under the heading "Balance of All Mortgage Loans Covered."
UNDERLYING SERIES RESERVE FUNDS
(BASED ON NOVEMBER 1995 REMITTANCE REPORTS)
<TABLE>
<CAPTION>
ORIGINAL CURRENT BALANCE OF CURRENT RESERVE
RESERVE RESERVE ALL MORTGAGE FUND BALANCE AS
FUND FUND LOANS % OF ALL COVERED
MORTGAGE CERTIFICATES BALANCE BALANCE COVERED(1) MORTGAGE LOANS
- --------------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Series 1992-1, Class A-
1...................... $ 77,554,433 $ 73,010,611 $220,772,790 33.08%
Series 1992-4, Class A-
2...................... 133,919,842 129,017,752 439,386,352 29.36%
Series 1992-6, Class A-
3...................... 90,628,925 87,800,996 279,744,878 31.39%
Series 1992-7, Class A-
3...................... 49,410,780 45,940,154 194,647,570 23.60%
Series 1992-8, Class A-
3...................... 54,987,724 53,582,952 213,911,000 25.05%
Series 1992-9, Class A-
4...................... 66,291,987 57,195,686 245,661,675 23.28%
Series 1992-10, Class A-
2...................... 39,157,989 38,784,139 185,260,834 20.93%
Series 1992-10, Class A-
3...................... 39,157,989 38,784,139 185,260,834 20.93%
Series 1992-10, Class A-
5...................... 39,157,989 38,784,139 185,260,834 20.93%
Series 1992-11, Class A-
2...................... 60,307,122 44,220,137 323,291,443 13.68%
Series 1992-11, Class A-
4...................... 60,307,122 44,220,137 323,291,443 13.68%
Series 1992-12, Class A-
3...................... 60,489,298 57,773,796 373,173,091 15.48%
Series 1992-14, Class A-
4...................... 35,597,212 31,025,391 127,803,552 24.28%
Series 1992-14, Class A-
5...................... 35,597,212 31,025,391 127,803,552 24.28%
Series 1992-15, Class A-
4...................... 38,735,365 30,414,674 168,651,470 18.03%
Series 1992-15, Class A-
6...................... 38,735,365 30,414,674 168,651,470 18.03%
Series 1992-16, Class A-
4...................... 64,348,805 46,522,394 390,158,902 11.92%
Series 1992-16, Class A-
5...................... 64,348,805 46,522,394 390,158,902 11.92%
Series 1993-3, Class A-
7...................... 73,236,264 58,411,324 378,726,227 15.42%
Series 1994-1, Class A-
3...................... 56,339,333 56,339,333 384,731,533 14.64%
Series 1994-1, Class A-
4...................... 56,339,333 56,339,333 384,731,533 14.64%
</TABLE>
- --------
(1) Includes mortgage loans not contained in Underlying Mortgage Pools.
S-34
<PAGE>
With respect to two of the Mortgage Certificates (which have an aggregate
Mortgage Certificate Principal Amount as of the Cut-off Date of $161,156,917),
the Mortgage Loan Trustee will effect a transfer of funds in the related
Underlying Series Reserve Fund, to the extent available, on each Underlying
Series Distribution Date to the extent that the Mortgage Pool Available
Distribution Amount for any Mortgage Pool and any allocable Crossover Amounts
are less than the related Mortgage Certificate Interest Distribution Amount
for the related class of Mortgage Certificates and the amount of interest
distributable to the Related Subordinated Certificates and Pool Principal
Distribution Amount. With respect to four of the Mortgage Certificates (which
have an aggregate Mortgage Certificate Principal Amount as of the Cut-off Date
of $371,057,168), the Mortgage Loan Trustee will be required to effect a
transfer of funds in the related Underlying Series Reserve Fund, to the extent
available, on each Underlying Series Distribution Date in an amount equal to
any realized losses sustained with respect to Mortgage Loans in the related
Mortgage Pools in the related Prepayment Period, only to the extent that any
resulting shortfalls in the related Mortgage Certificate Interest Distribution
Amounts and related Pool Principal Distribution Amounts are not covered out of
distributions in respect of Excess Cash on such Distribution Date. With
respect to the remaining Mortgage Certificates (the "Excess Cash Preservation
Certificates"), the Mortgage Loan Trustee will be required to effect a
transfer of funds in the related Underlying Series Reserve Fund, to the extent
available, on each Underlying Series Distribution Date in an amount equal to
any realized losses sustained with respect to Mortgage Loans in the related
Mortgage Pools in the related Prepayment Period.
If the funds available in any Underlying Series Reserve Fund on any
Underlying Series Distribution Date are insufficient to pay the full amounts
due with respect to all related classes of Certificates on such Underlying
Series Distribution Date, such funds will be paid to the holders of the
Mortgage Certificates and the senior certificates related to the other
mortgage pools covered by such Underlying Series Reserve Fund in proportion to
the respective shortfalls of each such class that would be caused by the
insufficiency of amounts available absent a transfer of funds from such
Underlying Series Reserve Fund.
None of the Underlying Series Reserve Funds have been allocated on a pro
rata basis among the related mortgage pools. Rather, distributions from each
Underlying Series Reserve Fund, to the extent of funds available therein, will
be made without regard to the order, frequency or magnitude of the losses and
other shortfalls on mortgage loans in each covered mortgage pool.
Disproportionate losses or delinquencies in the mortgage pools covered by the
Underlying Series Reserve Funds that are not Underlying Mortgage Pools could
deplete the coverage provided for the Mortgage Certificates by such Underlying
Series Reserve Funds. Consequently, an Underlying Series Reserve Fund may be
unavailable on an Underlying Series Distribution Date to offset Covered
Amounts with respect to a class of Mortgage Certificates even though the
amount of the losses and other shortfalls experienced by the related
Underlying Mortgage Pool may have been proportionately less than that
experienced by the other covered mortgage pools.
The terms of each Collateral Security Agreement require the related
collateral agent to release funds in the related Underlying Series Reserve
Funds to the RTC under certain circumstances related to the delinquency and
loss experience of the related mortgage loans if the balance on deposit in
such Underlying Series Reserve Funds exceeds the "Reserve Fund Requirement" as
such term is variously defined in the related Collateral Security Agreements
and described in the related Underlying Disclosure Documents.
Each Collateral Security Agreement provides that, with the approval of the
related rating agencies, and at the option of the RTC, the related Underlying
Series 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.
SUBORDINATION
After the coverage provided to each of the Mortgage Certificates by the
related Underlying Reserve Funds has been depleted, additional coverage
against losses and other shortfalls on the related Mortgage Loans will be
provided to each class of Mortgage Certificates by the subordination of the
class or classes of Related
S-35
<PAGE>
Subordinated Certificates. In general, the protection afforded to the Mortgage
Certificates by the subordination of any Related Subordinated Certificates
will be effected in two ways: (i) by the preferential right of the Mortgage
Certificates to receive distributions on any Underlying Series Distribution
Date after the depletion of the related Underlying Series Reserve Fund and
(ii) by the allocation of losses on the related Mortgage Loans first to such
Related Subordinated Certificates until the principal balances thereof have
been reduced to zero prior to the allocation of any such losses to the
Mortgage Certificates. In addition, because of the application of Excess Cash
to reduce the Mortgage Certificate Principal Balance of the Mortgage
Certificates and because of the application of Excess Cash to reduce the
principal balance of the Related Subordinated Certificates, the aggregate
principal balance of the Mortgage Loans in each of the Underlying Mortgage
Pool exceeds the sum of the principal balances of the Mortgage Certificates
and Related Subordinated Certificates related thereto. Such excess is
hereinafter referred to as "Overcollateralization." Such Overcollateralization
provides additional credit support to the holders of the Mortgage
Certificates. The following table indicates the current aggregate principal
balance of the class or classes of Related Subordinated Certificates for each
class of Mortgage Certificates, the percentage of the aggregate principal
balance of the Mortgage Loans contained in the related Underlying Trust Fund
represented thereby, the amount of Overcollateralization with respect to each
Underlying Mortgage Pool and the percentage of the aggregate principal balance
of the Mortgage Loans contained in the related Underlying Trust Fund
represented thereby.
BALANCES OF RELATED SUBORDINATED CERTIFICATES
(BASED ON NOVEMBER 1995 REMITTANCE REPORTS)
<TABLE>
<CAPTION>
CURRENT AGGREGATE
PRINCIPAL BALANCE PERCENTAGE PERCENTAGE OF
OF RELATED OF RELATED RELATED
SUBORDINATED UNDERLYING OVERCOLLAT- UNDERLYING
MORTGAGE CERTIFICATES CERTIFICATES MORTGAGE POOL ERALIZATION MORTGAGE POOL
- --------------------- ----------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Series 1992-1, Class A-
1...................... $ 42,524,000 21.66% $ 7,848,677 4.00%
Series 1992-4, Class A-
2...................... 54,878,347 14.62% 5,907,650 1.57%
Series 1992-6, Class A-
3...................... 43,362,768 17.17% 143 0.00%
Series 1992-7, Class A-
3...................... 11,917,284 12.90% 2,182 0.00%
Series 1992-8, Class A-
3...................... 17,659,214 13.36% 765 0.00%
Series 1992-9, Class A-
4...................... 17,480,313 11.09% 6,198,380 3.93%
Series 1992-10, Class A-
2...................... 10,333,010 14.65% 491 0.00%
Series 1992-10, Class A-
3...................... 5,682,174 7.73% 586 0.00%
Series 1992-10, Class A-
5...................... 6,027,062 26.70% 767 0.00%
Series 1992-11, Class A-
2...................... 21,601,000 10.45% 854 0.00%
Series 1992-11, Class A-
4...................... 4,045,000 9.60% 580 0.00%
Series 1992-12, Class A-
3...................... 14,227,133 6.88% 200 0.00%
Series 1992-14, Class A-
4...................... 1,456,000 16.62% 982 0.01%
Series 1992-14, Class A-
5...................... 13,690,682 17.64% 290 0.00%
Series 1992-15, Class A-
4...................... 12,867,000 12.40% 803 0.00%
Series 1992-15, Class A-
6...................... 2,538,000 10.71% 849 0.00%
Series 1992-16, Class A-
4...................... 27,560,512 21.58% 370 0.00%
Series 1992-16, Class A-
5...................... 47,264,922 23.16% 467 0.00%
Series 1993-3, Class A-
7...................... 25,388,725 13.81% 1,559,225 0.85%
Series 1994-1, Class A-
3...................... 65,947,229 32.25% 213 0.00%
Series 1994-1, Class A-
4...................... 11,465,835 30.00% 753 0.00%
------------ ----- ----------- ----
Total/Weighted Average.. $457,916,208 14.20% $21,525,229 0.60%
============ ===========
</TABLE>
SPECIAL TERMINATION
With respect to each Underlying Series, subject to the limitations imposed
by the related Underlying Pooling Agreement, by no later than the tenth
business day after the first Underlying Series Distribution Date on which
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<PAGE>
the aggregate outstanding principal balance of all related classes of
certificates is less than 25% of the initial related aggregate principal
balance of such certificates, the related Mortgage Loan Trustee will solicit
bids for the related mortgage loans (including the Mortgage Loans contained in
the related Underlying Mortgage Pools) and any other property remaining in the
related Trust Fund. The related Mortgage Loan Trustee, however, will not
accept any bid for such mortgage loans and other property unless certain
minimum requirements are met, including that the proceeds distributable as a
result of such sale would be at least equal to 100% of the then outstanding
aggregate principal balance of all related classes of certificates plus
accrued interest thereon through the applicable Interest Accrual Period. The
sale of the mortgage loans and any other property in any Underlying Trust Fund
must be for an amount no less than fair market value. If the proceeds from a
proposed sale of any mortgage loans and any other property remaining in any
Underlying Trust Fund would be insufficient to satisfy the requirements of the
two preceding sentences, the related Mortgage Loan Trustee will continue to
solicit bids as described above from time to time as it deems appropriate,
until a bid satisfying the requirements of the two preceding sentences is
received. The proceeds of such sale will be treated as a prepayment of the
mortgage loans for purposes of distributions to Certificateholders. Any such
sale will effect a termination (a "Special Termination") of the related
Underlying Trust Fund and an early retirement of the related certificates
(including the related Mortgage Certificates). Any resulting distribution on a
class of Mortgage Certificates will increase the amount distributable on the
Class A-1 Certificates in respect of principal and will result in a shortening
in the weighted average life thereof. There can be no assurance as to the
timing of Special Terminations with respect to the Mortgage Certificates. Such
terminations could occur for none, for only some, or for all of the Mortgage
Certificates, and any such terminations could occur prior to the November 28,
2000 Distribution Date on the Class A-1 Certificates.
OPTIONAL TERMINATION
With respect to each Underlying Series, any of the related Mortgage Loan
Servicers, any holder of a related residual certificate or the owner of the
assets pledged to any reserve fund (including the related Underlying Reserve
Fund) may effect an early termination of the related trust on any Underlying
Series Distribution Date after the date on which the aggregate scheduled
principal balance of the related mortgage loans is reduced to less than 10% of
the aggregate scheduled principal balance as of the related Underlying Series
Cut-off Date, by purchasing all such mortgage loans at a purchase price,
payable in cash, equal to 100% of the aggregate unpaid principal balance of
such mortgage loans plus one month's interest thereon at the applicable
mortgage interest rate. The proceeds of such sale will be treated as a
prepayment of the mortgage loans for purposes of distributions to
certificateholders. Any such sale will effect a termination of the related
Underlying Trust Fund and an early retirement of the related Certificates
(including the related Mortgage Certificates). Any resulting distribution on a
class of Mortgage Certificates will increase the amount distributable on the
Class A-1 Certificates in respect of principal and will result in a shortening
in the weighted average life thereof. Such terminations could occur for none,
for only some, or for all of the Mortgage Certificates, and any such
terminations could occur prior to the November 28, 2000 Distribution Date on
the Class A-1 Certificates.
ASSIGNMENT OF MORTGAGE LOANS AND WARRANTIES
At the time of issuance of each Underlying Series, the RTC caused the
mortgage loans in the related Underlying Trust Fund to be assigned to the
related Mortgage Loan Trustee, together with all principal and interest due on
or with respect to such mortgage loans, other than principal and interest due
on or before the related Underlying Series Cut-off Date. The Depositor has no
information as to whether the RTC has complied with its obligations under any
Underlying Pooling Agreement.
In addition, the RTC delivered to the related Mortgage Loan Trustee, as to
each related mortgage loan (to the extent such documents were available to the
RTC), (i) the related mortgage note, endorsed to the order of, or assigned to,
the related Mortgage Loan Trustee without recourse; (ii) a mortgage and
mortgage assignment meeting the requirements of the related Underlying Pooling
Agreement; (iii) a lender's title insurance policy or attorney's opinion of
title issued as of the date of origination of the mortgage loan, or an
officer's certificate to the effect that such policy or opinion was issued on
such date and remains in full force and effect; (iv) any
S-37
<PAGE>
insurance policies covering the mortgaged property, including the primary
mortgage insurance policy, to the extent required; and (v) such other
documents as may be described in the related Underlying Pooling Agreement
(such documents collectively, the "Mortgage Loan File"). The applicable
Mortgage Loan Trustee is required to hold such documents for each Underlying
Series in trust for the benefit of all certificateholders of such Underlying
Series. In a substantial number of cases, some or all of the documents
described above were not delivered by the RTC to the related Mortgage Loan
Trustees as of the closing dates for the related Underlying Series.
In the related Underlying Pooling Agreement for each Underlying Series, the
RTC represented and warranted, among other things, that: (i) the information
set forth in the schedule of Mortgage Loans appearing as an exhibit to the
related Underlying Pooling Agreement was correct in all material respects;
(ii) immediately prior to the sale and assignment of the related mortgage
loans to the applicable Mortgage Loan Trustee, the RTC had good title to each
mortgage loan; (iii) each mortgage loan, other than any co-op loan, was
covered by a title insurance policy or an attorney's opinion of title and each
such policy was in full force and effect; (iv) to the best of the RTC's
knowledge, each mortgaged property was free of material damage and in good
repair; (v) as of the date of issuance of the related certificates, each
mortgage constituted a valid first lien on the related mortgaged property
(subject only to (a) the lien of current real property taxes and assessments,
(b) covenants, conditions, and restrictions, rights of way, easements, and
other matters of public record as of the date of the recording of such
mortgage, such exceptions appearing of record and either being acceptable to
mortgage lending institutions generally or specifically referred to in the
related title insurance policy and which do not adversely affect the value of
the mortgaged property and (c) other matters to which like properties are
commonly subject that do not materially interfere with the benefits of the
security intended to be provided by the Mortgage); and (vi) as of the date of
initial issuance of the related certificates, there were no delinquent taxes,
assessments or other outstanding charges affecting the mortgaged properties.
In addition, the RTC represented and warranted in each related Underlying
Pooling Agreement, among other things, that, as of the date of the initial
issuance of the related certificates, all Monthly Payments due on or prior to
a date which was not longer, with respect to any Underlying Series, than four
months prior to the related Underlying Series Cut-off Date had been made. The
sole remedy for any breach of the RTC's representations and warranties
contained in each related Underlying Pooling Agreement or for defects in
mortgage loan documents is the obligation of the RTC to indemnify the related
Underlying Trust Fund for losses realized on mortgage loans as to which such
breaches or defects occur if there is a connection between such losses and
such breaches or defects. Subject to certain exceptions as set forth in the
Underlying Disclosure Documents, the RTC acting in its corporate capacity will
guarantee such obligation of the Seller. The proceeds of any such repurchase
or indemnification will be passed through to related certificateholders as
liquidation proceeds.
PAYMENTS ON MORTGAGE LOANS; UNDERLYING SERIES CERTIFICATE ACCOUNT
The Underlying Pooling Agreement for each Underlying Series requires the
related Mortgage Loan Servicer to maintain a custodial account or accounts
(the "Underlying Series Certificate Account") in the name of the related
Mortgage Loan Trustee for the benefit of the related certificateholders. The
amount at any time credited to the Underlying Series Certificate Account is
required to be fully insured to the maximum coverage possible or be invested
in permitted investments (as defined in the Underlying Disclosure Documents)
that mature, or are subject to withdrawal or redemption, on or before the
business day preceding the next succeeding Underlying Series Distribution
Date. The income from permitted investments of funds in the Underlying Series
Certificate Account is generally paid to the related Mortgage Loan Servicer,
and the risk of loss of funds in the Underlying Series Certificate Account
resulting from such investments will be borne by the related Mortgage Loan
Servicer. The amount of each such loss will be required to be deposited by the
related Mortgage Loan Servicer in the Underlying Series Certificate Account
immediately as realized.
The Mortgage Loan Servicers are required to deposit in the related
Certificate Accounts amounts representing the following collections and
payments (other than in respect of principal of or interest on the related
mortgage loans due on or before the Underlying Series Cut-off Date): (i) all
installments of principal and interest
S-38
<PAGE>
on the applicable mortgage loans and any principal and/or interest required to
be advanced by the related Mortgage Loan Servicer that was due on the
applicable Due Date net of servicing fees due the related Mortgage Loan
Servicer and certain other amounts specified in the applicable Underlying
Pooling Agreement; (ii) all amounts received in respect of such mortgage loans
representing late payments of principal and interest to the extent such
amounts were not previously advanced by the related Mortgage Loan Servicer
with respect to such mortgage loans, net of servicing fees due the related
Mortgage Loan Servicer; (iii) all principal prepayments (whether full or
partial) on such mortgage loans received; and (iv) any amounts received by the
related Mortgage Loan Servicer as insurance proceeds (to the extent not
applied to the repair or restoration of the Mortgaged Property) or liquidation
proceeds.
COLLECTION AND OTHER SERVICING PROCEDURES
The Mortgage Loan Servicers are required to make reasonable efforts to
collect all payments called for under the mortgage loans and are required,
consistent with the Underlying Pooling Agreements and any applicable insurance
policies, to follow such collection procedures as each deems necessary or
desirable. Consistent with the above, each Mortgage Loan Servicer may, in its
discretion, waive any prepayment, late payment or assumption charge or penalty
interest in connection with prepayment, late payment or assumption of a
mortgage loan or extend the due dates for payments due on a mortgage note,
provided that insurance coverage for such mortgage loan will not be adversely
affected.
ADVANCES
With respect to 12 classes of Mortgage Certificates (which have an aggregate
Mortgage Certificate Principal Amount as of the Cut-off Date of $877,252,901),
the Mortgage Loan Servicers are required under the related Underlying Pooling
Agreement to advance prior to each Underlying Series Distribution Date, from
their own funds or from funds held in the related Certificate Accounts for
distribution on a future Underlying Series Distribution Date, scheduled
installments of principal and interest due on a mortgage loan on the preceding
Due Date and not collected by such Mortgage Loan Servicer from the related
borrower (any such advance, an "Advance"). Each such Mortgage Loan Servicer
will be obligated to make such an advance to the extent that such Advances
are, in its judgment, reasonably recoverable from future payments and
collections on the Mortgage Loan out of insurance proceeds, liquidation
proceeds or otherwise. Any advance previously made by such Mortgage Loan
Servicer is reimbursable to such Mortgage Loan Servicer from funds in the
Certificate Account to the extent that such Mortgage Loan Servicer determines
that such advance is not ultimately recoverable from insurance proceeds,
liquidation proceeds or otherwise. With respect to each Mortgage Certificate,
the related Mortgage Loan Trustee will generally be obligated to make any
required Advance if the Mortgage Loan Servicer fails in its obligation to do
so, to the extent provided in the related Underlying Pooling Agreement.
With respect to the remaining nine classes of Mortgage Certificates, neither
the related Mortgage Loan Servicer nor the related Mortgage Loan Trustee will
be required to make Advances. The amount of any delinquent Monthly Payments
with respect to related Mortgage Loans is instead withdrawn from the related
Underlying Reserve Fund, to the extent funds are available therefor, in order
to make full distributions on the related Mortgage Certificates and Related
Subordinated Certificates.
MORTGAGE LOAN TRUSTEE AND COLLATERAL AGENT
With respect to the majority of the Underlying Series, the Mortgage Loan
Trustee and Collateral Agent is Bankers Trust Company of California, N.A., a
national banking association organized and existing under the laws of the
United States of America with an office at 3 Park Plaza, Irvine, California
92714. With respect to Series 1992-1, the Mortgage Loan Trustee and Collateral
Agent is State Street Bank and Trust Company, a banking corporation organized
and existing under the laws of the Commonwealth of Massachusetts with an
office at 225 Franklin Street, Boston, Massachusetts 02110. With respect to
Series 1994-1, the Mortgage Loan Trustee and
S-39
<PAGE>
Collateral Agent is the First National Bank of Chicago, a national banking
organization organized and existing under the laws of the United States of
America, with an office at 153 West 51st Street, 8th Floor, New York, New York
10019.
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
As of the Cut-off Date, the Mortgage Certificates represented approximately
$1,278,320,095 of the beneficial interest in 21 separate Underlying Mortgage
Pools which, in turn, were comprised of mortgage loans having an aggregate
principal balance as of such date of approximately $2,800,946,169. The
Mortgage Loans in each Underlying Mortgage Pool are adjustable rate,
conventional, one-to-four family residential first mortgage loans having
approximately the characteristics set forth in the table below. The related
mortgaged properties include owner-occupied, vacation and investor-owned
properties, condominiums, cooperatives, and units in Planned Unit
Developments. With respect to some of the Mortgage Loans, the type of the
related mortgaged property was unknown as of the date of issuance of the
related Mortgage Certificates. Investors are urged to review the information
concerning the Mortgage Loans set forth in each of the Underlying Disclosure
Documents. Such information may not have been accurate when prepared (See
"Special Considerations--Troubled Originators" and "--Limited Information;
Incomplete Mortgage Files" herein). The information regarding the Mortgage
Loans set forth herein (including in the tables below) is based on information
contained in the Underlying Disclosure Documents and on other information made
available in connection with the issuance of each of the Mortgage
Certificates. In addition, the information contained in the assumed Mortgage
Certificate Characteristics table is derived from information made available
in connection with the issuance of each of the Mortgage Certificates. IT
SHOULD BE NOTED THAT THERE MAY HAVE BEEN MATERIAL CHANGES IN FACTS AND
CIRCUMSTANCES SINCE THE DATE SUCH DOCUMENTS AND INFORMATION WERE PREPARED,
INCLUDING, BUT NOT LIMITED TO, PREVAILING INTEREST RATES AND OTHER ECONOMIC
FACTORS, WHICH MAY LIMIT THE USEFULNESS OF, AND EVEN BE DIRECTLY CONTRARY TO
THE ASSUMPTIONS USED IN PREPARING SUCH INFORMATION AND DOCUMENTS. In addition,
the Underlying Disclosure Documents do not provide information sufficient to
determine the concentration of Mortgage Loans exhibiting many of the
characteristics described herein. Neither the Depositor nor the Certificate
Administrator can provide any assurances as to the accuracy or completeness of
such information.
S-40
<PAGE>
SELECTED MORTGAGE LOAN DATA
(BASED ON NOVEMBER 1995 REMITTANCE REPORTS)
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CURRENT AGGREGATE MORTGAGE INTEREST
MORTGAGE LOAN RATE AS OF THE
MORTGAGE CERTIFICATES PRINCIPAL BALANCE CUT-OFF DATE
--------------------- ----------------- -----------------
<S> <C> <C>
Series 1992-1, Class A-1............... $196,327,745 8.600%
Series 1992-4, Class A-2............... 375,470,345 8.582
Series 1992-6, Class A-3............... 252,486,090 8.493
Series 1992-7, Class A-3............... 92,393,718 8.508
Series 1992-8, Class A-3............... 132,184,516 8.522
Series 1992-9, Class A-4............... 157,684,810 8.562
Series 1992-10, Class A-2.............. 70,523,464 7.585
Series 1992-10, Class A-3.............. 73,494,922 7.132
Series 1992-10, Class A-5.............. 22,569,480 8.494
Series 1992-11, Class A-2.............. 206,674,875 8.381
Series 1992-11, Class A-4.............. 42,118,654 7.822
Series 1992-12, Class A-3.............. 206,889,255 8.637
Series 1992-14, Class A-4.............. 8,762,360 8.390
Series 1992-14, Class A-5.............. 77,589,699 8.501
Series 1992-15, Class A-4.............. 103,738,382 8.322
Series 1992-15, Class A-6.............. 23,697,915 7.225
Series 1992-16, Class A-4.............. 127,703,614 8.636
Series 1992-16, Class A-5.............. 204,041,360 7.590
Series 1993-3, Class A-7............... 183,889,344 8.414
Series 1994-1, Class A-3............... 204,486,311 8.489
Series 1994-1, Class A-4............... 38,219,311 8.575
</TABLE>
Interest Rate Adjustments. Each Mortgage Loan bears interest at a rate (the
"Mortgage Interest Rate") that adjusts periodically, in accordance with the
terms of the related mortgage note, to a rate equal to the then-current Index
(as defined herein) plus the applicable fixed percentage specified in the
related mortgage note (the "Gross Margin"). Mortgage Loans for which COFI (as
defined herein) is the Index are referred to herein as "COFI Mortgage Loans."
Mortgage Loans for which CMT or CBE (each as defined herein) is the Index are
referred to herein as "CMT Mortgage Loans." The Mortgage Interest Rate for
each Mortgage Loan generally began to adjust on the first day of the month
prior to the first six-month or one-year anniversary of its first payment date
and then monthly, semi-annually or annually thereafter (each a "Rate
Adjustment Date"). The interest rate on all of the COFI Mortgage Loans adjusts
monthly.
The majority of the Mortgage Loans are subject to an overall maximum
interest rate (the "Lifetime Cap"). For the COFI Mortgage Loans which are
subject to a Lifetime Cap, as of the Underlying Series Cut-off Date for each
Underlying Series, the Lifetime Cap ranged from 10.75% to 18.249% and the
weighted average Lifetime Cap for such Mortgage Loans ranged from 12.48% to
14.39%. For the CMT Mortgage Loans which are subject to a Lifetime Cap, as of
the Underlying Series Cut-off Date for each Underlying Series, the Lifetime
Cap ranged from 5% to 29.5% and the weighted average Lifetime Cap for such
Mortgage Loans ranged from 13.76% to 15.59%. Some of the Mortgage Loans are
subject to minimum interest rates. In addition to the Lifetime Cap, many of
the Mortgage Loans are also subject to periodic maximum interest rates (the
"Periodic Cap"). The Periodic Cap for such Mortgage Loans generally ranges
from 1% to 2%.
Effective with the first payment due on a Mortgage Loan after the related
Rate Adjustment Date, the monthly principal and interest payment generally
will be adjusted to an amount that will fully amortize the then-outstanding
principal balance of such Mortgage Loan over its remaining term to stated
maturity and that will be
S-41
<PAGE>
sufficient to pay interest at the adjusted Mortgage Interest Rate. Therefore,
any partial prepayments may reduce the weighted average life of a Mortgage
Loan but will not (except for partial prepayments made in the final year of
the original term of such Mortgage Loan) cause the final payment on such
Mortgage Loan to occur prior to its stated maturity. An increase in the
Mortgage Interest Rate on a Mortgage Loan will result in a larger portion of
each higher Monthly Payment being allocated to interest and a smaller portion
being allocated to principal.
COFI, CMT AND CBE
The "Index" with respect to each COFI Mortgage Loan is the monthly weighted
average cost of funds for member institutions in the Eleventh District of the
Federal Home Loan Bank System, as published by the Federal Home Loan Bank of
San Francisco ("COFI"). The Index with respect to each CMT Mortgage Loan
generally is either (a) the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity ("CMT") of one year or (b) the weekly auction
average (investment) rate on U.S. Treasury Bills with a six-month maturity
("CBE"), each as published by the Federal Reserve Board in Statistical Release
H.15 (519) or any similar publication or, if not so published, as reported by
any Federal Reserve Bank or by any U.S. Government department or agency and
made available to the servicer as of a date which is a number of days prior to
each Rate Adjustment Date for such Mortgage Loan. Some of the Mortgage Loans
use a CMT index based on a 2, 3 or 5 year maturity. In general, should the
applicable Index not be published or become otherwise unavailable, the
servicer of the Mortgage Loan will select a comparable alternative index over
which it has no control and which is readily verifiable.
The monthly averages of CMT and CBE in the tables below are not necessarily
indicative of CMT or CBE on any given date in the relevant month since
significant week-to-week fluctuations in any such Index may occur in any month
as well as over longer periods. In addition, such monthly averages do not
purport to be a prediction of the value of CMT or CBE on any Rate Adjustment
Date or for the lives of the Mortgage Loans.
COFI. The following table sets forth COFI for each of the last six calendar
years or portions thereof, based on information reported by The Federal Home
Loan Bank of San Francisco ("FHLBSF");
MONTHLY COFI
<TABLE>
<CAPTION>
YEAR
----------------------------------
MONTH(1) 1995 1994 1993 1992 1991 1990
-------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
January.................................. 4.75% 3.71% 4.36% 6.00% 7.86% 8.37%
February................................. 4.93 3.69 4.33 5.80 7.85 8.40
March.................................... 5.01 3.63 4.25 5.61 7.65 8.26
April.................................... 5.06 3.67 4.17 5.43 7.50 8.21
May...................................... 5.14 3.73 4.10 5.29 7.33 8.17
June..................................... 5.18 3.80 4.05 5.26 7.16 8.09
July..................................... 5.14 3.86 4.00 5.07 7.00 8.11
August................................... 5.13 3.95 3.96 4.87 6.85 8.08
September................................ 5.11 4.04 3.88 4.81 6.71 8.09
October.................................. 5.12 4.19 3.82 4.60 6.57 8.05
November................................. -- 4.37 3.82 4.51 6.41 8.04
December................................. -- 4.59 3.88 4.43 6.25 7.96
</TABLE>
- --------
(1) COFI reflects the weighted average cost of funds of the members of the
Eleventh District for the month indicated. It is usually announced by the
FHLBSF on the last working day of the month following the month in which
the cost of funds was incurred.
S-42
<PAGE>
The FHLBSF publishes COFI in its monthly Information Bulletin. Any
individual may request regular receipt by mail of Information Bulletins by
writing the Federal Home Loan Bank of San Francisco's Marketing Department,
P.O. Box 7948, San Francisco, California 94120, or by calling (415) 616-2610.
COFI may also be obtained by calling the FHLBSF at (415) 616-2600.
COFI is designed to represent the monthly weighted average cost of funds for
savings institutions in Arizona, California and Nevada that are member
institutions of the Eleventh Federal Home Loan Bank District (the "Eleventh
District"). COFI for a particular month reflects the interest costs paid on
all types of funds held by Eleventh District member institutions and is
calculated by dividing the cost of funds by the average of the total amount of
those funds outstanding at the end of that month and of the prior month and
annualizing and adjusting the result to reflect the actual number of days in
the particular month. If necessary, before these calculations are made, the
component figures are adjusted by the FHLBSF to neutralize the effect of
events such as member institutions leaving the Eleventh District or acquiring
funds held at the end of the relevant month. The major components of funds of
Eleventh District member institutions are: (i) savings deposits, (ii) time
deposits, (iii) FHLBSF advances, (iv) repurchase agreements and (v) all other
borrowings. Because the component funds represent a variety of maturities
whose costs may react in different ways to changing conditions, COFI does not
necessarily reflect any particular current market rate.
A number of factors affect the performance of COFI, which may cause it to
move in a manner different from indices tied to specific interest rates, such
as United States Treasury Bills or LIBOR. Because the liabilities upon which
COFI is based were issued at various times under various market conditions and
with various maturities, COFI may not necessarily reflect the prevailing
market interest rates on new liabilities of similar maturities. Moreover, as
stated above, COFI is designated to represent the average cost of funds for
Eleventh District savings institutions for the month prior to the month in
which it is due to be published. Additionally, COFI may not necessarily move
in the same direction as market interest rates at all times, since as longer
term deposits or borrowings mature and are renewed at prevailing market
interest rates, COFI is influenced by the differential between the prior and
the new rates on those deposits or borrowings. In addition, movements of COFI,
as compared to other indices tied to specific interest rates, may be affected
by changes instituted by the FHLBSF in the method used to calculate COFI.
CMT. The following table sets forth the monthly averages of CMT for each of
the last six calendar years or portions thereof, based on information
published in the Federal Reserve Board in Statistical Release H.15 (519):
MONTHLY AVERAGES OF CMT
<TABLE>
<CAPTION>
YEAR
----------------------------------
MONTH 1995 1994 1993 1992 1991 1990
----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
January.................................. 7.05% 3.54% 3.50% 4.15% 6.64% 7.92%
February................................. 6.70 3.87 3.39 4.29 6.27 8.11
March.................................... 6.43 4.32 3.33 4.63 6.40 8.35
April.................................... 6.27 4.82 3.24 4.30 6.24 8.40
May...................................... 6.00 5.31 3.36 4.19 6.13 8.32
June..................................... 5.64 5.27 3.54 4.17 6.36 8.10
July..................................... 5.59 5.48 3.47 3.60 6.31 7.94
August................................... 5.75 5.56 3.44 3.47 5.78 7.78
September................................ 5.62 5.76 3.36 3.18 5.57 7.76
October.................................. 5.59 6.11 3.39 3.30 5.33 7.55
November................................. -- 6.54 3.58 3.68 4.89 7.31
December................................. -- 7.14 3.61 3.71 4.38 7.05
</TABLE>
S-43
<PAGE>
Convertible Mortgage Loans. Under the terms of certain of the Mortgage
Loans, the borrower has the option at certain times and under certain
conditions to convert the Mortgage Interest Rate to a fixed rate from a
variable rate based on the applicable Index (each such loan, a "Convertible
Mortgage Loan"). The option to convert to a fixed Mortgage Interest Rate may
be exercised by the borrower on the date or dates specified in the related
note. The borrower's option to convert to a fixed Mortgage Interest Rate may
have expired with respect to certain of the Convertible Mortgage Loans. The
conversion option typically may not be exercised if the borrower is in default
under the terms of the related note or mortgage. In most cases, the
Convertible Mortgage Loan may be converted to a fixed interest rate loan with
a Mortgage Interest Rate based upon FNMA's or FHLMC's required net yield for
the purchase of 15-year (for Mortgage Loans with original repayment terms of
15 years or less) or 30-year (for Mortgage Loans with original repayment terms
of greater than 15 years) fixed-rate mortgage loans, under 30-day or 60-day
mandatory delivery commitments. In either case, the fixed interest rate will
be computed by adding a specified margin to the applicable FNMA quotation or
the applicable FHLMC quotation. Upon conversion, the Monthly Payments of
principal and interest generally will be adjusted to provide for fully
amortizing, level Monthly Payments until maturity.
The Underlying Pooling Agreements applicable to the Mortgage Loans provide
that the Mortgage Loan Servicers will be obligated to purchase any Mortgage
Loan as to which the borrower exercises the right to convert to a fixed
Mortgage Interest Rate for a price equal to 100% of the unpaid principal
balance of such Mortgage Loan plus unpaid accrued interest at the applicable
Mortgage Interest Rate. The Mortgage Loan Servicer's purchase obligation is
not insured or guaranteed by any person. The proceeds of any such purchased
converted Mortgage Loan will be treated as a prepayment and will be passed
through to the Trustee, as holder of the related Mortgage Certificates. A
converted Mortgage Loan bearing a fixed Mortgage Interest Rate will remain in
the Mortgage Pool until purchased or repaid. Any failure to purchase a
converted Mortgage Loan would cause the related Underlying Mortgage Pool to
include both fixed rate and adjustable rate Mortgage Loans.
Balloon Mortgage Loans. Certain of the Mortgage Loans are Balloon Mortgage
Loans. A "Balloon Mortgage Loan" is a Mortgage Loan that provided on the date
of origination for amortization on the basis of an amortization schedule
extending beyond its stated maturity with a disproportionate Monthly Payment
due on its stated maturity date equal to the remaining principal balance of
such Mortgage Loan. The ability of a borrower to repay such a Balloon Mortgage
Loan upon the maturity thereof frequently will depend on the borrower's
ability to refinance such Balloon Mortgage Loan, which in turn will depend on
a variety of factors, including the prevailing level of Mortgage interest
rates.
Negative Amortization Mortgage Loans. The Monthly Payment on a Mortgage Loan
is adjusted after an initial period and at periodic intervals thereafter, all
as specified in the related note (each, a "Payment Change Date"), generally to
an amount that would fully amortize the remaining principal balance of the
Mortgage Loan over its remaining amortization term on a level-debt service
basis, at the Mortgage Interest Rate in effect on the related Payment Change
Date. However, with respect to certain of the Mortgage Loans, increases in the
Monthly Payment may be limited by the terms of the related note (the "Payment
Adjustment Cap"), which generally provides that no Monthly Payment may
increase by more than a percentage, specified in the related note, above the
Monthly Payment in effect during the preceding period. With respect to certain
of the Mortgage Loans, application of the Payment Adjustment Cap will be at
the option of the borrower.
In addition, with respect to the COFI Mortgage Loans, as to which interest
rates adjust monthly, because the rate at which interest accrues changes more
frequently than payments adjust and because adjustment of Monthly Payments on
such Mortgage Loans may be subject to the various limitations described above,
the amount of interest accruing on the remaining principal balance of such a
Mortgage Loan at the applicable Mortgage Interest Rate may exceed the amount
of the interest portion of the Monthly Payment. The resulting shortfall in the
interest portion of the related Monthly Payment will be added to the unpaid
principal balance of the related Mortgage Loan in the month during which any
such shortfall occurs as "Deferred Interest," resulting in negative
amortization of the Mortgage Loan. With respect to such Mortgage Loans
negative amortization is generally limited, however, such that the principal
balance of the Mortgage Loan cannot generally exceed the percentage of its
original principal balance specified in the applicable note. If the calculated
Monthly Payment
S-44
<PAGE>
would result in negative amortization exceeding the limit specified in the
related note, the borrower generally is required to pay as the Monthly Payment
until the next Payment Change Date an amount that would fully amortize the
remaining principal balance of the Mortgage Loan over its remaining
amortization term on a level-debt service basis without regard to any
limitations. As a result of such negative amortization, the final payment at
the end of the term of the related Mortgage Loan may be larger than previous
Monthly Payments under such Mortgage Loan.
Non-Monthly Payment Loans. Certain of the Mortgage Loans may provide for
payments of principal at biweekly, quarterly, semiannual or annual intervals,
rather than at monthly intervals.
Graduated Payment Mortgage Loans. Certain of the Mortgage Loans may provide
for an initial period of Monthly Payments in an amount that would be
insufficient to fully amortize the principal balance of the Mortgage Loan over
its stated term, and that may be insufficient to pay accrued interest,
followed by scheduled increasing Monthly Payments prior to a date specified in
the related note. To the extent the amount of interest accruing on the
principal balance of such a Mortgage Loan at the applicable Mortgage Interest
Rate exceeds the Monthly Payment, such excess will be added to the unpaid
principal balance of the related Mortgage Loan, resulting in negative
amortization.
MORTGAGE LOAN DELINQUENCY STATUS
The following table summarizes the monthly delinquency, foreclosure and REO
information for the Mortgage Loans contained in each of the Underlying
Mortgage Pools for November 1995. The information in the following table has
been prepared by the Depositor solely on the basis of the remittance reports
provided by the Mortgage Loan Trustees, and the Depositor makes no
representations as to its accuracy. Investors should consider the risk that
any of the delinquent Mortgage Loans may become defaulted loans and
subsequently liquidated loans, and that realized losses on such Mortgage Loans
may be allocated to the Mortgage Certificates. Defaults by mortgagors on the
Mortgage Loans may result in the failure of Mortgage Certificates on a given
Underlying Series Distribution Date to receive full payments in respect of
interest or principal.
S-45
<PAGE>
DELINQUENCY STATUS
<TABLE>
<CAPTION>
DELINQUENCIES AS PERCENT OF POOL BALANCE
------------------------------------------
NOVEMBER 1995 30 DAYS 60 DAYS 90+ DAYS FORECLOSURE REO
------------- ------- ------- -------- ----------- -----
<S> <C> <C> <C> <C> <C>
Series 1992-1, Class A-1(1)..... 3.65% 1.58% 1.32% 3.77% 1.54%
Series 1992-4, Class A-2........ 2.31% 0.56% 0.56% 2.85% NA
Series 1992-6, Class A-3........ 1.75% 0.67% 0.23% 3.50% 0.65%
Series 1992-7, Class A-3........ 4.20% 0.77% 0.31% 4.01% NA
Series 1992-8, Class A-3........ 2.13% 0.45% 1.48% 2.80% 1.01%
Series 1992-9, Class A-4........ 2.45% 0.63% 0.30% 4.26% 1.54%
Series 1992-10, Class A-2....... 2.20% 0.76% 0.22% 0.35% 0.62%
Series 1992-10, Class A-3....... 1.05% 0.33% 0.30% 1.58% 0.43%
Series 1992-10, Class A-5....... 2.51% 0.60% 0.59% 0.41% 0.38%
Series 1992-11, Class A-2....... 2.18% 0.25% 1.33% 1.50% NA
Series 1992-11, Class A-4....... 3.30% 2.14% 3.82% 4.06% NA
Series 1992-12, Class A-3....... 2.70% 0.66% 0.28% 2.12% 0.73%
Series 1992-14, Class A-4....... 2.14% 0.00% 0.00% 0.00% 0.00%
Series 1992-14, Class A-5....... 2.54% 0.82% 0.13% 0.84% 0.79%
Series 1992-15, Class A-4....... 3.26% 0.34% 0.57% 0.00% NA
Series 1992-15, Class A-6....... 3.49% 0.00% 1.41% 0.00% NA
Series 1992-16, Class A-4....... 0.83% 0.00% 1.74% 4.30% 3.19%
Series 1992-16, Class A-5....... 1.05% 0.25% 1.06% 3.75% 2.55%
Series 1993-3, Class A-7........ 3.07% 1.13% 0.47% 1.92% 0.63%
Series 1994-1, Class A-3........ 2.92% 0.82% 0.81% 3.22% 0.00%
Series 1994-1, Class A-4........ 4.17% 0.15% 0.17% 1.30% 0.00%
</TABLE>
- --------
(1) Reflects the average delinquencies for Mortgage Loans in the related
Mortgage Pool and mortgage loans in two other mortgage pools in the same
underlying Trust Fund.
YIELD AND PREPAYMENT CONSIDERATIONS
Prepayments and Excess Cash. The rate of principal payments on the Class A-1
Certificates will be affected by the rate of principal payments on the
Mortgage Loans (including, for this purpose, prepayments, which may include
amounts received by virtue of condemnation, insurance or foreclosure) and by
the application of Excess Cash to the principal balance of the Mortgage
Certificates.
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, 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 above the interest rates
on such Mortgage Loans, the rate of prepayments would be expected to decrease.
Other factors affecting prepayment of the Mortgage Loans include changes in
borrowers' housing needs, job transfers, unemployment, borrowers' net equity
in the mortgaged properties and servicing decisions.
All of the Mortgage Loans are adjustable rate mortgage loans ("ARMs"). The
Depositor is not aware of any publicly available statistics that set forth
principal prepayment experience or prepayment forecasts of ARMs over an
extended period of time. The prepayment experience of the Mortgage
Certificates is insufficient to draw any conclusions with respect to the
expected prepayment rates of the Mortgage Loans. The rate of principal
prepayments with respect to ARMs has fluctuated in recent years. As is the
case with conventional fixed rate mortgage loans, ARMs may be subject to a
greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates fall significantly,
ARMs could be subject to higher prepayment rates than if prevailing interest
rates remain constant because the availability of fixed rate mortgage loans at
competitive interest rates may encourage mortgagors to refinance their ARMs to
"lock in" a lower fixed interest rate. No assurances can be given as to the
rate of prepayments on the Mortgage Loans in stable or changing interest rate
environments.
S-46
<PAGE>
Excess Cash related to each of the Underlying Mortgage Pools (and other
mortgage pools that are part of the Underlying Trust Funds) will be allocated
in reduction of the Mortgage Certificate Principal Balances of the
Certificates in various ways. See "The Mortgage Certificates--Principal
Distributions." The allocation of Excess Cash in reduction of the Underlying
Certificate Principal Balances of the Mortgage Certificates is not expected to
have a significant effect on the weighted average lives of the Class A-1
Certificates.
If a Class A-1 Certificate is purchased at a discount from its initial
principal amount by a purchaser that calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is faster than
that actually experienced on the Mortgage Loans, the actual yield to maturity
will be lower than that so calculated. Similarly, if a Certificate is
purchased at a premium by a purchaser that calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is slower than
that actually experienced on the Mortgage Loans, the actual yield to maturity
will be lower than that so calculated.
Timing of Payments. The timing of changes in the rate of prepayments on the
Mortgage Loans may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments is consistent with an
investor's expectations. In general, the earlier a prepayment of principal of
the 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 Certificates may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
Basis Risk; LIBOR. The interest rate payable to the Holders of the Class A-1
Certificates is based on LIBOR. However, the Mortgage Loans bear interest at
adjustable rates based COFI, CMT and CBE (the "Indices"). LIBOR and the
Indices may respond to different economic and market factors, and there is not
necessarily a correlation between them. Thus, it is possible, for example,
that LIBOR may rise during periods in which the Indices of the Mortgage Loans
are stable or are falling, or that even if both LIBOR and the Indices rise
during the same period, LIBOR may rise much more rapidly and sharply than the
Indices. THERE CAN BE NO ASSURANCE THAT FUNDS AVAILABLE IN THE RESERVE FUND
PAYMENTS UNDER THE YIELD SUPPORT AGREEMENT WILL BE SUFFICIENT TO MAKE UP ANY
AMOUNT BY WHICH THE INTEREST COLLECTED ON THE MORTGAGE CERTIFICATES IS LESS
THAN THE INTEREST ACCRUAL AMOUNT OF THE CLASS A-1 CERTIFICATES.
Mortgage Certificates. The Trust Fund contains Mortgage Certificates which
were issued at different times, are backed by different pools of Mortgage
Loans, have different allocations of principal and interest and payment
priorities among various classes, and may perform differently in various
interest and prepayment rate environments. The performance characteristics of
the Class A-1 Certificates will reflect a combination of the performance
characteristics of the various Mortgage Certificates. As a result, it will be
difficult to predict the likely yield and payment experience of the Class A-1
Certificates.
Special Terminations. Each of the Underlying Mortgage Pools is subject to
termination as described under "Description of the Mortgage Certificates--
Special Termination." Any such termination may have the effect of decreasing
the weighted average life of the Class A-1 Certificates.
Auction Risk. There can be no assurances that the Trustee will, on November
28, 2000 or on any date thereafter, be able to sell the Mortgage Certificates
for a price sufficient (together with amounts on deposit in the Reserve Fund)
to allow the Class A-1 Certificates to be paid in full prior to their stated
maturity.
Convertible ARM Loans. As discussed above under "Description of the Mortgage
Loans," borrowers under certain of the Mortgage Loans have the option to
convert their Mortgage Loan to a fixed rate loan. As previously discussed, the
related Mortgage Loan Servicers are obligated to purchase any such converted
mortgage loans. Unless and until such a purchase is effected, a converted
mortgage loan will stay in the Underlying Mortgage Pool and the Mortgage
Interest Rate will be fixed rather than based on an Index. The yield on the
Class A-1 Certificates may thus be adversely affected. In addition, the
purchase of a Converted Mortgage
S-47
<PAGE>
Loan may affect the rate of principal payments on the Class A-1 Certificates
and, as a result, the yield on such Certificates.
WEIGHTED AVERAGE LIVES
The weighted average life of a security refers to the average amount of time
that will elapse from the date of its issuance until each dollar of principal
of such security will be distributed to the investor. The weighted average
life of a Class A-1 Certificate is determined by (a) multiplying the amount of
the reduction, if any, of the principal balance of such Certificate from one
Distribution Date (or, in the case of the first distribution, from December
15, 1995) to the next Distribution Date by the number of years from the date
of issuance to the second such Distribution Date, (b) summing the results and
(c) dividing the sum by the aggregate amount of the reductions in the
principal balance of such Certificate referred to in clause (a). The weighted
average lives of the Class A-1 Certificates will be influenced by, among other
factors, the rate at which principal is paid on the Mortgage Loans.
CPR MODEL
Prepayments on mortgage loans are commonly measured relative to a prepayment
or model. The model used in this Prospectus Supplement, known as a conditional
or a constant prepayment rate ("CPR"), represents a rate of payment of
unscheduled principal on the Mortgage Loans expressed as an annualized
percentage of the outstanding principal balance of the Mortgage Loans at the
beginning of each period. CPR does not purport to be a historical description
of prepayment experience or a prediction of the anticipated rate of prepayment
of any pool of mortgage loans, including the Mortgage Loans.
WEIGHTED AVERAGE LIFE AND PRE-TAX YIELD TABLES
For each of the following tables it was assumed (the "Modeling Assumptions")
that (i) the Mortgage Loans underlying each of the Mortgage Certificates have,
on a weighted average basis, the characteristics set forth in the following
table following this paragraph; (ii) each Mortgage Loan underlying a Mortgage
Certificate has a Mortgage Interest Rate as of the Cut-off Date, remaining
term to maturity and loan age equivalent to the weighted average mortgage
interest rate of such Mortgage Loans, the weighted average remaining term to
maturity and the weighted average loan age of such Mortgage Loans as of the
Cut-off Date, as reported, respectively, in the applicable Remittance Reports
prepared by the Mortgage Loan Servicers; (iii) scheduled monthly payments of
principal and interest on the Mortgage Loans will be timely received on the
first day of each month (with no defaults); (iv) principal prepayments on the
Mortgage Loans will be received on the last day of each month at the
percentages of CPR indicated; (v) all amounts due with respect to the Mortgage
Loans are applied to the payment of the Mortgage Certificates on the 25th of
the month as described in the applicable Underlying Disclosure Documents; (vi)
no Deferred Interest accrues with respect to any Mortgage Loan; (vii) for the
first Interest Accrual Period, the Class A-1 Pass-Through Rate is 6.175%;
(viii) the Closing Date is December 15, 1995; (ix) each quarterly distribution
on the Class A-1 Certificates is made on the 28th day of the relevant month,
commencing on February 28, 1996; and (x) the Class A-1 Certificates are
purchased at par.
S-48
<PAGE>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
WEIGHTED MORTGAGE
AVERAGE SERVICING CERTIFICATE MONTHS
MORTGAGE FEE PLUS PASS- UNTIL NEXT
INTEREST EXCESS PERIODIC NET THROUGH REMAINING GROSS NET RATE
MORTGAGE CERTIFICATES INDEX RATE RATE CAP CAP SEASONING RATE TERM MARGIN MARGIN ADJUSTMENT
- --------------------- -------- -------- --------- -------- ------ --------- ----------- --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series 1992-1,
Class A-1....... 1 YR CMT 8.600 0.925 1.939 13.425 7.1 7.675 20.3 2.796 1.871 11
Series 1992-4,
Class A-2....... 1 YR CMT 8.582 0.825 2.000 13.785 4.1 7.757 20.9 2.750 1.925 7
Series 1992-6,
Class A-3....... 1 YR CMT 8.493 0.697 1.844 13.471 8.1 7.796 20.9 2.639 1.942 12
Series 1992-7,
Class A-3....... 1 YR CMT 8.508 0.959 2.000 13.441 4.0 7.549 25.8 2.730 1.771 12
Series 1992-8,
Class A-3....... 1 YR CMT 8.522 0.815 1.943 13.433 3.4 7.707 20.6 2.789 1.974 7
Series 1992-9,
Class A-4....... 1 YR CMT 8.562 0.971 2.000 13.429 3.3 7.591 21.5 2.721 1.750 8
Series 1992-10,
Class A-2....... COFI 7.585 0.591 2.000 12.869 8.8 6.994 21.1 2.442 1.851 1
Series 1992-10,
Class A-3....... COFI 7.132 0.601 1.777 12.768 8.2 6.531 21.5 2.449 1.848 3
Series 1992-10,
Class A-5....... 1 YR CMT 8.494 1.155 1.972 14.400 9.9 7.339 20.0 2.826 1.671 7
Series 1992-11,
Class A-2....... 1 YR CMT 8.381 0.649 1.956 13.510 8.6 7.732 20.8 2.652 2.003 5
Series 1992-11,
Class A-4....... COFI 7.822 0.850 1.093 12.962 7.3 6.972 22.5 2.790 1.940 1
Series 1992-12,
Class A-3....... 1 YR CMT 8.637 0.840 1.922 13.748 3.2 7.797 20.3 2.801 1.961 9
Series 1992-14,
Class A-4....... 1 YR CMT 8.390 0.629 2.000 13.567 8.9 7.761 20.6 2.708 2.079 6
Series 1992-14,
Class A-5....... 1 YR CMT 8.500 0.709 2.000 14.444 9.7 7.790 19.8 2.770 2.061 6
Series 1992-15,
Class A-4....... 1 YR CMT 8.322 0.610 1.778 13.777 9.3 7.712 18.4 2.570 1.960 6
Series 1992-15,
Class A-6....... COFI 7.225 0.783 1.310 12.194 8.5 6.442 20.9 2.254 1.471 5
Series 1992-16,
Class A-4....... 1 YR CMT 8.636 0.875 1.986 13.649 6.5 7.761 23.3 2.891 2.016 4
Series 1992-16,
Class A-5....... COFI 7.590 0.425 5.196 13.389 6.5 7.165 23.6 2.473 2.048 1
Series 1993-3,
Class A-7....... 1 YR CMT 8.414 0.375 2.000 14.505 9.0 8.039 20.2 2.627 2.252 7
Series 1994-1,
Class A-3....... 1 YR CMT 8.489 0.375 1.958 13.827 7.2 8.114 22.1 2.846 2.471 6
Series 1994-1,
Class A-4....... 3 YR CMT 8.575 0.375 2.035 14.379 7.3 8.200 22.3 2.581 2.206 19
<CAPTION>
MONTHS
UNTIL NEXT
PAYMENT
MORTGAGE CERTIFICATES ADJUSTMENT
- --------------------- ----------
<S> <C>
Series 1992-1,
Class A-1....... 6
Series 1992-4,
Class A-2....... 7
Series 1992-6,
Class A-3....... 12
Series 1992-7,
Class A-3....... 12
Series 1992-8,
Class A-3....... 3
Series 1992-9,
Class A-4....... 8
Series 1992-10,
Class A-2....... 5
Series 1992-10,
Class A-3....... 3
Series 1992-10,
Class A-5....... 7
Series 1992-11,
Class A-2....... 5
Series 1992-11,
Class A-4....... 2
Series 1992-12,
Class A-3....... 6
Series 1992-14,
Class A-4....... 11
Series 1992-14,
Class A-5....... 13
Series 1992-15,
Class A-4....... 6
Series 1992-15,
Class A-6....... 4
Series 1992-16,
Class A-4....... 4
Series 1992-16,
Class A-5....... 5
Series 1993-3,
Class A-7....... 7
Series 1994-1,
Class A-3....... 6
Series 1994-1,
Class A-4....... 19
</TABLE>
S-49
<PAGE>
Based on the Modeling Assumptions and the further assumptions that (i) LIBOR
with respect to each Interest Accrual Period is equal to 5.875%, (ii) CMT with
respect to each Interest Accrual Period is equal to 5.4314%, (iii) COFI with
respect to each Interest Accrual Period is equal to 5.1110% and (iv) the
Reinvestment Rate with respect to each Interest Accrual Period is equal to
5.3125, the following table indicates the percentages of the initial Principal
Balance of the Class A-1 Certificates that would be outstanding after each of
the dates shown at various constant percentages of CPR. Such tables also
indicate, based on such assumptions, the weighted average life of the Class A-
1 Certificates under each of the following four scenarios (the "Termination
Scenarios") concerning the Auction and Special Terminations of the Underlying
Series. See "Description of the Certificates--Mandatory Auction" and "The
Mortgage Certificates--Special Termination."
"Termination Scenario I" assumes that the Auction that occurs in November
2000 is successful and the Class A-1 Certificates are retired on November
28, 2000 and that Special Terminations do not occur with respect to any of
the Underlying Series prior to November 25, 2000.
"Termination Scenario II" assumes that the Auction that occurs in
November 2000 is successful and the Class A-1 Certificates are retired on
November 28, 2000 and that Special Terminations occur prior to November 25,
2000 with respect to each of the Underlying Series as to which the
aggregate outstanding principal balance of all related classes of
certificates is reduced to 25% or less of their original aggregate
principal balance prior to such date.
"Termination Scenario III" assumes that the Auctions that occur in
November 2000 and thereafter are not successful and that the Class A-1
Certificates are not retired prior to their Final Scheduled Distribution
Date and that Special Terminations do not occur with respect to any of the
Underlying Series.
"Termination Scenario IV" assumes that the Auctions that occur in
November 2000 and thereafter are not successful and that the Class A-1
Certificates are not retired prior to their Final Scheduled Distribution
Date and that Special Terminations occur with respect to each of the
Underlying Series on the dates on which the aggregate outstanding principal
balance of all related classes of certificates are reduced to 25% or less
of their original aggregate principal balances.
S-50
<PAGE>
PERCENT OF ORIGINAL PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1
CPR PREPAYMENT ASSUMPTION
----------------------------
DISTRIBUTION DATE 0% 12% 15% 18% 21% 24% 30%
----------------- ---- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percent.................................... 100 100 100 100 100 100 100
November 1996...................................... 97 83 80 77 73 70 63
November 1997...................................... 95 69 64 58 53 47 38
November 1998...................................... 92 57 50 43 36 30 20
November 1999...................................... 89 46 38 30 23 17 8
November 2000...................................... 86 36 28 20 13 8 1
November 2001...................................... 82 28 19 11 6 2 0
November 2002...................................... 78 19 10 4 1 0 0
November 2003...................................... 73 11 3 1 0 0 0
November 2004...................................... 68 4 1 0 0 0 0
November 2005...................................... 63 1 0 0 0 0 0
November 2006...................................... 54 1 0 0 0 0 0
November 2007...................................... 43 0 0 0 0 0 0
November 2008...................................... 31 0 0 0 0 0 0
November 2009...................................... 20 0 0 0 0 0 0
November 2010...................................... 12 0 0 0 0 0 0
November 2011...................................... 7 0 0 0 0 0 0
November 2012...................................... 3 0 0 0 0 0 0
November 2013...................................... 1 0 0 0 0 0 0
November 2014...................................... 1 0 0 0 0 0 0
November 2015...................................... 0 0 0 0 0 0 0
Weighted Average Life(1)
Termination Scenario I........................... 4.6 3.3 3.0 2.7 2.5 2.2 1.8
Termination Scenario II.......................... 4.6 2.5 2.1 1.8 1.6 1.5 1.2
Termination Scenario III......................... 10.5 4.1 3.5 3.0 2.6 2.3 1.8
Termination Scenario IV.......................... 7.8 2.6 2.2 1.9 1.6 1.5 1.2
</TABLE>
- --------
(1) The weighted average life of a Class A-1 Certificate is determined by (i)
multiplying the principal payment on the Class A-1 Certificates by the
number of years from the date of issuance of the Class A-1 Certificate to
the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the aggregate principal payments on the Class A-1 Certificates.
S-51
<PAGE>
The following tables set forth, based upon the Modeling Assumptions, and
assuming the constant rate of CPR indicated in the heading for each table, the
projected yield to maturity, on a corporate bond equivalent basis, and the
projected Principal Balance of the Class A-1 Certificates as of November 28,
2000.
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO I
<TABLE>
<CAPTION>
PERCENT OF CPR
----------------------------------------
12% 18% 24%
------------ ------------ ------------
<S> <C> <C> <C>
Yield to Maturity............... 8.2% 8.2% 8.2%
Outstanding Principal Balance as
of 11/28/2000.................. $482,000,000 $266,300,000 $107,900,000
</TABLE>
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO II
<TABLE>
<CAPTION>
PERCENT OF CPR
----------------------------------------
12% 18% 24%
------------ ------------ ------------
<S> <C> <C> <C>
Yield to Maturity............... 8.2% 8.2% 8.2%
Outstanding Principal Balance as
of 11/28/2000.................. $479,900,000 $264,900,000 $107,200,000
</TABLE>
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO III
<TABLE>
<CAPTION>
PERCENT OF CPR
----------------------------------------
12% 18% 24%
------------ ------------ ------------
<S> <C> <C> <C>
Yield to Maturity............... 8.1% 8.0% 7.9%
Outstanding Principal Balance as
of 11/28/2000.................. $475,300,000 $261,700,000 $105,600,000
</TABLE>
Each of the Rate Scenarios assumes that the levels of LIBOR, COFI and CMT
rise significantly above current levels. The actual yield to an investor will
be significantly lower if the actual levels of such indices fall, remain
constant, or rise less than the amounts assumed in the Rate Scenarios. No
prediction can be made as to the actual level of any such index at any future
date.
The yields set forth in the above table were calculated by determining the
monthly discount rates which, when applied to the assumed stream of cash flows
to be paid on the Class A-1 Certificates, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed purchase price
of the Class A-1 Certificates indicated in the Modeling Assumption above and
converting such monthly rates to corporate bond equivalent rates. Such
calculation does not take into account variations that may occur in the
interest rates at which investors may be able to reinvest funds received by
them as payments of principal of and interest on the Class A-1 Certificates
and consequently does not purport to reflect the return of any investment in
the Class A-1 Certificates when such reinvestment rates are considered.
ACTUAL EXPERIENCE WILL VARY FROM ASSUMPTIONS
Discrepancies will exist between the characteristics of the actual Mortgage
Certificates and the underlying Mortgage Loans and the characteristics assumed
therefor in preparing the tables contained herein. To the extent that the
Mortgage Certificates and Mortgage Loans have characteristics which differ
from those assumed in preparing the tables, the Class A-1 Certificates may
mature earlier or later than indicated by the tables and the weighted average
lives and pre-tax yields may also differ. In addition, it is unlikely that the
Mortgage Loans will prepay at any constant rate or at the same rate, or that
LIBOR will remain constant at any level. The timing of changes in the rate of
prepayment and level of LIBOR may significantly affect the yield realized by a
holder of the Class A-1 Certificates.
S-52
<PAGE>
THE MORTGAGE LOAN SERVICERS
The names of the Mortgage Loan Servicers related to each of the Mortgage
Certificates are set forth in the following table:
MORTGAGE LOAN SERVICERS
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES SERVICER
--------------------- --------
<S> <C>
Series 92-1, Class A 1.............. Ryland Mortgage Company
Series 92-4, Class A-2.............. Ryland Mortgage Company
Series 92-6, Class A 3.............. First Nationwide Bank, F.S.B.
Series 92-7, Class A 3.............. Chase Manhattan Mortgage Corporation
Series 92-8, Class A 3.............. Boatmen's National Mortgage Inc.
Series 92-9, Class A-4.............. First Nationwide Bank, F.S.B.
Series 92-10, Class A-2............. Ryland Mortgage Company
Series 92-10, Class A 3............. Ryland Mortgage Company
Series 92-10, Class A-5............. Ryland Mortgage Company
Series 92-11, Class A-2............. Lomas Mortgage, USA
Series 92-11, Class A-4............. Lomas Mortgage, USA
Series 92-12, Class A 3............. GMAC Mortgage Corporation of Iowa
Series 92-14, Class A-4............. Ryland Mortgage Company
Series 92-14, Class A-5............. Ryland Mortgage Company
Series 92-15, Class A-4............. Lomas Mortgage, USA
Series 92-15, Class A-6............. Lomas Mortgage, USA
Series 92-16, Class A-4............. Boatmen's National Mortgage Inc.
Series 92-16, Class A-5............. Boatmen's National Mortgage Inc.
Series 93-3, Class A-7.............. Boatmen's National Mortgage Inc.
Series 94-1, Class A 3.............. Boatmen's National Mortgage Inc.
Series 94-1, Class A-4.............. Boatmen's National Mortgage Inc.
</TABLE>
Lomas Mortgage, USA. Lomas Mortgage, USA ("Lomas") is a wholly-owned
subsidiary of Lomas Financial Corporation. In October 1995, Lomas filed for
federal bankruptcy protection. Also in October 1995, Lomas Financial filed its
second bankruptcy petition in four years. Lomas has reached a tentative
agreement to sell its servicing rights and assets to First Nationwide Mortgage
Corporation, pending approval in bankruptcy proceedings.
Ryland Mortgage Company. A federal grand jury began an investigation into
allegations that current and former officers of Ryland Mortgage Company
("RMC") misappropriated $3 million from the RTC in connection with loans which
RMC was servicing on the RTC's behalf.
The preceding information with respect to the Mortgage Loan Servicers was
derived by the Depositor from publicly available information which the
Depositor believes to be reliable. However, the Depositor makes no
representations with respect thereto and assumes no responsibility for the
accuracy or completeness thereof.
THE RESOLUTION TRUST CORPORATION
The Resolution Trust Corporation (the "RTC") is an instrumentality of the
United States organized as a government corporation. The RTC was established
on August 9, 1989, by the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (as amended from time to time, "FIRREA")
for the purpose of managing and resolving all cases involving depository
institutions formerly insured by the Federal Savings and Loan Insurance
Corporation and for which a conservator or receiver was appointed under
federal law at any time from January 1, 1989 to September 30, 1993. The
principal office of the RTC is located at 801 17th Street, N.W., Washington,
D.C. 20429.
S-53
<PAGE>
The RTC has been appointed as conservator or receiver with respect to a
large number of depository institutions, including each of the Depository
Institutions from one or more of which the Mortgage Loans in each Underlying
Pool was acquired.
The RTC is scheduled to terminate on December 31, 1996, and by operation of
law the FDIC will succeed the RTC as conservator or receiver of any
institutions for which the RTC is then acting in such capacity. FIRREA
provides that, at the time of such termination, all assets and liabilities of
the RTC will be transferred to the FSLIC Resolution Fund (the "FRF"). FIRREA
created the FRF as a separate fund to be managed by the FDIC, and transferred
to the FRF all assets and liabilities of the former Federal Savings and Loan
Insurance Corporation. FIRREA provides that, if certain other specified funds
are insufficient to satisfy the liabilities of the FRF, the Secretary of the
Treasury shall pay to the FRF such amounts as may be necessary for FRF
purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. An election will be made to treat the portion of the Trust Fund
consisting of the Mortgage Certificates as a REMIC for federal income tax
purposes. The payments on the Class A-1 Certificates which are derived from
the Mortgage Certificates, and the Class IO Certificates, will be designated
as regular interests in the REMIC, and the Class R Certificate will be
designated as the residual interest in the REMIC.
A purchaser of the Class A-1 Certificates will be treated for tax purposes
as purchasing a REMIC regular interest and a contractual right to receive
amounts from the Reserve Fund. Under general tax principles, a purchaser of
more than one asset must allocate its purchase price between the assets based
on their relative fair market values on the date of purchase. An investor that
disposes of its Class A-1 Certificates must make a similar allocation of its
amount realized.
The Certificate Administrator intends to treat the value of the contractual
right to receive payments from the Reserve Fund as de minimis. Consequently,
the Certificate Administrator intends to report assuming that the entire
purchase price for the Class A-1 Certificates is allocated to the REMIC
regular interest. Based on this assumption, it is anticipated that the REMIC
regular interest will be issued [at a premium] [with de minimis original issue
discount] for federal income tax purposes. An investor in the Class A-1
Certificates that accounts for its investment using this method of allocation
would report amounts with respect to the Reserve Fund and Yield Support
Agreement as income when received or accrued, in accordance with such
investor's regular method of tax accounting.
The Internal Revenue Service may contend, however, that a portion of the
purchase price paid by an investor in the Class A-1 Certificates should be
allocated to the investor's rights with respect to the Reserve Fund. Under
this approach, the investor would allocate a lesser amount of its purchase
price to the REMIC regular interest than described in the preceding paragraph,
which may result in the creation of, or a greater amount of, original issue
discount or market discount with respect to the REMIC regular interest. The
proper method of recovery of the investor's purchase price allocated to its
contractual rights with respect to the Reserve Fund is not clear. Although not
free from doubt, the contractual arrangement relating to the Reserve Fund
should constitute a "notional principal contract" for federal income tax
purposes. Investors should consult their own tax advisors regarding an
investment in the Class A-1 Certificates, in particular with respect to the
recovery of any purchase price allocated to such notional principal contract.
Status of Class A-1 Certificates. The investment status of that portion of
the Class A-1 Certificates that constitutes a REMIC regular interest is
described in the Prospectus under "Certain Federal Income Tax Consequences--
REMIC Trust Funds--Characterization of Investments in REMIC Certificates." The
interest of an investor in the Class A-1 Certificates relating to the Reserve
Fund would not constitute:
. a "real estate asset" under Section 856(c)(5)(A) of the Internal Revenue
Code (the "Code") if held by a real estate investment trust;
S-54
<PAGE>
. a "qualified mortgage" under Code Section 860G(a)(3) or a "permitted
investment" under Code Section 860G(a)(5) if held by a REMIC; or
. an asset described in Code Section 7701(a)(19)(C) if held by a thrift.
Income received from the Reserve Fund will not constitute income described in
Code Section 856(c)(3)(B) for a real estate investment trust.
Taxation of REMIC Regular Interest. The portion of the Class A-1
Certificates which constitutes a REMIC regular interest generally will be
treated as a newly originated debt instrument for federal income tax purposes.
Beneficial Owners of the Class A-1 Certificates will be required to report
income with respect to such REMIC regular interest in accordance with the
accrual method of accounting. The Prepayment Assumption (as defined in the
Prospectus) that the Certificate Administrator intends to use in determining
the rate of accrual of original issue discount or premium is 18% CPR. No
representation is made as to the actual rate at which prepayments will occur.
Taxation of Foreign Investors. To the extent the contractual arrangement
relating to the Reserve Fund constitutes a notional principal contract, income
or gain thereon will not be subject to U.S. withholding tax.
See "Certain Federal Income Tax Consequences--General" and "--REMIC Trust
Funds" in the Prospectus.
ERISA CONSIDERATIONS
The Department of Labor has granted to First Boston an individual
administrative exemption Prohibited Transaction Exemption 89-90, 54 Fed. Reg.
42597 (Oct. 17, 1989) (the "Exemption"), from certain of the prohibited
transaction rules of ERISA and certain related excise taxes imposed by the
Code with regard to the initial purchase, the holding and the subsequent
resale by ERISA Plans of certificates in pass-through trusts that meet the
conditions and requirements of the Exemption. The Exemption should apply to
the liquidation, holding, and resale of the Class A-1 Certificates by an ERISA
Plan, provided that specified conditions (certain of which are described
below) are met.
Among the conditions which must be satisfied for the Exemption to apply to
the acquisition by an ERISA Plan of the Class A-1 Certificates are the
following: (1) the acquisition of the Certificates by an ERISA Plan is on
terms (including the price for such Certificates) that are at least as
favorable to the ERISA 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 ERISA Plan are not subordinated to the rights and
interests evidenced by other certificates of the Trust; (3) the Certificates
acquired by the ERISA Plan have received a rating at the time of such
acquisition that is in one of the three highest generic rating categories from
any of S&P, Fitch, Duff & Phelps Credit Rating Co. or Moody's; (4) the sum of
all payments made to First Boston in connection with the distribution of the
Class A-1 Certificates represents not more than reasonable compensation for
underwriting such Certificates; and (5) the sum of all payments made to and
retained by the Certificate Administrator represents not more than reasonable
compensation for the Certificate Administrator's services under the Pooling
Agreement and reimbursement of the Certificate Administrator's reasonable
expenses in connection therewith.
In addition, it is a condition that the ERISA Plan investing in the Class A-
1 Certificates be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act.
The Exemption does not apply to the acquisition and holding of Class A-1
Certificates by ERISA Plans sponsored by the Issuer, First Boston, the
Trustee, the Certificate Administrator, or any affiliate of such parties.
Moreover, the Exception provides relief from certain self-dealing/conflict of
interest prohibited transactions, only if, among other requirements (i) an
ERISA Plan's investment in the Class A-1 Certificates does not exceed 25% of
all of that Class outstanding at the time of the acquisition and (ii)
immediately after the acquisition, no more
S-55
<PAGE>
than 25% of the assets of an ERISA Plan with respect to which the person who
has discretionary authority or renders advice are invested in certificates
representing an interest in a trust containing assets sold or serviced by the
same person.
USE OF PROCEEDS
The proceeds from the sale of the Class A-1 Certificates (net of expenses
incurred in connection with the issuance of the Class A-1 Certificates) will
be used by the Depositor to purchase the Mortgage Certificates.
LEGAL INVESTMENT CONSIDERATIONS
The Class A-1 Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so
long as they are rated in one of the two highest rating categories by at least
one nationally recognized statistical rating organization. As such, the Class
A-1 Certificates will constitute legal investments for certain entities to the
extent provided in SMMEA. However, institutions subject to the jurisdiction of
the Office of the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, the Office
of Thrift Supervision, the National Credit Union Administration or other
federal or state banking, insurance or other regulatory authorities should
review applicable rules, policies and guidelines of such authorities before
purchasing any of the Class A-1 Certificates, as such Certificates may be
deemed to be unsuitable investments, or may otherwise be restricted, under one
or more of these rules, policies and guidelines (in certain cases irrespective
of SMMEA). It should also be noted that certain states have enacted
legislation limiting to varying extent the ability of certain entities (in
particular insurance companies) to invest in "mortgage related securities."
The appropriate characterization of the Class A-1 Certificates under various
legal investment restrictions, and thus the ability of investors subject to
these restrictions to purchase Class A-1 Certificates, may be subject to
significant interpretive uncertainties. Investors should consult with their
own legal advisors in determining whether and to what extent the Class A-1
Certificates constitute legal investments for such investors. See "Legal
Investment" in the Prospectus.
METHOD OF DISTRIBUTION
First Boston proposes to place the Class A-1 Certificates from time to time
in one or more negotiated transactions, or otherwise, at varying prices to be
determined in each case, at the time of sale. The Class A-1 Certificates are
offered subject to prior sale and acceptance and to certain other conditions.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and First Boston
by Cadwalader, Wickersham & Taft, New York, New York.
RATINGS
It is a condition to the issuance of the Class A-1 Certificates that such
Certificates be rated "Aaa" by Moody's and "AAAr" by S&P.
The ratings of Moody's and S&P on mortgage pass-through certificates address
the likelihood of the receipt by holders hereof of all distributions of
principal and interest to which such holders are entitled. THE RATING AGENCIES
NOTE THAT THE ENTITLEMENT OF THE CLASS A-1 CERTIFICATES TO INTEREST AT A RATE
IN EXCESS OF THE QUARTERLY MORTGAGE CERTIFICATE PASS-THROUGH RATE IS SUBJECT
TO THE AVAILABILITY OF INTEREST AVAILABLE FUNDS. There is no assurance that
such ratings will continue for any period of time or that they will not be
S-56
<PAGE>
revised or withdrawn entirely by such rating agency if, in its judgment,
circumstances so warrant. A revision or withdrawal of such ratings may have an
adverse effect on the market price of the Class A-1 Certificates. A security
rating is not a recommendation to buy, sell or hold securities.
Moody's and S&P's rating opinions address the structural, legal and issuer
aspects associated with the certificates, including the nature of the
underlying mortgage assets and the credit quality of the credit support
provider, if any. Moody's and S&P's ratings on pass-through certificates do
not represent any assessment of the likelihood that principal prepayments may
differ from those originally anticipated and consequently the timing of such
prepayments may adversely affect an investor's anticipated yield.
Neither ratings of S&P nor the ratings of Moody's represent any assessment
of the Mortgage Loan Servicers' ability to repurchase any Convertible Mortgage
Loans that are converted to fixed Mortgage Interest Rates; S&P has so
indicated by appending "r" to its ratings of the Class A-1 Certificates.
The Depositor has not requested a rating on the Certificates from any other
rating agency, although data with respect to the Mortgage Loans or the
Mortgage Certificates may have been provided to other agencies solely for
their informational purposes. There can be no assurance that if a rating is
assigned to the Class A-1 Certificates by any other rating agency, such rating
will be as high as that assigned by Moody's or S&P.
S-57
<PAGE>
INDEX
<TABLE>
<S> <C>
--A--
Advance.................................................................... S-39
All or Nothing Bids........................................................ S-23
ARMs....................................................................... S-46
Auction.................................................................... S- 7
Auction Date............................................................... S-23
--B--
Balloon Mortgage Loan...................................................... S-44
Balloon Payment............................................................ S-32
Beneficial Owner........................................................... S-24
Book-Entry Certificates.................................................... S-17
Breakage Fee............................................................... S-23
--C--
CBE........................................................................ S- 9
Cede....................................................................... S-24
Certificate Account........................................................ S-26
Certificateholder.......................................................... S- 2
Certificates............................................................... S- 1
Class A-1 Pass-Through Rate................................................ S- 5
Class IO Pass-Through Rate................................................. S- 5
CMT........................................................................ S- 9
CMT Mortgage Loans......................................................... S-41
Code....................................................................... S-12
COFI....................................................................... S- 9
COFI Mortgage Loans........................................................ S- 9
Collateral Security Agreement.............................................. S-34
Collection Period.......................................................... S- 6
Concentration.............................................................. S-15
Convertible Mortgage Loan.................................................. S-44
Co-op Loans................................................................ S-20
Covered Amounts............................................................ S-34
CPR........................................................................ S-48
Current Reserve Fund Balance............................................... S-34
--D--
Deferred Interest.......................................................... S-32
Definitive Certificate..................................................... S-24
Depositor.................................................................. S- 1
Depository Institution..................................................... S-13
Distribution Date.......................................................... S- 4
DTC Participants........................................................... S-24
Due Date................................................................... S-30
Due Period................................................................. S-30
--E--
Eleventh District.......................................................... S-43
ERISA...................................................................... S-12
Excess Cash................................................................ S-46
Excess Cash Preservation Certificates...................................... S-35
Excess Rate................................................................ S-31
Exemption.................................................................. S-55
</TABLE>
<TABLE>
<S> <C>
--F--
FHLBSF..................................................................... S-42
FIRREA..................................................................... S-53
First Boston............................................................... S- 1
Fitch...................................................................... S-23
--G--
Gross Margin............................................................... S-41
--I--
Index...................................................................... S-42
Indices.................................................................... S-14
Indirect DTC Participants.................................................. S-24
Initial Deposits........................................................... S-34
Interest Available Funds................................................... S-18
Interest Shortfall Amount.................................................. S- 4
--L--
Lease...................................................................... S-15
LIBOR...................................................................... S- 1
Lifetime Cap............................................................... S-41
Line Item Bids............................................................. S-23
Lomas...................................................................... S-53
--M--
Modeling Assumptions....................................................... S-48
Monthly Payment............................................................ S-32
Moody's.................................................................... S- 7
Mortgage Certificate Balance............................................... S-19
Mortgage Certificate Interest Accrual Period............................... S-31
Mortgage Certificate Interest Distribution Amount.......................... S-30
Mortgage Certificates...................................................... S- 1
Mortgage Interest Rate..................................................... S-41
Mortgage Loan File......................................................... S-38
Mortgage Loan Servicer..................................................... S-27
Mortgage Loan Trustee...................................................... S-27
Mortgage Loans............................................................. S- 9
Mortgage Pool Available Distribution Amount................................ S-30
</TABLE>
S-58
<PAGE>
<TABLE>
<S> <C>
--O--
Original Reserve Fund Balance.............................................. S-34
Overcollateralization...................................................... S-36
--P--
Payment Adjustment Cap..................................................... S-44
Payment Change Date........................................................ S-44
Percentage Interest........................................................ S-17
Periodic Cap............................................................... S-41
Plan....................................................................... S-12
Pool Principal Distribution Amount......................................... S-32
Pooling Agreement.......................................................... S- 1
Prepayment Interest Shortfall.............................................. S-32
Prepayment Period.......................................................... S-30
Principal Balance.......................................................... S-19
--Q--
Quarterly Mortgage Certificate Pass-Through Rate........................... S- 5
--R--
Rate Adjustment Date....................................................... S-41
Rate Scenario I............................................................ S-21
Rate Scenario II........................................................... S-21
Rate Scenario III.......................................................... S-21
Rate Scenarios............................................................. S-21
Rating Agencies............................................................ S- 7
Record Date................................................................ S- 4
Reference Banks............................................................ S-19
Related Subordinated Certificates.......................................... S-28
REMIC...................................................................... S- 2
REO Property............................................................... S-32
Reserve Fund............................................................... S- 6
Reserve Fund Requirement................................................... S-35
Reserve Interest Rate...................................................... S-19
Reset Date................................................................. S- 5
Reuters Screen LIBO Page................................................... S-19
RMC........................................................................ S-53
RTC........................................................................ S- 8
Rules...................................................................... S-24
</TABLE>
<TABLE>
<S> <C>
--S--
S&P........................................................................ S- 7
Scheduled Principal Distribution Amount.................................... S-32
Securities Act............................................................. S-27
Similar Law................................................................ S-12
SMMEA...................................................................... S-12
Special Termination........................................................ S-37
Strike Rate................................................................ S- 6
--T--
Termination Scenario I..................................................... S-50
Termination Scenario II.................................................... S-50
Termination Scenario III................................................... S-50
Termination Scenario IV.................................................... S-50
Termination Scenarios...................................................... S-50
Trust Fund................................................................. S- 1
--U--
Underlying Disclosure Documents............................................ S-27
Underlying Mortgage Pool................................................... S- 9
Underlying Pooling Agreements.............................................. S-27
Underlying Series.......................................................... S- 8
Underlying Series Certificate Account...................................... S-38
Underlying Series Cut-off Date............................................. S-27
Underlying Series Distribution Date........................................ S- 9
Underlying Series Reserve Fund............................................. S-34
Underlying Trust Fund...................................................... S-28
--V--
Voting Rights.............................................................. S-26
--W--
Weighted Average Mortgage Certificate
Pass-Through Rate......................................................... S- 5
--Y--
Yield Support Agreement.................................................... S- 6
Yield Support Counterparty................................................. S- 6
</TABLE>
S-59
<PAGE>
P R O S P E C T U S
CS First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage and Manufactured Housing Contract
Pass-Through Certificates
(Issuable in Series)
-----------
The Conduit Mortgage and Manufactured Housing Contract Pass-Through
Certificates (the "Certificates") offered hereby and by the related
Prospectus Supplements will be offered from time to time in series (each, a
"Series") in one or more separate classes (each, a "Class"), which may be
divided into one or more subclasses (each, a "Subclass"), that represent
interests in specified percentages of principal and interest (a "Percentage
Interest") with respect to the related Mortgage Pool or the Contract Pool
(each, as defined below), or that have been assigned a Stated Principal
Balance and an Interest Rate (as such terms are defined herein), as more
fully set forth herein, and will evidence the undivided interest,
beneficial interest or notional amount specified in the related
Prospectus Supplement in one of a number of trusts, each to be created
by CS First Boston Mortgage Securities Corp. (the "Depositor") from time
to time. The trust property of each trust (the "Trust Fund") will
consist of a pool containing one- to four-family residential mortgage
loans, mortgage loans secured by multifamily residential rental
properties consisting of five or more dwelling units or apartment
buildings owned by cooperative housing corporations, loans made to
finance the purchase of certain rights relating to cooperatively
owned properties secured by a pledge of shares of a cooperative
corporation and an assignment of a proprietary lease or occupancy
agreement on a cooperative dwelling, mortgage participation
certificates evidencing participation interests in such loans that
are acceptable to the nationally recognized statistical rating
agency or agencies rating the related Series of Certificates
(collectively, the "Rating Agency") for a rating in one of the
four highest rating categories of such Rating Agency (such loans
and participation certificates being referred to collectively
hereinafter as the "Mortgage Loans"), or certain conventional
mortgage pass-through certificates (the "Mortgage
Certificates") and related property (the "Mortgage Pool") or a
pool of manufactured housing conditional sales contracts and
installment loan agreements (the "Contracts") or participation
certificates representing participation interests in such
Contracts and related property (the "Contract Pool") conveyed
to such trust by the Depositor. The Mortgage Loans may be
conventional mortgage loans, conventional cooperative loans,
mortgage loans insured by the Federal Housing
Administration (the "FHA"), or mortgage loans partially
guaranteed by the Veterans Administration (the "VA"), or
any combination of the foregoing, bearing fixed or
variable rates of interest. The Contracts may be
conventional contracts, contracts insured by the FHA or
partially guaranteed by the VA, or any combination of
the foregoing, bearing fixed or variable rates of
interest, as specified in the related Prospectus
Supplement. If so specified in the related Prospectus
Supplement, the rights of the holders of the
Certificates of one or more Classes or Subclasses of a
Series to receive distributions with respect to the
related Mortgage Pool or Contract Pool may be
subordinated to such rights of the holders of the
Certificates of one or more Classes or Subclasses of
such Series to the extent described herein and in
such Prospectus Supplement. As provided in the
applicable Prospectus Supplement, the timing of
payments, whether of principal or of interest, to
any one or more of such Classes or Subclasses may
be on a sequential or a pro rata basis. The
Prospectus Supplement with respect to each Series
will also set forth specific information relating
to the Trust Fund with respect to the Series in
respect of which the Prospectus is being
delivered, together with specific information
regarding the Certificates of such Series.
The Certificates do not represent an obligation of or interest
in the Depositor or any affiliate thereof. Neither the
Certificates, the Mortgage Loans, the Contracts nor the
Mortgage Certificates are insured or guaranteed by any
governmental agency or instrumentality, except to the
extent provided herein.
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" 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. Such offerings are not
being made pursuant to the Registration
Statement of which this Prospectus forms a
part.
There will have been no public market for the Certificates of any Series prior
to the offering thereof. No assurance can be given that such a market will
develop as a result of such offering or, if it does develop, that it will
continue.
The Depositor, as specified in the applicable Prospectus Supplement, may
elect to treat the Trust Fund with respect to certain Series of
Certificates as one or more Real Estate Mortgage Investment
Conduits (each, a "REMIC"). See "Certain Federal Income Tax
Consequences."
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Certificates of such Series may be
subject to early termination and may receive Special
Distributions (as defined herein) in reduction of
Stated Principal Balance (as defined herein) under
the circumstances described herein and in
such Prospectus Supplement.
This Prospectus may not be used to consummate sales of the Certificates
offered hereby unless accompanied by a Prospectus Supplement.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CS First Boston
The date of this Prospectus is December 4, 1995.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement with respect to each Series of Certificates will,
among other things, set forth with respect to such Series of Certificates: (i)
the identity of each Class or Subclass within such Series; (ii) the undivided
interest, Percentage Interest, Stated Principal Balance or notional amount of
each Class or Subclass of Certificates; (iii) the Pass-Through Rate, Interest
Rate or Annual Rate borne by each Class or Subclass within such Series; (iv)
certain information concerning the Mortgage Loans, the Mortgage Certificates,
the Contracts, if any, and the other assets comprising the Trust Fund for such
Series; (v) the final Distribution Date of each Class or Subclass of
Certificates within such Series; (vi) the identity of each Class or Subclass
of Compound Interest Certificates, if any, within such Series; (vii) the
method used to calculate the amount to be distributed with respect to each
Class or Subclass of Certificates; (viii) the order of application of
distributions to each of the Classes or Subclasses within such Series, whether
sequential, pro rata, or otherwise; (ix) the Distribution Dates with respect
to such Series; (x) information with respect to the terms of the Residual
Certificates or Subordinated Certificates offered hereby, if any are offered;
(xi) information with respect to the method of credit support, if any, with
respect to such Series; and (xii) additional information with respect to the
plan of distribution of such Series of Certificates.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
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 of which this
Prospectus and the related Prospectus Supplement is a part. For further
information, reference is made to such Registration Statement and the exhibits
thereto which the Depositor has filed with the Securities and Exchange
Commission (the "Commission"), under the Securities Act of 1933, as amended.
Statements contained in this Prospectus and any Prospectus Supplement as to
the contents of any contract or other document referred to are summaries and
in each instance reference is made to the copy of the contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement may be obtained from the Commission, upon payment of
the prescribed charges, or may be examined free of charge at the Commission's
offices. Reports and other information filed with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at 75 Park Plaza, Room 1102, New York, New
York 10007; 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 Pooling and
Servicing Agreement pursuant to which a Series of Certificates is issued will
be provided to each person to whom a Prospectus and the related Prospectus
Supplement are delivered, upon written or oral request directed to: Treasurer,
CS First Boston Mortgage Securities Corp., Park Avenue Plaza, 55 East 52nd
Street, New York, New York 10055, (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 Exchange Act, prior to the
termination of the offering of Certificates offered hereby. The Depositor will
provide or cause to be provided without charge to each person to whom this
Prospectus is delivered in connection with the offering of one or more Classes
of Certificates, upon request, a copy of any or all such documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such Classes of such Certificates, other than
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed to: CS First Boston Mortgage Securities Corp., Park Avenue Plaza,
55 East 52nd Street, New York, New York 10055, telephone number (212) 909-
2000.
2
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, and by reference to the
information with respect to each Series of Certificates contained in the
related Prospectus Supplement. Certain capitalized terms used and not otherwise
defined herein shall have the meanings given elsewhere in this Prospectus.
SECURITIES OFFERED........ Conduit Mortgage and Manufactured Housing Contract
Pass-Through Certificates (the "Certificates"),
issuable in series (each, a "Series"). The
Certificates may be issued in one or more classes
(each, a "Class") and such Classes may be divided
into one or more subclasses (each, a "Subclass").
One or more of such Classes or Subclasses of a
Series may be subordinated to one or more Classes
or Subclasses of such Series, as specified in the
related Prospectus Supplement (any such Class or
Subclass to which another Class or Subclass is
subordinated being hereinafter referred to as a
"Senior Class" or a "Senior Subclass,"
respectively, and any such subordinated Class or
Subclass being hereinafter referred to as a
"Subordinated Class" or "Subordinated Subclass,"
respectively). One or more of such Classes or
Subclasses of Certificates of a Series (the
"Residual Certificates") may evidence a residual
interest in the related Trust Fund (as defined
below). If so specified in the related Prospectus
Supplement, one or more Classes or Subclasses of
Certificates within a Series (the "Multi-Class
Certificates") may be assigned a principal balance
(a "Stated Principal Balance" or a "Certificate
Principal Balance") based on the cash flow from
the Mortgage Loans (as hereinafter defined),
Mortgage Certificates (as hereinafter defined),
the Contracts (as hereinafter defined) and/or the
other assets in the Trust Fund if specified as
such in the related Prospectus Supplement and a
stated annual interest rate, determined in the
manner set forth in such Prospectus Supplement,
which may be fixed or variable (an "Interest
Rate"). If so specified in the related Prospectus
Supplement, one or more such Classes or Subclasses
may receive unequal amounts of the distributions
of principal and interest on the Mortgage Loans,
the Contracts and the Mortgage Certificates
included in the related Trust Fund, as specified
in such Prospectus Supplement (any such Class or
Subclass receiving the higher proportion of
principal distributions being referred to
hereinafter as a "Principal Weighted Class" or
"Principal Weighted Subclass," respectively, and
any such Class or Subclass receiving the higher
proportion of interest distributions being
referred to hereinafter as an "Interest Weighted
Class" or an "Interest Weighted Subclass,"
respectively). If so specified in the related
Prospectus Supplement, the allocation of the
principal and interest distributions may involve
as much as 100% of each distribution of principal
or interest being allocated to one or more Classes
or Subclasses and 0% to another. If so specified
in the related Prospectus Supplement, one or more
Classes or Subclasses may receive disproportionate
amounts of certain distributions of
3
<PAGE>
principal, which proportions may change over time
subject to certain conditions. Payments may be
applied to any one or more Class or Subclass on a
sequential or pro rata basis, or otherwise, as
specified in the related Prospectus Supplement.
Each Certificate will represent the undivided
interest, beneficial interest or percentage
interest specified in the related Prospectus
Supplement in one of a number of trusts to be
created by the Depositor from time to time. The
trust property of each trust (the "Trust Fund")
will consist of (a) one or more mortgage pools
(each, a "Mortgage Pool") containing (i)
conventional one- to four-family residential,
mortgage loans, (ii) loans (the "Cooperative
Loans") made to finance the purchase of certain
rights relating to cooperatively owned properties
secured by the pledge of shares issued by a
cooperative corporation (the "Cooperative") and
the assignment of a proprietary lease or occupancy
agreement providing the exclusive right to occupy
a particular dwelling unit (a "Cooperative
Dwelling" and, together with one- to four-family
residential properties, "Single Family Property"),
(iii) mortgage loans secured by multifamily
residential rental properties consisting of five
or more dwelling units or apartment buildings
owned by cooperative housing corporations
("Multifamily Property"), purchased by the
Depositor either directly or through one or more
affiliates from an affiliate or from unaffiliated
sellers, (iv) mortgage participation certificates
evidencing participation interests in such loans
that are acceptable to the nationally recognized
rating agency or agencies identified in the
related Prospectus Supplement (collectively, the
"Rating Agency") rating the Certificates of such
Series for a rating in one of the four highest
rating categories of such Rating Agency (such
loans and mortgage participation certificates
being referred to collectively hereinafter as the
"Mortgage Loans"), or (v) certain conventional
mortgage pass-through certificates (the "Mortgage
Certificates") issued by one or more trusts
established by one or more private entities or (b)
one or more contract pools (each, a "Contract
Pool") containing manufactured housing conditional
sales contracts and installment loan agreements
(the "Contracts") or participation certificates
representing participation interests in such
Contracts (such Contracts, together with the
Mortgage Loans and the Mortgage Certificates,
being referred to collectively hereinafter as the
"Trust Assets") purchased by the Depositor either
directly or through one or more affiliates or
Unaffiliated Sellers, and related property
conveyed to such trust by the Depositor.
Unless otherwise specified in the related
Prospectus Supplement, each Series of Certificates
will be offered in fully registered form only, in
one or more Classes, which may be divided into one
or more Subclasses evidencing the right to receive
a share of principal payments and the percentages
of interest payments on the underlying Mortgage
Loans, Mortgage Certificates or Contracts at the
Pass-Through Rate for the related Mortgage Pool or
Contract Pool. If so specified in the related
Prospectus Supplement, Multi-Class
4
<PAGE>
Certificates of a Series may be issued with the
Stated Principal Balances and the Interest Rates
therein specified. At the time of issuance, each
Certificate offered by means of this Prospectus
and the related Prospectus Supplements will be
rated in one of the four highest rating categories
by at least one Rating Agency. The minimum
undivided interest, percentage interest or
beneficial interest in a Mortgage Pool or Contract
Pool, the minimum notional amount to be evidenced
by a Certificate of a Class or Subclass, or the
minimum denomination in which a Certificate of a
Class or Subclass is to be issued will be set
forth in the related Prospectus Supplement.
DEPOSITOR................. CS First Boston Mortgage Securities Corp., a
Delaware corporation.
MASTER SERVICER........... The entity, if any, named as Master Servicer in the
applicable Prospectus Supplement, which may be an
affiliate of the Depositor. See "Description of
the Certificates."
INTEREST.................. Interest will be distributed on the days specified
in the Prospectus Supplement with respect to a
Series, or if any such day is not a business day,
the next succeeding business day (the
"Distribution Date"), at the rate, or pursuant to
the method of determining such rate, specified in
the related Prospectus Supplement for each Class
or Subclass within such Series, commencing on the
day specified in such Prospectus Supplement, in
the manner specified in such Prospectus
Supplement. See "Yield Considerations" and
"Description of the Certificates--Payments on
Mortgage Loans" and "--Payments on Contracts."
PRINCIPAL (INCLUDING
PREPAYMENTS).............. Unless otherwise specified in the related
Prospectus Supplement, principal on each Trust
Asset underlying a Series of Certificates will be
distributed on each Distribution Date, commencing
on the date specified in the related Prospectus
Supplement in the priority and manner specified in
such Prospectus Supplement. If so specified in the
Prospectus Supplement with respect to a Series
that includes Multi-Class Certificates,
distributions on such Multi-Class Certificates may
be made in reduction of the Stated Principal
Balance, in an amount equal to the Stated
Principal Distribution Amount. Unless otherwise
specified in the related Prospectus Supplement,
the Stated Principal Distribution Amount will
equal the amount by which the Stated Principal
Balance of such Class of Multi-Class Certificates
(before taking into account the amount of interest
accrued and added to the Stated Principal Balance
of any Class or of Compound Interest Certificates)
exceeds the Asset Value (as defined herein) of the
Trust Assets and other property in the related
Trust Fund as of the Business Day prior to the
related Distribution Date. See "Maturity and
Prepayment Considerations" and "Description of the
Certificates--Payments on Mortgage Loans" and "--
Payments on Contracts." If so specified in the
Prospectus Supplement relating to a Series, the
Multi-Class Certificates of such Series which have
other than monthly
5
<PAGE>
Distribution Dates may receive special
distributions in reduction of Stated Principal
Balance ("Special Distributions") in any month,
other than a month in which a Distribution Date
occurs, if, as a result of principal prepayments
on the Trust Assets included in the related Trust
Fund and/or low reinvestment yields, the Trustee
determines, based on assumptions specified in the
related Pooling and Servicing Agreement, that the
amount of cash anticipated to be on deposit in the
Certificate Account for such Series on the next
Distribution Date may be less than the sum of the
interest distributions and the amount of
distributions in reduction of Stated Principal
Balance to be made on such Distribution Date.
Unless otherwise specified in the related
Prospectus Supplement, Special Distributions will
be made on such Certificates in the same priority
and manner as distributions in reduction of Stated
Principal Balance would be made on the next
Distribution Date for such Certificates. See
"Description of the Certificates--Special
Distributions."
THE MORTGAGE POOLS........ If so specified in the related Prospectus
Supplement, the Certificates of a Series will
represent the interest specified in such
Prospectus Supplement in the Mortgage Pool or
Pools included in the Trust Fund for such Series.
Unless otherwise specified in the applicable
Prospectus Supplement, the original principal
amount of each Mortgage Loan in a Mortgage Pool
will not be more than 95% (such ratio, the "Loan-
to-Value Ratio") of the value of the property
securing such Mortgage Loan (the "Mortgaged
Property"), based upon an appraisal of the
Mortgaged Property considered acceptable to the
originator of such Mortgage Loan or the sales
price, whichever is less (the "Original Value").
Unless otherwise specified in the applicable
Prospectus Supplement, Mortgage Loans secured by
Single Family Property having an original
principal amount exceeding 80% of the Original
Value will be covered by a policy of private
mortgage insurance until the outstanding principal
amount is reduced to the percentage of the
Original Value set forth in the related Prospectus
Supplement as a result of principal payments by
the borrower (the "Mortgagor").
Unless otherwise specified in the applicable
Prospectus Supplement, the principal balance at
origination of each Mortgage Loan that is secured
by Single Family Property will not exceed
$500,000. Mortgage Loans in a Mortgage Pool will
all have original maturities of 10 to 40 years,
unless otherwise specified in the applicable
Prospectus Supplement. Mortgage Pools may be
formed from time to time in varying sizes.
FIXED PASS-THROUGH RATE
MORTGAGE POOLS............ Unless otherwise specified in the related
Prospectus Supplement, with respect to each
Mortgage Pool included in the Trust Fund with
respect to a Series bearing a fixed Pass-Through
Rate, the Depositor will be obligated to deliver
Mortgage Loans that (i) have interest rates (the
"Mortgage Rates") at least 3/8 of 1% over the
interest rate (the "Pass-Through Rate") for such
Series, (ii) conform to the
6
<PAGE>
eligibility requirements for such Series set forth
in the related Prospectus Supplement, and (iii)
have an aggregate principal balance equal to the
amount specified in such Prospectus Supplement,
subject to a permitted variance of up to 10%.
VARIABLE PASS-THROUGH
RATE MORTGAGE POOLS....... If so specified in the related Prospectus
Supplement, the Depositor may establish one or
more Mortgage Pools, each of which will have a
variable as opposed to a fixed Pass-Through Rate.
Unless otherwise provided in the applicable
Prospectus Supplement, the variable Pass-Through
Rate will equal the weighted average of the
Mortgage Rates of all of the Mortgage Loans in the
Mortgage Pool minus the fixed percentage servicing
fee for each Mortgage Loan set forth in the
related Prospectus Supplement or in a Current
Report on Form 8-K. A Mortgage Pool with a
variable Pass-Through Rate may be composed of
Mortgage Loans that have fluctuating Mortgage
Rates. The characteristics of a variable Pass-
Through Rate and its effect on the yield to
Certificateholders as well as the servicing
compensation payable to the related Servicer and
the Master Servicer and the amounts, if any, with
respect to such Mortgage Loans payable to the
Depositor or to the person or entity specified in
the related Prospectus Supplement will be more
fully described in such Prospectus Supplement.
MORTGAGE CERTIFICATES..... If so specified in the related Prospectus
Supplement, the Trust Fund for a Series of
Certificates may include Mortgage Certificates
issued by one or more trusts established by one or
more private entities, with the respective
aggregate principal balances and the
characteristics described in such Prospectus
Supplement. Each Mortgage Certificate included in
a Trust Fund will evidence an interest of the type
specified in the related Prospectus Supplement in
a pool of mortgage loans of the type described in
such Prospectus Supplement, secured principally by
mortgages on one- to four-family residences,
mortgages on multi-family residential rental
properties or apartment buildings owned by
cooperative housing corporations or by pledges of
shares of cooperative corporations and assignments
of proprietary leases or occupancy agreements on
cooperative dwellings, unless otherwise specified
in such Prospectus Supplement.
THE CONTRACT POOLS........ If so specified in the related Prospectus
Supplement, the Certificates of a Series will
represent the interest specified in such
Prospectus Supplement in the Contract Pool or
Pools included in the Trust Fund for such Series.
Unless otherwise specified in the applicable
Prospectus Supplement, the Contracts will be fixed
rate Contracts. Such Contracts, as specified in
the related Prospectus Supplement, will consist of
manufactured housing conditional sales contracts
and installment loan agreements and will be
conventional Contracts or Contracts insured by the
FHA or partially guaranteed by the VA. Each
Contract may be secured by a new or used unit of
manufactured housing (a "Manufactured Home").
7
<PAGE>
The related Prospectus Supplement will specify the
range of terms to maturity of the Contracts at
origination and the maximum Loan-to-Value Ratio at
origination (the "Contract Loan-to-Value Ratio").
Because manufactured homes, unlike site-built
homes, generally depreciate in value, the Loan-to-
Value Ratios of some of the Contracts may be
higher at the Cut-off Date than at origination and
may increase over time. Unless otherwise specified
in the related Prospectus Supplement, Contracts
that are conventional Contracts will not be
covered by primary mortgage insurance policies or
primary credit insurance policies. Each
Manufactured Home which secures a Contract will be
covered by a standard hazard insurance policy
(which may be a blanket policy) to the extent
described herein or in the related Prospectus
Supplement insuring against hazard losses due to
various causes, including fire, lightning and
windstorm. A Manufactured Home located in a
federally designated flood area will be required
to be covered by flood insurance. Contract Pools
may be formed from time to time in varying sizes.
None of the Contracts will have been originated by
the Depositor or any of its affiliates.
YIELD CONSIDERATIONS...... If so specified in the applicable Prospectus
Supplement, an assumed rate of prepayment will be
used to calculate the expected yield to maturity
on each Class of the Certificates of a Series. The
yield on any Class of Certificates, the purchase
price of which is greater than the aggregate
amount of the Principal Distributions to be made
to such Class (a "Premium Certificate"), is likely
to be adversely affected by a higher than
anticipated level of principal prepayments on the
Trust Assets included in the related Trust Fund.
This effect on yield will intensify with any
increase in the amount by which the purchase price
of such Certificate exceeds the aggregate amount
of such Principal Distributions. If the
differential is particularly wide and a high level
of prepayments occurs, it is possible for Holders
of Premium Certificates not only to suffer a lower
than anticipated yield but, in extreme cases, to
fail to recoup fully their initial investment.
Conversely, a lower than anticipated level of
principal prepayments (which can be anticipated to
increase the expected yield to Holders of
Certificates that are Premium Certificates) will
likely result in a lower than anticipated yield to
Holders of Certificates of a Class the purchase
price of which is less than the aggregate amount
of the Principal Distributions to be made to such
Class (a "Discount Certificate"). The Prospectus
Supplement for each Series of Certificates that
includes an Interest Weighted or a Principal
Weighted Class will set forth certain yield
calculations on each such Class based upon a range
of specified prepayment assumptions on the Trust
Assets included in the related Trust Fund.
The yield to Certificateholders will also be
adversely affected because interest will accrue on
the Mortgage Loans, the Contracts or the mortgage
loans underlying the Mortgage Certificates
included in a Trust Fund, from the first day of
the month preceding the month in
8
<PAGE>
which a Distribution Date occurs, but the
distribution of such interest will be made no
earlier than the 25th day of the succeeding month
unless otherwise provided in the applicable
Prospectus Supplement. The adverse effect on yield
of this delay will intensify with any increase in
the period of time by which the Distribution Date
for a Series of Certificates succeeds the date on
which distributions on the Mortgage Loans, the
Contracts, or the Mortgage Certificates are
received by the Master Servicer or the Trustee.
See "Yield Considerations."
CREDIT SUPPORT............
Neither the Certificates nor the Trust Assets are
insured or guaranteed by any governmental agency,
except to the extent of any FHA insurance or VA
guarantee. Credit support will be provided on the
Mortgage Pools or Contract Pools by one or more
irrevocable letters of credit (the "Letter of
Credit"), a policy of mortgage pool insurance (the
"Pool Insurance Policy"), a bond or similar form
of insurance coverage against certain losses in
the event of the bankruptcy of a Mortgagor (the
"Mortgagor Bankruptcy Bond") or any combination of
the foregoing as specified in the applicable
Prospectus Supplement. In lieu or in addition to
the foregoing credit support arrangements if so
specified in the related Prospectus Supplement,
the Certificates of a Series may be issued in one
or more Classes or Subclasses. Payments on the
Certificates of one or more Classes or Subclasses
(the "Senior Certificates") may be supported by a
prior right to receive distributions attributable
or otherwise payable to another Class or Subclass
(the "Subordinated Certificates") to the extent
specified in the related Prospectus Supplement
(the "Subordinated Amount"). In addition, if so
specified in the related Prospectus Supplement,
one or more Classes or Subclasses of Subordinated
Certificates may be subordinated to another Class
or Subclass of Subordinated Certificates and may
be entitled to receive disproportionate amounts of
distributions of principal. If so specified in the
related Prospectus Supplement, a reserve (the
"Reserve Fund") and certain other accounts or
funds may be established to support payments on
the Certificates. A Prospectus Supplement with
respect to a Series may also provide for
additional or alternative forms of credit support,
including a guarantee or surety bond, acceptable
to the Rating Agency ("Alternative Credit
Support").
A. LETTER OF CREDIT....... If so specified in the applicable Prospectus
Supplement, the issuer of one or more Letters of
Credit (the "L/C Bank") will deliver to the
Trustee the Letters of Credit for the Mortgage
Pool or Contract Pool. Unless otherwise specified
in the related Prospectus Supplement, to the
extent described herein, the L/C Bank will honor
the Trustee's demands with respect to such Letter
of Credit, to the extent of the amount available
thereunder, to make payments to the Certificate
Account on each Distribution Date in an amount
equal to the amount sufficient to repurchase each
Liquidating Loan that has not been purchased by
the related Servicer or the Master Servicer
pursuant to the terms of the applicable Servicing
Agreement or Pooling and
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Servicing Agreement referred to herein. Unless
otherwise provided in the related Prospectus
Supplement, the term "Liquidating Loan" means: (a)
each Mortgage Loan with respect to which
foreclosure proceedings have been commenced (and
the Mortgagor's right of reinstatement has
expired), (b) each Mortgage Loan with respect to
which the Servicer or the Master Servicer has
agreed to accept a deed to the property in lieu of
foreclosure, (c) each Cooperative Loan as to which
the shares of the related Cooperative and the
related proprietary lease or occupancy agreement
have been sold or offered for sale or (d) each
Contract with respect to which repossession
proceedings have been commenced. The liability of
the L/C Bank under the Letter of Credit will be
reduced by the amount of unreimbursed payments
thereunder. In the event that at any time there
remains no amount available under the Letter of
Credit for a specific Mortgage Pool or Contract
Pool, and coverage under another form of credit
support, if any, is exhausted, any losses will be
borne by the holder of Certificates of the Series
evidencing interests in such Mortgage Pool or
Contract Pool, as specified in the related
Prospectus Supplement.
Unless otherwise specified in the related
Prospectus Supplement, the maximum liability of
the L/C Bank under the Letter of Credit for a
Mortgage Pool or Contract Pool will be an amount
equal to a percentage (not greater than 10% of the
initial aggregate principal balance of the
Mortgage Loans in such Mortgage Pool or Contracts
in such Contract Pool) (the "L/C Percentage"), set
forth in the Prospectus Supplement, relating to
such Mortgage Pool or Contract Pool. The maximum
amount available at any time to be paid under the
Letter of Credit will be determined in accordance
with the provisions of the applicable Pooling and
Servicing Agreement referred to herein. The
duration of coverage and the amount and frequency
of any reduction in coverage provided by the
Letter of Credit with respect to a Series of
Certificates will be in compliance with
requirements established by the Rating Agency
rating such Series and will be set forth in the
related Prospectus Supplement. If so specified in
the related Prospectus Supplement, the Letter of
Credit with respect to a Series of Certificates
may, in addition to or in lieu of the foregoing,
provide coverage with respect to the unpaid
principal or notional amount of the Certificates
of a Class or Classes within such Series. See
"Credit Support--Letter of Credit."
B. POOL INSURANCE......... If so specified in the applicable Prospectus
Supplement, the Master Servicer will obtain a Pool
Insurance Policy to cover any loss (subject to the
limitations described below) by reason of default
by the Mortgagors on the related Mortgage Loans to
the extent not covered by any policy of primary
mortgage insurance (a "Primary Mortgage Insurance
Policy"). The amount of coverage provided by the
Pool Insurance Policy for a Mortgage Pool will be
specified in the related Prospectus Supplement. A
Pool Insurance Policy for a Mortgage Pool,
however, will not be a blanket policy against
loss,
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because claims thereunder may only be made for
particular defaulted Mortgage Loans and only upon
satisfaction of certain conditions precedent. See
"Description of Insurance--Pool Insurance
Policies."
The Master Servicer, if any, or the Depositor or
the applicable Servicer will be required to use
its best reasonable efforts to maintain the Pool
Insurance Policy for each such Mortgage Pool and
to present claims thereunder to the issuer of such
Pool Insurance Policy (the "Pool Insurer") on
behalf of the Trustee and the Certificateholders.
See "Description of the Certificates--Presentation
of Claims."
C. MORTGAGOR BANKRUPTCY
BOND...................... If so specified in the related Prospectus
Supplement, the Master Servicer, if any, or the
Depositor or the applicable Servicer will obtain
and use its best reasonable efforts to maintain a
Mortgagor Bankruptcy Bond for such Series covering
certain losses resulting from action that may be
taken by a bankruptcy court in connection with the
bankruptcy of a Mortgagor. The level of coverage
provided by such Mortgagor Bankruptcy Bond will be
specified in the applicable Prospectus Supplement.
See "Description of Insurance--Mortgagor
Bankruptcy Bond."
D. SUBORDINATED If so specified in the related Prospectus
CERTIFICATES.............. Supplement, the rights of holders of the
Certificates of one or more Subordinated Classes
or Subclasses of a Series to receive distributions
with respect to the Mortgage Loans in the Mortgage
Pool or Contracts in the Contract Pool for such
Series, or with respect to a Subordinated Pool (as
defined herein), will be subordinated to the
rights of the holders of the Certificates of one
or more Classes or Subclasses of such Series to
receive such distributions to the extent described
in the related Prospectus Supplement, and limited
to the Subordinated Amount set forth in the
related Prospectus Supplement. This subordination
will be intended to enhance the likelihood of
regular receipt by holders of the Senior
Certificates of the full amount of scheduled
payments of principal and interest due them and to
reduce the likelihood that the holders of such
Senior Certificates will experience losses. See
"Credit Support--Subordinated Certificates."
E. SHIFTING INTEREST...... If so specified in the applicable Prospectus
Supplement, the protection afforded to holders of
Senior Certificates of a Series by the
subordination of certain rights of holders of
Subordinated Certificates of such Series to
distributions on the related Mortgage Loans or
Contracts may be effected by the preferential
right of the holders of the Senior Certificates to
receive, prior to any distribution being made in
respect of the holders of the related Subordinated
Certificates, current distributions on the related
Mortgage Loans or Contracts of principal and
interest due them on each Distribution Date out of
funds available for distribution on such date in
the related Certificate Account and by the
distribution to the holders of the Senior
Certificates on each Distribution Date of a
greater than pro rata percentage of certain
principal prepayments or other recoveries of
principal specified in the related Prospectus
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Supplement on a Mortgage Loan or Contract that are
received in advance of their scheduled Due Dates
and are not accompanied by an amount as to
interest representing scheduled interest due on
any date or dates in any month or months
subsequent to the month of prepayment (the
"Principal Prepayments"). The allocation of a
greater than pro rata share of such amounts to the
Senior Certificates will have the effect of
accelerating the amortization of the Senior
Certificates while increasing the respective
interest in the Trust Fund evidenced by the
Subordinated Certificates. Increasing the
respective interest of the Subordinated
Certificates relative to that of the Senior
Certificates is intended to preserve the
availability of the benefits of the subordination
provided by the Subordinated Certificates. See
"Description of the Certificates--Distributions of
Principal and Interest" and "--Distributions on
Certificates" and "Credit Support--Shifting
Interest."
F. RESERVE FUND...........
If so specified in the related Prospectus
Supplement, a Reserve Fund may be established for
such Series. Unless otherwise specified in such
Prospectus Supplement, such Reserve Fund will not
be included in the corpus of the Trust Fund for
such Series. If so specified in the related
Prospectus Supplement, such Reserve Fund may be
created by the deposit, in escrow, by the
Depositor, of a separate pool of mortgage loans,
cooperative loans or manufactured housing
conditional sales contracts and installment loan
agreements (the "Subordinated Pool"), with the
aggregate principal balance specified in the
related Prospectus Supplement, or by the deposit
of cash in the amount specified in the related
Prospectus Supplement (the "Initial Deposit"). The
Reserve Fund will be funded by the retention of
specified distributions on the Trust Assets of the
related Mortgage Pool or Contract Pool, and/or on
the mortgage loans, cooperative loans or
manufactured housing conditional sales contracts
and installment loan agreements in the
Subordinated Pool, until the Reserve Fund (without
taking into account the amount of any Initial
Deposit) reaches an amount (the "Required
Reserve") set forth in the related Prospectus
Supplement. Thereafter, specified distributions on
the Trust Assets of the related Mortgage Pool or
Contract Pool, and/or on the mortgage loans,
cooperative loans or manufactured housing
conditional sales contracts and installment loan
agreements in the Subordinated Pool, will be
retained to the extent necessary to maintain such
Reserve Fund (without taking into account the
amount of the Initial Deposit, if any) at the
related Required Reserve. In no event will the
Required Reserve for any Series ever be required
to exceed the lesser of the Subordinated Amount
for such Series or the outstanding aggregate
principal amount of Certificates of the
Subordinated Classes or Subclasses of such Series
specified in the related Prospectus Supplement. If
so specified in the related Prospectus Supplement,
the Reserve Fund with respect to such Series may
be funded at a lesser amount or in another manner
acceptable to the Rating Agency rating such
Series. See "Credit Support--Subordinated
Certificates" and "--Reserve Fund."
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G. OTHER FUNDS............ Assets consisting of cash, certificates of deposit
or letters of credit, or any combination thereof,
in the aggregate amount specified in the related
Prospectus Supplement, will be deposited by the
Depositor in one or more accounts to be
established with respect to a Series of
Certificates by the Depositor with the Trustee on
the related Delivery Date if such assets are
required to make timely distributions in respect
of principal of, and interest on, the Certificates
of such Series, are otherwise required as a
condition to the rating of such Certificates in
the rating category specified in the Prospectus
Supplement, or are required in order to provide
for certain contingencies or in order to make
certain distributions regarding Certificates which
represent interests in GPM Loans (a "GPM Fund") or
Buy-Down Loans (a "Buy-Down Fund"). Following each
Distribution Date, amounts may be withdrawn from
any such fund and used and/or distributed in
accordance with the Pooling and Servicing
Agreement under the conditions and to the extent
specified in the related Prospectus Supplement.
H. SWAP AGREEMENT.........
If so specified in the Prospectus Supplement
relating to a Series of Certificates, the Trust
will enter into or obtain an assignment of a swap
agreement or similar agreement pursuant to which
the Trust will have the right to receive certain
payments of interest (or other payments) as set
forth or determined as described therein. See
"Credit Support--Swap Agreement."
HAZARD INSURANCE AND
SPECIAL HAZARD INSURANCE Unless otherwise specified in the applicable
POLICIES.................. Prospectus Supplement, all of the Mortgage Loans
(except for the Cooperative Loans) and the
Contracts will be covered by standard hazard
insurance policies insuring against losses due to
various causes, including fire, lightning and
windstorm. In addition, the Depositor will, if so
specified in the applicable Prospectus Supplement,
obtain an insurance policy (the "Special Hazard
Insurance Policy") covering losses that result
from certain other physical risks that are not
otherwise insured against (including earthquakes
and mudflows). The Special Hazard Insurance Policy
will be limited in scope and will cover losses in
an amount specified in the applicable Prospectus
Supplement. Any hazard losses not covered by
either standard hazard policies or the Special
Hazard Insurance Policy will not be insured
against and to the extent that the amount
available under any other method of credit support
available for such Series is exhausted, will be
borne by Certificateholders of such Series. The
hazard insurance policies and the Special Hazard
Insurance Policy will be subject to the
limitations described under "Description of
Insurance--Standard Hazard Insurance Policies on
Mortgage Loans," "--Standard Hazard Insurance
Policies on the Manufactured Homes" and "--Special
Hazard Insurance Policies."
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SUBSTITUTION OF TRUST If so specified in the Prospectus Supplement
ASSETS.................... relating to a Series of Certificates, within the
period following the date of issuance of such
Certificates specified in such Prospectus
Supplement, the Depositor or one or more Servicers
will deliver to the Trustee with respect to such
Series Trust Assets in substitution for any one or
more of the Trust Assets included in the Trust
Fund relating to such Series which do not conform
in one or more material respects to the
representations and warranties in the related
Pooling and Servicing Agreement. See "Description
of the Certificates--Assignment of Mortgage
Loans," "--Assignment of Contracts" and "--
Assignment of Mortgage Certificates."
ADVANCES.................. The Servicers of the Mortgage Loans and Contracts
(and the Master Servicer, if any, with respect to
each Mortgage Loan and Contract that it services
directly, and otherwise to the extent the related
Servicer does not do so) will be obligated to
advance delinquent installments of principal and
interest on the Mortgage Loans and Contracts (the
"Advances") under certain circumstances. See
"Description of the Certificates--Advances."
OPTIONAL TERMINATION...... If so specified in the Prospectus Supplement with
respect to a Series, the Depositor or such other
persons as may be specified in a Prospectus
Supplement may purchase the Trust Assets in the
related Trust Fund and any property acquired in
respect thereof at the time, in the manner and at
the price specified in such Prospectus Supplement.
In the event that the Depositor elects to treat
the related Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC") under the Internal
Revenue Code of 1986, as amended (the "Code"), any
such repurchase will be effected only in
compliance with the requirements of Section
860F(a)(4) of the Code, so as to constitute a
"qualified liquidation" thereunder. The exercise
of the right of repurchase will effect early
retirement of the Certificates of that Series. See
"Maturity and Prepayment Considerations" and
"Description of the Certificates--Termination."
ERISA LIMITATIONS......... A fiduciary of any employee benefit plan subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the
Code should carefully review with its own legal
advisers whether the purchase or holding of
Certificates could give rise to a transaction
prohibited or otherwise impermissible under ERISA
or Section 4975 of the Code. See "ERISA
Considerations."
TAX STATUS................ See "Certain Federal Income Tax Consequences."
LEGAL INVESTMENT.......... If so specified in the related Prospectus
Supplement relating to a Series of Certificates, a
Class or Subclass of such certificates will
constitute a "mortgage related security" under the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") if and for so long as it is rated in one
of the two highest rating categories by at least
one nationally recognized statistical rating
organization. Such
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Classes or Subclasses, if any, will be legal
investments for certain types of institutional
investors to the extent provided in SMMEA,
subject, in any case, to any other regulations
which may govern investments by such institutional
investors. See "Legal Investment."
USE OF PROCEEDS...........
The Depositor will use the net proceeds from the
sale of each Series for one or more of the
following purposes: (i) to purchase the related
Trust Assets, (ii) to repay indebtedness which has
been incurred to obtain funds to acquire such
Trust Assets, (iii) to establish any reserve funds
described in the related Prospectus Supplement and
(iv) to pay costs of structuring, guaranteeing and
issuing such Certificates. If so specified in the
related Prospectus Supplement, the purchase of the
Trust Assets for a Series may be effected by an
exchange of Certificates by the Depositor with the
seller of such Trust Assets. See "Use of
Proceeds."
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<PAGE>
THE TRUST FUND
Ownership of the Mortgage or Contract Pool or Pools included in the Trust
Fund (hereinafter defined) for a Series of Certificates may be evidenced by
one or more Classes of Certificates, which may consist of one or more
Subclasses, as specified in the Prospectus Supplement for such Series. Each
Certificate will evidence the undivided interest, beneficial interest or
notional amount specified in the related Prospectus Supplement in one or more
Mortgage Pools containing one or more Mortgage Loans or Contract Pools
containing Contracts, having an aggregate principal balance of not less than
approximately $50,000,000 as of the first day of the month of its creation
(the "Cut-off Date"), unless otherwise specified in the applicable Prospectus
Supplement. If so specified in the related Prospectus Supplement, each Class
or Subclass of the Certificates of a Series will evidence the percentage
interest specified in such Prospectus Supplement in the payments of principal
and interest on the Mortgage Loans in the related Mortgage Pool or Pools or on
the Contracts in the related Contract Pool or Pools (a "Percentage Interest").
To the extent specified in the related Prospectus Supplement, each Mortgage
Pool or Contract Pool with respect to a Series will be covered by a Letter of
Credit, a Pool Insurance Policy, a Special Hazard Insurance Policy, a
Mortgagor Bankruptcy Bond, by the subordination of the rights of the holders
of the Subordinated Certificates of a Series to the rights of the holders of
the Senior Certificates, which, if so specified in the related Prospectus
Supplement, may include Certificates of a Subordinated Class or Subclass and
the establishment of a Reserve, by the right of one or more Classes or
Subclasses of Certificates to receive a disproportionate amount of certain
distributions of principal or another form or forms of Alternative Credit
Support acceptable to the Rating Agency rating the Certificates of such Series
or by any combination of the foregoing. See "Description of Insurance" and
"Credit Support."
THE MORTGAGE POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include (a) one or more Mortgage Pools
containing (i) conventional one- to four-family residential, first and/or
second mortgage loans, (ii) Cooperative Loans made to finance the purchase of
certain rights relating to cooperatively owned properties secured by the
pledge of shares issued by a Cooperative and the assignment of a proprietary
lease or occupancy agreement providing the exclusive right to occupy a
particular Cooperative Dwelling, (iii) mortgage loans secured by Multifamily
Property, (iv) mortgage participation certificates evidencing participation
interests in such loans that are acceptable to the nationally recognized
Rating Agency rating the Certificates of such Series for a rating in one of
the four highest rating categories of such Rating Agency, or (v) certain
conventional Mortgage Certificates issued by one or more trusts established by
one or more private entities or (b) one or more Contract Pools containing
manufactured housing conditional sales contracts and installment loan
agreements or participation certificates representing participation interests
in such Contracts purchased by the Depositor either directly or through one or
more affiliates or Unaffiliated Sellers, and related property conveyed to such
trust by the Depositor.
A Mortgage Pool may include Mortgage Loans insured by the FHA ("FHA Loans")
and/or Mortgage Loans partially guaranteed by the Veterans Administration (the
"VA" and such mortgage loans are referred to as "VA Loans"). All Mortgage
Loans will be evidenced by promissory notes (the "Mortgage Notes") secured by
first mortgages or first or second deeds of trust or other similar security
instruments creating a first lien, as applicable, on the Mortgaged Properties
(as defined below). Single Family Property and Multifamily Property will
consist of single family detached homes, attached homes (single family units
having a common wall), individual units located in condominiums, multifamily
residential rental properties, apartment buildings owned by cooperative
housing corporations and such other type of homes or units as are set forth in
the related Prospectus Supplement. Each such detached or attached home or
multifamily property will be constructed on land owned in fee simple by the
Mortgagor or on land leased by the Mortgagor for a term at least two years
greater than the term of the applicable Mortgage Loan. Attached homes may
consist of duplexes, triplexes and fourplexes (multifamily structures where
each Mortgagor owns the land upon which the unit is built with the remaining
adjacent land owned in common). Multifamily Property may include mixed
commercial and residential buildings. The Mortgaged Properties may include
investment properties and vacation and second
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homes. Mortgage Loans secured by Multifamily Property may also be secured by
an assignment of leases and rents and operating or other cash flow guarantees
relating to the Mortgaged Properties to the extent specified in the related
Prospectus Supplement.
Unless otherwise specified below or in the applicable Prospectus Supplement,
each Mortgage Loan in a Mortgage Pool will (i) have an individual principal
balance at origination of not less than $25,000 nor more than $500,000, (ii)
have monthly payments due on the first day of each month (the "Due Date"),
(iii) be secured by Mortgaged Properties or relate to Cooperative Loans
located in any of the 50 states or the District of Columbia, and (iv) consist
of fully-amortizing Mortgage Loans, each with a 10 to 40 year term at
origination, a fixed or variable rate of interest and level or variable
monthly payments over the term of the Mortgage Loan. Unless otherwise
specified in the related Prospectus Supplement, the Loan-to-Value Ratio (as
hereinafter described) of such Mortgage Loans at origination will not exceed
95% on any Mortgage Loan with an original principal balance of $150,000 or
less, 90% on any Mortgage Loan with an original principal balance in excess of
$150,000 through $200,000, 85% on any Mortgage Loan with an original principal
balance in excess of $200,000 through $300,000 and 80% on any Mortgage Loan
with an original principal balance exceeding $300,000. If so specified in the
related Prospectus Supplement, a Mortgage Pool may also include fully
amortizing, adjustable rate Mortgage Loans ("ARM Loans") with (unless
otherwise specified in the applicable Prospectus Supplement) a 30-year term at
origination and a mortgage interest rate adjusted periodically (with
corresponding adjustments in the amount of monthly payments) to equal the sum
(which may be rounded) of a fixed margin and an index described in such
Prospectus Supplement, subject to any applicable restrictions on such
adjustments. The Mortgage Pools may also include other types of Mortgage Loans
to the extent set forth in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, no
Mortgage Loan will have a Loan-to-Value Ratio at origination in excess of 95%,
regardless of its original principal balance. The Loan-to-Value Ratio is the
ratio, expressed as a percentage, of the principal amount of the Mortgage Loan
at the date of determination to the lesser of (a) the appraised value
determined in an appraisal obtained by the originator and (b) the sales price
for such property (the "Original Value"). Unless otherwise specified in the
related Prospectus Supplement, with respect to a Mortgage Loan secured by a
mortgage on a vacation or second home or an investment property (other than
Multifamily Property), no income derived from the property will be considered
for underwriting purposes, the Loan-to-Value Ratio (taking into account any
secondary financing) of such Mortgage Loan may not exceed 80% and the original
principal balance of the Mortgage Loan may not exceed $250,000.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates. Any such Mortgage Loan
may provide that on the day on which the Mortgage Rate adjusts, the amount of
the monthly payments on the Mortgage Loan will be adjusted to provide for the
payment of the remaining principal amount of the Mortgage Loan with level
monthly payments of principal and interest at the new Mortgage Rate to the
maturity date of the Mortgage Loan. Alternatively, the Mortgage Loan may
provide that the Mortgage Rate adjusts more frequently than the monthly
payment. As a result, a greater or lesser portion of the monthly payment will
be applied to the payment of principal on the Mortgage Loan, thus increasing
or decreasing the rate at which the Mortgage Loan is repaid. See "Yield
Considerations." In the event that an adjustment to the Mortgage Rate causes
the amount of interest accrued in any month to exceed the amount of the
monthly payment on such Mortgage Loan, the excess (the "Deferred Interest")
will be added to the principal balance of the Mortgage Loan (unless otherwise
paid by the Mortgagor), and will bear interest at the Mortgage Rate in effect
from time to time. The amount by which the Mortgage Rate or monthly payment
may increase or decrease and the aggregate amount of Deferred Interest on any
Mortgage Loan may be subject to certain limitations, as described in the
related Prospectus Supplement.
If so specified in the Prospectus Supplement for the related Series, the
Mortgage Rate on certain ARM Loans will be convertible from an adjustable rate
to a fixed rate, at the option of the Mortgagor under certain circumstances.
Unless otherwise specified in the related Prospectus Supplement, the Pooling
and Servicing Agreement will provide that the Unaffiliated Seller from which
such convertible ARM Loans were acquired will
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<PAGE>
be obligated to repurchase from the Trust Fund any such ARM Loan as to which
the conversion option has been exercised (a "Converted Mortgage Loan"), at a
purchase price set forth in the related Prospectus Supplement. The amount of
such purchase price will be required to be deposited in the Certificate
Account and will be distributed to the Certificateholders on the Distribution
Date in the month following the month of the exercise of the conversion
option. The obligation of the Unaffiliated Seller to repurchase Converted
Mortgage Loans may or may not be supported by cash, letters of credit, third
party guarantees or other similar arrangements.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans pursuant to which the monthly payments made by the
Mortgagor during the early years of the Mortgage Loan will be less than the
scheduled monthly payments on the Mortgage Loan ("Buy-Down Loans"). The
resulting difference in payment shall be compensated for from an amount
contributed by the Depositor, the seller of the related Mortgaged Property,
the Servicer or another source and placed in a custodial account (the "Buy-
Down Fund") by the Servicer, or if so specified in the related Prospectus
Supplement, with the Trustee. In lieu of a cash deposit, if so specified in
the related Prospectus Supplement, a letter of credit or guaranteed investment
contract may be delivered to the Trustee to fund the Buy-Down Fund. See
"Description of the Certificates--Payments on Mortgage Loans." Buy-Down Loans
included in a Mortgage Pool will provide for a reduction in monthly interest
payments by the Mortgagor for a period of up to the first four years of the
term of such Mortgage Loans.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans pursuant to which the monthly payments by the Mortgagor
during the early years of the related Mortgage Note are less than the amount
of interest that would otherwise be payable thereon, with the interest not so
paid added to the outstanding principal balance of such Mortgage Loan ("GPM
Loans"). If so specified in the related Prospectus Supplement, the resulting
difference in payment shall be compensated for from an amount contributed by
the Depositor or another source and delivered to the Trustee (the "GPM Fund").
In lieu of cash deposit, the Depositor may deliver to the Trustee a letter of
credit, guaranteed investment contract or another instrument acceptable to the
Rating Agency rating the related Series to fund the GPM Fund.
FHA Loans will be insured by the Federal Housing Administration (the "FHA")
as authorized under the National Housing Act, as amended, and the United
States Housing Act of 1937, as amended. Such FHA loans will be insured under
various FHA programs including the standard FHA 203-b programs to finance the
acquisition of one- to four-family housing units, the FHA 245 graduated
payment mortgage program and the FHA 221 and 223 programs to finance certain
multifamily residential rental properties. FHA Loans generally require a
minimum down payment of approximately 5% of the original principal amount of
the FHA Loan. No FHA Loan may have an interest rate or original principal
amount exceeding the applicable FHA limits at the time of origination of such
FHA Loan.
VA Loans will be partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended (the "Servicemen's Readjustment Act").
The Servicemen's Readjustment Act permits a veteran (or in certain instances
the spouse of a veteran) to obtain a mortgage loan guarantee by the VA
covering mortgage financing of the purchase of a one- to four-family dwelling
unit at interest rates permitted by the VA. The program has no mortgage loan
limits, requires no down payment from the purchasers and permits the guarantee
of mortgage loans of up to 30 years' duration. However, no VA Loan will have
an original principal amount greater than five times the partial VA guarantee
for such VA Loan. The maximum guarantee that may be issued by VA under this
program is 50% of the principal amount of the Mortgage Loan if the principal
amount of the Mortgage Loan is $45,000 or less, the lesser of $36,000 and 40%
of the principal amount of the Mortgage Loan if the principal amount of the
Mortgage Loan is greater than $45,000 but less than or equal to $144,000, and
the lesser of $46,000 and 25% of the principal amount of the Mortgage Loan if
the principal amount of the Mortgage Loan is greater than $144,000.
The Prospectus Supplement (or, if such information is not available in
advance of the date of such Prospectus Supplement, a Current Report on Form 8-
K to be filed with the Commission) for each Series of
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Certificates the Trust Fund with respect to which contains Mortgage Loans will
contain information as to the type of Mortgage Loans that will comprise the
related Mortgage Pool or Pools and information as to (i) the aggregate
principal balance of the Mortgage Loans as of the applicable Cut-off Date,
(ii) the type of Mortgaged Properties securing the Mortgage Loans, (iii) the
original terms to maturity of the Mortgage Loans, (iv) the largest in
principal balance of the Mortgage Loans, (v) the earliest origination date and
latest maturity date of the Mortgage Loans, (vi) the aggregate principal
balance of Mortgage Loans having Loan-to-Value Ratios at origination exceeding
80%, (vii) the interest rate or range of interest rates borne by the Mortgage
Loans, (viii) the average outstanding principal balance of the Mortgage Loans,
(ix) the geographical distribution of the Mortgage Loans, (x) the number and
aggregate principal balance of Buy-Down Loans or GPM Loans, if applicable,
(xi) with respect to ARM Loans, the adjustment dates, the highest, lowest and
weighted average margin, and the maximum Mortgage Rate variation at the time
of any periodic adjustment and over the life of such ARM Loans, and (xii) with
respect to Mortgage Loans secured by Multifamily Property or such other
Mortgage Loans as are specified in the Prospectus Supplement, whether the
Mortgage Loan provides for an interest only period and whether the principal
amount of such Mortgage Loan is amortized on the basis of a period of time
that extends beyond the maturity date of the Mortgage Loan.
No assurance can be given that values of the Mortgaged Properties in a
Mortgage Pool have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and any secondary financing on the Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual Rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced
in the mortgage lending industry. In addition, the value of property securing
Cooperative Loans and the delinquency rate with respect to Cooperative Loans
could be adversely affected if the current favorable tax treatment of
cooperative stockholders were to become less favorable. See "Certain Legal
Aspects of the Mortgage Loans and Contracts--The Mortgage Loans." To the
extent that such losses are not covered by the methods of credit support or
the insurance policies described herein or by Alternative Credit Support, they
will be borne by holders of the Certificates of the Series evidencing
interests in the Mortgage Pool.
Multifamily lending is generally viewed as exposing the lender to a greater
risk of loss than one- to four-family residential lending. Multifamily lending
typically involve larger loans to single borrowers or groups of related
borrowers than residential one- to four-family mortgage loans. Furthermore,
the repayment of loans secured by income producing properties is typically
dependent upon the successful operation of the related real estate project. If
the cash flow from the project is reduced (for example, if leases are not
obtained or renewed), the borrower's ability to repay the loan may be
impaired. Multifamily real estate can be affected significantly by supply and
demand in the market for the type of property securing the loan and,
therefore, may be subject to adverse economic conditions. Market values may
vary as a result of economic events or governmental regulations outside the
control of the borrower or lender, such as rent control laws, which impact the
future cash flow of the property. Corresponding to the greater lending risk is
a generally higher interest rate applicable to multifamily mortgage lending.
The Depositor will cause the Mortgage Loans constituting each Mortgage Pool
to be assigned to the Trustee named in the applicable Prospectus Supplement,
for the benefit of the holders of the Certificates of such Series (the
"Certificateholders"). The Master Servicer, if any, named in the related
Prospectus Supplement will service the Mortgage Loans, either by itself or
through other mortgage servicing institutions, if any (each, a "Servicer"),
pursuant to a Pooling and Servicing Agreement, as described herein, among the
Master Servicer, if any, the Depositor and the Trustee (the "Pooling and
Servicing Agreement") and will receive a fee for such services. See "--
Mortgage Loan Program" and "Description of the Certificates." With respect to
those Mortgage Loans serviced by a Servicer, such Servicer will be required to
service the related Mortgage Loans in accordance with the Seller's Warranty
and Servicing Agreement between the Servicer and the Depositor (a "Servicing
Agreement") and will receive the fee for such services specified in such
Servicing Agreement; however, any
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Master Servicer will remain liable for its servicing obligations under the
Pooling and Servicing Agreement as if the Master Servicer alone were servicing
such Mortgage Loans.
The Depositor will make certain representations and warranties regarding the
Mortgage Loans, but its assignment of the Mortgage Loans to the Trustee will
be without recourse. See "Description of the Certificates-- Assignment of
Mortgage Loans." The Master Servicer's obligations with respect to the
Mortgage Loans will consist principally of its contractual servicing
obligations under the Pooling and Servicing Agreement (including its
obligation to enforce certain purchase and other obligations of Servicers
and/or Unaffiliated Sellers, as more fully described herein under "--Mortgage
Loan Program--Representations by Unaffiliated Sellers; Repurchases" and
"Description of the Certificates--Assignment of Mortgage Loans" and "--
Servicing by Unaffiliated Sellers") and its obligations to make Advances in
the event of delinquencies in payments on or with respect to the Mortgage
Loans or in connection with prepayments and liquidations of such Mortgage
Loans, in amounts described herein under "Description of the Certificates--
Advances." Unless otherwise specified in the related Prospectus Supplement,
such Advances with respect to delinquencies will be limited to amounts that
the Master Servicer believes ultimately would be reimbursable under any
applicable Letter of Credit, Pool Insurance Policy, Special Hazard Insurance
Policy, Mortgagor Bankruptcy Bond or other policy of insurance, from amounts
in the Reserve Fund, under any Alternative Credit Support or out of the
proceeds of liquidation of the Mortgage Loans, cash in the Certificate Account
or otherwise. See "Description of the Certificates--Advances," "Credit
Support" and "Description of Insurance."
Unless otherwise specified in the applicable Prospectus Supplement, each
Mortgage Pool included in the related Trust Fund will be composed of Mortgage
Loans evidencing interests in Mortgage Loans That bear interest at annual
rates that will exceed by at least 3/8 of 1% the fixed or variable Pass-
Through Rate established for the Mortgage Pool. To the extent and in the
manner specified in the related Prospectus Supplement, Certificateholders of a
Series will be entitled to receive distributions based on the payments of
principal on the underlying Mortgage Loans, plus interest on the principal
balance thereof at the Pass-Through Rate. The difference between a Mortgage
Rate and the related Pass-Through Rate (less any servicing compensation
payable to the Servicers of such Mortgage Loans and the amount, if any,
payable to the Depositor or the person or entity specified in the applicable
Prospectus Supplement) may be retained by the Master Servicer as servicing
compensation to it. See "Description of the Certificates--Servicing
Compensation and Payment of Expenses."
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor either directly
or through affiliates, from one or more affiliates or from sellers
unaffiliated with the Depositor ("Unaffiliated Sellers"). Mortgage Loans
acquired by the Depositor will have been originated in accordance with the
underwriting criteria specified below under "Underwriting Standards" or as
otherwise described in a related Prospectus Supplement.
Underwriting Standards
Except in the case of certain Mortgage Loans originated by Unaffiliated
Sellers in accordance with their own underwriting criteria ("Closed Loans") or
such other standards as may be described in the applicable Prospectus
Supplement, all prospective Mortgage Loans will be subject to the underwriting
standards adopted by the Depositor. See "Closed Loan Program" below for a
description of underwriting standards applicable to Closed Loans. Unaffiliated
Sellers will represent and warrant that Mortgage Loans originated by them and
purchased by the Depositor have been originated in accordance with the
applicable underwriting standards established by the Depositor or such other
standards as may be described in the applicable Prospectus Supplement. The
following discussion describes the underwriting standards of the Depositor
with respect to any Mortgage Loan that it purchases.
The mortgage credit approval process for one- to four-family residential
loans follows a standard procedure that generally complies with FHLMC and FNMA
regulations and guidelines (except that certain Mortgage Loans may have higher
loan amount and qualifying ratios) and applicable federal and state laws and
regulations. The
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credit approval process for Cooperative Loans follows a procedure that
generally complies with applicable FNMA regulations and guidelines (except for
the loan amounts and qualifying ratios) and applicable federal and state laws
and regulations. The originator of a Mortgage Loan (the "Originator")
generally will review a detailed credit application by the prospective
mortgagor designed to provide pertinent credit information, including a
current balance sheet describing assets and liabilities and a statement of
income and expenses, as well as an authorization to apply for a credit report
that summarizes the prospective mortgagor's credit history with local
merchants and lenders and any record of bankruptcy. In addition, an employment
verification is obtained from the prospective mortgagor's employer wherein the
employer reports the length of employment with that organization, the current
salary, and gives an indication as to whether it is expected that the
prospective mortgagor will continue such employment in the future. If the
prospective mortgagor is self-employed, he or she is required to submit copies
of signed tax returns. The prospective mortgagor may also be required to
authorize verification of deposits at financial institutions. In certain
circumstances, other credit considerations may cause the Originator or
Depositor not to require some of the above documents, statements or proofs in
connection with the origination or purchase of certain Mortgage Loans.
An appraisal generally will be required to be made on each residence to be
financed. Such appraisal generally will be made by an appraiser who meets FNMA
requirements as an appraiser of one- to four-family residential properties.
The appraiser is required to inspect the property and verify that it is in
good condition and that, if new, construction has been completed. The
appraisal generally will be based on the appraiser's judgment of value, giving
appropriate weight to both the market value of comparable homes and the cost
of replacing the residence. These underwriting standards also require a search
of the public records relating to a mortgaged property for liens and judgments
against such mortgaged property.
Based on the data provided, certain verifications and the appraisal, a
determination is made by the Originator as to whether the prospective
mortgagor has sufficient monthly income available to meet the prospective
mortgagor's monthly obligations on the proposed loan and other expenses
related to the residence (such as property taxes, hazard and primary mortgage
insurance and, if applicable, maintenance) and other financial obligations and
monthly living expenses. Each Originator's lending guidelines for conventional
mortgage loans generally will specify that mortgage payments plus taxes and
insurance and all monthly payments extending beyond one year (including those
mentioned above and other fixed obligations, such as car payments) would equal
no more than specified percentages of the prospective mortgagor's gross
income. These guidelines will be applied only to the payments to be made
during the first year of the loan. For FHA and VA Loans, the Originator's
lending guidelines will follow HUD and VA guidelines, respectively. Other
credit considerations may cause an Originator to depart from these guidelines.
For example, when two individuals co-sign the loan documents, the incomes and
expenses of both individuals may be included in the computation.
The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a deficiency
judgment against the Mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. The Depositor's underwriting standards
applicable to all states (including anti-deficiency states) require that the
value of the property being financed, as indicated by the appraisal, currently
supports and is anticipated to support in the future the outstanding loan
balance.
Certain of the types of Mortgage Loans that may be included in the Mortgage
Pools or Subsidiary Trust Funds may involve additional uncertainties not
present in traditional types of loans. For example, Buy-Down Loans and GPM
Loans provide for escalating or variable payments by the Mortgagor. These
types of Mortgage Loans are underwritten on the basis of a judgment that the
Mortgagor will have the ability to make larger monthly payments in subsequent
years. In some instances the Mortgagor's income may not be sufficient to
enable it to continue to make scheduled loan payments as such payments
increase.
To the extent specified in the related Prospectus Supplement, the Depositor
may purchase Mortgage Loans for inclusion in a Trust Fund that are
underwritten under standards and procedures which vary from and are less
stringent than those described herein. For instance, Mortgage Loans may be
underwritten under a "limited
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documentation" program if so specified in the related Prospectus Supplement.
With respect to such Mortgage Loans, minimal investigation into the borrowers'
credit history and income profile is undertaken by the originator and such
Mortgage Loans may be underwritten primarily on the basis of an appraisal of
the Mortgaged Property or Cooperative Dwelling and the Loan-to-Value Ratio at
origination. Thus, if the Loan-to-Value Ratio is less than a percentage
specified in the related Prospectus Supplement, the originator may forego
certain aspects of the review relating to monthly income, and traditional
ratios of monthly or total expenses to gross income may not be considered.
The underwriting standards for Mortgage Loans secured by Multifamily
Property will be described in the related Prospectus Supplement.
Qualifications of Unaffiliated Sellers
Unless otherwise specified in the applicable Prospectus Supplement with
respect to an Unaffiliated Seller of Closed Loans secured by residential
properties, each Unaffiliated Seller must be an institution experienced in
originating conventional mortgage loans and/or FHA Loans or VA Loans in
accordance with accepted practices and prudent guidelines, and must maintain
satisfactory facilities to originate those loans. In addition, except as
otherwise specified, the Depositor requires adequate financial stability and
adequate servicing experience, where appropriate, as well as satisfaction of
certain other criteria.
Representations by Unaffiliated Sellers; Repurchases
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller (or the Master Servicer, if the Unaffiliated Seller is
also the Master Servicer under the Pooling and Servicing Agreement) will have
made representations and warranties in respect of the Mortgage Loans sold by
such Unaffiliated Seller to the Depositor. Such representations and warranties
will generally include, among other things: (i) with respect to each Mortgaged
Property, that title insurance (or in the case of Mortgaged Properties located
in areas where such policies are generally not available, an attorney's
certificate of title) and any required hazard and primary mortgage insurance
was effective at the origination of each Mortgage Loan, and that each policy
(or certificate of title) remained in effect on the date of purchase of the
Mortgage Loan from the Unaffiliated Seller; (ii) that the Unaffiliated Seller
had good and marketable title to each such Mortgage Loan; (iii) with respect
to each Mortgaged Property, that each mortgage constituted a valid first lien
on the Mortgaged Property (subject only to permissible title insurance
exceptions); (iv) that there were no delinquent tax or assessment liens
against the Mortgaged Property; and (v) that each Mortgage Loan was current as
to all required payments (unless otherwise specified in the related Prospectus
Supplement). With respect to a Cooperative Loan, the Unaffiliated Seller will
represent and warrant that (a) the security interest created by the
cooperative security agreements constituted a valid first lien on the
collateral securing the Cooperative Loan (subject to the right of the related
Cooperative to cancel shares and terminate the proprietary lease for unpaid
assessments and to the lien of the related Cooperative for unpaid assessments
representing the Mortgagor's pro rata share of the Cooperative's payments for
its mortgage, current and future real property taxes, maintenance charges and
other assessments to which like collateral is commonly subject) and (b) the
related cooperative apartment was free from damage and was in good repair.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate.
A substantial period of time may have elapsed between such date and the date
of initial issuance of the Series of Certificates evidencing an interest in
such Mortgage Loan. Since the representations and warranties of an
Unaffiliated Seller do not address events that may occur following the sale of
a Mortgage Loan by an Unaffiliated Seller, the repurchase obligation described
below will not arise if, during the period commencing on the date of sale of a
Mortgage Loan by the Unaffiliated Seller to or on behalf of the Depositor, the
relevant event occurs that would have given rise to such an obligation had the
event occurred prior to sale of the affected Mortgage Loan. However, the
Depositor will not include any Mortgage Loan in the Trust Fund for any Series
of Certificates if anything has come to the Depositor's attention that would
cause it to believe that the
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representations and warranties of an Unaffiliated Seller will not be accurate
and complete in all material respects in respect of such Mortgage Loan as of
the related Cut-off Date.
The only representations and warranties to be made for the benefit of
holders of Certificates of a Series in respect of any Mortgage Loan relating
to the period commencing on the date of sale of such Mortgage Loan to the
Depositor or its affiliates will be certain limited representations of the
Depositor and of the Master Servicer described below under "Description of the
Certificates--Assignment of Mortgage Loans." If the Master Servicer is also an
Unaffiliated Seller of Mortgage Loans with respect to a particular Series,
such representations will be in addition to the representations and warranties
made in its capacity as an Unaffiliated Seller.
Upon the discovery of the breach of any representation or warranty made by
an Unaffiliated Seller in respect of a Mortgage Loan that materially and
adversely affects the interests of the Certificateholders of the related
Series, such Unaffiliated Seller or the Servicer of such Mortgage Loan will be
obligated to repurchase such Mortgage Loan at a purchase price equal to 100%
of the unpaid principal balance thereof at the date of repurchase or, in the
case of a Series of Certificates as to which the Depositor has elected to
treat the related Trust Fund as 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
Advances made by the Master Servicer or the Servicer, as applicable, in
respect of such Mortgage Loan. The Master Servicer will be required to enforce
this obligation for the benefit of the Trustee and the Certificateholders,
following the practices it would employ in its good faith business judgment
were it the owner of such Mortgage Loan. Unless otherwise specified in the
applicable Prospectus Supplement, and subject to the ability of the Depositor,
the Unaffiliated Seller or the Servicer to substitute for certain Mortgage
Loans as described below, this repurchase obligation constitutes the sole
remedy available to the Certificateholders of such Series for a breach of
representation or warranty by an Unaffiliated Seller.
The obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller or a Servicer defaults on its obligation to do so is
subject to limitations, and no assurance can be given that Unaffiliated
Sellers will carry out their respective repurchase obligations with respect to
Mortgage Loans. However, to the extent that a breach of the representations
and warranties of an Unaffiliated Seller may also constitute a breach of the
representations and warranties made by the Depositor or by the Master Servicer
with respect to the insurability of the Mortgage Loans, the Depositor may have
a repurchase obligation, and the Master Servicer may have the limited purchase
obligation, in each case as described below under "Description of the
Certificates--Assignment of Mortgage Loans."
Closed Loan Program
The Depositor may also acquire Closed Loans that have been originated by
Unaffiliated Sellers in accordance with underwriting standards acceptable to
the Depositor. Unless otherwise specified in the applicable Prospectus
Supplement, Closed Loans for which 11 or fewer monthly payments have been
received will be further subject to the Depositor's customary underwriting
standards. Unless otherwise specified in the applicable Prospectus Supplement,
Closed Loans for which 12 to 60 monthly payments have been received will be
subject to a review of payment history and will conform to the Depositor's
guidelines for the related mortgage program. In the event one or two payments
were over 30 days delinquent, a letter explaining the delinquencies will be
required of the Mortgagor. Unless otherwise specified in the applicable
Prospectus Supplement, the Depositor will not purchase for inclusion in a
Mortgage Pool a Closed Loan for which (i) more than two monthly payments were
over 30 days delinquent, (ii) one payment was over 60 days delinquent, or
(iii) more than 60 monthly payments were received.
MORTGAGE CERTIFICATES
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include certain conventional mortgage pass-
through certificates (the "Mortgage Certificates") issued by one or
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more trusts established by one or more private entities and evidencing, unless
otherwise specified in such Prospectus Supplement, the entire interest in a
pool of mortgage loans. A description of the mortgage loans underlying the
Mortgage Certificates, the related pooling and servicing arrangements and the
insurance arrangements in respect of such mortgage loans will be set forth in
the applicable Prospectus Supplement or in the Current Report on Form 8-K
referred to below. Such Prospectus Supplement (or, if such information is not
available in advance of the date of such Prospectus Supplement, a Current
Report on Form 8-K to be filed by the Depositor with the Commission within 15
days of the issuance of the Certificates of such Series) will also set forth
information with respect to the entity or entities forming the related
mortgage pool, the issuer of any credit support with respect to such Mortgage
Certificates, the aggregate outstanding principal balance and the pass-through
rate borne by each Mortgage Certificate included in the Trust Fund, together
with certain additional information with respect to such Mortgage
Certificates. The inclusion of Mortgage Certificates in a Trust Fund with
respect to a Series of Certificates is conditioned upon their characteristics
being in form and substance satisfactory to the Rating Agency rating the
related Series of Certificates. Mortgage Certificates, together with the
Mortgage Loans and Contracts, are referred to herein as the "Trust Assets."
THE CONTRACT POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include a Contract Pool evidencing interests in
manufactured housing conditional sales contracts and installment loan
agreements (the "Contracts") originated by a manufactured housing dealer in
the ordinary course of business and purchased by the Depositor. The Contracts
may be conventional manufactured housing contracts or contracts insured by the
FHA or partially guaranteed by the VA. Each Contract will be secured by a
Manufactured Home, as defined below. Unless otherwise specified in the related
Prospectus Supplement, the Contracts will be fully amortizing and will bear
interest at a fixed annual percentage rate ("APR").
The Manufactured Homes securing the Contracts consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to
the required utilities, and includes the plumbing, heating, air conditioning,
and electrical systems contained therein; except that such term shall include
any structure which meets all the requirements of [this] paragraph except the
size requirements and with respect to which the manufacturer voluntarily files
a certification required by the Secretary of Housing and Urban Development and
complies with the standards established under [this] chapter."
The Depositor will cause the Contracts constituting each Contract Pool to be
assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the related Certificateholder. The Master Servicer specified in the
related Prospectus Supplement will service the Contracts, either by itself or
through other Servicers, pursuant to the Pooling and Servicing Agreement. See
"Description of the Certificates--Servicing by Unaffiliated Sellers." With
respect to those Contracts serviced by the Master Servicer through a Servicer,
the Master Servicer will remain liable for its servicing obligations under the
Agreement as if the Master Servicer alone were servicing such Contracts. The
Contract documents, if so specified in the related Prospectus Supplement, may
be held for the benefit of the Trustee by a Custodian (the "Custodian")
appointed pursuant to a Custodial Agreement (the "Custodial Agreement") among
the Depositor, the Trustee and the Custodian.
Unless otherwise specified in the related Prospectus Supplement, each
Contract Pool will be composed of Contracts bearing interest at the annual
fixed APRs specified in the Prospectus Supplement. Each registered holder of a
Certificate will be entitled to receive periodic distributions, which will be
monthly unless otherwise specified in the related Prospectus Supplement, of
all or a portion of principal on the underlying Contracts or interest on the
principal balance thereof at the Pass-Through Rate, or both. Unless otherwise
stated in the related Prospectus Supplement, the difference between the APR on
a Contract and the related Pass-Through Rate (less
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sub-servicing compensation), will be retained by the Master Servicer as
servicing compensation to it. See "Description of the Certificates--Payments
on Contracts."
The related Prospectus Supplement (or, if such information is not available
in advance of the date of such Prospectus Supplement, a Current Report on Form
8-K to be filed with the Commission) will specify, for the Contracts contained
in the related Contract Pool, among other things: (a) the dates of origination
of the Contracts; (b) the weighted average APR on the Contracts; (c) the range
of outstanding principal balances as of the Cut-off Date; (d) the average
outstanding principal balance of the Contracts as of the Cut-off Date; (e) the
weighted average term to maturity as of the Cut-off Date; and (f) the range of
original maturities of the Contracts.
With respect to the Contracts included in the Contract Pool, the Depositor,
the Master Servicer or such other party, as specified in the related
Prospectus Supplement, will make or cause to be made representations and
warranties as to the types and geographical distribution of such Contracts and
as to the accuracy in all material respects of certain information furnished
to the Trustee in respect of each such Contract. In addition, the Master
Servicer or the Unaffiliated Seller of the Contracts will represent and
warrant that, as of the Cut-off Date, unless otherwise specified in the
Prospectus Supplement no Contract was more than 30 days delinquent as to
payment of principal and interest. Upon a breach of any representation that
materially and adversely affects the interest of the Certificateholder in a
Contract, the Master Servicer, the Unaffiliated Seller or such other party, as
appropriate, will be obligated either to cure the breach in all material
respects or to purchase the Contract or, if so specified in the related
Prospectus Supplement, to substitute another Contract as described below. This
repurchase or substitution obligation constitutes the sole remedy available to
the Certificateholders or the Trustee for a breach of representation by the
Master Servicer, the Unaffiliated Seller or such other party.
If so specified in the related Prospectus Supplement, in addition to making
certain representations and warranties regarding its authority to enter into,
and its ability to perform its obligations under, the Agreement, the Master
Servicer will make certain representations and warranties, except to the
extent that another party specified in the Prospectus Supplement makes any
such representations, to the Trustee with respect to the enforceability of
coverage under any applicable insurance policy or hazard insurance policy. See
"Description of Insurance" for information regarding the extent of coverage
under certain of such insurance policies. Upon a breach of the insurability
representation that materially and adversely affects the interests of the
Certificateholders in a Contract, the Master Servicer, the Unaffiliated Seller
or such other party, as appropriate, will be obligated either to cure the
breach in all material respects or, unless otherwise specified in the related
Prospectus Supplement, to purchase such Contract at a price equal to the
principal balance thereof as of the date of purchase plus accrued interest at
the related Pass-Through-Rate to the first day of the month following the
month of purchase. The Master Servicer, if required by the rating agency or
agencies rating the Certificates, will procure a surety bond, guaranty, letter
of credit or other instrument (the "Performance Bond") acceptable to such
rating agency to support this purchase obligation. See "Credit Support--
Performance Bond." The purchase obligation constitutes the sole remedy
available to the Certificateholders or the Trustee for a breach of the Master
Servicer's or seller's insurability representation.
Unless otherwise provided in the related Prospectus Supplement, if the
Depositor discovers or receives notice of any breach of its representations
and warranties relating to a Contract within two years or such other period as
may be specified in the related Prospectus Supplement of the date of the
initial issuance of the Certificates, the Depositor may remove such Contract
from the Trust Fund ("Deleted Contract"), rather than repurchase the Contract
as provided above, and substitute in its place another Contract ("Substitute
Contract"). Any Substitute Contract, on the date of substitution, will (i)
have an outstanding principal balance, after deduction of all scheduled
payments due in the month of substitution, not in excess of the outstanding
principal balance of the Deleted Contract (the amount of any shortfall to be
distributed to Certificateholders in the month of substitution), (ii) have an
APR not less than (and not more than 1% greater than) the APR of the Deleted
Contract, (iii) have a Pass-Through Rate equal to the Pass-Through Rate of the
Deleted Contract, (iv) have a remaining term to maturity not greater than (and
not more than one year less than) that of the Deleted Contract and (v) comply
with all the representations and warranties set forth in the Pooling and
Servicing Agreement as
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of the date of substitution. This repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for any such breach.
Underwriting Policies
Conventional Contracts will comply with the underwriting policies of the
Originator or Unaffiliated Seller of the Contracts described in the related
Prospectus Supplement. Except as described below or in the related Prospectus
Supplement, the Depositor believes that these policies were consistent with
those utilized by mortgage lenders or manufactured home lenders generally
during the period of origination.
With respect to a Contract made in connection with the Obligor's purchase of
a Manufactured Home, the "appraised value" is the amount determined by a
professional appraiser. The appraiser must personally inspect the Manufactured
Home and prepare a report which includes market data based on recent sales of
comparable Manufactured Homes and, when deemed applicable, a replacement cost
analysis based on the current cost of a similar Manufactured Home. Unless
otherwise specified in the related Prospectus Supplement, the Contract Loan-
to-Value Ratio is equal to the original principal amount of the Contract
divided by the lesser of the "appraised value" or the sales price for the
Manufactured Home.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on December 31,
1985, as a wholly-owned subsidiary of First Boston Securities Corporation, the
name of which was subsequently changed to CS First Boston Securities
Corporation ("FBSC"). FBSC 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) 909-3512.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will ensure or guarantee distributions on
the Certificates of any Series.
Trust Assets 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 Trust Assets, to repay indebtedness which has been
incurred to obtain funds to acquire the Trust Assets, to establish the Reserve
Funds, if any, for the Series and to pay costs of structuring and issuing the
Certificates. If so specified in the related Prospectus Supplement,
Certificates may be exchanged by the Depositor for Trust Assets. Unless
otherwise specified in the related Prospectus Supplement, the Trust Assets for
each Series of Certificates will be acquired by the Depositor either directly,
or through one or more affiliates which will have acquired such Trust Assets
from time to time either in the open market or in privately negotiated
transactions.
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YIELD CONSIDERATIONS
Each monthly payment on a Mortgage Loan is calculated as one-twelfth of the
applicable Mortgage Rate multiplied by the unpaid principal balance of such
Mortgage Loan. Unless otherwise specified in the related Prospectus
Supplement, the amount of such interest payment distributed monthly to
Certificateholders with respect to each Mortgage Loan will be similarly
calculated based on the applicable Pass-Through Rate for the related Mortgage
Pool. The Pass-Through Rate for a Mortgage Pool will be either fixed or
variable, as specified in the related Prospectus Supplement.
Each monthly accrual of interest on a Contract is calculated as one-twelfth
of the product of the APR and the principal balance outstanding on the
scheduled payment date for such Contract in the preceding month. Unless
otherwise specified in the related Prospectus Supplement, the Pass-Through
Rate with respect to each Contract will be calculated on a Contract-by-
Contract basis and the Servicing Fee applicable to each Contract from the
applicable APR.
With respect to a Mortgage Pool or a Contract Pool bearing a fixed Pass-
Through Rate, each Mortgage Loan or Contract will have a Mortgage Rate or APR
that exceeds the Pass-Through Rate by at least 3/8 of 1% unless otherwise
specified in the related Prospectus Supplement. The difference between a
Mortgage Rate or APR and the related fixed Pass-Through Rate for the Mortgage
Pool or Contract Pool (less any servicing compensation payable to the related
Servicers and the amounts, if any, payable to the Depositor or the person or
entity specified in the related Prospectus Supplement) will be retained by the
Master Servicer as servicing compensation to it. See "Description of the
Certificates--Servicing Compensation and Payment of Expenses." Although
Mortgage Rates and APRs in a fixed Pass-Through Rate Mortgage Pool or Contract
Pool, respectively, may vary, unless otherwise specified in the related
Prospectus Supplement, disproportionate principal prepayments among Mortgage
Loans bearing different Mortgage Rates or APRs will not affect the return to
Certificateholders since, as set forth above, the Pass-Through Rate may not
exceed any Mortgage Rate or APR.
With respect to Mortgage Pools having a variable Pass-Through Rate, the
Pass-Through Rate will equal the weighted average of the Mortgage Rates on all
the Mortgage Loans in the Mortgage Pool, minus the servicing compensation
payable to the Master Servicer and the Servicer of such Mortgage Loans and the
amounts, if any, retained by the Depositor or an Unaffiliated Seller or paid
to the person or entity specified in the related Prospectus Supplement. The
servicing fee and such other amounts will be fixed as to each Mortgage Loan at
a rate per annum, and may vary among Mortgage Loans. Because the Mortgage
Rates in such a Mortgage Pool will differ and the aggregate servicing
compensation and such other amounts to be retained or distributed with respect
to each Mortgage Loan will be fixed, it is likely that the weighted average of
the Mortgage Rates, and the corresponding variable Pass-Through Rate, will
change as the Mortgage Loans amortize and as a result of prepayments.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates that adjust more
frequently than the monthly payment with respect to such Mortgage Loans. As a
result, the portion of each monthly payment allocated to principal may vary
from month to month. Negative amortization with respect to a Mortgage Loan
will occur if an adjustment to the Mortgage Rate causes the amount of interest
accrued in any month, calculated at the new Mortgage Rate for such period, to
exceed the amount of the monthly payment or if the allowable increase in any
monthly payment is limited to an amount that is less than the amount of
interest accrued in any month. The amount of any resulting Deferred Interest
will be added to the principal balance of the Mortgage Loan and will bear
interest at the Mortgage Rate in effect from time to time. To the extent that,
as a result of the addition of any Deferred Interest, the Mortgage Loan
negatively amortizes over its term, the weighted average life of the
certificates of the related Series will be greater than would otherwise be the
case. As a result, the yield on any such Mortgage Loan at any time may be less
than the yields on similar adjustable rate mortgage loans, and the rate of
prepayment may be lower or higher than would otherwise be anticipated.
Generally, when a full prepayment is made on a Mortgage Loan or Contract,
the Mortgagor or the borrower under a Contract (the "Obligor"), is charged
interest for the number of days actually elapsed from the due date of the
preceding monthly payment up to the date of such prepayment, at a daily
interest rate determined by
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dividing the Mortgage Rate or APR by 365. Full prepayments will reduce the
amount of interest paid by the Mortgagor or the Obligor because interest on
the principal amount of any Mortgage Loan or Contract so prepaid will be paid
only to the date of prepayment instead of for a full month; however, unless
otherwise provided in the applicable Prospectus Supplement, the Master
Servicer with respect to a Series will be required to advance from its own
funds the portion of any interest at the related Pass-Through Rate that is not
so received. Partial prepayments generally are applied on the first day of the
month following receipt, with no resulting reduction in interest payable for
the period in which the partial prepayment is made. Unless otherwise specified
in the related Prospectus Supplement, full and partial prepayments, together
with interest on such full and partial prepayments at the Pass-Through Rate
for the related Mortgage Pool or Contract Pool to the last day of the month in
which such prepayments occur, will be deposited in the Certificate Account and
will be available for distribution to Certificateholders on the next
succeeding Distribution Date in the manner specified in the related Prospectus
Supplement. See "Maturity and Prepayment Considerations."
Generally, the effective yield to holders of Certificates having a monthly
Distribution Date will be lower than the yield otherwise produced by the Pass-
Through Rate with respect to a Mortgage Pool or Contract Pool or the pass-
through rate borne by a Mortgage Certificate because, while interest will
accrue on each Mortgage Loan or Contract, or mortgage loan underlying a
Mortgage Certificate, to the first day of the month, the distribution of such
interest to holders of such Certificates will be made no earlier than the 25th
day of the month following the month of the accrual (unless otherwise provided
in the applicable Prospectus Supplement). The adverse effect on yield will
intensify with any increase in the period of time by which the Distribution
Date with respect to a Series of Certificates succeeds such 25th day. With
respect to the Multi-Class Certificates of a Series having other than monthly
Distribution Dates, the yield to holders of such Certificates will also be
adversely affected by any increase in the period of time from the date to
which interest accrues on such Certificate to the Distribution Date on which
such interest is distributed.
In the event that the Certificates of a Series are divided into two or more
Classes or Subclasses and that a Class or Subclass is an Interest Weighted
Class, in the event that such Series includes a Class of Residual
Certificates, or as otherwise may be appropriate, the Prospectus Supplement
for such Series will indicate the manner in which the yield to
Certificateholders will be affected by different rates of prepayments on the
Mortgage Loans, on the Contracts or on the mortgage loans underlying the
Mortgage Certificates. In general, the yield on Certificates that are offered
at a premium to their principal or notional amount ("Premium Certificates") is
likely to be adversely affected by a higher than anticipated level of
principal prepayments on the Mortgage Loans, on the Contracts or on the
mortgage loans underlying the Mortgage Certificates. This relationship will
become more sensitive as the amount by which the Percentage Interest of such
Class in each Interest Distribution is greater than the corresponding
Percentage Interest of such Class in each Principal Distribution. If the
differential is particularly wide (e.g., the Interest Distribution is
allocated primarily or exclusively to one Class or Subclass and the Principal
Distribution primarily or exclusively to another) and a high level of
prepayments occurs, there is a possibility that Certificateholders of Premium
Certificates will not only suffer a lower than anticipated yield but, in
extreme cases, will fail to recoup fully their initial investment. Conversely,
a lower than anticipated level of principal prepayments (which can be
anticipated to increase the expected yield to holders of Certificates that are
Premium Certificates) will likely result in a lower than anticipated yield to
holders of Certificates that are offered at a discount to their principal
amount ("Discount Certificates"). If so specified in the applicable Prospectus
Supplement, a disproportionately large amount of Principal Prepayments may be
distributed to the holders of the Senior Certificates at the times and under
the circumstances described therein.
In the event that the Certificates of a Series include one or more Classes
or Subclasses of Multi-Class Certificates, the Prospectus Supplement for such
Series will set forth information, measured relative to a prepayment standard
or model specified in such Prospectus Supplement, with respect to the
projected weighted average life of each such Class or Subclass and the
percentage of the initial Stated Principal Balance of each such Subclass that
would be outstanding on special Distribution Dates for such Series based on
the assumptions stated in such Prospectus Supplement, including assumptions
that prepayments on the Mortgage Loans or Contracts or on the mortgage loans
underlying the Mortgage Certificates in the related Trust Fund are made at
rates corresponding to the various percentages of such prepayment standard or
model.
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MATURITY AND PREPAYMENT CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, the
scheduled maturities of all of the Mortgage Loans (or the mortgage loans
underlying the Mortgage Certificates) at origination will not be less than
approximately 10 years or exceed 40 years and all the Contracts will have
maturities at origination of not more than 20 years, but such Mortgage Loans
(or such underlying mortgage loans) or Contracts may be prepaid in full or in
part at any time. Unless otherwise specified in the applicable Prospectus
Supplement, no such Mortgage Loan (or mortgage loan) or Contract will provide
for a prepayment penalty and each will contain (except in the case of FHA and
VA Loans) due-on-sale clauses permitting the mortgagee or obligee to
accelerate the maturity thereof upon conveyance of the Mortgaged Property,
Cooperative Dwelling or Manufactured Home.
The FHA has compiled statistics relating to one- to four-family, level
payment mortgage loans insured by the FHA under the National Housing Act of
1934, as amended, at various interest rates, all of which permit assumption by
the new buyer if the home is sold. Such statistics indicate that while some of
such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities. The
Actuarial Division of HUD has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentages of the
original number of FHA Loans in pools of level payment mortgage loans of
varying maturities that will remain outstanding on each anniversary of the
original date of such mortgage loans (assuming they all have the same
origination date) ("FHA Experience"). Published information with respect to
conventional residential mortgage loans indicates that such mortgage loans
have historically been prepaid at higher rates than government insured loans
because, unlike government insured mortgage loans, conventional mortgage loans
may contain due-on-sale clauses that allow the holder thereof to demand
payment in full of the remaining principal balance of such mortgage loans upon
sales or certain transfers of the mortgaged property. There are no similar
statistics with respect to the prepayment rates of cooperative loans or loans
secured by multifamily properties.
It is customary in the residential mortgage industry in quoting yields (a)
on a pool of 30-year fixed-rate, level payment mortgages, to compute the yield
as if the pool were a single loan that is amortized according to a 30-year
schedule and is then prepaid in full at the end of the twelfth year and (b) on
a pool of 15-year fixed-rate, level payment mortgages, to compute the yield as
if the pool were a single loan that is amortized according to a 15-year
schedule and then is prepaid in full at the end of the seventh year.
Prepayments on residential mortgage loans are also commonly measured
relative to a prepayment standard or model. If so specified in the Prospectus
Supplement relating to a Series of Certificates, the model used in a
Prospectus Supplement will be the Standard Prepayment Assumption ("SPA"). SPA
represents an assumed rate of prepayment relative to the then outstanding
principal balance of a pool of mortgages. A prepayment assumption of 100% of
SPA assumes prepayment rates of 0.2% per annum of the then outstanding
principal balance of such mortgages in the first month of the life of the
mortgages and an additional 0.2% per annum in each month thereafter until the
thirtieth month and in each month thereafter during the life of the mortgages,
100% of SPA assumes a constant prepayment rate of 6% per annum each month.
Information regarding FHA Experience, other published information, SPA or
any other rate of assumed prepayment, as applicable, will be set forth in the
Prospectus Supplement with respect to a Series of Certificates. There is,
however, no assurance that prepayment of the Mortgage Loans underlying a
Series of Certificates will conform to FHA Experience, mortgage industry
custom, any level of SPA, or any other rate specified in the related
Prospectus Supplement. A number of factors, including homeowner mobility,
economic conditions, enforceability of due-on-sale clauses, mortgage market
interest rates, mortgage recording taxes and the availability of mortgage
funds, may affect prepayment experience on residential mortgage loans.
The terms of the Pooling and Servicing Agreement will require the Servicer
or the Master Servicer to enforce any due-on-sale clause to the extent it has
knowledge of the conveyance or the proposed conveyance of the underlying
Mortgaged Property or Cooperative Dwelling; provided, however, that any
enforcement action that would impair or threaten to impair any recovery under
any related Insurance Policy will not be required or
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permitted. See "Description of the Certificates--Enforcement of "Due-On-Sale"
Clauses; Realization Upon Defaulted Mortgage Loans" and "Certain Legal Aspects
of the Mortgage Loans And Contracts--The Mortgage Loans--"Due-On-Sale"
Clauses" for a description of certain provisions of each Pooling and Servicing
Agreement and certain legal developments that may affect the prepayment
experience on the Mortgage Loans.
At the request of the Mortgagor, the Servicer may refinance the Mortgage
Loans in any Mortgage Pool by accepting prepayments thereon and making new
loans secured by a mortgage on the same property. Upon such refinancing, the
new loans will not be included in the Mortgage Pool and the related Servicer
will be required to repurchase the affected Mortgage Loan. A Mortgagor may be
legally entitled to require the Servicer to allow such a refinancing. Any such
repurchase will have the same effect as a prepayment in full of the related
Mortgage Loan.
There are no uniform statistics compiled for prepayments of contracts
relating to Manufactured Homes. Prepayments on the Contracts may be influenced
by a variety of economic, geographic, social and other facts, including
repossessions, aging, seasonality and interest rate fluctuations. Other
factors affecting prepayment of mortgage loans or Contracts include changes in
housing needs, job transfers, unemployment and servicing decisions. An
investment in Certificates evidencing interests in Contracts may be affected
by, among other things, a downturn in regional or local economic conditions.
These regional or local economic conditions are often volatile, and
historically have affected the delinquency, loan loss and repossession
experience of the Contracts. To the extent that losses on the Contracts are
not covered by the Subordination Amount, if any, Letters of Credit, applicable
Insurance Policies, if any, or by any Alternative Credit Support, holders of
the Certificates of a Series evidencing interests in such Contracts will bear
all risk of loss resulting from default by Obligors and will have to look
primarily to the value of the Manufactured Homes, which generally depreciate
in value, for recovery of the outstanding principal and unpaid interest of the
defaulted Contracts. See "The Trust Fund--The Contract Pools."
While most Contracts will contain "due-on-sale" provisions permitting the
holder of the Contract to accelerate the maturity of the Contract upon
conveyance by the borrower, the Master Servicer may permit proposed
assumptions of Contracts where the proposed buyer meets the underwriting
standards described above. Such assumption would have the effect of extending
the average life of the Contract. FHA Mortgage Loans and Contracts and VA
Mortgage Loans and Contracts are not permitted to contain "due on sale"
clauses, and are freely assumable.
Mortgage Loans made with respect to Multifamily Properties may have
provisions that prevent prepayment for a number of years and may provide for
payments of interest only during a certain period followed by amortization of
principal on the basis of a schedule extending beyond the maturity of the
related Mortgage Loan. Prepayments of Mortgage Loans secured by Multifamily
Property may be affected by these and other factors, including changes in
interest rates and the relative tax benefits associated with ownership of
Multifamily Property.
If set forth in the applicable Prospectus Supplement, the Depositor or other
specified entity will have the option to repurchase the Trust Assets included
in the related Trust Fund under the conditions stated in such Prospectus
Supplement. For any Series of Certificates for which the Depositor has elected
to treat the Trust as a REMIC pursuant to the provisions or the Internal
Revenue Code of 1986, as amended (the "Code"), any such repurchase will be
effected in compliance with the requirements of Section 860F(a)(4) of the Code
so as to constitute a "qualifying liquidation" thereunder. In addition, the
Depositor will be obligated, under certain circumstances, to repurchase
certain of the Trust Assets. The Master Servicer and Unaffiliated Sellers will
also have certain repurchase obligations, as more fully described herein. In
addition, the mortgage loans underlying the Mortgage Certificates may be
subject to repurchase under circumstances similar to those described
above. Such repurchases will have the same effect as prepayments in full. See
"The Trust Fund--Mortgage Loan Program--Representations by Unaffiliated
Sellers; Repurchases," "Description of the Certificates--Assignment of
Mortgage Loans," "--Assignment of Mortgage Certificates," "--Assignment of
Contracts" and "--Termination."
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DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an agreement
consisting of either (a) a Pooling and Servicing Agreement or (b) a Reference
Agreement (the "Reference Agreement") and the Standard Terms and Provisions of
Pooling and Servicing Agreement (such Standard Terms, the "Standard Terms"),
either the Standard Terms together with the Reference Agreement or the Pooling
and Servicing Agreement referred to as the "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer, if any, and the Trustee named in the
applicable Prospectus Supplement or a deposit trust agreement between the
Depositor and the Trustee (the "Deposit Trust Agreement," together with the
Pooling and Servicing Agreement, the "Agreement"). Forms of the Pooling and
Servicing Agreement and the Deposit Trust Agreement have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
following summaries describe certain provisions common to each Pooling and
Servicing Agreement and Deposit Trust Agreement. The summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Pooling and Servicing Agreement or
Deposit Trust Agreement for the applicable Series and the related Prospectus
Supplement. Wherever defined terms of the Pooling and Servicing Agreement or
Deposit Trust Agreement are referred to, such defined terms are thereby
incorporated herein by reference.
GENERAL
Unless otherwise specified in the Prospectus Supplement with respect to a
Series, each Certificate offered hereby and by means of the related Prospectus
Supplement will be issued in fully registered form and will represent the
undivided interest or beneficial interest attributable to such Class or
Subclass in the Trust Fund. The Trust Fund with respect to a Series will
consist of: (i) such Mortgage Loans, Contracts, and Mortgage Certificates and
distributions thereon as from time to time are subject to the applicable
Agreement; (ii) such assets as from time to time are identified as deposited
in the Certificate Account referred to below; (iii) property acquired by
foreclosure of Mortgage Loans or deed in lieu of foreclosure, or Manufactured
Homes acquired by repossession; (iv) the Letter of Credit, if any, with
respect to such Series; (v) the Pool Insurance Policy, if any, with respect to
such Series (described below under "Description of Insurance"); (vi) the
Special Hazard Insurance Policy, if any, with respect to such Series
(described below under "Description of Insurance"); (vii) the Mortgagor
Bankruptcy Bond and proceeds thereof, if any, with respect to such Series (as
described below under "Description of Insurance"); (viii) the Performance Bond
and proceeds thereof, if any, with respect to such Series; (ix) the Primary
Mortgage Insurance Policies, if any, with respect to such Series (as described
below under "Description of Insurance"); (x) the Depositor's rights under the
Warranty and Servicing Agreement with respect to the Mortgage Loans or
Contracts, if any, with respect to such Series; and (xi) the GPM and Buy-Down
Funds, if any, with respect to such Series; or, in lieu of some or all of the
foregoing, such Alternative Credit Support as shall be described in the
applicable Prospectus Supplement. Upon the original issuance of a Series of
Certificates, Certificates representing the minimum undivided interest or
beneficial ownership interest in the related Trust Fund or the minimum
notional amount allocable to each Class will evidence the undivided interest,
beneficial ownership interest or percentage ownership interest specified in
the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, one or more Servicers
or the Depositor may directly perform some or all of the duties of a Master
Servicer with respect to a Series.
If so specified in the Prospectus Supplement for a Series with respect to
which the Depositor has elected to treat the Trust Fund as a REMIC under the
Code, ownership of the Trust Fund for such Series may be evidenced by Multi-
Class Certificates and Residual Certificates. Distributions of principal and
interest with respect to Multi-Class Certificates may be made on a sequential
or concurrent basis, as specified in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, one or more of such Classes or
Subclasses may be Compound Interest Certificates.
The Residual Certificates, if any, included in a Series will be designated
by the Depositor as the "residual interest" in the related REMIC for purposes
of Section 860G(a)(2) of the Code, and will represent the right to receive
distributions as specified in the Prospectus Supplement for such Series. All
other Classes of Certificates
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of such Series will constitute "regular interests" in the related REMIC, as
defined in the Code. If so specified in the related Prospectus Supplement,
such Residual Certificates may be offered hereby and by means of such
Prospectus Supplement. See "Certain Federal Income Tax Consequences."
If so specified in the Prospectus Supplement for a Series which includes
Multi-Class Certificates, each Trust Asset in the related Trust Fund will be
assigned an initial "Asset Value." Unless otherwise specified in the related
Prospectus Supplement, the Asset Value of each Trust Asset in the related
Trust Fund will be the Stated Principal Balance of each Class or Classes of
Certificates of such Series that, based upon certain assumptions, can be
supported by distributions on such Trust Assets allocable to such Class or
Subclass, together with reinvestment income thereon, to the extent specified
in the related Prospectus Supplement, and amounts available to be withdrawn
from any Buy-Down, GPM Fund or Reserve Fund for such Series. The method of
determining the Asset Value of the Trust Assets in the Trust Fund for such a
Series that includes Multi-Class Certificates will be specified in the related
Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series,
ownership of the Trust Fund for such Series may be evidenced by one or more
Classes or Subclasses of Certificates that are Senior Certificates and
Subordinated Certificates, each representing the undivided interests in the
Trust Fund specified in such Prospectus Supplement. If so specified in the
related Prospectus Supplement, one or more Classes or Subclasses or
Subordinated Certificates of a Series may be subordinated to the right of the
holders of Certificates of one or more Classes or Subclasses within such
Series to receive distributions with respect to the Mortgage Loans or
Contracts in the related Trust Fund, in the manner and to the extent specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the holders of each Subclass of Senior Certificates will be
entitled to the Percentage Interests in the principal and/or interest payments
on the underlying Mortgage Loans or Contracts specified in such Prospectus
Supplement. If so specified in the related Prospectus Supplement, the
Subordinated Certificates of a Series will evidence the right to receive
distributions with respect to a specific pool of Mortgage Loans or Contracts,
which right will be subordinated to the right of the holders of the Senior
Certificates of such Series to receive distributions with respect to such
specific pool of Mortgage Loans or Contracts, as more fully set forth in such
Prospectus Supplement. If so specified in the related Prospectus Supplement,
the holders of the Senior Certificates may have the right to receive a greater
than pro rata percentage of Principal Prepayments in the manner and under the
circumstances described in the Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Depositor may sell
certain Classes or Subclasses of the Certificates of a Series, including one
or more Classes or Subclasses of Subordinated or Residual Certificates, in
privately negotiated transactions exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"). Such Certificates
will be transferable only pursuant to an effective registration statement or
an applicable exemption under the Securities Act and pursuant to any
applicable state law. Alternatively, if so specified in the related Prospectus
Supplement, the Depositor may offer one or more Classes or Subclasses of the
Subordinated or Residual Certificates of a Series by means of this Prospectus
and such Prospectus Supplement.
The Certificates of a Series offered hereby and by means of the related
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set forth in the related
Prospectus Supplement, unless such Prospectus Supplement provides otherwise.
No service charge will be made for any transfer or exchange of Certificates,
but the Trustee may require payment of a sum sufficient to cover any tax or
other governmental charge in connection with such transfer or exchange.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Beginning on the date specified in the related Prospectus Supplement,
distributions of principal and interest on the Certificates of a Series will
be made by the Master Servicer or Trustee, if so specified in the Prospectus
Supplement, on each Distribution Date to persons in whose name the
Certificates are registered at the close of business on the day specified in
such Prospectus Supplement (the "Record Date"). Such distributions of interest
will be made periodically at the intervals, in the manner and at the per annum
rate specified in the related
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Prospectus Supplement, which rate may be fixed or variable. Interest on the
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months, unless otherwise specified in the related Prospectus
Supplement. Distributions of principal on the Certificates will be made in the
priority and manner and in the amounts specified in the related Prospectus
Supplement.
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, distributions of interest and principal to a Certificateholder
will be equal to the product of the undivided interest evidenced by such
Certificate and the payments of principal and interest (adjusted to the
related Pass-Through Rate) on or with respect to the Mortgage Loans or
Contracts (including any Advances thereof) or the Mortgage Certificates
included in the Trust Fund with respect to such Series.
If so specified in the related Prospectus Supplement, distributions on a
Class or Subclass of Certificates of a Series may be based on the Percentage
Interest evidenced by a Certificate of such Class or Subclass in the
distributions (including any Advances thereof) of principal (the "Principal
Distribution") and interest (adjusted to the Pass-Through Rate for the related
Mortgage Pool or Contract Pool) (the "Interest Distribution") on or with
respect to the Mortgage Loans, the Contracts or the Mortgage Certificates in
the related Trust Fund. Unless otherwise specified in the related Prospectus
Supplement, on each Distribution Date, the Trustee will distribute to each
holder of a Certificate of such Class or Subclass an amount equal to the
product of the Percentage Interest evidenced by such Certificate and the
interest of such Class or Subclass in the Principal Distribution and the
Interest Distribution. A Certificate of such a Class or Subclass may represent
a right to receive a percentage of both the Principal Distribution and the
Interest Distribution or a percentage of either the Principal Distribution or
the Interest Distribution, as specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, the holders of the
Senior Certificates may have the right to receive a percentage of Principal
Prepayments that is greater than the percentage of regularly scheduled payment
of principal such holder is entitled to receive. Such percentages may vary
from time to time, subject to the terms and conditions specified in the
Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, distributions of
interest on each such Class or Subclass will be made on the Distribution
Dates, and at the Interest Rates, specified in such Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to such a
Series of Certificates, distributions of interest on each Class or Subclass of
Compound Interest Certificates of such Series will be made on each
Distribution Date after the Stated Principal Balance of all Certificates of
such Series having a Final Scheduled Distribution Date prior to that of such
Class or Subclass of Compound Interest Certificates has been reduced to zero.
Prior to such time, interest on such Class or Subclass of Compound Interest
Certificates will be added to the Stated Principal Balance thereof on each
Distribution Date for such Series.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, distributions in
reduction of the Stated Principal Balance of such Certificates will be made as
described herein. Distributions in reduction of the Stated Principal Balance
of such Certificates will be made on each Distribution Date for such Series to
the holders of the Certificates of the Class or Subclass then entitled to
receive such distributions until the aggregate amount of such distributions
have reduced the Stated Principal Balance of such Certificates to zero.
Allocation of distributions in reduction of Stated Principal Balance will be
made to each Class or Subclass of such Certificates in the order specified in
the related Prospectus Supplement, which, if so specified in such Prospectus
Supplement, may be concurrently. Unless otherwise specified in the related
Prospectus Supplement, distributions in reduction of the Stated Principal
Balance of each Certificate of a Class or Subclass then entitled to receive
such distributions will be made pro rata among the Certificates of such Class
or Subclass.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, the maximum amount
which will be distributed in reduction of Stated Principal Balance to holders
of Certificates of a Class or Subclass then entitled thereto on any
Distribution Date will equal, to the
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extent funds are available in the Certificate Account, the sum of (i) the
amount of the interest, if any, that has accrued but is not yet payable on the
Compound Interest Certificates of such Series since the prior Distribution
Date (or since the date specified in the related Prospectus Supplement in the
case of the first Distribution Date) (the "Accrual Distribution Amount"); (ii)
the Stated Principal Distribution Amount; and (iii) to the extent specified in
the related Prospectus Supplement, the applicable percentage of the Excess
Cash Flow specified in such Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, the "Stated Principal
Distribution Amount" with respect to a Distribution Date will equal the sum of
the Accrual Distribution Amount, if any, and the amount, if any, by which the
then outstanding Stated Principal Balance of the Multi-Class Certificates of
such Series (before taking into account the amount of interest accrued on any
Class of Compound Interest Certificates of such Series to be added to the
Stated Principal Balance thereof on such Distribution Date) exceeds the Asset
Value of the Trust Assets in the Trust Fund underlying such Series as of the
end of a period (a "Due Period") specified in the related Prospectus
Supplement. For purposes of determining the Stated Principal Distribution
Amount with respect to a Distribution Date, the Asset Value of the Trust
Assets will be reduced to take into account the interest evidenced by such
Classes or Subclasses of Certificates in the principal distributions on or
with respect of such Trust Assets received by the Trustee during the preceding
Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, Excess Cash Flow
represents the excess of (i) the interest evidenced by such Multi-Class
Certificates in the distributions received on the Mortgage Loans or Contracts
underlying such Series in the Due Period preceding a Distribution Date for
such Series (and, in the case of the first Due Period, the amount deposited in
the Certificate Account on the closing day for the sale of such Certificates),
together with income from the reinvestment thereof, and, to the extent
specified in such Prospectus Supplement, the amount of cash withdrawn from any
Reserve, GPM or Buy-Down Fund for such Series in the Due Period preceding such
Distribution Date, over (ii) the sum of all interest accrued, whether or not
then distributable, on the Multi-Class Certificates since the preceding
Distribution Date (or since the date specified in the related Prospectus
Supplement in the case of the first Distribution Date), the Stated Principal
Distribution Amount for the then current Distribution Date and, if applicable,
any payments made on any Certificates of such Class or Subclass pursuant to
any special distributions in reduction of Stated Principal Balance during such
Due Period.
The Stated Principal Balance of a Multi-Class Certificate of a Series at any
time represents the maximum specified dollar amount (exclusive of interest at
the related Interest Rate) to which the holder thereof is entitled from the
cash flow on the Trust Assets in the Trust Fund for such Series, and will
decline to the extent distributions in reduction of Stated Principal Balance
are received by such holder. The Initial Stated Principal Balance of each
Class or Subclass within a Series that has been assigned a Stated Principal
Balance will be specified in the related Prospectus Supplement.
Distributions (other than the final distribution in retirement of the
Certificates) will be made by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register, except that, with
respect to any holder of a Certificate meeting the requirements specified in
the applicable Prospectus Supplement, distributions shall be made by wire
transfer in immediately available funds, provided that the Trustee shall have
been furnished with appropriate wiring instructions not less than two Business
Days prior to the related Distribution Date. The final distribution in
retirement of Certificates will be made only upon presentation and surrender
of the Certificates at the office or agency designated by the Master Servicer
for such purpose, as specified in the final distribution notice to
Certificateholders.
ASSIGNMENT OF MORTGAGE CERTIFICATES
Pursuant to the applicable Agreement for a Series of Certificates that
includes Mortgage Certificates in the related Trust Fund, the Depositor will
cause such Mortgage Certificates to be transferred to the Trustee together
with all principal and interest distributed on such Mortgage Certificates
after the Cut-off Date. Each Mortgage
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Certificate included in a Trust Fund will be identified in a schedule
appearing as an exhibit to the applicable Agreement. Such schedule will
include information as to the principal balance of each Mortgage Certificate
as of the date of issuance of the Certificates and its coupon rate, maturity
and original principal balance. In addition, such steps will be taken by the
Depositor as are necessary to cause the Trustee to become the registered owner
of each Mortgage Certificate which is included in a Trust Fund and to provide
for all distributions on each such Mortgage Certificate to be made directly to
the Trustee.
In connection with such assignment, the Depositor will make certain
representations and warranties in the Agreement as to, among other things, its
ownership of the Mortgage Certificates. In the event that these
representations and warranties are breached, and such breach or breaches
adversely affect the interests of the Certificateholders in the Mortgage
Certificates, the Depositor will be required to repurchase the affected
Mortgage Certificates at a price equal to the principal balance thereof as of
the date of purchase together with accrued and unpaid interest thereon at the
related pass-through rate to the distribution date for such Mortgage
Certificates or, in the case of a Series in which an election has been made to
treat the related Trust Fund as a REMIC, at the lesser of the price set forth
above, or the adjusted tax basis, as defined in the Code, of such Mortgage
Certificates. The Mortgage Certificates with respect to a Series may also be
subject to repurchase, in whole but not in part, under the circumstances and
in the manner described in the related Prospectus Supplement. Any amounts
received in respect of such repurchases will be distributed to
Certificateholders on the immediately succeeding Distribution Date.
If so specified in the related Prospectus Supplement, within the specified
period following the date of issuance of a Series of Certificates, the
Depositor may, in lieu of the repurchase obligation set forth above, and in
certain other circumstances, deliver to the Trustee Mortgage Certificates
("Substitute Mortgage Certificates") in substitution for any one or more of
the Mortgage Certificates ("Deleted Mortgage Certificates") initially included
in the Trust Fund. The required characteristics or any such Substitute
Mortgage Certificates and any additional restrictions relating to the
substitution of Mortgage Certificates will be set forth in the related
Prospectus Supplement.
ASSIGNMENT OF MORTGAGE LOANS
The Depositor will cause the Mortgage Loans constituting a Mortgage Pool to
be assigned to the Trustee, together with all principal and interest received
on or with respect to such Mortgage Loans after the Cut-off Date, but not
including principal and interest due on or before the Cut-off Date. The
Trustee will, concurrently with such assignment, deliver the Certificates to
the Depositor in exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule will include information as to the adjusted
principal balance of each Mortgage Loan as of the Cut-off Date, as well as
information respecting the Mortgage Rate, the currently scheduled monthly
payment of principal and interest, the maturity of the Mortgage Note and the
Loan-to-Value Ratio at origination.
In addition, the Depositor will, as to each Mortgage Loan that is not a
Cooperative Loan, deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) the Mortgage Note endorsed to the order of
the Trustee, the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will deliver a copy of such Mortgage together with its
certificate that the original of such Mortgage was delivered to such recording
office) and an assignment of the Mortgage in recordable form. Assignments of
the Mortgage Loans to the Trustee will be recorded in the appropriate public
office for real property records, except in states where, in the opinion of
counsel acceptable to the Trustee, such recording is not required to protect
the Trustee's interest in the Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the Depositor or the
Originator of such Mortgage Loan.
The Depositor will cause to be delivered to the Trustee, its agent, or a
custodian, with respect to any Cooperative Loan, the related original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing statement and the relevant stock certificate
and related blank stock
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powers. The Master Servicer will file in the appropriate office a financing
statement evidencing the Trustee's security interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will, generally
within 60 days after receipt thereof, review and hold such documents in trust
for the benefit of the Certificateholders. Unless otherwise specified in the
applicable Prospectus Supplement, if any such document is found to be
defective in any material respect, the Trustee will promptly notify the Master
Servicer and the Depositor, and the Master Servicer will notify the related
Servicer. If the Servicer cannot cure the defect within 60 days after notice
is given to the Master Servicer, the Servicer will be obligated either to
substitute for the related Mortgage Loan a Replacement Mortgage Loan or Loans,
or to purchase within 90 days of such notice the related Mortgage Loan from
the Trustee at a price equal to the principal balance thereof as of the date
of purchase or, in the case of a Series as to which an election has been made
to treat the related Trust Fund as a REMIC, at such other price as may be
necessary to avoid a tax on a prohibited transaction, as described in Section
860F(a) of the Code, in each case together with accrued interest at the
applicable 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 or the Servicer, as applicable, in respect of such Mortgage Loan. The
Master Servicer is obligated to enforce the repurchase obligation of the
Servicer, to the extent described above under "The Trust Fund--Mortgage Loan
Program--Representations by Unaffiliated Sellers; Repurchases." Unless
otherwise specified in the applicable Prospectus Supplement, this purchase
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for a material defect in a constituent document.
Unless otherwise specified in the applicable Prospectus Supplement, with
respect to the Mortgage Loans in a Mortgage Pool, the Depositor will make
representations and warranties as to the types and geographical distribution
of such Mortgage Loans and as to the accuracy in all material respects of
certain information furnished to the Trustee in respect of each such Mortgage
Loan. In addition, unless otherwise specified in the related Prospectus
Supplement, the Depositor will represent and warrant that, as of the Cut-off
Date for the related Series of Certificates, no Mortgage Loan is more than 30
days delinquent as to payment of principal and interest. Upon a breach of any
representation or warranty by the Depositor that materially and adversely
affects the interest of the Certificateholders, the Depositor will be
obligated either to cure the breach in all material respects or to purchase
the Mortgage Loan at the purchase price set forth above. Unless otherwise
specified in the applicable Prospectus Supplement and subject to the ability
of the Depositor, if so specified in the applicable Prospectus Supplement, to
substitute for certain Mortgage Loans as described below, this repurchase
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for a breach of representation or warranty by the Depositor.
Within the period specified in the related Prospectus Supplement, following
the date of issuance of a Series of Certificates, the Depositor, the Master
Servicer or the related Servicer, as the case may be, may deliver to the
Trustee Mortgage Loans ("Substitute Mortgage Loans") in substitution for any
one or more of the Mortgage Loans ("Deleted Mortgage Loans") initially
included in the Trust Fund but which do not conform in one or more respects to
the description thereof contained in the related Prospectus Supplement, or as
to which a breach of a representation or warranty is discovered, which breach
materially and adversely affects the interests of the Certificateholders. The
required characteristics of any such Substitute Mortgage Loan and any
additional restrictions relating to the substitution of Mortgage Loans will
generally be as described under "The Trust Fund--The Contract Pools" with
respect to the substitution of Contracts.
In addition to making certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under the
Pooling and Servicing Agreement relating to a Series of Certificates, the
Master Servicer may make certain representations and warranties to the Trustee
in such Pooling and Servicing Agreement with respect to the enforceability of
coverage under any applicable Primary Insurance Policy, Pool Insurance Policy,
Special Hazard Insurance Policy or Mortgagor Bankruptcy Bond. See "Description
of Insurance" for information regarding the extent of coverage under certain
of the aforementioned insurance policies. Upon a breach of any such
representation or warranty that materially and adversely affects the interests
of the Certificateholders of such Series in a Mortgage Loan, the Master
Servicer will be obligated
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either to cure the breach in all material respects or to purchase such
Mortgage Loan at the price calculated as set forth above.
To the extent described in the related Prospectus Supplement, the Master
Servicer will procure a surety bond, corporate guaranty or another similar
form of insurance coverage acceptable to the Rating Agency rating the related
Series of Certificates to support, among other things, this purchase
obligation. Unless otherwise stated in the applicable Prospectus Supplement,
the aforementioned purchase obligation constitutes the sole remedy available
to the Certificateholders or the Trustee for a breach of the Master Servicer's
insurability representation. The Master Servicer's obligation to purchase
Mortgage Loans upon such a breach is subject to limitations.
The Trustee will be authorized, with the consent of the Depositor and the
Master Servicer, to appoint a custodian pursuant to a custodial agreement to
maintain possession of documents relating to the Mortgage Loans as the agent
of the Trustee.
Pursuant to each Pooling and Servicing Agreement, the Master Servicer,
either directly or through Servicers, will service and administer the Mortgage
Loans assigned to the Trustee as more fully set forth below.
ASSIGNMENT OF CONTRACTS
The Depositor will cause the Contracts constituting the Contract Pool to be
assigned to the Trustee, together with principal and interest due on or with
respect to the Contracts after the Cut-off Date, but not including principal
and interest due on or before the Cut-off Date. If the Depositor is unable to
obtain a perfected security interest in a Contract prior to transfer and
assignment to the Trustee, the Unaffiliated Seller will be obligated to
repurchase such Contract. The Trustee, concurrently with such assignment, will
authenticate and deliver the Certificates. Each Contract will be identified in
a schedule appearing as an exhibit to the Agreement (the "Contract Schedule").
Unless otherwise specified in the related Prospectus Supplement, the Contract
Schedule will specify, with respect to each Contract, among other things: the
original principal amount and the adjusted principal balance as of the close
of business on the Cut-off Date; the APR; the current scheduled monthly level
payment of principal and interest; and the maturity of the Contract.
In addition, the Depositor, as to each Contract, will deliver or cause to be
delivered to the Trustee, or, as specified in the related Prospectus
Supplement, the Custodian, the original Contract and copies of documents and
instruments related to each Contract and the security interest in the
Manufactured Home securing each Contract. In order to give notice of the
right, title and interest of the Certificateholders to the Contracts, the
Depositor will cause a UCC-1 financing statement to be executed by the
Depositor identifying the Trustee as the secured party and identifying all
Contracts as collateral. Unless otherwise specified in the related Prospectus
Supplement, the Contracts will not be stamped or otherwise marked to reflect
their assignment from the Depositor to the Trust Fund. Therefore, if a
subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the interest of the Certificateholders in
the Contracts could be defeated. See "Certain Legal Aspects of Mortgage Loans
and Contracts--The Contracts."
The Trustee (or the Custodian) will review and hold such documents in trust
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, if any such document is found to be defective
in any material respect, the Unaffiliated Seller must cure such defect within
60 days, or within such other period specified in the related Prospectus
Supplement the Unaffiliated Seller, not later than 90 days or within such
other period specified in the related Prospectus Supplement, after the
Trustee's notice to the Unaffiliated Seller of the defect. If the defect is
not cured, the Unaffiliated Seller will repurchase the related Contract or any
property acquired in respect thereof from the Trustee at a price equal to the
remaining unpaid principal balance of such Contract (or, in the case of a
repossessed Manufactured Home, the unpaid principal balance of such Contract
immediately prior to the repossession) or, in the case of a Series as to which
an election has been made to treat the related Trust Fund as a REMIC, at such
other price as may be necessary to avoid a tax on a prohibited transaction, as
described in Section 860F(a) of the Code, in each case together with accrued
but unpaid interest to the first day of the month following repurchase at the
related Pass-Through Rate, plus any
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unreimbursed Advances respecting such Contract. Unless otherwise specified in
the related Prospectus Supplement, the repurchase obligation constitutes the
sole remedy available to the Certificateholders or the Trustee for a material
defect in a Contract document.
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller of Contracts will have represented, among other things,
that (i) immediately prior to the transfer and assignment of the Contracts,
the Unaffiliated Seller had good title to, and was the sole owner of each
Contract and there had been no other sale or assignment thereof, (ii) as of
the date of such transfer, the Contracts are subject to no offsets, defenses
or counterclaims, (iii) each Contract at the time it was made complied in all
material respects with applicable state and federal laws, including usury,
equal credit opportunity and disclosure laws, (iv) as of the date of such
transfer, each Contract is a valid first lien on the related Manufactured Home
and such Manufactured Home is free of material damage and is in good repair,
(v) as of the date of such transfer, no Contract is more than 30 days
delinquent in payment and there are no delinquent tax or assessment liens
against the related Manufactured Home and (vi) with respect to each Contract,
the Manufactured Home securing the Contract is covered by a Standard Hazard
Insurance Policy in the amount required in the Pooling and Servicing Agreement
and that all premiums now due on such insurance have been paid in full.
All of the representations and warranties of a seller in respect of a
Contract will have been made as of the date on which such seller sold the
Contract to the Depositor or its affiliate; the date such representations and
warranties were made may be a date prior to the date of initial issuance of
the related series of Certificates. A substantial period of time may have
elapsed between the date as of which the representations and warranties were
made and the later date of initial issuance of the related Series of
Certificates. Since the representations and warranties referred to in the
preceding paragraph are the only representations and warranties that will be
made by a seller, the seller's repurchase obligation described below will not
arise if, during the period commencing on the date of sale of a Contract by
the seller to the Depositor or its affiliate, the relevant event occurs that
would have given rise to such an obligation had the event occurred prior to
sale of the affected Contract. Nothing, however, has come to the Depositor's
attention that would cause it to believe that the representations and
warranties referred to in the preceding paragraph will not be accurate and
complete in all material respects in respect of Contracts as of the date of
initial issuance of the related series of Certificates.
The only representations and warranties to be made for the benefit of
Certificateholders in respect of any Contract relating to the period
commencing on the date of sale of such Contract to the Depositor or its
affiliate will be certain limited representations of the Depositor and of the
Master Servicer described above under "The Trust Fund--The Contract Pools."
If an Unaffiliated Seller cannot cure a breach of any representation or
warranty made by it in respect of a Contract that materially and adversely
affects the interest of the Certificateholders in such Contract within 90 days
(or such other period specified in the related Prospectus Supplement) after
notice from the Master Servicer, such Unaffiliated Seller will be obligated to
repurchase such Contract at a price equal to, unless otherwise specified in
the related Prospectus Supplement, the principal balance thereof as of the
date of the repurchase or, in the case of a Series as to which an election has
been made to treat the related Trust Fund as a REMIC, at such other price as
may be necessary to avoid a tax on a prohibited transaction, as described in
Section 860F(a) of the Code, in each case together with accrued and unpaid
interest to the first day of the month following repurchase at the related
Pass-Through Rate, plus the amount of any unreimbursed Advances in respect of
such Contract (the "Purchase Price"). The Master Servicer will be required
under the applicable Pooling and Servicing Agreement to enforce this
obligation for the benefit of the Trustee and the Certificateholders,
following the practices it would employ in its good faith business judgment
were it the owner of such Contract. Except as otherwise set forth in the
related Prospectus Supplement, this repurchase obligation will constitute the
sole remedy available to Certificateholders or the Trustee for a breach of
representation by an Unaffiliated Seller.
Neither the Depositor nor the Master Servicer will be obligated to purchase
a Contract if an Unaffiliated Seller defaults on its obligation to do so, and
no assurance can be given that sellers will carry out their respective
repurchase obligations with respect to Contracts. However, to the extent that
a breach of the representations and
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warranties of an Unaffiliated Seller may also constitute a breach of a
representation made by the Depositor or the Master Servicer, the Depositor or
the Master Servicer may have a purchase obligation as described above under
"The Trust Fund--The Contract Pools."
SERVICING BY UNAFFILIATED SELLERS
Each Unaffiliated Seller of a Mortgage Loan or a Contract may have the
option to act as the Servicer (or Master Servicer) for such Mortgage Loan or
Contract pursuant to a Servicing Agreement. A representative form of Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following description does not purport to be
complete and is qualified in its entirety by reference to the form of
Servicing Agreement and by the discretion of the Master Servicer or Depositor
to modify the Servicing Agreement and to enter into different Servicing
Agreements. The Pooling and Servicing Agreement provides that, if for any
reason the Master Servicer for such Series of Certificates is no longer the
Master Servicer of the related Mortgage Loans or Contracts, the Trustee or any
successor master servicer must recognize the Servicer's rights and obligations
under such Servicing Agreement.
A Servicer may delegate its servicing obligations to third-party servicers,
but continue to act as Servicer under the related Servicing Agreement. The
Servicer will be required to perform the customary functions of a servicer,
including collection of payments from Mortgagors and Obligors and remittance
of such collections to the Master Servicer, maintenance of primary mortgage,
hazard insurance, FHA insurance and VA guarantees and filing and settlement of
claims thereunder, subject in certain cases to (a) the right of the Master
Servicer to approve in advance any such settlement; (b) maintenance of escrow
accounts of Mortgagors and Obligors for payment of taxes, insurance, and other
items required to be paid by the Mortgagor pursuant to terms of the related
Mortgage Loan or the Obligor pursuant to the related Contract; (c) processing
of assumptions or substitutions; (d) attempting to cure delinquencies; (e)
supervising foreclosures or repossessions; (f) inspection and management of
Mortgaged Properties, Cooperative Dwellings or Manufactured Homes under
certain circumstances; and (g) maintaining accounting records relating to the
Mortgage Loans and Contracts. A Servicer will also be obligated to make
Advances in respect of delinquent installments of principal and interest on
Mortgage Loans and Contracts (as described more fully below under "--Payments
on Mortgage Loans" and "--Payments on Contracts"), and in respect of certain
taxes and insurance premiums not paid on a timely basis by Mortgagors and
Obligors.
As compensation for its servicing duties, a Servicer will be entitled to
amounts from payments with respect to the Mortgage Loans and Contracts
serviced by it. The Servicer will also be entitled to collect and retain, as
part of its servicing compensation, certain fees and late charges provided in
the Mortgage Note or related instruments. The Servicer will be reimbursed by
the Master Servicer for certain expenditures that it makes, generally to the
same extent that the Master Servicer would be reimbursed under the applicable
Pooling and Servicing Agreement.
Each Servicer will be required to agree to indemnify the Master Servicer for
any liability or obligation sustained by the Master Servicer in connection
with any act or failure to act by the Servicer in its servicing capacity.
Each Servicer will be required to service each Mortgage Loan or Contract
pursuant to the terms of the Servicing Agreement for the entire term of such
Mortgage Loan or Contract, unless the Servicing Agreement is earlier
terminated by the Master Servicer or unless servicing is released to the
Master Servicer. Unless otherwise set forth in the Prospectus Supplement, the
Master Servicer may terminate a Servicing Agreement upon 30 days' written
notice to the Servicer, without cause, upon payment of an amount equal to the
fair market value of the right to service the Mortgage Loans or Contracts
serviced by any such Servicer under such Servicing Agreement, or if such fair
market value cannot be determined, a specified percentage of the aggregate
outstanding principal balance of all such Mortgage Loans or Contracts, or
immediately upon the giving of notice upon certain stated events, including
the violation of such Servicing Agreement by the Servicer.
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The Master Servicer may agree with a Servicer to amend a Servicing
Agreement. The Master Servicer may also, at any time and from time to time,
release servicing to third-party servicers, but continue to act as Master
Servicer under the related Pooling and Servicing Agreement. Upon termination
of a Servicing Agreement, the Master Servicer may act as servicer of the
related Mortgage Loans or Contracts or enter into one or more new Servicing
Agreements. If the Master Servicer acts as servicer, it will not assume
liability for the representations and warranties of the Servicer that it
replaces. If the Master Servicer enters into a new Servicing Agreement, each
new Servicer must be an Unaffiliated Seller or meet the standards for becoming
an Unaffiliated Seller or have such servicing experience that is otherwise
satisfactory to the Master Servicer. The Master Servicer will make reasonable
efforts to have the new Servicer assume liability for the representations and
warranties of the terminated Servicer, but no assurance can be given that such
an assumption will occur. In the event of such an assumption, the Master
Servicer may, in the exercise of its business judgment, release the terminated
Servicer from liability in respect of such representations and warranties. Any
amendments to a Servicing Agreement or new Servicing Agreements may contain
provisions different from those described above that are in effect in the
original Servicing Agreements. However, the Pooling and Servicing Agreement
with respect to a Series will provide that any such amendment or new agreement
may not be inconsistent with or violate such Pooling and Servicing Agreement.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, unless otherwise specified in the Prospectus
Supplement with respect to a Series of Certificates, establish and maintain a
separate account or accounts in the name of the Trustee (the "Certificate
Account"), which must be maintained with a depository institution and in a
manner acceptable to the Rating Agency rating the Certificates of a Series.
If so specified in the applicable Prospectus Supplement, the Master
Servicer, in lieu of establishing a Certificate Account, may establish a
separate account or accounts in the name of the Trustee (the "Custodial
Account") meeting the requirements set forth herein for the Certificate
Account. In such a case, amounts in such Custodial Account, after making the
required deposits and withdrawals specified below, shall be remitted to the
Certificate Account maintained by the Trustee for distribution to
Certificateholders in the manner set forth herein and in such Prospectus
Supplement.
In those cases where a Servicer is servicing a Mortgage Loan pursuant to a
Servicing Agreement, the Servicer will establish and maintain an account (the
"Servicing Account") that will comply with either the standards set forth
above or, subject to the conditions set forth in the Servicing Agreement, be
maintained with a depository, meeting the requirements of the Rating Agency
rating the Certificates of the related Series, and that is otherwise
acceptable to the Master Servicer. The Servicer will be required to deposit
into the Servicing Account on a daily basis all amounts enumerated in the
following paragraph in respect of the Mortgage Loans received by the Servicer,
less its servicing compensation. On the date specified in the Servicing
Agreement, the Servicer shall remit to the Master Servicer all funds held in
the Servicing Account with respect to each Mortgage Loan. The Servicer will
also be required to advance any monthly installment of principal and interest
that was not timely received, less its servicing fee, provided that, unless
otherwise specified in the related Prospectus Supplement, such requirement
shall only apply to the extent such Servicer determines in good faith any such
advance will be recoverable out of Insurance Proceeds, proceeds of the
liquidation of the related Mortgage Loans or otherwise.
The Certificate Account may be maintained with a depository institution that
is an affiliate of the Master Servicer. The Master Servicer will deposit in
the Certificate Account for each Series of Certificates on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (other than payments due on or before the Cut-off Date) in the
manner set forth in the related Prospectus Supplement:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans, net of any portion of such payments
that represent unreimbursed or unrecoverable Advances made by the related
Servicer;
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(ii) all payments on account of interest on the Mortgage Loans, net of
any portion thereof retained by the Servicer, if any, as its servicing fee;
(iii) all proceeds of (A) any Special Hazard Insurance Policy, Primary
Mortgage Insurance Policy, FHA Insurance, VA Guarantee, Mortgagor
Bankruptcy Bond or Pool Insurance Policy with respect to such Series of
Certificates and any title, hazard or other insurance policy covering any
of the Mortgage Loans included in the related Mortgage Pool (to the extent
such proceeds are not applied to the restoration of the related property or
released to the Mortgagor in accordance with customary servicing
procedures) (collectively, "Insurance Proceeds") or any Alternative Credit
Support established in lieu of any such insurance and described in the
applicable Prospectus Supplement; and (B) all other cash amounts received
and retained in connection with the liquidation of defaulted Mortgage
Loans, by foreclosure or otherwise, other than Insurance Proceeds, payments
under the Letter of Credit or proceeds of any Alternative Credit Support,
if any, with respect to such Series ("Liquidation Proceeds"), net of
expenses of liquidation, unpaid servicing compensation with respect to such
Mortgage Loans and unreimbursed or unrecoverable Advances made by the
Servicers of the related Mortgage Loans;
(iv) all payments under the Letter of Credit, if any, with respect to
such Series;
(v) all amounts required to be deposited therein from the Reserve Fund,
if any, for such Series;
(vi) any Advances made by a Servicer or the Master Servicer (as described
herein under "--Advances");
(vii) any Buy-Down Funds (and, if applicable, investment earnings
thereon) required to be deposited in the Certificate Account, as described
below; and
(viii) all proceeds of any Mortgage Loan repurchased by the Master
Servicer, the Depositor, any Servicer or any Unaffiliated Seller (as
described under "The Trust Fund--Mortgage Loan Program--Representations by
Unaffiliated Sellers; Repurchases" or "--Assignment of Mortgage Loans"
above or repurchased by the Depositor as described under "--Termination"
below).
With respect to each Buy-Down Loan, if so specified in the related
Prospectus Supplement, the Master Servicer or the related Servicer will
deposit the Buy-Down Funds with respect thereto in a custodial account
complying with the requirements set forth above for the Certificate Account,
which, unless otherwise specified in the related Prospectus Supplement, may be
an interest-bearing account. The amount of such required deposits, together
with investment earnings thereon at the rate specified in the applicable
Prospectus Supplement, will provide sufficient funds to support the full
monthly payments due on such Buy-Down Loan on a level debt service basis.
Neither the Master Servicer nor the Depositor will be obligated to add to the
Buy-Down Fund should investment earnings prove insufficient to maintain the
scheduled level of payments on the Buy-Down Loans. To the extent that any such
insufficiency is not recoverable from the Mortgagor under the terms of the
related Mortgage Note, distributions to Certificateholders will be affected.
With respect to each Buy-Down Loan, the Master Servicer will withdraw from the
Buy-Down Fund and deposit in the Certificate Account on or before each
Distribution Date the amount, if any, for each Buy-Down Loan that, when added
to the amount due on that date from the Mortgagor on such Buy-Down Loan,
equals the full monthly payment that would be due on the Buy-Down Loan if it
were not subject to the buy-down plan.
If the Mortgagor on a Buy-Down Loan prepays such loan in its entirety, or
defaults on such loan and the Mortgaged Property is sold in liquidation
thereof, during the period when the Mortgagor is not obligated, on account of
the buy-down plan, to pay the full monthly payment otherwise due on such loan,
the related Servicer will withdraw from the Buy-Down Fund and deposit in the
Certificate Account the amounts remaining in the Buy-Down Fund with respect to
such Buy-Down Loan. In the event of a default with respect to which a claim,
including accrued interest supplemented by amounts in the Buy-Down Fund with
respect to the related Buy-Down Loan, has been made, the Master Servicer or
the related Servicer will pay an amount equal to the remaining amounts in the
Buy-Down Fund with respect to the related Buy-Down Loan, to the extent the
claim includes accrued interest supplemented by amounts in the Buy-Down Fund,
to the related Pool Insurer or the insurer under the related Primary Insurance
Policy (the "Primary Insurer") if the Mortgaged Property is
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transferred to the Pool Insurer or the Primary Insurer, as the case may be,
which pays 100% of the related claim (including accrued interest and expenses)
in respect of such default, to the L/C Bank in consideration of such payment
under the related Letter of Credit, or to the guarantor or other person which
pays the same pursuant to Alternative Credit Support described in the
applicable Prospectus Supplement. In the case of any such prepaid or defaulted
Buy-Down Loan the amounts in the Buy-Down Fund in respect of which were
supplemented by investment earnings, the Master Servicer will withdraw from
the Buy-Down Fund and remit to the Depositor or the Mortgagor, depending on
the terms of the related buy-down plan, any investment earnings remaining in
the related Buy-Down Fund.
If so specified in the Prospectus Supplement with respect to a Series, in
lieu of, or in addition to the foregoing, the Depositor may deliver cash, a
letter of credit or a guaranteed investment contract to the Trustee to fund
the Buy-Down Fund for such Series, which shall be drawn upon by the Trustee in
the manner and at the times specified in such Prospectus Supplement.
PAYMENTS ON CONTRACTS
A Certificate Account meeting the requirements set forth under "Description
of the Certificates--Payments on Mortgage Loans" will be established in the
name of the Trustee.
There will be deposited in the Certificate Account on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (including scheduled payments of principal and interest due after
the Cut-off Date but received by the Master Servicer on or before the Cut-off
Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts,
adjusted to the Pass-Through Rate;
(iii) all Liquidation Proceeds received with respect to Contracts or
property acquired in respect thereof by foreclosure or otherwise;
(iv) all Insurance Proceeds received with respect to any Contract, other
than proceeds to be applied to the restoration or repair of the
Manufactured Home or released to the Obligor;
(v) any Advances made as described under "--Advances" and certain other
amounts required under the Pooling and Servicing Agreement to be deposited
in the Certificate Account;
(vi) all amounts received from Credit Support provided with respect to a
Series of Certificates;
(vii) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Master Servicer, the Depositor or otherwise as
described above or under "--Termination" below; and
(viii) all amounts, if any, required to be transferred to the Certificate
Account from the Reserve Fund.
COLLECTION OF PAYMENTS ON MORTGAGE CERTIFICATES
The Mortgage Certificates included in the Trust Fund with respect to a
Series of Certificates will be registered in the name of the Trustee so that
all distributions thereon will be made directly to the Trustee. The Pooling
and Servicing Agreement will require the Trustee, if it has not received a
distribution with respect to any Mortgage Certificate by the second business
day after the date on which such distribution was due and payable pursuant to
the terms of such Mortgage Certificate, to request the issuer or guarantor, if
any, of such Mortgage Certificate to make such payment as promptly as possible
and legally permitted and to take such legal action against such issuer or
guarantor as the Trustee deems appropriate under the circumstances, including
the prosecution of any claims in connection therewith. The reasonable legal
fees and expenses incurred by the Trustee in connection with the prosecution
of any such legal action will be reimbursable to the Trustee out of the
proceeds of any such action and will be retained by the Trustee prior to the
deposit of any remaining proceeds in the Certificate Account pending
distribution thereof to Certificateholders of the affected Series. In the
event that the Trustee has reason to believe that the proceeds of any such
legal action may be insufficient to reimburse it for its projected legal fees
and expenses, the Trustee will notify such Certificateholders that it is not
obligated
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to pursue any such available remedies unless adequate indemnity for its legal
fees and expenses is provided by such Certificateholders.
DISTRIBUTIONS ON CERTIFICATES
On each Distribution Date with respect to a Series of Certificates as to
which credit support is provided by means other than the creation of a
Subordinated Class or Subclasses and the establishment of a Reserve Fund, the
Master Servicer will withdraw from the applicable Certificate Account funds on
deposit therein and distribute, or, if so specified in the applicable
Prospectus Supplement, will withdraw from the Custodial Account funds on
deposit therein and remit to the Trustee, who will distribute, such funds to
Certificateholders of record on the applicable Record Date. Such distributions
shall occur in the manner described herein under "Description of the
Certificates--Distributions of Principal and Interest" and in the related
Prospectus Supplement. If so specified in the applicable Prospectus
Supplement, the Master Servicer will withdraw from the applicable Certificate
Account funds on deposit therein and distribute them to the Trustee. Such
funds shall consist of the aggregate of all previously undistributed payments
on account of principal (including principal prepayments, if any) and interest
received after the Cut-off Date and on or prior to the 20th day (or if such
day is not a business day, the next preceding business day) of the month of
such distribution or such other day as may be specified in the related
Prospectus Supplement (in either case the "Determination Date"), except:
(i) all payments that were due on or before the Cut-off Date;
(ii) all principal prepayments received during the month of distribution
and all payments of interest representing interest for the month of
distribution or any portion thereof;
(iii) all payments which represent early receipt (other than prepayments)
of scheduled payments of principal and interest due on a date or dates
subsequent to the first day of the month of distribution;
(iv) amounts received on particular Mortgage Loans or Contracts as late
payments of principal or interest and respecting which the Master Servicer
has made an unreimbursed Advance;
(v) amounts representing reimbursement for other Advances which the
Master Servicer has determined to be otherwise nonrecoverable and amounts
representing reimbursement for certain losses and expenses incurred or
Advances made by the Master Servicer and discussed below; and
(vi) that portion of each collection of interest on a particular Mortgage
Loan in such Mortgage Pool or on a particular Contract in such Contract
Pool that represents (A) servicing compensation to the Master Servicer, (B)
amounts payable to the entity or entities specified in the applicable
Prospectus Supplement or permitted withdrawals from the Certificate Account
out of payments under the Letter of Credit, if any, with respect to the
Series, (C) related Insurance Proceeds or Liquidation Proceeds, (D) amounts
in the Reserve Fund, if any, with respect to the Series or (E) proceeds of
any Alternative Credit Support, each deposited in the Certificate Account
to the extent described under "Description of the Certificates--Maintenance
of Insurance Policies," "--Presentation of Claims," "--Enforcement of Due-
on-Sale Clauses; Realization Upon Defaulted Mortgage Loans" and "--
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Contracts"
or in the applicable Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement, no later
than the Business Day immediately preceding the Distribution Date for a Series
of Certificates, the Master Servicer will furnish a statement to the Trustee
setting forth the amount to be distributed on the next succeeding Distribution
Date on account of principal and interest on the Mortgage Loans or Contracts,
stated separately or the information enabling the Trustee to determine the
amount of distribution to be made on the Certificates and a statement setting
forth certain information with respect to the Mortgage Loans or Contracts.
If so specified in the applicable Prospectus Supplement, the Trustee will
establish and maintain the Certificate Account for the benefit of the holders
of the Certificates of the related Series in which the Trustee shall deposit,
as soon as practicable after receipt, each distribution made to the Trustee by
the Master Servicer, as set forth above, with respect to the Mortgage Loans or
Contracts, any distribution received by the Trustee
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with respect to the Mortgage Certificates, if any, included in the Trust Fund
and deposits from any Reserve Fund or GPM Fund. If so specified in the
applicable Prospectus Supplement, prior to making any distributions to
Certificateholders, any portion of the distribution on the Mortgage
Certificates that represents servicing compensation, if any, payable to the
Trustee shall be deducted and paid to the Trustee.
Funds on deposit in the Certificate Account may be invested in Eligible
Investments maturing in general not later than the Business Day preceding the
next Distribution Date. Unless otherwise provided in the Prospectus
Supplement, all income and gain realized from any such investment will be for
the benefit of the Master Servicer. The Master Servicer will be required to
deposit the amount of any losses incurred with respect to such investments out
of its own funds, when realized. The Certificate Account established pursuant
to the Deposit Trust Agreement shall be a non-interest bearing account or
accounts.
The timing and method of distribution of funds in the Certificate Account to
Classes or Subclasses of Certificates having differing terms, whether
subordinated or not, to the extent not described herein, shall be set forth in
the related Prospectus Supplement.
SPECIAL DISTRIBUTIONS
To the extent specified in the Prospectus Supplement relating to a Series of
Certificates, one or more Classes of Multi-Class Certificates that do not
provide for monthly Distribution Dates may receive Special Distributions in
reduction of Stated Principal Balance ("Special Distributions") in any month,
other than a month in which a Distribution Date occurs, if, as a result of
principal prepayments on the Trust Assets in the related Trust Fund and/or low
reinvestment yields, the Trustee determines, based on assumptions specified in
the related Pooling and Servicing Agreement, that the amount of cash
anticipated to be on deposit in the Certificate Account on the next
Distribution Date for such Series and available to be distributed to the
holders of the Certificates of such Classes or Subclasses may be less than the
sum of (i) the interest scheduled to be distributed to holders of the
Certificates of such Classes or Subclasses and (ii) the amount to be
distributed in reduction of Stated Principal Balance or such Certificates on
such Distribution Date. Any such Special Distributions will be made in the
same priority and manner as distributions in reduction of Stated Principal
Balance would be made on the next Distribution Date.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in the related Prospectus Supplement
for each Series, the Master Servicer or the Trustee will include with each
distribution to Certificateholders of record of such Series, or within a
reasonable time thereafter, a statement generally setting forth, among other
things, the following information, if applicable (per each Certificate, as to
(i) through (iii) or (iv) through (vi) below, as applicable):
(i) to each holder of a Certificate, other than a Multi-Class Certificate
or Residual Certificate, the amount of such distribution allocable to
principal of the Trust Assets, separately identifying the aggregate amount
of any Principal Prepayments included therein, and the portion, if any,
advanced by a Servicer or the Master Servicer;
(ii) to each holder of a Certificate, other than a Multi-Class
Certificate or Residual Certificate, the amount of such distribution
allocable to interest on the related Trust Assets and the portion, if any,
advanced by a Servicer or the Master Servicer;
(iii) to each holder of a Certificate, the amount of servicing
compensation with respect to the related Trust Assets and such other
customary information as the Master Servicer deems necessary or desirable
to enable Certificateholders to prepare their tax returns;
(iv) to each holder of a Multi-Class Certificate on which an interest
distribution and a distribution in reduction of Stated Principal Balance
are then being made, the amount of such interest distribution and
distribution in reduction of Stated Principal Balance, and the Stated
Principal Balance of each Class after giving effect to the distribution in
reduction of Stated Principal Balance made on such Distribution Date or on
any Special Distribution Date occurring subsequent to the last report;
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(v) to each holder of a Multi-Class Certificate on which a distribution
of interest only is then being made, the aggregate Stated Principal Balance
of Certificates outstanding of each Class or Subclass after giving effect
to the distribution in reduction of Stated Principal Balance made on such
Distribution Date and on any Special Distribution Date occurring subsequent
to the last such report and after including in the aggregate Stated
Principal Balance the Stated Principal Balance of the Compound Interest
Certificates, if any, outstanding and the amount of any accrued interest
added to the Compound Value of such Compound Interest Certificates on such
Distribution Date;
(vi) to each holder of a Compound Interest Certificate (but only if such
holder shall not have received a distribution of interest on such
Distribution Date equal to the entire amount of interest accrued on such
Certificate with respect to such Distribution Date):
(a) the information contained in the report delivered pursuant to
clause (v) above;
(b) the interest accrued on such Class or Subclass of Compound
Interest Certificates with respect to such Distribution Date and added
to the Compound Value of such Compound Interest Certificate; and
(c) the Stated Principal Balance of such Class or Subclass of
Compound Interest Certificates after giving effect to the addition
thereto of all interest accrued thereon;
(vii) in the case of a series of Certificates with a variable Pass-
Through Rate, the weighted average Pass-Through Rate applicable to the
distribution in question;
(viii) the amount or the remaining obligations of an L/C Bank with
respect to a Letter of Credit, after giving effect to the declining amount
available and any payments thereunder and other amounts charged thereto on
the applicable Distribution Date, expressed as a percentage of the amount
reported pursuant to (x) below, and the amount of coverage remaining under
the Pool Insurance Policy, Special Hazard Insurance Policy, Mortgagor
Bankruptcy Bond, or Reserve Fund as applicable, in each case, as of the
applicable Determination Date, after giving effect to any amounts with
respect thereto distributed to Certificateholders on the Distribution Date;
(ix) in the case of a Series of Certificates benefiting from the
Alternative Credit Support described in the related Prospectus Supplement,
the amount of coverage under such Alternative Credit Support as of the
close of business on the applicable Determination Date, after giving effect
to any amounts with respect thereto distributed to Certificateholders on
the Distribution Date;
(x) the aggregate scheduled principal balance of the Trust Assets as of a
date not earlier than such Distribution Date after giving effect to
payments of principal distributed to Certificateholders on the Distribution
Date;
(xi) the book value of any collateral acquired by the Mortgage Pool or
Contract Pool through foreclosure, repossession or otherwise; and
(xii) the number and aggregate principal amount of Mortgage Loans or
Contracts one month and two months delinquent.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer, or the Trustee, if specified in the
applicable Prospectus Supplement, will cause to be furnished to each
Certificateholder of record at any time during such calendar year a report as
to the aggregate of amounts reported pursuant to (i) through (iii) or (iv)
through (vi) above and such other information as in the judgment of the Master
Servicer or the Trustee, as the case may be, is needed for the
Certificateholder to prepare its tax return, as applicable, for such calendar
year or, in the event such person was a Certificateholder of record during a
portion of such calendar year, for the applicable portion of such year.
ADVANCES
Unless otherwise stated in the related Prospectus Supplement, each Servicer
and the Master Servicer (with respect to Mortgage Loans or Contracts serviced
by it and with respect to Advances required to be made by the
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Servicers that were not so made) will be obligated to advance funds in an
amount equal to the aggregate scheduled installments of payments of principal
and interest (adjusted to the applicable Pass-Through Rate) that were due on
the Due Date with respect to a Mortgage Loan or Contract and that were
delinquent (including any payments that have been deferred by the Servicer or
the Master Servicer) as of the close of business on the date specified in the
Pooling and Servicing Agreement, to be remitted no later than the close of
business on the business day immediately preceding the Distribution Date,
subject to (unless otherwise provided in the applicable Prospectus Supplement)
their respective determinations that such advances are reimbursable under any
Letter of Credit, Pool Insurance Policy, Primary Mortgage Insurance Policy,
Mortgagor Bankruptcy Bond, from the proceeds of Alternative Credit Support,
from cash in the Reserve Fund, the Servicing or Certificate Accounts or
otherwise. In making such advances, the Servicers and Master Servicer will
endeavor to maintain a regular flow of scheduled interest and principal
payments to the Certificateholders, rather than to guarantee or insure against
losses. Any such Advances are reimbursable to the Servicer or Master Servicer
out of related recoveries on the Mortgage Loans respecting which such amounts
were advanced. In addition, such Advances are reimbursable from cash in the
Reserve Fund, the Servicing or Certificate Accounts to the extent that the
Servicer or the Master Servicer, as the case may be, shall determine that any
such Advances previously made are not ultimately recoverable. The Servicers
and the Master Servicer generally will also be obligated to make advances in
respect of certain taxes and insurance premiums not paid by Mortgagors or
Obligors on a timely basis and, to the extent deemed recoverable, foreclosure
costs, including reasonable attorney's fees. Funds so advanced are
reimbursable out of recoveries on the related Mortgage Loans. This right of
reimbursement for any Advance will be prior to the rights of the
Certificateholders to receive any amounts recovered with respect to such
Mortgage Loans or Contracts. Unless otherwise provided in the applicable
Prospectus Supplement, the Servicers and the Master Servicer will also be
required to advance an amount necessary to provide a full month's interest
(adjusted to the applicable Pass-Through Rate) in connection with full or
partial prepayments, liquidations, defaults and repurchases of the Mortgage
Loans or Contracts. Any such Advances will not be reimbursable to the
Servicers or the Master Servicer.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through the Servicers, as the case may be,
will make reasonable efforts to collect all payments called for under the
Mortgage Loans or Contracts and will, consistent with the applicable Pooling
and Servicing Agreement and any applicable Letter of Credit, Pool Insurance
Policy, Special Hazard Insurance Policy, Primary Mortgage Insurance Policy,
Mortgagor Bankruptcy Bond, or Alternative Credit Support, follow such
collection procedures as it follows with respect to mortgage loans or
contracts serviced by it that are comparable to the Mortgage Loans or
Contracts, except when, in the case of FHA or VA Loans, applicable regulations
require otherwise. Consistent with the above, the Master Servicer may, in its
discretion, waive any late payment charge or any prepayment charge or penalty
interest in connection with the prepayment of a Mortgage Loan or Contract or
extend the due dates for payments due on a Mortgage Note or Contract for a
period of not greater than 270 days, provided that the insurance coverage for
such Mortgage Loan or Contract or the coverage provided by any Letter of
Credit or any Alternative Credit Support, will not be adversely affected.
Under the Pooling and Servicing Agreement, the Master Servicer, either
directly or through Servicers, to the extent permitted by law, may establish
and maintain an escrow account (the "Escrow Account") in which Mortgages or
Obligors will be required to deposit amounts sufficient to pay taxes,
assessments, mortgage and hazard insurance premiums and other comparable
items. This obligation may be satisfied by the provision of insurance coverage
against loss occasioned by the failure to escrow insurance premiums rather
than causing such escrows to be made. Withdrawals from the Escrow Account may
be made to effect timely payment of taxes, assessments, mortgage and hazard
insurance, to refund to Mortgagors or Obligors amounts determined to be
overages, to pay interest to Mortgagors or Obligors on balances in the Escrow
Account, if required, and to clear and terminate such account. The Master
Servicer will be responsible for the administration of each Escrow Account and
will be obliged to make advances to such accounts when a deficiency exists
therein. Alternatively, in lieu of establishing an Escrow Account, the
Servicer may procure a performance bond or other form of insurance coverage,
in an amount acceptable to the Rating Agency rating the related Series of
Certificates, covering loss occasioned by the failure to escrow such amounts.
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MAINTENANCE OF INSURANCE POLICIES
To the extent that the applicable Prospectus Supplement does not expressly
provide for a method of credit support described below under "Credit Support"
or for Alternative Credit Support in lieu of some or all of the insurance
coverage set forth below, the following paragraphs on insurance shall apply.
STANDARD HAZARD INSURANCE
To the extent specified in a related Prospectus Supplement, the terms of
each Servicing Agreement will require the Servicer to cause to be maintained
for each Mortgage Loan or Contract that it services (and the Master Servicer
will be required to maintain for each Mortgage Loan or Contract serviced by it
directly) a policy of standard hazard insurance (a "Standard Hazard Insurance
Policy") covering the Mortgaged Property underlying such Mortgage Loan or
Manufactured Home underlying such Contract in an amount at least equal to the
maximum insurable value or the improvements securing such Mortgage Loan or
Contract or the principal balance of such Mortgage Loan or Contract, whichever
is less. Each Servicer or the Master Servicer, as the case may be, shall also
maintain on property acquired upon foreclosure, or deed in lieu of
foreclosure, of any Mortgage Loan or Contract, a Standard Hazard Insurance
Policy in an amount that is at least equal to the maximum insurable value of
the improvements that are a part of the Mortgaged Property or Manufactured
Home. Any amounts collected by the Servicer or the Master Servicer under any
such policies (other than amounts to be applied to the restoration or repair
of the Mortgaged Property or Manufactured Home or released to the borrower in
accordance with normal servicing procedures) shall be deposited in the related
Servicing Account for deposit in the Certificate Account or, in the case of
the Master Servicer, shall be deposited directly into the Certificate Account.
Any cost incurred in maintaining any such insurance shall not, for the purpose
of calculating monthly distributions to Certificateholders, be added to the
amount owing under the Mortgage Loan or Contract, notwithstanding that the
terms of the Mortgage Loan or Contract may so permit. Such cost shall be
recoverable by the Servicer only by withdrawal of funds from the Servicing
Account or by the Master Servicer only by withdrawal from the Certificate
Account, as described in the Pooling and Servicing Agreement. No earthquake or
other additional insurance is to be required of any borrower or maintained on
property acquired in respect of a Mortgage Loan or Contract, other than
pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. When the Mortgaged
Property or Manufactured Home is located at the time of origination of the
Mortgage Loan or Contract in a federally designated flood area, the related
Servicer (or the Master Servicer, in the case of each Mortgage Loan or
Contract serviced by it directly) will cause flood insurance to be maintained,
to the extent available, in those areas where flood insurance is required
under the National Flood Insurance Act of 1968, as amended.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the
restoration of damaged property, any damage to such borrower's Cooperative
Dwelling or such Cooperative's building could significantly reduce the value
of the collateral securing such Cooperative Loan to the extent not covered by
other credit support.
The Pooling and Servicing Agreement will require the Master Servicer to
perform the aforementioned obligations of the Servicer in the event the
Servicer fails to do so. In the event that the Master Servicer obtains and
maintains a blanket policy insuring against hazard losses on all of the
related Mortgage Loans or Contracts, it will conclusively be deemed to have
satisfied its obligations to cause to be maintained a Standard Hazard
Insurance Policy for each Mortgage Loan or Contract that it services. This
blanket policy may contain a deductible clause, in which case the Master
Servicer will, in the event that there has been a loss that would have been
covered by such policy absent such deductible, deposit in the Certificate
Account the amount not otherwise payable under the blanket policy because of
the application of such deductible clause.
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Since the amount of hazard insurance to be maintained on the improvements
securing the Mortgage Loans or Contracts may decline as the principal balances
owing thereon decrease, and since residential properties have historically
appreciated in value over time, in the event of partial loss, hazard insurance
proceeds may be insufficient to fully restore the damaged Mortgaged Property
or Manufactured Home. See "Description of Insurance--Special Hazard Insurance
Policies" for a description of the limited protection afforded by a Special
Hazard Insurance Policy against losses occasioned by certain hazards that are
otherwise uninsured against as well as against losses caused by the
application of the coinsurance provisions contained in the Standard Hazard
Insurance Policies.
SPECIAL HAZARD INSURANCE
If so specified in the related Prospectus Supplement, the Master Servicer
will be required to exercise its best reasonable efforts to maintain the
Special Hazard Insurance Policy, if any, with respect to a Series of
Certificates in full force and effect, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premium for the Special
Hazard Insurance Policy on a timely basis; provided, however, that the Master
Servicer shall be under no such obligation if coverage under the Pool
Insurance Policy with respect to such Series has been exhausted. In the event
that the Special Hazard Insurance Policy is cancelled or terminated for any
reason (other than the exhaustion of total policy coverage), the Master
Servicer will exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to the Special Hazard Insurance Policy
with a total coverage that is equal to the then existing coverage of the
Special Hazard Insurance Policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated Special Hazard
Insurance Policy, the amount of coverage under the replacement Special Hazard
Insurance Policy may be reduced to a level such that the applicable premium
will not exceed the cost of the Special Hazard Insurance Policy that was
replaced. Certain characteristics of the Special Hazard Insurance Policy are
described under "Description of Insurance--Special Hazard Insurance Policies."
POOL INSURANCE
To the extent specified in a related Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Pool
Insurance Policy with respect to a Series of Certificates in effect throughout
the term of the Pooling and Servicing Agreement, unless coverage thereunder
has been exhausted through payment of claims, and will pay the premiums for
such Pool Insurance Policy on a timely basis. In the event that the Pool
Insurer ceases to be a qualified insurer because it is not qualified to
transact a mortgage guaranty insurance business under the laws of the state of
its principal place of business or any other state which has jurisdiction over
the Pool Insurer in connection with the Pool Insurance Policy, or if the Pool
Insurance Policy is cancelled or terminated for any reason (other than the
exhaustion of total policy coverage), the Master Servicer will exercise its
best reasonable efforts to obtain a replacement policy of pool insurance
comparable to the Pool Insurance Policy and may obtain, under the
circumstances described above with respect to the Special Hazard Insurance
Policy, a replacement policy with reduced coverage. In the event the Pool
Insurer ceases to be a qualified insurer because it is not approved as an
insurer by FHLMC, FNMA or any successors thereto, the Master Servicer will
agree to review, not less often than monthly, the financial condition of the
Pool Insurer with a view towards determining whether recoveries under the Pool
Insurance Policy are jeopardized and, if so, will exercise its best reasonable
efforts to obtain from another qualified insurer a replacement insurance
policy under the above-stated limitations. Certain characteristics of the Pool
Insurance Policy are described under "Description of Insurance--Pool Insurance
Policies."
PRIMARY MORTGAGE INSURANCE
To the extent specified in the related Prospectus Supplement, the Master
Servicer will be required to keep in force and effect for each Mortgage Loan
secured by Single Family Property serviced by it directly, and each Servicer
of a Mortgage Loan secured by Single Family Property will be required to keep
in full force and effect with respect to each such Mortgage Loan serviced by
it, in each case to the extent required by the underwriting standards of the
Depositor, a Primary Mortgage Insurance Policy issued by a qualified insurer
(the "Primary
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Mortgage Insurer") with regard to each Mortgage Loan for which such coverage
is required pursuant to the applicable Servicing Agreement and the Pooling and
Servicing Agreement and to act on behalf of the Trustee (the "Insured") under
each such Primary Mortgage Insurance Policy. Neither the Servicer nor the
Master Servicer will cancel or refuse to renew any such Primary Mortgage
Insurance Policy in effect at the date of the initial issuance of a Series of
Certificates that is required to be kept in force under the Pooling and
Servicing Agreement or applicable Servicing Agreement unless the replacement
Primary Mortgage Insurance Policy for such cancelled or non- renewed policy is
maintained with an insurer whose claims-paying ability is acceptable to the
Rating Agency rating the Certificates. See "Description of Insurance--Primary
Mortgage Insurance Policies."
MORTGAGOR BANKRUPTCY BOND
If so specified in the related Prospectus Supplement, the Master Servicer
will exercise its best reasonable efforts to maintain a Mortgagor Bankruptcy
Bond for a Series of Certificates in full force and effect throughout the term
of the Pooling and Servicing Agreement, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premiums for such
Mortgagor Bankruptcy Bond on a timely basis. At the request of the Depositor,
coverage under a Mortgagor Bankruptcy Bond will be cancelled or reduced by the
Master Servicer to the extent permitted by the Rating Agency rating the
related Series of Certificates, provided that such cancellation or reduction
does not adversely affect the then current rating of such Series. See
"Description of Insurance--Mortgagor Bankruptcy Bond."
PRESENTATION OF CLAIMS
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to HUD, the VA, the Pool Insurer, the
Special Hazard Insurer, the issuer of the Mortgagor Bankruptcy Bond, and each
Primary Mortgage Insurer, as applicable, and take such reasonable steps as are
necessary to permit recovery under such insurance policies or Mortgagor
Bankruptcy Bond, if any, with respect to a Series concerning defaulted
Mortgage Loans or Contracts or Mortgage Loans or Contracts that are the
subject of a bankruptcy proceeding. All collections by the Master Servicer
under any FHA insurance or VA guarantee, any Pool Insurance Policy, any
Primary Mortgage Insurance Policy or any Mortgagor Bankruptcy Bond and, where
the related property has not been restored, any Special Hazard Insurance
Policy, are to be deposited in the Certificate Account, subject to withdrawal
as heretofore described. In those cases in which a Mortgage Loan or Contract
is serviced by a Servicer, the Servicer, on behalf of itself, the Trustee and
the Certificateholders, will present claims to the applicable Primary Mortgage
Insurer and to the FHA and the VA, as applicable, and all collections
thereunder shall be deposited in the Servicing Account, subject to withdrawal,
as set forth above, for deposit in the Certificate Account.
If any property securing a defaulted Mortgage Loan or Contract is damaged
and proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under any Pool
Insurance Policy or any Primary Mortgage Insurance Policy, neither the related
Servicer nor the Master Servicer, as the case may be, will be required to
expend its own funds to restore the damaged property unless it determines,
and, in the case of a determination by a Servicer, the Master Servicer agrees,
(i) that such restoration will increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan or Contract after reimbursement of the
expenses incurred by the Servicer or the Master Servicer, as the case may be,
and (ii) that such expenses will be recoverable through proceeds of the sale
of the Mortgaged Property or proceeds of any related Pool Insurance Policy,
any related Primary Mortgage Insurance Policy or otherwise.
If recovery under a Pool Insurance Policy or any related Primary Mortgage
Insurance Policy is not available because the related Servicer or the Master
Servicer has been unable to make the above determinations or otherwise, the
Servicer or the Master Servicer is nevertheless obligated to follow such
normal practices and procedures as are deemed necessary or advisable to
realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation
of the Mortgaged Property or Manufactured Home are less than the principal
balance of the
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defaulted Mortgage Loan or Contract, respectively, plus interest accrued
thereon at the Pass-Through Rate, and if coverage under any other method of
credit support with respect to such Series is exhausted, the related Trust
Fund will realize a loss in the amount of such difference plus the aggregate
of expenses incurred by the Servicer or the Master Servicer in connection with
such proceedings and which are reimbursable under the related Servicing
Agreement or the Pooling and Servicing Agreement. In the event that any such
proceedings result in a total recovery that is, after reimbursement to the
Servicer or the Master Servicer of its expenses, in excess of the principal
balance of the related Mortgage Loan or Contract, together with accrued and
unpaid interest thereon at the applicable Pass-Through Rates, the Servicer and
the Master Servicer will be entitled to withdraw amounts representing normal
servicing compensation on such Mortgage Loan or Contract from the Servicing
Account or the Certificate Account, as the case may be.
ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION UPON DEFAULTED MORTGAGE LOANS
Each Servicing Agreement and the Pooling and Servicing Agreement with
respect to Certificates representing interests in a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the borrower, such
Servicer or the Master Servicer, as the case may be, will, to the extent it
has knowledge of such conveyance, exercise its rights to accelerate the
maturity of such Mortgage Loan under any "due-on-sale" clause applicable
thereto, if any, unless it reasonably believes that such enforcement is not
exercisable under applicable law or regulations or if such exercise would
result in loss of insurance coverage with respect to such Mortgage Loan. In
either case, where the due-on-sale clause will not be exercised, the Servicer
or the Master Servicer is authorized to take or enter into an assumption and
modification agreement from or with the person to whom such Mortgaged Property
has been or is about to be conveyed, pursuant to which such person becomes
liable under the Mortgage Note and, unless prohibited by applicable state law,
the Mortgagor remains liable thereon, provided that the Mortgage Loan will
continue to be covered by any Pool Insurance Policy and any related Primary
Mortgage Insurance Policy. In the case of an FHA Loan, such an assumption can
occur only with HUD approval of the substitute Mortgagor. Each Servicer and
the Master Servicer will also be authorized, with the prior approval of the
Insurer under any required insurance policies, to enter into a substitution of
liability agreement with such person, pursuant to which the original Mortgagor
is released from liability and such person is substituted as Mortgagor and
becomes liable under the Mortgage Note.
Under the Servicing Agreements and the Pooling and Servicing Agreement, the
Servicer or the Master Servicer, as the case may be, will foreclose upon or
otherwise comparably convert the ownership of properties securing such of the
related Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments.
In connection with such foreclosure or other conversion, the Servicer or the
Master Servicer will follow such practices and procedures as are deemed
necessary or advisable and as shall be normal and usual in its general
mortgage servicing activities and in accordance with FNMA guidelines, except
when, in the case of FHA or VA Loans, applicable regulations require
otherwise. However, neither the Servicer nor the Master Servicer will be
required to expend its own funds in connection with any foreclosure or towards
the restoration of any property unless it determines and, in the case of a
determination by a Servicer, the Master Servicer agrees (i) that such
restoration and/or foreclosure will increase the proceeds of liquidation of
the related Mortgage Loan to Certificateholders after reimbursement to itself
for such expenses and (ii) that such expenses will be recoverable to it either
through Liquidation Proceeds, Insurance Proceeds, payments under the Letter of
Credit, or amounts in the Reserve Fund, if any, with respect to the related
Series, or otherwise.
Any prospective purchaser of a Cooperative Dwelling will generally be
required to obtain the approval of the board of directors of the related
Cooperative before purchasing the shares and acquiring rights under the
proprietary lease or occupancy agreement securing the Cooperative Loan. See
"Certain Legal Aspects of the Mortgage Loans and Contracts--The Mortgage
Loans--Foreclosure" herein. This approval is usually based on the purchaser's
income and net worth and numerous other factors. Although the Cooperative's
approval is unlikely to be unreasonably withheld or delayed, the necessity of
acquiring such approval could limit the number of potential purchasers for
those shares and otherwise limit the Trust Fund's ability to sell and realize
the value of those shares.
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The market value of any Multifamily Property obtained in foreclosure or by
deed in lieu of foreclosure will be based substantially on the operating
income obtained from renting the dwelling units. Since a default on a Mortgage
Loan secured by Multifamily Property is likely to have occurred because
operating income, net of expenses, is insufficient to make debt service
payments on the related Mortgage Loan, it can be anticipated that the market
value of such property will be less than was anticipated when such Mortgage
Loan was originated. To the extent that the equity in the property does not
absorb the loss in market value and such loss is not covered by other credit
support, a loss may be experienced by the related Trust Fund. With respect to
Multifamily Property consisting of an apartment building owned by a
Cooperative, the Cooperative's ability to meet debt service obligations on the
Mortgage Loan, as well as all other operating expenses, will be dependent in
large part on the receipt of maintenance payments from the tenant-
stockholders, as well as any rental income from units or commercial areas the
Cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments of the tenant-stockholders. The
Cooperative's ability to pay the principal amount of the Mortgage Loan at
maturity may depend on its ability to refinance the Mortgage Loan. The
Depositor, the Unaffiliated Seller and the Master Servicer will have no
obligation to provide refinancing for any such Mortgage Loan.
ENFORCEMENT OF "DUE-ON-SALE" CLAUSES; REALIZATION UPON DEFAULTED CONTRACTS
Each Servicing Agreement and Pooling and Servicing Agreement with respect to
Certificates representing interests in a Contract Pool will provide that, when
any Manufactured Home securing a Contract is about to be conveyed by the
Obligor, the Master Servicer, to the extent it has knowledge of such
prospective conveyance and prior to the time of the consummation of such
conveyance, may exercise its rights to accelerate the maturity of such
Contract under the applicable "due-on-sale" clause, if any, unless it is not
exercisable under applicable law. In such case, the Master Servicer is
authorized to take or enter into an assumption agreement from or with the
person to whom such Manufactured Home has been or is about to be conveyed,
pursuant to which such person becomes liable under the Contract and, unless
determined to be materially adverse to the interests of Certificateholders,
with the prior approval of the Pool Insurer, if any, to enter into a
substitution of liability agreement with such person, pursuant to which the
original Obligor is released from liability and such person is substituted as
Obligor and becomes liable under the Contract. Where authorized by the
Contract, the APR may be increased, upon assumption, to the then-prevailing
market rate, but shall not be decreased.
Under the Servicing Agreement or the Pooling and Servicing Agreement, the
Master Servicer will repossess or otherwise comparably convert the ownership
of properties securing such of the related Manufactured Homes as come into and
continue in default and as to which no satisfactory arrangements can be made
for collection of delinquent payments. In connection with such repossession or
other conversion, the Servicer or Master Servicer will follow such practices
and procedures as it shall deem necessary or advisable and as shall be normal
and usual in its general Contract servicing activities. The Servicer or Master
Servicer, however, will not be required to expend its own funds in connection
with any repossession or towards the restoration of any property unless it
determines (i) that such restoration or repossession will increase the
proceeds of liquidation of the related Contract to the Certificateholders
after reimbursement to itself for such expenses and (ii) that such expenses
will be recoverable to it either through liquidation proceeds or through
insurance proceeds.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Under the Pooling and Servicing Agreement for a Series of Certificates, the
Depositor or the person or entity specified in the related Prospectus
Supplement and any Master Servicer will be entitled to receive an amount
described in such Prospectus Supplement. The Master Servicer's primary
compensation generally will be equal to the difference, with respect to each
interest payment on a Mortgage Loan, between the Mortgage Rate and the Pass-
Through Rate for the related Mortgage Pool and with respect to each interest
payment on a Contract, between the APR and the Pass-Through Rate for the
related Contract (less any servicing compensation payable to the Servicer of
the related Mortgage Loan or Contract, if any, as set forth below, and the
amount, if any, payable to the Depositor or to the person or entity specified
in the applicable Prospectus Supplement). As compensation for its servicing
duties, a Servicer will be entitled to receive a monthly servicing fee in the
amount specified in the
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related Servicing Agreement. Such servicing compensation shall be payable by
withdrawal from the related Servicing Account prior to deposit in the
Certificate Account. Each Servicer (with respect to the Mortgage Loans or
Contracts serviced by it) and the Master Servicer will be entitled to
servicing compensation out of Insurance Proceeds, Liquidation Proceeds, or
Letter of Credit payments. Additional servicing compensation in the form of
prepayment charges, assumption fees, late payment charges or otherwise shall
be retained by the Servicers and the Master Servicer to the extent not
required to be deposited in the Certificate Account.
The Servicers and the Master Servicer, unless otherwise specified in the
related Prospectus Supplement, will pay from their servicing compensation
certain expenses incurred in connection with the servicing of the Mortgage
Loans or Contracts, including, without limitation, payment of the Insurance
Policy premiums and, in the case of the Master Servicer, fees or other amounts
payable for any Alternative Credit Support, payment of the fees and
disbursements of the Trustee (and any custodian selected by the Trustee), the
Certificate Register and independent accountants and payment of expenses
incurred in enforcing the obligations of Servicers and Unaffiliated Sellers.
Certain of these expenses may be reimbursable by the Depositor pursuant to the
terms of the Pooling and Servicing Agreement. In addition, the Master Servicer
will be entitled to reimbursement of expenses incurred in enforcing the
obligations of Servicers and Unaffiliated Sellers under certain limited
circumstances.
As set forth in the preceding section, the Servicers and the Master Servicer
will be entitled to reimbursement for certain expenses incurred by them in
connection with the liquidation of defaulted Mortgage Loans or Contracts. The
related Trust Fund will suffer no loss by reason of such expenses to the
extent claims are fully paid under the Letter of Credit, if any, the related
insurance policies, from amounts in the Reserve Fund or under any applicable
Alternative Credit Support described in a Prospectus Supplement. In the event,
however, that claims are either not made or fully paid under such Letter of
Credit, Insurance Policies or Alternative Credit Support, or if coverage
thereunder has ceased, or if amounts in the Reserve Fund are not sufficient to
fully pay such losses, the related Trust Fund will suffer a loss to the extent
that the proceeds of the liquidation proceedings, after reimbursement of the
expenses of the Servicers or the Master Servicer, as the case may be, are less
than the principal balance of the related Mortgage Loan or Contract. In
addition, the Servicers and the Master Servicer will be entitled to
reimbursement of expenditures incurred by them in connection with the
restoration of a Mortgaged Property, Cooperative Dwelling or Manufactured
Home, such right of reimbursement being prior to the rights of the
Certificateholders to receive any payments under the Letter of Credit, or from
any related Insurance Proceeds, Liquidation Proceeds, amounts in the Reserve
Fund or any proceeds of Alternative Credit Support.
Under the Deposit Trust Agreement, the Trustee will be entitled to deduct,
from distributions of interest with respect to the Mortgage Certificates, a
specified percentage of the unpaid principal balance of each Mortgage
Certificate as servicing compensation. The Trustee shall be required to pay
all expenses, except as expressly provided in the Deposit Trust Agreement,
subject to limited reimbursement as provided therein.
EVIDENCE AS TO COMPLIANCE
The Master Servicer will deliver to the Depositor and the Trustee, on or
before the date specified in the Pooling and Servicing Agreement, an Officer's
Certificate stating that (i) a review of the activities of the Master Servicer
and the Servicers during the preceding calendar year and of its performance
under the Pooling and Servicing Agreement has been made under the supervision
of such officer, and (ii) to the best of such officer's knowledge, based on
such review, the Master Servicer and each Servicer has fulfilled all its
obligations under the Pooling and Servicing Agreement and the applicable
Servicing Agreement throughout such year, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof. Such Officer's Certificate
shall be accompanied by a statement of a firm of independent public
accountants to the effect that, on the basis of an examination of certain
documents and records relating to servicing of the Mortgage Loans or Contract,
conducted in accordance with generally accepted accounting principles in the
mortgage banking industry, the servicing of the Mortgage Loans or Contract was
conducted in compliance with the provisions of the Pooling and Servicing
Agreement and the Servicing Agreements, except for such exceptions as such
firm believes it is required to report.
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CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE DEPOSITOR AND THE TRUSTEE
The Master Servicer under each Pooling and Servicing Agreement will be named
in the applicable Prospectus Supplement. The entity acting as Master Servicer
may be an Unaffiliated Seller and have other normal business relationships
with the Depositor and/or affiliates of the Depositor and may be an affiliate
of the Depositor. In the event there is no Master Servicer under a Pooling and
Servicing Agreement, all servicing of Mortgage Loans or Contracts will be
performed by a Servicer pursuant to a Servicing Agreement.
The Master Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement except upon a determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor servicer has assumed
the Master Servicer's obligations and duties under the Pooling and Servicing
Agreement.
The Trustee under each Pooling and Servicing Agreement or Deposit Trust
Agreement will be named in the applicable Prospectus Supplement. The
commercial bank or trust company serving as Trustee may have normal banking
relationships with the Depositor and/or its affiliates and with the Master
Servicer and/or its affiliates.
The Trustee may resign from its obligations under the Pooling and Servicing
Agreement at any time, in which event a successor trustee will be appointed.
In addition, the Depositor may remove the Trustee if the Trustee ceases to be
eligible to act as Trustee under the Pooling and Servicing Agreement or if the
Trustee becomes insolvent, at which time the Depositor will become obligated
to appoint a successor Trustee. The Trustee may also be removed at any time by
the holders of Certificates evidencing voting rights aggregating not less than
50% of the voting rights evidenced by the Certificates of such Series. Any
resignation and removal of the Trustee, and the appointment of a successor
trustee, will not become effective until acceptance of such appointment by the
successor Trustee.
The Trustee may resign at any time from its obligations and duties under the
Deposit Trust Agreement by executing an instrument in writing resigning as
Trustee, filing the same with the Depositor, mailing a copy of a notice of
resignation to all Certificateholders then of record, and appointing a
qualified successor trustee. No such resignation will become effective until
the successor trustee has assumed the Trustee's obligations and duties under
the Deposit Trust Agreement.
Each Pooling and Servicing Agreement and Deposit Trust Agreement will also
provide that neither the Depositor nor the Master Servicer nor any director,
officer, employee or agent of the Depositor or the Master Servicer or the
Trustee, or any responsible officers of the Trustee will be under any
liability to the Certificateholders, for the taking of any action or for
refraining from the taking of any action in good faith pursuant to the Pooling
and Servicing Agreement, or for errors in judgment; provided, however, that
none of the Depositor, the Master Servicer or the Trustee nor any such person
will be protected against, in the case of the Master Servicer and the
Depositor, any breach of representations or warranties made by them, and in
the case of the Master Servicer, the Depositor and the Trustee, against any
liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties thereunder. Each Pooling and
Servicing Agreement and Deposit Trust Agreement will further provide that the
Depositor, the Master Servicer and the Trustee and any director, officer and
employee or agent of the Depositor, the Master Servicer or the Trustee shall
be entitled to indemnification, by the Trust Fund in the case of the Depositor
and Master Servicer and by the Master Servicer in the case of the Trustee and
will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the applicable Agreement or the
Certificates and in the case of the Trustee, resulting from any error in any
tax or information return prepared by the Master Servicer or from the exercise
of any power of attorney granted pursuant to the Pooling and Servicing
Agreement, other than any loss, liability or expense related to any specific
Mortgage Loan, Contract or Mortgage Certificate (except any such loss,
liability or expense otherwise reimbursable pursuant to the applicable
Agreement) and any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of their duties
thereunder or by reason of reckless disregard of their obligations and duties
thereunder. In addition, each Agreement will provide that neither the
Depositor nor the Master Servicer, as the case may be, will be under any
obligation to appear in,
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prosecute or defend any legal action that is not incidental to its duties
under the Agreement and that in its opinion may involve it in any expense or
liability. The Depositor or the Master Servicer may, however, in their
discretion, undertake any such action deemed by them necessary or desirable
with respect to the applicable Agreement and the rights and duties of the
parties thereto and the interests of the Certificateholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund,
and the Master Servicer or the Depositor, as the case may be, will be entitled
to be reimbursed therefor out of the Certificate Account.
DEFICIENCY EVENT
To the extent a deficiency event is specified in the related Prospectus
Supplement, a deficiency event (a "Deficiency Event") with respect to the
Certificates of each Series may be defined in the Pooling and Servicing
Agreement as being the inability of the Trustee to distribute to holders of
one or more Classes of Certificates of such Series, in accordance with the
terms thereof and the Pooling and Servicing Agreement, any distribution of
principal or interest thereon when and as distributable, in each case because
of the insufficiency for such purpose of the funds then held in the related
Trust Fund.
To the extent a deficiency event is specified in the related Prospectus
Supplement, upon the occurrence of a Deficiency Event, the Trustee is required
to determine whether or not the application on a monthly basis (regardless of
the frequency of regular Distribution Dates) of all future scheduled payments
on the Mortgage Loans, Contracts and Mortgage Certificates included in the
related Trust Fund and other amount receivable with respect to such Trust Fund
towards payments on such Certificates in accordance with the priorities as to
distributions of principal and interest set forth in such Certificates will be
sufficient to make distributions of interest at the applicable Interest Rates
and to distribute in full the principal balance of each such Certificate on or
before the latest Final Distribution Date of any outstanding Certificates of
such Series.
To the extent a deficiency event is specified in the related Prospectus
Supplement, the Trustee will obtain and rely upon an opinion or report of a
firm of independent accountants of recognized national reputation as to the
sufficiency of the amounts receivable with respect to such Trust Fund to make
such distributions on the Certificates, which opinion or report will be
conclusive evidence as to such sufficiency. Pending the making of any such
determination, distributions on the Certificates shall continue to be made in
accordance with their terms.
To the extent a deficiency event is specified in the related Prospectus
Supplement, in the event that the Trustee makes a positive determination, the
Trustee will apply all amounts received in respect of the related Trust Fund
(after payment of fees and expenses of the Trustee and accountants for the
Trust Fund) to distributions on the Certificates of such Series in accordance
with their terms, except that such distributions shall be made monthly and
without regard to the amount of principal that would otherwise be
distributable on any Distribution Date. Under certain circumstances following
such positive determination, the Trustee may resume making distributions on
such Certificates expressly in accordance with their terms.
To the extent a deficiency event is specified in the related Prospectus
Supplement, if the Trustee is unable to make the positive determination
described above, the Trustee will apply all amounts received in respect of the
related Trust Fund (after payment of Trustee and accountants' fees and
expenses) to monthly distributions on the Certificates of such series pro
rata, without regard to the priorities as to distribution of principal set
forth in such Certificates, and such Certificates will, to the extent
permitted by applicable law, accrue interest at the highest Interest Rate
borne by any Certificate of such Series, or in the event any Class of such
Series shall accrue interest at a floating rate, at the weighted average
Interest Rate, calculated on the basis of the maximum interest rate applicable
to the Class having such floating interest rate and on the original principal
amount of the Certificates of that Class. In such event, the holders of a
majority in outstanding principal balance of such Certificates may direct the
Trustee to sell the related Trust Fund, any such direction being irrevocable
and binding upon the holders of all Certificates of such Series and upon the
owners of the residual interests in such Trust Fund. In the absence of such a
direction, the Trustee may not sell all or any portion of such Trust Fund.
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EVENTS OF DEFAULT
Events of Default under each Pooling and Servicing Agreement will consist
of: (i) any failure to make a specified payment which continues unremedied, in
most cases, for five business days after the giving of written notice; (ii)
any failure by the Trustee, the Servicer or the Master Servicer, as
applicable, duly to observe or perform in any material respect any other of
its covenants or agreements in the Pooling and Servicing Agreement which
failure shall continue for 60 days (15 days in the case of a failure to pay
the premium for any insurance policy) or any breach of any representation and
warranty made by the Master Servicer or the Servicer, if applicable, which
continues unremedied for 120 days after the giving of written notice of such
failure or breach; (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings regarding the
Master Servicer or a Servicer, as applicable; and (iv) any lowering,
withdrawal or notice of an intended or potential lowering, of the outstanding
rating of the Certificates by the Rating Agency rating such Certificates
because the existing or prospective financial condition or mortgage loan
servicing capability of the Master Servicer is insufficient to maintain such
rating.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default with respect to a Series of Certificates
remains unremedied, the Depositor, the Trustee or the holders of Certificates
evidencing not less than 25% of the voting rights evidenced by the
Certificates of such Series may terminate all of the rights and obligations of
the Master Servicer under the Pooling and Servicing Agreement and in and to
the Mortgage Loans and Contracts and the proceeds thereof, whereupon (subject
to applicable law regarding the Trustee's ability to make advances) the
Trustee or, if the Depositor so notifies the Trustee and the Master Servicer,
the Depositor or its designee, will succeed to all the responsibilities,
duties and liabilities of the Master Servicer under such Pooling and Servicing
Agreement and will be entitled to similar compensation arrangements. In the
event that the Trustee would be obligated to succeed the Master Servicer but
is unwilling or unable so to act, it may appoint, or petition to a court of
competent jurisdiction for the appointment of, a successor master servicer.
Pending such appointment, the Trustee (unless prohibited by law from so
acting) shall be obligated to act in such capacity. The Trustee and such
successor master servicer may agree upon the servicing compensation to be paid
to such successor, which in no event may be greater than the compensation to
the Master Servicer under the Pooling and Servicing Agreement.
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Depositor, the
Master Servicer and the Trustee, without the consent of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement
any provision therein that may be inconsistent with any other provision
therein, or (iii) to make any other provisions with respect to matters or
questions arising under such Pooling and Servicing Agreement that are not
inconsistent with the provisions thereof, provided that such action will not
adversely affect in any material respect the interests of any
Certificateholder of the related Series. The Pooling and Servicing Agreement
may also be amended by the Depositor, the Master Servicer and the Trustee with
the consent of holders of Certificates evidencing not less than 66 2/3% of the
voting rights evidenced by the Certificates, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of such Pooling and Servicing Agreement or of modifying in any manner the
rights of the Certificateholders; provided, however, that no such amendment
may (i) reduce in any manner the amount of, delay the timing of or change the
manner in which payments received on or with respect to Mortgage Loans and
Contracts are required to be distributed with respect to any Certificate
without the consent of the holder of such Certificate, (ii) adversely affect
in any material respect the interests of the holders of a Class or Subclass of
the Senior Certificates, if any, of a Series in a manner other than that set
forth in (i) above without the consent of the holders of the Senior
Certificates of such Subclass evidencing not less than 66 2/3% of such Class
or Subclass, (iii) adversely affect in any material respect the interests of
the holders of the Subordinated Certificates of a Series in a manner other
than that set forth in (i) above without the consent of the holders of
Subordinated Certificates evidencing not less than 66 2/3% of such Class or
Subclass, or (iv) reduce the aforesaid percentage of the Certificates, the
holders of which are required to consent to such amendment, without the
consent of the holders of the Class affected thereby.
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The Deposit Trust Agreement for a Series may be amended by the Trustee and
the Depositor without Certificateholder consent, to cure any ambiguity, to
correct or supplement any provision therein that may be inconsistent with any
other provision therein, or to make any other provisions with respect to
matters or questions arising thereunder that are not inconsistent with any
other provisions thereof, provided that such action will not, as evidenced by
an opinion of counsel, adversely affect the interests of any
Certificateholders of that Series in any material respect. The Deposit Trust
Agreement for each Series may also be amended by the Trustee and the Depositor
with the consent of the Holders of Certificates evidencing Percentage
Interests aggregating not less than 66 2/3% of each Class of the Certificates
of such Series affected thereby for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Agreement
or modifying in any manner the rights of Certificateholders of that Series;
provided, however, that no such amendment may (i) reduce in any manner the
amount of, or delay the timing of, or change the manner in which payments
received on Mortgage Certificates are required to be distributed in respect of
any Certificate, without the consent of the Holder of such Certificate or (ii)
reduce the aforesaid percentage of Certificates the Holders of which are
required to consent to any such amendment, without the consent of the Holders
of all Certificates of such Series then outstanding.
TERMINATION
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate upon the earlier of (a) the repurchase of all
Mortgage Loans or Contracts and all property acquired by foreclosure of any
such Mortgage Loan or Contract and (b) the later of (i) the maturity or other
liquidation of the last Mortgage Loan or Contract subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage
Loan or Contract and (ii) the payment to the Certificateholders of all amounts
held by the Master Servicer and required to be paid to them pursuant to such
Pooling and Servicing Agreement. The obligations created by the Deposit Trust
Agreement for a Series of Certificates will terminate upon the distribution to
Certificateholders of all amounts required to be distributed to them pursuant
to such Deposit Trust Agreement. In no event, however, will the trust created
by either such Agreement continue beyond the expiration of 21 years from the
death of the last survivor of certain persons identified therein. For each
Series of Certificates, the Master Servicer will give written notice of
termination of the applicable Agreement of each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency specified in the notice of termination.
If so provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Depositor or such other person as may be specified in the
Prospectus Supplement to repurchase from the Trust Fund for such Series all
remaining Mortgage Loans or Contracts subject to the Pooling and Servicing
Agreement at a price specified in such Prospectus Supplement. In the event
that the Depositor elects to treat the related Trust Fund as a REMIC under the
Code, any such repurchase will be effected in compliance with the requirements
of Section 860F(a)(4) of the Code, in order to constitute a "qualifying
liquidation" thereunder. The exercise of any such right will effect early
retirement of the Certificates of that Series, but the right so to repurchase
may be effected only on or after the aggregate principal balance of the
Mortgage Loans or Contracts for such Series at the time of repurchase is less
than a specified percentage of the aggregate principal balance at the Cut-off
Date for the Series, or on or after the date set forth in the related
Prospectus Supplement.
CREDIT SUPPORT
Credit support for a Series of Certificates may be provided by one or more
Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Certificates (which may, if so specified in the related Prospectus Supplement,
be issued in notional amounts) the provision for shifting interest credit
enhancement, the establishment of a Reserve Fund, the method of Alternative
Credit Support specified in the applicable Prospectus Supplement, or any
combination of the foregoing, in addition to, or in lieu of, the insurance
arrangements set forth below under Description of Insurance. The amount and
method of credit support will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
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LETTERS OF CREDIT
The Letters of Credit, if any, with respect to a Series of Certificates will
be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). The maximum obligation of the L/C Bank
under the Letter of Credit will be to honor requests for payment thereunder in
an aggregate fixed dollar amount, net of unreimbursed payments thereunder,
equal to the percentage of the aggregate principal balance on the related Cut-
off Date of the Mortgage Loans or Contracts evidenced by each Series (the "L/C
Percentage") specified in the Prospectus Supplement for such Series. The
duration of coverage and the amount and frequency of any reduction in coverage
provided by the Letter of Credit with respect to a Series of Certificates will
be in compliance with the requirements established by the Rating Agency rating
such Series and will be set forth in the Prospectus Supplement relating to
such Series of Certificates. The amount available under the Letter of Credit
in all cases shall be reduced to the extent of the unreimbursed payments
thereunder. The obligations of the L/C Bank under the Letter of Credit for
each Series of Certificates will expire 30 days after the latest of the
scheduled final maturity dates of the Mortgage Loans or Contracts in the
related Mortgage Pool or Contract Pool or the repurchase of all Mortgage Loans
or Contracts in the Mortgage Pool or Contract Pool in the circumstances
specified above. See "Description of the Certificates--Termination."
Unless otherwise specified in the applicable Prospectus Supplement, under
the Pooling and Servicing Agreement, the Master Servicer will be required not
later than three business days prior to each Distribution Date to determine
whether a payment under the Letter of Credit will be necessary on the
Distribution Date and will, no later than the third business day prior to such
Distribution Date, advise the L/C Bank and the Trustee of its determination,
setting forth the amount of any required payment. On the Distribution Date,
the L/C Bank will be required to honor the Trustee's request for payment
thereunder in an amount equal to the lesser of (A) the remaining amount
available under the Letter of Credit and (B) the outstanding principal
balances of any Liquidating Loans to be assigned on such Distribution Date
(together with accrued and unpaid interest thereon at the related Mortgage
Rate or APR to the related Due Date). The proceeds of such payments under the
Letter of Credit will be deposited into the Certificate Account and will be
distributed to Certificateholders, in the manner specified in the related
Prospectus Supplement, on such Distribution Date, except to the extent of any
unreimbursed Advances, servicing compensation due to the Servicers and the
Master Servicer and other amounts payable to the Depositor or the person or
entity named in the applicable Prospectus Supplement therefrom.
If at any time the L/C Bank makes a payment in the amount of the full
outstanding principal balance and accrued interest on a Liquidating Loan, it
will be entitled to receive an assignment by the Trustee of such Liquidating
Loan, and the L/C Bank will thereafter own such Liquidating Loan free of any
further obligation to the Trustee or the Certificateholders with respect
thereto. Payments made to the Certificate Account by the L/C Bank under the
Letter of Credit with respect to such a Liquidating Loan will be reimbursed to
the L/C Bank only from the proceeds (net of liquidation costs) of such
Liquidating Loan. The amount available under the Letter of Credit will be
increased to the extent it is reimbursed for such payments.
To the extent the proceeds of liquidation of a Liquidating Loan acquired by
the L/C Bank in the manner described in the preceding paragraph exceed the
amount of payments made with respect thereto, the L/C Bank will be entitled to
retain such proceeds as additional compensation for issuance of the Letter of
Credit.
Prospective purchasers of Certificates of a Series with respect to which
credit support is provided by a Letter of Credit must look to the credit of
the L/C Bank, to the extent of its obligations under the Letter of Credit, in
the event of default by Mortgagors or Obligors. If the amount available under
the Letter of Credit is exhausted, or the L/C Bank becomes insolvent, and
amounts in the Reserve Fund, if any, with respect to such Series are
insufficient to pay the entire amount of the loss and still be maintained at
the level specified in the related Prospectus Supplement (the "Required
Reserve"), the Certificateholders (in the priority specified in the related
Prospectus Supplement) will thereafter bear all risks of loss resulting from
default by Mortgagors or Obligors (including losses not covered by insurance
or Alternative Credit Support), and must look primarily to the value of the
properties securing defaulted Mortgage Loans or Contracts for recovery of the
outstanding principal and unpaid interest.
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In the event that a Subordinated Class or Subclass of a Series of
Certificates is issued with a notional amount, the coverage provided by the
Letter of Credit with respect to such Series, and the terms and conditions of
such coverage, will be set forth in the related Prospectus Supplement.
SUBORDINATED CERTIFICATES
To the extent specified in the Prospectus Supplement with respect to a
Series of Certificates, credit support may be provided by the subordination of
the rights of the holders of one or more Classes or Subclasses of Certificates
to receive distributions with respect to the Mortgage Loans in the Mortgage
Pool or Contracts in the Contract Pool underlying such Series, or with respect
to a Subordinated Pool of mortgage loans or manufactured housing conditional
sales contracts and installment loan agreements, to the rights of the Senior
Certificateholders or holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series to receive such distributions, to the
extent of the applicable Subordinated Amount. In such a case, credit support
may also be provided by the establishment of a Reserve Fund, as described
below. The Subordinated Amount, as described below, will be reduced by an
amount equal to Aggregate Losses. Aggregate Losses are defined in the related
Pooling and Servicing Agreement for any given period as the aggregate amount
of delinquencies, losses and other deficiencies in the amounts due to the
holders of the Certificates of one or more classes or Subclasses of such
Series paid or borne by the holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series ("payment deficiencies"), but
excluding any payments of interest on any amounts originally due to the
holders of the Certificates of a Class or Subclass to which the applicable
Class or Subclass of Subordinated Certificates are subordinated on a previous
Distribution Date, but not paid as due, whether by way of withdrawal from the
Reserve Fund (including, prior to the time that the Subordinated Amount is
reduced to zero, any such withdrawal of amounts attributable to the Initial
Deposit, if any), reduction in amounts otherwise distributable to the
Subordinated Certificateholders on any Distribution Date or otherwise, less
the aggregate amount of previous payment deficiencies recovered by the related
Trust Fund during such period in respect of the Mortgage Loans or Contracts
giving rise to such previous payment deficiencies, including, without
limitation, such recoveries resulting from the receipt of delinquent principal
and/or interest payments, Liquidation Proceeds or Insurance Proceeds (net, in
each case, of servicing compensation, foreclosure costs and other servicing
costs, expenses and unreimbursed Advances relating to such Mortgage Loans or
Contracts). The Prospectus Supplement for each Series of Certificates with
respect to which credit support will be provided by one or more Classes or
Subclasses of Subordinated Certificates will set forth the Subordinated Amount
for such Series. If specified in the related Prospectus Supplement, the
Subordinated Amount will decline over time in accordance with a schedule which
will also be set forth in the related Prospectus Supplement.
SHIFTING INTEREST
If specified in the Prospectus Supplement for a Series of Certificates for
which credit enhancement is provided by shifting interest as described herein,
the rights of the holders of the Subordinated Certificates of a Series to
receive distributions with respect to the Mortgage Loans or Contracts in the
related Trust Fund or Subsidiary Trust will be subordinated to such right of
the holders of the Senior Certificates of the same Series to the extent
described in such Prospectus Supplement. This subordination feature is
intended to enhance the likelihood of regular receipt by holders of Senior
Certificates of the full amount of scheduled monthly payments of principal and
interest due them and to provide limited protection to the holders of the
Senior Certificates against losses due to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series by
the shifting interest subordination feature will be effected by distributing
to the holders of the Senior Certificates a disproportionately greater
percentage (the "Senior Prepayment Percentage") of Principal Prepayments. The
initial Senior Prepayment Percentage will be the percentage specified in the
related Prospectus Supplement and will decrease in accordance with the
schedule and subject to the conditions set forth in the Prospectus Supplement.
This disproportionate distribution of Principal Prepayments will have the
effect of accelerating the amortization of the Senior Certificates while
increasing the respective interest of the Subordinated Certificates in the
Mortgage Pool or Contract Pool. Increasing the respective interest of the
Subordinated Certificates relative to that of the Senior
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Certificates is intended to preserve the availability of the benefits of the
subordination provided by the Subordinated Certificates.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Trust will enter into or obtain an assignment of a swap
agreement or other similar agreement pursuant to which the Trust will have the
right to receive certain payments of interest (or other payments) as set forth
or determined as described therein. The Prospectus Supplement relating to a
Series of Certificates having the benefit of an interest rate swap agreement
will describe the material terms of such agreement and the particular risks
associated with the interest rate swap feature, including market and credit
risk, the effect of counterparty defaults and other risks, if any, addressed
by the rating. The Prospectus Supplement relating to such Series of
Certificates also will set forth certain information relating to the corporate
status, ownership and credit quality of the counterparty or counterparties to
such swap agreement.
RESERVE FUND
If so specified in the related Prospectus Supplement, credit support with
respect to a Series of Certificates may be provided by the establishment and
maintenance with the Trustee for such Series of Certificates, in trust, of a
Reserve Fund for such Series. Unless otherwise specified in the applicable
Prospectus Supplement, the Reserve Fund for a Series will not be included in
the Trust Fund for such Series. The Reserve Fund for each Series will be
created by the Depositor and shall be funded by the retention by the Master
Servicer of certain payments on the Mortgage Loans or Contracts, by the
deposit with the Trustee, in escrow, by the Depositor of a Subordinated Pool
of mortgage loans or manufactured housing conditional sales contracts and
installment loan agreements with the aggregate principal balance, as of the
related Cut-off Date, set forth in the related Prospectus Supplement, by any
combination of the foregoing, or in another manner specified in the related
Prospectus Supplement. Following the initial issuance of the Certificates of a
Series and until the balance of the Reserve Fund first equals or exceeds the
Required Reserve, the Master Servicer will retain specified distributions on
the Mortgage Loans or Contracts and/or on the mortgage loans or manufactured
housing conditional sales contracts and installment loan agreements in the
Subordinated Pool otherwise distributable to the holders of Subordinated
Certificates and deposit such amounts in the Reserve Fund. After the amounts
in the Reserve Fund for a Series first equal or exceed the applicable Required
Reserve, the Master Servicer will retain such distributions and deposit so
much of such amounts in the Reserve Fund as may be necessary, after the
application of such distributions to amounts due and unpaid on the
Certificates or on the Certificates of such Series to which the applicable
Class or Subclass of Subordinated Certificates are subordinated and the
reimbursement of unreimbursed Advances and liquidation expenses, to maintain
the Reserve Fund at the Required Reserve. The balance in the Reserve Fund in
excess of the Required Reserve shall be paid to the applicable Class or
Subclass of Subordinated Certificates, or to another specified person or
entity, as set forth in the related Prospectus Supplement, and shall be
unavailable thereafter for future distribution to Certificateholders of either
Class. The Prospectus Supplement for each Series will set forth the amount of
the Required Reserve applicable from time to time. The Required Reserve may
decline over time in accordance with a schedule which will also be set forth
in the related Prospectus Supplement.
Amounts held in the Reserve Fund for a Series from time to time will
continue to be the property of the Subordinated Certificateholders of the
Classes or Subclasses specified in the related Prospectus Supplement until
withdrawn from the Reserve Fund and transferred to the Certificate Account as
described below. If on any Distribution Date the amount in the Certificate
Account available to be applied to distributions on the Senior Certificates of
such Series, after giving effect to any Advances made by the Servicers or the
Master Servicer on such Distribution Date, is less than the amount required to
be distributed to such Senior Certificateholders (the "Required Distribution")
on such Distribution Date, the Master Servicer will withdraw from the Reserve
Fund and deposit into the Certificate Account the lesser of (i) the entire
amount on deposit in the Reserve Fund available for distribution to the Senior
Certificateholders (which amount will not in any event exceed the Required
Reserve) or (ii) the amount necessary to increase the funds in the Certificate
Account eligible for
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distribution to the Senior Certificateholders on such Distribution Date to the
Required Distribution; provided, however, that in no event will any amount
representing investment earnings on amounts held in the Reserve Fund be
transferred into the Certificate Account or otherwise used in any manner for
the benefit of the Senior Certificateholders. If so specified in the
applicable Prospectus Supplement, the balance, if any, in the Reserve Fund in
excess of the Required Reserve shall be released, to the Subordinated
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, whenever the Reserve Fund is less than the Required Reserve,
holders of the Subordinated Certificates of the applicable Class or Subclass
will not receive any distributions with respect to the Mortgage Loans or
Contracts other than amounts attributable to interest on the Mortgage Loans or
Contracts after the initial Required Reserve has been attained and amounts
attributable to any income resulting from investment of the Reserve Fund as
described below. Whether or not the amount of the Reserve Fund exceeds the
Required Reserve on any Distribution Date, the holders of the Subordinated
Certificates of the applicable Class or Subclass are entitled to receive from
the Certificate Account their share of the proceeds of any Mortgage Loan or
Contract, or any property acquired in respect thereof, repurchased by reason
of defective documentation or the breach of a representation or warranty
pursuant to the Pooling and Servicing Agreement. Amounts in the Reserve Fund
shall be applied in the following order:
(i) to the reimbursement of Advances determined by the Master Servicer
and the Servicers to be otherwise unrecoverable, other than Advances of
interest in connection with prepayments in full, repurchases and
liquidations, and the reimbursement of liquidation expenses incurred by the
Servicers and the Master Servicer if sufficient funds for such
reimbursement are not otherwise available in the related Servicing Accounts
and Certificate Account;
(ii) to the payment to the holders of the Senior Certificates of such
Series of amounts distributable to them on the related Distribution Date in
respect of scheduled payments of principal and interest due on the related
Due Date to the extent that sufficient funds in the Certificate Account are
not available therefor; and
(iii) to the payment to the holders of the Senior Certificates of such
Series of the principal balance or purchase price, as applicable, of
Mortgage Loans or Contracts repurchased, liquidated or foreclosed during
the period ending on the day prior to the Due Date to which such
distribution relates and interest thereon at the related Pass-Through Rate,
to the extent that sufficient funds in the Certificate Account are not
available therefor.
Amounts in the Reserve Fund in excess of the Required Reserve, including any
investment income on amounts therein, as set forth below, shall then be
released to the holders of the Subordinated Certificates, or to such other
person as is specified in the applicable Prospectus Supplement, as set forth
above.
Funds in the Reserve Fund for a Series shall be invested as provided in the
related Pooling and Servicing Agreement in certain types of eligible
investments. The earnings on such investments will be withdrawn and paid to
the holders of the applicable Class or Subclass of Subordinated Certificates
in accordance with their respective interests in the Reserve Fund in the
priority specified in the related Prospectus Supplement. Investment income in
the Reserve Fund is not available for distribution to the holders of the
Senior Certificates of such Series or otherwise subject to any claims or
rights of the holders of the applicable Class or Subclass of Senior
Certificates. Eligible investments for monies deposited in the Reserve Fund
will be specified in the Pooling and Servicing Agreement for a Series of
Certificates for which a Reserve Fund is established and in some instances
will be limited to investments acceptable to the Rating Agency rating the
Certificates of such Series from time to time as being consistent with its
outstanding rating of such Certificates. Such eligible investments will be
limited, however, to obligations or securities that mature at various time
periods up to 30 days according to a schedule in the Pooling and Servicing
Agreement based on the current balance of the Reserve Fund at the time of such
investment or the contractual commitment providing for such investment.
The time necessary for the Reserve Fund of a Series to reach and maintain
the applicable Required Reserve at any time after the initial issuance of the
Certificates of such Series and the availability of amounts in the Reserve
Fund for distributions on such Certificates will be affected by the
delinquency, foreclosure and prepayment experience of the Mortgage Loans or
Contracts in the related Trust Fund and/or in the Subordinated Pool and
therefore cannot be accurately predicted.
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PERFORMANCE BOND
If so specified in the related Prospectus Supplement, the Master Servicer
may be required to obtain a Performance Bond that would provide a guarantee of
the performance by the Master Servicer of one or more of its obligations under
the Agreement, including its obligation to advance delinquent installments of
principal and interest on Mortgage Loans or Contracts and its obligation to
repurchase Mortgage Loans or Contracts in the event of a breach by the Master
Servicer of a representation or warranty contained in the Agreement. In the
event that the outstanding credit rating of the obligor of the Performance
Bond is lowered by the Rating Agency, with the result that the outstanding
rating on the Certificates would be reduced by such Rating Agency, the Master
Servicer will be required to secure a substitute Performance Bond issued by an
entity with a rating sufficient to maintain the outstanding rating on the
Certificates or to deposit and maintain with the Trustee cash in the amount
specified in the applicable Prospectus Supplement.
DESCRIPTION OF INSURANCE
To the extent that the applicable Prospectus Supplement does not expressly
provide for a form of credit support specified above or for Alternative Credit
Support in lieu of some or all of the insurance mentioned below, the following
paragraphs on insurance shall apply with respect to the Mortgage Loans
included in the related Trust Fund. Unless otherwise specified in the related
Prospectus Supplement, each Manufactured Home that secures a Contract will be
covered by a standard hazard insurance policy and other insurance policies to
the extent described in the related Prospectus Supplement. Any material
changes in such insurance from the description that follows or the description
of any Alternative Credit Support will be set forth in the applicable
Prospectus Supplement.
PRIMARY MORTGAGE INSURANCE POLICIES
To the extent specified in the related Prospectus Supplement, each Servicing
Agreement will require the Servicer to cause a Primary Mortgage Insurance
Policy to be maintained in full force and effect with respect to each Mortgage
Loan that is secured by a Single Family Property covered by the Servicing
Agreement requiring such insurance and to act on behalf of the Insured with
respect to all actions required to be taken by the Insured under each such
Primary Mortgage Insurance Policy. Any primary mortgage insurance or primary
credit insurance policies relating to the Contracts underlying a Series of
Certificates will be described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the amount
of a claim for benefits under a Primary Mortgage Insurance Policy covering a
Mortgage Loan in the related Mortgage Pool (herein referred to as the "Loss")
will consist of the insured portion of the unpaid principal amount of the
covered Mortgage Loan (as described herein) and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the Insured (other than the proceeds of
hazard insurance) that are derived from or in any way related to such
Mortgaged Property, (ii) hazard insurance proceeds in excess of the amount
required to restore such Mortgaged Property and which have not been applied to
the payment of such Mortgage Loan, (iii) amounts expended but not approved by
the Primary Mortgage Insurer, (iv) claim payments previously made by the
Primary Mortgage Insurer, and (v) unpaid premiums.
Unless otherwise specified in the related Prospectus Supplement, as
conditions precedent to the filing of or payment of a claim under a Primary
Mortgage Insurance Policy covering a Mortgage Loan in the related Mortgage
Pool, the Insured will be required to, in the event of default by the
Mortgagor: (i) advance or discharge (A) all hazard insurance premiums and (B)
as necessary and approved in advance by the Primary Mortgage Insurer, (1) real
estate property taxes, (2) all expenses required to preserve, repair and
prevent waste to the Mortgaged Property so as to maintain such Mortgaged
Property in at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (3)
property sales expenses, (4) any outstanding liens (as defined in such Primary
Mortgage Insurance Policy) on the Mortgaged Property and (5) foreclosure
costs, including court costs and reasonable attorneys' fees; (ii) in the event
of a
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physical loss or damage to the Mortgaged Property, have restored and repaired
the Mortgaged Property to at least as good a condition as existed at the
effective date of such Primary Mortgage Insurance Policy, ordinary wear and
tear excepted; and (iii) tender to the Primary Mortgage Insurer good and
merchantable title to and possession of the mortgaged property.
Unless otherwise specified in the related Prospectus Supplement, other
provisions and conditions of each Primary Mortgage Insurance Policy covering a
Mortgage Loan in the related Mortgage Pool generally will provide that: (a) no
change may be made in the terms of such Mortgage Loan without the consent of
the Primary Mortgage Insurer; (b) written notice must be given to the Primary
Mortgage Insurer within 10 days after the Insured becomes aware that a
Mortgagor is delinquent in the payment of a sum equal to the aggregate of two
scheduled monthly payments due under such Mortgage Loan or that any
proceedings affecting the Mortgagor's interest in the Mortgaged Property
securing such Mortgage Loan have commenced, and thereafter the Insured must
report monthly to the Primary Mortgage Insurer the status of any such Mortgage
Loan until such Mortgage Loan is brought current, such proceedings are
terminated or a claim is filed; (c) the Primary Mortgage Insurer will have the
right to purchase such Mortgage Loan, at any time subsequent to the 10 days'
notice described in (b) above and prior to the commencement of foreclosure
proceedings, at a price equal to the unpaid principal amount of the Mortgage
Loan, plus accrued and unpaid interest thereon and reimbursable amounts
expended by the Insured for the real estate taxes and fire and extended
coverage insurance on the Mortgaged Property for a period not exceeding 12
months, and less the sum of any claim previously paid under the Primary
Mortgage Insurance Policy and any due and unpaid premiums with respect to such
policy; (d) the Insured must commence proceedings at certain times specified
in the Primary Mortgage Insurance Policy and diligently proceed to obtain good
and merchantable title to and possession of the Mortgaged Property; (e) the
Insured must notify the Primary Mortgage Insurer of the price specified in (c)
above at least 15 days prior to the sale of the Mortgaged Property by
foreclosure, and bid such amount unless the Mortgage Insurer specifies a lower
or higher amount; and (f) the Insured may accept a conveyance of the Mortgaged
Property in lieu of foreclosure with written approval of the Mortgage Insurer
provided the ability of the Insured to assign specified rights to the Primary
Mortgage Insurer are not thereby impaired or the specified rights of the
Primary Mortgage Insurer are not thereby adversely affected.
Unless otherwise specified in the related Prospectus Supplement, the Primary
Mortgage Insurer will be required to pay to the Insured either: (1) the
insured percentage of the Loss; or (2) at its option under certain of the
Primary Mortgage Insurance Policies, the sum of the delinquent monthly
payments plus any advances made by the Insured, both to the date of the claim
payment, and thereafter, monthly payments in the amount that would have become
due under the Mortgage Loan if it had not been discharged plus any advances
made by the Insured until the earlier of (A) the date the Mortgage Loan would
have been discharged in full if the default had not occurred or (B) an
approved sale. Any rents or other payments collected or received by the
Insured which are derived from or are in any way related to the Mortgaged
Property will be deducted from any claim payment.
FHA INSURANCE AND VA GUARANTEES
The FHA is responsible for administering various federal programs, including
mortgage insurance, authorized under the National Housing Act, as amended, and
the United States Housing Act of 1937, as amended. Any FHA Insurance or VA
Guarantees relating to Contracts underlying a Series of Certificates will be
described in the related Prospectus Supplement.
The insurance premiums for FHA Loans are collected by HUD approved lenders
or by the Servicers of such FHA Loans and are paid to the FHA. The regulations
governing FHA single-family mortgage insurance programs provide that insurance
benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted FHA Loan to HUD. With respect to a defaulted FHA Loan, the
Servicer of such FHA Loan will be limited in its ability to initiate
foreclosure proceedings. When it is determined, either by the Servicer or HUD,
that default was caused by
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circumstances beyond the Mortgagor's control, the Servicer will be expected to
make an effort to avoid foreclosure by entering, if feasible, into one of a
number of available forms of forbearance plans with the Mortgagor. Such plans
may involve the reduction or suspension of scheduled mortgage payments for a
specified period, with such payments to be made upon or before the maturity
date of the mortgage, or the recasting of payments due under the mortgage up
to or beyond the scheduled maturity date. In addition, when a default caused
by such circumstances is accompanied by certain other criteria, HUD may
provide relief by making payments to the Servicer of such Mortgage Loan in
partial or full satisfaction of amounts due thereunder (which payments are to
be repaid by the Mortgagor to HUD) or by accepting assignment of the Mortgage
Loan from the Servicer. With certain exceptions, at least three full monthly
installments must be due and unpaid under the Mortgage Loan, and HUD must have
rejected any request for relief from the Mortgagor before the Servicer may
initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Servicer of each FHA Loan in a Mortgage Pool will
be obligated to purchase any such debenture issued in satisfaction of a
defaulted FHA Loan serviced by it for an amount equal to the principal amount
of the FHA Loan.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal balance of the defaulted FHA Loan, adjusted to
reimburse the Servicer of such FHA Loan for certain costs and expenses and to
deduct certain amounts received or retained by such Servicer after default.
When entitlement to insurance benefits results from foreclosure (or other
acquisition of possession) and conveyance to HUD, the Servicer is compensated
for no more than two-thirds of its foreclosure costs, and is compensated for
interest accrued and unpaid prior to such date in general only to the extent
it was allowed pursuant to a forbearance plan approved by HUD. When
entitlement to insurance benefits results from assignment of the FHA Loan to
HUD, the insurance payment includes full compensation for interest accrued and
unpaid to the assignment date. The insurance payment itself, upon foreclosure
of an FHA Loan, bears interest from a date 30 days after the mortgagor's first
uncorrected failure to perform any obligation or make any payment due under
the Mortgage Loan and, upon assignment, from the date of assignment, to the
date of payment of the claim, in each case at the same interest rate as the
applicable HUD debenture interest rate as described above.
The maximum guarantee that may be issued by the VA under a VA Loan is 50% of
the principal amount of the VA Loan if the principal amount of the Mortgage
Loan is $45,000 or less, the lesser of $36,000 and 40% if the principal amount
of the VA Loan if the principal amount of such VA Loan is greater than $45,000
but less than or equal to $144,000, and the lesser of $46,000 and 25% of the
principal amount of the Mortgage Loan if the principal amount of the Mortgage
Loan is greater than $144,000. The liability on the guarantee is reduced or
increased pro rata with any reduction or increase in the amount of
indebtedness, but in no event will the amount payable on the guarantee exceed
the amount of the original guarantee. The VA may, at its option and without
regard to the guarantee, make full payment to a mortgage holder of unsatisfied
indebtedness on a Mortgage upon its assignment to the VA.
With respect to a defaulted VA Loan, the Servicer is, absent exceptional
circumstances, authorized to announce its intention to foreclose only when the
default has continued for three months. Generally, a claim for the guarantee
is submitted after liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the VA Loan
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations. Payments under the
guarantee will be equal to the unpaid principal amount of the VA Loan,
interest accrued on the unpaid balance of the VA Loan to the appropriate date
of computation and limited expenses of the mortgagee, but in each case only to
the extent that such amounts have not been recovered through liquidation of
the
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Mortgaged Property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
STANDARD HAZARD INSURANCE POLICIES ON MORTGAGE LOANS
The Standard Hazard Insurance Policies covering the Mortgage Loans in a
Mortgage Pool will provide for coverage at least equal to the applicable state
standard form of fire insurance policy with extended coverage. In general, the
standard form of fire and extended coverage policy will cover physical damage
to, or destruction of, the improvements on the Mortgaged Property caused by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Because the Standard Hazard Insurance Policies relating to such
Mortgage Loans will be underwritten by different insurers and will cover
Mortgaged Properties located in various states, such policies will not contain
identical terms and conditions. The most significant terms thereof, however,
generally will be determined by state law and generally will be similar. Most
such policies typically will not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-
related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list
is merely indicative of certain kinds of uninsured risks and is not intended
to be all-inclusive.
The Standard Hazard Insurance Policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which,
in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of
the dwellings, structures and other improvements on the Mortgaged Property in
order to recover the full amount of any partial loss. If the insured's
coverage falls below this specified percentage, such clause will provide that
the insurer's liability in the event of partial loss will not exceed the
greater of (i) the actual cash value (the replacement cost less physical
depreciation) of the dwellings, structures and other improvements damaged or
destroyed or (ii) such proportion of the loss, without deduction for
depreciation, as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such dwellings, structures and
other improvements.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the
restoration of damaged property, any damage to such borrower's Cooperative
Dwelling or such Cooperative's building could significantly reduce the value
of the collateral securing such Cooperative Loan to the extent not covered by
other credit support.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows and, with respect to Mortgaged Properties
located other than in HUD designated flood areas, floods) or insufficient
hazard insurance proceeds and any hazard losses incurred with respect to
Cooperative Loans could affect distributions to the Certificateholders.
With respect to Mortgage Loans secured by Multifamily Property, certain
additional insurance policies may be required with respect to the Multifamily
Property; for example, general liability insurance for bodily injury and
property damage, steam boiler coverage where a steam boiler or other pressure
vessel is in operation, and rent loss insurance to cover income losses
following damage or destruction of the Mortgaged Property. The related
Prospectus Supplement will specify the required types and amounts of
additional insurance that may be required in connection with Mortgage Loans
secured by Multifamily Property and will describe the general terms of such
insurance and conditions to payment thereunder.
STANDARD HAZARD INSURANCE POLICIES ON THE MANUFACTURED HOMES
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to cause to be maintained with respect to each Contract one or more
Standard Hazard Insurance Policies which provide, at a
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minimum, the same coverage as a standard form file and extended coverage
insurance policy that is customary for manufactured housing, issued by a
company authorized to issue such policies in the state in which the
Manufactured Home is located, and in an amount which is not less than the
maximum insurable value of such Manufactured Home or the principal balance due
from the Obligor on the related Contract, whichever is less; provided,
however, that the amount of coverage provided by each Standard Hazard
Insurance Policy shall be sufficient to avoid the application of any co-
insurance clause contained therein. When a Manufactured Home's location was,
at the time of origination of the related Contract, within a federally
designated flood area, the Master Servicer also shall cause such flood
insurance to be maintained, which coverage shall be at least equal to the
minimum amount specified in the preceding sentence or such lesser amount as
may be available under the federal flood insurance program. Each Standard
Hazard Insurance Policy caused to be maintained by the Master Servicer shall
contain a standard loss payee clause in favor of the Master Servicer and its
successors and assigns. If any Obligor is in default in the payment of
premiums on its Standard Hazard Insurance Policy or Policies, the Master
Servicer shall pay such premiums out of its own funds, and may add separately
such premium to the Obligor's obligation as provided by the Contract, but may
not add such premium to the remaining principal balance of the Contract.
The Master Servicer may maintain, in lieu of causing individual Standard
Hazard Insurance Policies to be maintained with respect to each Manufactured
Home, and shall maintain, to the extent that the related Contract does not
require the Obligor to maintain a Standard Hazard Insurance Policy with
respect to the related Manufactured Home, one or more blanket insurance
policies covering losses on the Obligor's interest in the Contracts resulting
from the absence or insufficiency of individual Standard Hazard Insurance
Policies. Any such blanket policy shall be substantially in the form and in
the amount carried by the Master Servicer as of the date of the Pooling and
Servicing Agreement. The Master Servicer shall pay the premium for such policy
on the basis described therein and shall pay any deductible amount with
respect to claims under such policy relating to the Contracts. If the insurer
thereunder shall cease to be acceptable to the Master Servicer, the Master
Servicer shall exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to such policy.
If the Master Servicer shall have repossessed a Manufactured Home on behalf
of the Trustee, the Master Servicer shall either (i) maintain at its expense
hazard insurance with respect to such Manufactured Home or (ii) indemnify the
Trustee against any damage to such Manufactured Home prior to resale or other
disposition.
POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master Servicer
will obtain a Pool Insurance Policy for a Mortgage Pool underlying
Certificates of such Series. Such Pool Insurance Policy will be issued by the
Pool Insurer named in the applicable Prospectus Supplement. Any Pool Insurance
Policy for a Contract Pool underlying a Series of Certificates will be
described in the related Prospectus Supplement. Each Pool Insurance Policy
will cover any loss (subject to the limitations described below) by reason of
default to the extent the related Mortgage Loan is not covered by any Primary
Mortgage Insurance Policy, FHA insurance or VA guarantee. The amount of the
Pool Insurance Policy, if any, with respect to a Series will be specified in
the related Prospectus Supplement. A Pool Insurance Policy, however, will not
be a blanket policy against loss, because claims thereunder may only be made
for particular defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent described below. Any Pool Insurance Policies relating to
the Contracts will be described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the Pool
Insurance Policy will provide that as a condition precedent to the payment of
any claim the Insured will be required (i) to advance hazard insurance
premiums on the Mortgaged Property securing the defaulted Mortgage Loan; (ii)
to advance, as necessary and approved in advance by the Pool Insurer, (a) real
estate property taxes, (b) all expenses required to preserve and repair the
Mortgaged Property, to protect the Mortgaged Property from waste, so that the
Mortgaged Property is in at least as good a condition as existed on the date
upon which coverage under the Pool Insurance Policy with respect to such
Mortgaged Property first became effective (ordinary wear and tear excepted),
(c) property sales
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expenses, (d) any outstanding liens on the Mortgaged Property and (e)
foreclosure costs including court costs and reasonable attorneys' fees; and
(iii) if there has been physical loss or damage to the Mortgaged Property, to
restore the Mortgaged Property to its condition (reasonable wear and tear
excepted) as of the issue date of the Pool Insurance Policy. It also will be a
condition precedent to the payment of any claim under the Pool Insurance
Policy that the Insured maintain a Primary Mortgage Insurance Policy that is
acceptable to the Pool Insurer on all Mortgage Loans that have Loan-to-Value
Ratios at the time of origination in excess of 80%. FHA insurance and VA
guarantees will be deemed to be an acceptable Primary Mortgage Insurance
Policy under the Pool Insurance Policy. Assuming satisfaction of these
conditions, the Pool Insurer will pay to the Insured the amount of loss,
determined as follows: (i) the amount of the unpaid principal balance of the
Mortgage Loan immediately prior to the Approved Sale (as described below) of
the Mortgaged Property, (ii) the amount of the accumulated unpaid interest on
such Mortgage Loan to the date of claim settlement at the applicable Mortgage
Rate and (iii) advances as described above, less (a) all rents or other
payments (excluding proceeds of fire and extended coverage insurance)
collected or received by the Insured, which are derived from or in any way
related to the Mortgaged Property, (b) amounts paid under applicable fire and
extended coverage policies which are in excess of the cost of restoring and
repairing the Mortgaged Property and which have not been applied to the
payment of the Mortgage Loan, (c) any claims payments previously made by the
Pool Insurer on the Mortgage Loan, (d) due and unpaid premiums payable with
respect to the Pool Insurance Policy and (e) all claim payments received by
the Insured pursuant to any Primary Mortgage Insurance Policy. An "Approved
Sale" is (1) a sale of the Mortgaged Property acquired because of a default by
the Mortgagor to which the Pool Insurer has given prior approval, (2) a
foreclosure or trustee's sale of the Mortgaged Property at a price exceeding
the maximum amount specified by the Pool Insurer, (3) the acquisition of the
Mortgaged Property under the Primary Insurance Policy by the Primary Mortgage
Insurer or (4) the acquisition of the Mortgaged Property by the Pool Insurer.
The Pool Insurer must be provided with good and merchantable title to the
Mortgaged Property as a condition precedent to the payment of any Loss. If any
Mortgaged Property securing a defaulted Mortgage Loan is damaged and the
proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
Mortgaged Property to a condition sufficient to permit recovery under the Pool
Insurance Policy, the Master Servicer or the Servicer of the related Mortgage
Loan will not be required to expend its own funds to restore the damaged
Mortgaged Property unless it is determined (A) that such restoration will
increase the proceeds to the Certificateholders of the related Series on
liquidation of the Mortgage Loan, after reimbursement of the expenses of the
Master Servicer or the Servicer, as the case may be, and (B) that such
expenses will be recoverable by it through payments under the Letter of
Credit, if any, with respect to such Series, Liquidation Proceeds, Insurance
Proceeds, amounts in the Reserve Fund, if any, or payments under any
Alternative Credit Support, if any, with respect to such Series.
No Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies may not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor,
the Unaffiliated Seller, the Originator or other persons involved in the
origination thereof, (ii) the exercise by the Insured of its right to call the
Mortgage Loan, or the term of the Mortgage Loan is shorter than the
amortization period and the defaulted payment is for an amount more than twice
the regular periodic payments of principal and interest for such Mortgage
Loan, or (iii) the exercise by the Insured of a "due-on-sale" clause or other
similar provision in the Mortgage Loan; provided, in either case (ii) or
(iii), such exclusion shall not apply if the Insured offers a renewal or
extension of the Mortgage Loan or a new Mortgage Loan at the market rate in an
amount not less than the then outstanding principal balance with no decrease
in the amortization period. A failure of coverage attributable to one of the
foregoing events might result in a breach of the Master Servicer's
insurability representation described under "Description of the Certificates--
Assignment of Mortgage Loans" above, and in such event, subject to the
limitations described therein, might give rise to an obligation on the part of
the Master Servicer to purchase the defaulted Mortgage Loan if the breach
materially and adversely affects the interests of the Certificateholders of
the related Series and cannot be cured by the Master Servicer. Depending upon
the nature of the event, a breach of representation made by the Depositor or
an Unaffiliated Seller may also have occurred. Such a breach, if it materially
and adversely affects the interests of the Certificateholders of such Series
and cannot be cured, would give rise to a repurchase obligation on the part of
the Unaffiliated Seller as more
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fully described under "The Trust Fund--Mortgage Loan Program--Representations
by Unaffiliated Sellers; Repurchases" and "Description of the Certificates--
Assignment of Mortgage Loans."
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Certificates of the related Series by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed Mortgaged
Properties covered thereby. The amount of claims paid will include certain
expenses incurred by the Master Servicer or by the Servicer of the defaulted
Mortgage Loan as well as accrued interest on delinquent Mortgage Loans to the
date of payment of the claim. Accordingly, if aggregate net claims paid under
a Pool Insurance Policy reach the original policy limit, coverage under the
Pool Insurance Policy will lapse and any further losses will be borne by the
holders of the Certificates of such Series. In addition, unless the Master
Servicer or the related Servicer could determine that an Advance in respect of
a delinquent Mortgage Loan would be recoverable to it from the proceeds of the
liquidation of such Mortgage Loan or otherwise, neither such Servicer nor the
Master Servicer would be obligated to make an Advance respecting any such
delinquency, since the Advance would not be ultimately recoverable to it from
either the Pool Insurance Policy or from any other related source. See
"Description of the Certificates--Advances."
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master Servicer
shall obtain a Special Hazard Insurance Policy for the Mortgage Pool
underlying a Series of Certificates. Any Special Hazard Insurance Policies for
a Contract Pool underlying a Series of Certificates will be described in the
related Prospectus Supplement. The Special Hazard Insurance Policy for the
Mortgage Pool underlying the Certificates of a Series will be issued by the
Special Hazard Insurer named in the applicable Prospectus Supplement. Each
Special Hazard Insurance Policy will, subject to the limitations described
below, protect against loss by reason of damage to Mortgaged Properties caused
by certain hazards (including vandalism and earthquakes and, except where the
Mortgagor is required to obtain flood insurance, floods and mudflows) not
insured against under the standard form of hazard insurance policy for the
respective states in which the Mortgaged Properties are located. See
"Description of the Certificates--Maintenance of Insurance Policies" and "--
Standard Hazard Insurance." The Special Hazard Insurance Policy will not cover
losses occasioned by war, certain governmental actions, nuclear reaction and
certain other perils. Coverage under a Special Hazard Insurance Policy will be
at least equal to the amount set forth in the related Prospectus Supplement.
Subject to the foregoing limitations, each Special Hazard Insurance Policy
will provide that, when there has been damage to the Mortgaged Property
securing a defaulted Mortgage Loan and to the extent such damage is not
covered by the Standard Hazard Insurance Policy, if any, maintained by the
Mortgagor, the Master Servicer or the Servicer, the Special Hazard Insurer
will pay the lesser of (i) the cost of repair or replacement of such Mortgaged
Property or (ii) upon transfer of such Mortgaged Property to the Special
Hazard Insurer, the unpaid balance of such Mortgage Loan at the time of
acquisition of such Mortgaged Property by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim settlement (excluding
late charges and penalty interest) and certain expenses incurred in respect of
such Mortgaged Property. No claim may be validly presented under a Special
Hazard Insurance Policy unless (i) hazard insurance on the Mortgaged Property
has been kept in force and other reimbursable protection, preservation and
foreclosure expenses have been paid (all of which must be approved in advance
as necessary by the insurer) and (ii) the insured has acquired title to the
Mortgaged Property as a result of default by the Mortgagor. If the sum of the
unpaid principal balance plus accrued interest and certain expenses is paid by
the Special Hazard Insurer, the amount of further coverage under the related
Special Hazard Insurance Policy will be reduced by such amount less any net
proceeds from the sale of the Mortgaged Property. Any amount paid as the cost
of repair of the Mortgaged Property will further reduce coverage by such
amount.
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to maintain the Special Hazard Insurance Policy in full force and
effect throughout the term of the Pooling and Servicing Agreement. If a Pool
Insurance Policy is required to be maintained pursuant to the Pooling and
Servicing Agreement, the
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Special Hazard Insurance Policy will be designed to permit full recoveries
under the Pool Insurance Policy in circumstances where such recoveries would
otherwise be unavailable because Mortgaged Property has been damaged by a
cause not insured against by a Standard Hazard Insurance Policy. In such event
the Pooling and Servicing Agreement will provide that, if the related Pool
Insurance Policy shall have terminated or been exhausted through payment of
claims, the Master Servicer will be under no further obligation to maintain
such Special Hazard Insurance Policy.
MORTGAGOR BANKRUPTCY BOND
In the event of a personal bankruptcy of a Mortgagor, a bankruptcy court may
establish the value of the related Mortgaged Property or Cooperative Dwelling
at an amount less than the then outstanding principal balance of the related
Mortgage Loan. The amount of the secured debt could be reduced to such value,
and the holder of such Mortgage Loan thus would become an unsecured creditor
to the extent the outstanding principal balance of such Mortgage Loan exceeds
the value so assigned to the Mortgaged Property or Cooperative Dwelling by the
bankruptcy court. In addition, certain other modifications of the terms of a
Mortgage Loan can result from a bankruptcy proceeding. If so specified in the
related Prospectus Supplement, losses resulting from a bankruptcy proceeding
affecting the Mortgage Loans in a Mortgage Pool with respect to a Series of
Certificates will be covered under a Mortgagor Bankruptcy Bond (or any other
instrument that will not result in a downgrading of the rating of the
Certificates of a Series by the Rating Agency that rated such Series). Any
Mortgagor Bankruptcy Bond will provide for coverage in an amount acceptable to
the Rating Agency rating the Certificates of the related Series, which will be
set forth in the related Prospectus Supplement. Subject to the terms of the
Mortgagor Bankruptcy Bond, the issuer thereof may have the right to purchase
any Mortgage Loan with respect to which a payment or drawing has been made or
may be made for an amount equal to the outstanding principal amount of such
Mortgage Loan plus accrued and unpaid interest thereon. The coverage of the
Mortgagor Bankruptcy Bond with respect to a Series of Certificates may be
reduced as long as any such reduction will not result in a reduction of the
outstanding rating of the Certificates of such Series by the Rating Agency
rating such Series.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing conditional sales contracts and
installment loan agreements which are general in nature. Because such legal
aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Mortgage Loans or Contracts is situated. The summaries
are qualified in their entirety by reference to the applicable federal and
state laws governing the Mortgage Loans and Contracts.
THE MORTGAGE LOANS
General
The Mortgage Loans (other than the Cooperative Loans) comprising or
underlying the Trust Assets for a Series will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the
state in which the underlying property is located. The filing of a mortgage,
deed of trust or deed to secure debt creates a lien or title interest upon the
real property covered by such instrument and represents the security for the
repayment of an obligation that is customarily evidenced by a promissory note.
It is not prior to the lien for real estate taxes and assessments or other
charges imposed under governmental police powers. Priority with respect to
such instruments depends on their terms, the knowledge of the parties to the
mortgage and generally on the order of recording with the applicable state,
county or municipal office. There are two parties to a mortgage: the
mortgagor, who is the borrower and homeowner, and the mortgagee, who is the
lender. In a mortgage state, the mortgagor delivers to the mortgagee a note or
bond evidencing the loan and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust has three parties: the borrower-homeowner
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called the trustor (similar to a mortgagor) a lender called the beneficiary
(similar to a mortgagee) and a third-party grantee called the trustee. Under a
deed of trust, the borrower grants the property, irrevocably until the debt is
paid, in trust, generally with a power of sale, to the trustee to secure
payment of the loan. The trustee's authority under a deed of trust and the
mortgagee's authority under a mortgage are governed by the express provisions
of the deed of trust or mortgage, applicable law and, in some cases, with
respect to the deed of trust, the directions of the beneficiary.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right to
foreclosure is contested, the legal proceedings necessary to resolve the issue
can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Though a deed of trust may also be foreclosed by judicial action,
foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property upon a default by the borrower under the
terms of the note or deed of trust. In some states, the trustee must record a
notice of default and send a copy to the borrower-trustor and to any person
who has recorded a request for a copy of a notice of default and notice of
sale. In addition, the trustee must provide notice in some states to any other
individual having an interest in the real property, including any junior
lienholders. If the loan is not reinstated within any applicable cure period,
a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In
addition, some state laws require that a copy of the notice of sale be posted
on the property and sent to all parties having an interest of record in the
property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. Certain state laws control the amount of foreclosure expenses
and costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of a number of factors, including the difficulty a
potential buyer at the sale would have in determining the exact status of
title and the fact that the physical condition of the property may have
deteriorated during the foreclosure proceedings, it is uncommon for a third
party to purchase the property at the foreclosure sale. Rather, it is common
for the lender to purchase the property from the trustee or receiver for a
credit bid less than or equal to the unpaid principal amount of the note,
accrued and unpaid interest and the expenses of foreclosure. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance and making such repairs at its own
expense as are necessary to render the property suitable for sale. The lender
commonly will obtain the services of a real estate broker and pay the broker a
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal
the lender's investment in the property. Any loss may be reduced by the
receipt of mortgage insurance proceeds.
Cooperative Loans
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also contain Cooperative Loans evidenced
by promissory notes secured by security interests in shares issued by
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private corporations which are entitled to be treated as housing cooperatives
under the Code and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in the
corporations' buildings. The security agreement will create a lien upon, or
grant a title interest in, the property that it covers, the priority of which
will depend on the terms of the particular security agreement as well as the
order of recordation of the agreement in the appropriate recording office.
Such a lien or title interest is not prior to the lien for real estate taxes
and assessments and other charges imposed under governmental police powers.
A corporation that is entitled to be treated as a housing cooperative under
the Code owns all the real property or some interest therein sufficient to
permit it to own the building and all separate dwelling units therein. The
cooperative is directly responsible for property management and, in most
cases, payment of real estate taxes and hazard and liability insurance. If
there is a blanket mortgage or mortgages on the cooperative apartment building
and/or underlying land, as is generally the case, or an underlying lease of
the land, as is the case in some instances, the cooperative, as property
mortgagor, is also responsible for meeting these mortgage or rental
obligations. The interest of the occupancy under proprietary leases or
occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and
to the interest of the holder of a land lease. If the cooperative is unable to
meet the payment obligations (i) arising under a blanket mortgage, the
mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the land lease could terminate it
and all subordinate proprietary leases and occupancy agreements. Also, a
blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one final payment at maturity. The inability of the cooperative
to refinance a mortgage and its consequent inability to make such final
payment could lead to foreclosure by the mortgagee. Similarly, a land lease
has an expiration date and the inability of the cooperative to extend its term
or, in the alternative, to purchase the land could lead to termination of the
cooperative's interest in the property and termination of all proprietary
leases and occupancy agreements. A foreclosure by the holder of a blanket
mortgage could eliminate or significantly diminish the value of any collateral
held by the lender who financed an individual tenant-stockholder of
cooperative shares including, in the case of the Cooperative Loans, the
collateral securing the Cooperative Loans. Similarly, the termination of the
land lease by its holder could eliminate or significantly diminish the value
of any collateral held by the lender who financed an individual tenant-
stockholder of the cooperative shares or, in the case of the Cooperative
Loans, the collateral securing the Cooperative Loans.
Each cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific units. Generally,
a tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured by
a security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement,
and a financing statement covering the proprietary lease or occupancy
agreement and the cooperative shares is filed in the appropriate state and
local offices to perfect the lender's interest in its collateral. Subject to
the limitations discussed below, upon default of the tenant-stockholder, the
lender may sue for judgment on the promissory note, dispose of the collateral
at a public or private sale or otherwise proceed against the collateral or
tenant-stockholder as an individual as provided in the security agreement
covering the assignment of the proprietary lease or occupancy agreement and
the pledge of cooperative shares. See "--Realizing upon Cooperative Loan
Security" below.
Tax Aspects of Cooperative Loans
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed
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a deduction for amounts paid or accrued within his taxable year to the
corporation representing his proportionate share of certain interest expenses
and certain real estate taxes allowable as a deduction under Section 216(a) of
the Code to the corporation under Sections 163 and 164 of the Code. In order
for a corporation to qualify under Section 216(b)(1) of the Code for its
taxable year in which such items are allowable as a deduction to the
corporation, such section requires, among other things, that at least 80% of
the gross income of the corporation be derived from its tenant-stockholder. By
virtue of this requirement the status of a corporation for purposes of Section
216(b)(1) of the Code must be determined on a year-to-year basis.
Consequently, there can be no assurance that cooperatives relating to the
Cooperative Loans will qualify under such section for any particular year. In
the event that such a cooperative fails to qualify for one or more years, the
value of the collateral securing any related Cooperative Loans could be
significantly impaired because no deduction would be allowable to tenant-
stockholders under Section 216(a) of the Code with respect to those years. In
view of the significance of the tax benefits accorded tenant-stockholders of a
corporation that qualifies under Section 216(b)(1) of the Code, the likelihood
that such a failure would be permitted to continue over a period of years
appears remote.
Realizing upon Cooperative Loan Security
The cooperative shares and proprietary lease or occupancy agreement owned by
the tenant- stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease
or occupancy agreement. The proprietary lease or occupancy agreement, even
while pledged, may be cancelled by the cooperative for failure by the tenant-
stockholder to pay rent or other obligations or charges owed by such tenant-
stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy
agreement which are owed to the cooperative are made liens upon the shares to
which the proprietary lease or occupancy agreement relates. In addition, the
proprietary lease or occupancy agreement generally permits the cooperative to
terminate such lease or agreement in the event the borrower defaults in the
performance of covenants thereunder. The lender and the cooperative will
typically enter into a recognition agreement which establishes the rights and
obligations of both parties in the event of a default by the tenant-
stockholder on its obligations under the proprietary lease or occupancy
agreement. A default by the tenant-stockholder under the proprietary lease or
occupancy agreement will usually constitute a default under the security
agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment
subject, however, to the cooperative's right to sums due under such
proprietary lease or occupancy agreement or that have become liens on the
shares relating to the proprietary lease or occupancy agreement. The total
amount owed to the cooperative by the tenant-stockholder, which the lender
generally cannot restrict and does not monitor, could reduce the value of the
collateral below the outstanding principal balance of the cooperative loan and
accrued and unpaid interest thereon.
Recognition agreements also provide that in the event the lender succeeds to
the tenant- shareholder's shares and proprietary lease or occupancy agreement
as the result of realizing upon the collateral for a cooperative loan, the
lender must obtain the approval or consent of the cooperative as required by
the proprietary lease before transferring the cooperative shares or assigning
the proprietary lease. Such approval or consent is usually based on the
prospective purchaser's income and net worth, among other factors, and may
significantly reduce the number of potential purchasers, which could limit the
ability of the lender to sell and realize upon the value of the collateral.
Generally, the lender is not limited in any rights it may have to dispossess
the tenant-shareholders.
The terms of the Cooperative Loans do not require either the Mortgagor or
the Cooperative to obtain title insurance of any type. Consequently, the
existence of any prior liens or other imperfections of title also may
adversely affect the marketability of the Cooperative Dwelling in the event of
foreclosure.
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In New York, lenders generally realize upon the pledged shares and
proprietary lease or occupancy agreement given to secure a cooperative loan by
public sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those
shares. Article 9 of the UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given
the debtor and the method, manner, time, place and terms of the sale.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the cooperative corporation to
receive sums due under the proprietary lease or occupancy agreement. If there
are proceeds remaining, the lender must account to the tenant-stockholder for
the surplus. Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency. See "Anti-
Deficiency Legislation and Other Limitations on Lenders" below.
In the case of foreclosure on a Multifamily Property that was converted from
a rental building to a building owned by a cooperative housing corporation
under a non-eviction plan, some states require that a purchaser at a
foreclosure sale take the property subject to rent control and rent
stabilization laws which apply to certain tenants who elected to remain in the
building but not to purchase shares in the cooperative when the building was
so converted. Any such restrictions could adversely affect the number of
potential purchasers for and the value of such property.
Rights of Redemption
In some states, after a sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to a sale
following judicial foreclosure, and not a sale pursuant to a non-judicial
power of sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase price,
accrued interest and taxes. In some states, the right to redeem is an
equitable right. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The exercise of a
right of redemption would defeat the title of any purchaser from the lender
subsequent to foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the lender to retain the
property and pay the expenses of ownership until the redemption period has
run.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In
some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or a
non-judicial sale under a deed of trust. A deficiency judgment is a personal
judgment against the former borrower equal in most cases to the difference
between the amount due to the lender and the net amount realized upon the
foreclosure sale. Other statutes prohibit a deficiency judgment where the loan
proceeds were used to purchase a dwelling occupied by the borrower.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement,
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when applicable, is that lenders will usually proceed first against the
security rather than bringing a personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
In the case of cooperative loans, lenders generally realize on cooperative
shares and the accompanying proprietary lease or occupancy agreement given to
secure a cooperative loan under Article 9 of the UCC. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a
Chapter 13 proceeding under the federal Bankruptcy Code, when a court
determines that the value of a home is less than the principal balance of the
loan, the court may prevent a lender from foreclosing on the home, and, as
part of the rehabilitation plan, reduce the amount of the secured indebtedness
to the value of the home as it exists at the time of the proceeding, leaving
the lender as a general unsecured creditor for the difference between that
value and the amount of outstanding indebtedness. A bankruptcy court may grant
the debtor a reasonable time to cure a payment default, and in the case of a
mortgage loan not secured by the debtor's principal residence, also may reduce
the monthly payments due under such mortgage loan, change the rate of interest
and alter the mortgage loan repayment schedule. Certain court decisions have
applied such relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These laws include the federal Truth in Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail
to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan secured by Multifamily Property will be a non-recourse loan to
the Mortgagor. As a result, the Mortgagor's obligation to repay the Mortgage
Loan can be enforced only against the Mortgaged Property regardless of whether
the Mortgagor has other assets from which it could repay the loan.
Unless otherwise specified in the related Prospectus Supplement, the
mortgage securing each Mortgage Loan relating to Multifamily Property will
contain an assignment of rents and an assignment of leases, pursuant to which
the borrower assigns its right, title and interest as landlord under each
lease and the income derived therefrom to the Depositor, while retaining a
license to collect the rents so long as there is no default. In the event the
borrower defaults, the license terminates and the Trustee (as the assignee of
such assignment) is entitled to collect the rents. The Trustee may enforce its
right to such rents by seeking the appointment of a receiver to collect the
rents immediately after giving notice to the borrower of the default.
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"Due-on-Sale" Clauses
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of
the maturity of a loan if the borrower transfers its interest in the property.
The enforceability of these clauses has been subject of legislation or
litigation in many states, and in some cases the enforceability of these
clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law that prohibits the enforcement of due-
on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limited exceptions. The Garn-St Germain
Act does "encourage" lenders to permit assumption of loans at the original
rate of interest or at some other rate less than the average of the original
rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a due-on-
sale clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also
prohibit the imposition of prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the
average life of the Mortgage Loans and the number of Mortgage Loans which may
be outstanding until maturity.
Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon late charges which a lender may
collect from a borrower for delinquent payments. State and federal statutes or
regulations may also limit a lender's right to collect a prepayment penalty
when the prepayment is caused by the lender's acceleration of the loan
pursuant to a due-on-sale clause. Certain states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Servicing Agreements and the Pooling and Servicing
Agreement, late charges and prepayment fees (to the extent permitted by law
and not waived by the Servicers) will be retained by the Servicers or Master
Servicer as additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and sometimes expensive actions to determine the causes
for the borrower's default and the likelihood that the borrower will be able
to reinstate the loan. In some cases, courts have substituted their judgment
for the lender's judgment and have required lenders to reinstate loans or
recast payment schedules to accommodate borrowers who are suffering from
temporary financial disability. In some cases, courts have limited the right
of lenders to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain or insure the
property or the borrower executing a second mortgage or deed of trust
affecting the property. In other cases, some courts have been faced with the
issue whether federal or state constitutional provisions reflecting due
process concerns for adequate notice require that borrowers under the deeds of
trust receive notices in addition to the statutorily-prescribed minimum
requirements. For the most part, these cases have upheld the notice provisions
as being reasonable or have found that the sale by a trustee under a deed of
trust or under a mortgage having a power of sale does not involve sufficient
state action to afford constitutional protections to the borrower.
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Environmental Considerations
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, a secured party which takes a deed in lieu of
foreclosure or purchases a mortgaged property at a foreclosure sale may become
liable in certain circumstances for the costs of remedial action ("Cleanup
Costs") if hazardous wastes or hazardous substances have been released or
disposed of on the property. Such Cleanup Costs may be substantial. It is
possible that such costs could become a liability of the Trust Fund and reduce
the amounts otherwise distributable to the Certificateholders if a Mortgaged
Property securing a Mortgage Loan became the property of the Trust Fund in
certain circumstances and if such Cleanup Costs were incurred.
Except as otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller will represent, as of the date of delivery of the related
Series of Certificates, that to the best of its knowledge no Mortgaged
Property secured by Multifamily Property is subject to an environmental hazard
that would have to be eliminated under applicable law before the sale of, or
which could otherwise affect the marketability of, such Mortgaged Property or
which would subject the owner or operator of such Mortgaged Property or a
lender secured by such Mortgaged Property to liability under law, and that
there are no liens which relate to the existence of any clean-up of a
hazardous substance (and to the best of its knowledge no circumstances are
existing that under law would give rise to any such lien) affecting the
Mortgaged Property which are or may be liens prior to or on a parity with the
lien of the related mortgage. The Agreement will further provide that the
Master Servicer, acting on behalf of the Trust Fund, may not acquire title to
a Mortgaged Property or take over its operation unless the Master Servicer has
received a report from a qualified independent person selected by the Master
Servicer setting forth whether such Mortgaged Property is subject to or
presents any toxic wastes or environmental hazards and an estimate of the cost
of curing or cleaning up such hazard.
THE CONTRACTS
General
As a result of the Depositor's assignment of the Contract to the Trustee,
the Certificateholders will succeed collectively to all of the rights
(including the right to receive payment on the Contracts) and will assume
certain obligations of the Depositor. Each Contract evidences both (a) the
obligation of the Obligor to repay the loan evidenced thereby and (b) the
grant of a security interest in the Manufactured Home to secure repayment of
such loan. Certain aspects of both features of the Contracts are described
more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code in effect in the states in which the Manufactured Homes
initially were registered. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to perfection of a security interest in chattel
paper. Under the Pooling and Servicing Agreement, the Master Servicer or the
Depositor, as the case may be, will transfer physical possession of the
Contracts to the Trustee or its custodian. In addition, the Master Servicer
will make an appropriate filing of a UCC-1 financing statement in the
appropriate states to give notice of the Trustee's ownership of the Contracts.
Unless otherwise specified in the related Prospectus Supplement, the Contracts
will not be stamped or marked otherwise to reflect their assignment from the
Depositor to the Trustee. Therefore, if a subsequent purchaser were able to
take physical possession of the Contracts without notice of such assignment,
the Trustee's interest in the Contracts could be defeated.
Security Interests in the Manufactured Homes
The law governing perfection of a security interest in a Manufactured Home
varies from state to state. Security interests in manufactured homes may be
perfected either by notation of the secured party's lien on the certificate of
title or by delivery of the required documents and payment of a fee to the
state motor vehicle authority, depending on state law. In some nontitle
states, perfection pursuant to the provisions of the UCC is required. The
lender or Master Servicer may effect such notation or delivery of the required
documents and fees, and obtain possession of the certificate of title, as
appropriate under the laws of the state in which any
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manufactured home securing a manufactured housing conditional sales contract
is registered. In the event the Master Servicer or the lender fails, due to
clerical errors, to effect such notation or delivery, or files the security
interest under the wrong law (for example, under a motor vehicle title statute
rather than under the UCC, in a few states), the Certificateholders may not
have a first priority security interest in the Manufactured Home securing a
Contract. As manufactured homes have become larger and often have been
attached their sites without any apparent intention to move them, courts in
many states have held that manufactured homes, under certain circumstances,
may become subject to real estate title and recording laws. As a result, a
security interest in a manufactured home could be rendered subordinate to the
interests of other parties claiming an interest in the home under applicable
state real estate law. In order to perfect a security interest in a
manufactured home under real estate laws, the holder of the security interest
must file either a "fixture filing" under the provisions of the UCC or a real
estate mortgage under the real estate laws of the state where the manufactured
home is located. These filings must be made in the real estate records office
of the county where the manufactured home is located. Substantially all of the
Contracts will contain provisions prohibiting the borrower from permanently
attaching the Manufactured Home to its site. So long as the Obligor does not
violate this agreement, a security interest in the Manufactured Home will be
governed by the certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the seller's security
interest in the Manufactured Home. If, however, a Manufactured Home is
permanently attached to its site, other parties could obtain an interest in
the Manufactured Home which is prior to the security interest originally
retained by the Unaffiliated Seller and transferred to the Depositor. With
respect to a Series of Certificates and as described in the related Prospectus
Supplement, the Master Servicer may be required to perfect a security interest
in the Manufactured Home under applicable real estate laws. If such real
estate filings are not required and if any of the foregoing events were to
occur, the only recourse of the Certificateholders would be against the
Unaffiliated Seller pursuant to its repurchase obligation for breach of
warranties. Based on the representations of the Unaffiliated Seller, the
Depositor, however, believes that it has obtained a perfected first priority
security interest by proper notation or delivery of the required documents and
fees with respect to substantially all of the Manufactured Homes securing the
Contracts.
The Depositor will assign its security interests in the Manufactured Homes
to the Trustee on behalf of the Certificateholders. Unless otherwise specified
in the related Prospectus Supplement, neither the Depositor nor the Trustee
will amend the certificates of title to identify the Trustee as the new
secured party. Accordingly, the Depositor or such other entity as may be
specified in the Prospectus Supplement will continue to be named as the
secured party on the certificates of title relating to the Manufactured Homes.
In most states, such assignment is an effective conveyance of such security
interest without amendment of any lien noted on the related certificate of
title and the new secured party succeeds to the assignor's rights as the
secured party. However, in some states there exists a risk that, in the
absence of an amendment to the certificate of title, such assignment of the
security interest might not be held effective against creditors of the
assignor.
In the absence of fraud, forgery or permanent affixation of the Manufactured
Home to its site by the Manufactured Home owner, or administrative error by
state recording officials, the notation of the lien of the Depositor on the
certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the security interest assigned to the Depositor and the
Certificateholders is not perfected, such security interest would be
subordinate to, among others, subsequent purchasers for value of Manufactured
Homes and holders of perfected security interests. There also exists a risk in
not identifying the Certificateholders as the new secured party on the
certificate of title that, through fraud or negligence, the security interest
of the Certificateholders could be released.
In the event that the owner of a Manufactured Home moves it to a state other
than the state in which such Manufactured Home initially is registered, under
the laws of most states the perfected security interest in the Manufactured
Home would continue for four months after such relocation and thereafter only
if and after the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to
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another state and not re-register the Manufactured Home in such state, and if
steps are not taken to re-perfect the Trustee's security interest in such
state, the security interest in the Manufactured Home would cease to be
perfected. A majority of states generally require surrender of a certificate
of title to re-register a Manufactured Home; accordingly, the Trustee, or the
Master Servicer as custodian for the Trustee, must surrender possession if it
holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states which provide for notation of lien,
the Trustee would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the
Trustee would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states which do not require a
certificate of title for registration of a Manufactured Home, re-registration
could defeat perfection. In the ordinary course of servicing manufactured
housing conditional sales contracts and installment loan agreements, the
Master Servicer takes steps to effect such re-perfection upon receipt of
notice of re-registration or information from the Obligor as to relocation.
Similarly, when an Obligor under a manufactured housing conditional sales
contract or installment loan agreement sells a Manufactured Home, the Trustee,
or the Master Servicer as custodian for the Trustee, must surrender possession
of the certificate of title or will receive notice as a result of its lien
noted thereon and accordingly will have an opportunity to require satisfaction
of the related manufactured housing conditional sales contract or installment
loan agreement before release of the lien. Under the Pooling and Servicing
Agreement, the Master Servicer, on behalf of the Depositor, is obligated to
take such steps, at the Master Servicer's expense, as are necessary to
maintain perfection of security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a Manufactured
Home take priority even over a perfected security interest. The Depositor will
represent in the Pooling and Servicing Agreement that it has no knowledge of
any such liens with respect to any Manufactured Home securing payment on any
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Trustee or Certificateholders in the
event such a lien arises and such lien would not give rise to a repurchase
obligation on the part of the party specified in the Pooling and Servicing
Agreement.
Enforcement of Security Interests in Manufactured Homes
The Master Servicer on behalf of the Trustee, to the extent required by the
related Pooling and Servicing Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default by
repossession and resale of the Manufactured Homes securing such Defaulted
Contracts. Except in Louisiana, so long as the Manufactured Home has not
become subject to the real estate law, a creditor can repossess a Manufactured
Home securing a Contract by voluntary surrender, by "self-help" repossession
that is "peaceful" (i.e., without breach of the peace) or, in the absence of
voluntary surrender and the ability to repossess without breach of the peace,
by judicial process. The holder of a Contract must give the debtor a number of
days notice, which varies from 10 to 30 days depending on the state, prior to
commencement of any repossession. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including requiring prior
notice to the debtor and commercial reasonableness in effecting such a sale.
The law in most states also requires that the debtor be given notice of any
sale prior to resale of the unit so that the debtor may redeem at or before
such resale. In the event of such repossession and resale of a Manufactured
Home, the Trustee would be entitled to be paid out of the sale proceeds before
such proceeds could be applied to the payment of the claims of unsecured
creditors or the holders of subsequently perfected security interests or,
thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and
resale of the Manufactured Home securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
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Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods. Liability under this rule is limited to
amounts paid under a Contract; however, the Obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
against such Obligor. Numerous other federal and state consumer protection
laws impose requirements applicable to the origination and lending pursuant to
the Contracts, including the Truth in Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act,
the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and
the Uniform Consumer Credit Code. In the case of some of these laws, the
failure to comply with their provisions may affect the enforceability of the
related Contract.
Transfers of Manufactured Homes, Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Depositor or the Master Servicer
and permit the acceleration of the maturity of the Contracts by the Depositor
or the Master Servicer upon any such sale or transfer that is not consented
to. Unless otherwise specified in the related Prospectus Supplement, the
Depositor or the Master Servicer expects that it will permit most transfers of
Manufactured Homes and not accelerate the maturity of the related Contracts.
In certain cases, the transfer may be made by a delinquent Obligor in order to
avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Depositor
desires to accelerate the maturity of the related Contract, the Depositor's
ability to do so will depend on the enforceability under state law of the
"due-on-sale" clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of "due-on-sale"
clauses applicable to the Manufactured Homes. In some states the Depositor or
the Master Servicer may be prohibited from enforcing a "due-on-sale" clause in
respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan that is
secured by a first lien on certain kinds of manufactured housing. The
Contracts would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and deferral fees
and requiring a 30-day notice period prior to instituting any action leading
to repossession of or foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision that expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on loans covered
by Title V. In any state in which application of Title V was expressly
rejected or a provision limiting discount points or other charges has been
adopted, no Contract which imposes finance charges or provides for discount
points or charges in excess of permitted levels has been included in the Trust
Assets or Fund. The Depositor, or the party specified in the related Pooling
and Servicing Agreement will represent that all of the Contracts comply with
applicable usury laws.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
I. GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Certificates. As used hereinafter in "Certain Federal Income Tax
Consequences," "Mortgage Loans" shall include Mortgage Certificates and
Contracts and "Mortgage Pool" shall include "Contract Pool." The following
discussion does not purport to discuss all federal income tax consequences
that may be applicable to particular categories of investors, some of which
may be subject to special rules. Further, the authorities on which this
discussion are based are subject to change or differing interpretation, which
change or differing interpretation could apply retroactively. This discussion
does not address the state or local tax consequences of the purchase,
ownership and disposition of such Certificates. Investors should consult their
own tax advisers in determining the federal, state, local, or other tax
consequences to them of the purchase, ownership and disposition of the
Certificates offered hereunder, particularly with respect to the federal
income tax changes effected by the Tax Reform Act of 1986 (the "1986 Act") as
explained by the Conference Committee Report (the "Committee Report")
accompanying such 1986 Act.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Mortgage Pool
("REMIC Mortgage Pool") which the Master Servicer elects to have treated as a
real estate mortgage investment conduit ("REMIC") under Code Sections 860A
through 860G ("REMIC Provisions") and (ii) certificates ("Trust Certificates")
representing certain interests in a Mortgage Pool which the Master Servicer
does not elect to have treated as a REMIC. REMIC Certificates and Trust
Certificates will be referred to collectively as "Certificates."
Under the REMIC Provisions, REMICs may issue "regular" interests and must
issue one and only one class of "residual" interests. A REMIC Certificate
representing a regular interest in a REMIC Mortgage Pool will be referred to
as a "REMIC Regular Certificate" and a REMIC Certificate representing a
residual interest in a REMIC Mortgage Pool will be referred to as a "REMIC
Residual Certificate."
A Trust Certificate representing an undivided equitable ownership interest
in the principal of the Mortgage Loans constituting the related Mortgage Pool,
together with interest thereon at a remittance rate (which may be less than,
greater than, or equal to the pass-through rate), will be referred to as a
"Trust Fractional Certificate" and a Trust Certificate representing an
equitable ownership of all or a portion of the interest paid on each Mortgage
Loan constituting the related Mortgage Pool (net of normal servicing fees)
will be referred to as a "Trust Interest Certificate."
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Code Sections 1271 through 1273 and 1275
and in Treasury regulations issued under the original issue discount
provisions of the Code (the "OID Regulations"), and the Treasury regulations
issued under the provisions of the Code relating to REMICs (the "REMIC
Regulations"). The OID Regulations generally are effective with respect to
debt instruments issued on or after April 4, 1994.
II. REMIC TRUST FUNDS
A. Classification of REMIC Trust Funds
With respect to each series of REMIC Certificates, Cadwalader, Wickersham &
Taft, New York, New York, will deliver their opinion generally to the effect
that, assuming that (i) a REMIC election is made timely in the required form,
(ii) there is ongoing compliance with all provisions of the related Pooling
and Servicing Agreement, (iii) certain representations set forth in the
Pooling and Servicing Agreement are true and (iv) there is continued
compliance with applicable provisions of the Code, as it may be amended from
time to time, and applicable Treasury regulations issued thereunder, such
REMIC Mortgage Pool will qualify as a REMIC and the classes of interests
offered will be considered to be "regular interests" or "residual interests"
in that REMIC Mortgage Pool within the meaning of the REMIC Provisions.
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Holders of REMIC Certificates ("REMIC Certificateholders") should be aware
that, if an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for REMIC status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In such event, an entity electing to be treated
as a REMIC may be taxable as a separate corporation under Treasury
regulations, and the REMIC Certificates issued by such entity may not be
accorded the status described below under the heading "Characterization of
Investments in REMIC Certificates." In the case of an inadvertent termination
of REMIC status, the Code provides the Treasury Department with authority to
issue regulations providing relief. Any such relief, however, may be
accompanied by sanctions, such as the imposition of a corporate tax on all or
a portion of the REMIC's income for the period of time in which the
requirements for REMIC status are not satisfied.
Among the ongoing requirements in order to qualify for REMIC treatment is
that substantially all of the assets of the Trust Fund (as of the close of the
third calendar month beginning after the creation of the REMIC and continually
thereafter) must consist of only "qualified mortgages" and "permitted
investments." In order to be a "qualified mortgage" or support treatment of a
certificate of participation therein as a "qualified mortgage," an obligation
must be principally secured by an interest in real property. The REMIC
Regulations treat an obligation secured by manufactured housing qualifying as
a single family residence under Code Section 25(e)(10) as an obligation
secured by real property, without regard to the treatment of the obligation or
the property under state law. Under Code Section 25(e)(10), a single family
residence includes any manufactured home that has a minimum of 400 square feet
of living space and a minimum width in excess of 102 inches and that is of a
kind customarily used at a fixed location.
B. Characterization of Investments in REMIC Certificates
In general, REMIC Certificates are not treated for federal income tax
purposes as ownership interests in the assets of a REMIC Mortgage Pool.
However, (i) REMIC Certificates held by a mutual savings bank or a domestic
building and loan association will constitute "qualifying real property loans"
within the meaning of Code Section 593(d) in the same proportion that the
assets of the REMIC Mortgage Pool underlying such Certificates ("Assets")
would be so treated; (ii) REMIC Certificates held by a domestic building and
loan association will constitute "a regular or residual . . . interest in a
REMIC" within the meaning of Code Section 7701(a)(19)(C)(xi) in the same
proportion that the Assets would be treated as "loans secured by an interest
in real property" within the meaning of Code Section 7701(a)(19)(C)(v) or as
other assets described in Code Section 7701(a)(19)(C); and (iii) REMIC
Certificates held by a real estate investment trust will constitute "real
estate assets" within the meaning of Code Section 856(c)(5)(A), and interest
on the REMIC Certificates will be considered "interest on obligations secured
by mortgages on real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B) in the same proportion that, for both
purposes, the Assets would be treated as "interests in real property" as
defined in Code Section 856(c)(6)(C) (or, as provided in the Committee Report,
as "real estate assets" as defined in Code Section 856(c)(6)(B)). See, in this
regard, "Characterization of Investments in Trust Certificates--Buydown
Mortgage Loans," below. Moreover, if 95% or more of the Assets qualify for any
of the foregoing treatments, the REMIC Certificates will qualify for the
corresponding status in their entirety. Investors should be aware that the
investment of amounts in any Reserve Fund or GPM Fund in non-qualifying assets
would, and, holding property acquired by foreclosure pending sale might,
reduce the amount of the REMIC Certificates that would qualify for the
foregoing treatment. The REMIC Regulations provide that payments on Mortgage
Loans held pending distribution are considered part of the Mortgage Loans for
purposes of Code Sections 593(d) and 856(c)(5)(A); it is unclear whether such
collected payments would be so treated for purposes of Code Section
7701(a)(19)(C)(v), but there appears to be no reason why analogous treatment
should not be given to such collected payments under that provision. The
determination as to the percentage of the REMIC's assets that will constitute
assets described in the foregoing sections of the Code will be made with
respect to each calendar quarter based on the average adjusted basis of each
category of the assets held by the REMIC during such calendar quarter. The
REMIC will report those determinations to Certificateholders in the manner and
at the times required by applicable Treasury regulations. The Prospectus
Supplement or the related Current Report on Form 8-K for each Series of REMIC
Certificates will describe the
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Assets as of the Cut-off Date. REMIC Certificates held by certain financial
institutions will constitute an "evidence of indebtedness" within the meaning
of Code Section 582(c)(1); in addition, REMIC Regular Certificates acquired by
a REMIC in accordance with the requirements of Section 860G(a)(3)(A)(i) and
(ii) or Section 860G(a)(4)(B) of the Code will be treated as "qualified
mortgages" within the meaning of Code Section 860D(a)(4).
Under the REMIC Regulations, for purposes of characterizing an investment in
REMIC Certificates a Contract secured by a Manufactured Home qualifying as a
single family residence under section 25(e)(10) will constitute (i) a
"qualifying real property loan" within the meaning of Code Section 593(d),
(ii) a "real estate asset" within the meaning of Code Section 856, and (iii)
an asset described in Code section 7701(a)(19)(C). The Depositor has not
inspected the Manufactured Homes to determine whether they so qualify and,
accordingly, no opinion can be expressed as to whether the Certificates will
be treated as qualifying assets under the Code sections described above.
C. Tiered REMIC Structures
For certain series of Certificates, two or more separate elections may be
made to treat designated portions of the related Trust Fund as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such series
of Certificates, Cadwalader, Wickersham & Taft, counsel to the Depositor, will
deliver their opinion generally to the effect that, assuming compliance with
all provisions of the related Pooling and Servicing Agreement, the Tiered
REMICs will each qualify as a REMIC and the REMIC Certificates issued by the
Tiered REMICs, respectively, will be considered to evidence ownership of REMIC
Regular Certificates or REMIC Residual Certificates in the related REMIC
within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"qualifying real property loans" under Section 593(d) of the Code, "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code, and
assets described in Section 7701(a)(19)(C) of the Code, and whether the income
on such Certificates is interest described in Section 856(c)(3)(B) of the
Code, the Tiered REMICs will be treated as one REMIC.
D. Taxation of Owners of REMIC Regular Certificates
Except as otherwise stated in this discussion, the REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC Mortgage Pool and not as ownership interests
in the REMIC Mortgage Pool or its Assets. In general, interest, original issue
discount and market discount paid or accrued on a REMIC Regular Certificate
will be treated as ordinary income to the holder of such REMIC Regular
Certificate. Distributions in reduction of the stated redemption price at
maturity of the REMIC Regular Certificate will be treated as a return of
capital to the extent of such holder's basis in such REMIC Regular
Certificate. Holders of REMIC Regular Certificates that otherwise report
income under a cash method of accounting will be required to report income
with respect to REMIC Regular Certificates under an accrual method.
1. Original Issue Discount
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Code Section 1273(a). Any holders of REMIC
Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, in advance of the receipt of the cash attributable to
such income. The Master Servicer will report annually (or more frequently if
required) to the Internal Revenue Service ("IRS") and to Certificateholders
such information with respect to the original issue discount accruing on the
REMIC Regular Certificates as may be required under Code Section 6049 and the
regulations thereunder. See "Reporting and Other Administrative Matters of
REMICs" below.
Rules governing original issue discount are set forth in Code Sections 1271
through 1273 and 1275 and, to some extent, in the OID Regulations. Code
Section 1272(a)(6) provides special original issue discount rules
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applicable to REMIC Regular Certificates. Regulations have not yet been
proposed or adopted interpreting Code Section 1272(a)(6).
Code Section 1272(a)(6) requires that a mortgage prepayment assumption
("Prepayment Assumption") be used in computing the accrual of original issue
discount on REMIC Regular Certificates, and for certain other federal income
tax purposes. The Prepayment Assumption is to be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The Committee Report indicates that the regulations will provide
that the Prepayment Assumption, if any, used with respect to a particular
transaction must be the same as that used by the parties in pricing the
transaction. The Master Servicer will use a Prepayment Assumption in reporting
original issue discount that is consistent with this standard. However,
neither the Depositor nor the Master Servicer makes any representation that
the Mortgage Loans will in fact prepay at the rate reflected in the Prepayment
Assumption or at any other rate. Each investor must make its own decision as
to the appropriate prepayment assumption to be used in deciding whether or not
to purchase any of the REMIC Regular Certificates. The Prospectus Supplement
with respect to a series of REMIC Certificates will disclose the Prepayment
Assumption to be used in reporting original issue discount, if any, and for
certain other federal income tax purposes.
The total amount of original issue discount on a REMIC Regular Certificate
is the excess of the "stated redemption price at maturity" of the REMIC
Regular Certificate over its "issue price." Except as discussed in the
following two paragraphs, in general, the issue price of a particular class of
REMIC Regular Certificates offered hereunder will be the price at which a
substantial amount of REMIC Regular Certificates of that class are first sold
to the public (excluding bond houses and brokers), and the stated redemption
price at maturity of a REMIC Regular Certificate will be its Stated Principal
Balance.
If a REMIC Regular Certificate is sold with accrued interest that relates to
a period prior to the issue date of such REMIC Regular Certificate, the amount
paid for the accrued interest will be treated instead as increasing the issue
price of the REMIC Regular Certificate. In addition, that portion of the first
interest payment in excess of interest accrued from the date of initial
issuance of the Certificates (the "Closing Date") to the first Distribution
Date will be treated for federal income tax reporting purposes as includible
in the stated redemption price at maturity of the REMIC Regular Certificates,
and as excludible from income when received as a payment of interest on the
first Distribution Date. The OID Regulations suggest that some or all of this
pre-issuance accrued interest "may" be treated as a separate asset (and hence
not includible in a REMIC Regular Certificate's issue price or stated
redemption price at maturity), whose cost is recovered entirely out of
interest paid on the first Distribution Date.
The stated redemption price at maturity of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
"qualified stated interest." Under the OID Regulations, "qualified stated
interest" is interest that is unconditionally payable at least annually during
the entire term of the Certificate at either (i) a single fixed rate that
appropriately takes into account the length of the interval between payments
or (ii) a current value of a single "qualified floating rate" or "objective
rate" (each, a "Single Variable Rate"). A "current value" is the value of a
variable rate on any day that is no earlier than three months prior to the
first day on which that value is in effect and no later than one year
following that day. A "qualified floating rate" is a rate whose variations can
reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds in the currency in which the Certificate is denominated.
Such a rate remains qualified even though it is multiplied by a fixed,
positive multiple not exceeding 1.35, increased or decreased by a fixed rate,
or both. Certain combinations of rates constitute a single qualified floating
rate, including (i) interest stated at a fixed rate for an initial period of
less than one year followed by a qualified floating rate if the value of the
floating rate at the Closing Date is intended to approximate the fixed rate,
and (ii) two or more qualified floating rates that can reasonably be expected
to have approximately the same values throughout the term of the Certificate.
A combination of such rates is conclusively presumed to be a single floating
rate if the values of all rates on the Closing Date are within 0.25 percentage
points of each other. A variable rate that is subject to an interest rate cap,
floor, "governor" or similar restriction on rate adjustment may be a qualified
floating rate only if such
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restriction is fixed througout the term of the instrument, or is not
reasonably expected as of the Closing Date to cause the yield on the debt
instrument to differ significantly from the expected yield absent the
restriction. An "objective rate" is a rate (other than a qualified floating
rate) determined using a single formula fixed for the life of the Certificate,
which 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 changes in price of one or more
items of "actively traded" personal property, (iv) a combination of the
foregoing objective rates, or (v) a rate designated by the IRS. However, a
variable rate is not an objective rate if it is reasonably expected that the
average value of the rate during the first half of the Certificate's term will
differ significantly from the average value of such 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 at the Closing Date
is intended to approximate the fixed rate; such a combination of rates is
conclusively presumed to be a single objective rate if the objective rate on
the Closing Date does not differ from the fixed rate by more than 0.25
percentage points. The qualified stated interest payable with respect to
certain variable rate debt instruments not bearing stated interest at a Single
Variable Rate is discussed below under "Variable Rate Certificates." Under the
foregoing rules, some of the payments of interest on a Certificate bearing a
fixed rate of interest for an initial period followed by a qualified floating
rate of interest in subsequent periods could be treated as included in the
stated redemption price at maturity if the initial fixed rate were to differ
sufficiently from the rate that would have been set using the formula
applicable to subsequent periods. See "Variable Rate Certificates." REMIC
Regular Certificates offered hereby other than such Certificates providing for
variable rates of interest or for the accretion of interest are not
anticipated to have stated interest other than "qualified stated interest,"
but if any such REMIC Regular Certificates are so offered, appropriate
disclosures will be made in the Prospectus Supplement. Some or all of the
payments on REMIC Regular Certificates providing for the accretion of interest
will be included in the stated redemption price at maturity of such
Certificates. Further, because interest is payable to Certificateholders only
to the extent that amounts are received with respect to the Mortgage Loans,
such interest might not be "unconditionally payable" and hence might not be
qualified stated interest; however, the Master Servicer will not adopt such
treatment for purposes of information reporting.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
original issue discount on a REMIC Regular Certificate will be considered to
be zero if such original issue discount is less than 0.25% of the stated
redemption price at maturity of the REMIC Regular Certificate multiplied by
the weighted average life of the REMIC Regular Certificate. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the amount of each payment under
the instrument (other than a payment of qualified stated interest) by a
fraction, whose numerator is the number of complete years from the issue date
until such payment is made and whose denominator is the stated redemption
price at maturity of such REMIC Regular Certificate. The IRS may be
anticipated to take the position that this rule should be applied taking into
account the Prepayment Assumption and the effect of any anticipated investment
income. Under the OID Regulations, REMIC Regular Certificates bearing only
qualified stated interest except for any "teaser" rate, interest holiday or
similar provision would be treated as subject to the de minimis rule if the
greater of the foregone interest or any excess of the Certificates' stated
principal amount over their issue price is less than such de minimis amount.
The OID Regulations generally would treat de minimis original issue discount
as includible in income as each principal payment is made, based on the
product of the total amount of such de minimis original issue discount and a
fraction, whose numerator is the amount of such principal payment and whose
denominator is the outstanding principal balance of the REMIC Regular
Certificate. The OID Regulations also would permit a Certificateholder to
elect to accrue de minimis original issue discount into income currently based
on a constant yield method. See "Taxation of Owners of REMIC Regular
Certificates--Market Discount and Premium."
Each holder of a REMIC Regular Certificate must include in gross income the
sum of the "daily portions" of original issue discount on its REMIC Regular
Certificate for each day during its taxable year on which it held such REMIC
Regular Certificate. For this purpose, in the case of an original holder of a
REMIC Regular
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Certificate, the daily portions of original issue discount will be determined
as follows. A calculation will first be made of the portion of the original
issue discount that accrued during each accrual period, that is, unless
otherwise stated in the applicable Prospectus Supplement, each period that
ends on a date that corresponds to a Distribution Date on the REMIC Regular
Certificate and begins on the first day following the immediately preceding
accrual period (or in the case of the first such period, begins on the Closing
Date). For any accrual period such portion will equal the excess, if any, of
(i) the sum of (A) the present value of all of the distributions remaining to
be made on the REMIC Regular Certificate, if any, as of the end of the accrual
period and (B) distributions made on such REMIC Regular Certificate during the
accrual period of amounts included in the stated redemption price at maturity,
over (ii) the adjusted issue price of such REMIC Regular Certificate at the
beginning of the accrual period. The present value of the remaining payments
referred to in the preceding sentence will be calculated based on (i) the
yield to maturity of the REMIC Regular Certificate, calculated as of the
settlement date, giving effect to the Prepayment Assumption, (ii) events
(including actual prepayments) that have occurred prior to the end of the
accrual period and (iii) the Prepayment Assumption. The adjusted issue price
of a REMIC Regular Certificate at the beginning of any accrual period will
equal the issue price of such Certificate, increased by the aggregate amount
of original issue discount with respect to such REMIC Regular Certificate that
accrued in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
of amounts included in the stated redemption price at maturity. The original
issue discount accruing during any accrual period will then be allocated
ratably to each day during the period to determine the daily portion of
original issue discount for each day. With respect to an accrual period
between the settlement date and the first Distribution Date on the REMIC
Regular Certificate that is shorter than a full accrual period, the OID
Regulations permit the daily portions of original issue discount to be
determined according to any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost (not including payment for accrued
qualified stated interest) less than its remaining stated redemption price at
maturity will also be required to include in gross income, for each day on
which it holds such REMIC Regular Certificate, the daily portions of original
issue discount with respect to such REMIC Regular Certificate, but reduced, if
such cost exceeds the "adjusted issue price", by an amount equal to the
product of (i) such daily portions and (ii) a constant fraction, whose
numerator is such excess and whose denominator is the sum of the daily
portions of original issue discount on such REMIC Regular Certificate for all
days on or after the day of purchase. The adjusted issued price of a REMIC
Regular Certificate on any given day is equal to the sum of the adjusted issue
price (or, in the case of the first accrual, the issue price) of the REMIC
Regular Certificate at the beginning of the accrual period during which such
day occurs and the daily portions of original issue discount for all days
during such accrual period prior to such day, reduced by the aggregate amount
of distributions previously made other than distributions of qualified stated
interest.
Variable Rate Certificates. REMIC Regular Certificates bearing interest at
one or more variable rates are subject to certain special rules. The qualified
stated interest payable with respect to certain variable rate debt instruments
not bearing interest at a Single Variable Rate generally is determined under
the OID Regulations by converting such instruments into fixed rate debt
instruments. Instruments qualifying for such treatment generally include those
providing for stated interest at (i) more than one qualified floating rates,
or (ii) a single fixed rate and (a) one or more qualified floating rates or
(b) a single "qualified inverse floating rate" (each, a "Multiple Variable
Rate"). A qualified inverse floating rate is an objective rate equal to a
fixed rate reduced by a qualified floating rate, the variations in which can
reasonably be expected to inversely reflect contemporaneous variations in the
cost of newly borrowed funds (disregarding permissible rate caps, floors,
governors and similar restrictions such as are described above).
Purchasers of REMIC Regular Certificates bearing a variable rate of interest
should be aware that there is uncertainty concerning the application of
Section 1272(a)(6) of the Code and the OID Regulations to such Certificates.
In the absence of other authority, the Master Servicer intends to be guided by
the provisions of the OID Regulations governing variable rate debt instruments
in adapting the provisions of Section 1272(a)(6) of the Code to such
Certificates for the purpose of preparing reports furnished to
Certificateholders. The effect of
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the application of such provisions generally will be to cause
Certificateholders holding Certificates bearing interest at a Single Variable
Rate to take into account for each period an amount corresponding
approximately to the sum of (i) the qualified stated interest accruing on the
outstanding face amount of the REMIC Regular Certificate as the stated
interest rate for that Certificate varies from time to time and (ii) the
amount of original issue discount that would have been attributable to that
period on the basis of a constant yield to maturity for a bond issued at the
same time and issue price as the REMIC Regular Certificate, having the same
face amount and schedule of payments of principal as such Certificate, subject
to the same Prepayment Assumption, and bearing interest at a fixed rate equal
to the value of the applicable qualified floating rate or qualified inverse
floating rate in the case of a Certificate providing for either such rate, or
equal to the fixed rate that reflects the reasonably expected yield on the
Certificate in the case of a Certificate providing for an objective rate other
than an inverse floating rate, in each case as of the issue date.
Certificateholders holding REMIC Regular Certificates bearing interest at a
Multiple Variable Rate generally will take into account interest and original
issue discount under a similar methodology, except that the amounts of
qualified stated interest and original issue discount attributable to such a
Certificate first will be determined for an "equivalent" debt instrument
bearing fixed rates, the assumed fixed rates for which are (a) for each
qualified floating rate, the value of each such rate as of the Closing Date
(with appropriate adjustment for any differences in intervals between interest
adjustment dates), (b) for a qualified inverse floating rate, the value of the
rate as of the Closing Date, and (c) for any other objective rate, the fixed
rate that reflects the yield that is reasonably expected for the Certificate.
If the interest paid or accrued with respect to a Multiple Variable Rate
Certificate during an accrual period differs from the assumed fixed interest
rate, such difference will be an adjustment (to interest or original issue
discount, as applicable) to the Certificateholder's taxable income for the
taxable period or periods to which such difference relates.
In the case of a Certificate that provides for stated interest at a fixed
rate in one or more accrual periods and either one or more qualified floating
rates or a qualified inverse floating rate in other accrual periods, the fixed
rate is first converted into an assumed variable rate. The assumed variable
rate will be a qualified floating rate or a qualified inverse floating rate
according to the type of actual variable rates provided by the Certificate,
and must be such that the fair market value of the REMIC Regular Certificate
as of issuance is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for the assumed variable
rate in lieu of the fixed rate. The REMIC Regular Certificate is then subject
to the determination of the amount and accrual of original issue discount as
described above, by reference to the hypothetical variable rate instrument.
Purchasers of variable rate REMIC Regular Certificates further should be
aware that the provisions of the OID Regulations applicable to variable rate
debt instruments have been limited and may not apply to some REMIC Regular
Certificates having variable rates. If such a Certificate is not governed by
the provisions of the OID Regulations applicable to variable rate debt
instruments, it may be subject to provisions of proposed Treasury regulations
applicable to instruments having contingent payments. The application of those
provisions to instruments such as variable rate REMIC Regular Certificates is
subject to differing interpretations. Prospective purchasers of variable rate
REMIC Regular Certificates are advised to consult their tax advisers
concerning the tax treatment of such Certificates.
2. Market Discount and Premium
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, at a purchase price less than the adjusted issue price (as
defined under "Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount") of such REMIC Regular Certificate, will recognize market
discount upon receipt of each payment of principal. In particular, such a
holder will generally be required to allocate each payment of principal on a
REMIC Regular Certificate first to accrued market discount, and to recognize
ordinary income, to the extent such principal payment does not exceed the
aggregate amount of accrued market discount on such REMIC Regular Certificate
not previously included in income. Such market discount must be included in
income in addition to any original issue discount includible in income with
respect to such REMIC Regular Certificate.
A Certificateholder may elect to include market discount in income currently
as it accrues, rather than including it on a deferred basis in accordance with
the foregoing. If made, such election will apply to all market
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discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium
in income as interest, based on a constant yield method. If such an election
were made for a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to currently
include market discount in income with respect to all other debt instruments
having market discount that such Certificateholder acquires during the year of
the election or thereafter. Similarly, a Certificateholder that makes this
election for a Certificate that is acquired at a premium is deemed to have
made an election to amortize bond premium, as described below, with respect to
all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. The election to accrue interest, discount
and premium on a constant yield method with respect to a Certificate is
irrevocable without the consent of the IRS.
Under a statutory de minimis exception, market discount with respect to a
REMIC Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if such market discount is less than 0.25% of the
stated redemption price at maturity of such REMIC Regular Certificate
multiplied by the number of complete years to maturity remaining after the
date of its purchase. In interpreting a similar de minimis rule with respect
to original issue discount on obligations payable in installments, the OID
Regulations refer to the weighted average maturity of obligations, and it is
likely that the same rule will be applied in determining whether market
discount is de minimis. It appears that de minimis market discount on a REMIC
Regular Certificate would be treated in a manner similar to original issue
discount of a de minimis amount. See "Taxation of Holders of REMIC Regular
Certificates--Original Issue Discount." Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included using the method described above. However, Treasury
regulations implementing the market discount de minimis exception have not
been issued in proposed or temporary form, and the precise treatment of de
minimis market discount on obligations payable in more than one installment
therefore remains uncertain.
The 1986 Act grants authority to the Treasury Department to issue
regulations providing for the method for accruing market discount of more than
a de minimis amount on debt instruments, the principal of which is payable in
more than one installment. Until such time as regulations are issued by the
Treasury Department, certain rules described in the Committee Report will
apply. Under those rules, the holder of a bond purchased with more than de
minimis market discount may elect to accrue such market discount either on the
basis of a constant yield method or on the basis of the appropriate
proportionate method described below. Under the proportionate method for
obligations issued with original issue discount, the amount of market discount
that accrues during a period is equal to the product of (i) the total
remaining market discount, multiplied by (ii) a fraction, the numerator of
which is the original issue discount accruing during the period and the
denominator of which is the total remaining issue discount at the beginning of
the period. Under the proportionate method for obligations issued without
original issue discount, the amount of market discount that accrues during a
period is equal to the product of (i) the total remaining market discount,
multiplied by (ii) a fraction, the numerator of which is the amount of stated
interest paid during the accrual period and the denominator of which is the
total amount of stated interest remaining to be paid at the beginning of the
period. The Prepayment Assumption, if any, used in calculating the accrual of
original issue discount is to be used in calculating the accrual of market
discount under any of the above methods. Because the regulations referred to
in this paragraph have not been issued, it is not possible to predict what
effect such regulations might have on the tax treatment of a REMIC Regular
Certificate purchased at a discount in the secondary market.
Further, a purchaser generally will be required to treat a portion of any
gain on sale or exchange of a REMIC Regular Certificate as ordinary income to
the extent of the market discount accrued to the date of disposition under one
of the foregoing methods, less any accrued market discount previously reported
as ordinary income. Such purchaser also may be required to defer a portion of
its interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such REMIC Regular Certificate. Any
such deferred interest expense is, in general, allowed as a deduction not
later than the year in which the related market discount income is recognized.
If such holder elects to include market discount in income currently as it
accrues
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on all market discount instruments acquired by such holder in that taxable
year or thereafter, the interest deferral rule described above will not apply.
A REMIC Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated
redemption price at maturity will be considered to be purchased at a premium.
The holder of such a REMIC Regular Certificate may elect to amortize such
premium under the constant yield method. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the
Certificateholder as having made the election to amortize premium generally,
as described above. The Committee Report indicates a Congressional intent that
the same rules that will apply to accrual of market discount on installment
obligations will also apply in amortizing bond premium under Code Section 171
on installment obligations such as the REMIC Regular Certificates.
3. Treatment of Subordinated Certificates
As described above under "Credit Support--Subordinated Certificates,"
certain Series of Certificates may contain one or more Classes or Subclasses
of Subordinated Certificates. Holders of Subordinated Certificates will be
required to report income with respect to such Certificates on the accrual
method without giving effect to delays and reductions in distributions
attributable to defaults or delinquencies on any Mortgage Loans, except
possibly to the extent that it can be established that such amounts are
uncollectible. As a result, the amount of income reported by a
Certificateholder of a Subordinated Certificate in any period could
significantly exceed the amount of cash distributed to such Certificateholder
in that period.
Although not entirely clear, it appears that a corporate holder or a holder
who holds a Regular Certificate in the course of a trade or business generally
should be allowed to deduct as an ordinary loss any loss sustained on account
of partial or complete worthlessness of a Subordinated Certificate. Although
similarly unclear, a noncorporate holder who does not hold such Regular
Certificate in the course of a trade or business generally should be allowed
to deduct as a short-term capital loss any loss sustained on account of
complete worthlessness of a Subordinated Certificate. Such noncorporate holder
alternatively may be allowed such a loss deduction as the principal balance of
a Subordinated 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 Class or Subclass of
Subordinated Certificates otherwise has been retired. Special rules are
applicable to banks and thrift institutions, including rules regarding
reserves for bad debts. Holders of Subordinated Certificates should consult
their own tax advisers regarding the appropriate timing, character and amount
of any loss sustained with respect to Subordinated Certificates.
E. Taxation of Owners of REMIC Residual Certificates
1. General
An owner of a REMIC Residual Certificate ("Residual Owner") generally will
be required to report its daily portion of the taxable income or, subject to
the limitation described below in "Taxation of Owners of REMIC Residual
Certificates--Basis Rules and Distributions," the net loss of the REMIC
Mortgage Pool for each day during a calendar quarter that the Residual Owner
owned such REMIC Residual Certificate. For this purpose, the daily portion
will be determined by allocating to each day in the calendar quarter, using a
30 days per month/90 days per quarter/360 days per year counting convention
(unless otherwise disclosed in the applicable Prospectus Supplement), its
ratable portion of the taxable income or net loss of the REMIC Mortgage Pool
for such quarter, and by allocating the daily portions among the Residual
Owners (on such day) in accordance with their percentage of ownership
interests on such day. Any amount included in the gross income or allowed as a
loss of any Residual Owner by virtue of this paragraph will be treated as
ordinary income or loss. Purchasers of REMIC Residual Certificates should be
aware that taxable income from such Certificates may exceed cash distributions
with respect thereto in any taxable year. For example, if the Mortgage Loans
are acquired by a REMIC at a discount, then the holder of a residual interest
may recognize income without
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corresponding cash distributions. This result could occur because a payment
produces recognition of discount on the Mortgage Loan while the payment could
be used in whole or in part to make principal payments on REMIC Regular
Certificates issued without substantial discount. Taxable income may also be
greater in earlier years as a result of the fact that interest expense
deductions, expressed as a percentage of the outstanding principal amount of
the REMIC Regular Certificates, will increase over time as the lower yielding
sequences of Certificates are paid, whereas interest income with respect to
any given Mortgage Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such Certificate will be taken into account
in determining the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisers concerning the treatment of such payments for
income tax purposes.
2. Taxable Income or Net Loss of the REMIC Trust Fund
The taxable income or net loss of the REMIC Mortgage Pool will reflect a
netting of income from the Mortgage Loans, any cancellation of indebtedness
income due to the allocation of Realized Losses to REMIC Regular Certificates,
and the deductions and losses allowed to the REMIC Mortgage Pool. Such taxable
income or net loss for a given calendar quarter will be determined in the same
manner as for an individual having the calendar year as his taxable year and
using the accrual method of accounting, with certain modifications. The first
modification is that a deduction will be allowed for accruals of interest
(including original issue discount) on the REMIC Regular Certificates. Second,
market discount equal to the excess of any Mortgage Loan's adjusted issue
price (as determined under "Taxation of Owners of REMIC Regular Certificates--
Market Discount and Premium") over its fair market value at the time of its
transfer to the REMIC Mortgage Pool generally will be included in income as it
accrues, based on a constant yield and on the Prepayment Assumption. For this
purpose, the Master Servicer intends to treat the fair market value of the
Mortgage Loans as being equal to the aggregate issue prices of the REMIC
Regular Certificates and REMIC Residual Certificates; if one or more classes
of REMIC Regular Certificates or REMIC Residual Certificates are retained by
the Depositor, the Master Servicer will estimate the value of such retained
interests in order to determine the fair market value of the Mortgage Loans
for this purpose. Third, no item of income, gain, loss or deduction allocable
to a prohibited transaction (see "Prohibited Transactions and Other Possible
REMIC Taxes," below) will be taken into account. Fourth, the REMIC Mortgage
Pool generally may not deduct any item that would not be allowed in
calculating the taxable income of a partnership by virtue of Code Section
703(a)(2). Fifth, the REMIC Regulations provide that the limitation on
miscellaneous itemized deductions imposed on individuals by Code Section 67
will not be applied at the Mortgage Pool level to the servicing fees paid to
the Master Servicer or sub-servicers' if any. (See, however, "Pass-Through of
Servicing Fees," below.) If the deductions allowed to the REMIC Mortgage Pool
exceed its gross income for a calendar quarter, such excess will be the net
loss for the REMIC Mortgage Pool for that calendar quarter.
3. Basis Rules and Distributions
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not be
included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC
Residual Certificate. Such distribution will reduce the adjusted basis of such
interest, but not below zero. To the extent a distribution exceeds the
adjusted basis of the REMIC Residual Certificate, it will be treated as gain
from the sale of the REMIC Residual Certificate. (See "Sales of REMIC
Certificates," below.) The adjusted basis of a REMIC Residual Certificate is
equal to the amount paid for such REMIC Residual Certificate, increased by
amounts included in the income of the Residual Owner (see "Taxation of Owners
of REMIC Residual Certificates--Daily Portions" above), and decreased by
distributions and by net losses taken into account with respect to such
interest.
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A Residual Owner is not allowed to take into account any net loss for any
calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Certificate.
The effect of these basis and distribution rules is that a Residual Owner
may not amortize its basis in a REMIC Residual Certificate, but may only
recover its basis through distributions, through the deduction of any net
losses of the REMIC Mortgage Pool or upon the sale of its REMIC Residual
Certificate. See "Sales of REMIC Certificates," below. The Residual Owner
does, however, receive reduced taxable income over the life of the REMIC
because the REMIC's basis in the underlying REMIC Mortgage Pool includes the
fair market value of the REMIC Regular Certificates and REMIC Residual
Certificates.
4. Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual Certificate are
subject to certain special tax rules. With respect to a Residual Owner, the
excess inclusion for any calendar quarter is defined as the excess (if any) of
the daily portions of taxable income over the sum of the "daily accruals" for
each day during such quarter that such REMIC Residual Certificate was held by
such Residual Owner. The daily accruals are determined by allocating to each
day during a calendar quarter its ratable portion of the product of the
"adjusted issue price" of the REMIC Residual Certificate at the beginning of
the calendar quarter and 120 percent of the long-term "applicable federal
rate" (generally, an average of current yields on Treasury securities of
comparable maturity, and hereafter the "AFR") in effect at the time of
issuance of the REMIC Residual Certificate. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of any
calendar quarter is the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters and decreased
by any distributions made with respect to such REMIC Residual Certificate
before the beginning of such quarter. The issue price of a REMIC Residual
Certificate is the initial offering price to the public (excluding bond houses
and brokers) at which a substantial amount of the REMIC Residual Certificates
were sold.
For Residual Owners, other than thrift institutions described in Code
Section 593, an excess inclusion cannot be offset by deductions, losses or
loss carryovers from other activities. For Residual Owners that are subject to
tax on unrelated business taxable income (as defined in Code Section 511), an
excess inclusion is treated as unrelated business taxable income. For Residual
Owners that are nonresident alien individuals or foreign corporations
generally subject to United States 30% withholding tax, even if interest paid
to such Residual Owners is generally eligible for exemptions from such tax, an
excess inclusion will be subject to such tax and no tax treaty rate reduction
or exemption may be claimed with respect thereto. See "Foreign Investors in
REMIC Certificates."
Provisions enacted by the "Technical and Miscellaneous Revenue Act of 1988"
(the "1988 Act") cause the above described exception for thrift institutions
generally to apply only to those residual interests held and deductions,
losses and loss carryovers incurred directly by such institutions (and not by
other members of an affiliated group of corporations filing a consolidated
income tax return) or certain wholly owned direct subsidiaries of such
institutions formed and operated exclusively in connection with the
organization and operation of one or more REMICs. The REMIC Regulations
further limit this exception to residual interests having "significant value."
In order to have significant value, the REMIC Residual Certificates must have
an aggregate issue price, at issuance, at least equal to two percent of the
aggregate issue prices of all of the related REMIC Regular and Residual
Certificates. In addition, the anticipated weighted average life of the REMIC
Residual Certificates must equal or exceed 20 percent of the anticipated
weighted average life of the REMIC, based on the Prepayment Assumption and on
any required or permitted clean up calls or required liquidation provided for
in the REMIC's organizational documents. Although it has not done so, the
Treasury also has authority to issue regulations that, if REMIC Residual
Certificates are found in the aggregate not to have "significant value," would
treat as excess inclusions with respect to any REMIC Residual Certificate the
entire daily portion of taxable income for such REMIC Residual Certificate.
Each Prospectus Supplement pursuant to
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which REMIC Residual Certificates are offered will state whether such REMIC
Residual Certificates will have, or may be regarded as having, significant
value under the REMIC Regulations; provided, however, that any disclosure that
a REMIC Residual Certificate will have "significant value" will be based upon
certain assumptions, and the Depositor will make no representation that a
REMIC Residual Certificate will have "significant value" for purposes of the
above described rules or that a REMIC Residual Owner will receive
distributions of amounts calculated pursuant to those assumptions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder.
5. Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the
purported transferor will continue to remain liable for any taxes due with
respect to the income on such "noneconomic" REMIC Residual Certificate. The
REMIC Regulations provide that a REMIC Certificate is noneconomic unless, at
the time of its transfer and based on the Prepayment Assumption and any
required or permitted clean up calls or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the AFR) on the REMIC Residual
Certificate equals at least the present value of the expected tax on the
anticipated excess inclusions, and (2) the transferor reasonably expects that
the transferee will receive distributions with respect to the REMIC Residual
Certificate at or after the time the taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. Accordingly,
all transfers of REMIC Residual Certificates that may constitute noneconomic
residual interests will be subject to certain restrictions under the terms of
the related Pooling and Servicing Agreement that are intended to reduce the
possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of
such transfer is to impede the assessment or collection of tax, including
certain representations as to the financial condition of the prospective
transferee. Prior to purchasing a REMIC Residual Certificate, prospective
purchasers should consider the possibility that a purported transfer of such
REMIC Residual Certificate by such a purchaser to another purchaser at some
future date may be disregarded in accordance with the above-described rules,
which would result in the retention of tax liability by such purchaser. The
applicable Prospectus Supplement will disclose whether offered REMIC Residual
Certificates may be considered "noneconomic" residual interests under the
REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will or will not be considered "noneconomic" will be
based upon certain assumptions, and the Depositor will make no representation
that a REMIC Residual Certificate will not be considered "noneconomic" for
purposes of the above-described rules or that a REMIC Residual Owner will
receive distributions calculated pursuant to such assumptions. See "Foreign
Investors in REMIC Certificates" below for additional restrictions applicable
to transfers of certain REMIC Residual Certificates to foreign persons.
6. Tax-Exempt Investors
Tax-exempt organizations (including employee benefit plans) that are subject
to tax on unrelated business taxable income (as defined in Code Section 511)
will be subject to tax on any excess inclusions attributed to them as owners
of Residual Certificates. Excess inclusion income associated with a Residual
Certificate may significantly exceed cash distributions with respect thereto.
See "Excess Inclusions."
Generally, tax-exempt organizations that are not subject to federal income
taxation on "unrelated business taxable income" pursuant to Code Section 511
are treated as "disqualified organizations" under provisions of the 1988 Act.
Under provisions of the Pooling and Servicing Agreement, such organizations
generally are prohibited from owning Residual Certificates. See "Sales of
REMIC Certificates."
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7. Real Estate Investment Trusts
If the applicable Prospectus Supplement so provides, a Mortgage Pool may
hold Mortgage Loans bearing interest based wholly or partially on Mortgagor
profits, Mortgaged Property appreciation, or similar contingencies. Such
interest, if earned directly by a real estate investment trust ("REIT"), would
be subject to the limitations of Code sections 856(f) and 856(j). Treasury
Regulations treat a REIT holding a REMIC Residual Certificate for a principal
purpose of avoiding such Code provisions as receiving directly the income of
the REMIC Mortgage Pool, hence potentially jeopardizing its qualification for
taxation as a REIT and exposing such income to taxation as a prohibited
transaction at a 100 percent rate.
8. Mark-to-Market Rules
Code Section 475 generally requires that securities dealers include
securities in inventory at their fair market value, recognizing gain or loss
as if the securities were sold at the end of each tax year. Prospective
purchasers of the REMIC Residual Certificates should be aware that on January
3, 1995, the Internal Revenue Service released proposed regulations (the
"Proposed Mark to Market Regulations") under Code Section 475 relating to the
requirement that a securities dealer mark to market securities held for sale
to customers. This mark-to-market requirement applies to all securities of a
dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The Proposed Mark to Market Regulations
provide that, for purposes of this mark-to-market requirement, a REMIC
Residual Certificate is not treated as a security and thus may not be marked
to market. The Proposed Mark to Market Regulations would apply to all REMIC
Residual Certificates acquired on or after January 4, 1995.
F. Sales of REMIC Certificates
If a REMIC Certificate is sold, the seller will recognize gain or loss equal
to the difference between the amount realized on the sale and its adjusted
basis in the REMIC Certificate. The adjusted basis of a REMIC Regular
Certificate generally will equal the cost of such REMIC Regular Certificate to
the seller, increased by any original issue discount or market discount
included in the seller's gross income with respect to such REMIC Regular
Certificate and reduced by premium amortization deductions and distributions
previously received by the seller of amounts included in the stated redemption
price at maturity of such REMIC Regular Certificate. The adjusted basis of a
REMIC Residual Certificate will be determined as described under "Taxation of
Owners of REMIC Residual Certificates--Basis Rules and Distributions." Gain
from the disposition of a REMIC Regular Certificate that might otherwise be
treated as a capital gain will be treated as ordinary income to the extent
that such gain does not exceed the excess, if any, of (i) the amount that
would have been includible in such holder's income had income accrued at a
rate equal to 110% of the AFR as of the date of purchase over (ii) the amount
actually includible in such holder's income. Except as otherwise provided
under "Taxation of Owners of REMIC Regular Certificates--Market Discount and
Premium" and under Code Section 582(c), any additional gain or any loss on the
sale or exchange of a REMIC Certificate will be capital gain or loss, provided
such REMIC Certificate is held as a capital asset (generally, property held
for investment) within the meaning of Code Section 1221. The Code currently
provides for a top marginal tax rate of 39.6% for individuals while
maintaining a maximum marginal rate for the long-term capital gains of
individuals at 28%. There is no such rate differential for corporations. In
addition, the distinction between a capital gain or loss and ordinary income
or loss remains relevant for other purposes, including limitations on the use
of capital losses to offset ordinary income.
All or a portion of any gain from the sale of a REMIC Certificate that might
otherwise be capital gain may be treated as ordinary income (i) if such
Certificate is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
holder's net investment in the conversion transaction at 120% of the
appropriate applicable Federal rate under Code Section 1274(d) in effect at
the time the taxpayer entered into the transaction reduced by any amount
treated as ordinary income with respect to any prior disposition 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.
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If a Residual Owner sells a REMIC Residual Certificate at a loss, the loss
will not be recognized if, within six months before or after the sale of the
REMIC Residual Certificate, such Residual Owner purchases another residual in
any REMIC or any interest in a taxable mortgage pool (as defined in Code
Section 7701(i)) comparable to a residual interest in a REMIC. Such disallowed
loss will be allowed upon the sale of the other residual interest (or
comparable interest) if the rule referred to in the preceding sentence does
not apply to that sale. While the Committee Report states that this rule may
be modified by Treasury regulations, the REMIC Regulations do not address this
issue and it is not clear whether any such modification will in fact be
implemented or, if implemented, what its precise nature or effective date
would be.
The 1988 Act makes transfers of a residual interest to certain "disqualified
organizations" subject to an additional tax on the transferor in an amount
equal to the maximum corporate tax rate applied to the present value (using a
discount rate equal to the AFR) of the total anticipated excess inclusions
with respect to such residual interest for the periods after the transfer. For
this purpose, "disqualified organizations" includes the United States, any
state or political subdivision of a state, any foreign government or
international organization or any agency or instrumentality of any of the
foregoing; any tax-exempt entity (other than a Code Section 521 cooperative)
which is not subject to the tax on unrelated business income; and any rural
electrical and telephone cooperative. The anticipated excess inclusions must
be determined as of the date that the REMIC Residual Certificate is
transferred and must be based on events that have occurred up to the time of
such transfer, the Prepayment Assumption, and any required or permitted clean
up calls or required liquidation provided for in the REMIC's organizational
documents. The tax generally is imposed on the transferor of the REMIC
Residual Certificate, except that it is imposed on an agent for a disqualified
organization if the transfer occurs through such agent. The Pooling and
Servicing Agreement requires, as a prerequisite to any transfer of a Residual
Certificate, the delivery to the Trustee of an affidavit of the transferee to
the effect that it is not a disqualified organization and contains other
provisions designed to render any attempted transfer of a Residual Certificate
to a disqualified organization void.
In addition, if a "pass-through entity" includes in income excess inclusions
with respect to a REMIC Residual Certificate, and a disqualified organization
is the record holder of an interest in such entity, then a tax will be imposed
on such entity equal to the product of (i) the amount of excess inclusions on
the REMIC Residual Certificate that are allocable to the interest in the pass-
through entity held by such disqualified organization and (ii) the highest
marginal federal income tax rate imposed on corporations. A pass-through
entity will not be subject to this tax for any period, however, if the record
holder of an interest in such entity furnishes to such entity (i) such
holder's social security number and a statement under penalties of perjury
that such social security number is that of the record holder or (ii) a
statement under penalties of perjury that such record holder is not a
disqualified organization. For these purposes, a "pass-through entity" means
any regulated investment company, real estate investment trust, trust,
partnership or certain other entities described in Section 860E(e)(6) of the
Code. In addition, a person holding an interest in a pass-through entity as a
nominee for another person shall, with respect to such interest, be treated as
a pass-through entity. Legislation presently pending before the United States
Congress would apply this tax on an annual basis to "large partnerships".
Generally, such legislation would treat partnerships that have, or have had,
250 or more partners as a large partnership for this purpose. Such legislation
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. No prediction
can be made whether such legislation will be enacted in its current or
modified form.
G. Pass-Through of Servicing Fees
The general rule is that Residual Certificateholders take into account
taxable income or net loss of the related REMIC Mortgage Pool. Under that
rule, servicing compensation of the Master Servicer and the subservicers (if
any) would be allocated to the holders of the REMIC Residual Certificates, and
therefore would not affect the income or deductions of holders of REMIC
Regular Certificates. However, in the case of a "single-class REMIC", such
expenses and an equivalent amount of additional gross income will be allocated
among all holders of REMIC Regular Certificates and REMIC Residual
Certificates for purposes of the limitations on the
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deductibility of certain miscellaneous itemized deductions by individuals
contained in Code Sections 56(b)(1) and 67. Generally, any holder of a REMIC
Certificate who is an individual, estate or trust will be able to deduct such
expenses in determining regular tax liability only to the extent that such
expenses together with certain other miscellaneous itemized deductions of such
individual, estate or trust exceed 2% of adjusted gross income; such a holder
may not deduct such expenses to any extent in determining liability for
alternative minimum tax. Accordingly, REMIC Residual Certificates, and REMIC
Regular Certificates receiving an allocation of servicing compensation, may
not be appropriate investments for individuals, estates or trusts, and such
persons should carefully consult with their own tax advisers regarding the
advisability of an investment in such Certificates.
A "single-class REMIC" is a REMIC that either (i) would be treated as a
pass-through trust under the provisions of Treasury Regulation Section
301.7701-4(c) in the absence of a REMIC election, or (ii) is substantially
similar to such a pass-through trust and is structured with the principal
purpose of avoiding the allocation of investment expenses to holders of REMIC
Regular Certificates. Unless otherwise stated in the related Prospectus
Supplement, the Depositor intends to treat a REMIC Mortgage Pool as other than
a "single-class REMIC," consequently allocating servicing compensation
expenses and related income amounts entirely to REMIC Residual Certificates
and in no part to REMIC Regular Certificates.
H. Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMIC Mortgage Pools equal to 100 percent of the
net income derived from "prohibited transactions". In general, a prohibited
transaction means the disposition of a Mortgage Loan other than pursuant to
certain specified exceptions, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the REMIC Certificates. The Code also imposes a 100 percent
tax on the value of any contribution of assets to the REMIC after the "start-
up day" (the day on which the regular and residual interests are issued),
other than pursuant to specified exceptions, and subjects "net income from
foreclosure property" to tax at the highest corporate rate. It is not
anticipated that a REMIC Mortgage Pool will engage in any such transactions or
receive any such income.
I. Termination of a REMIC Trust Fund
In general, no special tax consequences will apply to a holder of a REMIC
Regular Certificate upon the termination of the REMIC Mortgage Pool by virtue
of the final payment or liquidation of the last Mortgage Loan remaining in the
REMIC Mortgage Pool. If a Residual Owner's adjusted basis in its REMIC
Residual Certificate at the time such termination occurs exceeds the amount of
cash distributed to such Residual Owner in liquidation of its interest, then,
although the matter is not entirely free from doubt, it appears that the
Residual Owner would be entitled to a loss (which could be a capital loss)
equal to the amount of such excess.
J. Reporting and Other Administrative Matters of REMICs
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. Certain holders of REMIC
Regular Certificates who are generally exempt from information reporting on
debt instruments, such as corporations, banks, registered securities or
commodities brokers, real estate investment trusts, registered investment
companies, common trust funds, charitable remainder annuity trusts and
unitrusts, will be provided interest and original issue discount income
information and the information set forth in the following paragraph upon
request in accordance with the requirements of the Treasury regulations. The
information must be provided by the later of 30 days after the end of the
quarter for which the information was requested, or two weeks after the
receipt of the request. The REMIC Mortgage Pool must also comply with rules
requiring the face of a REMIC Certificate issued at more than a de minimis
discount to disclose the amount of
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original issue discount and the issue date and requiring such information to
be reported to the Treasury Department.
The REMIC Regular Certificate information reports must include a statement
of the "adjusted issue price" of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports must include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC
Mortgage Pool may not have, it appears that this provision will only require
information pertaining to the appropriate proportionate method of accruing
market discount.
The responsibility for complying with the foregoing reporting rules will be
borne by the Master Servicer.
For purposes of the administrative provisions of the Code, REMIC Pools will
be treated as partnerships and the holders of Residual Certificates will be
treated as partners. The Master Servicer will file federal income tax
information returns on behalf of the related REMIC Pool, and will be
designated as agent for and will act on behalf of the "tax matters person"
with respect to the REMIC Pool in all respects.
As agent for the tax matters person, the Master Servicer will, subject to
certain notice requirements and various restrictions and limitations,
generally have the authority to act on behalf of the REMIC and the Residual
Owners in connection with the administrative and judicial review of items of
income, deduction, gain or loss of the REMIC Mortgage Pool, as well as the
REMIC Mortgage Pool's classification. Residual Owners will generally be
required to report such REMIC Mortgage Pool items consistently with their
treatment on the REMIC Mortgage Pool's federal income tax information return
and may in some circumstances be bound by a settlement agreement between the
Master Servicer, as agent for the tax matters person, and the IRS concerning
any such REMIC Mortgage Pool item. Adjustments made to the REMIC Mortgage Pool
tax return may require a Residual Owner to make corresponding adjustments on
its return, and an audit of the REMIC Mortgage Pool's tax return, or the
adjustments resulting from such an audit, could result in an audit of a
Residual Owner's return.
K. Backup Withholding with Respect to REMIC Certificates
Payments of interest and principal on REMIC Regular Certificates, as well as
payment of proceeds from the sale of REMIC Certificates, may be subject to the
"backup withholding tax" under Section 3406 of the Code at a rate of 31
percent if recipients of such payments fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise
fail to establish an exemption from such tax. Any amounts deducted and
withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties
may be imposed by the IRS on a recipient of payments that is required to
supply information but that does not do so in the proper manner.
L. Foreign Investors in REMIC Certificates
1. REMIC Regular Certificates
Except as qualified below, payments made on a REMIC Regular Certificate to a
REMIC Regular Certificateholder that is not a U.S. Person, as hereinafter
defined (a "non-U.S. Person"), or to a person acting on behalf of such a
Certificateholder, generally will be exempt from U.S. federal income and
withholding taxes, provided that (a) the holder of the Certificate is not
subject to U.S. tax as a result of a connection to the United States other
than ownership of such Certificate, (b) the holder of such Certificate signs a
statement under penalties of perjury that certifies that such holder is a Non-
U.S. Person, and provides the name and address of such holder, and (c) the
last U.S. Person in the chain of payment to the holder received such statement
from such holder or a financial institution holding on its behalf and does not
have actual knowledge that such statement is false. If the holder does not
qualify for exemption, distributions of interest, including distributions in
respect
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of accrued original issue discount, to such holder may be subject to a
withholding tax rate of 30 percent, subject to reduction under any applicable
tax treaty.
"U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate
or trust that is subject to U.S. federal income tax regardless of the source
of its income.
Holders of REMIC Regular Certificates should be aware that the IRS might
take the position that exemption from U.S. withholding taxes does not apply to
such a holder that also directly or indirectly owns 10 percent or more of the
REMIC Residual Certificates. Further, the foregoing rules will not apply to
exempt a United States shareholder of a controlled foreign corporation from
taxation on such United States shareholder's allocable portion of the interest
or original issue discount income earned by such controlled foreign
corporation.
2. REMIC Residual Certificates
Amounts paid to a Residual Owner that is a Non-U.S. Person generally will be
treated as interest for purposes of applying the withholding tax on Non-U.S.
Persons with respect to income on its REMIC Residual Certificate. However, it
is unclear whether distributions on REMIC Residual Certificates will be
eligible for the general exemption from withholding tax that applies to REMIC
Regular Certificates as described above. Treasury Regulations provide that,
for purposes of the portfolio interest exception, payments to the foreign
owner of a REMIC Residual Certificate are to be considered paid on the
obligations held by the REMIC, rather than on the Certificate itself. Such
payments would thus only qualify for the portfolio interest exception if the
underlying obligations held by the REMIC would so qualify. Such withholding
tax generally would be imposed at a rate of 30 percent but would be subject to
reduction under any tax treaty applicable to the Residual Owner. However,
there is no exemption from withholding tax nor may the rate of such tax be
reduced, under a tax treaty or otherwise, with respect to any distribution of
income that is an excess inclusion. Although no regulations have been proposed
or adopted addressing withholding on residual interests held by non-U.S.
Persons, the provisions of the REMIC Regulations, described below, relating to
the transfer of residual interests to non-U.S. Persons can be read as implying
that withholding with respect to excess inclusion income is to be determined
by reference to the amount of the accrued excess inclusion income rather than
to the amount of cash distributions. If the IRS were successfully to assert
such a position, cash distributions on Residual Certificates held by non-U.S.
Persons could be subject to withholding at rates as high as 100 percent,
depending on the relationship of accrued excess inclusion income to cash
distributions with respect to such Residual Certificates. See "Taxation of
Owners of REMIC Residual Certificates--Excess Inclusions."
Certain restrictions relating to transfers of REMIC Residual Certificates to
and by investors who are not "U.S. Persons" (as defined above) are also
imposed by the REMIC Regulations. First, transfers of REMIC Residual
Certificates to a non-U.S. Person that have "tax avoidance potential" are
disregarded for all federal income tax purposes. If such transfer is
disregarded, the purported transferor of such a REMIC Residual Certificate to
a non-U.S. Person would continue to remain liable for any taxes due with
respect to the income on such REMIC Residual Certificate. A transfer of a
REMIC Residual Certificate has tax avoidance potential unless, at the time of
the transfer, the transferor reasonably expects (1) that the REMIC will
distribute to the transferee Residual Certificateholder amounts that will
equal at least 30 percent of each excess inclusion, and (2) that such amounts
will be distributed at or after the time at which the excess inclusion accrues
and not later than the close of the calendar year following the calendar year
of accrual. This rule does not apply to transfers if the income from the REMIC
Residual Certificate is taxed in the hands of the transferee as income
effectively connected with the conduct of a U.S. trade or business. Second, if
a non-U.S. person transfers a REMIC Residual Certificate to a U.S. person, and
the transfer has the effect of allowing the transferor to avoid tax on accrued
excess inclusions, that transfer is disregarded for all federal income tax
purposes and the purported non-U.S. person transferor continues to be treated
as the owner of the REMIC Residual Certificate. Thus, the REMIC's liability to
withhold 30 percent of the accrued excess inclusions is not terminated even
though the REMIC Residual Certificate is no longer held by a non-U.S. person.
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M. State and Local Taxation
Many states do not automatically conform to changes in the federal income
tax laws. Consequently, a REMIC Mortgage Pool that would not qualify as a
fixed investment trust for federal income tax purposes may be characterized as
a corporation, a partnership, or some other entity for purposes of state
income tax law. Such characterization could result in entity level income or
franchise taxation of the REMIC Mortgage Pool formed in, owning mortgages or
property in, or having servicing activity performed in a state without
conforming REMIC provisions in its income or franchise tax law. Further, REMIC
Regular Certificateholders resident in non-conforming states may have their
ownership of REMIC Regular Certificates characterized as an interest other
than debt of the REMIC such as stock or a partnership interest. Investors are
advised to consult their tax advisers concerning the state and local income
tax consequences of their purchase and ownership of REMIC Regular
Certificates.
III. MORTGAGE POOLS
A. Classification of Mortgage Pools
With respect to each series of Trust Certificates for which they are
identified as counsel to the Depositor in the applicable Prospectus
Supplement, Cadwalader, Wickersham & Taft will deliver their opinion to the
effect that the arrangements pursuant to which such Mortgage Pool will be
administered and such Trust Certificates will be issued will not be classified
as an association taxable as a corporation and that each such Mortgage Pool
will be classified as a trust whose taxation will be governed by the
provisions of subpart E, Part I of subchapter J of the Code.
B. Characterization of Investments in Trust Certificates
1. Trust Fractional Certificates
In the case of Trust Fractional Certificates, counsel to the Depositor will
deliver an opinion that, in general (and subject to the discussion below of
Contracts and under "Buydown Mortgage Loans"), (i) Trust Fractional
Certificates held by a thrift institution taxed as a "mutual savings bank" or
"domestic building and loan association" will represent interests in
"qualifying real property loans" within the meaning of Code Section 593(d);
(ii) Trust Fractional Certificates held by a thrift institution taxed as a
"domestic building and loan association" will represent "loans . . . secured
by an interest in real property" within the meaning of Code Section 7701
(a)(19)(C)(v); (iii) Trust Fractional Certificates held by a real estate
investment trust will represent "real estate assets" within the meaning of
Code Section 856(c)(5)(A) and interest on Trust Fractional Certificates will
be considered "interest on obligations secured by mortgages on real property
or on interests in real property" within the meaning of Code Section
856(c)(5)(B); and (iv) Trust Fractional Certificates acquired by a REMIC in
accordance with the requirements of Section 860G(a)(3)(A)(i) and (ii) or
Section 860G(a)(4)(B) of the Code will be treated as "qualified mortgages"
within the meaning of Code Section 860D(a)(4). In the case of a Trust
Fractional Certificate evidencing interests in Contracts, such Certificates
will qualify for the treatment described in (i) through (iv) of the preceding
sentence only to the extent of the fraction of such Certificate corresponding
to the fraction of the Contract Pool that consists of Contracts that would
receive such treatment if held directly by the Trust Fractional
Certificateholder.
2. Trust Interest Certificates
With respect to each Series of Certificates for which they are identified as
counsel to the Depositor in the applicable Prospectus Supplement, Cadwalader,
Wickersham & Taft will advise the Depositor that in their opinion, based on
the legislative history, a REMIC that acquires a Trust Interest Certificate in
accordance with the requirements of Section 860G(a)(3)(A)(i) and (ii) or
Section 860G(a)(4)(B) of the Code will be treated as owning a "Qualified
Mortgage" within the meaning of Section 860(G)(a)(3) of the Code.
Although there appears to be no policy reason not to accord to Trust
Interest Certificates the other treatment described above for Trust Fractional
Certificates, there is no authority addressing such characterization for
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instruments similar to Trust Interest Certificates. Consequently, it is
unclear to what extent, if any, (1) a Trust Interest Certificate owned by a
"domestic building and loan association" within the meaning of Code Section
7701 (a)(19) will be considered to represent "loans . . . secured by an
interest in real property" within the meaning of Code Section
7701(a)(19)(C)(v); (2) a Trust Interest Certificate owned by a financial
institution described in Code Section 593(a) will be considered to represent
"qualifying real property loans" within the meaning of Code Section 593(d); or
(3) a real estate investment trust which owns a Trust Interest Certificate
will be considered to own "real estate assets" within the meaning of Code
Section 856(c)(5)(A), and interest income thereon will be considered "interest
on obligations secured by mortgages on real property" within the meaning of
Code Section 856(c)(3)(B). Prospective purchasers to which such
characterization of an investment in Trust Interest Certificates is material
should consult their own tax advisers regarding whether the Trust Interest
Certificates, and the income therefrom, will be so characterized.
3. Buydown Mortgage Loans
It is contemplated that the assets of certain Mortgage Pools may include
Buydown Mortgage Loans. The characterization of an investment in Buydown
Mortgage Loans will depend upon the precise terms of the related Buydown
Agreement. There are no directly applicable precedents with respect to the
federal income tax treatment or the characterization of investments in Buydown
Mortgage Loans. Accordingly, holders of Trust Certificates should consult
their own tax advisers with respect to characterization of investments in
Mortgage Pools that include Buydown Mortgage Loans.
Although the matter is not entirely free from doubt, the portion of a Trust
Certificate representing an interest in Buydown Mortgage Loans may be
considered to represent an investment in "loans . . . secured by an interest
in real property" within the meaning of Code Section 7701(a)(19)(C)(v) and
"qualifying real property loans" within the meaning of Code Section 593(d) to
the extent the outstanding principal balance of the Buydown Mortgage Loans
exceeds the amount held from time to time in the Buydown Fund. It is also
possible that the entire interest in Buydown Mortgage Loans may be so
considered, because the fair market value of the real property securing each
Buydown Mortgage Loan will exceed the amount of such loan at the time it is
made. Purchasers and their tax advisers are advised to review Section 1.593-
11(d)(2) of the Treasury Regulations, which suggests that this latter
treatment may be available, and to compare Revenue Ruling 81-203, 1981-2 C.B.
137, which may be read to imply that apportionment is generally required
whenever more than a minimal amount of assets other than real property may be
available to satisfy purchasers' claims.
For similar reasons, the portion of such Trust Certificate representing an
interest in Buydown Mortgage Loans may be considered to represent "real estate
assets" within the meaning of Code Section 856(c)(5)(A). Purchasers and their
tax advisers are advised to review Section 1.856-5(c)(1)(i) of the Treasury
Regulations, which specifies that if a mortgage loan is secured by both real
property and by other property and the value of the real property alone equals
or exceeds the amount of the loan, then all interest income will be treated as
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B).
C. Taxation of Owners of Trust Fractional Certificates
Each holder of a Trust Fractional Certificate (a "Trust Fractional
Certificateholder") will be treated as the owner of an undivided percentage
interest in the principal of, and possibly a different undivided percentage
interest in the interest portion of, each of the Mortgage Loans included in a
Mortgage Pool. Accordingly, each Trust Fractional Certificateholder must
report on its federal income tax return its allocable share of income from its
interests, as described below, at the same time and in the same manner as if
it had held directly interests in the Mortgage Loans and received directly its
share of the payments on such Mortgage Loans. Because of stripped interests,
market discount or original issue discount, or premium, the amount includible
in income on account of a Trust Fractional Certificate may differ
significantly from the amount payable thereon from payments of interest on the
Mortgage Loans. Each Trust Fractional Certificateholder may report and deduct
its allocable share of the servicing and related fees and expenses paid to or
retained by the Company at the same
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time, to the same extent, and in the same manner as such items would have been
reported and deducted had it held directly interests in the Mortgage Loans and
paid directly its share of the servicing and related fees and expenses. A
holder of a Trust Fractional Certificate who is an individual, estate or trust
will be allowed a deduction for servicing fees in determining its regular tax
liability only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of adjusted gross income, and will be
allowed no deduction for such fees in determining its liability for
alternative minimum tax. Amounts received by Trust Fractional
Certificateholders in lieu of amounts due with respect to any Mortgage Loan
but not received by the Depositor from the Mortgagor will be treated for
federal income tax purposes as having the same character as the payments which
they replace.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Stripped Mortgage Loans
should read the material under the headings "Application of Stripped Bond
Rules," "Market Discount and Premium" and "Allocation of Purchase Price" for a
discussion of particular rules applicable to their Certificates.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Unstripped Mortgage Loans
should read the material under the headings "Treatment of Unstripped
Certificates," "Market Discount and Premium," and "Allocation of Purchase
Price" for a discussion of particular rules applicable to their Certificates.
However, the IRS has indicated that under some circumstances it will view a
portion of servicing and related fees and expenses paid to or retained by the
Master Servicer or sub-servicers as an interest in the Mortgage Loans,
essentially equivalent to that portion of interest payable with respect to
each Mortgage Loan that is retained by the Depositor ("Retained Yield"). If
such a view were sustained with respect to a particular Mortgage Pool, such
purchasers would be subject to the rules set forth under "Application of
Stripped Bond Rules" rather than those under "Treatment of Unstripped
Certificates." Unless otherwise stated in the related Prospectus Supplement,
the Depositor does not expect any Servicing Fee or Master Servicing Fee to
constitute a retained interest in the Mortgage Loans; nevertheless, any such
expectation generally will be a matter of uncertainty, and prospective
purchasers are advised to consult their own tax advisers with respect to the
existence of a retained interest and any effects on investment in Trust
Fractional Certificates.
1. Application of Stripped Bond Rules
Each Mortgage Pool will consist of an interest in each of the Mortgage Loans
relating thereto, exclusive of the Depositor's Retained Yield, if any. With
respect to each Series of Certificates for which they are identified as
counsel to the Depositor in the applicable Prospectus Supplement, Cadwalader,
Wickersham & Taft will advise the Depositor that, in their opinion, any
Retained Yield will be treated for federal income tax purposes as an ownership
interest retained by the Depositor in a portion of each interest payment on
the underlying Mortgage Loans. Unless otherwise stated in the Prospectus
Supplement, the sale of the Trust Certificates associated with any Mortgage
Pool for which there is a class of Trust Interest Certificates or two or more
Classes of Trust Fractional Certificates bearing different interest rates or
of Trust Certificates identified in the Prospectus Supplement as representing
interests in "Stripped Mortgage Loans" will be treated for federal income tax
purposes as having effected a separation in ownership between the principal of
each Mortgage Loan and some or all of the interest payable thereon. As a
consequence, each Stripped Mortgage Loan (generally, a Mortgage Loan having
Retained Yield or included in a Mortgage Pool having either Trust Interest
Certificates or more than one class of Trust Fractional Certificates or
identified in the Prospectus Supplement as related to a Class of Trust
Certificates identified as representing interests in Stripped Mortgage Loans)
will become subject to the "stripped bond" rules of the Code (the "Stripped
Bond Rules"). The effect of applying those rules will generally be to require
each Trust Fractional Certificateholder to accrue and report income
attributable to its share of the principal and interest on each of the
Stripped Mortgage Loans as original issue discount on the basis of the yield
to maturity of such Stripped Mortgage Loans, as determined in accordance with
the provisions of the Code dealing with original issue discount. For a
description of the general method of calculating original issue discount, see
"REMIC Trust Funds--Taxation of Owners of REMIC Regular Certificates--Original
Issue
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Discount." The yield to maturity of a Trust Fractional Certificateholder's
interest in the Stripped Mortgage Loans will be calculated taking account of
the price at which the holder purchased the Certificate and the holder's share
of the payments of principal and interest to be made thereon. Although the
provisions of the Code and the OID Regulations do not directly address the
treatment of instruments similar to Trust Fractional Certificates, in
reporting to Trust Fractional Certificateholders the Trustee intends to treat
such Certificates as a single obligation with payments corresponding to the
aggregate of the payments allocable thereto from each of the Mortgage Loans.
See "Aggregate Reporting." Further, for purposes of reporting original issue
discount to Trust Fractional Certificate Holders, the amount of original issue
discount allocable to Trust Fractional Certificates for each period will be
calculated taking account of the prepayment assumption set forth in the
applicable Prospectus Supplement using the method prescribed for REMIC Regular
Certificates by Code Section 1272(a)(6). See "Prepayments" and "Description of
the Certificates--Reports to Certificateholders."
Each holder of a Certificate must include in gross income the sum of the
"daily portions" of original issue discount on its Certificate for each day
during its taxable year on which it held such Trust Fractional Certificate.
For this purpose, in the case of an original holder of a Trust Fractional
Certificate, the daily portions of original issue discount will be determined
under the method of Code Section 1272(a)(6) as follows: a calculation will
first be made of the portion of the original issue discount that accrued
during each accrual period, that is, unless otherwise stated in the applicable
Prospectus Supplement, each period that ends on a date that corresponds to a
date on which payments are due on Mortgage Loans and begins on the first day
following the immediately preceding accrual period (or in the case of the
first such period, begins on the Closing Date). For any accrual period, such
portion will equal the excess, if any, of (i) the sum of (A) the present value
of all of the distributions remaining to be made on the Trust Fractional
Certificate, if any, as of the end of the accrual period and (B) the
distribution made on such Trust Fractional Certificate during the accrual
period, over (ii) the adjusted issue price of such Trust Fractional
Certificate at the beginning of the accrual period. The present value of the
remaining payments referred to in the preceding sentence will be calculated
based on (i) the yield to maturity of the Trust Fractional Certificate,
calculated as of the settlement date, giving effect to the prepayment
assumption set forth in the applicable Prospectus Supplement, (ii) events
(including actual prepayments) that have occurred prior to the end of the
accrual period and (iii) the prepayment assumption set forth in the applicable
Prospectus Supplement. The adjusted issue price of a Trust Fractional
Certificate at the beginning of any accrual period will equal the issue price
of such Certificate, increased by the aggregate amount of original issue
discount with respect to such Trust Fractional Certificate that accrued in
prior accrual periods, and reduced by the amount of any distributions made on
such Trust Fractional Certificate in prior accrual periods. The original issue
discount accruing during any accrual period will then be allocated ratably to
each day during the period to determine the daily portion of original issue
discount for each day. With respect to an accrual period between the
settlement date and the first Cut-off Date on the Trust Fractional Certificate
(notwithstanding that no distribution is scheduled to be made on such date)
that is shorter than a full accrual period, the OID Regulations permit the
daily portions of original issue discount to be determined according to any
reasonable method.
Under Treasury regulations, original issue discount so determined with
respect to a particular Stripped Mortgage Loan may be considered to be zero
under the de minimis rule described above, in which case it is treated as
market discount. See "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount". Those regulations also provide that
original issue discount so determined with respect to a particular Stripped
Mortgage Loan will be treated as market discount if the rate of interest on
the Stripped Mortgage Loan, including a reasonable Servicing Fee, is no more
than one percentage point less than the unstripped rate of interest. See "--
Market Discount and Premium". The Trustee intends to apply the foregoing de
minimis and market discount rules on an aggregate poolwide basis, although it
is possible that investors may be required to apply them on a loan by loan
basis. After the fact loan by loan information may not be available should
such application of those rules be received.
Although the OID Regulations do not address Code Section 1272(a)(6) or all
of the other issues raised by the application of the original issue discount
rules to Stripped Mortgage Loans, in the absence of other contrary authority
the Depositor intends to be guided by the provisions contained therein in
interpreting the application of Code Section 1272(a)(6) to Trust Fractional
Certificates.
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Subsequent purchasers of the Certificates may be required to include
"original issue discount" in income in the manner described above but in an
amount computed using the price at which such subsequent purchaser purchased
the Certificate. Further, such purchasers may be required to determine if the
above described de minimis and market discount rules apply at the time a Trust
Fractional Certificate is acquired, based on the characteristics of the
Mortgage Loans at that time.
Variable Rate Certificates. Purchasers of Trust Fractional Certificates
bearing a variable rate of interest should be aware that there is considerable
uncertainty concerning the application of Code Section 1272(a)(6) and the OID
Regulations to Mortgage Loans bearing a variable rate of interest. Although
such regulations are subject to a different interpretation, as discussed
below, in the absence of other contrary authority in preparing reports
furnished to Certificateholders the Trustee intends to treat Stripped Mortgage
Loans bearing a variable rate of interest (other than those treated as having
market discount pursuant to the regulations described above) as subject to the
provisions therein governing variable rate debt instruments modified to
account for a prepayment assumption using the methods of Code Section
1272(a)(6). The effect of the application of such provisions generally will be
to cause Certificateholders holding Trust Fractional Certificates bearing
interest at a Single Variable Rate (as defined above under "REMIC Trust
Funds--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount") to take into account for each period an amount corresponding
approximately to the sum of (i) the qualified stated interest accruing on the
outstanding face amount of the Trust Fractional Certificate as the stated
interest rate for that Certificate (including allocable servicing and other
costs of the Mortgage Pool) varies from time to time and (ii) the amount of
original issue discount that would have been attributable to that period on
the basis of a constant yield to maturity for a bond issued at the same time
and price as the Trust Fractional Certificate, having the same face amount and
schedule of payment of principal as such Certificate, subject to the same
prepayment assumption, and bearing interest in each period at a fixed rate
equal to the value of the applicable qualified floating rate or qualified
inverse floating rate in the case of a Trust Fractional Certificate providing
for either such rate, or equal to the fixed rate that reflects the reasonably
expected yield on the Certificate in the case of a Trust Fractional
Certificate providing for an objective rate other than an inverse floating
rate, in each case as of the issue date. Certificateholders holding Trust
Fractional Certificates bearing interest at a Multiple Variable Rate (as
defined above under "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount") generally will take into account
interest and original issue discount under a similar methodology, except that
the amounts of qualified stated interest and original issue discount
attributable to such a Certificate first will be determined for an
"equivalent" debt instrument bearing fixed rates, the assumed fixed rates for
which are (a) for each qualified floating rate, the value of each such rate as
of the Closing Date (with appropriate adjustment for any differences in
intervals between interest adjustment dates), (b) for a qualified inverse
floating rate, the value of the rate as of Closing Date, and (c) for any other
objective rate, the fixed rate that reflects the yield that is reasonably
expected for the Trust Fractional Certificate. If the interest paid or accrued
with respect to a Multiple Variable Rate Trust Fractional Certificate during
an accrual period differs from the assumed fixed interest rate, such
difference will be an adjustment (to interest or original issue discount, as
applicable) to the Certificateholder's taxable income for the taxable period
or periods to which such difference relates.
In the case of a Trust Fractional Certificate that provides for stated
interest at a fixed rate in one or more accrual periods and either one or more
qualified floating rates or a qualified inverse floating rate in other accrual
periods, the fixed rate is first converted into an assumed variable rate. The
assumed variable rate will be a qualified floating rate or a qualified inverse
floating rate according to the type of actual variable rates provided by the
Trust Fractional Certificate, and must be such that the fair market value of
the Trust Fractional Certificate as of issuance is approximately the same as
the fair market value of an otherwise identical debt instrument that provides
for the assumed variable rate in lieu of the fixed rate. The Trust Fractional
Certificate is then subject to the determination of the amount and accrual of
original issue discount as described above, by reference to the hypothetical
variable rate instrument.
Prospective purchasers of Trust Fractional Certificates bearing a variable
rate of interest should be aware that the provisions in the OID Regulations
applicable to variable rate debt instruments have been limited and
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may not apply to certain adjustable and variable rate mortgage loans, possibly
including the Mortgage Loans. If variable rate Trust Fractional Certificates
are not governed by the provisions of the OID Regulations applicable to
variable rate debt instruments, such Certificates may be subject to the
provisions of proposed Treasury regulations applicable to instruments having
contingent payments. The application of those provisions to instruments such
as the Trust Fractional Certificates is subject to differing interpretations.
Prospective purchasers of variable rate Trust Fractional Certificates are
advised to consult their tax advisers concerning the tax treatment of such
Certificates.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information
on an aggregate poolwide basis. Although there are provisions in the OID
Regulations that suggest that the computation of original issue discount on
such a basis is either appropriate or required, it is possible that investors
may be required to compute original issue discount on a mortgage loan by
mortgage loan basis taking account of an allocation of their basis in the
Certificates among the interests in the various mortgage loans represented by
such Certificates according to their respective fair market values. Investors
should be aware that it may not be possible to reconstruct after the fact
sufficient mortgage by mortgage information should a computation on that basis
be required by the IRS.
Because the treatment of the Certificates under the OID Regulations is both
complicated and uncertain, Certificateholders should consult their tax
advisers to determine the proper method of reporting amounts received or
accrued on Certificates.
2. Treatment of Unstripped Certificates
Mortgage Loans in a Mortgage Pool for which there is neither any Class of
Trust Interest Certificates, nor more than one Class of Trust Fractional
Certificates, nor any Retained Yield or otherwise identified in the Prospectus
Supplement as being Unstripped Mortgage Loans ("Unstripped Mortgage Loans")
will be treated as wholly owned by the Trust Fractional Certificateholders of
a Mortgage Pool. Trust Fractional Certificateholders using the cash method of
accounting must take into account their pro rata shares of income from
Unstripped Mortgage Loans as and when collected by the Trustee. Trust
Fractional Certificateholders using an accrual method of accounting must take
into account their pro rata shares of income from Unstripped Mortgage Loans as
they become due or are paid to the Trustee, whichever is earlier.
Code Sections 1272 through 1275 provide rules for the current inclusion in
income of original issue discount on obligations issued by natural persons on
or after March 2, 1984. Generally those sections provide that original issue
discount should be included on the basis of a constant yield to maturity.
However, the application of the original issue discount rules to mortgages is
unclear in certain respects. The Treasury Department has issued the OID
Regulations relating to original issue discount, which generally address the
treatment of mortgages issued on or after April 4, 1994. The OID Regulations
would provide a new de minimis rule for determining whether certain self-
amortizing installment obligations, such as the Mortgage Loans, are to be
treated as having original issue discount. Such obligations would have
original issue discount if the points charged at origination (or other loan
discount) exceeded the greater of one-sixth of one percent times the number of
full years to final maturity or one-fourth of one percent times weighted
average maturity. The OID Regulations treat certain variable rate mortgage
loans as having original issue discount because of an initial rate of interest
that differs from that determined by the mechanism for setting the interest
rate during the remainder of the loan, or because of the use of an index that
does not vary in a manner approved the OID Regulations. For a description of
the general method of calculating original issue discount see "REMIC Trust
Funds--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount" and "Application of Stripped Bond Rules--Variable Rate
Certificates." Code Section 1272(a)(6) requires that the inclusion of original
issue discount in income for certain obligations whose principal is subject to
acceleration take account of a prepayment assumption and actual prepayments.
It is unclear to what, if any, extent those provisions could be made
applicable to Mortgage Pools composed of Unstripped Mortgage Loans. See
"Prepayments."
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A subsequent purchaser of a Trust Fractional Certificate that purchases such
Certificate at a cost (not including payment for accrued qualified stated
interest) less than its allocable portion of the aggregate of the remaining
stated redemption prices at maturity of the Unstripped Mortgage Loans will
also be required to include in gross income, for each day on which it holds
such Trust Fractional Certificate, its allocable share of the daily portion of
original issue discount with respect to each Unstripped Mortgage Loan, but
reduced, if the cost of such subsequent purchaser's interest in such
Unstripped Mortgage Loan exceeds its "adjusted issue price," by an amount
equal to the product of (i) such daily portion and (ii) a constant fraction,
whose numerator is such excess and whose denominator is the sum of the daily
portions of original issue discount allocable to such subsequent purchaser's
interest for all days on or after the day of purchase. The adjusted issue
price of an Unstripped Mortgage Loan on any given day is equal to the sum of
the adjusted issue price (or, in the case of the first accrual period, the
issue price) of such Unstripped Mortgage Loan at the beginning of the accrual
period during which such day occurs and the daily portions of original issue
discount for all days during such accrual period prior to such day, reduced by
the aggregate amount of payments previously made other than payments of
qualified stated interest.
3. Market Discount and Premium
In general, if the Stripped Bond Rules do not apply to a Trust Fractional
Certificate, a purchaser of a Trust Fractional Certificate will be treated as
acquiring market discount bonds to the extent that the share of such
purchaser's purchase price allocable to any Unstripped Mortgage Loan is less
than its allocable share of the "adjusted issue price" of such Mortgage Loan.
See "Treatment of Unstripped Certificates" and "Application of Stripped Bond
Rules." Thus, with respect to such Mortgage Loans, a holder will be required,
under Code Section 1276, to include as ordinary income the previously
unrecognized accrued market discount in an amount not exceeding each principal
payment on any such Mortgage Loans at the time each principal payment is
received or due, in accordance with the purchaser's method of accounting, or
upon a sale or other disposition of the Certificate. Such market discount
would accrue in a manner to be provided in Treasury regulations, and in the
absence of such regulations will be required to be accrued in the manner
described in "Taxation of Owners of REMIC Regular Certificates--Market
Discount and Premium"; however, it is unclear whether a prepayment assumption
should be used in determining the rate of accrual of market discount on a
Trust Fractional Certificate. See "Prepayments" below. In addition, the
description of the market discount rules in "Taxation of Owners of REMIC
Regular Certificates--Market Discount and Premium" with respect to (i)
conversion to ordinary income of a portion of any gain recognized on sale or
exchange of a market discount bond, (ii) deferral of interest expense
deductions, (iii) the de minimis exception from the market discount rules and
(iv) the elections to include in income either market discount or all
interest, discount and premium as they accrue, is also generally applicable to
Trust Fractional Certificates. Treasury regulations implementing the market
discount rules, including the 1986 Act amendments thereto, have not yet been
issued and investors therefore should consult their own tax advisers regarding
the application of these rules.
If a Trust Fractional Certificate is purchased at a premium, under existing
law such premium must be allocated to each of the Mortgage Loans (on the basis
of its relative fair market value). The portion of any premium allocated to
Unstripped Mortgage Loans originated after September 27, 1985 can be amortized
and deducted under the provisions of the Code relating to amortizable bond
premium. The portion of such premium allocated to Unstripped Mortgage Loans
originated on or before September 27, 1985 may only be deducted upon the sale
or final distribution in respect of any such Mortgage Loan, as the special
rules of the Code that permit the amortization of such premium apply only to
corporate and governmental obligations. Upon such a sale or final distribution
in respect of such a Mortgage Loan, the premium, if any, allocable thereto
would be recognized as a short-term or long-term capital loss by a
Certificateholder holding the Certificate as a capital asset, depending on how
long the Certificate had been held.
The application of the Stripped Bond Rules to Stripped Mortgage Loans will
generally cause any premium allocable to Stripped Mortgage Loans to be
amortized automatically by adjusting the rate of accrual of interest
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and discount to take account of the allocable portion of the actual purchase
price of the Certificate. In that event, no additional deduction for the
amortization of premium would be allowed. It is possible that the IRS may take
the position that the application of the Stripped Bond Rules to the Stripped
Mortgage Loans should be adjusted so as not to take account of any premium
allocable to a Stripped Mortgage Loan originated on or before September 27,
1985. Any such premium would then be subject to the provisions of the Code
relating to the amortization of bond premium, including the limitations
described in the preceding paragraph on the amortization of premium allocable
to Mortgage Loans originated on or before September 27, 1985.
4. Allocation of Purchase Price
As noted above, it is anticipated that a purchaser of a Trust Fractional
Certificate relating to Unstripped Mortgage Loans will be required to allocate
the purchase price thereof to the undivided interest it acquires in each of
the Mortgage Loans, in proportion to the respective fair market values of the
portions of such Mortgage Loans included in the Mortgage Pool at the time the
Certificate is purchased. The Depositor believes that it may be reasonable to
make such allocation in proportion to the respective principal balances of the
Mortgage Loans, where the interests in the Mortgage Loans represented by a
Trust Fractional Certificate have a common remittance rate and other common
characteristics, and otherwise so as to produce a common yield for each
interest in a Mortgage Loan, provided the Mortgage Loans are not so diverse as
to evoke differing prepayment expectations. However, if there is any
significant variation in interest rates among the Mortgage Loans, a
disproportionate allocation of the purchase price taking account of prepayment
expectations may be required.
D. Taxation of Owners of Trust Interest Certificates
With respect to each Series of Certificates for which they are identified as
counsel to the Depositor in the applicable Prospectus Supplement, Cadwalader,
Wickersham & Taft will advise the Depositor that, in their opinion, each
holder of a Trust Interest Certificate (a "Trust Interest Certificateholder")
will be treated as the owner of an undivided interest in the interest portion
("Interest Coupon") of each of the Mortgage Loans. Accordingly, and subject to
the discussion under "Application of Stripped Bond Rules" below, each Trust
Interest Certificateholder is treated as owning its allocable share of the
entire Interest Coupon from the Mortgage Loans, will report income as
described below, and may deduct its allocable share of the servicing and
related fees and expenses paid to or retained by the Depositor at the same
time and in the same manner as such items would have been reported under the
Trust Interest Certificateholder's tax accounting method had it held directly
an interest in the Interest Coupon from the Mortgage Loans, received directly
its share of the amounts received with respect to the Mortgage Loans and paid
directly its share of the servicing and related fees and expenses. An
individual, estate or trust holder of a Trust Interest Certificate will be
allowed a deduction for servicing fees in determining its regular tax
liability only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of adjusted gross income, and will be
allowed no deduction for such fees in determining its liability for
alternative minimum tax. Amounts, if any, received by Trust Interest
Certificateholders in lieu of amounts due with respect to any Mortgage Loan
but not received by the Master Servicer from the Mortgagor will be treated for
federal income tax purposes as having the same character as the payment which
they replace.
1. Application of Stripped Bond Rules
A Trust Interest Certificate will consist of an undivided interest in the
Interest Coupon of each of the Mortgage Loans. With respect to each Series of
Certificates for which they are identified as counsel to the Depositor in the
applicable Prospectus Supplement, Cadwalader, Wickersham & Taft will advise
the Depositor that, in their opinion a Trust Interest Certificate will be
treated for federal income tax purposes as comprised of an ownership interest
in a portion of the interest coupon of each of the Mortgage Loans (a "Stripped
Interest") separated by the Depositor from the right to receive principal
payments and the remainder, if any, of each interest payment on the underlying
Mortgage Loan. As a consequence, the Trust Interest Certificates will become
subject to the Stripped Bond Rules. Each Trust Interest Certificateholder will
be required to apply the stripped bond rules
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to its interest in the Interest Coupon under the method prescribed by the
Code, taking account of the price at which the holder purchased the Trust
Interest Certificate and the Trust Interest Certificateholder's share of the
scheduled payment to be made thereon. The Stripped Bond Rules generally
require a holder of stripped bonds or stripped coupons to accrue and report
income from such stripped bonds or coupons daily on the basis of the yield to
maturity of such stripped bonds or coupons, as determined in accordance with
the provisions of the Code dealing with original issue discount. For a
discussion of the general method of calculating original issue discount, see
"REMIC Trust Funds--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount." The provisions of the Code and the OID Regulations do not
directly address the treatment of instruments similar to Trust Interest
Certificates. In reporting to Trust Interest Certificateholders such
Certificates will be treated as a single obligation with payment corresponding
to the aggregate of the payment allocable thereto from each of the Mortgage
Loans. See "Aggregate Reporting." Because prepayment of a Mortgage Loan will
eliminate part or all of any subsequent payments in the related Stripped
Interest, and because each Mortgage Loan may prepay at any time, yield to
maturity for a Trust Interest Certificate cannot be unambiguously computed
pursuant to the provisions of the Code governing original issue discount.
Although there is considerable uncertainty concerning the treatment of
obligations such as the Trust Interest Certificates under the original issue
discount rules, and the OID Regulations could be read to require such
obligations to be treated as obligations providing for contingent principal,
the Depositor believes that it is reasonable to treat such obligations in a
manner similar to that accorded regular interests in a REMIC which have
similar characteristics. Consequently, the Depositor intends to report to the
IRS and investors pursuant to the method described in Section 1272(a)(6) of
the Code. Generally, for holders of Trust Interest Certificates who acquire
their Certificates from the underwriter on the settlement date for the
particular offering, under that method, the daily portions of original issue
discount will be determined as follows. First, a calculation will be made of
the amount of original issue discount that accrued during each accrual period.
Such original issue discount will be the excess, if any, of (i) the sum of (A)
the present value of all of the portions of the payments not yet due on the
Mortgage Loans attributable to the Trust Interest Certificate, if any, as of
the end of the accrual period and (B) the portions of the payments which
became due during the accrual period attributable to the Trust Interest
Certificate, over (ii) the adjusted issue price of such Trust Interest
Certificate at the beginning of the accrual period. The present value of the
remaining payments referred to in the preceding sentence will be calculated
based on (i) the yield to maturity of the Trust Interest Certificate
calculated as of the settlement date, giving effect to the Prepayment
Assumption, (ii) events (including actual prepayments) that have occurred
prior to the end of the accrual period, and (iii) the Prepayment Assumption.
The adjusted issue price of a Trust Interest Certificate at the beginning of
any accrual period will equal the issue price of such Certificate, increased
by the aggregate amount of original issue discount with respect to such Trust
Interest Certificate that accrued in prior accrual periods, and reduced by the
amounts attributable to such Trust Interest Certificate which became due on
the Mortgage Loans in prior accrual periods. The original issue discount
accruing during any accrual period will then be allocated ratably to each day
during the period to determine the daily portion of original issue discount
for each day. With respect to an accrual period between the settlement date
and the first Due Date that is shorter than a full accrual period, the OID
Regulations permit the daily portions of original issue discount to be
determined according to any reasonable method.
Subsequent purchasers of the Trust Interest Certificates may be required to
include "original issue discount" in income in the manner described above but
in an amount computed using the price at which such subsequent purchaser
purchased the Trust Interest Certificate.
Under the provisions of proposed Treasury regulations governing obligations
with contingent principal, each Trust Interest Certificate would be treated as
a single installment obligation every payment of which was contingent, and
each payment would be treated as becoming fixed where due from the mortgagor.
As a result, under those proposed regulations the portion of each monthly
payment treated as interest would consist of the sum of (i) interest accrued
at the AFR on the adjusted issue price of the Trust Interest Certificate as of
the beginning of the monthly period and (ii) any such interest for prior
periods not previously allocated to a prior
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payment. The AFR would be determined as if Code Section 1274 applied, treating
a Trust Interest Certificate as issued on the date purchased by the
Certificateholder and as maturing on the date of the final scheduled payment
of the Trust Interest Certificate. The adjusted issue price at the beginning
of a monthly period would be the Trust Interest Certificateholder's purchase
price (the "Initial Issue Price") increased by interest accrued, and decreased
by payments due, during prior monthly periods. However, after the aggregate of
payments due treated as principal equaled the Initial Issue Price, all
remaining payments due would be treated as interest. A final payment would be
treated as principal to the extent the Initial Issue Price exceeds the
aggregate of amounts previously treated as principal. Any principal
unrecovered following final payment would be treated as a loss subject to the
general provisions of the Code governing the treatment of losses.
Although the foregoing interpretation of the application of the original
issue discount rules to the Stripped Interests is reasonable, there can be no
assurance that the IRS will agree. In particular, Trust Interest
Certificateholders might be required to account for original issue discount
under the proposed Treasury regulations addressing obligations that have
contingent principal. Alternatively, Trust Interest Certificateholders might
be required to treat each scheduled payment on each Stripped Interest as a
separate obligation for purposes of allocating purchase price and computing
original issue discount.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information
on an aggregate poolwide basis. Although there are provisions in the OID
Regulations that suggest that the computation of original issue discount on
such a basis is either appropriate or required, it is possible that investors
may be required to compute original issue discount either on a mortgage loan
by mortgage loan basis taking account of an allocation of their basis in the
Certificates among the interests in the various mortgage loans represented by
such Certificates according to their respective fair market values. The effect
of an aggregate computation for the inclusion of original issue discount in
income is to defer the recognition of losses due to early prepayments relative
to a computation on a mortgage by mortgage basis. Investors should be aware
that it may not be possible to reconstruct after the fact sufficient mortgage
by mortgage information should a computation on that basis be required by the
IRS.
Because the treatment of the Trust Interest Certificates under the proposed
regulations is both complicated and uncertain, Trust Interest
Certificateholders should consult their tax advisers to determine the proper
method of reporting amounts received or accrued on Trust Interest
Certificates.
E. Prepayments
The 1986 Act contains a provision requiring original issue discount on
certain obligations issued after December 31, 1986 to be calculated taking
into account a prepayment assumption and requiring such discount to be taken
into income on the basis of a constant yield to assumed maturity taking
account of actual prepayments. The obligations to which this provision applies
include those whose payment may be accelerated by reference to prepayments on
an underlying obligation. It is unclear whether this provision will apply to
require holders of Trust Certificates to compute the original issue discount
associated with Stripped Mortgages on the basis of a prepayment assumption and
to take account of actual prepayments for the purposes of including original
issue discount in income. In circumstances in which there is original issue
discount with respect to a Mortgage Loan upon its origination, the OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on such Mortgage Loan. However, the amendments made by the 1986 Act,
while they appear (in the absence of regulations extending their coverage) to
be technically inapplicable to Trust Certificates, could apply by analogy.
Such amendments may be read to suggest that a prepayment assumption is
appropriately made in computing yield with respect to all mortgage-backed
securities. Certificateholders are advised to consult their own tax advisers
concerning whether a prepayment assumption should be used in reporting
original issue discount with respect to Trust Certificates. The Trustee
intends to use a prepayment assumption in reporting original issue discount to
Trust Fractional Certificateholders and Trust Interest Certificateholders.
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F. Sales of Trust Certificates
If a Certificate is sold, gain or loss will be recognized by the holder
thereof in an amount equal to the difference between the amount realized on
the sale and the Certificateholder's adjusted tax basis in the Certificate.
Such tax basis will equal the Certificateholder's cost for the Certificate,
increased by any original issue or market discount with respect to the
interest in the Mortgage Loans represented by such Certificate previously
included in income, and decreased by any deduction previously allowed for
premium and by the amount of payments, other than payments of qualified stated
interest, previously received with respect to such Certificate. The portion of
any such gain attributable to accrued market discount not previously included
in income will be ordinary income, as will gain attributable to a Certificate
which is part of a "conversion transaction" or which the holder elects to
treat as ordinary. See "REMIC Trust Funds--Sales of REMIC Certificates" above.
Any remaining gain or any loss will be capital gain or loss if the Certificate
was held as a capital asset except to the extent that section 582(c) of the
Code applies to such gain or loss.
G. Trust Reporting
The Master Servicer will furnish to each holder of a Trust Fractional
Certificate with each distribution a statement setting forth the amount of
such distribution allocable to principal on the underlying Mortgage Loans and
to interest thereon at the Pass-Through Rate. In addition, the Master Servicer
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Trust Certificate who was such a holder at any time during
such year, information regarding the amount of servicing compensation received
by the Master Servicer and sub-servicer (if any) and such other customary
factual information as the Master Servicer deems necessary or desirable to
enable holders of Trust Certificates to prepare their tax returns.
H. Back-up Withholding
In general, the rules described in "REMIC Trust Funds--Back-up Withholding"
will also apply to Trust Certificates.
I. Foreign Certificateholders
Payments in respect of interest or original issue discount (including
amounts attributable to servicing fees) on the Mortgage Loans to
Certificateholders who are not citizens or residents of the United States,
corporations or other entities organized in or under the laws of the United
States or of any State thereof, or United States estates or trusts, will
generally be subject to 30% United States withholding tax, unless such
Certificateholders have provided required certification as to their non-United
States status under penalty of perjury and then will be free of such tax only
to the extent that the underlying Mortgages were issued after July 18, 1984.
This withholding tax may be reduced or eliminated by an applicable tax treaty.
Notwithstanding the foregoing, if any such payments are effectively connected
with a United States trade or business conducted by the Certificateholder,
they will be subject to regular United States income tax, but will ordinarily
be exempt from United States withholding tax.
J. State and Local Taxation
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 restrictions on employee benefit plans subject to ERISA
("ERISA Plans") and on those persons who are ERISA fiduciaries with respect to
the assets of such ERISA Plans. In accordance with the general fiduciary
standards of ERISA, an ERISA Plan fiduciary should consider whether an
investment in the Certificates is permitted by the documents and instruments
governing the Plan, consistent with the Plan's overall investment policy and
appropriate in view of the composition of its investment portfolio.
Employee benefit plans which are governmental plans and certain church plans
(if no election has been made under Section 410(d) of the Code) are not
subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the Certificates subject to the provisions of applicable federal
and state law and, in the case of any such plan which is qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of
the Code, the restrictions imposed under Section 503 of the Code.
In addition to imposing general fiduciary standards, ERISA and section 4975
of the Code prohibit a broad range of transactions involving assets of ERISA
Plans and other plans subject to Section 4975 of the Code (together with ERISA
Plans, "Plans") and certain persons ("Parties in Interest") who have certain
specified relationships to the Plans and taxes and/or imposes other penalities
on any such transaction under ERISA and/or Section 4975 of the Code, unless an
exemption applies. If the assets of a Trust Fund are treated for ERISA
purposes as the assets of the Plans that purchase or hold Certificates of the
applicable Series, an investment in Certificates of that Series by or with
"plan assets" of a Plan might constitute or give rise to a prohibited
transaction under ERISA or Section 4975 of the Code, unless a statutory or
administrative exemption applies. Violation of the prohibited transaction
rules could result in the imposition of excise taxes and/or other penalties
under ERISA and/or Section 4975 of the Code.
FINAL PLAN ASSETS REGULATION
The United States Department of Labor ("DOL") has issued a final regulation
(the "Final Regulation") under which assets of an entity in which a Plan makes
an equity investment will be treated as assets of the investing Plan in
certain circumstances. Unless the Final Regulation provides an exemption from
this "plan asset" treatment, and if such an exemption is not otherwise
available under ERISA, an undivided portion of the assets of a Trust Fund will
be treated, for purposes of applying the fiduciary standards and prohibited
transaction rules of ERISA and Section 4975 of the Code, as an asset of each
Plan which becomes a Certificateholder of the applicable Series.
The Final Regulation provides an exemption from "plan asset" treatment for
securities issued by an entity if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25% of the value
of each class of equity interests in the entity, excluding interests held by a
person who has discretionary authority or control with respect to the assets
of the entity (or any affiliate of such a person), are held by "benefit plan
investors" (e.g., Plans, governmental and other benefit plans not subject to
ERISA and entities holding assets deemed to be "plan assets"). Because the
availability of this exemption to any Trust Fund depends upon the identity of
the Certificateholders of the applicable Series at any time, there can be no
assurance that any Series or Class of Certificates will qualify for this
exemption.
PROHIBITED TRANSACTION CLASS EXEMPTIONS
Prohibited Transaction Class Exemption 83-1 (Class Exemption for Certain
Transactions Involving Mortgage Pool Investment Trusts) ("PTCE 83-1") permits,
subject to certain conditions, certain transactions involving the creation,
maintenance and termination of certain residential mortgage pools and the
acquisition and holding of certain residential mortgage pool pass-through
certificates by Plans, regardless of whether (a) the mortgage pool is exempt
from "plan asset" treatment or (b) the transactions would otherwise be
prohibited under ERISA or Section 4975 of the Code. A Series of Certificates
will be an "Exempt Series" if the general
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conditions (described below) of PTCE 83-1 are satisfied, and if the applicable
Series of Certificates evidences ownership interests in Trust Assets which do
not include Mortgage Certificates, Cooperative Loans, Mortgage Loans secured
by cooperative buildings, Mortgage Loans secured by Multifamily Property, or
Contracts (collectively "Nonexempt Assets"). An investment by a Plan in
Certificates of an Exempt Series (1) will be exempt from the prohibitions of
Section 406(a) of ERISA (relating generally to Plan transactions involving
Parties in Interest who are not fiduciaries) if the Plan purchases the
Certificates at no more than fair market value, and (2) will be exempt from
the prohibitions of Sections 406(b) (1) and (2) of ERISA (relating generally
to Plan transactions with fiduciaries) if, in addition, (i) the purchase is
approved by an independent fiduciary, (ii) no sales commission is paid to the
Depositor as Mortgage Pool sponsor, (iii) the Plan does not purchase more than
25% of the Certificates of that Series and (iv) at least 50% of the
Certificates of that Series is purchased by persons independent of the
Depositor, the Trustee and the Insurer, as applicable. It does not appear that
PTCE 83-1 applies to a Series of Certificates with respect to which the Trust
Assets include Nonexempt Assets (a "Nonexempt Series"). See "The Trust Fund--
The Mortgage Pools" and "--The Contract Pools". Accordingly, it appears that
PTCE 83-1 will not exempt Plans that acquire Certificates of a Nonexempt
Series from the prohibited transaction rules of ERISA and Section 4975 of the
Code. The applicable Prospectus Supplement will state whether a Series of
Certificates is an Exempt Series or a Nonexempt Series.
PTCE 83-1 sets forth three general conditions that must be satisfied for any
transaction to be eligible for exemption: (1) the existence of a pool trustee
who is not an affiliate of the pool sponsor; (2) the maintenance of a system
of insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying certificateholders against
reductions in pass-through payment due to property damage or defaults in loan
payments; and (3) a limitation on the amount of the payment retained by the
pool sponsor, together with other benefits inuring to it, to not more than
adequate consideration for selling the mortgage loans and reasonable
compensation for services provided by the pool sponsor to the mortgage pool.
The Trustee for all Series will be unaffiliated with the Depositor, and,
accordingly, the first general condition will be satisfied. With respect to
the second general condition of PTCE 83-1, the credit support method
represented by the issuance of a Subordinated Class or Subclasses of
Certificates and/or the establishment of a Reserve Fund, with respect to any
Exempt Series for which such a method of Credit Support is provided (see
"Credit Support--Subordinated Certificates" and "--Reserve Fund"), is
substantially similar to a system for protecting Certificateholders against
reductions in pass-through payments which has been reviewed and accepted by
the DOL as an alternative to pool insurance or a letter of credit
indemnification system. This may support a Plan fiduciary's conclusion that
the second general condition is satisfied with respect to any such Exempt
Series although, in the absence of a ruling to this effect, there can be no
assurance that these features will be so viewed by the DOL. In addition, the
Depositor intends to use its best efforts to establish, for each Exempt Series
for which credit support is provided by a Letter of Credit (see "Credit
Support--Letters of Credit") and/or the insurance arrangements set forth above
under "Description of Insurance" (an "Insured Series"), a system that will
adequately protect the Mortgage Pools and indemnity Certificateholders of the
applicable Series against pass-through payment reductions resulting from
property damage or defaults in loan payments. With respect to the third
general condition of PTCE 83-1, the Depositor intends to use its best efforts
to establish a compensation system which will produce for the Depositor total
compensation that will not exceed adequate consideration for forming the
Mortgage Pool and selling the Certificates. However, the Depositor does not
guarantee that its systems will be sufficient to meet the second and third
general conditions (described above) with respect to any Exempt Series.
If an Exempt Series of Certificates is subdivided into two or more Classes
or Subclasses which are entitled to disproportionate allocations of the
principal and interest payments on the Mortgage Loans held by the applicable
Trust Fund, the availability of the exemption afforded by PTCE 83-1 may be
adversely affected, as described in the applicable Prospectus Supplement.
Moreover, if the Certificateholders of any Class or Subclass of Certificates
are entitled to pass-through payment of principal (but no or only nominal
interest) or interest (but no or only nominal principal), it appears that PTCE
83-1 will not exempt Plans which acquire Certificates of that Class or
Subclass from the prohibited transaction rules of ERISA and Section 4975 of
the Code.
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<PAGE>
If an Exempt Series of Certificates includes a Class of Subordinated
Certificates, PTCE 83-1 will not provide an exemption from the prohibited
transaction rules of ERISA for Plans that acquire such Subordinated
Certificates.
If for any reason PTCE 83-1 does not provide an exemption for a particular
Plan Certificateholder, one of three other prohibited transaction class
exemptions issued by the DOL might apply, i.e., PTCE 91-38 (formerly PTCE 80-
51) (Class Exemption for Certain Transactions Involving Bank Collective
Investment Funds), PTCE 90-1 (formerly PTCE 78-19) (Class Exemption for
Certain Transactions Involving Insurance Company Pooled Separate Accounts) or
PTCE 84-14 (Class Exemption for Plan Asset Transactions Determined by
Independent Qualified Professional Asset Managers). There can be no assurance
that any of these class exemptions will apply with respect to any particular
Plan Certificateholder or, even if it were to apply, that the exemption would
apply to all transactions involving the applicable Trust Fund. Any person who
is a fiduciary by reason of his or her authority to invest "plan assets" of
any Plan (a "Plan investor") and who is considering the use of "plan assets"
of any Plan to purchase of the offered Certificates should consult with its
counsel with respect to the potential applicability of ERISA and the Code to
such investments, and should determine on its own whether PTCE 83-1 or another
exemption would be applicable (and whether all conditions have been satisfied
with respect to any such exemptions), and whether the offered Certificates are
an appropriate investment for a Plan. Moreover, each Plan fiduciary should
determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the offered Certificates is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
UNDERWRITER'S PTE
CS First Boston Corporation ("First Boston") is the recipient of a final
prohibited transaction exemption, 54 Fed. Reg. 42597 (Oct. 17, 1989) (the
"Underwriter's PTE" or "CS First Boston Corporation's PTE" if specified in the
applicable Prospectus Supplement), which may accord protection from violations
under Sections 406 and 407 of ERISA and Section 4975 of the Code for Plans
that acquire Certificates. The Underwriter's PTE applies to certificates (a)
which represent (1) a beneficial ownership interest in the assets of a trust
and entitle the holder to pass-through payments of principal, interest and/or
other payments made with respect to the assets of the trust, or (2) an
interest in a REMIC if the certificates are issued by and are obligations of a
trust; and (b) with respect to which First Boston or any of its affiliates is
either the sole underwriter, the manager or co-manager of the underwriting
syndicate or a selling or placement agent. The corpus of a trust to which the
Underwriter's PTE applies may consist of (i) obligations which bear interest
or are purchased at a discount and which are secured by (A) single-family
residential, multifamily residential or commercial real property (including
obligations secured by leasehold interests on commercial real property) or (B)
shares issued by a cooperative housing association; and (ii) "guaranteed
governmental mortgage pool certificates" (as defined in the Final Regulation).
Plans acquiring Certificates may be eligible for protection under the
Underwriter's PTE if:
(a) assets of the type included as Trust Assets have been included in
other investment pools ("Other Pools");
(b) certificates evidencing interests in Other Pools have been both (1)
rated in one of the three highest generic rating categories by Standard &
Poor's Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or
Fitch Investors Service, Inc., and (2) purchased by investors other than
Plans, for at least one year prior to a Plan's acquisition of Certificates
in reliance upon the Underwriter's PTE;
(c) at the time of such acquisition, the Class of Certificates acquired
by the Plan has received a rating in one of the rating categories referred
to in condition (b) above;
(d) the Trustee is not an affiliate of any member of the Restricted Group
(as defined below);
(e) the applicable Series of Certificates evidences ownership in Trust
Assets which may include non Subordinated Mortgage Certificates (whether or
not interest and principal payable with respect to the Mortgage
Certificates are guaranteed by the GNMA, FHLMC or FNMA);
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<PAGE>
(f) the Class of Certificates acquired by the Plan are not subordinated
to other Classes of Certificates of that Series with respect to the right
to receive payment in the event of defaults or delinquencies on the
underlying Trust Assets;
(g) the Plan is an "accredited investor" (as defined in Rule 501(a)(1) of
Regulation D under the Securities Act);
(h) the acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan
as they would be in an arm's length transaction with an unrelated party;
and
(i) the sum of all payments made to and retained by the Underwriter or
members of any underwriting syndicate in connection with the distribution
of the Certificates represents not more than reasonable compensation for
underwriting the Certificates; the sum of all payments made to and retained
by the Seller pursuant to the sale of the Trust Assets to the Trust
represents not more than the fair market value of such Trust Assets; and
the sum of all payments made to and retained by the Master Servicer and all
Servicers represents not more than reasonable compensation for such
Servicers' services under the Pooling and Servicing Agreement and
reimbursement of such Servicers' reasonable expenses in connection
herewith.
In addition, the Underwriter's PTE will not apply to a Plan's investment in
Certificates if the Plan fiduciary responsible for the decision to invest in a
Class of Certificates is a Mortgagor or Obligor with respect to more than 5%
of the fair market value of the obligations constituting the Trust Assets or
an affiliate of such person, unless:
(1) in the case of an acquisition in connection with the initial issuance
of any Series of Certificates, at least 50% of each Class of Certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least 50% of the aggregate interest in the Trust is
acquired by persons independent of the Restricted Group;
(2) the Plan's investment in any Class of Certificates does not exceed
25% of the outstanding Certificates of that Class at the time of
acquisition;
(3) immediately after such acquisition, no more than 25% of the Plan
assets with respect to which the investing fiduciary has discretionary
authority or renders investment advice are invested in certificates
evidencing interest in trusts sponsored or containing assets sold or
serviced by the same entity; and
(4) the Plan is not sponsored by the Depositor, any Underwriter, the
Trustee, any Servicer, any Pool, Special Hazard or Primary Mortgage Insurer
or the obligor under any other credit support mechanism, a Mortgagor or
Obligor with respect to obligations constituting more than 5% of the
aggregate unamortized principal balance of the Trust Assets on the date of
the initial issuance of Certificates, or any of their affiliates (the
"Restricted Group").
Each Series of Certificates generally is expected to satisfy condition (a)
unless otherwise specified in the applicable Prospectus Supplement. If a
Series includes a Class of Subordinated Certificates, that Class will not
satisfy condition (f). Additionally, the Prospectus permits the issuance of
Certificates rated in one of the four highest rating categories, so a
particular Class of a Series may not satisfy condition (c).
Whether the other conditions in the Underwriter's PTE will be satisfied as
to Certificates or any particular Class will depend upon the relevant facts
and circumstances existing at the time the Plan acquires Certificates of that
Class. Any Plan investor who proposes to use "plan assets" of a Plan to
acquire Certificates in reliance upon the Underwriter's PTE should determine
whether the Plan satisfies all of the applicable conditions and consult with
its counsel regarding other factors that may affect the applicability of the
Underwriter's PTE.
GENERAL CONSIDERATIONS
Any member of the Restricted Group, a Mortgagor or Obligor, or any of their
affiliates might be considered or might become a Party in Interest with
respect to a Plan. In that event, the acquisition or holding of Certificates
of the applicable Series or Class by, on behalf of or with "plan assets" of
such Plan might be viewed as giving
110
<PAGE>
rise to a prohibited transaction under ERISA and Section 4975 of the Code,
unless PTCE 83-1 or another exemption is available. Accordingly, before a Plan
investor makes the investment decision to purchase, to commit to purchase or
to hold Certificates of any Series or Class, the Plan investor should
determine (a) whether the second and third general conditions and the specific
conditions (described briefly above) of PTCE 83-1 have been satisfied; (b)
whether the Underwriter's PTE is applicable; (c) whether any other prohibited
transaction exemption (if required) is available under ERISA and Section 4975
of the Code; or (d) whether an exemption from "plan asset" treatment is
available to the applicable Trust Fund. The Plan investor should also consult
the ERISA discussion, if any, in the applicable Prospectus Supplement for
further information regarding the application of ERISA to any Series or Class
of Certificates.
Subordinated Certificates are not available for purchase by or with "plan
assets" of any Plan, other than a governmental or church plan which is not
subject to ERISA or Section 4975 of the Code (as described above), and any
acquisition of Subordinated Certificates by, on behalf of or with "plan
assets" of any such Plan will be treated as null and void for all purposes.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO PURCHASE
CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH
RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE
OF THE ACQUISITION AND OWNERSHIP OF SUCH CERTIFICATES.
LEGAL INVESTMENT
The applicable Prospectus Supplement for a Series of Certificates will
specify whether a Class or Subclass of such Certificates, as long as it is
rated in one of the two highest rating categories by one or more nationally
recognized statistical rating organizations, will constitute a "mortgage
related security" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Such Class or Subclass, if any, constituting a
"mortgage related security" will be a legal investment for persons, trusts,
corporations, partnerships, associations, business trusts and business
entities (including depository institutions, insurance companies, trustees and
state government employee retirement systems) created pursuant to or existing
under the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued
by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for such
entities.
Pursuant to SMMEA, a number of states enacted legislation, on or prior to
the October 3, 1991 cutoff for such enactments, limiting to varying extents
the ability of certain entities (in particular, insurance companies) to invest
in "mortgage related securities," in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Accordingly,
the investors affected by such legislation will be authorized to invest in
Certificates qualifying as "mortgage related securities" only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe. In this connection,
federal credit unions should review NCUA Letter to Credit Unions No. 96, as
modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage
related securities. The NCUA has adopted rules, codified as 12 C.F.R.
SectionSection 703.5(f)-(k), which prohibit federal credit unions from
investing in certain mortgage related securities (including securities such as
certain Series, Classes or Subclasses of Certificates), except under limited
circumstances.
111
<PAGE>
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities"
dated January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of
the Federal Financial Institutions Examination Council.
The Policy Statement which has been adopted by the Board of Governors of the
Federal Reserve System, the Office of the Comptroller of the Currency, the
FDIC and the Office of Thrift Supervision and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain Series,
Classes or Subclasses of the Certificates), except under limited
circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain Series, Classes or Subclasses may be deemed
unsuitable investments, or may otherwise be restricted, under such rules,
policies or guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits,
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," and, with regard to any
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase Certificates under applicable legal
investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Certificates) may adversely
affect the liquidity of the Certificates.
Investors should consult their own legal advisers in determining whether and
to what extent such Certificates constitute legal investments for such
investors.
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 or
Certificates and each Subclass within such Series, including the name or names
of the Underwriters, the proceeds to the Depositor, and either the initial
public offering price, the discounts and commissions to the Underwriters and
any discounts or concessions allowed or reallowed to certain dealers, or the
method by which the price at which the Underwriters will sell such
Certificates will be determined.
Unless otherwise specified in the Prospectus Supplement, the Underwriters
will be obligated to purchase all of the Certificates of a Series described in
the Prospectus Supplement with respect to such Series if any such Certificates
are purchased. The Certificates may be acquired by the Underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale.
If so indicated in the Prospectus Supplement, the Depositor will authorize
Underwriters or other persons acting as the Depositor's agents to solicit
offers by certain institutions to purchase the Certificates from the
112
<PAGE>
Depositor pursuant to contracts providing for payment and delivery on a future
date. Institutions with which such contracts may be made include commercial
and savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Depositor. The obligation of any
purchaser under any such contract will be subject to the condition that the
purchase of the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject. The Underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
The Depositor may also sell the Certificates offered hereby and by means of
the 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 in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriters by Cadwalader,
Wickersham & Taft, New York, New York.
113
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Accrual Distribution Amount................................... 34
Advances...................................................... 14
AFR........................................................... 89
Agreement..................................................... 31
Alternative Credit Support.................................... 10
Approved Sale................................................. 66
APR........................................................... 24
ARM Loans..................................................... 17
Asset Value................................................... 32
Assets........................................................ 80
Buy-Down Fund................................................. 18
Buy-Down Loans................................................ 18
Certificate Account........................................... 40
Certificate Principal Balance................................. 3
Certificateholders............................................ 19
Certificates.................................................. 3
Class......................................................... 3
Clean up Costs................................................ 75
Closed Loans.................................................. 20
Closing Date.................................................. 82
Code.......................................................... 15
Committee Report.............................................. 79
Contract Loan-to-Value Ratio.................................. 8
Contract Pool................................................. 4
Contract Schedule............................................. 37
Contracts..................................................... 4
Converted Mortgage Loan....................................... 18
Cooperative................................................... 4
Cooperative Dwelling.......................................... 4
Cooperative Loans............................................. 4
CS First Boston Corporation's PTE............................. 109
Custodial Account............................................. 40
Custodial Agreement........................................... 24
Custodian..................................................... 24
Cut-off Date.................................................. 16
Deferred Interest............................................. 17
Deficiency Event.............................................. 54
Deleted Contract.............................................. 25
Deleted Mortgage Certificates................................. 35
Deleted Mortgage Loans........................................ 36
Depositor..................................................... 1
Deposit Trust Agreement....................................... 31
Determination Date............................................ 43
Discount Certificate.......................................... 9
Distribution Date............................................. 5
DOL........................................................... 107
Due Date...................................................... 17
Due Period.................................................... 34
</TABLE>
114
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Escrow Account................................................ 46
ERISA......................................................... 15
ERISA Plans................................................... 107
Exempt Series................................................. 107
FBSC.......................................................... 26
FHA........................................................... 18
FHA Experience................................................ 29
FHA Loans..................................................... 16
Final Regulation.............................................. 107
First Boston.................................................. 109
Garn-St Germain Act........................................... 74
GPM Fund...................................................... 13
GPM Loans..................................................... 18
Initial Deposit............................................... 13
Initial Issue Price........................................... 104
Insurance Proceeds............................................ 41
Insured....................................................... 49
Insured Series................................................ 108
Interest Coupon............................................... 103
Interest Distribution......................................... 33
Interest Rate................................................. 3
Interest Weighted Class....................................... 3
Interest Weighted Subclass.................................... 3
IRS........................................................... 81
L/C Bank...................................................... 10
L/C Percentage................................................ 10
Letter of Credit.............................................. 9
Liquidating Loan.............................................. 10
Liquidation Proceeds.......................................... 41
Loan-to-Value Ratio........................................... 6
Loss.......................................................... 61
Manufactured Home............................................. 8
Master Servicer............................................... 5
Mortgage Certificates......................................... 23
Mortgage Loans................................................ 4
Mortgage Notes................................................ 16
Mortgage Pool................................................. 4
Mortgage Rates................................................ 7
Mortgaged Property............................................ 6
Mortgagor..................................................... 6
Mortgagor Bankruptcy Bond..................................... 9
Multi-Class Certificates...................................... 3
Multifamily Property.......................................... 4
Multiple Variable Rate........................................ 84
1988 Act...................................................... 89
1986 Act...................................................... 79
Nonexempt Assets.............................................. 107
Nonexempt Series.............................................. 108
non-U.S. Person............................................... 94
</TABLE>
115
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Obligor....................................................... 27
OID Regulations............................................... 79
Original Value................................................ 17
Originator.................................................... 20
Other Pools................................................... 109
Parties in Interest........................................... 107
Pass-Through Rate............................................. 7
Percentage Interest........................................... 16
Performance Bond.............................................. 25
Plans......................................................... 107
Policy Statement.............................................. 111
Pool Insurance Policy......................................... 9
Pool Insurer.................................................. 11
Pooling and Servicing Agreement............................... 19
Premium Certificate........................................... 8
Prepayment Assumption......................................... 82
Primary Insurer............................................... 42
Primary Mortgage Insurance Policy............................. 11
Primary Mortgage Insurer...................................... 49
Principal Distribution........................................ 33
Principal Prepayments......................................... 12
Principal Weighted Class...................................... 3
Principal Weighted Subclass................................... 3
PTCE 83-1..................................................... 107
Purchase Price................................................ 38
Rating Agency................................................. 4
Record Date................................................... 33
Reference Agreement........................................... 31
REIT.......................................................... 91
REMIC......................................................... 15
REMIC Certificateholders...................................... 80
REMIC Certificates............................................ 79
REMIC Mortgage Pool........................................... 79
REMIC Provisions.............................................. 79
REMIC Regulations............................................. 79
REMIC Regular Certificate..................................... 79
REMIC Residual Certificate.................................... 79
Required Distribution......................................... 60
Required Reserve.............................................. 13
Reserve Fund.................................................. 9
Residual Certificates......................................... 3
Residual Owner................................................ 87
Restricted Group.............................................. 110
Retained Yield................................................ 98
Securities Act................................................ 32
Senior Certificates........................................... 9
Senior Class.................................................. 3
Senior Prepayment Percentage.................................. 59
Senior Subclass............................................... 3
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Series........................................................ 3
Servicemen's Readjustment Act................................. 18
Servicer...................................................... 19
Servicing Account............................................. 40
Servicing Agreement........................................... 19
Single-Class REMIC............................................ 93
Single Family Property........................................ 4
Single Variable Rate.......................................... 82
SMMEA......................................................... 15
SPA........................................................... 29
Special Distributions......................................... 44
Special Hazard Insurance Policy............................... 14
Standard Hazard Insurance Policy.............................. 47
Standard Terms................................................ 31
Stated Principal Balance...................................... 3
Stated Principal Distribution Amount.......................... 34
Stripped Bond Rules........................................... 98
Stripped Interest............................................. 103
Stripped Mortgage Loan........................................ 98
Subclass...................................................... 3
Subordinated Amount........................................... 9
Subordinated Certificates..................................... 9
Subordinated Class............................................ 3
Subordinated Pool............................................. 12
Subordinated Subclass......................................... 3
Substitute Contract........................................... 25
Substitute Mortgage Certificates.............................. 35
Substitute Mortgage Loans..................................... 36
Tiered REMICS................................................. 81
Title V....................................................... 78
Trust Assets.................................................. 4
Trust Certificates............................................ 79
Trust Fractional Certificateholder............................ 97
Trust Fractional Certificate.................................. 79
Trust Fund.................................................... 4
Trust Interest Certificate.................................... 79
Trust Interest Certificateholder.............................. 103
Unaffiliated Sellers.......................................... 20
Underwriters.................................................. 112
Underwriter's PTE............................................. 109
UCC........................................................... 72
Unstripped Mortgage Loans..................................... 101
U. S. Person.................................................. 94
VA............................................................ 16
VA Loans...................................................... 16
</TABLE>
117
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION 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 UN-
DERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY 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>
Summary of Terms........................................................... S-3
Special Considerations..................................................... S-13
Description of the Certificates............................................ S-17
The Mortgage Certificates.................................................. S-27
Description of the Mortgage Loans.......................................... S-40
Yield and Prepayment Considerations........................................ S-46
The Mortgage Loan Servicers................................................ S-53
The Resolution Trust Corporation........................................... S-53
Certain Federal Income Tax Consequences.................................... S-54
ERISA Considerations....................................................... S-55
Use of Proceeds............................................................ S-56
Legal Investment Considerations............................................ S-56
Method of Distribution..................................................... S-56
Legal Matters.............................................................. S-56
Ratings.................................................................... S-56
PROSPECTUS
Prospectus Supplement...................................................... 2
Additional Information..................................................... 2
Incorporation of Certain Information by Reference.......................... 2
Summary of Terms........................................................... 3
The Trust Fund............................................................. 16
The Depositor.............................................................. 26
Use of Proceeds............................................................ 26
Yield Considerations....................................................... 27
Maturity and Prepayment Considerations..................................... 29
Description of the Certificates............................................ 31
Credit Support............................................................. 56
Description of Insurance................................................... 61
Certain Legal Aspects of the Mortgage Loans and Contracts.................. 68
Certain Federal Income Tax Consequences.................................... 79
ERISA Considerations....................................................... 107
Legal Investment........................................................... 111
Plan of Distribution....................................................... 112
Legal Matters.............................................................. 113
Index of Terms............................................................. 114
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CS First Boston Mortgage
Securities Corp.
Depositor
$1,278,320,000
Adjustable Rate Conduit Mortgage
Pass-Through Certificates, Series 1995-1
PROSPECTUS SUPPLEMENT
[LOGO] CS FIRST BOSTON
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