<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1995
REGISTRATION NO. 33-99612
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
CS FIRST BOSTON MORTGAGE SECURITIES CORP.
(DEPOSITOR)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
PARK AVENUE PLAZA
55 EAST 52ND STREET
NEW YORK, NEW YORK 10055
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
AGENT FOR SERVICE:
ANDREW D. STONE
CS FIRST BOSTON MORTGAGE SECURITIES CORP.
PARK AVENUE PLAZA
55 EAST 52ND STREET
NEW YORK, NEW YORK 10055
COPIES TO:
SHEILA M. CAHILL, ESQ.
PATRICK T. QUINN, ESQ.
CADWALADER, WICKERSHAM & TAFT
100 MAIDEN LANE
NEW YORK, NEW YORK 10038
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, please check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT* OFFERING PRICE* FEE
- ----------------------------------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Conduit Mortgage and Manufactured Housing
Contract Pass-Through Certificates ..... $3,000,000,000 100% $3,000,000,000 $600,000
- ----------------------------------------- -------------- -------------- --------------- --------------
</TABLE>
* Estimated solely for the purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 3(A), MAY DETERMINE.
PURSUANT TO RULE 429 OF THE COMMISSION'S RULES AND REGULATIONS UNDER THE
SECURITIES ACT OF 1933, THE PROSPECTUS AND PROSPECTUS SUPPLEMENT CONTAINED IN
THIS REGISTRATION STATEMENT ALSO RELATE THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM S-11 (REGISTRATION NO. 33-47579).
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS
SUPPLEMENTS VERSIONS A, B, LOCATION IN PROSPECTUS
ITEM AND CAPTION IN FORM S-3 LOCATION IN PROSPECTUS C, D AND F SUPPLEMENT VERSION E
- --------------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus .... Forepart of Registration Outside Front Cover Page Outside Front Cover Page
Statement and Outside
Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus ... Inside Front Cover Page Inside Front Cover Page; Inside Front Cover Page;
Outside Back Cover Page Outside Back Cover Page
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges ............ Summary of Prospectus; Summary of Terms; Yield Summary of Terms; Special
Maturity and Prepayment Considerations (Versions Considerations
and Considerations; Yield B, C, D and F only);
Considerations Special Considerations
(Version B only)
4. Determination of Offering * * *
Price .......................
5. Dilution ..................... * * *
6. Selling Security Holders ..... * * *
7. Plan of Distribution ......... Plan of Distribution Underwriting (Versions A, Underwriting
B, C and D); Plan of
Distribution (Version F
only)
8. Use of Proceeds .............. Use of Proceeds Summary of Terms; Use of Summary of Terms; Use of
Proceeds Proceeds
9. Selected Financial Data ...... * * *
10. Management's Discussion and * * *
Analysis of Financial
Condition and Results of
Operation ...................
11. General Information as to
Registrant .................. The Trust Fund; The * *
Depositor
12. Policy with Respect to
Certain Activities .......... Description of the Description of the Description of the
Certificates Certificates Certificates
13. Investment Policies of
Registrant .................. The Trust Fund; Certain Description of the Description of the
Legal Aspects of the Mortgage Pool and the Contract Pool
Mortgage Loans and Underlying Properties
Contracts
14. Description of Real Estate .. The Trust Fund; Summary of Terms; Summary of Terms;
Description of the Description of the Description of the
Certificates; Description Mortgage Pool and the Contract Pool;
of Insurance Underlying Properties; Description of the
Description of the Certificates
Certificates
15. Operating Data .............. * * *
16. Tax Treatment of Registrant
and Its Security Holders .... Certain Federal Income Tax Summary of Terms; Certain Summary of Terms; Certain
Consequences Federal Income Tax Federal Income Tax
Consequences (Version F Consequences
only)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS
SUPPLEMENTS VERSIONS A, B, LOCATION IN PROSPECTUS
ITEM AND CAPTION IN FORM S-3 LOCATION IN PROSPECTUS C, D AND F SUPPLEMENT VERSION E
- --------------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
17. Market Price of and Dividends * * *
of the Registrant's Common
Equity and Related
Stockholder Matters .........
18. Description of the
Registrant's Securities ..... Outside Front Cover Page; Outside Front Cover Page; Outside Front Cover Page;
The Trust Fund; Yield Description of the Description of the
Considerations; Maturity Mortgage Pool and the Contract Pool;
and Prepayment Underlying Properties; Description of the
Considerations; Description of the Certificates; Rating
Description of the Certificates; Certain
Certificates Federal Income Tax
Consequences (Version F
only); Rating
19. Legal Proceedings ........... * * *
20. Security Ownership of Certain
Beneficial Owners and
Management .................. * * *
21. Directors and Executive
Officers .................... * * *
22. Executive Compensation ...... * * *
23. Certain Relationships and
Related Transactions ........ * * *
Description of the
Mortgage Pool and the Description of the
24. Selection, Management and Underlying Properties; Contract Pool;
Custody of Registrant's
Investments ................. Trust Fund; Description of Description of the Description of the
the Certificates Certificates Certificates
25. Policies with Respect to
Certain Transactions ........ * * *
26. Limitations of Liability ..... Description of the Description of the Description of the
Certificates Certificates Certificates
27. Financial Statements and
Information ................. * * *
28. Interests of Named Experts
and Counsel ................. * * *
29. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities ................. * * *
<FN>
- ------------
* Answer negative or Item inapplicable.
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus 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 State.
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1995
- -----------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
[VERSION A]
(To Prospectus dated , 19 )
- -----------------------------------------------------------------------------
$ (Approximate)
FIRST BOSTON MORTGAGE SECURITIES CORP.
Depositor
Conduit Mortgage Pass-Through Certificates, Series
% Pass-Through Rate
Principal and interest payable on the 25th day
of each month, beginning , 19
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF FIRST
BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
The Conduit Mortgage Pass-Through Certificate, Series (the
"Certificates") offered hereby evidence undivided fractional interests in a
trust to be created by First Boston Mortgage Securities Corp. (the
"Depositor") on or about , 199 (the "Trust"). The Trust property will
consist of a pool of [conventional] [fixed-rate] [mortgage loans and]
[mortgage participation certificates evidencing participation interests in
such mortgage loans and meeting the requirements of the nationally recognized
rating agency or agencies rating the Certificates (collectively, the "Rating
Agency") for a rating in one of the two highest rating categories of such
Rating Agency] (the "Mortgage Loans") and certain related property to be
conveyed to the Trust by the Depositor (the "Trust Fund"). The Mortgage Loans
will be transferred to the Trust, pursuant to a Pooling and Servicing
Agreement (as defined herein), dated as of , 19 , by the Depositor in
exchange for the Certificates and are more fully described in this Prospectus
Supplement and in the accompanying Prospectus. The Certificates offered by
this Prospectus Supplement constitute a separate series of the Certificates
being offered by the Depositor from time to time pursuant to its Prospectus
dated , 199 , which accompanies this Prospectus Supplement and of which
this Prospectus Supplement forms a part. The Prospectus contains important
information regarding this offering that is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
The Underwriter[s] [do[es]not] intend[s] to make a secondary market for the
Certificates [but [is] [are] under no obligation to do so]. There can be no
assurance that a secondary market will develop, or if it does develop, that
it will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate
Mortgage Investment Conduit (a "REMIC"). See "Certain Federal Income Tax
Consequences" in the Prospectus.]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC (1) DISCOUNT DEPOSITOR (1)(2)
<S> <C> <C> <C>
Per Certificate % % %
- ------------------- ------------ ---------------- -------------------
Total $ $ $
</TABLE>
- -----------------------------------------------------------------------------
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deduction of expenses payable by the Depositor estimated at
$ .
The Certificates are offered by the [several] Underwriter[s] when, as and
if issued and accepted by the Underwriter[s] and subject to [their] [its]
right to reject orders in whole or in part. It is expected that the
Certificates, in definitive fully registered form, will be ready for delivery
on or about , 19 .
CS FIRST BOSTON
- -----------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
VERSION A
This Prospectus Supplement does not contain complete information about the
Certificates offered hereby. Additional information is contained in the
Prospectus, and purchasers are urged to read both this Prospectus Supplement
and the Prospectus in full. Sales of the Certificates may not be consummated
unless the purchaser has received both this Prospectus Supplement and the
Prospectus.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
Until , 198 , all dealers effecting transactions in the Certificates,
whether or not participating in this distribution, may be required to deliver
a Prospectus Supplement and a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at 75 Park Place, 14th Floor, New
York, New York 10007; and Room 3190, Kluczynski Federal Building, 230 South
Dearborn Street, Chicago, Illinois 60604. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
S-2
VERSION A
<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 in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED ..... Conduit Mortgage Pass-Through Certificates,
Series , % Pass-Through Rate (the
"Certificates").
AMOUNT ................. $ (Approximate: subject to a permitted
variance of up to 5%).
DEPOSITOR .............. First Boston Mortgage Securities Corp. (the
"Depositor").
MASTER SERVICER ........
DENOMINATIONS .......... The minimum denomination of a Certificate (a
"Single Certificate") will initially
represent approximately $ aggregate
principal amount of Mortgage Loans.
CUT-OFF DATE ........... , 198 .
DELIVERY DATE .......... On or about , 198 .
INTEREST ............... Passed through monthly at the rate of % per
annum (the "Pass-Through Rate"), on the
day of each month (each, a "Distribution
Date") commencing , 198 .
PRINCIPAL (INCLUDING
PREPAYMENTS) .......... Passed through monthly on the Distribution
Date, commencing , 198 .
MORTGAGE POOL .......... The Mortgage Pool will consist of [fixed
rate], fully-amortizing, [level-payment]
mortgage loans [and mortgage participation
certificates evidencing participation
interests in such mortgage loans that meet
the requirements of the nationally
recognized rating agency or agencies
rating the Certificates (collectively the
"Rating Agency") for a rating in one of
the two highest rating categories of such
Rating Agency] secured by mortgages on
one- to four-family residential properties
[located in the states of , and
(the "Mortgage Loans").] All
Mortgage Loans will have original maturities
of at least [15 but no more than 30] years.
See "Description of the Mortgage Pool and
the Underlying Properties" herein.
[LETTER OF CREDIT ...... The maximum liability of [ ] under an
irrevocable standby letter of credit for
the Mortgage Pool (the "Letter of
Credit"), net of unreimbursed payments
thereunder, will be no more than [10%] of
the initial aggregate principal balance of
the Mortgage Pool (the "Letter of Credit
Percentage"). The maximum amount available
to be paid under the Letter of Credit will
be determined in accordance with the Pooling
and Servicing Agreement referred to herein.
The duration of coverage and the amount of
frequency of any reduction
S-3
VERSION A
<PAGE>
in coverage will be in compliance with the
requirements established by the Rating
Agency, in order to obtain a rating in one
of the two highest rating categories of such
Rating Agency. The amount available under
the Letter of Credit shall be reduced by the
amount of unreimbursed payments
thereunder. See "Description of the
Certificates--Credit Support--The Letter
of Credit" in the Prospectus.]
[POOL INSURANCE POLICY . [Neither the Certificates nor the Mortgage
Loans will be insured or guaranteed by any
governmental agency.] Subject to the
limitations described herein, a pool
insurance policy for certain of the
Mortgage Loans (the "Pool Insurance
Policy") will cover losses due to default
on such Mortgage Loans in an initial
amount of not less than [5%] of the
aggregate principal balance as of the
Cut-off Date of all Mortgage Loans that
are not covered as to their entire
outstanding principal balance by primary
policies of mortgage guaranty insurance.
The Pool Insurance Policy will be subject
to the limitations described under
"Description of Insurance--the Pool
Insurance Policy" in the Prospectus.]
HAZARD INSURANCE (AND
SPECIAL HAZARD
INSURANCE POLICY ...... All of the Mortgage Loans will be covered by
standard hazard insurance policies
insuring against losses due to various
causes, including fire, lightning and
windstorm. [An insurance policy (the
"Special Hazard Insurance Policy") will
cover losses with respect to the Mortgage
Loans 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 initial amount equal to
the greater of % of the aggregate
principal balance of the Mortgage Loans or
times the unpaid principal balance of
the largest Mortgage Loan.] Any hazard
losses not covered by [either] standard
hazard insurance policies [or the Special
Hazard Insurance Policy] will not be
insured against and [, to the extent that
the amount available under the Letter of
Credit or any alternative method of credit
support is exhausted,] will be borne by
holders of the Certificates (the
"Certificateholders"). The hazard
insurance policies [and the Special Hazard
Insurance Policy] will be subject to the
limitations described under "Description
of Insurance--Hazard Insurance" [and
"--Special Hazard Insurance Policies"] in
the Prospectus.
[MORTGAGOR BANKRUPTCY
BOND .................. The Depositor will obtain a bond or similar
form of insurance coverage (the "Mortgagor
Bankruptcy Bond"), providing coverage
against losses that result from
proceedings with respect to obligors under
the Mortgage Loans (the "Mortgagors")
under the federal Bankruptcy Code. See
"Description of the Certificates--Mortgagor
S-4
VERSION A
<PAGE>
Bankruptcy Bond" herein and "Description of
Insurance--The Mortgagor Bankruptcy Bond" in
the Prospectus.]
[OPTIMAL TERMINATION ... The Depositor may, at its option, repurchase
from the Trust all Mortgage Loans
remaining outstanding at such time as the
aggregate unpaid principal balance of such
Mortgage Loans is less than [10%] of the
aggregate principal balance of the
Mortgage Loans on the Cut-off Date. The
repurchase price will equal the aggregate
unpaid principal balance of such Mortgage
Loans together with accrued interest
thereon at the Pass-Through Rate through
the last day of the month during which
such repurchase occurs, plus the appraised
value of any property acquired in respect
thereof. [Any such repurchase will be
effected in compliance with the
requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986 (the "Code")
so as to constitute a "qualifying
liquidation" thereunder.]. See
"Description of the
Certificates--Termination; Repurchase of
Certificates in the Prospectus.]
ADVANCES ............... The Servicers of the Mortgage Loans (and the
Master Servicer, with respect to each
Mortgage Loan 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 under certain circumstances. See
"Description of the Certificates--
Advances" in the Prospectus.
TRUSTEE ................ State Street Bank and Trust Company. See
"Description of the Certificates--Trustee"
herein.
CERTIFICATE RATING ..... It is a condition of issuance that the
Certificates be rated in one of the two
highest rating categories of the Rating
Agency.
ERISA CONSIDERATIONS ... See "ERISA Considerations" in the Prospectus
[and herein].
LEGAL INVESTMENT ....... The Certificates constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act
of 1984 (the "Enhancement Act"), and, as
such, are legal investments for certain
entities to the extent provided in the
Enhancement Act. See "Legal Investment" in
the Prospectus.
TAX ASPECTS ............ [Because an amount not treated as servicing
compensation will be paid to , the
"stripped-bond" rules of the Internal
Revenue Code of 1986 should apply.]
The Depositor [intends] [does not intend]
to make an election to treat the Trust as
a Real Estate Mortgage Investment Conduit
(a "REMIC"), pursuant to the Internal
Revenue Code of 1986. See "Certain Federal
S-5
VERSION A
<PAGE>
Income Tax Consequences--General";
["--REMIC Trust Funds"] ["--Mortgage
Pools"] in the Prospectus. Purchasers of
Certificates should see "Certain Federal
Income Tax Consequences [--REMIC Trust
Funds--Taxation of Owners of REMIC Regular
Certificates"] [--Mortgage Pools--Taxation
of Owners of Trust Fractional
Certificates" and "--Taxation of Owners of
Trust Fractional Certificates
[--Application of Stripped Bond Rules"]
[--Treatment of Unstripped Certificates"]]
in the Prospectus for discussions of
certain tax considerations particular to
the Certificates.*
- ------------
* If the Prospectus Supplement for a Series of Certificates provides that
Cadwalader, Wickersham & Taft will pass upon the material federal income
tax consequences of the Certificates for the Depositor, then such
Prospectus Supplement will contain tax disclosure substantially similar
to the disclosure set forth in Version E under "Summary of Terms--Tax
Aspects" and "Certain Federal Income Tax Consequences."
S-6
VERSION A
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING PROPERTIES
The Mortgage Pool will consist of Mortgage Loans evidenced by mortgage
notes with aggregate unpaid principal balances outstanding as of the Cut-off
Date, after deducting payments of principal due on such date, of
approximately $ . This amount is subject to a permitted upward and
downward variance of up to %. The Mortgage Pool will consist of -year,
[fixed-rate], fully-amortizing, [level-payment] Mortgage Loans, as more fully
described in the Prospectus.
The weighted average interest rate (individually, a "Mortgage Rate") of
the Mortgage Loans as of the Cut-off Date will be at least % but no more
than %. All Mortgage Loans will have Mortgage Rates of at least % but
no more than %. The weighted average maturity of the Mortgage Loans, as of
the Cut-off Date, will be at least years but no more than years. All
Mortgage Loans will have original maturities of at least but no more than
years. None of the Mortgage Loans will have been originated prior to
or after , 198 . None of the Mortgage Loans will have a scheduled
maturity later than .
The Mortgage Loans will have the following characteristics as of the
Cut-off Date (expressed as a percentage of the outstanding aggregate
principal balances of the Mortgage Loans having such characteristics relative
to the outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated
before July 18, 1984, and no more than % of the Mortgage Loans will have
been originated before September 27, 1985. See "Certain Federal Income Tax
Consequences--Mortgage Pools," "--Taxation of Owners of Trust Fractional
Certificates" and "--Market Discount and Premium" in the Prospectus for
information regarding such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each
having outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value
ratios at origination in excess of 80%, and no Mortgage Loan will have had
a loan-to-value ratio at origination in excess of 95%.
All the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of private mortgage insurance
until the outstanding principal balance is reduced to 75% of the Original
Value.
At least % of the Mortgage Loans will be secured by Mortgages on
single-family dwellings.
No more than % of the Mortgage Loans will be secured by Mortgages
on condominiums and row houses.
No more than %, by aggregate principal balance, of the Mortgage
Loans will be Mortgage Loans for which Buy-Down Funds have been provided,
and no more than % of the outstanding principal balance of any such
Mortgage Loan will be represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage
Loans will be GPM Loans.
At least % of the Mortgage Loans will be secured by an
owner-occupied Mortgaged Property. Such determination will have been made
on the basis of a representation by the Mortgagor at the time of
origination of the Mortgage Loan that such Mortgagor then intended to
S-7
VERSION A
<PAGE>
occupy the underlying property or, in the absence of such a representation,
various factors indicating that the underlying property is owner-occupied.
No more than [5%] of the Mortgage Loans will be secured by Mortgages
on properties located in any one zip code or project.
The Mortgage Loans will be secured by Mortgages on properties located
in the states of .
Specific information with respect to the Mortgage Loans will be available
to purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in
a Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of the
Certificates.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms"), as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, , as master servicer (the
"Master Servicer"), and State Street Bank and Trust Company, as trustee (the
"Trustee"), a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement forms a part. Reference is made
to the accompanying Prospectus for important additional information regarding
the terms and conditions of the Pooling and Servicing Agreement and the
Certificates. Each of the Certificates at the time of issuance will qualify
as a "mortgage related security" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled
thereto at the address appearing in the Certificate Register to be maintained
with the Trustee or, if eligible for wire transfer as provided in the Pooling
and Servicing Agreement, by wire transfer to the account of such
Certificateholder; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office specified in the notice to
Certificateholders of such final distribution.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained by the Trustee at the office or agency of the
Master Servicer maintained for that purpose in New York, New York.
Certificates surrendered to the Trustee for registration of transfer or
exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or other governmental charge may be required.
Such office or agency is currently located at .
TRUSTEE
The Trustee for the Certificates will be State Street Bank and Trust
Company, a bank organized and existing under the laws of the Commonwealth of
Massachusetts with its principal office located at 225 Franklin Street,
Boston, Massachusetts 02110.
S-8
VERSION A
<PAGE>
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation in
. The Master Servicer is a FNMA/FHLMC approved seller-servicer based in
. As of , the Master Servicer serviced, for other investors and
for its own account, approximately mortgage loans with an aggregate
principal balance in excess of $ . The Master Servicer conducts operations
through FHA approved branch offices in . The Master Servicer
originated approximately $ in mortgage loans in 198 . The Master Servicer's
consolidated stockholders' equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances," in an amount acceptable to the nationally recognized
statistical rating organization or organizations rating the Certificates
(collectively, the "Rating Agency").
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Mortgage Loan, equal to
the excess of each interest payment on a Mortgage Loan over the Pass-Through
Rate, less [(a)] any servicing compensation payable to the Servicer of such
Mortgage Loan under the terms of the agreement with the Master Servicer
pursuant to which such Mortgage Loan is serviced (the "Servicing Agreement")
(including such compensation paid to the Master Servicer as the direct
servicer of a Mortgage Loan for which there is no Servicer) [.] [, and (b)
the amount payable to the Depositor, as described below.] [Pursuant to the
Pooling and Servicing Agreement, on each Distribution Date, the Master
Servicer will remit to [the Depositor] in respect of each interest payment on
a Mortgage Loan an amount equal to % of the outstanding principal balance
of such Mortgage Loan before giving effect to any payments due on the
preceding Due Date.] The Master Servicer will be permitted to withdraw from
the Certificate Account, in respect of each interest payment on a Mortgage
Loan, an amount equal to % of the outstanding principal balance of such
Mortgage Loan, before giving effect to any payments due on the preceding Due
Date. See "Description of the Certificates--Servicing and Other Compensation
and Payment of Expenses" in the Prospectus for information regarding other
possible compensation to the Master Servicer and the Servicers. The Servicers
and the Master Servicer will pay all expenses incurred in connection with
their responsibilities under the Servicing Agreements and the Pooling and
Servicing Agreement (subject to limited reimbursement as described in the
Prospectus), including, without limitation, the various items of expense
enumerated in the Prospectus.
Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation might be
characterized as an ownership interest in the interest payments on the
Mortgage Loans ("Retained Yield") for federal income tax purposes, by reason
of the extent to which either the weighted average Mortgage Rate, or the
stated interest rates on the Mortgage Loans exceeds the Pass-Through Rate,
and the tax consequences to them of such a characterization. In this regard,
there are no authoritative guidelines for federal income tax purposes as to
either the maximum amount of servicing compensation that may be considered
reasonable in the context of this or similar transactions or whether the
reasonableness of servicing compensation should be determined on a weighted
average or loan-by-loan basis. [The Depositor intends to treat % of such
servicing compensation and % of the amount payable to it described above as
Retained Yield for federal
S-9
VERSION A
<PAGE>
income tax purposes in reports to the Certificateholders and to the Internal
Revenue Service.] See "Certain Federal Income Tax Consequences--Mortgage Pools"
and "--Taxation of Owners of Trust Fractional Certificates" in the Prospectus
for information regarding the characterization of servicing compensation [and
the amounts payable to the Depositor].
[TERMINATION; REPURCHASE OF MORTGAGE LOANS
The Pooling and Servicing Agreement provides that the Depositor may
purchase from the Trust all Mortgage Loans remaining in the Mortgage Pool and
thereby effect early retirement of the Certificates, provided that the
aggregate unpaid balances of the Mortgage Loans at the time of such
repurchase is less than [10%] of the aggregate principal balance of the
Mortgage Loans on the Cut-off Date. The purchase price for any such optional
repurchases shall be equal to the outstanding principal balance of such
Mortgage Loans, together with accrued interest at the Pass-Through Rate to
the first day of the month following such repurchase plus the appraised value
of any acquired property with respect to the Mortgage Loans. [Any such
repurchase will be effected in compliance with the requirements of Section
86OF(a)(iv) of the Code in order to constitute a "qualifying liquidation"
thereunder.] In no event will the Trust continue beyond the expiration of 21
years from the death of the last survivor of the persons named in the Pooling
and Servicing Agreement.]
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
[10%] of the aggregate principal balance of the Mortgage Loans on the Cut-off
Date. The duration of coverage and the amount and frequency of any reduction
in coverage will be in compliance with the requirements established by the
Rating Agency rating the Certificates, in order to obtain a rating in one of
the two highest rating categories of the Rating Agency. The precise amount of
coverage under the Letter of Credit and the duration and frequency of
reduction of such coverage will be set forth in the Current Report on Form
8-K referred to above. See "Description of the Certificates--Credit
Support--The Letter of Credit" in the Prospectus.]
[THE POOL INSURANCE POLICY
Subject to the limitations described under "Description of Insurance--
Pool Insurance Policy" in the Prospectus, the Pool Insurance Policy will
cover losses by reason of default on the Mortgage Loans that are not covered
as to their entire outstanding principal balances by primary mortgage
insurance, in an amount equal to % of the aggregate principal balance of
such Mortgage Loans on the Cut-off Date.
The Pool Insurance Policy will be issued by , a corporation
(the "Pool Insurer"), which is engaged principally in the business of
insuring mortgage loans on residential properties against default in payment
by the Mortgagor. At , 198 , the Pool Insurer had insurance in force in
the form of primary policies covering approximately $ billion of
residential mortgages. At such date, the Pool Insurer had total assets of
approximately $ million, capital and surplus aggregating $ million and
statutory contingency reserves of $ million, resulting in total
policyholders' reserves of $ million.
The information set forth above has been provided by the Pool Insurer. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
[THE SPECIAL HAZARD INSURANCE POLICY
The Special Hazard Insurance Policy will cover certain risks not otherwise
insured against under hazard insurance policies, subject to the limitations
described in the Prospectus, and will be issued by , a corporation
(the "Special Hazard Insurer"). Claims under such policy will be limited to
% of the aggregate principal balance of the Mortgage Loans or times the
S-10
VERSION A
<PAGE>
principal balance of the Mortgage Loan with the highest outstanding principal
balance at the Cut-off Date, whichever is greater. At , 198 , the
Special Hazard Insurer had total assets of approximately $ million and
total policyholders' surplus of $ million. The claims-paying ability of
the Special Hazard Insurer is presently rated by the Rating Agency. In
accordance with standard rating agency practice, the Rating Agency may, at
any time, revise or withdraw such rating.
The information set forth above has been provided by the Special Hazard
Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
[MORTGAGOR BANKRUPTCY BOND
The Depositor will obtain a bond or similar form of insurance coverage
(the "Mortgage Bankruptcy Bond") for proceedings with respect to Mortgagors
under the federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover
certain losses resulting from a reduction by a bankruptcy court of scheduled
payments of principal and interest on a Mortgage Loan or a reduction by such
court of the principal amount of a Mortgage Loan and will cover certain
unpaid interest on the amount of such a principal reduction from the date of
the filing of a bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy Bond
will be $ plus the greater of (i) % of the aggregate principal balances
of the Mortgage Loans secured by second residences and investor-owned
residences or (ii) times the largest principal balance of any such
Mortgage Loan. The coverage provided by the Mortgagor Bankruptcy Bond will be
reduced by payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by , a
corporation. At December 31, 198 , had admitted assets of
approximately $ and total policyholders' surplus of approximately $ .
The information set forth above concerning has been provided by it.
The Depositor makes no representation as to the accuracy or completeness of
such information.]
CERTIFICATE RATING
It is a condition to the issuance of the Certificates that they be rated in
one of the two highest categories of the Rating Agency prior to issuance.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] The First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase from the Depositor [all] [the
following respective principal amounts] of the Certificates:
S-11
VERSION A
<PAGE>
<TABLE>
<CAPTION>
[UNDERWRITER
<S> <C>
The First Boston Corporation .... $
-----------
Total .......................... $ ]
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Certificates to the public initially
at the public offering prices set forth on the cover page of this Prospectus
Supplement, and [through the Representative,] to certain dealers at such
prices less the following concessions and that the Underwriter[s] and such
dealers may allow the following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
-------------------- --------------------
<S> <C> <C> <C>
% %
</TABLE>
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor
and for the Underwriter[s] by Cadwalader, Wickersham & Taft, New York, New York.
The material federal income tax consequences of the Certificates will be passed
upon for the Depositor by Cadwalader, Wickersham & Taft.
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired
in privately negotiated transactions by the Depositor from one or more
affiliates of the Depositor, which will have acquired such Mortgage Loans
from time to time in privately negotiated transactions.
S-12
VERSION A
PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus 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 State.
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1995
[VERSION B]
- -----------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- -----------------------------------------------------------------------------
$ (Approximate)
FIRST BOSTON MORTGAGE SECURITIES CORP.
DEPOSITOR
CONDUIT MORTGAGE PASS-THROUGH CERTIFICATES, CLASS A, SERIES
Principal and interest payable on the 25th day
of each month, beginning , 19
Class A-1 % of principal payments on the Mortgage Loans; % of interest
payments at an % pass-through rate on the Mortgage Loans (the "Pass-Through
Rate") (Interest at an % annual rate on unpaid Class A-1 principal
amount)
Class A-2 No principal payments on the Mortgage Loans; % of interest
payments at an % Pass-Through Rate on the Mortgage Loans (Interest at an
% annual rate on unpaid Class A-2 notional amount)
The Conduit Mortgage Pass-Through Certificates (the "Certificates") will
be composed of two classes (each, a "Class"), entitled Conduit Mortgage
Pass-Through Certificates, Class A (the "Class A Certificates"), and Conduit
Mortgage Pass-Through Certificates, Class B (the "Class B Certificates"). The
Class A Certificates offered hereby will be divided into two subclasses
(each, a "Subclass") entitled Class A-1 (the "Class A-1 Certificates") and
Class A-2 (the "Class A-2 Certificates") and will evidence undivided
percentage ownership interests in a trust (the "Trust") composed of
[conventional] [fixed-rate] [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 ("Cooperative
Loans"),] [and mortgage participation certificates evidencing participation
interests in such loans and meeting the requirements of the nationally
recognized rating agency or agencies rating the certificates (collectively,
the "Rating Agency") for a rating in one of the two highest rating categories
of such Rating Agency] (the "Mortgage Loans") and certain related property to
be conveyed to the Trust by the Depositor (the "Trust Fund"). The Mortgage
Loans will be transferred to the Trust, pursuant to a Pooling and Servicing
Agreement (as defined herein) dated as of , 199 , by First Boston
Mortgage Securities Corp. ( the "Depositor") in exchange for the Certificates
and are more fully described in this Prospectus Supplement and in the
accompanying Prospectus.
The Class A-1 Certificates evidence ownership of % of each principal
payment on the Mortgage Loans and % of each interest payment on the
Mortgage Loans (representing interest at a rate of % per annum on the
unpaid principal amount of the Class A-1 Certificates). The Class A-2
Certificates evidence ownership of % of each interest payment at the
Pass-Through Rate on the Mortgage Loans (representing interest at a rate of
% per annum on the unpaid notional amount of the Class A-2 Certificates).
The rights of the Class B Certificateholders to receive distributions with
respect to the Mortgage Loans will be subordinated to the rights of the Class
A Certificateholders to the extent described herein and in the Prospectus.
[The Depositor intends to offer the Class B Certificates to sophisticated
institutional investors from time to time in transactions not requiring
registration under the Securities Act of 1933. The rights of the Class B
Certificateholders to receive distributions with respect to the Mortgage
Loans will be subordinated to the rights of the Class A Certificateholders to
the extent described herein and in the Prospectus.
The Certificates do not represent an obligation of or interest in First
Boston Mortgage Securities Corp. or any affiliate thereof. Neither the
Certificates nor the underlying mortgage loans are insured or guaranteed by
any governmental agency or instrumentality.
The Mortgage Loans may be prepaid at any time without penalty. [A lower
rate of principal prepayments than anticipated would negatively affect the
total return to investors in Class A-1 Certificates, which are being offered
at a discount to their principal amount.] Yields on the Class A-2
Certificates will be extremely sensitive to the prepayment experience on the
Mortgage Loans, and prospective investors in such Certificates should fully
consider the associated risks, including the risk that such investors, in
circumstances of higher than anticipated prepayment, could fail to fully
recoup their initial investment. See "The Mortgage Pool," "Yield
Considerations" and "Maturity and Prepayment Considerations" in this
Prospectus Supplement.
VERSION B
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for
the Class A Certificates [but [is] [are] under no obligation to do so]. There
can be no assurance that a secondary market will develop or, if it does
develop, that it will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate
Mortgage Investment Conduit (a "REMIC"). See "Certain Federal Income Tax
Consequences" in the Prospectus.]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC (1) DISCOUNT DEPOSITOR (1)(2)
- ----------------------------- ------------ ---------------- -------------------
<S> <C> <C> <C>
Per Class A-1 Certificate % % %
- ----------------------------- ------------ ---------------- -------------------
Per Class A-2 Certificate % % %
- ----------------------------- ------------ ---------------- -------------------
Total $ $ $
- ----------------------------- ------------ ---------------- -------------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Plus accured interest, if any, at the applicable rate from
, 19 .
(2) Before deduction of expenses payable by the Depositor estimated at
$ .
The Class A Certificates are offered by the [several] Underwriter[s] when, as
and if issued and accepted by the Underwriter[s] and subject to [its] [their]
right to reject orders in whole or in part. It is expected that the Class A
Certificates, in definitive fully registered form, will be ready for delivery
on or about , 19 .
CS FIRST BOSTON
The date of this Prospectus Supplement is , 19 .
VERSION B
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES
OFFERED HEREBY MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
----------------
UNTIL , 19 , ALL DEALERS AFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at 75 Park Place, 14th Floor, New
York, New York 10007; and Room 3190, Kluczynski Federal Building, 230 South
Dearborn Street, Chicago, Illinois 60604. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
S-2
VERSION B
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Capitalized terms used in this Prospectus Supplement and not
otherwise defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED ..... Conduit Mortgage Pass-Through Certificates,
Class A, Series (the "Class A
Certificates").
$ Original Principal Amount Class A-1
Certificates (approximate).
No Original Principal Amount A-2 Certificates.
The Class A-1 Certificates represent undivided
percentage interests in
approximately % of each principal payment
on the Mortgage Loans (the
"Principal Distribution") and undivided
percentage interests in approximately
% of each interest payment at the Pass-
Through Rate on the Mortgage Loans
(the "Interest Distribution") (representing
interest at a rate of % per
annum on the unpaid principal amount of the
Class A-1 Certificates). The
individual percentage interest (the
"Percentage Interest") of any Class A-1
Certificate will be equal to the percentage
obtained by dividing the original
principal amount of such Class A-1
Certificate by the aggregate original
principal amount of all Class A-1
Certificates ($ ).
The Class A-2 Certificates represent Percentage
Interests in approximately %
of the Interest Distribution (representing
interest at a rate of % per annum
on the unpaid notional amount of the Class
A-2 Certificates). The Class A
Certificates will not receive distributions
of principal with respect to the
Mortgage Loans. The Percentage Interest of
any Class A-2 Certificate will be
equal to the percentage obtained by dividing
the original notional amount of
such Class A-2 Certificate by the aggregate
original notional amount of all
Class A-2 Certificates (approximately
$ ). The notional amount of the Class
A-2 Certificates is equal to the aggregate
unpaid principal amount of the
Class A Certificates, but is used solely for
purposes of determining interest
payments and certain other rights of holders
of the Class A-2 Certificates and does
S-3
VERSION B
<PAGE>
not represent any interest in such
principal payments.
The Class A Certificates represent in the
aggregate an approximate %
undivided interest in the Trust Fund. The
remaining approximate % undivided
interest in the Trust Fund is evidenced by
the Class B Certificates, which are
subordinated in certain respects to the
Class A Certificates, as more fully
described herein and in the Prospectus. [The
Class B Certificates are not
being offered hereby, and may be retained by
the Depositor or sold by the
Depositor at any time to one or more
sophisticated institutional investors in
privately negotiated transactions not
requiring registration under the
Securities Act of 1933.]
DEPOSITOR .............. First Boston Mortgage Securities Corp. (the
"Depositor").
MASTER SERVICER ........
CUT-OFF DATE ........... , 198 .
DELIVERY DATE .......... On or about , 198 .
DENOMINATIONS .......... The minimum denomination of a Class A-1
Certificate will represent approximately
$ of the aggregate principal balance
of the Mortgage Loans on the Cut-off Date.
The minimum denomination of a Class A-2
Certificate will represent approximately
$ notional amount.
INTEREST ............... Passed through monthly, on the day of
each month (each, a "Distribution Date")
commencing , 198 . The
Pass-Through Rate on the Mortgage Loans is
% per annum. See "Description of the
Certificates" in the Prospectus.
PRINCIPAL (INCLUDING
PREPAYMENTS) .......... Passed through monthly on the Distribution
Date, commencing on , 198 . See
"Description of the Certificates" in the
Prospectus.
MORTGAGE POOL .......... The Mortgage Pool will consist of [fixed
rate,] [fully-amortizing,] [level-payment]
mortgage loans secured by Mortgages on
[one- to four-family residential
properties, loans (the "Cooperative
Loans") made to finance the purchase of
certain rights relating to cooperatively
owned properties secured by a pledge of
shares of a cooperative corporation (the
"Cooperative") and an assignment of a
S-4
VERSION B
<PAGE>
proprietary lease or occupancy agreement on
a cooperative dwelling (a "Cooperative
Dwelling" and, together with one- to
four-family residential properties,
"Single Family Property"), or 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")] [located in the
states of , and ] [and
mortgage participation certificates
evidencing participation interests in such
loans that meet the requirements of the
nationally recognized rated agency or
agencies rating the certificates
(collectively, the "Rating Agency") for a
rating in one of the two highest rating
categories of such Rating Agency] (the
"Mortgage Loans"). All Mortgage Loans will
have original maturities of at least
but not more than years. See
"Description of the Mortgage Pool and the
Underlying Properties" herein.*
CLASS B CERTIFICATES ... The rights of the Class B Certificateholders
to receive distributions with respect to
the Mortgage Loans are subordinated to the
rights of the Class A Certificateholders
to receive such distributions to the
extent of the Subordinated Amount
described below. This subordination is
intended to enhance the likelihood of
regular receipt by Class A
Certificateholders of the full amount of
scheduled payments of principal and
interest and to decrease the likelihood
that the Class A Certificateholders will
experience losses. The extent of such
subordination (the "Subordinated Amount")
will be determined as follows: on the
Cut-off Date and on each anniversary of
the Cut-off Date until , the
Subordinated Amount will equal [ ]% of
the original aggregate principal balance
of the Mortgage Loans less the amount of
"Aggregate Losses" (as defined in the
Prospectus) since the Cut-off Date through
the last day of the month preceding such
anniversary date; from the th
anniversary of the Cut-off Date, the
Subordinated Amount will gradually decline
in
- ------------
* If the Series of Certificates offered pursuant to this Version B
Prospectus Supplement evidences interests in manufactured housing
conditional sales contracts and installment loan agreements
("Contracts"), the disclosure to be set forth will be substantially
similar to the disclosure set forth in Version E under "Summary of
Terms--Contract Pool."
S-5
VERSION B
<PAGE>
accordance with a schedule set forth in
the Pooling and Servicing Agreement.
RESERVE FUND ........... The protection afforded to the Class A
Certificateholders from the subordination
feature described above will be effected
both by the preferential right of the
Class A Certificateholders to receive
current distributions with respect to the
Mortgage Loans (to the extent of the
Subordinated Amount) and by the
establishment of a reserve (the "Reserve
Fund"). The Reserve Fund is not included
in the Trust Fund. The Reserve Fund will
be created by the Depositor and shall be
funded by the retention of all of the
scheduled distributions of principal
otherwise distributable to the Class B
Certificateholders on each Distribution
Date until the Reserve Fund reaches an
amount (the "Required Reserve") that will
equal [; thereafter, the Reserve Fund
must be maintained at the following
levels: ]. See "Description of the
Certificates--Subordinated Certificates"
and "--Reserve Fund" in the Prospectus.
[OPTIONAL TERMINATION .. The Depositor may, at its opinion,
repurchase from the Trust all Mortgage
Loans remaining outstanding [at such time
as the aggregate unpaid principal balance
of such Mortgage Loans is less than 10% of
the aggregate principal balance of the
Mortgage Loans on the Cut-off Date]. The
repurchase price will equal [the aggregate
unpaid principal balance of such Mortgage
Loans, together with accrued interest
thereon at the Pass-Through Rate through
the last day of the month during which
such repurchase occurs plus the appraised
value of any property with respect
thereof]. [Any such termination will be
effected in compliance with the
requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986, so as to
constitute a "qualifying liquidation"
thereunder.] See "Description of the
Certificates--Termination; Repurchase of
Certificates" in the Prospectus.]
ADVANCES ............... The Servicers of the Mortgage Loans (and the
Master Servicer, with respect to each
Mortgage Loan 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
S-6
VERSION B
<PAGE>
Mortgage Loans under certain circumstances.
See "Description of Certificates--
Advances" in the Prospectus.
TRUSTEE ................ . See "Description of the
Certificates--Trustee" herein.
CERTIFICATE RATING ..... It is a condition of issuance of the Class A
Certificates that they be rated in one of
the two highest rating categories of the
Rating Agency prior to issuance. See
"Rating" herein.
LEGAL INVESTMENT ....... The Class A Certificates constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 (the "Enhancement
Act"), and, as such, are legal investments
for certain entities to the extent
provided in the Enhancement Act. See
"Legal Investment" in the Prospectus.
ERISA CONSIDERATIONS ... See "ERISA Considerations" in the Prospectus
[and herein].
TAX ASPECTS ............ See "Certain Federal Income Tax
Consequences--General"; ["--REMIC Trust
Funds"] ["--Mortgage Pools"] in the
prospectus. Purchasers of Class A-1
Certificates should see "Certain Federal
Income Tax Consequences [--REMIC Trust
Funds--Taxation of Owners of REMIC Regular
Certificates"] [--Mortgage Pools--Taxation
of Owners of Trust Fractional
Certificates" and "--Taxation of Owners of
Trust Fractional Certificates
[--Application of Stripped Bond Rules"]]
in the Prospectus for discussions of
certain tax considerations particular to
the Class A-1 Certificates. Purchasers of
Class A-2 Certificates should see "Certain
Federal Income Tax Consequences [--REMIC
Trust Funds--Taxation of Owners of REMIC
Residual Certificates"][--Mortgage
Pools--Taxation of Owners of Trust
Interest Certificates"] in the Prospectus
for discussions of certain tax
considerations particular to the Class A-2
Certificate.*
- ------------
* If the Prospectus Supplement for a Series of Certificates provides
that Cadwalader, Wickersham & Taft will pass upon the material
federal income tax consequences of the Certificates for the
Depositor, then such Prospectus Supplement will contain tax
disclosure substantially similar to the disclosure set forth in
Version E under "Summary of Terms--Tax Aspects" and "Certain
Federal Income Tax Consequences."
S-7
VERSION B
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING PROPERTIES*
The Mortgage Pool will consist of Mortgage Loans evidenced by notes with
aggregate unpaid principal balances outstanding as of the Cut-off Date, after
deducting payments of principal due on such date, of approximately $ . The
amount is subject to a permitted upward and downward variance of up to %.
The Mortgage Pool will consist of -year, [fixed-] rate, fully-amortizing,
[level-payment] Mortgage Loans, as more fully described in the Prospectus.
The weighted average interest rate of the Mortgage Loans as of the Cut-off
Date will be at least % but no more than %. All Mortgage Loans will
have interest rates of at least % but no more than %. The weighted
average maturity of the Mortgage Loans, as of the Cut-off Date, will be at
least years but no more than years. All Mortgage Loans will have original
maturities of at least but no more than years. None of the Mortgage
Loans will have been originated prior to or after ,
198 . None of the Mortgage Loans will have a scheduled maturity later than
.
The Mortgage Loans will have the following characteristics as of the
Cut-off Date (expressed as a percentage of the outstanding aggregate
principal balances of the Mortgage Loans having such characteristics relative
to the outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated
before September 27, 1985. See "Certain Federal Income Tax
Consequences--Mortgage Pools." "--Taxation of Owners of Trust Fractional
Certificates" and "--Market Discount and Premium" in the Prospectus for
information regarding such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each
having outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value
ratios at origination in excess of 80%, and no Mortgage Loan will have had
a loan-to-value ratio at origination in excess of [95%].
All of the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of private mortgage insurance
until the outstanding principal balance is reduced to 75% of the Original
Value.
[ % of the Mortgage Loans will be secured by Mortgages on
single-family dwellings] [ % of the Mortgage Loans will be secured by
Multifamily Property][ % of the Mortgage Loans will be secured by a
pledge of shares of a Cooperative and an assignment of a proprietary lease
or occupancy agreement on a Cooperative Dwelling.]
No more than % of the Mortgage Loans will be secured by Mortgages
on condominiums and row houses.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided and no
more than % of the principal balance of any such Mortgage Loan will be
represented by Buy-Down Funds.
- ------------
* If the Series of Certificates offered pursuant to this Version B
Prospectus Supplement evidences interests in Contracts, the
disclosure to be set forth will be substantially similar to the
disclosure set forth in Version E under "Description of the Contract
Pool."
S-8
VERSION B
<PAGE>
No more than %, by aggregate principal balance, of the Mortgage
Loans will be GPM Loans.
At least % of the Mortgage Loans will be secured by an
owner-occupied Mortgaged Property. Such determination will have been made
on the basis of a representation by the Mortgagor at the time of
origination of the Mortgage Loan that he then intended to occupy the
underlying property or, in the absence of such a representation, various
factors indicating that such underlying property is owner-occupied.
No more than [ ]% of the Mortgage Loans will be secured by Mortgages
on properties located in any one zip code or project.
The Mortgage Loans will be secured by Mortgages on properties located in
the states of .
Specific information with respect to the Mortgage Loans will be available
to purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in
a Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of the
Certificates.
YIELD CONSIDERATIONS
PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS
The rate of principal payments on the Class A Certificate, the aggregate
amount of each interest payment on the Class A-1 Certificates and Class A-2
Certificates and the yield to maturity of the Class A-1 and Class A-2
Certificates will correspond directly to the rate of payments of principal on
the Mortgage Loans (including, for this purpose, scheduled amortization,
payments resulting from liquidation due to default, casualty, condemnation
and the like and repurchases by the Servicers under the circumstances
described herein and in the Prospectus). The rate of principal payments on
pools of mortgages or loans are influenced by a variety of economic,
geographic, social and other factors. In general, however, if prevailing
interest rates fall significantly below the interest rates on the Mortgage
Loans, the Mortgage Loans are likely to be subject to higher prepayment rates
than if prevailing rates remain at or above the interest rates on the
Mortgage Loans. The rate of payment of principal may also be affected by any
repurchase of the Mortgage Loans by the Servicers. See "Termination;
Repurchase of Mortgage Loans" herein and "Description of the
Certificates--Assignment of Mortgage Loans" in the Prospectus. In any such
event, the repurchase price would be passed through to Certificateholders as
a prepayment of principal. See "Maturity and Prepayment Considerations" in
the Prospectus.
[[All] [ %] of the Mortgage Loans contain "due-on-sale" provisions.
Consequently, acceleration of mortgage payments as a result of transfers of
the related mortgaged property will affect the level of prepayments on the
Mortgage Loans. In addition, Mortgagors may prepay the Mortgage Loans at any
time without penalty.]
[As the Class A-1 Certificates are being offered at discounts from their
original principal amounts, if the purchaser of a Class A-1 Certificate
calculates is anticipated yield to maturity based on an assumed rate of
payment of principal that is faster than that actually received on the
Mortgage Loans, its actual yield to maturity will be lower than that so
calculated.] Conversely, since the Class A-2 Certificates are being offered
without any original principal amount, if the purchaser of a Class A-2
Certificate calculates its anticipated yield to maturity based on an assumed
rate of payment of principal
S-9
VERSION B
<PAGE>
that is slower than that actually received on the Mortgage Loans, its actual
yield to maturity will be lower than that so calculated. In either case, the
converse would be true.
The timing of changes in the rate of prepayments of the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal on the
Mortgage Loans the greater the effect on an investor's yield to maturity. As a
result, 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 reduction (or increase) in the rate of principal payments.
[BECAUSE THE CLASS A-1 CERTIFICATES ARE BEING OFFERED AT A DISCOUNT FROM
THEIR ORIGINAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY ON SUCH CERTIFICATES
WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS.]
BECAUSE THE CLASS A-2 CERTIFICATES ARE BEING OFFERED WITHOUT ANY PRINCIPAL
AMOUNT, THE YIELD TO MATURITY ON THE CLASS A-2 CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS AND MAY FLUCTUATE
SIGNIFICANTLY FROM TIME TO TIME. PROSPECTIVE INVESTORS IN THE CLASS A-2
CERTIFICATES SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK
THAT IF THE RATE OF PAYMENT IS RAPID SUCH INVESTORS MAY NOT FULLY RECOUP
THEIR INITIAL INVESTMENT.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement,
the Standard Prepayment Assumption ("SPA"), represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of new mortgage loans. SPA assumes prepayment rates of 0.2% per annum of
the then outstanding principal balance of such mortgage loans in the first
month of life of the mortgage loans and an additional 0.2% per annum in each
month thereafter until the thirtieth month. Beginning in the thirtieth month
and in each month thereafter during the life of the mortgage loans, SPA
assumes a constant prepayment rate of 6% per annum. SPA does not purport to
be either a historical description of the prepayment experience of any pool
of mortgage loans, or of the Mortgage Loans in the Mortgage Pool.
The following table illustrates, in general, the effect of prepayment
rates on the timing and amount of distributions on the Class A Certificates
and their resulting weighted average lives. The table does not purport to
represent the anticipated rate of prepayment on the Mortgage Loans or the
resulting anticipated rate of distributions on the Class A Certificates.
The table sets for the projected annual aggregate distributions that would
be made on the Class A-1 and Class A-2 Certificates, and their resulting
weighted average lives, based on various assumed percentages of SPA. The
column headed "0%" assumes that no Mortgage Loans are prepaid before
maturity. The columns headed " %", " %" and " %" assume that
prepayments are made at the specified percentages of SPA. It has been assumed
in preparing the table that (i) all of the Mortgage Loans have identical
payment provisions, (ii) the original term to maturity of each Mortgage Loan
was [ ] years, (iii) all Mortgage Loans are prepaid at the indicated
percentage of SPA for the life of the Certificates, (iv) the weighted average
remaining term to maturity of the Mortgage Loan is years, (v) the interest
rate on each Mortgage Loan is 0. % in excess of the Pass-Through Rate, and
(vi) the Mortgage Loans are not repurchased at the option of the Depositor.
S-10
VERSION B
<PAGE>
PROJECTED ANNUAL AGGREGATE DISTRIBUTIONS ON THE CLASS A CERTIFICATES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES
---------------------------------------------- ----------------------------------------------
YEAR ENDING 0% SPA % SPA % SPA % SPA 0% SPA % SPA % SPA % SPA
- ------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total distributions ..... $ $ $ $ $ $ $ $
Weighted average life
(years)(1) ..............
</TABLE>
- ------------
(1) The weighted average life of the Class A-2 Certificates, which is
assumed to be equal to the weighted average life of the Class A-1
Certificates, is determined by (i) multiplying the amount of each
assumed principal distribution by the number of years from the date
of issuance of the Certificates to the related Distribution Date,
(ii) summing the results and (iii) dividing the sum by the total
principal distributions on the Certificates.
The characteristics of the Mortgage Loans will not correspond exactly to
those assumed in preparing the statistics above. The annual cash flows on the
Class A Certificates will therefore differ from those set forth above even if
all the Mortgage Loans prepay monthly at the related assumed percentage of
SPA. In addition, it is not likely that any Mortgage Loan will prepay at a
constant rate until maturity or that all of the Mortgage Loans will prepay at
the same rate and the timing of changes in the rate of prepayments may
significantly affect the total cash flow received by a holder of a Class A
Certificate.
The Depositor makes no representation that the Mortgage Loans will prepay
in the manner or at any of the rates assumed in the table set forth above.
Each prospective investor must make its own decision as to the appropriate
prepayment assumption to be used in deciding whether or not to purchase the
Class A Certificates.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depository, , as master servicer (the
"Master Servicer"), and , as trustee (the "Trustee"), a form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part.
S-11
VERSION B
<PAGE>
Reference is made to the accompanying Prospectus for important additional
information regarding the terms and conditions of the Pooling and Servicing
Agreement and the Certificates. The Percentage Interest evidenced by each Class
A-1 Certificate will be determined by dividing the original principal amount of
such Class A-1 Certificate by the aggregate original principal amount of all
Class A-1 Certificates. The Percentage Interest evidenced by each Class A-2
Certificate will be determined by dividing the original notional amount of such
Class A-2 Certificate by the aggregate original notional amount of all Class
A-2 Certificates. The Class A Certificates will be issued only in fully
registered form in denominations of $ and integral multiples thereof.
The Master Servicer will allocate each month's distributions of principal
and interest on the Mortgage Loans at the Pass-Through Rate as follows: %
of the monthly Principal Distribution and % of the Interest Distribution
will be allocated to the Holders of the Class A-1 Certificates (such sum
being the "Class A-1 Distribution Amount"); % of the Interest
Distribution will be allocated to the Holders of the Class A-2 Certificates
(such sum being the "Class A-2 Distribution Amount"). Holders of Class A-2
Certificates will not receive distributions of principal with respect to
the Mortgage Loans. On each Distribution Date, the Master Servicer will
distribute to each Holder of a Class A Certificate an amount equal to the
Certificateholder's Percentage Interest evidenced by the Class A Certificate
in the Class A-1 or the Class A-2 Distribution Amount, as the case may be. The
remaining distribution will be made to the Holders of the Class B Certificates,
as more fully set forth below. Such distributions will be made to
Certificateholders of record on the Record Date for such Distribution Date.
On each Distribution Date, the Master Servicer will distribute to the
Class A Certificateholders, in the manner set forth above, an amount (the
"Required Distribution") equal to the sum of:
(i) the aggregate undivided interest evidenced by all Class A
Certificates (such aggregate undivided interest being the sum of the
aggregate interests evidenced by the Class A Certificates in the Principal
Distribution and the Interest Distribution) (the "Senior Interest") in:
(a) until such time as the Subordinated Amount is reduced to zero, all
scheduled payments of principal and interest (including any advances
thereof), adjusted to the applicable Pass-Through Rate, which payments
became due on the due date to which such Distribution Date relates (the
"Due Date"), whether or not such payments are actually received; and (b)
after the Subordinated Amount is reduced to zero, all payments of
principal and interest, adjusted to the applicable Pass-Through Rate due
on such Due Date or due, but not previously received, since the time the
Subordinated Amount was reduced to zero, but only to the extent such
payments are actually received or advanced prior to the Determination
Date;
(ii) the Senior Interest in all principal prepayments received during
the month prior to the month of distribution and, interest at the
Pass-Through Rate to the end of the month in which such principal
prepayments occur;
(iii) the Senior Interest in the sum of (a) the outstanding principal
balance of each Mortgage Loan or property acquired in respect thereof that
was repurchased pursuant to the Pooling and Servicing Agreement or
liquidated or foreclosed during the monthly period ending on the day prior
to the Due Date to which such distribution relates, calculated as of the
date each such Mortgage Loan was repurchased, liquidated or foreclosed,
and (b) accrued but unpaid interest on such principal balance, adjusted to
the Pass-Through Rate, to the first day of the month following the month
of such repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders to the extent that there are sufficient eligible funds
available for distribution to such Class A Certificateholders on a
Distribution Date. Funds eligible for such purpose with respect to each
Distribution Date shall be as set forth in the Prospectus under "Payments on
Mortgage Loans."
S-12
VERSION B
<PAGE>
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited
therein from the Reserve Fund and any Advances by the Servicers or the Master
Servicer) are not sufficient to make the full distribution of the Required
Distribution on any Distribution Date, the Master Servicer shall distribute
on such Distribution Date to the Class A Certificateholders the amount of
funds eligible for distribution to such Class A Certificateholders. If, on
any Distribution Date, prior to the time the Subordinated Amount has been
reduced to zero, the Class A Certificateholders do not receive the Required
Distribution, the Holders of the Class B Certificates will not receive any
distributions on such Distribution Date. Any amounts in the Certificate
Account after the Required Distribution is made to the Class A
Certificateholders will be paid to the holders of the Class B Certificates.
Holders of the Class B Certificates will not be required to refund any
amounts that have previously been properly distributed to them directly from
the Certificate Account, regardless of whether there are sufficient funds on
such Distribution Date to make a full distribution to the Class A
Certificateholders. The subordination of distributions allocable
to Holders of the Class B Certificates is limited to the Subordinated Amount,
which will decrease over time as more fully set forth in the Pooling and
Servicing Agreement, and such subordination will apply on any Distribution
Date only to then current distributions allocable to the Class B
Certificateholders.
Distributions to Holders of Class A and Class B Certificates will be made
on a pro rata basis, in accordance with the aggregate Percentage Interests of
each Class held by each Certificateholder of the related Class.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled
thereto at the address appearing in the Certificate Register to be maintained
with the Trustee or, if eligible for wire transfer as provided in the Pooling
and Servicing Agreement, by wire transfer to the account of such
Certificateholder, provided, however, that the final distribution in
retirement of the Class A Certificates will be made only upon presentation
and surrender of the Class A Certificates at the office or agency specified
in the notice of Certificateholders of such final distribution.
The Class A Certificates will be transferable and exchangeable on a
Certificate Register to be maintained at the office or agency of the Master
Servicer maintained for the purpose in New York, New York. Class A
Certificates surrendered to the Trustee for registration of transfer or
exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Class A Certificates, but payment of
a sum sufficient to cover any tax or other governmental charge may be
required. Such office or agency is currently located at .
TRUSTEE
The Trustee for the Certificates will be , a bank organized and
existing under the laws of the Commonwealth of Massachusetts with its
principal office located at .
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operations
in . The Master Servicer is a FNMA/FHLMC approved seller-servicer based
in . As of , the Master Servicer serviced, for other investors
and for its own account, approximately mortgage loans with an aggregate
principal balance in excess of $ . The Master Servicer conducts operations
through FHA approved branch offices in . The Master Servicer
originated approximately $ in mortgage loans in 198 . The Master
Servicer's consolidated stockholder's equity as of was
approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
S-13
VERSION B
<PAGE>
The Master Servicer will obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond")
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances" in an amount and form acceptable to the nationally
recognized statistical rating organization or organizations rating the Class
A Certificates (collectively, the "Rating Agency").
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Mortgage Loan, equal to
the excess of each interest payment on a Mortgage Loan over the Pass-Through
Rate, less [(a)] any servicing compensation payable to the Servicer of such
Mortgage Loan under the terms of the agreement with the Master Servicer
pursuant to which such Mortgage Loan is serviced (the "Servicing Agreement")
(including such compensation paid to the Master Servicer as the direct servicer
of a Mortgage Loan for which there is no Servicer)[.] [, and (b) the amount
payable to the Depositor, as directed below.][Pursuant to the Pooling and
Servicing Agreement, on each Distribution Date, the Master Servicer will remit
to [the Depositor] in respect of each interest payment on a Mortgage Loan an
amount equal to % of the outstanding principal balance of such Mortgage
Loan, before giving effect to any payments due on the preceding Due Date.] The
Master Servicer will be permitted to withdraw from the Certificate Account,
in respect of each interest payment on a Mortgage Loan, an amount equal to %
of the outstanding principal balance of such Mortgage Loan, before giving
effect to any payments due on the preceding Due Date. See "Description of the
Certificates--Servicing and Other Compensation and Payment of Expenses" in
the Prospectus for information regarding other possible compensation to the
Master Service and the Servicers. The Servicers and the Master Servicer will
pay all expenses incurred in connection with their responsibilities under the
Servicing Agreements and the Pooling and Servicing Agreement (subject to
limited reimbursement as described in the Prospectus), including, without
limitation, the various items of expense enumerated in the Prospectus.
Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation and amounts payable
to Depositor might be characterized as an ownership interest in the interest
payments on the Mortgage Loans ("Retained Yield") for federal income tax
purposes, by reason of the extent to which either the weighted average
Mortgage Rate, or the stated interest rates on the Mortgage Loans exceeds the
Pass-Through Rate, and the tax consequences to them of such a
characterization. In this regard, there are no authoritative guidelines for
federal income tax purposes as to either the maximum amount of servicing
compensation that may be considered reasonable in the context of this or
similar transactions or whether the reasonableness of servicing compensation
should be determined on a weighted averaged or loan-by-loan basis. [The
Depositor intends to treat % of such servicing compensation and % of
the amount payable to it described above as Retained Yield for federal income
tax purposes in reports to the Certificateholders and to the Internal Revenue
Service.] See "Certain Federal Income Tax Consequences--Mortgage Pools" and
"--Taxation of Owners of Trust Fractional Certificates" in the Prospectus for
information regarding the characterization of servicing compensation [and the
amounts payable to the Depositor].
[TERMINATION; REPURCHASE OF MORTGAGE LOANS
The Pooling and Servicing Agreement provides that the Depositor may
purchase from the Trust all Mortgage Loans remaining in the Mortgage Pool and
thereby effect early retirement of the Certificates, provided that [the
aggregate unpaid balances of the Mortgage Loans at the time of such
S-14
VERSION B
<PAGE>
repurchase is less than [10]% of the aggregate principal balance of the
Mortgage Loans on the Cut-off Date]. The purchase price for any such
repurchase [will be the outstanding principal balance of such Mortgage Loans
together with accrued and unpaid interest at the Pass-Through Rate to the
last day of the month of such repurchase, plus the appraiser value of any
property acquired in respect thereof.] [Any such repurchase will be effected
in compliance with the requirements of Section 860F(a)(iv) of the Code in
order to constitute a "qualifying liquidation" thereunder.] In no event will
the Trust continue beyond the expiration of 21 years from the death of the
last survivor of the persons named in the Pooling and Servicing Agreement.]
RATING
It is a condition to the issuance of the Class A Certificates that they be
rated " " by the Rating Agency. Such rating addresses the likelihood that
the holders of the Class A Certificates will receive payments required under
the Pooling and Servicing Agreement. In assigning such a rating, to mortgage
pass-through certificates, the Rating Agency takes into consideration the
credit quality of mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the
extent to which the payment stream on such mortgage pool is adequate to make
required payments on such certificates. Such rating does not, however,
represent an assessment of the likelihood that principal prepayments will be
made by mortgagors or the degree to which such payments might differ from
that originally anticipated. As a result, holders of the Class A Certificates
might suffer a lower than anticipated yield, and holders of the Class A-2
Certificates might fail, in circumstances of extreme prepayment, to recoup
their original investment.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
[ERISA CONSIDERATIONS]*
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus), a
Class A Certificate of an Exempt Series must entitle its holder to
pass-through payments of both principal and interest on the Mortgage Loans.
Because holders of Class A-2 Certificates are only entitled to pass-through
payments of interest (but not principal). PTCE 83-1 will not exempt Plans
which acquire the Class A-2 Certificates from the prohibited transaction
rules of ERISA. Any Plan fiduciary who proposes to cause a Plan to purchase
Class A Certificates should consult with its counsel with respect to the
potential consequences under ERISA and the Code of the Plan's acquisition and
ownership of Class A Certificates. However, the other PTCE's or the
Underwriter's PTE may be applicable. See "ERISA Considerations--Prohibited
Transaction Class Exemption" in the Prospectus.
- ------------
* If the Series of Certificates offered pursuant to this Version B
Prospectus Supplement evidences interests in Contracts, the
disclosure to be set forth will be substantially similar to the
disclosure set forth in Version E under "ERISA Considerations" or in
the Prospectus under "ERISA Considerations."
S-15
VERSION B
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] The First Boston Corporation, an affiliate of the
Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
[UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
- -------------------------------- ---------------- ---------------- ------------
<S> <C> <C> <C>
The First Boston Corporation ... $ $ $
Total ....................... $ $ $ ]
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Class A Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Class A Certificates to the public
initially at the public offering prices set forth on the cover page of this
Prospectus Supplement [, and through the Representative,] to certain dealers
at such prices less the following concessions and that the Underwriter[s] and
such dealers may allow the following discounts on sales to certain other
dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
-------------------- --------------------
<S> <C> <C>
Class A-1 .... % %
Class A-2 .... % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor
and for the Underwriter[s] by Cadwalader, Wickersham & Taft, New York,
New York. The material federal income tax consequences of the
Class A Certificates will be passed upon for the Depositor by
Cadwalader, Wickersham & Taft.*
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired
in privately negotiated transactions by the Depositor from one or more
affiliates of the Depositor, which will have acquired such Mortgage Loans
from time to time in the open market or in privately negotiated transactions.
- ------------
* If the Series of Certificates offered pursuant to this Version B
Prospectus Supplement evidences interests in Contracts, the
disclosure to be set forth will be substantially similar to the
disclosure set forth in Version E under "Legal Matters."
S-16
VERSION B
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus 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 State.
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1995
[VERSION C]
- -----------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- -----------------------------------------------------------------------------
$ (APPROXIMATE)
FIRST BOSTON MORTGAGE SECURITIES CORP.
DEPOSITOR
CONDUIT MORTGAGE PASS-THROUGH CERTIFICATES, [CLASS A], SERIES
$[Variable Rate] [%] Class A-1 Certificates $ % Class A-3 Certificates
$[Variable Rate] [%] Class A-2 Certificates $ % Class A-4 Certificates
The [Class A] Certificates (the "Certificates") offered hereby evidence
ownership interests in a trust to be created by First Boston Mortgage
Securities Corp. (the "Depositor") on or about , 199 (the "Trust").
The Trust property will consist of a pool of [conventional] [fixed rate]
[mortgage loans and] [mortgage participation certificates, evidencing
participation interests in such mortgage loans and meeting the requirements
of the nationally recognized rating agency or agencies rating the [Class A]
Certificates (collectively, the "Rating Agency") for a rating in one of the
two highest rating categories of such Rating Agency] (the "Mortgage Loans")
and certain related property to be conveyed to the Trust by the Depositor
(the "Trust Fund"). The Mortgage Loans will be transferred to the Trust,
pursuant to a Pooling and Servicing Agreement (as defined herein), dated as
of , 199 , by the Depositor in exchange for the Certificates and are
more fully described in the Prospectus Supplement and in the accompanying
Prospectus.
Interest on the Class A-1, Class A-2 and Class A-3 Certificates, at the
rate of interest set forth above for each such Class, will be distributed
[monthly] on each Distribution Date, commencing , 199 . Distributions
of interest on the Class A-4 Certificates will commence after distributions
in reduction of Stated Principal Balance (as defined herein) of the Class A-3
Certificates have reduced Stated Principal Balance of such Class to zero.
Prior to that time, interest will accrue on the Class A-4 Certificates and
the amount so accrued will be added to the Stated Principal Balance thereof
on each Distribution Date. Distributions in reduction of Stated Principal
Balance of the Certificates of each Class will be made on a pro rata basis
among the Certificates of such Class, in the order of their respective Final
Scheduled Distribution Dates (as defined herein), so that no distribution in
reduction of Stated Principal Balance of any Certificate will be made until
the Stated Principal Balance of each Class of Certificates having a prior
Final Scheduled Distribution Date has been reduced to zero.
Scheduled distributions on the Mortgage Loans included in the Mortgage
Pool, together with certain other funds, as set forth more fully herein, will
be sufficient to make timely distributions of interest and distributions in
reduction of Stated Principal Balance on the [Class A] Certificates and to
reduce the Stated Principal Balance thereof to zero not later than the Final
Scheduled Distribution Dates set forth herein. However, the actual final
distribution on the [Class A] Certificates could occur significantly earlier
than the Final Scheduled Distribution Dates set forth herein. The [Class A]
Certificates will be subject to Special Distributions under the circumstances
specified herein. [The Depositor intends to offer the Class B Certificates
(as defined herein) to sophisticated institutional investors in transactions
not requiring registration under the Securities Act of 1933. The rights of
the Class B Certificateholders to receive distributions with respect to the
Mortgage Loans will be subordinated to the rights of the Class A
Certificateholders to the extent described herein and in the Prospectus.]
The Underwriter[s] [do[es] not] intend to make a secondary market for the
[Class A] Certificates [but [is] [are] under no obligation to do so]. There
can be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
The Depositor has elected to treat the Trust Fund as a Real Estate
Mortgage Investment Conduit (a "REMIC"). See "Certain Federal Income Tax
Consequences" in the Prospectus.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF FIRST
BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
VERSION C
<TABLE>
<CAPTION>
FINAL
SCHEDULED PROCEEDS TO THE
DISTRIBUTION PRICE TO UNDERWRITING DEPOSITOR
INTEREST RATE DATE (1) PUBLIC (2) DISCOUNT (2)(3)
- ------------------------- --------------- -------------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Per Class A-1 Certificate (4) % % %
- ------------------------- --------------- -------------- ---------- -------------- ---------------
Per Class A-2 Certificate (4) % % %
- ------------------------- --------------- -------------- ---------- -------------- ---------------
Per Class A-3 Certificate % % %
- ------------------------- --------------- -------------- ---------- -------------- ---------------
Per Class A-4 Certificate % % %
- ------------------------- --------------- -------------- ---------- -------------- ---------------
Total % % %
- ------------------------- --------------- -------------- ---------- --------------
</TABLE>
- -----------------------------------------------------------------------------
(1) These dates are calculated assuming, among other things, that there are
no prepayments on the Mortgage Loans in the Mortgage Pool and that the
characteristics of such Mortgage Loans are as described under
"Description of the Trust Fund--The Mortgage Pool" herein.
(2) Plus accrued interest, if any, at the applicable rate from , 199 .
(3) Before deduction of expenses payable by the Depositor estimated at
$ .
(4) The Class A-1 Certificates will bear interest at the per annum rate of %
through , 19 , and thereafter at a variable per annum rate of %
above the arithmetic mean of the London interbank offered rates for [ ]
month Eurodollar deposits ("LIBOR"), determined as set forth herein,
subject to a maximum interest rate of %.
(5) The Class A-2 Certificates will bear interest at the per annum rate of %
through , 19 , and thereafter at a variable per annum rate equal
to [ %-( X LIBOR), determined as set forth herein, subject to a
minimum interest rate of %.]
-------------------------------------------------------------------------
The Certificates are offered by the [several] Underwriter[s] when, as and
if issued and accepted by the Underwriter[s] and subject to [its] [their]
right to reject orders in whole or in part. It is expected that the
Certificates, in definitive fully registered form, will be ready for delivery
on or about 199 .
CS FIRST BOSTON
- -----------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
VERSION C
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES OFFERED HEREBY MAY NOT
BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER[S] MAY OVERALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
CERTIFICATES AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
UNTIL , 198 , ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at 75 Park Place, 14th Floor, New
York, New York 10007; and Room 3190, Kluczynski Federal Building, 230 South
Dearborn Street, Chicago, Illinois 60604. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
S-2
VERSION C
<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 in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED ..... Conduit Mortgage Pass-Through Certificates,
[Class A] Series (the "[Class A]
Certificates").
$[Variable] [%] Class A-1 Certificates.
$[Variable] [%] Class A-2 Certificates.
$ % Class A-3 Certificates.
$ % Class A-4 Certificates.
[The Class A-1 and Class A-2 Certificates
are Variable Rate Certificates. The Class
A-3 and Class A-4 Certificates are Fixed
Interest Rate Certificates, as described
herein.]
[The Class A-4 Certificates are Compound
Interest Certificates for the purposes of
this Prospectus Supplement.]
[The Class A Certificates represent in the
aggregate an approximate % undivided
interest in the Trust Fund. The
remaining approximate % undivided interest
in the Trust Fund is represented
by the Class B Certificates, which are
subordinated in certain respects to
the Class A Certificates, as more fully
described herein and in the
Prospectus. [The Class B Certificates are
not being offered hereby, and may
be retained by the Depositor or sold by the
Depositor at any time to one or
more sophisticated institutional investors
in privately negotiated
transactions not requiring registration
under the Securities Act of 1933.]]
DENOMINATIONS AND RECORD
DATES ................. The [Class A] Certificates will be issued in
fully registered form in minimum
denominations of $ and integral multiples
of $ in excess of such amount. [The
Record Date for each regular distribution
on the [Class A] Certificates is the close
of business on the [last] day [of the
[second] month] immediately preceding the
applicable Distribution Date.] [The Record
Date for each regular distribution on the
Variable Rate certificates is the close of
business on the th day of the
month in which the applicable Distribution
Date occurs. The Record Date for each
regular distribution on the Fixed Rate
Certificates is the close of business on
the th day of the month immediately
preceding the month in which the
applicable Distribution Date occurs.]
DEPOSITOR .............. First Boston Mortgage Securities Corp. (the
"Depositor").
MASTER SERVICER ........
CUT-OFF DATE ........... , 198 .
DELIVERY DATE .......... On or about , 198 .
S-3
VERSION C
<PAGE>
INTEREST
DISTRIBUTIONS ......... [Interest will be distributed on [the th
day of each month] [each , , and
] (each, a "Distribution Date") on the
Stated Principal Balance (as defined herein)
of the Certificates at the applicable rate
of interest specified on the cover page
hereof (the "Interest Rate") for the Class
A-1, Class A-2 and Class A-3 Certificates,
commencing , 198 .] [Interest will
be distributed on the Class A-1 Certificates
at the per annum rate of % through
, 198 , and thereafter at a
variable per annum rate of % above
LIBOR, determined as set forth herein,
subject to a maximum interest rate of %.
Interest will be distributed on the Class
A-2 Certificates at the per annum rate of
% through , 198 , and thereafter at
a variable per annum rate equal to
%-( x LIBOR), determined as set
forth herein, subject to a minimum interest
rate of %. Interest will be distributed
on the Class A-3 and Class A-4 Certificates
(the "Fixed Rate Certificates") at the
respective per annum rates specified on
the cover page hereof.] [Interest
distributable on the Certificates will
accrue from the [first day of the month
preceding the] prior Distribution Date (or
from , 198 in the case of the First
Distribution Date) through the last day of
the [second] month preceding the then
current Distribution Date.] [Interest will
accrue on the Variable Rate Certificates
from the preceding Distribution Date (or
from , 198 in the case of the first
Distribution Date) through the day
preceding each Distribution Date. Interest
will accrue on the Fixed Rate Certificates
from the th day of the month preceding
the month in which the prior Distribution
Date occurred (or from , 198 in the
case of the first Distribution Date)
through the th day of the month
preceding the month in which the current
Distribution Date occurs.] Distributions
of interest on the Class A-4 Certificates
will commence after distributions in
reduction of Stated Principal Balance of
the Class A-3 Certificates have reduced
the Stated Principal Balance of such Class
to zero. Prior to that time, interest will
accrue on the Class A-4 Certificates and
the amount so accrued will be added to the
Stated Principal Balance thereof on each
Distribution Date. See "Description of the
Certificates--Distributions of Interest"
herein.
[The distribution of interest on the Class
A-3 Certificates (and the addition of
accrued interest to the Stated Principal
Balance of the Class A-4 Certificates
prior to the reduction of the Stated
Principal Balance of the Class A-3
Certificates to zero) one month after the
date to which interest accrues thereon and
the calculation of accrued interest on
such Certificates based on the assumption
that distributions in reduction of Stated
Principal Balance are made one month prior
to the date on which such distributions
actually are made will reduce the
effective yield to the holders of the
S-4
VERSION C
<PAGE>
Class A-3 Certificates from that which
would be the case if interest
distributable on such Certificates on a
Distribution Date were to accrue to such
Distribution Date. See "Description of the
[Class A] Certificates--Distributions of
Interest [on the Class A Certificates]"
herein.]
DISTRIBUTIONS IN
REDUCTION OF STATED
PRINCIPAL BALANCE ..... The Stated Principal Balance of a [Class A]
Certificate 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 Mortgage Loans
comprising the Mortgage Pool 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 of
Certificates is set forth on the cover of
this Prospectus Supplement. Allocation of
distributions in reduction of Stated
Principal Balance will be made to the
[Subc] [C]lasses of the [Class A]
Certificates in the order of their
respective Final Scheduled Distribution
Dates, so that no distribution in
reduction of Stated Principal Balance will
be made to any [Subc] [C]lass of [Class A]
Certificates until distributions in
reduction of Stated Principal Balance made
to each [Subc] [C]lass of [Class A]
Certificates having a prior Final
Scheduled Distribution Date have reduced
the Stated Principal Balance of such
[Subc] [C]lass to zero.
Distributions in reduction of Stated
Principal Balance on the [Class A]
Certificates will be made on each
Distribution Date on which such
distributions are due in an aggregate
amount equal to the sum of (i) the amount
of interest accrued on the Class A-4
Certificates from the [first day of the
month preceding the prior] Distribution
Date (or from , 198 in the
case of the first Distribution Date)
through the last day of the [second] month
preceding the then current Distribution
Date but not then distributable (the
"Accrual Distribution Amount"), (ii) the
[Class A] Stated Principal Distribution
Amount (as described below) [and (iii) %
of Excess Cash Flow (as defined herein)].
The [Class A] Stated Principal
Distribution Amount with respect to a
Distribution Date equals the amount, if
any, by which the aggregate Stated
Principal Balance of the [Class A]
Certificates (before taking into account
the amount of interest accrued on the
Class A-4 Certificates to be added to the
Stated Principal Balance thereof on such
Distribution Date) exceeds the Asset
Value, as defined herein, of the Mortgage
Loans comprising the Mortgage Pool as of
the Business Day prior to such
Distribution Date. For purposes of
determining the Stated Principal
Distribution Amount, the Asset Value of
the Mortgage Loans comprising the Mortgage
Pool will be reduced by taking into
account [the Senior Interest (as defined
herein) in] all distributions of principal
thereof (including prepayments) received
or due to be received by the Trustee or its
nominee during the period
S-5
VERSION C
<PAGE>
(a "Due Period") ending on the
Business Day prior to such Distribution
Date. See "Description of the [Class A]
Certificates--Distributions in Reduction
of Stated Principal Balance" herein.
FINAL SCHEDULED
DISTRIBUTION DATE ..... Class A-1 Certificates .
Class A-2 Certificates .
Class A-3 Certificates .
Class A-4 Certificates .
The Final Scheduled Distribution Date for
each [Subc][C]lass of [Class A]
Certificates is the latest date on which
the Stated Principal Balance of all the
Certificates of such [Subc] [C]lass will
have been reduced to zero, and is
calculated by assuming, among other
things, that (i) scheduled interest and
principal payments (with no prepayments)
on the Mortgage Loans comprising the
Mortgage Pool are timely received and (ii)
such amounts are reinvested at an assumed
reinvestment rate of % per annum to ,
198 , % per annum from , 198 to ,
198 and % per annum thereafter (the
"Assumed Reinvestment Rate"). Since the
rate of distributions in reduction of
Stated Principal Balance of each [Subc]
[C]lass of [Class A] Certificates will
depend on the rate of payment (including
prepayments) on the principal of the
Mortgage Loans, the actual final
distribution of any [Subc] [C]lass of
[Class A] Certificates could occur
significantly earlier than its Final
Scheduled Distribution Date. The rate of
payments on the Mortgage Loans will depend
on their particular characteristics, as
well as on prevailing interest rates from
time to time and other economic factors,
and no assurance can be given as to the
actual payment experience of the Mortgage
Loans. See "Yield Considerations" herein.
[SPECIAL DISTRIBUTIONS . The [Class A] Certificates may receive
special distributions in reduction of
Stated Principal Balance ("Special
Distributions") on the first day of any
month, other than a month in which a
Distribution Date occurs, if, as a result
of principal prepayments on the Mortgage
Loans comprising the Mortgage Pool and/or
low reinvestment yields, the Trustee
determines, based on assumptions specified
in the Pooling and Servicing Agreement,
that interest requirements on any portion
of the [Class A] Certificates would not be
met. The amount of any such Special
Distribution would not exceed the amount
of distributions in reduction of Stated
Principal Balance of the [Class A]
Certificates that would otherwise be
required to be made on the next
Distribution Date. As a result, a Special
Distribution on the [Class A] Certificates
would not result in a distribution to
[Class A] Certificateholders more than two
months earlier than the Distribution Date on
which such distribution would otherwise
have been received. The [Class A]
Certificates will be redeemable in the same
S-6
VERSION C
<PAGE>
priority and manner as distributions
in reduction of Stated Principal Balance
are made on a Distribution Date. See
"Description of the [Class A]
Certificates--Special Distributions"
herein.]
[OPTIONAL TERMINATION .. On any Distribution Date on or after the
[later] of or the date on which the
Stated Principal Balance of the [Class
A-3] Certificates has been reduced to
zero, the Depositor will have the right to
repurchase, in whole, but not in part, the
Mortgage Loans comprising the Mortgage
Pool. Additionally, on any Distribution
Date on which the aggregate principal
amount of the Mortgage Loans comprising
the Mortgage Pool is less than [10%] of
the initial aggregate principal amount of
such Mortgage Loans, the Depositor will
have the right to repurchase, in whole,
but not in part, such Mortgage Loans. Any
such repurchase will be made at a purchase
price equal to [the aggregate principal
amount of such Mortgage Loans plus accrued
interest thereon to the last day of the
month of such repurchase, together with
the appraised value of any property
acquired in respect of such Mortgage
Loans]. Any such termination will be
effected in compliance with the
requirements of Section 860F(a) (iv) of
the Internal Revenue Code of 1986 (the
"Code") so as to constitute a "qualifying
liquidation" thereunder. The proceeds of
any such repurchase will be treated as a
distribution on the Mortgage Loans for
purposes of distributions to the
Certificateholders. In no event will the
Trust continue beyond the expiration of 21
years from the death of the last survivor
of the person named in the Pooling and
Servicing Agreement. See "Description of
the [Class A] Certificates--Optional
Termination" herein.]
TRUST FUND ............. The Certificates evidence ownership interest
in the Trust Fund, the assets of which
will consist of the following:
A. MORTGAGE POOL ..... The Mortgage Pool will consist of
[fixed-rate,] fully amortizing,
[level-payment] mortgage loans [and
mortgage participation certificates
evidencing participation interests in such
mortgage loans that meet the requirements
of the nationally recognized rating agency
or agencies rating the Certificates
(collectively, the "Rating Agency") for a
rating in one of the two highest rating
categories of such Rating Agency] secured
by mortgages on one- to four-family
residential properties located in the
states of , and (the
"Mortgage Loans"). All Mortgage Loans will
have original maturities of at least [15]
but no more than [40] years. See
"Description of the Trust Fund--The Mortgage
Pool" herein.*
- ------------
* If the Series of Certificates offered pursuant to the Version B
Prospectus Supplement evidences interest in manufactured housing
conditional sales contracts and installment loan agreements
("Contracts"), the disclosure to be set forth will be substantially
similar to the disclosure set forth in Version E under "Summary of
Terms--Contract Pool."
S-7
VERSION C
<PAGE>
B. CERTIFICATE
ACCOUNT ............... There will be deposited in an account (the
"Certificate Account") to be established
with the Trustee all distributions on or
with respect to the Mortgage Loans
comprising the Mortgage Pool, together
with reinvestment income thereon [, the
amount of cash initially deposited therein
by the Depositor, and any amounts
withdrawn from any Reserve Fund, GPM Fund
or Buy-Down Fund (as described below)].
Funds on deposit in the Certificate
Account will be available to make
distributions in reduction of Stated
Principal Balance and distributions of
interest on the [Class A] Certificates on
each Distribution Date. See "Description
of the Trust Fund --Certificate Account"
herein.
[C. BUY-DOWN FUND .... The Depositor will deliver to the Trustee
cash, a letter of credit or a guaranteed
investment contract to fund the Buy-Down
Fund for the [Class A] Certificates. The
Assumed Reinvestment Rate for the Buy-Down
Fund will be the same as that of the
Certificate Account. The Trustee may
withdraw excess funds in the Buy-Down Fund
on any Distribution Date. See "Description
of the Trust Fund--Buy-Down Fund" herein.]
[D. GPM FUND ......... The Depositor will deliver to the Trustee
cash, a letter of credit or a guaranteed
investment contract to fund the GPM Fund
for the [Class A] Certificates. The
Assumed Reinvestment Rate for the GPM Fund
will be the same as that of the
Certificate Account. The Trustee may
withdraw excess funds in the GPM on any
Distribution Date. See "Description of the
Trust Fund--GPM Fund" herein.
[E. REINVESTMENT
AGREEMENT ............. All amounts on deposit in the Certificate
Account [and the GPM and Buy-Down Funds]
will be reinvested with by the
Trustee pursuant to a guaranteed
investment contract (the "Reinvestment
Agreement") at a rate of % per annum. See
"Description of the Trust
Fund--Reinvestment Agreement" herein.]
[F. LETTER OF CREDIT . The maximum liability of [ ] under an
irrevocable standby letter of credit, for
the Mortgage Pool (the "Letter of
Credit"), net of unreimbursed payments
thereunder, will be no more than [10%] of
the initial aggregate principal balance of
the Mortgage Pool (the "Letter of Credit
Percentage"). The maximum amount available
to be paid under the Letter of Credit will
be determined in accordance with the
Pooling and Servicing Agreement referred to
herein. The duration of coverage and the
amount and frequency of any reduction in
coverage will be in compliance with the
requirements for a rating in one of the
two highest rating categories of the
Rating Agency. The amount available under
the Letter of Credit shall be reduced by
the amount of unreimbursed payments
thereunder. See "Description of the
Certificates--Credit Support--The Letter
of Credit" in the Prospectus.]
S-8
VERSION C
<PAGE>
[G. [POOL INSURANCE
POLICY ............... [Neither the Certificates nor the Mortgage
Loans will be insured or guaranteed by any
governmental agency.] Subject to the
limitations described herein, a pool
insurance policy for certain of the
Mortgage Loans (the "Pool Insurance
Policy"), will cover losses due to default
on such Mortgage Loans in an initial
amount of not less than [5%] of the
aggregate principal balance as of the
first day of the month of the creation of
the Trust (the "Cut-off Date") of all
Mortgage Loans that are not covered as to
their entire outstanding principal balance
by primary policies of mortgage guaranty
insurance. See "Description of the Trust
Fund--The Pool Insurance Policy" herein.
The Pool Insurance Policy will be
subject to the limitations described under
"Description of Insurance--the Pool
Insurance Policy" in the Prospectus.]
[H. HAZARD INSURANCE
[AND SPECIAL HAZARD
INSURANCE POLICY] ..... All of the Mortgage Loans will be covered by
standard hazard insurance policies
insuring against losses due to various
causes, including fire, lightning and
windstorm. [An insurance policy (the
"Special Hazard Insurance Policy") will
cover losses with respect to the Mortgage
Loans 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 initial amount equal to
the greater of % of the aggregate
principal balance of the Mortgage Loans or
times the unpaid principal balance of the
largest Mortgage Loan.] Any hazard losses
not covered by [either] standard hazard
insurance policies [or the Special Hazard
Insurance Policy] will not be insured
against and [, to the extent that the
amount available under the Letter of
Credit or any alternative method of credit
support is exhausted,] will be borne by
the Certificateholders. See "Description
of the Trust Fund--The Special Hazard
Insurance Policy" herein. The hazard
insurance policies [and the Special Hazard
Insurance Policy] will be subject to the
limitations described under "Description
of Insurance--Hazard Insurance" and
"--Special Hazard Insurance Policies"] in
the Prospectus.
[I. MORTGAGOR
BANKRUPTCY BOND ....... The Depositor will obtain a bond or similar
form of insurance coverage (the "Mortgagor
Bankruptcy Bond"), providing coverage
against losses that result from
proceedings with respect to obligors under
the Mortgage Loans (the "Mortgagor") under
the federal Bankruptcy
Code. See "Description of the Trust
Fund--Mortgagor Bankruptcy Bond" herein
and "Description of Insurance--The
Mortgagor Bankruptcy Bond" in the
Prospectus.
[CLASS B CERTIFICATES ... The rights of the Class B Certificateholders
to receive distributions with respect to
the Mortgage Loans are
S-9
VERSION C
<PAGE>
subordinated to the right of the Class A
Certificateholders to receive such
distributions to the extent of the
Subordinated Amount described
below. This subordination is intended to
enhance the likelihood of regular receipt
by Class A Certificateholders of the full
amount of scheduled distributions of
interest and distributions in reduction of
Stated Principal Balance and to decrease
the likelihood that the Class A
Certificateholders will experience losses.
The extent of such subordination (the
"Subordinated Amount") will be determined
as follows: on the Cut-off Date and on
each anniversary of the Cut-off Date until
, the Subordinated Amount will equal %
of the original aggregate principal
balance of the Mortgage Loans less the
amount of "Aggregate Losses" (as defined
in the Prospectus) since the Cut-off Date
through the last day of the month
preceding such anniversary date; from the
th anniversary of the Cut-off Date
onward, the Subordinated Amount will
gradually decline in accordance with a
schedule set forth in the Pooling and
Servicing Agreement.]
[RESERVE FUND .......... The protection afforded to the Class A
Certificateholders from the subordination
feature described above will be effected
both by the preferential right of the
Class A Certificateholders to receive
current distributions with respect to the
Mortgage Loans (to the extent of the
Subordinated Amount) and by the
establishment of a reserve (the "Reserve
Fund"). The Reserve Fund is not included
in the Trust Fund. The Reserve Fund will
be created by the Depositor and shall be
funded by the retention of all of the
scheduled distributions of principal of the
Mortgage Loans otherwise distributable to
the Class B Certificateholders on each
Distribution Date until the Reserve Fund
reaches an amount (the "Required Reserve")
that will equal [; thereafter, the
Reserve Fund must be maintained at the
following levels: ]. See
"Description of the Certificates--
Subordinated Certificates" and "--Reserve
Fund" in the Prospectus.]
MASTER SERVICING AND
SERVICING AGREEMENTS .. The Depositor will enter into a Master
Servicing Agreement with ,
which will have entered into
Servicing Agreements with various
entities (each a "Servicer") with respect
to the servicing of the Mortgage Loans.
Among other things, the Servicers and the
Master Servicer are obligated under certain
circumstances to make advances with respect
to the Mortgage Loans, to purchase any
Mortgage Loans for which mortgage insurance
coverage is denied on the grounds of fraud
or misrepresentation and to purchase certain
Mortgage Loans with respect to which a
breach of a representation or warranty has
occurred. The Depositor will assign to the
Trustee its rights under the
S-10
VERSION C
<PAGE>
Master Servicing Agreement and the
Servicing Agreements with respect to the
Certificates.
ADVANCES ............... Any Servicer of the Mortgage Loans (and the
Master Servicer, with respect to each
Mortgage Loan that it services directly
and otherwise, to the extent the
applicable Servicer does not do so) will
be obligated to advance delinquent
installments of principal and interest on
the Mortgage Loans under certain
circumstances. See "Description of the
Certificates--Advances" in the
Prospectus.
SUBSTITUTION OF MORTGAGE
LOANS ................. Within three months following the date of
the issuance of the Certificates, the
Depositor may deliver to the Trustee
Mortgage Loans in substitution for any one
or more of the Mortgage Loans initially
included in the Trust Fund but which do
not conform in one or more respects to the
description thereof contained in this
Prospectus Supplement or in the Current
Report on Form 8-K referred to herein.
See "The Mortgage Pool--Substitution of
Mortgage Loans" in the Prospectus.
RESIDUAL CERTIFICATES .. Upon the issuance of the Certificates, [the
Depositor will retain] an interest in the
Mortgage Pool [that] will be represented
by a class of certificates (the "Residual
Certificates") that the Depositor will
designate as "residual interests" under
Section 860G(a)(2) of the Internal Revenue
Code of 1986 (the "Code"). The Residual
Certificates will represent the right to
receive distributions equal to %
of the Excess Cash Flow, if any, with
respect to each Distribution Date. In
addition, at such time as the Stated
Principal Balance of the Class A-4
Certificates has been reduced to zero [and
all amounts distributable to the Class B
Certificateholders have been paid], the
holder or holders of the Residual
Certificates will be the sole owners of
the Mortgage Pool and will have sole
rights with respect to the Mortgage Loans
and the Mortgage Pool. The Residual
Certificates are not being offered hereby.
[The Depositor may, but need not, sell
some or all of such Residual Certificates
after the date of issuance of the
Certificates to sophisticated
institutional investors in transactions
not requiring registration under the
Securities Act of 1933.]
TRUSTEE ................ State Street Bank and Trust Company. See
"Description of the [Class A]
Certificates--Trustee" herein.
LEGAL INVESTMENT ...... The [Class A] Certificates constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 (the "Enhancement
Act"), and, as such, are legal investments
for certain entities to the extent
provided in the Enhancement Act. See
"Legal Investment" in the Prospectus.
CERTIFICATE RATING ..... It is a condition of issuance that the
[Class A] Certificates be rated in one of
the two highest rating categories of the
Rating Agency prior to issuance.
S-11
VERSION C
<PAGE>
ERISA LIMITATIONS ...... See "ERISA Considerations" in the
Prospectus.
TAX ASPECTS ............ See "Certain Federal Income Tax
Consequences--General"; "--REMIC Trust
Funds" in the prospectus. Purchasers of
Certificates of Classes A-1, A-2, A-3,
A-4, and B should see "Certain Federal
Income Tax Consequences--REMIC Trust
Funds--Taxation of Owners of REMIC Regular
Certificates" in the prospectus for
discussions of certain tax considerations
particular to such Certificates.*
- ------------
* If the Prospectus Supplement for a Series of Certificates provides
that Cadwalader, Wickersham & Taft will pass upon the material
federal income tax consequences of the Certificates for the
Depositor, then such Prospectus Supplement will contain tax
disclosure substantially similar to the disclosure set forth in
Version E under "Summary of Terms--Tax Aspects" and "Certain Federal
Income Tax Consequences."
S-12
VERSION C
<PAGE>
DESCRIPTION OF THE TRUST FUND
THE MORTGAGE POOL*
The Mortgage Pool will consist of Mortgage Loans evidenced by mortgage
notes with aggregate unpaid principal balances outstanding as of the first
day of the month of the creation of the Trust (the "Cut-off Date"), after
deducting payments of principal due on such date, of approximately $ . This
amount is subject to a permitted upward and downward variance of up to %.
[The Mortgage Pool will consist of -year, [fixed-rate], fully-amortizing,
[level-payment] Mortgage Loans, as more fully described in the Prospectus.]
The weighted average interest rate (individually, a "Mortgage Rate") of
the Mortgage Loans as of the Cut-off Date will be at least % but no more than
%. All Mortgage Loans will have Mortgage Rates of at least % but no more
than %. The weighted average maturity of the Mortgage Loans, as of the Cut-off
Date, will be at least years but no more than years. All Mortgage Loans
will have original maturities of at least but no more than years. None
of the Mortgage Loans will have been originated prior to or after
, 198 . None of the Mortgage Loans will have a scheduled maturity later
than .
The Mortgage Loans will have the following characteristics as of the
Cut-off Date (expressed as a percentage of the outstanding aggregate
principal balances of the Mortgage Loans having such characteristics relative
to the outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated before
July 18, 1984, and no more than % of the Mortgage Loans will have been
originated before September 27, 1985. See "Certain Federal Income Tax
Consequences--Mortgage Pools," "--Taxation of Owners of Trust Fractional
Certificates," and "--Market Discount and Premium" in the Prospectus for
information regarding such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each
having outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value
ratios at origination in excess of [80]%, and no Mortgage Loan will have
had a loan-to-value ratio at origination in excess of 95%.
All of the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of primary mortgage insurance
until the outstanding principal balance is reduced to 75% of the Original
Value.
At least % of the Mortgage Loans will be secured by mortgages on
one-family dwellings.
No more than % of the Mortgage Loans will be secured by Mortgages on
condominiums and row houses.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided, and no
more than % of the principal balance of any such Mortgage
Loan will be represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be GPM Loans.
- ------------
* If the Series of Certificates offered pursuant to this Version C
Prospectus Supplement evidences interests in Contracts, the
disclosure to be set forth will be substantially similar to the
disclosure set forth in Version E under "Description of the Contract
Pool."
S-13
VERSION C
<PAGE>
At least % of the Mortgage Loans will be secured by a Mortgage on
an owner-occupied Mortgaged Property. Such determination will have been
made on the basis of a representation by the Mortgagor at the time of
origination of the Mortgage Loan that such Mortgagor then intended to
occupy the underlying property or, in the absence of such a
representation, on the basis of various factors indicating that the
underlying property is owner-occupied.
No more than [5%] of the Mortgage Loans will be secured by Mortgages
on properties located in any one zip code or project.
The Mortgage Loans will be secured by Mortgages on properties located
in the states of .
Specific information with respect to the Mortgage Loans will be available
to purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in
a Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of the
Certificates.
CERTIFICATE ACCOUNT
There will be deposited in an account (the "Certificate Account") to be
established with the Trustee all distributions on or with respect to the
Mortgage Loans comprising the Mortgage Pool, together with reinvestment
income thereon. [Until such time as the Subordinated Amount is reduced to
zero,][f] [F]unds on deposit in the Certificate Account will be available to
make distributions in reduction of Stated Principal Balance and distributions
of interest on the Certificates on each Distribution Date, as more fully set
forth herein. [Any funds remaining in the Certificate Account after making
required distributions to holders of the Class A Certificates will be
distributed [to the holders of the Class B Certificates.] Any amounts
remaining in the Certificate Account [after making required distributions on
the Class B Certificates] will be distributed to the holders of the Residual
Certificates.
[BUY-DOWN FUND
The Depositor will deliver cash, a letter of credit or a guaranteed
investment contract to the Trustee to fund the Buy-Down Fund for the [Class
A] Certificates. [The Senior Interest in] Buy-Down Mortgage Loans not valued
solely on the basis of the scheduled monthly payments required of the
Mortgagor will be valued by taking into account funds available from the
Buy-Down Fund and reinvestment income thereon at the same Assumed
Reinvestment Rate as that of the Certificate Account.
The Trustee may withdraw excess funds from the Buy-Down Fund on any
Distribution Date. Any amounts so withdrawn shall be distributed [first, to
restore the amount in the Reserve Fund to the Required Reserve, and then to
the holders of the Class B Certificates to the extent of any deficiency in
scheduled distributions on such Class B Certificates on such Distribution
Date. Any amounts remaining will be distributed] to the holders of the
Residual Certificates.]
[GPM FUND
To the extent that [the Senior Interest in] a Mortgage Loan providing for
payments during a portion of its term that are less than the actual amounts
of principal and interest payable thereon (a "GPM Loan") is valued on the
basis of its maximum principal balance, rather than on the basis of scheduled
payments by the Mortgagor, the Depositor will deliver cash, a letter of
credit or a guaranteed
S-14
VERSION C
<PAGE>
investment contract to fund the GPM Fund for the [Class A] Certificates. The
Assumed Reinvestment Rate for the GPM Fund is the same as that of the
Certificate Account.
The Trustee may withdraw excess funds from the GPM Fund on any
Distribution Date. Any amounts so withdrawn shall be distributed [first, to
restore the amount in the Reserve Fund to the Required Reserve, and then to the
holders of the Class B Certificates to the extent of any deficiency in scheduled
distributions on such Class B Certificates on such Distribution Date. Any
amounts remaining will be distributed] to the holders of the Residual
Certificates.]
[REINVESTMENT AGREEMENT
All amounts on deposit in the Certificate Account [, the Buy-Down Fund and
the GPM Fund] will be reinvested with by the Trustee pursuant to a
guaranteed investment contract (the "Reinvestment Agreement") at a rate of %
per annum.]
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than %
of the aggregate principal balance of the Mortgage Loans on the Cut-off Date.
The duration of coverage and the amount and frequency of any reduction in
coverage will be in compliance with the requirements established by the
Rating Agency rating the Certificates in order to obtain a rating in one of
the two highest ratings categories of the Rating Agency. The precise amount
of coverage under the Letter of Credit and the duration and frequency of
reduction of such coverage will be set forth in the Current Report on Form
8-K referred to above. See "Description of the Certificates--Credit
Support--The Letter of Credit" in the Prospectus.]
[THE POOL INSURANCE POLICY
Subject to the limitations described under "Description of Insurance--Pool
Insurance Policy" in the Prospectus, the Pool Insurance Policy will cover
losses by reason of default on the Mortgage Loans that are not covered as to
their entire outstanding principal balances by primary mortgage insurance, in
an amount equal to % of the aggregate principal balance of such Mortgage
Loans on the Cut-off Date.
The Pool Insurance Policy will be issued by , a corporation
(the "Pool Insurer"), which is engaged principally in the business of insuring
mortgage loans on residential properties against default in payment by the
Mortgagor. At , 198 , the Pool Insurer had insurance in force in the form
of primary policies covering approximately $ billion of residential
mortgages. At such date, the Pool Insurer had total assets of approximately
$ million, capital and surplus aggregating $ million and statutory
contingency reserves of $ million, resulting in total policyholders'
reserves of $ million. The claims-paying ability of the Pool Insurer is
currently rated by . In accordance with standard rating agency practice,
may, at any time, revise or withdraw such rating.
The information set forth above has been provided by the Pool Insurer. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
[THE SPECIAL HAZARD INSURANCE POLICY
The Special Hazard Insurance Policy will cover certain risks not otherwise
insured against under hazard insurance policies, subject to the limitations
described in the Prospectus, and will be issued by a corporation (the
"Special Hazard Insurer"). Claims under such policy will be limited to % of
the aggregate principal balance of the Mortgage Loans or
S-15
VERSION C
<PAGE>
twice the principal balance of the Mortgage Loan with the highest outstanding
principal balance at the Cut-off Date, whichever is greater. At , 198 ,
the Special Hazard Insurer had total assets of approximately $ million and
total policyholders' surplus of $ . The claims-paying ability of the Special
Hazard Insurer is presently rated by . In accordance with standard
rating agency practice, may, at any time, revise or withdraw such
rating.
The information set forth above has been provided by the Special Hazard
Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
[MORTGAGOR BANKRUPTCY BOND
The Depositor will obtain a bond or similar form of insurance coverage
(the "Mortgagor Bankruptcy Bond") for proceedings with respect to Mortgagors
under the federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover
certain losses resulting from a reduction by a
bankruptcy court of scheduled payments of principal and interest on a
Mortgage Loan or a reduction by such court of the principal amount of a
Mortgage Loan and will cover certain unpaid interest on the amount of such a
principal reduction from the date of the filing of a bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy Bond
will be $ plus the greater of (i) % of the aggregate principal balances of
the Mortgage Loans secured by second residences and investor-owned residences
or (ii) times the largest principal balance of any such Mortgage Loan. The
coverage provided by the Mortgagor Bankruptcy Bond will be reduced by
payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by , a corporation.
At December 31, 198 , had admitted assets of approximately $ and
total policyholders' surplus of approximately $ .
The information set forth above concerning has been provided by it.
The Depositor makes no representation as to the accuracy or completeness of
such information.]
YIELD CONSIDERATIONS
Principal payments on mortgage loans may be in the form of scheduled
amortization payments or prepayments (for this purpose, the term "prepayment"
includes prepayments and liquidation due to default or other dispositions of
the loans). Prepayments on the Mortgage Loans comprising the Mortgage Pool
will be passed through to the Trustee, as the assignee of the Mortgage Loans,
and such prepayments will be [available to be] applied to distributions in
reduction of States Principal Balance on the [Class A] Certificates [, as
more fully set forth herein]. Prepayments on mortgage loans are commonly
measured by a prepayment standard or model. The model used in this Prospectus
Supplement, the Standard Prepayment Assumption ("SPA"), represents an assumed
rate of prepayment each month relative to the outstanding principal balance
of a pool of mortgage loans. A prepayment assumption of 100% SPA assumes
prepayment rates of 0.2% per annum of the then outstanding principal balance
of such mortgage loans in the first month of the life of the mortgage loans
and an additional 0.2% per annum in each month thereafter until the 30th
month. Beginning in the 30th month and in each month thereafter during the
life of the mortgage loans. 100% SPA assumes a constant prepayment rate of 6%
per annum each month. As used in the table set forth below " % SPA" assumes
prepayment rates equal to % of 100% SPA; " % SPA" assumes prepayment
rates equal to % of 100% SPA; and " % SPA" assumes prepayment rates equal to
% of 100% SPA. SPA 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.
The rate of principal prepayments on pools of mortgage loans is influenced
by a variety of economic, geographic, social and other factors, including the
level of mortgage interest rates and the rate at which homeowners sell their
homes or default on their mortgages. In general, however, if
S-16
VERSION C
<PAGE>
prevailing interest rates fall significantly below the interest rates on the
Mortgage Loans comprising the Mortgage Pool, the Certificates are likely to be
subject to higher prepayment rates than if prevailing rates remain at or above
the interest rates on the Mortgage Loans comprising the Mortgage Pool. In
addition, as homeowners move or default on their mortgages, their houses are
generally sold and the mortgages prepaid. As the rate of distributions in
reduction of Stated Principal Balance of each [Subc] [C]lass of [Class A]
Certificates will depend on the rate of payment (including prepayments) of
the Mortgage Loans comprising the Mortgage Pool, the actual final
distribution made on any [Subc] [C]lass of [Class A] Certificates is likely
to occur earlier than its Final Scheduled Distribution Date.
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar in reduction of the principal of
such security will be distributed to the investor. The weighted average life
of a [Class A] Certificate is determined by (i) multiplying the amount of
each distribution in reduction of Stated Principal Balance by the number of
years from the date of issuance of the [Class A] Certificate to the related
Distribution Date, (ii) summing the
results and (iii) dividing the sum by the total distributions in reduction of
Stated Principal Balance made on the Class A Certificate [, including, in the
case of a Class A-4 Certificate, any interest accrued and added to the Stated
Principal Balance of such Certificate].
The table set forth below has been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Mortgage Pool. The table assumes, among other things, that each Mortgage Loan
comprising the Mortgage Pool has a remaining term to maturity of years,
bears interest at a rate of % per annum and has payments of principal that
are timely received. There may be discrepancies between the characteristics of
the Mortgage Loans actually included in the Mortgage Pool and the
characteristics of the Mortgage Loans expected to be so included. Any such
discrepancy may have an effect on the percentages of Initial Stated Principal
Balance outstanding set forth in the table (and the weighted average lives of
each Class [Subclass] of the [Class A] Certificates. In addition, to the
extent that the Mortgage Loans that actually are included in the Mortgage
Pool have characteristics that differ from those assumed in the following
table, the Stated Principal Balance of any Class [Subclass] of the [Class A]
Certificates will be reduced to zero earlier or later than indicated by the
table.
Variations in actual prepayment experience and the balance of mortgage
loans that prepay may increase or decrease the percentages of initial Stated
Principal Balance and the weighted average lives shown in the following
table. Such variation may occur even if the average prepayment experience of
all such Mortgage Loans equals the indicated levels of SPA.
Based on the foregoing assumptions, [including an assumed interest rate of
% on the Class A-1 Certificates and an assumed interest rate of % on the
Class A-2 Certificates,] the following table indicates the projected weighted
average life of each [Subc] [C]lass of [Class A] Certificates and sets forth
the percentages of the initial Stated Principal Balance of each [Subc]
[C]lass of [Class A] Certificates that would be outstanding after each of the
dates shown at various percentages of SPA.
PERCENTAGE OF INITIAL STATED PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING
PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF
SPA 1 SPA 1 SPA 1 SPA 1
-------------------------- --------------------------- --------------------------- -------------------------
PAYMENT DATE 0% % % % 0% % % % 0% % % % 0% % % %
- ----------------- ------ ----- ----- ----- ------ ----- ----- ----- ------ ----- ----- ----- ------ ----- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Original Balance
, 1987 ..........
, 1988 ..........
, 1989 ..........
, 1990 ..........
, 1991 ..........
S-17
VERSION C
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING
PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF
SPA 1 SPA 1 SPA 1 SPA 1
-------------------------- --------------------------- --------------------------- -------------------------
Payment Date 0% % % % 0% % % % 0% % % % 0% % % %
- ----------------- ------ ----- ----- ----- ------ ----- ----- ----- ------ ----- ----- ----- ------ ----- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
, 1992 ..........
, 1993 ..........
, 1994 ..........
, 1995 ..........
, 1996 ..........
, 1997 ..........
, 1998 ..........
, 1999 ..........
, 2000 ..........
, 2001 ..........
, 2002 ..........
, 2003 ..........
, 2004 ..........
, 2005 ..........
, 2006 ..........
, 2007 ..........
, 2008 ..........
, 2009 ..........
, 2010 ..........
, 2011 ..........
, 2012 ..........
, 2013 ..........
, 2014 ..........
, 2015 ..........
, 2016 ..........
Weighted average
life (years) ..........
</TABLE>
- ------------
(1) The table assumes, among other things, [at each level of SPA,]
prepayment of Mortgage Loans comprising the Mortgage Pool at the
indicated rate and Reinvestment Income at the Assumed Reinvestment
Rate of % per annum [and annual estimated administrative fees and
expenses of approximately $ .]
DESCRIPTION OF THE [CLASS A] CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, , as master servicer (the
"Master Servicer"), and , as trustee (the "Trustee"), a form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part. Reference is made to the accompanying
Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Certificates. Each
of the [Class A] Certificates at the time of issuance will qualify as a
"mortgage related security" within the meaning of the Secondary Mortgage Market
Enhancement Act of 1984.
Distribution of principal and interest as set forth above will be made by
the Trustee by check mailed to each Certificateholder entitled thereto at the
address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office or agency specified in the notice
to Certificateholders of such final distribution.
The [Class A] Certificates will be transferable and exchangeable on a
Certificate Register to be maintained by the Trustee at the office or agency
of the Master Servicer maintained for that purpose in New York, New York.
[Class A] Certificates surrendered to the Trustee for registration of
transfer or exchange must be accompanied by a written instrument of transfer
in form satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of [Class A] Certificates, but payment
of a sum sufficient to cover any tax or other governmental charge may be
required. Such office
S-18
VERSION C
<PAGE>
or agency of the Master Servicer is currently located at . The Corporate
Trust Office of the Trustee is currently located at .
[DISTRIBUTIONS GENERALLY]
[On each Distribution Date, the Trustee will distribute to the Class A
Certificateholders, in the manner set forth below, an amount (the "Required
Distribution") equal to the sum of:
(i) the aggregate fractional undivided interest evidenced by all Class
A Certificates (the "Senior Interest") in: (a) until such time as the
Subordinated Amount is reduced to zero, all scheduled payments of
principal and interest (including any advances thereof), net of servicing
fees and other compensation payable to the Servicers and the Master
Servicer, which payments became due on the due date to which such
Distribution Date relates (the "Due Date"), whether or not such payments
are actually received; and (b) after the Subordinated Amount is reduced to
zero, all payments of principal and interest, net of servicing fees and
other compensation payable to the Servicers and the Master Servicer, but
not previously received, since the time the Subordinated Amount was
reduced to zero, but only to the extent such payments are actually
received or advanced prior to the Determination Date;
(ii) the Senior Interest in all principal prepayments received during
the month prior to the month of distribution and, interest to the last day
of the month in which such principal prepayments occur, net of servicing
fees and other compensation payable to the Servicers and the Master
Servicer; and
(iii) the Senior Interest in the sum of (a) the outstanding principal
balance of each Mortgage Loan or property acquired in respect thereof that
was repurchased pursuant to the Pooling and Servicing Agreement or
liquidated or foreclosed during the monthly period ending on the day prior
to the Due Date to which such distribution relates, calculated as of the
date of each such Mortgage Loan as repurchased, liquidated or foreclosed,
and (b) accrued but unpaid interest on such principal balance, net of
servicing fees and other compensation payable to the Servicers and the
Master Servicer, to the first day of the month following the month of such
repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders, in the manner set forth below, to the extent that there
are sufficient eligible funds available for distribution to such Class A
Certificateholders on a Distribution Date. Funds eligible for such purpose
with respect to each Distribution Date shall be as set forth in the
Prospectus under "Payments on Mortgage Loans."
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited
therein from the Reserve Funds and any Advances by the Servicers or the
Master Servicer) are not sufficient to make the Required Distribution on any
Distribution Date, the Trustee shall distribute on such Distribution Date to
the Class A Certificateholders the amount of funds eligible for distribution
to such Class A Certificateholders, in the manner set forth below. If, on any
Distribution Date, prior to the time the Subordinated Amount has been reduced
to zero, the Class A Certificateholders do not receive the Required
Distribution, the holders of the Class B Certificates will not receive any
distributions on such Distribution Date. Any amounts in the Certificate
Account after the Required Distribution is made to the Class A
Certificateholders will be distributed [first, to restore the amount in the
Reserve Fund to the Required Reserve, and then to the holders of the Class B
Certificates to the extent of any deficiency in the scheduled distribution to
such Certificateholders. Any excess will then be distributed to the holders
of the Residual Certificates, as set forth more fully below]. Holders of the
Class B Certificates [or the Residual Certificates] will not be required to
refund any amounts that have previously been properly distributed to them
directly from the Certificate Account, regardless of whether there are
sufficient funds on such Distribution Date to make a full distribution to the
Class A Certificateholders. The subordination of distributions allocable to
holders of the Class B Certificates is limited to the
S-19
VERSION C
<PAGE>
Subordinated Amount, which will decrease over time as more fully set forth in
the Pooling and Servicing Agreement, and such subordination applies on any
Distribution Date only to then current distributions allocable to the Class B
Certificateholders.
DISTRIBUTIONS OF INTEREST [ON THE CLASS CERTIFICATES]
The [Certificates of each Class] [Class A-3 Certificates and Class A-4
Certificates] will bear interest at the Interest Rates specified on the cover
page hereof. Interest on the Stated Principal Balance of the Class A-1 and Class
A-2 Certificates will accrue at the rates calculated as
set forth below.] Interest on the Class A-1 Certificates, Class A-2
Certificates and Class A-3 Certificates will be distributable [monthly] on
each Distribution Date, commencing , 198 . [Interest distributable on the
Certificates on a Distribution Date will accrue from the [first day of the
month preceding the] prior Distribution Date (or from , 198 (the
"Accrual Date") in the case of the first Distribution Date) through the [last]
day [of the [second] month] preceding the then current Distribution Date.
[Interest will accrue on the Variable Rate Certificates from the preceding
Distribution Date (or from , 198 , in the case of the first Distribution
Date) through the th day of the month preceding each Distribution Date.
Interest will accrue on the Fixed Rate Certificates from the th day of the
month [preceding the month] in which the prior Distribution Date occurs (or
from , 198 , in the case of the first Distribution Date) through
the th day of the month [preceding the month] in which the current
Distribution Date occurs.] Distributions of interest on the Class A-4
Certificates will commence after distributions in reduction of Stated Principal
Balance of the Class A-3 Certificates have reduced the Stated Principal Balance
of such Class to zero. Prior to that time, interest will accrue on the Class
A-4 Certificates and the amount so accrued will be added to the Stated Principal
Balance thereof on each Distribution Date. [Interest accrued on the [Subc]
[C]lass of [Class A] Certificates currently receiving distributions in
reduction of Stated Principal Balance (and on the Class A-4 Certificates)
during any period described above will be calculated on the assumption that
such distributions are made (and accrued interest added to the Stated Principal
Balance of the Class A-4 Certificates) on the [[first] day of the month
preceding] the next Distribution Date, and not on the Distribution Date when
actually made or added.
[Interest will accrue on the Class A-1 and Class A-2 Certificates through
, 1987 at the rates of % and %, respectively. Commencing ,
1987, interest will accrue on the Variable Rate Certificates at rates
determined as set forth below. For each interest accrual period other than
the first interest accrual period
--Interest will accrue on the Class A-1 Certificates at a per annum
rate of % above LIBOR, subject to a maximum interest rate of %.
--Interest will accrue on the Class A-2 Certificates at a per annum
rate equal to % - (x LIBOR), subject to a minimum interest rate of %.
The rate at which interest will accrue on the Class A-2 Certificates will
thus vary inversely with changes in LIBOR. Interest will accrue on the Class
A-2 Certificates at the minimum rate of % whenever LIBOR is % or above,
and the maximum rate at which interest will accrue on the Class A-2
Certificates will be % per annum, which would be the rate in effect if LIBOR
were determined to be %.
The following table illustrates the relationship between LIBOR rates and
the rate at which interest will accrue on the Class A-1 and Class A-2
Certificates.
LIBOR CLASS A-1 CLASS A-2
- --------- ------------- -------------
% % %
% % %
% % %
S-20
VERSION C
<PAGE>
The [Trustee] will determine LIBOR for a given interest accrual period on
the second business day prior to the Distribution Date on which such interest
accrual period commences (an "Interest Rate Determination Date"). For this
purpose, a "business day" is any day on which banks in London and New York
City are open for the transaction of international business. Promptly after
each Interest Rate Determination Date, the Trustee will cause the Interest
Rates, the Stated Principal Balances of the Variable Rate Certificates for
the interest accrual period following such Determination Date, and the
amounts of interest payable on the Distribution Date following such interest
accrual period in respect of each $1,000 of such Stated Principal Balance, to
be published in an English language newspaper of general circulation
published each business day in New York City. The Stated Principal Balances
and the Interest Rates on the Variable Rate Certificates applicable to the
then current and the immediately preceding interest accrual periods may be
obtained by telephoning the Trustee at its Corporate Trust Office at .
The determination of the rates at which interest will accrue on the
Variable Rate Certificates after , 198 will be made in accordance
with the following provisions:
(i) On each Interest Rate Determination Date, the Trustee will
determine LIBOR on the basis of quotations [provided by [four]
Reference Banks as of 11:00 A.M. (London time) as such quotations
appear on the Reuters Screen LIBOR Page (as defined in the
International Swap Dealers Association, Inc. Code of Standard Wording,
Assumptions and Provisions for SWAPS, 1986 edition).] LIBOR as
determined by the Trustee is the arithmetic mean of such quotations
(rounded upward, if necessary, to the nearest multiple of of 1%).
(ii) If, on any Interest Rate Determination Date, at least two but
fewer than all of the Reference Banks provide quotations, LIBOR will
be determined in accordance with (i) above on the basis of the offered
quotations of those Reference Banks providing such quotations.
(iii) If, on any Interest Rate Determination Date, only one or none
of the Reference Banks provides such offered quotations, LIBOR will be
the higher of:
(a) LIBOR as determined on the previous Interest Rate
Determination Date; and
(b) the Reserve Interest Rate. The "Reserve Interest Rate"
will be the rate per annum (rounded upward as aforesaid) that the
Trustee determines to be either (x) the arithmetic mean of the
offered quotations that leading banks in New York City selected by
the Trustee (after consultation with the Depositor) are quoting on
the relevant Interest Rate Determination Date for [ ] month United
States dollar deposits to the principal London office of each of
the Reference Banks or those of them (being at least two in
number) to which such offered quotations are, in the opinion of
the Trustee, being so made or (y) in the event that the Trustee
can determine no such arithmetic mean, the arithmetic mean of the
offered quotations that leading banks in New York City selected by
the Trustee (after consultation with the Depositor) are quoting on
such Interest Rate Determination Date to leading European banks
for [ ] month United States dollar deposits; provided, however,
that if the banks selected as aforesaid by the Trustee are not
quoting as mentioned above, LIBOR for the next accrual period will
be LIBOR as specified in (a) above.
The rate at which interest will accrue on the Class A-1 Certificates will
in no event exceed % per annum, and the rate at which interest will accrue
on the Class A-2 Certificates will in no event be less than % per annum.
Each Reference Bank shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, shall not
control, be controlled by, or be under common control with, the Depositor and
shall have an established place of business in London.
S-21
VERSION C
<PAGE>
[The distribution of interest on the [Class A] Certificates (and the
addition of accrued interest to the Stated Principal Balance of the Class A-4
Certificates prior to the reduction of the Stated Principal Balance of the
Class A-3 Certificates to zero) [30] days after the date to which interest
accrues thereon and the calculation of accrued interest on the Certificates
based on the assumption that distributions in reduction of Stated Principal
Balance of the [Class A] Certificates are made [one month] prior to the
actual Distribution Date will reduce the effective yield to holders of the
[Class A] Certificates from that which would otherwise be the case if
interest distributable on the [Class A] Certificates (or added to the Stated
Principal Balance of the Class A-4 Certificates) on a Distribution Date were
to accrue to such Distribution Date.]
[The effective yield to the Class A-3 and Class A-4 Certificateholders
will be less than the yield that would otherwise be produced if interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) on a Distribution Date were to accrue
to such Distribution Date because (i) on the first Distribution Date, [ ]
months' interest is distributable on the Certificates (or to be added to the
Stated Principal Balance of the Class A-4 Certificates) even though [ ] months
will have elapsed from the date on which interest begins to accrue on the
Certificates and (ii) on each succeeding Distribution Date, the interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) is the interest accrued
during the period described above even though this accrual period ends [30]
days prior to such Distribution Date. In addition, during the first month of
each interest accrual period (other than the first such period) for the Class
of Certificates on which distributions in reduction of Stated Principal
Balance are being distributed, interest accrues on a principal balance that
is less than the Stated Principal Balance of such Class of Certificates,
because interest due on such Class on a Distribution Date is calculated on
the Stated Principal Balance of such Class since the preceding Distribution
Date.]
DISTRIBUTIONS IN REDUCTION OF STATED PRINCIPAL BALANCE
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made on each Distribution Date on which distributions
are due in an aggregate amount equal to the sum of the Accrual Distribution
Amount and the Stated Principal Distribution Amount. For purposes of
determining the Stated Principal Distribution Amount, the Asset Value of the
Mortgage Loans comprising the Mortgage Pool will be reduced by taking into
account [the Senior Interest in] all distributions of principal thereof
(including prepayments) received or due to be received by the Trustee during
the Due Period prior to such Distribution Date.
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made first to the Class A-1 Certificates until the
Stated Principal Balance of the Class A-1 Certificates has been reduced to
zero; next to the Class A-2 Certificates until the Stated Principal Balance
of the Class A-2 Certificates has been reduced to zero; next to the Class A-
3 Certificates until the Stated Principal Balance of the Class A-3
Certificates has been reduced to zero; and then to the Class A-4
Certificates. Distributions in reduction of Stated Principal Balance on
[Certificates of a particular Class] [Class A Certificates of a particular
Subclass] will be made to the holder of the Certificates of such [Class]
[Subclass] either pro rata in the proportion which the Stated Principal
Balance of each Certificate of such [class] [subclass] bears to the aggregate
Stated Principal Balance of all the Certificates of such [Class] [Subclass]
or by random lot. Except as provided herein, the Final Scheduled Distribution
Date of each [Class] [Subclass] of [Class A] Certificates has been determined
based upon [the Senior Interest in] scheduled payments of principal and
interest on the Mortgage Loans comprising the Mortgage Pool assuming no
prepayments. Reinvestment Income at the Assumed Reinvestment Rate, [and
application of % of the Excess Cash Flow, as defined herein, to the payment
of Certificates.] The rate of prepayments on the Mortgage Loans will depend
on the prevailing level of interest rates and other economic factors, and no
assurance can be given as to the actual prepayment rate of any Mortgage Loan.
S-22
VERSION C
<PAGE>
The aggregate initial Asset Value of the Mortgage Loans comprising the
Mortgage Pool will be equal to at least 100% of the initial aggregate Stated
Principal Balance of the [Class A] Certificates.
The Asset Value of the Mortgage Loans comprising the Mortgage Pool will be
equal to the lesser of (a) the then present value of the [Senior Interest in
the] stream of remaining regularly scheduled monthly payments of principal
and interest on such Mortgage Loans [(after taking into account the
applicable portion of the Reserve Fund and the Buy-Down Fund)] together with
Reinvestment Income thereon from the assumed date of receipt of such payments
to the next succeeding Distribution Date at the Assumed Reinvestment Rate,
discounted at the rate of % per annum with the same frequency as
distributions are made on the Certificates and (b) the product of the Asset
Value Cap calculated from time to time in the manner provided in the Pooling
and Servicing Agreement and the then outstanding principal balance of such
Mortgage Loan.
[ % of the Excess Cash Flow will be applied to the distributions on [Class
A] Certificates on each Distribution Date until such time that, even in the
event of excessive prepayments of the Mortgage Loans, sufficient funds will
be available to make distributions of interest on the [Class A] Certificates
on each succeeding Distribution Date. Thereafter, it will no longer be
necessary to provide for the possibility of a Special Distribution on the
[Class A] Certificates in respect of prepayments on such Mortgage Loans.]
On each Distribution Date, the distributions in reduction of Stated
Principal Balance on the [Class A] Certificates will be equal to the [Class
A] Stated Principal Distribution Amount. The [Class A] Stated Principal
Distribution Amount will be the amount by which (i) the Stated Principal
Balance of the [Class A] Certificates (before taking into account the amount
of interest accrued on the Class A-4 Certificates to be added to the Stated
Principal Balance thereof on the Distribution Date), exceeds (ii) the aggregate
Asset Value of the Mortgage Loans comprising the Mortgage Pool as of such
Distribution Date.
[In addition, % of the Excess Cash Flow from the Mortgage Loans comprising
the Mortgage Pool will be applied to the distributions of the [Class A]
Certificates on each Distribution Date until ]. Excess Cash Flow as of
each Distribution Date will be the amount, if any, by which (i) the [Senior
Interest in the] cash flow received from the Mortgage Loans and deposited in
the Certificate Account for the Certificates [and any amounts deposited in
such Certificate Account from any related Buy-Down Fund and GPM Fund on the
date of issuance of the Certificates], plus any Reinvestment Income thereon,
[together with any amounts otherwise distributable to the Class B
Certificateholders or in the Reserve Fund that are required to be distributed
to holders of the Class A Certificates] exceeds (ii) the sum of (a) the
[Class A] Stated Principal Distribution Amount on such Distribution Date and
(b) all interest accrued, whether or not then payable, on the Stated
Principal Balance of the [Class A] Certificates since the preceding
Distribution Date, and (c) any Special Distributions in reduction of Stated
Principal Balance made since the preceding Distribution Date (or since the
date of issuance of the Certificates in the case of the first Distribution
Date). [On any Distribution Date, Excess Cash Flow not so applied will be
[distributed first to restore the amount in the Reserve Fund to the Required
Reserve, and then] to the holders of the Class B Certificates to the extent
of any current deficiency in scheduled distributions to such
Certificateholders on such Distribution Date.] [Any excess will then be
distributed to holders of the Residual Certificates. Any Excess Cash Flow so
distributed will not be available to make subsequent distributions on the
[Class A] Certificates.]
[SPECIAL DISTRIBUTIONS
The [Class A] Certificates may receive special distributions in reduction
of Stated Principal Balance ("Special Distributions") as a consequence of
principal prepayments on the Mortgage Loans comprising the Mortgage Pool
and/or low yields then available for reinvestment. The Trustee will be
required each month to determine, based on assumptions specified in the
Pooling and Servicing Agreement, the amount that will be available in the
Certificate Account for the distribution of interest
S-23
VERSION C
<PAGE>
that will have accrued on such [Class A] Certificates (the "Available Interest
Amount") through the earlier of the last day of the month of determination or
the last day of the [second] month preceding the next Distribution Date (the
earlier of such dates being referred to as the "Available Interest Accrual
Date"). If the Available Interest Amount as so determined is less than the
amount of interest that will have accrued on such [Class A] Certificates to the
Available Interest Accrual Date, there will be distributed, on the first day
of the month succeeding the month of determination (the "Special Distribution
Date"), the portion of the Stated Principal Balance of the [Class A]
Certificates that will cause the Available Interest Amount to equal the
amount of interest that will have accrued to the Available Interest Accrual
Date on the Certificates to be outstanding immediately after such
distribution. The amount of the Special Distribution on the Certificates
distributed on any Special Distribution Date will not exceed the amount of
distributions in reduction of Stated Principal Balance on such Certificates
that would otherwise be required to be made on the next Distribution Date.
The Trustee will notify each registered holder of [Class A] Certificates
to receive a Special Distribution by letter mailed at least five days prior
to the date set for such Special Distribution.]
[OPTIONAL TERMINATION
On any Distribution Date on or after the [later] of or the date on
which the Stated Principal Balance of the [Class A-3] Certificates has been
reduced to zero, the Depositor will have the right to repurchase, in whole,
but not in part, the Mortgage Loans comprising the Mortgage Pool. Additionally,
on any Distribution Date on which the aggregate principal amount of the
Mortgage Loans comprising the Mortgage Pool is less than [10]% of the initial
aggregate principal amount of such Mortgage Loans, the Depositor will have
the right to repurchase, in whole, but not in part, such Mortgage Loans. Any
such repurchase will be made at a purchase price equal to [the outstanding
principal balance of such Mortgage Loans, together with accrual and unpaid
interest thereon, net of servicing fees and other compensation, to the last day
of the month of such repurchase, plus the appraised value of
any property acquired in respect thereof]. Any such termination will be
effected in compliance with the requirements of Section 860F(a)(iv) of the
Code so as to constitute a "qualifying liquidation" thereunder. The proceeds
of any such repurchase will be treated as a distribution on the Mortgage
Loans for purposes of distributions to the Certificateholders. In no event
will the Trust continue beyond the expiration of 21 years from the death of
the last survivor of the persons named in the Pooling and Servicing
Agreement.]
TRUSTEE
The Trustee for the Certificates will be State Street Bank and Trust
Company, a bank organized and existing under the laws of the Commonwealth of
Massachusetts with its principal office located at 225 Franklin Street,
Boston, Massachusetts 02110.
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation in
, . The Master Servicer may be an affiliate of the Depositor. The
Master Servicer is a FNMA/FHLMC approved seller-servicer based in . As
of , the Master Servicer serviced, for other investors and for its own
account, approximately mortgage loans with an aggregate principal balance in
excess of $ . The Master Servicer conducts operations through FHA
approved branch offices in . The Master Servicer originated
approximately $ in mortgage loans in 198 . The Master Servicer's
consolidated stockholder's equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
S-24
VERSION C
<PAGE>
The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances", in an amount acceptable to the Rating Agency.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
% of the outstanding principal balance of each Mortgage Loan in the Mortgage
Pool less [(a)] any servicing compensation to the servicer of each such
Mortgage Loan (the "Servicer") (including such compensation paid to the
Master Servicer as the direct Servicer of a Mortgage Loan for which there is
no Servicer) under the terms of an agreement with the Master Servicer
pursuant to which the Servicer services such Mortgage Loan (a "Servicing
Agreement") [.] [, and (b) the amount payable to the Depositor, as described
below.] [Pursuant to the Pooling and Servicing Agreement, on each
Distribution Date, the Master Servicer will remit to [the Depositor] in
respect of each interest payment on a Mortgage Loan an amount equal to % of
the outstanding principal balance of such Mortgage Loan, before giving effect
to any payments due on the preceding Due Date.] The Master Servicer will be
permitted to withdraw from the Certificate Account, in respect of each
interest payment on a Mortgage Loan, an amount equal to % of the outstanding
principal balance of such Mortgage Loan, before giving effect to any payments
due on the preceding Due Date. Servicing compensation to the Servicers of the
Mortgage Loans shall be payable by withdrawal from the related Servicing
Account (as defined in the Prospectus) prior to deposit in the Certificate
Account. In addition, each Servicer (with respect to the Mortgage Loans
serviced by it) and the Master Servicer will be entitled to servicing
compensation out of insurance proceeds or liquidation proceeds. 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 will pay all expenses incurred
in connection with its responsibilities under the Servicing Agreements and
the Pooling and Servicing Agreement (subject to limited reimbursement as
described in the Prospectus), including, without limitation, the various
items of expense enumerated in the Prospectus.
CERTIFICATE RATING
It is a condition to the issuance of the [Class A] Certificates that they
be rated in one of the two highest categories of the Rating Agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
Rating Agency.
[ERISA CONSIDERATIONS]*
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
- ------------
* If the Series of Certificates offered pursuant to this Version B
Prospectus Supplement evidences interests in Contracts, the
disclosure to be set forth will be substantially similar to the
disclosure set forth in Version E under "ERISA Considerations."
S-25
VERSION C
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters for whom] The First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase the [entire] [following respective]
Stated Principal Balance of each [Subc] [C]lass of the [Class A]
Certificates:
<TABLE>
<CAPTION>
[UNDERWRITERS CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
- -------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
The First Boston Corporation ... $ $ $ $
------------- ------------- ------------- -------------
$ $ $ $]
============= ============= ============= =============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase all of the Certificates if
any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer each [Subc] [C]lass of the Certificates to
the public at the public offering prices set forth on the cover page of this
Prospectus Supplement and [through the Representative,] to certain dealers at
such prices less the following concessions and such dealers may allow the
following discounts on sales to certain other dealers:
CONCESSION DISCOUNT
(PERCENT OF (PERCENT OF
PRINCIPAL PRINCIPAL
AMOUNT) AMOUNT)
-------------- --------------
Class A-1 Certificates ... % %
Class A-2 Certificates ... % %
Class A-3 Certificates ... % %
Class A-4 Certificates ... % %
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
S-26
VERSION C
<PAGE>
LEGAL MATTERS*
The legality of the Certificates will be passed upon for the Depositor and
for the Underwriter[s] by Cadwalader, Wickersham & Taft, New York, New York.
The material federal income tax consequences of the Certificates will be passed
upon for the Depositor by Cadwalader, Wickersham & Taft.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans
comprising the Mortgage Pool. All of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more
affiliates of the Depositor, which will have acquired such Mortgage Loans
from time to time in the open market or in privately negotiated transactions.
- ------------
* If the Series of Certificates offered pursuant to this Version B
Prospectus Supplement evidences interests in Contracts, the
disclosure to be set forth will be substantially similar to the
disclosure set forth in Version E under "Legal Matters."
S-27
VERSION C
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus 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 State.
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1995
[VERSION D]
- -----------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- -----------------------------------------------------------------------------
$ (APPROXIMATE)
FIRST BOSTON MORTGAGE SECURITIES CORP.
Depositor
Conduit Mortgage Pass-Through Certificates, Series ("SPLITS")
Class -1 SPLITS
$ Original Principal Amount (Approximate)
100% of principal payments of the underlying Certificates
0% of interest payments on the underlying Certificates
Class -2 SPLITS
No Original Principal Amount
0% of principal payments on the underlying Certificates
Interest at % Annual Rate on Class -2 SPLITS notional amount
The Conduit Mortgage Pass-Through Certificates, Series (the "SPLITS
Certificates"), offered hereby evidence undivided percentage ownership
interests in a trust (the "Trust") composed of Conventional Mortgage
Pass-Through Certificates, each having a pass-through rate of % (the "
Certificates"). The mortgage pool underlying the Certificates consists of
conventional one- to four-family residential mortgage loans originated and
serviced by and certain related property. The Certificates will be
transferred to the Trust, pursuant to a Deposit Trust Agreement dated as of
1, 199 , by First Boston Mortgage Securities Corp. (the "Depositor") in
exchange for the SPLITS Certificates and are more fully described in this
Prospectus Supplement and in the accompanying Prospectus.
The SPLITS Certificates will be issued in two classes, Class -1 (the
"Class -1 Splits") and Class -2 (the "Class -2 SPLITS"). The Class -1
SPLITS evidence ownership interests in all of the principal payments on the
Certificates. The Class -2 SPLITS evidence ownership interests in all
of the interest payments on the Certificates, net of a servicing fee as
described herein (the "Servicing Fee"). Interest distributions allocable to
the Class -2 SPLITS will be passed through monthly at the annual rate of %
(the "Annual Rate") on the then aggregate outstanding notional amount of the
Class -2 SPLITS. The notional amount is used solely for purposes of the
determination of interest payments and certain other rights and obligations
of Holders of Class -2 SPLITS and does not represent an interest in
principal payments on the Certificates.
Principal payments and interest at the Annual Rate will be distributed to
the holders of SPLITS Certificates ("Certificateholders" or "Holders")
entitled thereto on the [last] day of the month (or if such day is not a
business day, on the next business day) (the "Distribution Date"), or under
the circumstances described herein, on the Distribution Date in the next
month. The first distribution will be made on , 199 .
The SPLITS Certificates do not represent an obligation of or interest in
First Boston Mortgage Securities Corp. or any affiliate thereof or of ,
any affiliate thereof or any other governmental agency or instrumentality.
There is currently no secondary market for the SPLITS Certificates and
there is no assurance that one will develop. The Underwriter[s] expect[s] to
establish a market in the SPLITS Certificates, but [is] [are] under no
obligation to do so. There is no assurance that a secondary market will
develop, or, if it does develop, that it will continue.
The yield to maturity on the SPLITS Certificates will depend on the rate
of principal payments (including prepayments) on the Certificates. The
mortgage loans underlying the Certificates are conventional loans and
may be prepaid at any time without penalty. A lower rate of principal than
anticipated would negatively affect the total return to investors in Class
-1 SPLITS, which are being offered at a discount to their principal amount.
The yield to maturity on the Class -2 SPLITS will be extremely sensitive to
the rate of principal payments on the Certificates and may fluctuate
significantly from time to time. Investors should fully consider the
associated risks, including the risk that a rapid rate of principal payments
could result in the failure of investors in Class -2 SPLITS to recoup their
initial investment. See "Yield Considerations."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) DEPOSITOR (2)
- ------------------------ ------------ ---------------- ---------------
Per Class -1 SPLITS % % %
- ------------------------ ------------ ---------------- ---------------
Per Class -2 SPLITS %(3) % %(3)
- ------------------------ ------------ ---------------- ---------------
Total $ $ $
- ------------------------ ------------ ---------------- ---------------
- -----------------------------------------------------------------------------
(1) Calculated as a percent of gross proceeds of the offering of each
Class of SPLITS Certificates.
(2) Before deduction of expenses payable by the Depositor estimated at
$[ ].
(3) Plus accrued interest, if any, on the Class -2 SPLITS from 1,
199 (the "Cut-off Date").
The SPLITS Certificates are offered by the [several] Underwriter[s] when, as
and if issued and accepted by the Underwriter[s] and subject to [its] [their]
rights to reject orders in whole or in part. It is expected that the SPLITS
Certificates, in definitive, fully registered form, will be ready for
delivery on or about , 199 .
CS FIRST BOSTON
- -----------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
VERSION D
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SPLITS CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SPLITS CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
----------------
UNTIL , 198 , ALL DEALERS EFFECTING TRANSACTIONS IN THE SPLITS
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust, can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at 75 Park Place, 14th Floor, New
York, New York 10007; and Room 3190, Kluczynski Federal Building, 230 South
Dearborn Street, Chicago, Illinois 60604. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
S-2
VERSION D
<PAGE>
SUMMARY OF THE TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
and not otherwise defined herein shall have the meanings given in the
Prospectus.
SECURITIES OFFERED ..... Conduit Mortgage Pass-Through Certificates,
Series (the "SPLITS Certificates").
$ original principal amount Class
-1 SPITS (approximate). No original
Principal Amount -2 SPLITS. The Class
-1 SPLITS represent an undivided
percentage ownership interest in 100% of
the monthly principal payments on the
underlying Certificates (the
"Mortgage Certificates Principal
Distribution"). The Class -1 SPLITS do
not evidence an ownership interest in the
monthly interest payments on the
underlying Certificates.
The Class -2 SPLITS represent an
undivided percentage ownership interest in
100% of the monthly interest payment on
the underlying Certificates (the
"Mortgage Certificate Interest Certificate
Interest Distribution"), net of the
Servicing Fee as described herein (such
net rate of interest on the Class -2
SPLITS then outstanding notional amount
being referred to herein as the "Annual
Rate"). The Annual Rate is %. The
notional amount for the -2 SPLITS is
equal to the unpaid principal balance of
the Certificates, but is used
solely for purposes of determining
interest payments and certain other rights
and obligations of holders of Class
-2 SPLITS and does not represent any
interest in principal payments.
The SPLITS Certificates will be issued
pursuant to a deposit trust agreement,
dated as 1, 198 (the "Deposit
Trust Agreement"), between State Street
Bank and Trust Company, as trustee (the
"Trustee") and First Boston Mortgage
Securities Corp. (the "Depositor").
DEPOSITOR ............. First Boston Mortgage Securities Corp.
CUT-OFF DATE ........... , 198 .
DELIVERY DATE .......... On or about , 198 .
S-3
VERSION D
<PAGE>
DENOMINATIONS .......... The Class -1 SPLITS will be offered in
fully registered form, in minimum
denominations of $[ ] original
principal amount and multiples of
$[ ] in excess thereof. The Class
-2 SPLITS will be offered in fully
registered form, in minimum denominations
of $[ ] original notional amount and
multiples of $[ ] in excess thereof.
PRINCIPAL .............. The Class -1 SPLITS will receive all
principal payments on the
Certificates (including prepayments). The
Class -2 SPLITS receive no principal
payments on the Certificates.
INTEREST ............... The Class -2 SPLITS will receive all
interest payments on the
Certificates, after deduction of the
Servicing Fee, as described herein. The
Class -1 SPLITS will receive no
interest payments on the
Certificates.
DISTRIBUTION DATES ..... Distributions on the Certificates
that are received by the Trustee and
become cleared funds in the hands of the
Trustee prior to 1:00 p.m. on the [last]
day of each month following the
distribution date for the
Certificates, or, if such day is not a
business day, on the next business day
will be distributed to Certificateholders
on such day (each, a "Distribution Date").
Distributions on the Certificates
that are received by the Trustee and
become cleared funds in the hands of the
Trustee at or after 1:00 p.m. on any
Distribution Date will be distributed to
Certificateholders on the Distribution
Date in the next month. Distributions will
be made only if, and to the extent that,
payments are made on the
Certificates and received by the Trustee.
The first Distribution Date will be
, 198 . The Cut-off Date will
be , 198 .
MORTGAGE CERTIFICATES .. % Certificates will aggregate
outstanding principal balances of $[ ]
as of the Cut-off Date. See "The
Certificate Pool".
S-4
VERSION D
<PAGE>
YIELD CONSIDERATIONS ... The rate of payment of principal of the
Class -1 SPLITS, and the aggregate
amount of each distribution on and the
yield to maturity of all SPLITS
Certificates, will depend on the rate of
payment of principal (including
prepayments) of the mortgage loans
underlying the Certificates. The
mortgage loans underlying the
Certificates are conventional mortgage
loans and can be prepaid at any time
without penalty. The rate of payment of
principal varies significantly from time
to time and between pools of mortgage
loans at any time and will be affected by
a variety of factors.
The yield to maturity on the Class -2
SPLITS, which are being offered without
any original principal amount, is
extremely sensitive to the rate of payment
of principal of the mortgage loans
underlying the Certificates
and may fluctuate significantly from time
to time. Investors should fully consider
the associated risks, including the risk
that if the rate of principal payment is
rapid such investors may not recoup their
initial investment. See "Yield
Considerations".
OPTIONAL TERMINATION ... The mortgage loans underlying the
Certificates are subject to repurchase at
the option of at such time as
the outstanding principal balance of such
mortgage loans is less than 10% of their
outstanding principal balance as of
. The Depositor may, in the
event such option is exercised, or
otherwise, at such time as the outstanding
principal balance of the
Certificates is less than 10% of their
aggregate principal balance as of the
Cut-off Date purchase the SPLITS
Certificates, in whole, but not in part,
at the purchase price set forth herein.
See "Description of the
Certificates--Optional Termination"
herein.
LEGAL INVESTMENT ....... The SPLITS Certificates constitute
"mortgage-related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act (the "Enhancement Act"),
and, as such, are legal investments for
certain entities to the extent provided in
the Enhancement Act. See "Legal
Investment" in the Prospectus.
TRUSTEE ................ State Street Bank and Trust Company. See
"Description of the Certificates--Trustee"
herein.
CERTIFICATE RATING ..... It is a condition of issuance of the SPLITS
Certificates that they be rated " " by
the Rating Agency prior to issuance. See
"Rating" herein.
ERISA CONSIDERATIONS ... See "ERISA Considerations" in the
Prospectus.
S-5
VERSION D
<PAGE>
TAX ASPECTS ............ See "Certain Federal Income Tax
Consequences--General"; "--Mortgage Pools"
in the Prospectus. Purchasers of Class A-1
Certificates should see "Certain Federal
Income Tax Consequences--Mortgage Pools
--Taxation of Owners of Trust Fractional
Certificates" and "--Taxation of Owners of
Trust Fractional Certificates--Application
of Stripped Bond Rules" in the Prospectus
for discussions of certain tax
considerations particular to the Class A-1
Certificates. Purchasers of Class A-2
Certificates should see "Certain Federal
Income Tax Consequences --Mortgage Pools--
Taxation of Owners of Trust Interest
Certificates" in the prospectus for
discussions of certain tax considerations
particular to the Class A-2 Certificates.*
- ------------
* If the Prospectus Supplement for a Series of Certificates provides
that Cadwalader, Wickersham & Taft will pass upon the material
federal income tax consequences of the Certificates for the
Depositor, then such Prospectus Supplement will contain tax
disclosure substantially similar to the disclosure set forth in
Version E under "Summary of Terms--Tax Aspects" and "Certain Federal
Income Tax Consequences."
S-6
VERSION D
<PAGE>
DESCRIPTION OF THE CERTIFICATES
THE CERTIFICATES
The Certificates are each proportionately based upon and backed by a
pool of conventional one- to four-family residential mortgage loans,
originated and serviced by , and certain related property conveyed to
the trust by .
On the Closing Date, the Depositor will deliver to the Trustee
Certificates having an aggregate principal balance of $[ ] (subject to a
permitted variance of up to 5%) and pass-through rates of [ ]%. The mortgage
loans underlying such Certificates are expected to have a weighted
average coupon of approximately % per annum based upon actual information
regarding the coupon rates on the mortgage loans underlying the
Certificates that the Depositor anticipates delivering to the Trustee.
The Certificates are expected to have a weighted average remaining
term to maturity of approximately years based upon actual information
regarding the remaining terms to maturity of the mortgage loans underlying
the Certificates that the Depositor anticipates delivering to the
Trustee. Using such Certificates, the final payment thereon will not be
later than , .
The information presented in this section has been derived from the
Current Report on Form 8-K filed by with respect to the
Certificates and certain other publicly available statistical information
regarding the Certificates and is derived from the expected balances as
of the Cut-off Date of the mortgage loans underlying the Certificates,
such balances being estimated using the method customarily employed by the
Depositor. [Prospective investors should be aware that the Depositor may, in
certain unforeseeable circumstances, deliver to the Trustee Certificates
having characteristics different from those described herein.] Specific
information with respect to the Certificates will be forth in a
Current Report on Form 8-K that will be filed by the Depositor, on behalf of
the Trust, with the Securities and Exchange Commission within 15 days after
the issuance of the SPLITS Certificates. [Set forth additional information
with respect to the Certificates.] [A copy of the Prospectus with
respect to the Certificates will be made available to any registered
holder of a SPLITS Certificate upon written request of such Certificateholder
directed to .]
YIELD CONSIDERATIONS
PREPAYMENT EXPERIENCE
Because principal payments on the mortgage loans underlying the
Certificates will be passed through to the holders of the Class -1 SPLITS
and will reduce the notional amount of the Class -2 SPLITS, the rate of
payment of principal of the Class -1 SPLITS and the aggregate amount of
distributions on Class -1 SPLITS and Class -2 SPLITS will be directly
related to the rate of payment of principal of the mortgage loans underlying
the Certificates. The rate of principal payments on the underlying mortgage
loans will in turn be affected by the rate of principal prepayments thereon
(including, for this purpose, payments resulting from liquidations of the
mortgage loans due to defaults, casualties, condemnations or other
dispositions). The mortgage loans are conventional and can be prepaid at any
time without penalty. Prepayments with respect to the Certificates may
also occur as a result of guaranty payments and the optional repurchase
provision on the Certificates. Accordingly, the rate of prepayments on
the underlying mortgage loans and rate of payment of principal of the SPLITS
Certificates will depend upon future events and a variety of factors, and no
assurance can be given as to either such rate.
S-7
VERSION D
<PAGE>
The yield to maturity of any SPLITS Certificates will be affected by the
rate of payment of principal of the Certificates. Specifically, as the
SPLITS Certificates belonging to Class -1 SPLITS are being offered at
significant discounts from their original principal amounts, if the purchaser
of a Class -1 SPLITS Certificates calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is faster than
that actually received on the Certificates, its actual yield to maturity
will be lower than that so calculated. Conversely, as the SPLITS Certificates
belonging to Class -2 SPLITS are being offered without any original principal
amount, if the purchaser of a Class -2 SPLITS Certificate calculates its
anticipated yield to maturity based on an assumed rate of payment of principal
that is slower than that actually received on the Certificates, its actual
yield to maturity will be lower than that so calculated.
The timing of changes in the rate of prepayments on the mortgage loans
under the Certificates may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments is
consistent with an investor's expectation. In general, the earlier a
prepayment of principal on the mortgage loans underlying the
Certificates the greater the effect on an investor's yield to maturity. As a
result, 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 SPLITS Certificates may not
be offset by a subsequent like reduction (or increase) in the rate of
principal payments.
[BECAUSE THE CLASS -1 SPLITS ARE BEING OFFERED AT A DISCOUNT FROM THEIR
ORIGINAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY THEREON WILL BE SENSITIVE TO
THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS UNDERLYING THE
CERTIFICATES.]
BECAUSE THE CLASS -2 SPLITS ARE BEING OFFERED WITHOUT ANY PRINCIPAL
AMOUNT, THE YIELD TO MATURITY ON THE CLASS -2 SPLITS WILL BE EXTREMELY
SENSITIVE TO PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS UNDERLYING THE
CERTIFICATES AND MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. PROSPECTIVE
INVESTORS IN THE CLASS -2 SPLITS SHOULD FULLY CONSIDER THE ASSOCIATED
RISKS, INCLUDING THE RISK THAT IF THE RATE OF PAYMENT IS RAPID SUCH INVESTORS
MAY NOT FULLY RECOUP THEIR INITIAL INVESTMENT.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement,
the Standard Prepayment Assumption ("SPA"), represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of new mortgage loans. SPA assumes prepayment rates of 0.2% per annum of
the then outstanding principal balance of such mortgage loans in the first
month of the life of the mortgage loans and an additional 0.2% per annum in
each month thereafter until the thirtieth month. Beginning in the thirtieth
month and in each month thereafter during the life of the mortgage loans, SPA
assumes a constant prepayment rate of 6% per annum. SPA does not purport to
be either a historical description of the prepayment experience of any pool
of mortgage loans, or of the Mortgage Loans in the Mortgage Pool.
The following table illustrates, in general, the effect of prepayment
rates on the timing and amount of distributions on each Class of SPLITS
Certificates and their resulting weighted average lives. The table does not
purport to represent the anticipated rate of prepayment on the mortgage loans
underlying the Certificates or the resulting anticipated rate of
distributions of each Class of the SPLITS Certificates.
The table sets forth the projected annual aggregate distributions that
would be made on the Class -1 and Class -2 SPLITS Certificates, and
their resulting weighted average lives, based on various assumed percentages
of SPA. The column headed "0%" assumes that no mortgage loans underlying the
Certificates are prepaid before maturity. The columns headed " %",
" %" and " %" assume that prepayments are made at the specified percentages
of SPA. It has been assumed in preparing the table that (i) the Certificates
consist of $ principal amount of % Certificates, (ii)
the mortgage loans underlying the Certificates have the
S-8
VERSION D
<PAGE>
characteristics described above in "Description of the Certificates," (iii) all
mortgage loans are prepaid at the indicated percentage of SPA for the life of
the Certificates, (iv) the weighted average remaining term to maturity of the
mortgage loans is years, (v) the interest rate on each mortgage loan is
. % in excess of the pass-through rate on the related Certificate, and
(vi) the Certificates are not repurchased at the option of or the
SPLITS Certificates are not repurchased at the option of Depositor.
<TABLE>
<CAPTION>
PROJECTED ANNUAL AGGREGATE DISTRIBUTIONS ON THE SPLITS CERTIFICATES
(THOUSANDS OF DOLLARS)
CLASS -1 SPLITS CLASS -2 SPLITS
------------------------------------------- -------------------------------------------
YEAR ENDING 0% SPA % SPA % SPA % SPA 0% SPA % SPA % SPA % SPA
- ----------------------- ---------- --------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $ $ $
---------- --------- --------- --------- ---------- --------- --------- ---------
Total distributions ... $ $ $ $ $ $ $ $
Weighted average
life (years)(1)........
</TABLE>
- ---------------
(1) The weighted average of life of the Class -2 SPLITS which is assumed
to be equal to the weighted average life of the Class -1 SPLITS, is
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the SPLITS
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the total principal distributions on the SPLITS
Certificates.
The characteristics of the mortgage loans underlying the
Certificates, will not correspond exactly to those assumed in preparing the
statistics above. The total cash flows of the Class -2 SPLITS will
therefore differ from those set forth above even if all of the mortgage loans
prepay monthly at the related assumed prepayment rate. In addition, it is not
likely that any mortgage loan will repay at a constant rate until maturity or
that all of the mortgage loans will prepay at the same rate, and the timing
of changes in the rate of prepayments may significantly affect the total cash
flow received by Holder of a Class -2 SPLITS Certificate.
The Depositor makes no representation that the mortgage loans will prepay
in the manner or at any of the rates assumed in the table set forth above.
Each investor must make his own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase any of the
SPLITS.
S-9
VERSION D
<PAGE>
The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social,
legal and other factors and has fluctuated considerably in recent years. See
"Yield Considerations" in the Prospectus. In addition, the rate of principal
prepayments on the mortgage loans underlying the Certificates may differ
among pools of mortgage loans at any time because of specific factors
relating to the mortgage loans in the particular pool, including, among other
things, the age of the loans, the interest rates on the loans, the terms to
stated and remaining maturity of the loans, the geographic locations of the
properties securing the loans, the extent of the mortgagors' equity in real
property securing the loans, changes in mortgagors' housing needs, job
transfers, unemployment and servicing decisions.
Generally, however, if prevailing interest rates vary significantly from
the interest rates on the mortgage loans underlying the Certificates,
the Certificates are likely to be subject to higher or lower prepayment
rates than if prevailing rates remain at or near the interest rates on the
mortgage loans underlying the Certificates. In general, if prevailing
interest rates fall significantly below the interest rates on the mortgage
loans underlying the Certificates, the Certificates are likely to be
subject to higher prepayment rates than if prevailing rates remain at or
above the interest rates on the mortgage loans underlying Certificates.
Conversely, if interest rates rise above the interest rates on the mortgage
loans underlying the Certificates, the rate of prepayment would be
expected to decrease.
The Depositor believes that the historical payment experience on such
securities is not necessarily indicative of the future payment experience on
the mortgage loans underlying the Certificates. Since the rate of principal
payments (including prepayments) on such mortgage loans will significantly
affect the yield to maturity on the SPLITS Certificates, prospective investors
are urged to consult their investment advisors as to both the anticipated rate
of future principal payments (including prepayments) on the underlying mortgage
loans and the suitability of the SPLITS Certificates to their investment
objectives.
PAYMENT DELAY
The effective yield to Certificateholders will be lower than the yield
otherwise produced by the Annual Rate and purchase price since the monthly
distributions on the Certificates will not be paid to the Holders until
on or after the [last] day of the month next succeeding the month of accrual.
See "Pooling and Servicing Agreement" in the Prospectus. To the extent that a
monthly distribution on a Certificate does not become cleared funds in
the hands of the Trustee prior to 1:00 p.m. on the Distribution Date in the
month such distribution is required to be made by the issuer of such
Certificates, the effective yield to the Certificateholders will be further
reduced since such distribution will not be paid to the Holders until the
Distribution Date in the next succeeding month. See "Description of the
SPLITS Certificates."
DESCRIPTION OF THE SPLITS CERTIFICATES
GENERAL
The SPLITS Certificates will be issued pursuant to a deposit trust
agreement, dated as of , 1987 (the "Deposit Trust Agreement"), between
State Street Bank and Trust Company, as trustee (the "Trustee"), and the
Depositor. Pursuant to the Deposit Trust Agreement, the Depositor will
transfer the Certificates to the Trustee in exchange for the SPLITS
Certificates on or about , 198 (the "Delivery Date"). The
Certificates will be registered in the name of the Trustee and payments on
the Certificates will be made directly to the Trustee.
The SPLITS Certificates are to be issued in two classes. Class -1
SPLITS Certificates (the "Class -1 SPLITS") and Class -2 SPLITS
Certificates (the "Class -2 SPLITS"). The Class -1 SPLITS evidence the
Holders' beneficial ownership of an undivided interest in all of the
principal payments of
S-10
VERSION D
<PAGE>
the Certificates. The Class -2 SPLITS evidence
the Holders' beneficial ownership of an undivided interest in all of the
interest payments on the Certificates after deduction of the Servicing
Fee (as defined herein). Payments of interest on the Class -2 SPLITS will
be passed through monthly to Holders thereof at a % Annual Rate on the
outstanding notional amount of such SPLITS Certificates as of the month
preceding the month in which the related distribution of interest is to be
made.
The outstanding principal amount or notional amount, as the case may be,
of each Class of SPLITS Certificates for any month will be equal to the
aggregate outstanding principal balance of the Certificates for that
month. The notional amount is used solely for purposes of the determination
of interest payments and certain other rights and obligations of Holders of
Class -2 SPLITS, and Holders of Class -2 SPLITS shall not have any
interest in, or be entitled to any payment with respect to, principal
payments on the Certificates. The aggregate original principal amount of
the Class -1 SPLITS and the aggregate original notional amount of the
Class -2 SPLITS will each be $ at the Cut-off Date.
Each Class -1 SPLITS Certificate will evidence a Percentage Interest in
the monthly distributions of principal of the Certificates. Each Class
-2 SPLITS Certificate will evidence a Percentage Interest in the monthly
distributions of interest on the Certificates, net of the Servicing Fee.
The Percentage Interest evidenced by each SPLITS Certificate will be
determined by dividing the denomination of such SPLITS Certificate by the
aggregate denominations of all SPLITS Certificates of the same Class. On each
Distribution Date, the Trustee will distribute to each Holder of a SPLITS
Certificate of a Class an amount equal to the product of such
Certificateholder's Percentage Interest evidenced by such SPLITS Certificate
and the interest of such Class in the Mortgage Certificate Principal
Distribution or the Mortgage Certificate Interest Distribution, as
applicable.
The SPLITS Certificates will be issued only in fully registered form. The
Class -1 SPLITS will be issued in minimum denominations of $ and
multiples of $ in excess thereof. The Class -2 SPLITS will be issued
in minimum denominations of $ and multiples of $ in excess thereof.
Principal and interest at a % pass-through rate in respect of the
Certificates is required to be paid by the issuer of the Certificates by
check mailed directly to the registered holder thereof on the day of
each month. Payments of principal and interest will be collected by the
Trustee and held in a segregated non-interest-bearing trust account in the
name of and for the benefit of the Trust. Distributions on the
Certificates that are received by the Trustee and become cleared funds in the
hands of the Trustee prior to 1:00 p.m. on the day of the month or, if
such a day is not a business day, on the next business day, will be
distributed to Certificateholders on such day (each, a "Distribution Date").
Distributions on the Certificates that are received by the Trustee and
become cleared funds in the hands of the Trustee at or after 1:00 p.m. on any
Distribution Date will be distributed to the Certificateholders on the
Distribution Date in the next month. In each case the distribution will be
made to the Holders of record of the SPLITS Certificates on the close of
business on the last business day of the month preceding the month in which
such distribution is made (the "Record Date"). The first Distribution Date
will be , 198 . Distribution of principal and interest as set forth
above will be made by the Trustee by check mailed to each Certificateholder
entitled thereto at the address appearing in the Certificate Register to be
maintained with the Trustee or, at the request of a Certificateholder, by
wire transfer to the account of such Certificateholder; provided, however,
that the final distribution in retirement of a SPLITS Certificate will be
made only upon presentation and surrender of the SPLITS Certificate at the
office of the Trustee specified in the notice to Certificateholders of such
final distribution. Wire transfers will be made at the expense of
Certificateholders requesting such wire transfers by deducting a wire
transfer fee from the related transfer.
S-11
VERSION D
<PAGE>
The SPLITS Certificates will be transferable and exchangeable on the
Certificate Register at the office or agency of the Trustee maintained for
that purpose in the City of New York. SPLITS Certificates surrendered to the
Trustee for registration of transfer or exchange must be accompanied by a
written instrument of transfer in form satisfactory to the Trustee. No
service charge will be made for any registration of transfer or exchange of
SPLITS Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required. Such office or agency is currently
located at 61 Broadway, New York, New York 10004.
TRUSTEE
The Trustee for the Certificates will be State Street Bank and Trust
Company, a bank organized and existing under the laws of Commonwealth of
Massachusetts with its principal office located at 225 Franklin Street,
Boston, Massachusetts 02110.
SERVICING FEE
The Deposit Trust Agreement provides for a servicing fee (the "Servicing
Fee") in an amount equal to % of each interest distribution on the
Certificates. The Servicing Fee will be deducted by the Trustee prior to
making any payment of interest to Holders of the Class -2 SPLITS.
OPTIONAL TERMINATION
The Deposit Trust Agreement provides that the Depositor may purchase
SPLITS Certificates at such time as (i) the mortgage loans underlying the
Certificates are repurchased by , or (ii) the aggregate unpaid
principal balance of the Certificates is less than [10]% of the
aggregate unpaid principal balance of the Certificates as of the Cut-off
Date.
In such event the Class -1 SPLITS will be repurchased at % of their
outstanding principal amount and the Class -2 SPLITS will be repurchased
at % of their outstanding notional amount, in each case, as of the date of
such repurchase. In no event will the Trust continue beyond the expiration of
21 years from the death of the last survivor of the persons named in the
Deposit Trust Agreement.
RATING
It is a condition to the issuance of the SPLITS Certificates that they be
rated " " by the Rating Agency. Such rating addresses the likelihood that
the holders of the SPLITS Certificates will receive payments required under
the Deposit Trust Agreement. In assigning such a rating to mortgage
pass-through certificates, the Ratng Agency takes into consideration the
credit quality of the mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the
extent to which the payment stream on such mortgage pool is adequate to make
required payments on such certificates. Such rating does not, however,
represent an assessment of the likelihood that principal prepayments will be
made by mortgagors or the degree to which such payments might differ from
that originally anticipated. As a result, holders of the SPLITS Certificates
might suffer a lower than anticipated yield, and holders of the Class -2
SPLITS might fail, in circumstances of extreme prepayment, to recoup their
original investment.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
S-12
VERSION D
<PAGE>
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA--Prohibited
Transaction Class Exemption" in the Prospectus), a certificate of an Exempt
Series must entitle its holder to pass-through payments of both principal and
interest on the Mortgage Loans. Because holders of Class -1 or Class -2
Certificates are only entitled to pass-through payments of principal (but not
interest) or interest (but not principal), PTCE 83-1 will not exempt Plans
that acquire the Class -1 or Class -2 Certificates from the prohibited
transaction rules of ERISA. Any Plan fiduciary who proposes to cause a Plan
to purchase Class -1 or Class -2 Certificates should consult with its
counsel with respect to the potential consequences under ERISA and the Code
of the Plan's acquisition and ownership of such Certificates. However, one of
the other PTCE's or the Underwriter's PTE may be applicable. See "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus.
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] The First Boston Corporation, an affiliate of the
Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Classs SPLITS:
CLASS -1 CLASS -2
[UNDERWRITER SPLITS SPLITS TOTAL
- -------------------------------- ------------ ------------ ---------
The First Boston Corporation ... $ $ $
Total ......................... $ $ $ ]
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the SPLITS Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] prospose[s] to offer each Class of the SPLITS Certificates to
the public initially at the public offering prices set forth on the cover
page of this Prospectus Supplement [, and through the Representative,] to
certain dealers at such prices less the following concessions and that the
Underwriter[s] and such dealers may allow the following discounts on sales to
certain other dealers:
CONCESSION DISCOUNT
(PERCENT OF (PERCENT OF
GROSS GROSS
PROCEEDS) PROCEEDS)
------------- -------------
Class -1 SPLITS ... % %
Class -2 SPLITS ... % %
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
S-13
VERSION D
<PAGE>
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
All of the Certificates will be acquired in a privately negotiated
transaction by the Depositor from The First Boston Corporation on terms
substantially similar to those that the Depositor would obtain in an arm's
length transaction. The First Boston Corporation will have acquired such
Certificates in a privately negotiated transaction.
LEGAL MATTERS
The legality of the SPLITS Certificates will be passed upon for the
Depositor and for the Underwriter[s] by Cadwalader, Wickersham & Taft, New
York, New York, and the material federal income tax consequences of the
SPLITS Certificates will be passed upon for the Depositor by Cadwalader,
Wickersham & Taft.
USE OF PROCEEDS
The Depositor will apply substantially all of the net proceeds of the
offering of the SPLITS Certificates towards the simultaneous purchase of the
Certificates underlying the SPLITS Certificates.
S-14
VERSION D
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS 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 STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1995
- -----------------------------------------------------------------------------
[VERSION E]
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- -----------------------------------------------------------------------------
$ (APPROXIMATE)
FIRST BOSTON MORTGAGE SECURITIES CORP.
DEPOSITOR
Conduit Manufactured Housing Contract Pass-Through Certificates, Series
% Pass-Through Rate
Principal and interest payable on the th day
of each month, beginning , 19
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF FIRST
BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. [NEITHER THE
CERTIFICATES NOR THE UNDERLYING CONTRACTS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.]
The Conduit Manufactured Housing Contract Pass-Through Certificates,
Series, % Pass-Through Rate (the "Certificates") offered hereby evidence
undivided fractional interests in a trust to be created by First Boston
Mortgage Securities Corp. (the "Depositor") on or about , 199
(the "Trust"). The Trust property will consist of a pool of [conventional]
[FHA Insured] [VA-guaranteed] [fixed-rate] [variable-rate] manufactured
housing conditional sales contracts and installment loan agreements (the
"Contracts") and certain related property to be conveyed to the Trust by the
Depositor (the "Trust Fund"). The Contracts will be transferred to the Trust,
pursuant to a Pooling and Servicing Agreement (as defined herein), dated as
of , 199 , by the Depositor in exchange for the Certificates and
are more fully described in this Prospectus Supplement and in the
accompanying Prospectus. The Certificates offered by this Prospectus
Supplement constitute a separate series of the Certificates being offered by
the Depositor from time to time pursuant to its Prospectus dated ,
199 , which accompanies this Prospectus Supplement and of which this
Prospectus Supplement forms a part. The Prospectus contains important
information regarding this offering that is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for
the Certificates [but [is] [are] under no obligation to do so].There can be
no assurance that a secondary market will develop, or if it does develop,
that it will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate
Mortgage Investment Conduit (a "REMIC"). See "Certain Federal Income Tax
Consequences" in the Prospectus.]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION> PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC (1) DISCOUNT DEPOSITOR (1)(2)
- ------------------- ------------ ---------------- -------------------
<S> <C> <C> <C>
Per Certificate % % %
- ------------------- ------------ ---------------- -------------------
Total $ $ $
</TABLE>
- ------------------- ------------ ---------------- -------------------
- -----------------------------------------------------------------------------
(1) Plus accrued interest, if any, at the applicable rate from
, 19 .
(2) Before deduction of expenses payable by the Depositor estimated at
$ .
The Certificates are offered by the [several] Underwriter[s] when, as and
if issued and accepted by the Underwriter[s] and subject to [their] [its]
right to reject orders in whole or in part. It is expected that the
Certificates, in definitive fully registered form, will be ready for delivery
on or about , 199 .
CS FIRST BOSTON
- -----------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
VERSION E
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
UNTIL , 198 , ALL DEALERS AFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at 75 Park Place, 14th Floor, New
York, New York 10007; and Room 3190, Kluczynski Federal Building, 230 South
Dearborn Street, Chicago, Illinois 60604. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
S-2
VERSION E
<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 in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED ..... Conduit Manufactured Housing Contract
Pass-Through Certificates, Series , %
Pass-Through Rate (the "Certificates").
PRINCIPAL AMOUNT ....... $ (Approximate: subject to a permitted
variance of up to %).
DEPOSITOR .............. First Boston Mortgage Securities Corp. (the
"Depositor").
MASTER SERVICER ........
DENOMINATIONS .......... The minimum denomination of a Certificate (a
"Single Certificate") will initially
represent approximately $ aggregate
principal amount of Contracts (as
hereinafter defined).
CUT-OFF DATE ........... , 198 .
DELIVERY DATE .......... On or about , 198 .
INTEREST ............... Passed through monthly at the rate of % per
annum (the "Pass-Through Rate"), on the
day of each month (each, a "Distribution
Date") commencing , 198 to those
persons in whose name the Certificates are
registered as of [the last Business Day of
the month preceding the Distribution Date]
(the "Record Date"). [The Pass-Through
Rate for each Contract will equal the
annual percentage rate (the "APR") then
borne by such Contract less a fee for the
servicing of the Contract (the "Servicing
Fee") [, less a fee for the Limited
Guarantee (the "Limited Guarantee Fee")]
[and less the excess interest (the
"Excess Interest")], as described herein
under "Description of the Certificates--
Servicing Compensation, [Limited Guarantee
Fee] and Payment of Expenses."
PRINCIPAL (INCLUDING
PREPAYMENTS) .......... Passed through monthly on the Distribution
Date, commencing , 198 .
CONTRACT POOL .......... [Conventional] [FHA-insured] [VA-guaranteed]
[fixed rate] [variable rate] manufactured
housing conditional sales contracts and
installment loan agreements (collectively,
the "Contracts") secured by manufactured
homes (as described herein) (the
"Manufactured Homes") [located in the
states of , and ]. The Contracts
have been originated [or acquired] by
S-3
VERSION E
<PAGE>
. See "Description of the Contract
Pool" herein.
[LIMITED GUARANTEE .... Subject to the limitations described below,
the Limited Guarantee will cover the
difference between the amount available
for distribution to the Certificateholders
[including Advances] on any [monthly]
Distribution Date and the amount due the
Certificateholders on such Distribution
Date to the extent such shortfall is
attributable to delinquent payments by
borrowers on the Contracts (each, an
"Obligor") and losses on Defaulted
Contracts (as hereinafter defined). The
first $ of the Guarantee Amount, as
defined below, will consist of the general
guarantee obligation of . The
obligation of will be backed by the
Standby Letter of Credit issued by
and confirmed by , (as described below).
The balance of the Guarantee Amount
consists of the Direct Letter of Credit
issued by and confirmed by ,
described below (the Standby Letter of
Credit and the Direct Letter of Credit
sometimes collectively are referred to
herein as the "Letters of Credit"). The
amount of the Limited Guarantee (the
"Guarantee Amount") on the first
Distribution Date will be $ .
Thereafter, the Guarantee Amount available
on any Distribution Date, . See "The
Limited Guarantee."]
The Standby Letter of Credit (the "Standby
Letter of Credit") is an irrevocable
obligation supporting the obligation of
under the Limited Guarantee. If
does not make a payment required of it
under the Limited Guarantee, the Trustee
immediately will draw such amount under
the Standby Letter of Credit. If for any
reason does not honor a draw under the
Standby Letter of Credit, is obligated
to honor the Standby Letter of Credit.
The Direct Letter of Credit (the "Direct
Letter of Credit") will be an irrevocable
direct pay letter of credit and will be
issued by and confirmed by .
[The initial Letters of Credit will expire
no earlier than .] The Master Servicer
will be required to replace or renew the
Letters of Credit prior to their
expiration until the Trust Fund is
terminated. In the event the Master
Servicer does not renew or replace a
Letter of Credit, prior to its expiration,
the Trustee will draw under such Letter of
Credit an amount equal to the required
coverage of that Letter of Credit on such
date and will transfer such funds to a
separate trust fund (the "Limited
Guarantee Fund"). Thereafter the Trustee
will
S-4
VERSION E
<PAGE>
draw upon such funds on each
Distribution Date if and to the extent
draws would have been required under the
corresponding Letter of Credit. The
Letters of Credit will not be available to
support any obligations of the Depositor,
the Master Servicer or the Unaffiliated
Seller. See "The Limited Guarantee."]
[LETTER OF CREDIT ..... The maximum liability of [ ] under an
irrevocable standby letter of credit for
the Contract Pool (the "Letter of
Credit"), net of unreimbursed payments
thereunder, will be no more than [ %] of
the initial aggregate principal balance of
the Contract Pool (the "Letter of Credit
Percentage"). The maximum amount available
to be paid under the Letter of Credit will
be determined in accordance with the
Pooling and Servicing Agreement referred
to herein. The duration of coverage and
the amount and frequency of any reduction
in coverage will be in compliance with the
requirements established by the Rating
Agency, in order to obtain a rating in one
of the two highest rating categories of
such Rating Agency. The amount available
under the Letter of Credit shall be
reduced by the amount of unreimbursed
payments thereunder. See "Credit
Support--Letters of Credit" in the
Prospectus.]
HAZARD INSURANCE ....... All of the Contracts will be covered by
standard hazard insurance policies with
respect to each Manufactured Home in an
amount at least equal to [the lesser of
its maximum insurable value or the
remaining principal balance on the related
Contract]. The standard hazard insurance
policies, at a minimum, will provide for
fire, lightning, windstorm and extended
coverage on terms and conditions customary
in manufactured housing hazard insurance
policies. See "Description of the
Certificates--Hazard Insurance Policies"
herein.
[OPTIONAL TERMINATION .. The [Depositor] may, at its option,
repurchase from the Trust all Contracts
remaining outstanding at such time as the
aggregate unpaid principal balance of such
Contracts is less than [10%] of the
aggregate principal balance of the
Contracts on the Cut-off Date. The
repurchase price will equal the aggregate
unpaid principal balance of such Contracts
together with accrued interest thereon at
the Pass-Through Rate through the last day
of the month during which such repurchase
occurs, plus the appraised value of any
property acquired in respect thereof. [Any
such repurchase will be effected in
compliance with the requirements of
Section 860F(a)(iv) of the Internal
Revenue Code of 1986 (the "Code") so as to
constitute a "qualifying liquidation"
thereunder.] See "Description of the
Certificates--Termination; Repurchase of
Certificates" herein.
S-5
VERSION E
<PAGE>
ADVANCES ............... The Servicers of the Contracts (and the
Master Servicer, with respect to each
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 Contracts
under certain circumstances. See
"Description of the
Certificates--Advances" in the Prospectus.
SECURITY INTERESTS AND
OTHER
ASPECTS OF THE
CONTRACTS ............. In connection with the transfer of the
Contracts from the Depositor to the
Trustee, the Depositor has assigned the
security interests in the Manufactured
Homes securing the Contracts to the
Trustee. The [Master Servicer] shall take
such steps as are necessary to perfect and
maintain perfection of such security
interest in each Manufactured Home and, to
the extent such interest is perfected, the
Trustee will have a prior claim over
subsequent purchasers of the Manufactured
Home and holders of subsequently perfected
security interests. Under most state laws
Manufactured Homes constitute personal
property, and perfection of a security
interest in the Manufactured Home is
obtained, depending on applicable state
law, either by noting the security
interest on the certificate of title for
the Manufactured Home or by filing a
financing statement under the Uniform
Commercial Code. [The certificates of
title or Uniform Commercial Code financing
statements will not be amended to identify
the Trustee as the new secured party
because of the administrative burden and
expense.] In the absence of such an
endorsement, the Trustee may not have a
perfected security interest in
Manufactured Homes registered in certain
states. In addition, if the Manufactured
Home were relocated to another state
without reperfection of the security
interest, or if the Manufactured Home were
to become attached to its site and a
determination were made that the security
interest was subject to real estate title
and recording laws, or as a result of
fraud or negligence, the Trustee could
lose its prior preferred security interest
in a Manufactured Home. Federal and state
consumer protection laws impose
requirements upon creditors in connection
with extensions of credit and collections
on installment sales contracts, and
certain of these laws make an assignee of
such a contract, such as the Trustee,
liable to the obligor thereon for any
violation by the lender. The [Master
Servicer] has agreed to repurchase any
Contract as to which it has failed to
perfect a security interest in the
Manufactured Home securing such Contract,
or as to which a breach of federal or
state laws exists if such breach
materially adversely affects the Trustee's
interest in the Contract, unless such
failure or breach has been cured within
[90] days from notice of such breach. See
"Special Considerations" herein and
"Certain Legal
S-6
VERSION E
<PAGE>
Aspects of the Mortgage Loans and
Contracts--The Contracts" in the
Prospectus.
TRUSTEE ................ [ ]
CERTIFICATE RATING ..... It is a condition of issuance that the
Certificates be rated in one of the two
highest rating categories of a nationally
recognized statistical rating agency (the
"Rating Agency").
ERISA CONSIDERATIONS ... See "ERISA Considerations" [in the
Prospectus] and herein.
LEGAL INVESTMENT ....... The Certificates constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act
of 1984 (the "Enhancement Act"), and, as
such, are legal investments for certain
entities to the extent provided in the
Enhancement Act. See "Legal Investment" in
the Prospectus.
TAX ASPECTS ............ The Depositor [intends] [does not intend] to
make an election to treat the Trust Fund
as a Real Estate Mortgage Investment
Conduit (a "REMIC"), pursuant to the
Internal Revenue Code of 1986. See
["Certain Federal Income Tax
Consequences--General"; ["--REMIC Trust
Funds"] ["--Contract Pools"] in the
Prospectus, ["Certain Federal Income Tax
Consequences" herein.
[The extent to which the Contracts, and
therefore the Class [ ] Certificates,
will be treated as "qualifying real
property loans" for mutual savings banks
or domestic building and loan
associations, "loans . . . secured by an
interest in real property" for domestic
building and loan associations, and "real
estate assets" for real estate investment
trusts depends on certain facts and
circumstances not within the knowledge of
the Depositor. See "Certain Federal Income
Tax Consequences" herein.]
S-7
VERSION E
<PAGE>
SPECIAL CONSIDERATIONS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
1. General. An investment in the Certificates 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 Limited Guarantee] [the Letter of Credit] [or]
applicable insurance policies, if any, Certificateholders will bear all
risk of loss resulting from default by Obligors and must rely on the value
of the Manufactured Homes for recovery of the outstanding principal and
unpaid interest of the defaulted Contracts. See "The Trust Fund--The
Contracts" in the Prospectus.
2. Limited Obligations. The Certificates will not represent an
interest in or obligation of the Depositor. The Certificates will not be
insured or guaranteed by [any government agency or instrumentality,] The
First Boston Corporation or any of its affiliates, including the
Depositor, any Servicer or the Master Servicer.
3. Limited Liquidity. There can be no assurance that a secondary
market will develop for the Certificates or, if it does develop, that it
will provide the holders of the Certificates with liquidity of investment
or that it will remain for the term of the Certificates.
[4. [Limited Guarantee] [Letter of Credit]. The Certificates will be
secured in part by the [Limited Guarantee] [Letter of Credit]. The
[Guarantee Amount] [Letter of Credit Percentage] will be an amount
initially equal to and will decline hereafter [by the amount of
unreimbursed payments thereunder]. The [Limited Guarantee] [Letter of
Credit] will cover delinquent payments by Obligors and losses on defaulted
Contracts. Delinquency on the Contracts may be affected by local, regional
and economic considerations. If delinquency levels are high and the
[Guarantee Amount] [Letter of Credit Percentage] is reduced to zero, the
Certificateholders will bear all losses on the Contracts. See ["The
Limited Guarantee"] ["Letter of Credit"].
5. Prepayment Considerations. The prepayment experience on the
Contracts may affect the average life of the Certificates. Prepayments on
the Contracts may be influenced by a variety of economic, geographic,
social and other factors, including repossessions, aging, seasonality and
interest rates of the Contracts. Other factors affecting prepayment of
Contracts include changes in housing needs, job transfers, unemployment
and servicing decisions. See "Maturity and Prepayment Considerations" in
the Prospectus.
6. Security Interests and Other Aspects of the Contracts. Each
Contract is secured by a security interest in a Manufactured Home.
Perfection of security interests in the Manufactured Homes and enforcement
of rights to realize upon the value of the Manufactured Homes as
collateral for the Contracts are subject to a number of federal and state
laws, including the Uniform Commercial Code as adopted in each state
(except Louisiana) and each state's certificate of title statutes, but
generally not its real estate laws. The steps necessary to perfect the
security interest in a Manufactured Home will vary from state to state. In
addition, numerous federal and state consumer protection laws impose
requirements on lending under conditional sales contracts and installment
loan agreements such as the Contracts, and the failure by the lender or
seller of goods to comply with such requirements could give rise to
liabilities of assignees for amounts due under such agreements and claims
by such assignees may be subject to set-off as a result of such lender's
or seller's noncompliance. These laws would apply to the Trustee as
assignee of the Contracts. Pursuant to the Pooling and Servicing
Agreement, the seller will warrant that each Contract complies with all
requirements of law and will make certain warranties relating to the
S-8
VERSION E
<PAGE>
validity, subsistence, perfection and priority of the security interest in
each Manufactured Home securing a Contract. If the [Limited Guarantee or]
[Letter of Credit Percentage] insurance policies are exhausted and
recovery of amounts due on the Contracts is dependent on repossession and
resale of Manufactured Homes securing Contracts that are in default,
certain other factors may limit the ability of the Certificateholders to
realize upon the Manufactured Homes or may limit the amount realized to
less than the amount due. See "Certain Legal Aspects of the Mortgage Loans
and Contracts--The Contracts" in the Prospectus.
[7. Louisiana Law. Any Contract secured by a Manufactured Home located
in Louisiana will be governed by Louisiana law rather than Article 9 of
the UCC. Louisiana laws provide similar mechanisms for perfection and
enforcement of security interests in manufactured housing used as
collateral for an installment sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been affixed
permanently to real estate nevertheless will remain subject to the motor
vehicle registration laws unless the obligor and any holder of a security
interest in the property execute and file in the real estate records for
the parish in which the property is located a document converting the unit
into real property. A manufactured home that is converted into real
property, but then is removed from its site, can be converted back to
personal property governed by the motor vehicle registration laws if the
obligor executes and files various documents in the appropriate real
estate records and all mortgagees under real estate mortgages on the
property and the land to which it was affixed file releases with the motor
vehicle commissions.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary
consent of the obligor, executory process (repossession proceedings which
must be initiated through the courts but which involve minimal court
supervision) or a civil suit for possession. In connection with a
voluntary surrender, the obligor must be given a full release from
liability for all amounts due under the contract. In executory process
repossessions, a sheriff's sale (without court supervision) is permitted,
unless the owner brings suit to enjoin the sale, and the lender is
prohibited from seeking a deficiency judgment against the obligor unless
the lender obtained an appraisal of the manufactured home prior to the
sale and the property was sold for at least two-thirds of its appraised
value.]
DESCRIPTION OF THE CONTRACT POOL
The contract pool (the "Contract Pool") will consist of [conventional]
[FHA-insured] [VA-guaranteed] fixed rate manufactured housing conditional
sales contracts and installment loan agreements (collectively, the
"Contracts") having an [approximate] aggregate principal balance as of the
Cut-off Date of $ , secured by manufactured homes (the "Manufactured
Homes"). The Manufactured Homes will 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 weighted average annualized percentage rate (individually, an "APR")
of the Contracts as of the Cut-off Date will be at least % but no more than
%. All Contracts will have APRs of at least % but no more than %. The
weighted average maturity of the Contracts, as of the Cut-off
S-9
VERSION E
<PAGE>
Date, will be at least years but no more than years. All Contracts will
have original maturities of at least years but no more than years. None
of the Contracts will have been originated prior to or after , 19 . None
of the Contracts will have a scheduled maturity later than .
The Contracts will have the following characteristics as of the Cut-off
Date (expressed as a percentage of the outstanding aggregate principal
balances of the Contracts having such characteristics relative to the
outstanding aggregate principal balances of all Contracts):
Approximately % of the Contracts are secured by Manufactured Homes
which were new at the time the related Contract was originated and
approximately % of the Contracts are secured by Manufactured Homes which
were used at the time the related Contract was originated.
At least % of the Contracts will be Contracts each having
outstanding principal balances of less than $ .
No more than % of the Contracts will be Contracts each having
outstanding principal balances of more than $ .
No more than % of the Contracts will have had loan-to-value ratios
at origination (based on the retail sales prices of the unit or % of the
manufacturer's invoice price, if less, plus taxes, license fees and
insurance premiums in the case of a new Manufactured Home, or based on the
lesser of the total delivered sales price or the appraised value of the
unit, including taxes, fees and insurance, in the case of a used
Manufactured Home) in excess of %, and the Contracts have a weighted
average loan to value ratio as of the Cut-off Date of %.
The Contracts will be secured by Manufactured Homes located in the
states of . No more than [5]% of the Contracts will be
secured by Manufactured Homes located in any one five digit zip code or
project.
[At the date of issuance of the Certificates, no Contract in the
Contract Pool was more than 30 days delinquent.]
[Description of the underwriting policies for conventional Contracts
to be provided.]
Specific information with respect to the Contracts will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Contracts
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Contracts: years of origination,
types of dwellings on the underlying properties, the sizes of Contracts and
distribution of Contracts by APR, and will be set forth in a Current Report
on Form 8-K that will be filed with the Securities and Exchange Commission by
the Depositor within 15 days after the issuance of the Certificates.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, to be dated as of the Cut-off Date (the "Pooling and Servicing
Agreement") among the Depositor, , as master servicer (the "Master
Servicer"), and , as trustee (the "Trustee"), a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement forms a part. Reference is made to the accompanying Prospectus for
important additional information regarding the terms and conditions of the
Pooling and Servicing Agreement and the Certificates. Each of the Certificates
at the time of issuance will qualify as a "mortgage related security" within
the meaning of the Secondary Mortgage Market Enhancement Act of 1984.
S-10
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<PAGE>
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled
thereto at the address appearing in the Certificate Register to be maintained
with the Trustee or, if eligible for wire transfer as provided in the Pooling
and Servicing Agreement, by wire transfer to the account of such
Certificateholder, provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office specified in the notice to
Certificateholders of such final distribution.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained by the Trustee at the office or agency of the
Master Servicer maintained for that purpose in New York, New York.
Certificates surrendered to the Trustee for registration of transfer or
exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or other governmental charge may be required.
Such office or agency is currently located at , .
CONVEYANCE OF CONTRACTS
On the date of issuance of the Certificates, the Depositor will transfer,
assign, set over and otherwise convey to the Trustee all right, title and
interest of the Depositor in the Contracts, including all principal and
interest received on or with respect to the Contracts (other than receipts of
principal and interest due on the Contracts before the Cut-off Date), and all
rights under the hazard insurance policies on the related Manufactured Homes.
The Contracts will be described on a schedule attached to the Pooling and
Servicing Agreement (the "Contract Schedule"). The Contract Schedule will
include the amount of monthly payments due on each Contract as of the date of
issuance of the Certificates, the APR on each Contract and the maturity date
of each Contract. Prior to the conveyance of the Contracts to the Trustee,
the Depositor will cause to be reviewed all the Contract files, including the
certificates of title to, or other evidence of a perfected security interest
in, the Manufactured Homes, confirming the accuracy of the Contract Schedule
delivered to the Trustee.
[The Trustee, itself or through a custodian, will hold, on behalf of the
Certificateholders, the original Contracts and copies of documents and
instruments relating to each Contract and the security interest in the
Manufactured Home relating to each Contract.] In addition, in order to give
notice of the Trustee's right, title and interest in and to the Contracts,
[the Master Servicer, on behalf of] the Depositor, will deliver to the
Trustee a UCC-1 financing statement identifying the Trustee as the secured
party and identifying all the Contracts as collateral. The [Master Servicer]
will file such statement in the appropriate offices in the appropriate
states. [The Contracts will not be stamped or otherwise marked to reflect
their assignment from the Company to the Trustee. 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.] See
"Certain Legal Aspects of the Mortgage Loans and Contracts--The Contracts" in
the Prospectus.
TRUSTEE
The Trustee for the Certificates will be .
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation
in . The Master Servicer is [an FHA approved seller-servicer] based
in . As of , the Master Servicer serviced, for other
investors and for its own account, approximately mortgage loans with an
aggregate principal balance in excess of $ . The Master Servicer conducts
operations through FHA approved branch offices in . The Master
Servicer originated approximately
S-11
VERSION E
<PAGE>
$ in mortgage loans in 198 . The Master Servicer's consolidated
stockholders' equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
[The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Contracts and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Contracts"
and "--Advances," in an amount acceptable to the nationally recognized
statistical rating organization or organizations rating the Certificates
(collectively, the "Rating Agency").
SERVICING COMPENSATION [, LIMITED GUARANTEE FEE] AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Contract, equal to the
excess of each interest payment on a Contract over the Pass-Through Rate,
less [(a)] any servicing compensation payable to the Servicer of such
Contract under the terms of the agreement with the Master Servicer pursuant
to which such Contract is serviced (the "Servicing Agreement") (including
such compensation paid to the Master Servicer as the direct servicer of a
Contract for which there is no Servicer)[.] [, and (b) the amount payable to
the [Depositor,] [Master Servicer], as described below] [.] [, and (c) the
Limited Guarantee Fee.] [Pursuant to the Pooling and Servicing Agreement, on
each Distribution Date, the Master Servicer will remit to [the Depositor] in
respect of each interest payment on a Contract an amount equal to % of the
outstanding principal balance of such Contract before giving effect to any
payments due on the preceding Due Date.] [The Master Servicer will be
permitted to withdraw from the Certificate Account, in respect of each
interest payment on a Contract, an amount equal to % of the outstanding
principal balance of such Contract before giving effect to any payments due
on the preceding Due Date.] See "Description of the Certificates--Servicing
and Other Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Master Servicer and
the Servicers. The Servicers and the Master Servicer will pay all expenses
incurred in connection with their responsibilities under the Servicing
Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus.
[Investors are advised to consult with their own tax advisors regarding
the likelihood that a portion of such servicing compensation might be
characterized as an ownership interest in the interest payments on the
Contracts ("Retained Yield") for federal income tax purposes, by reason of
the extent to which either the weighted average APR, or the stated interest
rates on the Contracts exceeds the Pass-Through Rate, and the tax
consequences to them of such a characterization. In this regard, there are no
authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable in
the context of this or similar transactions or whether the reasonableness of
servicing compensation should be determined on a weighted average or contract
by contract basis. [The Depositor intends to treat % of such servicing
compensation and % of the amount payable to it described above as Retained
Yield for federal income tax purposes in reports to the Certificateholders
and to the Internal Revenue Service.] See "Certain Federal Income Tax
Consequences--[ ] in the Prospectus for information regarding the
characterization of servicing compensation [and the amounts payable to the
Depositor].
S-12
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<PAGE>
[TERMINATION; REPURCHASE OF CONTRACTS
The Pooling and Servicing Agreement provides that the [Depositor] [Master
Servicer] may purchase from the Trust all Contracts remaining in the Contract
Pool and thereby effect early retirement of the Certificates, provided that
the aggregate unpaid balances of the Contracts at the time of such repurchase
is less than [10%] of the aggregate principal balance of the Contracts on
the Cut-off Date. The purchase price for any such optional repurchases shall
be equal to the outstanding principal balance of such Contracts, together
with accrued interest at the Pass-Through Rate to the first day of the month
following such repurchase plus the appraised value of any acquired property
with respect to the Contracts. [Any such repurchase will be effected in
compliance with the requirements of Section 860F(a)(iv) of the Code in order
to constitute a "qualifying liquidation" thereunder.] In no event will the
Trust continue beyond the expiration of 21 years from the death of the last
survivor of the persons named in the Pooling and Servicing Agreement.]
INSURANCE
[FHA Insurance and VA Guarantee
% and % of the Contracts, respectively (by aggregate principal balance as
of Cut-Off Date) are subject to FHA insurance and VA guarantees. See
"Description of Insurance" in the Prospectus.]
[Primary Credit Insurance Policies
To be provided.]
[Pool Insurance Policies
To be provided.]
Hazard Insurance Policies
The Master Servicer will cause to be maintained one or more standard
hazard insurance policies with respect to each Manufactured Home in an amount
at least equal to the lesser of its maximum insurable value or the principal
amount due from the Obligor under the related Contract. Such standard hazard
insurance policies, will, at a minimum, provide fire and extended coverage on
terms and conditions customary in manufactured housing hazard insurance
policies. If a Manufactured Home, at the origination of the related Contract,
was located within a federally designated flood area, the Master Servicer
also will cause flood insurance to be maintained in an amount equal to the
lesser of the amounts described above or the maximum amount available for
such Manufactured Home under the federal flood insurance program.
All amounts collected by the Master Servicer under a standard hazard
insurance policy will be applied either to the restoration or repair of the
Manufactured Home or against the unpaid principal balance of the related
Contract upon foreclosure and repossession of the Manufactured Home, after
reimbursing the Master Servicer for amounts previously advanced by it for
such purposes. The Master Servicer may satisfy its obligation to cause the
maintenance of standard hazard and flood insurance policies by maintaining a
blanket policy insuring against hazard and flood losses on all the
Manufactured Homes. Such blanket policy may contain a deductible clause, in
which case the Master Servicer will be required to deposit in the Certificate
Account any amount deducted in connection with insurance claims on
repossessed Manufactured Homes.
S-13
VERSION E
<PAGE>
[THE LIMITED GUARANTEE
General
If amounts available in the Certificate Account [(following any Advances
by the Master Servicer)] for distribution to the Certificateholders is less
than the amount due to them as a result of defaulted Contracts and delinquent
payments of principal of and interest on the Contracts, the Limited Guarantee
will be available, to the extent of the Guarantee Amount, to fund such
shortfall. The Guarantee Amount on the first Distribution Date will equal
$ . Thereafter, the Guarantee Amount on any Distribution Date will equal
[$ less amounts previously paid with respect to the Limited Guarantee].
$ of the initial Guarantee Amount will be covered by the general payment
obligation of , which obligation will be supported by the Standby Letter
of Credit (described below). The balance of the initial Guarantee Amount will
be covered by the Direct Letter of Credit.
Amounts required to be paid under the Limited Guarantee will be paid first
by under its general payment obligation (or pursuant to the Standby
Letter of Credit) and after such obligation is exhausted, from the Direct Letter
of Credit. If the Guarantee Amount is reduced to zero, the Certificateholders
will bear all losses on the Contracts. As a result, Certificateholders may be
subject to delays in payments of monthly principal and interest as a result
of delinquent payments by Obligors. In the event of a repossession and resale
by the Master Servicer (as Servicer on behalf of the Trustee) of a
Manufactured Home securing a Contract in default, the Trust Fund may not
recover the entire amount of principal and interest due on such Contract. See
"The Trust Fund--The Contracts" and "Certain Legal Aspects of the Mortgage
Loans and Contracts" in the Prospectus.]
Standby Letter of Credit
The Standby Letter of Credit will be an irrevocable standby letter of
credit supporting the payment and repurchase obligations of . The Standby
Letter of Credit will be obtained initially from , and will terminate on .
will confirm the Standby Letter of Credit issued by ,
meaning that if for any reason does not honor a draw upon a Standby
Letter of Credit, will be obligated to honor such draw. The amount of
the Standby Letter of Credit on the Closing Date shall be $ . On each
subsequent Distribution Date, the requisite amount of the renewed Standby
Letter of Credit or replacement Standby Letter of Credit shall be the amount
of 's obligation under the Limited Guarantee on the immediately
preceding Distribution Date.
Direct Letter of Credit
The Direct Letter of Credit will be an irrevocable direct pay letter of
credit obtained initially from and will be confirmed by . The
Direct Letter of Credit will terminate on . The initial requisite amount of
the Direct Letter of Credit shall be $ and subsequently, the requisite
amount shall be .
Maintenance of Letters of Credit
The Letters of Credit will provide that, if the institution issuing such
Letter of Credit (the "L/C Bank") does not intend to renew such Letter of
Credit, it must give notice thereof to the Master Servicer and the Trustee at
least 45 days prior to the expiration of such Letter of Credit. The Master
Servicer must then obtain a replacement Letter of Credit. If, immediately
prior to the expiration of the Letter of Credit, the Master Servicer has not
obtained a replacement Letter of Credit issued or confirmed by a L/C Bank
which is a qualified bank (an institution whose unsecured long-term debt (or,
in the case of the principal bank in a bank holding company system, the
unsecured long-term debt of
S-14
VERSION E
<PAGE>
such bank or the bank holding company) has a rating satisfactory to the Rating
Agency for the maintenance of the " " rating of the Certificates, the Trustee
shall draw under such expiring Letter of Credit an amount equal to the 's
obligation under the Limited Guarantee, in the case of the Standby Letter of
Credit, or the difference between the Guarantee Amount and the 's
obligation under the Limited Guarantee, in the case of the Direct Letter of
Credit. The amounts so drawn will be deposited in a separate trust fund (the
"Limited Guarantee Fund") and will be available on each Distribution Date
if and to the extent that draws would have been required under the Standby
Letter of Credit or the Direct Letter of Credit, as the case may be. The funds
in the Limited Guarantee Fund remain the property of the issuer of such Letter
of Credit, subject to the right of the Master Servicer to make withdrawals. Upon
termination of the Pooling and Servicing Agreement, any funds remaining in the
Limited Guarantee Fund will be paid to the issuer of such Letter of Credit. In
addition, any recoveries of delinquent payments previously advanced pursuant to
the draws under a Letter of Credit, and any recoveries in defaulted Contracts
whose repurchase price was deposited in the Certificate Account pursuant to a
draw on a Letter of Credit, will be repaid to the L/C Bank if the Letter of
Credit will be reinstated by such amount, or else will be deposited in the
Limited Guarantee Fund. In the event of insolvency of the L/C Bank, the amount
available to the Trust Fund under the Letter of Credit or from the Limited
Guarantee Fund, as the case may be, may be reduced.
In the event that the L/C Bank that issued or confirmed the Letter of
Credit ceases to be a qualified bank, the Master Servicer will use its best
efforts to obtain a substitute Letter of Credit issued or confirmed by a
qualified bank. If a substitute Letter of Credit issued or confirmed by a
qualified bank has not been obtained in 30 days, the Trustee will draw down
the requisite amount under such Letter of Credit and deposit such funds in
the Limited Guarantee Fund.]
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
[ %] of the aggregate principal balance of the Contracts on the Cut-off Date.
The duration of coverage and the amount and frequency of any reduction in
coverage will be in compliance with the requirements established by the
Rating Agency rating the Certificates, in order to obtain a rating in one of
the two highest rating categories of the Rating Agency. The precise amount of
coverage under the Letter of Credit and the duration and frequency of
reduction of such coverage will be set forth in the Current Report on Form
8-K referred to above. See "Description of the Certificates--Credit
Support--The Letter of Credit"--in the Prospectus.]
It is a condition to the issuance of the Certificates that they be rated
in one of the two highest categories of the Rating Agency prior to issuance.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
[ERISA CONSIDERATIONS
The acquisition of a Certificate by an employee benefit plan subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (a
"Plan") could result in prohibited transactions or other violations of the
fiduciary responsibility provisions of ERISA and section 4975 of the Internal
Revenue Code of 1986 (the "Code") if by virtue of such acquisition, assets
held by the Trust were deemed to be assets of the Plan. [The United States
Department of Labor ("DOL") published final regulations concerning whether or
not the assets of a Plan will be deemed to include any of the underlying
assets of an entity, for purposes of the fiduciary responsibility provisions
of ERISA, when a Plan acquires an equity interest in such entity. The final
regulations state that the assets of a Plan
S-15
VERSION E
<PAGE>
which acquires an equity interest will not include any of the underlying assets
of the entity if the class of equity interests in question are (1) held by 100
or more investors independent of the issuer and of each other, (2) freely
transferable, and (3) sold as part of an offering pursuant to an effective
registration statement under the Securities Act of 1933, and then timely
registered under section 12(b) or 12(g) of the Securities Exchange Act of 1934.
It is expected that the Certificates will meet the criteria of the regulations:
The Underwriter[s] expect[s] (although no assurances can be given) that the
Certificates will be held by at least 100 independent investors at the
conclusion of the offering made by this Prospectus; there are no restrictions
imposed on the transfer of the Certificates; and the seller intends to cause
the registration requirements to be satisfied.] In addition, even if the
Plan's assets are deemed to include the Contracts, certain exemptions from
the prohibited transaction rules could be applicable, depending in part upon
the type and circumstances of the Plan fiduciary making the decision to
acquire a Certificate. Included among these exemptions are DOL Prohibited
Transaction Exemptions 84-14 (Class Exemption for Plan Asset Transaction
Determined by Independent Qualified Professional Asset Managers), 80-51
(Class Exemption for Certain Transactions Involving Bank Collective
Investment Funds) and 78-19 (Class Exemption for Certain Transactions
Involving Insurance Company Pooled Separate Accounts).
Employee benefit plans which are governmental plans (as defined in section
3(32) of ERISA), and certain church plans (as defined in section 3(33) of
ERISA), are not subject to ERISA requirements.
Any Plan fiduciary considering the purchase of Certificates should consult
its tax and/or legal advisors regarding these and other issues and their
potential consequences.]
S-16
VERSION E
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] The First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase from the Depositor [all] [the
following respective principal amounts] of the Certificates:
[UNDERWRITER
- -------------------
CS First Boston ................................. $
--------
Total ............................................ $ ]
========
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Certificates to the public initially
at the public offering prices set forth on the cover page of this Prospectus
Supplement, and [through the Representative,] to certain dealers at such
prices less the following concessions and that the Underwriter[s] and such
dealers may allow the following discounts on sales to certain other dealers:
CONCESSION (PERCENT OF DISCOUNT (PERCENT OF
PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
------------------------ ------------------------
% %
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor
and for the Underwriter[s] by Cadwalader, Wickersham & Taft, New York, New York.
The material federal income tax consequences of the Certificates will be passed
upon for the Depositor by Cadwalader, Wickersham & Taft.
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Contracts underlying
the Certificates. Certain of the Contracts will be acquired in privately
negotiated transactions by the Depositor from one or more affiliates of the
Depositor, which will have acquired such Contracts from time to time in
privately negotiated transactions.
S-17
VERSION E
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus 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 State.
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1995
[VERSION F]
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P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- -----------------------------------------------------------------------------
$ (APPROXIMATE)
FIRST BOSTON MORTGAGE SECURITIES CORP.
Depositor
Conduit Mortgage Pass-Through Certificates, Series , [Class A]
Adjustable Pass-Through Rate
[ Master Servicer ]
The Conduit Mortgage Pass-Through Certificates, Series will be
comprised of Class A Certificates and [one] [two] subclass[es] [(not offered
hereby)] of Class B Certificates (collectively, the "Certificates"). The
Certificates, will represent interests in the Master Trust Fund which will
hold an interest in a pool (the "Mortgage Pool") of adjustable rate,
[conventional] mortgage loans secured by [first mortgages or deeds of trust]
[liens] on [one-to-four-unit residential properties] [cooperative loans
evidenced by promissory notes secured by a lien on shares in cooperative
housing corporations and on the related proprietary leases] (the "Mortgage
Loans") [originated] [acquired] by ("Master Servicer"), and certain other
property held in trust for the benefit of the Certificateholders. [ ]
will act as Master Servicer.
The Class A Certificates will evidence an initial interest of
approximately % in the Mortgage Loans. The remaining interest in the
Mortgage Loans will be evidenced by the Class B Certificates, which are
subordinate to the Certificates to the extent described herein and in the
Prospectus. See "Description of the Certificates -- Distributions" and "--
Subordination of the Class B Certificates; Shifting Interest Credit
Enhancement" herein and "Credit Support -- Subordinated Certificates" in the
Prospectus.
Principal and interest on the Certificates are distributable on the [25th]
day of each month commencing (each, a "Distribution Date"). After an
initial period, the Mortgage Rate on each Mortgage Loan will adjust
[semi-annually] to a rate equal to the Index (as defined below) plus the
fixed percentage applicable to such Mortgage Loan (the "Gross Margin"),
subject to the interest rate limitations applicable to the Mortgage Loans and
the other provisions set forth herein. The Class A Certificateholders will be
entitled to receive interest on the Class A Principal Balance (as defined
herein) at the Pass-Through Rate. The Pass-Through Rate will equal the
weighted average of the Subsidiary Pass-Through Rates. The initial
Pass-Through Rate is approximately %. The Subsidiary Pass-Through Rate with
respect to each Mortgage Loan prior to its first Adjustment Date (as defined
herein) will equal the Mortgage Rate less . On and after its first
Adjustment Date, the Subsidiary Pass-Through Rate with respect to each
Mortgage Loan will equal the [description of index, e.g. monthly weighted
average cost of funds for member institutions of the 11th District of the
Federal Home Loan Bank System, as published by the Federal Home Loan Bank of
San Francisco] (the "Index") plus basis points (the "Pass-Through
Margin") but not more than the lesser of the Periodic Mortgage Rate Cap (as
defined herein) less the Servicing Fee Rate, or the Maximum Subsidiary
Pass-Through Rate (as defined herein).
There is currently no secondary market for the Class A Certificates. There
can be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
An election will be made to treat the assets of the Subsidiary Trust Fund
(as defined herein) as a real estate mortgage investment conduit ("REMIC")
for purposes of federal income taxation (the "Subsidiary REMIC"). An election
will also be made to treat the assets represented by the "regular interests"
in the Subsidiary REMIC constituting a separate trust fund (the "Master Trust
Fund") as a separate REMIC (the "Master REMIC"). See "Certain Federal Income
Tax Consequences" herein.
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN FIRST
BOSTON MORTGAGE SECURITIES CORP., [MASTER SERVICER] OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
[The Certificates will initially be delivered by the Depositor to in
exchange for the Mortgage Loans to be deposited by the Depositor into the
Subsidiary Trust Fund. The Class A Certificates may be sold or pledged by
, directly or through one or more underwriters, from time to time at
varying prices to be determined at the time of such sale or pledge.] [The
Underwriter[s] propose[s] to offer the Class A Certificates from time to time
for sale in negotiated transactions or otherwise, at prices determined at the
time of sale.] See "Plan of Distribution" herein. Expenses attributable to
issuance of the Class A Certificates, estimated to be approximatley $ will
be paid by [the Master Servicer] [the Depositor]. [The Depositor] will be
paid a fee by of $ in connection with the transaction.
[The Class A Certificates are offered by the [several] Underwriter[s]
when, as and if issued and accepted by the Underwriter[s] and subject to
[its] [their] right to reject orders in whole or in part. It is expected that
the Class A Certificates, in definitive fully registered form, will be ready
for delivery on or about , 199 .]
The Certificates, when, as and if issued by the Depositor, are expected to
be available for delivery in New York, New York on or about January , 199 .
CS FIRST BOSTON
- -----------------------------------------------------------------------------
The Date of this Prospectus Supplement is , 19 .
VERSION F
<PAGE>
The Class A Certificates offered hereby constitute a separate series of
Conduit Mortgage and Manufactured Housing Contract Pass-Through Certificates
being offered by First Boston Mortgage Securities Corp. from time to time
pursuant to its Prospectus dated . This Prospectus Supplement does not
contain complete information about the offering of the Class A Certificates.
Additional information is contained in the Prospectus, and purchasers are
urged to read both this Prospectus Supplement and the Prospectus in full.
Sale of the Class A Certificates may not be consummated unless the purchaser
has received both this Prospectus Supplement and the Prospectus.
[Until , no offerings of the Class A Certificates may be made by
except pursuant to this Prospectus Supplement and the Prospectus, as
supplemented as of the date of such offering. After such date, no offerings
of the Class A Certificates will be made pursuant to this Prospectus
Supplement and Prospectus.
[Until , all dealers effecting transactions in the Class A
Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriter and with respect to their unsold
allotments or subscriptions.]
----------------
AVAILABLE INFORMATION
The Master Trust Fund will be subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, the Depositor, on behalf of the Master Fund, will file
periodic reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports will not contain audited
financial information with respect to the Master Trust Fund. Such reports and
other information filed by the Depositor on behalf of the Master Trust Fund
can be inspected and copied at the Public Reference Room of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such materials can
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 fifth Street. N.W., Washington. D.C. 20549.
S-2
VERSION F
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
and not defined shall have the meanings ascribed thereto in the Prospectus.
SECURITIES OFFERED ..... $ Conduit Mortgage Pass-Through
Certificates, Series , [Class A,]
Adjustable Pass-Through Rate (the "Class A
Certificates").
DEPOSITOR .............. First Boston Mortgage Securities Corp.
MASTER SERVICER ........
CUT-OFF DATE ...........
DELIVERY DATE .......... On or about .
DESCRIPTION OF THE
CERTIFICATES ........... Two Classes of Certificates evidencing
fractional interests in a Trust Fund (the
"Master Trust Fund") consisting of the
Subsidiary Regular Interests (as defined
herein) which in the aggregate generally
represent an interest in (i) all amounts
distributable with respect to the Mortgage
Loans, (ii) amounts held in the
Certificate Account, (iii) any property
which secured a Mortgage Loan and is
acquired by foreclosure or deed in lieu of
foreclosure, and (iv) certain other
related property, as more fully described
herein and in the Prospectus. The Class A
Certificates initially evidence in the
aggregate an interest in the Mortgage
Loans (the "Class A Percentage") of
approximately %. The remaining
interest in the Mortgage Loans will be
represented by the Class B Certificates,
[which will consist of two subclasses,
Class B-l (the "Class B-l Certificates")
and Class B-2 (the "Class B-2
Certificates") together,] the "Class B
Certificates"). [The Class B-l
Certificates will initially evidence an
approximate % interest in the Mortgage
Loans ("the Class B-1 Percentage") and the
Class B-2 Certificates will initially
evidence an approximate % interest in
the Mortgage Loans (the "Class B-2
Percentage") (together,] [the "Subordinate
Percentage"). The Class B Certificates
will be subordinated in certain respects
to the Class A Certificates, as more fully
described herein. The Class A Percentage,
[and] the Class B[-1 Percentage and the
Class B-2 Percentage] will vary, as
described herein.
The Class A Certificates and the Class B
Certificates are collectively referred to
herein as the "Certificates." The Class A
Certificates represent the Senior
Certificates and the Class B Certificates
represent the Subordinate Certificates,
both as described in the accompanying
Prospectus. Only the Class A Certificates
are being offered hereby.
THE INDEX ............. [Description e.g., the monthly weighted
average cost of funds for member
institutions of the 11th District of the
Federal Home Loan Bank System as published
by the Federal Home Loan Bank of San
Francisco. The Index published in
December, 1988
S-3
VERSION F
<PAGE>
(reflecting the related weighted average
cost of funds for November 1988) was %.]
THE MORTGAGE LOANS ..... The Mortgage Pool will consist of adjustable
rate, [conventional] mortgage loans
[originated] [acquired] by [the Master
Servicer] and secured by first mortgages
or deeds of trust on one- to four-family
residential properties. All Mortgage Loans
will have maturities of at least 15 but no
more than 30 years and are secured by
properties located in .
[All Mortgage Loans with a Loan-to-Value
Ratio greater than 80% will have private
mortgage insurance.] See "Description of
the Mortgage Pool and Underlying Mortgage
Properties" herein.
PRINCIPAL (INCLUDING
PREPAYMENTS) ........... Passed through monthly on the Distribution
Date commencing . On each
Distribution Date the Class A
Certificateholders are entitled to receive
as payments of principal, in addition to
the Class A Percentage of all scheduled
payments on account of principal, the
Class A Prepayment Percentage of both
principal prepayments in part and
principal prepayments in full received by
the Master Servicer with respect to such
Mortgage Loans during the preceding
calendar month ("Principal Prepayments").
See "Description of the
Certificates--Subordination of the Class B
Certificates; Shifting Interest Credit
Enhancement" herein.
INTEREST ............... Interest accrued on each Mortgage Loan will
be passed through to Certificateholders on
the Distribution Date occurring in the
month in which the Due Date (as defined
herein) occurs, commencing
, at the Pass-Through Rate.
The Pass-Through Rate will equal the
weighted average of the Subsidiary
Pass-Through Rates. The initial
Pass-Through Rate is equal to
approximately % per annum. Prior to the
first Adjustment Date after the Cut-off
Date for a Mortgage Loan, the Subsidiary
Pass-Through Rate with respect to such
Mortgage Loan will equal the Mortgage Rate
less . On and after the
first Adjustment Date for a Mortgage Loan,
the Subsidiary Pass-Through Rate with
respect to each Mortgage Loan will equal
the Index applicable to such Mortgage Loan
plus basis points (the "Pass-Through
Margin"), subject to the limitation that
the Subsidiary Pass-Through Rate shall not
exceed the lesser of the Periodic Mortgage
Rate Cap less the Servicing Fee Rate or
the Maximum Subsidiary Pass-Through Rate.
The Maximum Subsidiary Pass-Through Rates
will range from % to % per annum.
The Maximum Subsidiary Pass-Through Rate
with respect to a particular Mortgage Loan
is equal to the Maximum Mortgage Rate for
such Mortgage Loan minus the Servicing Fee
Rate. The weighted average Maximum
Subsidiary Pass-Through
Rate as of the Cut-off Date will be
approximately % per annum. Following an
initial period of months, during which
the rate of interest on each Mortgage Loan
(the "Mortgage Rate") is fixed, the
Mortgage Rate on each Mortgage Loan will
be adjusted [monthly] [semi-annually]
[annually] on the adjustment dates (each
such date, an
S-4
VERSION F
<PAGE>
"Adjustment Date") specified
in the related mortgage note (each such
note, a "Mortgage Note") to equal the sum
of the Index and a fixed percentage amount
(a "Gross Margin")[, subject to a
semi-annual periodic mortgage rate cap
(the "Periodic Mortgage Rate Cap") and a
maximum rate at which interest may accrue
(the "Maximum Mortgage Rate"), as
described more fully herein]. Each
Mortgage Loan will have been originated
with an initial Mortgage Rate below the
sum of the applicable Index and Gross
Margin for such Mortgage Loan (the
"Initial Mortgage Rate") and % of the
Mortgage Loans as of the Cut-off Date are
expected to be accruing interest at their
Initial Mortgage Rates.] As of the Cut-off
Date, the Mortgage Loans will bear
interest at Mortgage Rates which range
from % to % per annum. The Gross
Margins for the Mortgage Loans range as of
the Cut-off Date from to basis
points. The weighted average Gross Margin
for the Mortgage Loans as of the Cut-off
Date will be approximately basis
points. [The Periodic Mortgage Rate Cap
for each Mortgage Loan is the Mortgage
Rate in effect immediately prior to any
Adjustment Date plus or minus basis
points. The Maximum Mortgage Rate will
range from % to % per annum.] The
weighted average Maximum Mortgage Rate as
of the Cut-off Date will be % per
annum. See "Description of the Mortgage
Pool and the Underlying Mortgaged
Properties" herein.
When a Mortgage Loan is prepaid, in whole or
in part, between scheduled payment dates,
the Mortgagor pays interest on the amount
prepaid only to the date of prepayment and
not thereafter. This generally reduces the
aggregate amount of interest which would
otherwise be distributed to the Class A
and Class B Certificateholders. To
mitigate any such reduction in yield,
[amounts otherwise payable as the
Servicing Fee (as defined herein) for the
period during which any such Principal
Prepayment was made will be reduced by]
[to the extent funds that interest on the
Mortgage Loans exceeds the Subsidiary
Pass-Through Rate less the Servicing Fee
Rate for the period during which any such
prepayment is made, the Pooling and
Servicing Agreement provides that] such
amount, if any, as may be necessary to
assure that the distributions made to the
Class A and Class B Certificateholders on
the related Distribution Date include an
amount equal to a full month's interest
with respect to each prepaid Mortgage Loan
at the applicable Subsidiary Pass-Through
Rate will be paid to the Master Trust Fund.
See "Description of the Certificates
--Distributions" herein.
SUBORDINATION OF THE
CLASS B CERTIFICATES;
SHIFTING INTEREST
CREDIT ENHANCEMENT .... The rights of the Class B Certificateholders
to receive distributions with respect to
the Mortgage Loans are subordinated to
such rights of the Class A
Certificateholders to the extent of the
Subordinated Amount described below. This
subordination feature is intended to
enhance the likelihood of regular receipt
by the holders of the Class A Certificates
of the full amount of
S-5
VERSION F
<PAGE>
the scheduled monthly payments of principal
and interest due them with respect to the
Mortgage Loans and to protect the Class A
Certificateholders against losses.
As of each Determination Date, the
Subordinated Amount will equal the Class B
Principal Balance (as defined herein) on
such date reduced by the excess of
Aggregate Losses (as defined herein) over
cumulative Realized Losses (as defined
herein) borne by the Class B
Certificateholders as of such date, if
any. This subordination feature is
intended to enhance the likelihood of
regular receipt by the holders of the
Class A Certificates of the full amount of
the scheduled monthly payments of
principal and interest due them with
respect to the Mortgage Loans and to
protect the Class A Certificateholders
against losses. However, in certain
circumstances, the Subordinated Amount
could be depleted and payment deficiencies
could result. If, on any Distribution Date
when the Subordinated Amount is greater
than zero, the aggregate amount of
payments received from the Mortgagors on
the Mortgage Loans and any Advances (as
defined herein) do not provide sufficient
funds to make full distributions to the
Class A Certificateholders, the amount of
the payment deficiency, plus interest
thereon at the applicable Subsidiary
Pass-Through Rate, to the extent of the
Subordinated Amount, will be added to the
amount such Class A Certificateholders are
entitled to receive on the next
Distribution Date. The extent to which the
Class A Certificateholders and the Class B
Certificateholders bear Realized Losses,
and, in addition, Special Hazard Realized
Losses, is described herein. See
"Description of the Certificates--
Subordination of the Class B Certificates;
Shifting Interest Credit Enhancement"
herein.
The protection afforded to the holders of
the Class A Certificates will be effected
(i) by the preferential right of such
holders to receive the amounts of
principal and interest otherwise
distributable to the Class B
Certificateholders on each Distribution
Date with respect to the Mortgage Loans
out of available funds on deposit on such
date in the Certificate Account, and (ii)
by distributing to the Class A
Certificateholders a disproportionately
greater percentage (the "Class A
Prepayment Percentage") of Principal
Prepayments (as hereinafter defined) and
other payments with respect to the Mortgage
Loans. The Class A Prepayment Percentage
will decline from 100% after
provided certain criteria
respecting the Mortgage Pool are met. See
"Description of the Certificates
--Subordination of the Class B Certificates;
Shifting Interest Credit Enhancement"
herein.
SERVICING FEE .......... will act as Master Servicer
of the Mortgage Loans [and will enter into
a Servicing Agreement on the Delivery Date
pursuant to which will
subservice the Mortgage Loans].
will receive a servicing
fee (the "Servicing Fee") as compensation
for its services which is calculated
monthly and equals a fixed percentage on
the
S-6
VERSION F
<PAGE>
principal balance of each Mortgage
Loan (the "Servicing Fee Rate"). The
Servicing Fee Rate equals basis
points. See "Description of the Mortgage
Pool and Underlying Mortgaged
Properties--Servicing and Sub-Servicing"
and "Description of the Certificates
--Servicing Compensation and Payment of
Expenses" herein.
ADVANCES ............... The Master Servicer will be obligated to
advance cash (the "Advances") to the
Subsidiary Trust Fund for distribution in
an amount equal to delinquent installments
of principal and interest to the extent
that the Master Servicer determines such
Advances will be recoverable from future
payments and collections on the Mortgage
Loans or otherwise. See "Description of
the Certificates--Advances" in the
Prospectus.
DENOMINATIONS .......... The minimum denomination of a Class A
Certificate (a "Single Certificate") will
initially represent $ of the
Cut-off Date Principal Balance, provided
that one Certificate may be issued in such
lesser amount as is required so that the
Class A Certificateholders in the
aggregate equal the Class A Principal
Balance (as defined herein).
OPTIONAL TERMINATION ... The holder of the Subsidiary Residual
Interest has the option to purchase all of
the Mortgage Loans in the Subsidiary Trust
Fund, and thereby effect termination of
the Subsidiary Trust Fund and the Master
Trust Fund, on any Distribution Date on
which the aggregate principal balance of
the Mortgage Loans remaining in the
Subsidiary Trust Fund is less than % of
the Cut-off Date Principal Balance.
Additionally, the holder of the Class
B[-2] Certificate has the option to
purchase all the Subsidiary Regular
Interests (as defined herein) in the
Master Trust Fund. Either of the above
purchases would effect early retirement of
the Class A and Class B Certificates. See
"Description of the Certificates--
Optional Termination" herein and
"Description of the Certificates
--Termination" in the Prospectus.
TAX ASPECTS ........... An election will be made to treat the assets
of the Subsidiary Trust Fund as a REMIC
(the "Subsidiary REMIC") for federal
income tax purposes. As further specified
in the Pooling and Servicing Agreement,
Mortgage Loan interest (net of the
Servicing Fee) in excess of the Subsidiary
Pass-Through Rate and certain payments
received by the Trustee in excess of the
principal balance of the Mortgage Loans
will comprise the residual interest in the
Subsidiary REMIC (the "Subsidiary Residual
Interest"). The regular interests in the
Subsidiary REMIC in the aggregate will
encompass the rights to all other amounts
distributable with respect to the Mortgage
Loans and certain related property (the
"Subsidiary Regular Interests"). An
election will be made to treat the assets
of the Master Trust Fund (which consists
of the Subsidiary Regular Interests) as a
REMIC (the "Master REMIC"). The Class A
Certificates [and Class B-l Certificates]
will be regular interests in the Master
REMIC. The Class B[-2] Certificate will be
the residual interest in the Master REMIC.
S-7
VERSION F
<PAGE>
[The Class A Certificates will be issued
with original issue discount for federal
income tax purposes. The prepayment
assumption that will be used by the Master
Servicer in determining the rate of
accrual of original issue discount for
federal income tax purposes is a Standard
Prepayment Assumption of %. No
representation is made that the Mortgage
Loans will prepay at that rate or at any
other rate.]
The Class A Certificates will be treated as
"qualifying real property loans" under
Section 593(d) of the Internal Revenue
Code of 1986, as amended (the "Code"),
"loans secured by interests in real
property" under Section 7701(a)(19)(C) of
the Code and "real estate assets" under
Section 856(c) of the Code, generally in
the same proportion that the assets in the
Subsidiary REMIC would be so treated. In
addition, interest on the Class A
Certificates will be treated as "interest
on obligations secured by mortgages on
real property" under Section 856(c) of the
Code, generally to the extent that such
Class A Certificates are treated as "real
estate assets" under Section 856(c) of the
Code.
For further information regarding the
federal income tax consequences of
investing in the Class A Certificates, see
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.*
LEGAL INVESTMENT ....... The Class A Certificates constitute
"mortgage-related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 (the "Enhancement
Act") for so long as they are rated as
described herein, and, as such, are legal
investments for certain entities to the
extent provided in the Enhancement Act.
See "Legal Investment" herein and in the
Prospectus.
ERISA CONSIDERATIONS .. See "ERISA Considerations" herein and in the
Prospectus.
TRUSTEE ................
CERTIFICATE RATING ..... It is a condition of issuance that the Class
A Certificates be rated at least " "
by . See "Rating" herein.
- ------------
* If the Prospectus Supplement for a Series of Certificates provides that
Cadwalader, Wickersham & Taft will pass upon the material federal income tax
consequences of the Certificates for the Depositor, then such Prospectus
Supplement will contain tax disclosure substantially similar to the
disclosure set forth in Version E under "Summary of Terms--Tax Aspects" and
"Certain Federal Income Tax Consequences."
S-8
VERSION F
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING MORTGAGED PROPERTIES(1)
GENERAL
The Mortgage Pool consists of all of the ownership interest held by the
Subsidiary Trust Fund in Mortgage Loans evidenced by adjustable rate
promissory notes (the "Mortgage Notes") having an aggregate principal balance
at the Cut-off Date of $ . The Mortgage Notes are secured by first trust
deeds or mortgages on properties consisting primarily of detached single
family residential properties with the remaining properties consisting of
units of FNMA or FHLMC eligible condominiums and units in planned unit
developments (the "Mortgaged Properties"). All of the Mortgage Loans were
originated by . All of the Mortgage Loans were originated under one of
two origination programs, one of which is a limited documentation program
that relies primarily upon appraisals and credit reports and the other of
which generally conform to FNMA and FHLMC underwriting guidelines. The
Mortgage Loans have the additional characteristics described below and in the
Prospectus. See "The Mortgage Pools" in the Prospectus.
The Depositor will purchase the Mortgage Loans from and will cause such
Mortgage Loans to be assigned to the Trustee. See "The Trust Fund--Mortgage
Loan Program" in the Prospectus. will act as the master servicer (the
"Master Servicer") for the Mortgage Loans pursuant to the Standard Terms and
Provisions of Pooling and Servicing and Reference Agreement, dated as of
(the "Pooling and Servicing Agreement"), among the Depositor, the
Master Servicer and , as trustee (the "Trustee"). The Mortgage Loans
will be serviced by the Servicer pursuant to a Servicing Agreement with the
Master Servicer, and the Servicer will receive a fee for such services
specified in such Servicing Agreement; provided, however, that the 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. See "The Trust Fund--The Mortgage Pools" in the Prospectus
and "--Servicing and Sub-Servicing" herein.
Each Mortgage Loan has a Mortgage Rate subject to [monthly] [semi-annual]
[annual] adjustment on the first day of the month specified in the related
Mortgage Note and on the first day of every month thereafter (each such date,
an "Adjustment Date"), to equal the sum of (i) the Index as most recently
[made available by the Federal Home Loan Bank of San Francisco (the "FHLB")]
on the day days, as specified for the particular Mortgage Note, prior to
the Adjustment Date and (ii) the applicable Gross Margin[; provided, however,
that any increase or decrease on any Adjustment Date will be limited by the
Periodic Mortgage Rate Cap, and in no event will the Mortgage Rate be greater
than the Maximum Mortgage Rate]. The Index applicable on a Rate Adjustment
Date is the Index available days prior to the Adjustment Date. Effective
with the first payment due on a Mortgage
- ------------
(1) The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as it was
constituted at the close of business on the Cuf-off Date, after deducting the
scheduled principal payments due on or before such date. Prior to the
issuance of the Certificates, Mortgage Loans may be removed from the Mortgage
Pool if, as a result of delinquencies or otherwise, the Depositor deems such
removal necessary or desirable. Other Mortgage Loans may be included in the
Mortgage Pool in lieu of the Mortgage Loans so replaced. In addition, under
certain circumstances the Depositor or the Master Servicer may substitute
Mortgage Loans for those in the Trust Fund. See "Description of the
Certificate--Substitution of Mortgage Loans" herein and "Description of the
Certificates--Assignment of Mortgage Loans" in the Prospectus. The Depositor
believes that the information set forth herein with respect to the Mortgage
Pool is representative of the characteristics of such Mortgage Pool as it
will be constituted at the time the Certificates are issued, although the
range Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary in non-material respects from
those set forth herein as a result of such deletions, repurchases or
substitutions.
S-9
VERSION F
<PAGE>
Loan after each related Adjustment Date, the monthly payment will be adjusted to
an amount which will fully amortize the outstanding principal balance of the
Mortgage Loan in substantially equal payments over its remaining term, and pay
interest at the Mortgage Rate as so adjusted. [All] of the Mortgage Loans were
originated with a Mortgage Rate below the sum of the applicable Index and Gross
Margin (the "Initial Mortgage Rate") applicable for an initial period of
months from the date of origination and % of the Mortgage Loans as of the Cut-
off Date will bear interest at their Initial Mortgage Rates. The weighted
average number of months from the Cut-off Date to the first Adjustment Date for
the Mortgage Loans is approximately months. [Due to the application of the
Periodic Mortgage Rate Caps (even assuming no increase in the applicable Index
from the date of origination to the Adjustment Date) or the Maximum Mortgage
Rate, the Mortgage Rate on any Mortgage Loan, as adjusted on any Adjustment
Date, may be less than the sum of the then applicable Index and Gross Margin,
subject to rounding.] If the Index becomes unpublished or is otherwise
unavailable, the Master Servicer will select (or cause to be selected) an
alternative index for Mortgage Loans based upon comparable information in
compliance with applicable federal laws.
The Mortgage Loans were originated in . All of the Mortgage Loans
will have [monthly] payments due on [the first day of each month] (each a "Due
Date"). At origination, of the Mortgage Loans had terms to stated maturity
of 30 years. The latest date on which any Mortgage Loan will mature is .
All Mortgage Loans had Periodic Mortgage Rate Caps equal to basis points.
The Maximum Mortgage Rates range from % to % and the weighted average
Maximum Mortgage Rate is approximately % as of the Cut-off Date.
[Mortgage Loans that are expected to constitute approximately % of the
Initial Principal Balance of the Mortgage Pool as of the Cut-off Date will
have Mortgage Rates that will be convertible from an adjustable to a fixed
Mortgage Rate at the option of the mortgagor upon certain conditions on the
[when convertible] after origination of the related Mortgage Loan. In
determining the fixed rate applicable to a Mortgage Loan eligible for
conversion, the Master Servicer, acting on behalf of the Trustee, will .
To the extent the applicable rate is not available, the Master Servicer will
quote a fixed rate based upon comparable information. In order to be eligible
to convert the applicable Mortgage Rate on such a Mortgage Loan from an
adjustable to a fixed Mortgage Rate, the mortgagor must complete and submit
to the Master Servicer certain conversion documents and a loan modification
agreement, pay the applicable conversion fee and not be in default under the
Mortgage Note or the security documents related to such Mortgage Loan. Upon
conversion, the monthly payments of principal and interest on such Mortgage
Loan will be adjusted to provide for fully amortizing, level monthly payments
until maturity. [Should interest rates decline so that the fixed Mortgage
Rate applicable upon conversion is significantly lower than the prevailing
adjustable Mortgage Rate, due to the application of Interest Rate Caps, or is
significantly lower than the applicable Maximum Mortgage Rate on such
Mortgage Loan, mortgagors may have a significant incentive to effect a
conversion.] See "Description of the Certificates--Purchase of Converted
Mortgage Loans" herein.
The Mortgage Loans have the following characteristics (information
provided as of the Cut-off Date unless otherwise indicated):*
- ------------
* The information presented in tabular form may be presented in paragraph
form, or ranges for such information may be provided.
S-10
VERSION F
<PAGE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
PROPERTY TYPES LOANS BALANCES BALANCE
- ----------------------------- --------- ------------- ------------
<S> <C> <C> <C>
Single family detached ....... $ . %
Condominium ..................
Planned Unit Developments ...
--------- ------------- ------------
Total ...................... $ 100.00%
========= ============= ============
</TABLE>
CURRENT LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
CURRENT LOAN AMOUNTS LOANS BALANCES BALANCE
- ------------------------ --------- ------------- ------------
<S> <C> <C> <C>
Up to $100,000 .......... $ . %
$100,001 - 150,000 ......
150,001 - 200,000 ......
200,001 - 250,000 ......
250,001 - 300,000 ......
300,001 - 350,000 ......
350,001 - 400,000 ......
400,001 - 450,000 ......
Over $450,001 ..........
--------- ------------- ------------
Total(2) .............. $ 100.00%
========= ============= ============
</TABLE>
- ------------
(1) The largest current loan amount is $ and the smallest current loan
amount is $ .
(2) The average outstanding principal balance is $ .
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
NO. % OF
OF AGGREGATE MORTGAGE
LOAN-TO-VALUE RATIOS LOANS BALANCES POOL BALANCE
- ------------------------ --------- ------------- ----------------
<S> <C> <C> <C>
70.00% or less .......... $ .%
70.01% to 75.00% ........
75.01% to 80.00% ........
80.01% to 85.00% ........
85.01% to 90.00% ........ .
--------- ------------- ----------------
Total(1) .............. $ 100.00%
========= ============= ================
</TABLE>
- ------------
(1) The weighted average loan-to-value ratios of the Mortgage Loans, based
on the principal amount at origination and the principal amount as of the
Cut-off Date, respectively, and the lesser of the appraised value at
origination and the purchase price paid by the Mortgagor, was % and %,
respectively.
S-11
VERSION F
<PAGE>
CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
NO. % OF
OF AGGREGATE MORTGAGE
MORTGAGE RATES(1) LOANS BALANCES POOL BALANCE
- ------------------- --------- ------------- ----------------
<S> <C> <C> <C>
. % or less ..... $ . %
. % or less .....
. % or less ..... .
. % or less ..... .
--------- ------------- ----------------
Total(2) ......... $ 100.00%
========= ============= ================
</TABLE>
- ------------
(1) With respect to % of the Mortgage Pool Balance, the Mortgage Rate is
the original Mortgage Rate and does not reflect application of the Index.
(2) The weighted average Mortgage Rate is approximately % per annum.
MORTGAGE LOAN GROSS MARGINS
<TABLE>
<CAPTION>
NO. % OF
OF AGGREGATE MORTGAGE
GROSS MARGINS LOANS BALANCES POOL BALANCE
- --------------------- --------- ------------- ----------------
<S> <C> <C> <C>
% ............. $ . %
.............
.............
.............
.............
--------- ------------- ----------------
Total(1) ....... $ 100.00%
========= ============= ================
</TABLE>
- ------------
(1) The weighted average Gross Margin is approximately per annum.
MONTH IN WHICH NEXT ADJUSTMENT DATE FALLS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MONTH(1) LOANS BALANCES BALANCE
- -------------- --------- ------------- ------------
<S> <C> <C> <C>
.......... $ . %
..........
..........
..........
..........
--------- ------------- ------------
Total(2) .... $ 100.00%
========= ============= ============
</TABLE>
- ------------
(1) The adjusted Mortgage Rate will be reflected in payments received by
Certificateholders on the 25th day of the month following the month in which
the Adjustment Date occurs.
(2) The weighted average number of months to the initial Adjustment Date
is months.
S-12
VERSION F
<PAGE>
LIFETIME MORTGAGE RATE CAPS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LIFETIME MORTGAGE RATE CAP LOANS BALANCES BALANCE
- ------------------------------ --------- ------------- ------------
<S> <C> <C> <C>
% .......................... $ . %
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
--------- ------------- ------------
Total ....................... $ $100.00%
========= ============= ============
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
YEAR LOANS BALANCES BALANCE
- ----------- --------- ------------- ------------
<S> <C> <C> <C>
% .......... $ . %
..........
..........
..........
..........
--------- ------------- ------------
Total .... $ 100.00%
========= ============= ============
</TABLE>
S-13
VERSION F
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
STATES LOANS BALANCES BALANCE
- ----------- --------- ------------- ------------
<S> <C> <C> <C>
% .......... $ .%
..........
..........
..........
..........
..........
--------- ------------- ------------
Total .... $ 100.00%
========= ============= ============
</TABLE>
[Mortgage Loans for which the loan-to-value ratio at origination was
greater than 80% either (1) will be insured as to payment default for the
amount in excess of 75% of the principal balance by a Primary Mortgage
Insurance Policy until the principal balance of such Mortgage Loan is reduced
below 80% of the lesser of the appraised value at origination or the purchase
price of the Mortgaged Property, or (2) will be covered by a [DESCRIPTION OF
ALTERNATIVE].]
Approximately % of the Mortgage Loans were made to refinance the related
Mortgaged Properties and approximately % of the Mortgage Loans have been
made to purchase the related Mortgaged Properties. Approximately % of the
Mortgage Loans will be secured by Mortgaged Properties represented to the
originator in the related loan application to be the primary residence of the
mortgagor at the time of origination. % of the Mortgage Loans are secured
by Mortgaged Properties which were second homes of the mortgagor at the time
of origination based on representations of the Mortgagor. % of the Mortgage
Loans were made to finance the purchase of homes represented by the mortgagor
to have been acquired for investment purposes.
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent in scheduled payments of principal and interest by more than 30
days and no Mortgage Loan will have been, as of the Cut-off Date, more than
30 days delinquent in scheduled payments of principal and interest more than
once in the previous year.
THE INDEX
[DESCRIPTION OF APPLICABLE INDEX, e.g., The Index is currently published
by the FHLB on or about the last working day of each month and is designed to
represent the monthly weighted average cost of funds for savings institutions
in the 11th District of the Federal Home Loan Bank System (Arizona,
California and Nevada) for the month prior to publication. The Index is
computed by the FHLB for each month by dividing the cost of funds (interest
paid during the month by 11th District savings institutions on savings,
advances and other borrowings) by the average of the total amount of those
funds outstanding at the end of the month and 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 FHLB to neutralize the effect of events
such as member institutions leaving the 11th District or acquiring
institutions outside the 11th District. The Index has been reported each
month since August 1981.]
[The Index reflects the interest costs paid on all types of funds held by
11th District member institutions. The Index is weighted to reflect the
relative amount of each type of funds held at the end of the relevant month.
There are three major components of funds of 11th District institutions: (1)
savings deposits, (2) FHLB advances, and (3) all other borrowings, such as
reverse repurchase agreements and mortgage-backed bonds. Unlike most other
interest rate measures, the Index does not necessarily reflect current market
rates, since the component funds represent a variety of maturities whose
costs may react in different ways to changing conditions.]
S-14
VERSION F
<PAGE>
[A number of factors affect the performance of the Index which may cause
the Index to move in a manner different from indices tied to specific
interest rates, such as United States Treasury Bills or LIBOR. Because of the
various maturities of the liabilities upon which the Index is based, the
Index may not necessarily reflect the average prevailing market interest
rates on new liabilities of similar maturities. Additionally, the Index 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, the Index is influenced by the differential
between the prior and the new rates on those deposits or borrowings.
Moreover, as stated above, the Index is designed to represent the average
cost of funds for 11th District savings institutions for the month prior to
the month in which the Index is published. In addition, such movement of the
Index, as compared to other indices tied to specific interest rates, may be
affected by changes instituted by the FHLB in the method used to calculate
the Index. Information Bulletins announcing the Index may be obtained by
contacting the FHLB.]
[The following table sets forth the Index published in each month (with
respect to the 11th District cost of funds in the prior month) for the four
most recent calendar years and for 1988.
<TABLE>
<CAPTION>
19 19 19 19 19
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
January ....... % % % % %
February ......
March .........
April .........
May ...........
June ..........
July ..........
August ........
September .....
October .......
November ......
December ......
</TABLE>
[MASTER SERVICER]
is a , which was founded in . At had consolidated
assets of $ billion and regulatory capital of $ million. As of ,
had executive offices in and savings branches located .
is subject to comprehensive regulation, examination and supervision
by the [FHLBB and the FSLIC,] which regulation is intended primarily for the
benefit of depositors. [Deposits at are insured by the FSLIC up to
$100,000 for each insured account holder, the maximum permitted by law.]
executive offices are located at and its telephone number at
that address is .
Loan Portfolio. [Description.]
Loan Transactions. primary lending is [description.].
has concentrated its efforts on .
The following table sets forth certain information with respect to loan
originations, loan purchases and sales, and repayment experience during the
periods indicated.
S-15
VERSION F
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Loans receivable at beginning of period ....
Loans originated ............................
Loans purchased .............................
Loans obtained in Equitable acquisition ....
Loans sold ..................................
Loan repayments .............................
Other .......................................
------- ------- -------
Net loan activity ...........................
------- ------- -------
Loan receivable at end of period ............
======= ======= ========
</TABLE>
Loan Underwriting. has adopted written, nondiscriminatory
underwriting standards for use in originating and purchasing residential
mortgage loans. has represented to the Depositor that its underwriting
standards are in substantial conformity with standards set up by the FNMA and
the FHLMC, which conformity facilitates sales of such loans in the secondary
market. A detailed loan application is obtained or reviewed to determine the
borrower's ability to repay, and confirmation of the more significant
information is obtained through the use of credit reports, financial
statements and verifications. An appraisal of the property, conducted by an
appraiser meeting the qualifications set forth in FHLBB guidelines, is
required to determine the adequacy of the collateral. also requires
that a survey be conducted and title insurance be obtained, insuring the
priority of its mortgage lien, and, for loans with a loan-to-value ratio of
80% or more, that private mortgage insurance be obtained if available. All
loan applications must be reviewed by underwriters to ensure that
guidelines are met. Such guidelines are approved by Board of Directors.
has represented to the Depositor that each Mortgage Loan meets the
credit, appraisal and underwriting standards established by and
described above.
[Approximately % of the Mortgage Loans were originated under the limited
documentation program of . has represented that each of the Mortgage
Loans originated under a limited documentation program satisfies the
standards established and followed by for originating and acquiring
mortgage loans under its limited documentation program. Under the program,
does not evaluate the borrower's assets-to-liabilities ratio, but did
verify the borrower's income and availability of funds for down payment, and
relies primarily on a credit report on the borrower (which is required to be
favorable) and at least one appraisal as evidence of the value of the
property securing the loan. The limited documentation program was not
available for loans secured by condominiums and was available only for
owner-occupied primary residences. Under such program, loan-to-value ratios
were limited to % for loans under $ and to % for loans under $ ,
except that for loans in certain locations and having certain
characteristics, lower maximum loan-to-value ratios were established.
Loan Portfolio Qualify. In accordance with the requirements of the
Competitive Equality Banking Act of 1987 (the "CEBA"), the FHLBB in December
1987 adopted amendments to its classification of assets regulation. Prior to
December 1987, to monitor an insured institution's asset quality the FHLBB
defined certain assets of savings institutions as scheduled items and
established certain operating restrictions based upon ratios relating to such
assets. The regulation as amended eliminates entirely the "scheduled items"
classification, but retains the existing classification categories of
substandard, doubtful and loss, while altering the effects of the respective
classifications with respect to valuation allowance requirements and minimum
regulatory capital requirements. Specific loss reserves are no longer
required for assets classified as doubtful and institutions are required to
charge off or set aside loss reserves for 100% of the amount of any asset, or
portion of an asset, classified as a loss. The amended regulation requires
institutions to classify their own assets and to establish prudent general
S-16
VERSION F
<PAGE>
allowances for loan losses, subject to examiner review. Greater examiner
discretion, consistent with the asset classification practices of the banking
regulatory agencies, is permitted by the amended regulation. The amended
regulation also requires institutions to establish loss reserves for
off-balance-sheet items when loss becomes probable and estimable.
One measure of an institution's asset quality is the level of
non-performing loans in its portfolio. Non-performing loans consist of (i)
non-accrual loans, (ii) loans that are 90 or more days contractually past due
as to interest or principal but that are well-secured and in the process of
collection or renewal in the normal course of business, and (iii) loans that
have been renegotiated to provide a deferral of interest or principal because
of a deterioration in the financial condition of the borrower ("restructured
loans"). generally places conventional mortgage loans on non-accrual
status when more than 90 days past due. Where the underlying collateral is a
"home" (as defined in the Rules and Regulations for the Federal Home Loan
Bank System), the loan is placed on non-accrual status when the amount of
interest receivable plus all loan balances secured by the home exceeds 90% of
the appraised value of the security property, provided there is a reasonable
expectation of interest collection.
The following table sets forth information regarding the
non-performing loans as of the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
19 19 19
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual loans ........................... $ $ $
Accruing loans 90 days or more past due ....
Restructured loans ..........................
</TABLE>
Loan Servicing. The following table sets forth the dollar amounts of
conventional mortgage loans serviced by for itself and other lenders at
the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
<S> <C> <C> <C>
19 19 19
------- ------- -------
(IN THOUSANDS)
Conventional mortgage loans ....
</TABLE>
Loss and Delinquency Experience. The following table sets forth the
delinquency and foreclosure experience of residential conventional mortgage
loans in the mortgage loan portfolio serviced by and other entities
at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------------------------
1985 1986 1987 1988
------------------------ ------------------------ ------------------------ ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
OF OF TOTAL OF OF TOTAL OF OF TOTAL OF OF TOTAL
LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS
--------- ------------- --------- ------------- --------- ------------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conventional mortgage
loans delinquent for:
60-89 days ............... $ $ $ $
90 days and over .........
In foreclosure ...........
Total .................. $ $ $ $
</TABLE>
The allowance for loan losses is maintained at an amount management deems
adequate to cover estimated losses. In determining the level to be
maintained, management considers factors such as current economic trends in
specific geographic areas, historical loss experience, borrowers' ability to
repay and repayment performance and estimated collateral values, as well as
considerations such as the availability of indemnifications, mortgage
insurance and seller-provided recourse.
S-17
VERSION F
<PAGE>
The statistics shown above represent the loss experience for the total
conventional mortgage loan portfolio (including residential and commercial
loans) for each of the periods presented, whereas the aggregate loss
experience on the Mortgage Loans will depend on the results obtained over the
life of the Mortgage Pool.
SERVICING [AND SUB-SERVICING]
The Mortgage Loans will be serviced in accordance with procedures as
described generally in the accompanying Prospectus under the heading
"Description of the Certificates--Servicing by Unaffiliated Sellers."
[ , as Master Servicer, will enter into a Servicing Agreement with
(the "Servicer") pursuant to which the Servicer will sub-service the
Mortgage Loans. acquired the Mortgage Loans from the Servicer. The
Servicer has serviced the Mortgage Loans since their origination. The
Servicing Agreement can be terminated without cause, but in such event or
a successor master servicer would be required to pay a fee to the Servicer or
sell the Servicer's interest in the Servicing Agreement in an auction
proceeding upon termination. may determine to terminate the Servicer
and to service the Mortgage Loans itself or through other sub-servicers who
may be affiliates of .]
[The Servicing Agreement provides for servicing compensation equal to a
rate of basis points per annum on the outstanding principal balance of %
of the Mortgage Pool. In addition, the Servicer is entitled to retain certain
late payment fees, assumption fees and conversion fees related to the
Mortgage Loans. The Servicing Agreement does not require the Servicer to make
Advances or to pay any amount from its servicing compensation with respect to
interest on Principal Prepayments on Mortgage Loans.]
Except as described below, when any Mortgaged Property is conveyed by the
Mortgagor, the Master Servicer generally will enforce, and will cause any
Servicer to enforce, any due-on-sale clause contained in the Mortgage Loan,
to the extent permitted under applicable law and governmental regulations.
Acceleration of Mortgage Loans as a result of enforcement of such due-on-sale
provisions in connection with transfers of the related Mortgaged Properties
will affect the level of prepayments on the Mortgage Loans, thereby affecting
the weighted average life of the related Class A Certificates. See "Maturity
and Prepayment Considerations" in the Prospectus.
All of the Mortgage Loans include a rider to the Mortgage providing that
assumption of the remaining unpaid principal balance of the Mortgage Loan
will be permitted if the borrower provides information required to evaluate
the creditworthiness of the proposed transferee and the transferee is
determined to be creditworthy. In connection with such assumption, a
reasonable fee may be charged as a condition to the loan assumption and any
such fee collected in connection with a Mortgage Loan in the Subsidiary Trust
Fund will be retained by [or the Servicer]. The assumption of Mortgage
Loans by buyers of the related Mortgaged Properties may also affect the level
of prepayments on the Mortgage Loans, thereby affecting the weighted average
life of the Class A Certificates.
INSURANCE
A Standard Hazard Insurance Policy will be maintained with respect to each
Mortgage Loan in an amount equal to the maximum insurable value of the
improvements securing such Mortgage Loan or the principal balance of such
Mortgage Loan, whichever is less. See "Description of Insurance--Standard
Hazard Insurance Policies" in the Prospectus. [No Mortgage Pool Insurance
Policy, Special Hazard Insurance Policy or Mortgagor Bankruptcy Insurance
will be maintained with respect to the Mortgage Pool, nor will any Mortgage
Loan included in the Mortgage Pool be subject to FHA Insurance or a VA
Guaranty.]
S-18
VERSION F
<PAGE>
YIELD CONSIDERATIONS
The effective yield to holders of the Class A Certificates will depend
upon, among other things, the price at which the Class A Certificates are
purchased and the amount and rate at which principal, including both
scheduled and unscheduled payments thereof, is paid to Class A
Certificateholders.
The rate of principal payments on the Class A Certificates, the aggregate
amount of each monthly interest payment on the Class A Certificates and the
yield to maturity of the Class A Certificates will be directly related to the
rate of payments of principal on the Mortgage Loans. Principal payments on
the Mortgage Loans may be in the form of scheduled principal payments or
prepayments (for this purpose, the term "prepayment" includes payments
resulting from optional prepayments by the Mortgagors, refinancings,
liquidation of the Mortgage Loans due to defaults, casualties, condemnations
or the like and repurchases by the Depositor or the Master Servicer, as the
case may be). Any such prepayments will result in distributions to
Certificateholders of amounts which would otherwise be distributed over the
remaining term of the Mortgage Loans. In general, the prepayment rate may be
influenced by a number of economic, geographic, social and other factors,
including general economic conditions and homeowner mobility. Other factors
affecting prepayment of mortgage loans include changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions.
The Mortgage Loans may be prepaid by the Mortgagors at any time without
payment of any prepayment fee or penalty. As described herein under
"Description of the Certificates--Subordination of the Class B Certificates;
Shifting Interest Credit Enhancement," all or a disproportionately large
percentage of principal prepayments on the Mortgage Loans will be distributed
to the holders of the Class A Certificates during at least the first fourteen
years after the Cut-off Date. In general, defaults on Mortgage Loans are
expected to occur with greater frequency in their early years, although
little data is available with respect to the rate of default on adjustable
rate Mortgage loans. Increases in the monthly payments on the Mortgage Loans
in excess of those assumed in underwriting such Mortgage Loans may result in
a default rate higher than that on conventional mortgage loans with fixed
mortgage rates. Prepayments, liquidations and purchases of the Mortgage Loans
will result in distributions to Certificateholders of amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans.
Since the rate of payment of principal on the Mortgage Loans will depend on
future events and a variety of factors (as described more fully herein and in
the Prospectus under "Yield Considerations" and "Maturity and Prepayment
Considerations"), no assurance can be given as to such rate or the rate of
principal prepayments.
[Mortgage Loans that are expected to constitute approximately % of the
initial aggregate principal balance of the Mortgage Loans as of the Cut-off
Date will provide that the mortgagor may, during a specified period of time,
convert the adjustable rate of the related Mortgage Loan to a fixed rate. The
conversion option may be exercised during periods of rising interest rates as
mortgagors attempt to limit their risk of higher rates. If mortgagors were to
exercise their conversion rights in such an interest rate environment, a
purchase of the Mortgage Loan by the Master Servicer would have the same
effect on Certificateholders as a prepayment at a time when prepayments
generally would not be expected. The availability of fixed rate mortgage
loans at competitive interest rates during periods of falling interest rates
may also encourage mortgagors to exercise the conversion option. The
convertible ARM loan is a relatively new type of mortgage loan, so there can
be no certainty as to the rate at which conversions will take place or as to
the rate of prepayments in stable or changing interest rate environments. The
Master Servicer is obligated to purchase Converted Mortgage Loans.
Consequently, the exercise of the conversion option by mortgagors will
generally result in prepayment of principal with respect to the Mortgage
Pool.]
[The rate at which mortgagors exercise their conversion rights and the
resulting purchase of Converted Mortgage Loans by the Master Servicer will
affect the rate of payment of principal, and hence the effective yield on the
Class A Certificates. The purchase price paid will be passed through to
S-19
VERSION F
<PAGE>
the Certificateholders as principal in the month following the month of such
purchase. The effective yield on the Class A Certificates also will be
affected by the failure of the Master Servicer to purchase Converted Mortgage
Loans and the resulting retention of fixed rate Mortgage Loans in the
Mortgage Pool. See "Description of the Certificates--Purchase of Converted
Mortgage Loans" herein.]
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 experienced over time is consistent with
an investor's expectations. In general, the earlier a prepayment of principal
on the Mortgage Loans, the greater will be the effect on the investor's yield
to maturity. As a result, 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 would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
All of the Mortgage Loans comprising the Mortgage Pool are adjustable rate
mortgage loans. The yield to maturity of the Class A Certificates will be
affected by the Mortgage Rates on the Mortgage Loans as they adjust from time
to time. The Depositor is not aware of any publicly available statistics
relating to the principal prepayment experience of adjustable rate mortgage
loans over an extended period of time, and the Depositor's experience with
respect to adjustable rate mortgage loans is insufficient to draw any
conclusions with respect to the expected prepayment rates on the Mortgage
Loans comprising the Mortgage Pool. The rate of payments (including
prepayments) on adjustable rate mortgage loans has fluctuated in recent
years. As is the case with conventional fixed-rate mortgage loans, adjustable
rate mortgage loans may be subject to a greater rate of principal prepayments
in a declining interest rate environment. For example, if prevailing mortgage
rates fell significantly below the then current Mortgage Rates on the
Mortgage Loans or significantly below the Maximum Mortgage Rates on the
Mortgage Loans, the rate of prepayment would be expected to increase due to
the availability of fixed-rate mortgage loans at competitive interest rates,
which may encourage Mortgagors to refinance the Mortgage Loans in order to
obtain a lower fixed interest rate. Conversely, if prevailing mortgage rates
rose significantly above the then current Mortgage Rates on the Mortgage
Loans, the rate of prepayment on the Mortgage Loans would be expected to
decrease.
[The Mortgage Rates on the Mortgage Loans will adjust semi-annually
(although not on the same Adjustment Dates) and such semi-annual increases
and decreases in the Mortgage Rates on the Mortgage Loans will be limited by
the Periodic Mortgage Rate Cap and Maximum Mortgage Rates applicable to the
Mortgage Loans. In addition, such Mortgage Rates will be based on the Index
(which may not rise and fall consistently with interest rates on other types of
adjustable rate residential mortgage loans) plus the Gross Margin for the
Mortgage Loans (which may be different from then current margins on residential
mortgage loans). As a result, the Mortgage Rates on the Mortgage Loans at any
time may not equal the prevailing rates for similar adjustable rate mortgage
loans, and the rate of prepayment may be lower or higher than would otherwise
be anticipated. See "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.]
In addition, if on any Distribution Date, after taking into account any
Advances, amounts otherwise distributable to the Subsidiary Residual
Certificateholder and permitted withdrawals from the Certificate Account,
there are not sufficient funds to pay the principal and interest on the Class
A Certificates, the amount of the resulting shortfall, and in the case of
interest shortfalls, interest at the applicable Pass-Through Rate, will be
added to the amount the Class A Certificateholders are entitled to receive on
the next Distribution Date. See "Description of the Certificates--
Distributions" herein. If any shortfalls occur, the weighted average life
of the Class A Certificates will be increased over that which would result had
such shortfalls not occurred.
The after-tax yield to Certificateholders may be affected by lags between
the time interest income accrues to the Certificateholders and the time the
related income is received. See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.
S-20
VERSION F
<PAGE>
The effective yield to the holders of Class A Certificates will be lower
than the yield otherwise produced by the Pass-Through Rate and purchase price
because monthly interest will not be payable to such holders until the 25th
day (or if such day is not a Business Day, then on the next succeeding
Business Day) of the month following the month in which interest accrues on
the Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates offered hereby will be issued pursuant to the Pooling and
Servicing Agreement, a form of which has been filed as an exhibit to the
Registration Statement. Reference is made to the Prospectus for additional
information regarding the terms and conditions of the Pooling and Servicing
Agreement. The following summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the
provisions of the Pooling and Servicing Agreement. When particular provisions
or terms used in the Pooling and Servicing Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by
reference.
The Class A Certificates will be transferable and exchangeable at the
office of the Trustee located at . No service charge will be made
for any registration of transfer or exchange of the Class A Certificates on
the Certificate Register maintained by the Trustee, but the Trustee may
require the payment of a sum sufficient to cover any related tax or other
governmental charge. There is at present no market for the Class A
Certificates and there can be no assurance that a secondary market will
develop or that if it does develop, it will continue. Fluctuating market
interest rates may affect the market value of the Class A Certificates.
DISTRIBUTIONS
Distributions of principal and interest on the Certificates will be made
on the [25th] day of each month, or, if such day is not a Business Day, the
next succeeding Business Day (each a "Distribution Date"), beginning , to
the persons in whose names the Certificates are registered at the close of
business on the last day of the month preceding the month in which payment is
made (the "Record Date"). Certain calculations with respect to the
Certificates will be made on the [15th] day of each month, or if such day is
not a Business Day, the next succeeding Business Day (the "Determination
Date").
Principal received on each Mortgage Loan will be passed through monthly as
described below on the Distribution Date occurring in the month in which the
Due Date occurs. Principal prepayments received during the period from the
first day of any month to the last day of such month ( a "Prepayment Period")
will be passed through on the Distribution Date occurring in the month
following receipt. When a Mortgage Loan is prepaid, in whole or in part,
between scheduled payment dates. the Mortgagor pays interest on the amount
prepaid only to the date of prepayment and not thereafter. The Master
Servicer is not required to pay any part of its servicing compensation to
assure that distributions made to Certificateholders on the related
Distribution Date include an amount equal to one full month's interest at the
applicable Subsidiary Pass-Through Rate.
Interest received by the Subsidiary Trust Fund on each Mortgage Loan will
be passed through monthly on the Distribution Date occurring in the month in
which the Due Date occurs, at the Subsidiary Pass-Through Rate for such
Mortgage Loan. The Pass-Through Rate will equal the weighted average of the
Subsidiary Pass-Through Rates for the Mortgage Loans. Prior to the first
Adjustment Date with respect to each Mortgage Loan that occurs after the
Cut-off Date, the Subsidiary Pass-Through Rate for such Mortgage Loan will
equal the Initial Mortgage Rate less . Thereafter, the Subsidiary
Pass-Through Rate with respect to each Mortgage Loan will equal the Index
applicable to each Mortgage Loan plus basis points (the "Pass-Through
Margin") subject to the limitation that the Subsidiary Pass-Through Rate
shall not exceed the lesser of the Periodic Mortgage
S-21
VERSION F
<PAGE>
Rate Cap less the Servicing Fee Rate and the Maximum Subsidiary Pass-Through
Rate. The Maximum Subsidiary Pass-Through Rate with respect to a Mortgage Loan
shall equal the Maximum Mortgage Rate for such Mortgage Loan minus the Servicing
Fee Rate. The Master Servicer will receive a servicing fee (the "Servicing Fee")
as compensation for the servicing of each Mortgage Loan which is calculated
monthly and equals a fixed percentage of the principal balance of the
Mortgage Loan (the "Servicing Fee Rate"). [Prior to the first Adjustment Date
with respect to a Mortgage Loan that occurs after the Cut-off Date, the
Servicing Fee Rate will be basis points for such Mortgage Loan. Subsequent
to the first Adjustment Date with respect to a Mortgage Loan that occurs
after the Cut-off Date, t][T]he Servicing Fee Rate shall equal basis
points. See "Description of the Mortgage Pool and the Underlying Mortgaged
Properties" above and "Servicing Compensation and Payment of Expenses" below.
The amount of interest on each Mortgage Loan available to be distributed on
each Distribution Date may be expected to change, among other reasons, as the
Mortgage Rate and the Subsidiary Pass-Through Rate vary with the Index and as
the Mortgage Rate reaches the Periodic Mortgage Rate Cap and the Maximum
Mortgage Rate (which will not be the same for all Mortgage Loans).
The Master Servicer will deposit in the Certificate Account the payments
and collections described in "Description of the Certificates--Payments on
Mortgage Loans" in the Prospectus.
On each Distribution Date, the amount required to be distributed to the
Class A Certificateholders will equal the lesser of the Class A Distribution
Amount and the Master Trust Fund Aggregate Distribution.
The "Class A Distribution Amount" means generally, as of any Distribution
Date, an amount equal to the sum of: (a) one month's interest at the
Pass-Through Rate on the Class A Certificate Principal Balance as of such
Distribution Date; (b) the outstanding balance of all previously due and
unpaid Interest Shortfalls (as defined below) owed to the Class A
Certificateholders with accrued interest thereon at the Pass-Through Rate;
(c) the outstanding balance of all previously due and unpaid Principal
Shortfalls (as defined below) owed to the Class A Certificateholders; (d) the
Class A Percentage of each scheduled payment of principal due on the
preceding Due Date on the Mortgage Loans; (e) the Class A Prepayment
Percentage of any Principal Prepayments received during the related
Prepayment Period on the Mortgage Loans; (f) with respect to Mortgage Loans
which became Liquidated Loans during the related Prepayment Period, the Class
A Percentage of the aggregate principal balance of such Mortgage Loans, net
of certain related unreimbursed advances with respect thereto; (g) the Class
A Percentage of any insurance proceeds received during the related Prepayment
Period, net of certain related unreimbursed advances with respect thereto;
and (h) with respect to Mortgage Loans purchased by the Master Servicer
pursuant to the Pooling and Servicing Agreement during the related Prepayment
Period, the Class A Percentage of the aggregate principal Balances of such
Mortgage Loans, net of certain related unreimbursed advances with respect
thereto.
At any time when the Subordinated Amount is equal to zero, the amount
calculated under clauses (a) through (h) above shall not include any amount
in respect of Monthly Payments due on Mortgage Loans which were not actually
received (but shall include payments from funds attributable to advances by
the Master Servicer).
The "Master Trust Fund Aggregate Distribution" shall mean, on any
Distribution Date, the sum of all amounts distributed with respect to the
Subsidiary Regular Interests, as described below.
On each Distribution Date the aggregate amount required to be distributed
to the holders of the Subsidiary Regular Interests is equal to the lesser of
(x) the Subsidiary Trust Fund Regular Distribution and (y) the sum of (i) one
month's interest at the Subsidiary Pass-Through Rate on the principal balance
of each Mortgage Loan, (ii) each payment of the principal due on the related
Due Date on each Mortgage Loan, (iii) any delinquent Mortgagor payment of
principal and interest on such Mortgage Loan received prior to the related
Determination Date, after adjustment of the interest portion of such payment
to the related Subsidiary Pass-Through Rate and deduction of unreimbursed
advances by the
S-22
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<PAGE>
Master Servicer with respect to the preceding delinquent
payment, (iv) for each Mortgage Loan which was the subject of a Principal
Prepayment during the related Prepayment Period, the amount of such Principal
Prepayment, (v) for each Mortgage Loan which became a Liquidated Loan during
the related Prepayment Period, the principal balance of such Mortgage Loan,
net of certain unreimbursed advances by the Master Servicer, (vi) with
respect to any Mortgage Loan purchased by the Master Servicer pursuant to the
Agreement, the principal balance of such Mortgage Loan net of certain
unreimbursed advances by the Master Servicer, and (vii) amounts representing
insurance proceeds with respect to a Mortgage Loan.
The "Subsidiary Trust Fund Regular Distribution" means, generally, as of
any Distribution Date, an amount equal to the amount on deposit in the
Certificate Account as of the close of business on the related Determination
Date except: (a) amounts received on particular Mortgage Loans as late
payments or other recoveries of principal or interest (including Liquidation
Proceeds, insurance proceeds, and condemnation awards) and respecting which
the Master Servicer previously made an unreimbursed Advance of such amounts;
(b) amounts representing reimbursement for certain losses and expenses
incurred by the Master Servicer, as described in the Pooling and Servicing
Agreement; (c) all amounts representing scheduled monthly payments due after
the immediately preceding Due Date; (d) all Principal Prepayments (and
interest thereon), Liquidation Proceeds, insurance proceeds, condemnation
awards and repurchase proceeds received after the related Prepayment Period,
including payments of interest representing interest accrued after the last
day of the related Due Period; (e) all income from Eligible Investments held
in the Certificate Account for the account of the Master Servicer; and (f)
certain amounts distributable to the holder of the Subsidiary Residual
Interest pursuant to the Pooling and Servicing Agreement.
The "Class A Certificate Principal Balance" on any Distribution Date will
equal the portion of the unpaid principal balance of the Mortgage Loans
evidenced by the Class A Certificates as of the Cut-off Date (the "Initial
Class A Certificate Principal Balance") less the sum of payments or
recoveries of, or with respect to, principal of the Mortgage Loans previously
distributed to the Class A Certificateholders and any Realized Losses (as
defined below) including, subject to certain limitations. Special Hazard
Realized Losses (as defined below) previously allocated to the Class A
Certificates. The Initial Class A Certificate Principal Balance is expected
to be approximately $ . See "--Subordination of the Class B Certificates;
Shifting Interest Credit Enhancement" herein.
The "Class B Principal Balance" on any Distribution Date will equal the
Scheduled Principal Balance (as defined below) of the Mortgage Loans minus
the Class A Certificate Principal Balance.
The "Scheduled Principal Balance" of the Mortgage Loans as of the time of
any determination will equal the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, after application of any scheduled principal
payments due on or before the Cut-off Date, whether or not received, reduced
by the principal portion of all scheduled payments of principal and interest
due on or before the date of determination, whether or not received, and by
all Principal Prepayments distributed to Certificateholders on or before the
date of determination, and further reduced by Realized Losses (as defined
below) with respect to the Mortgage Loans that have been allocated to one or
more classes of Certificates on or before the date of determination.
The "Class A Percentage" shall mean, as to any Distribution Date, the
lesser of 100% and the percentage obtained by dividing the Class A
Certificate Principal Balance by the Scheduled Principal Balance. The "Class
A Prepayment Percentage" shall initially be 100% and shall decline thereafter
as provided under "Subordination of the Class B Certificates; Shifting
Interest Credit Enhancement."
"Interest Shortfall" shall mean, as to any Distribution Date, any excess
of the amount computed pursuant to clause (a) of the term "Class A
Distribution Amount" over the amount of interest distributed to the Class A
Certificateholders on such Distribution Date. "Principal Shortfall" shall
mean, as to any Distribution Date the excess of the sum of the amounts
computed pursuant to clauses
S-23
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<PAGE>
(a) through (h) of the term "Class A Distribution Amount" over the amounts
distributed to the Class A Certificateholders (the "Shortfall"), less the
Interest Shortfall.
All distributions will be made by or on behalf of the Trustee to the
persons in whose names the Certificates are registered at the close of
business on each Record Date, which will be the last Business Day of the
month preceding the month in which the related Distribution Date occurs. Such
distributions shall be made either (i) by check mailed to the address of each
Certificateholder as it appears in the Certificate Register or (ii) to any
holder of Certificates having an initial principal balance in excess of
$5,000,000, by wire transfer in immediately available funds to the account of
such Certificateholder specified in writing to the Trustee.
[On the sixth day of any month or the next succeeding Business Day, the
Master Servicer or the Trustee will provide upon request the Class A
Certificate Principal Balance after giving effect to monthly payments due on
the immediately preceding Due Date.]
SUBORDINATION OF THE CLASS B CERTIFICATES; SHIFTING INTEREST CREDIT
ENHANCEMENT
The rights of the Class B Certificateholders to receive certain
distributions with respect to the Mortgage Loans are subordinate to such
rights of the Class A Certificateholders to the extent of the Subordinated
Amount. As of each Determination Date, the Subordinated Amount will equal the
Class B Principal Balance on such date, reduced by the excess, if any, of
Aggregate Losses over cumulative Realized Losses borne by the Class B
Certificateholders.
Realized Losses shall not be allocated to the Class A Certificates until
after such time as the allocation of such Realized Losses to the Class B
Certificates has reduced the Class B Principal Balance to zero. At such time,
Realized Losses shall be allocated to the Class A Certificates, pro rata
among such Certificates in proportion to their outstanding Class A
Certificate Principal Balances immediately prior to the relevant Distribution
Date. [Notwithstanding the above, Special Hazard Realized Losses shall be
allocated first to the Class B Certificates only until such time as Special
Hazard Realized Losses equal the Special Hazard Subordination Amount, which
will be % of the Cut-off Date Principal Balance. Thereafter, Special Hazard
Realized Losses shall be allocated to the Class A Certificates and the Class
B Certificates, pro rata among such Certificates in proportion to their
outstanding Principal Balances immediately prior to the relevant Distribution
Date.] Any allocation of Realized Losses (or Special Hazard Realized Losses]
to a Class A Certificate or a Class B Certificate on a Distribution Date
shall be made by reducing the Principal Balance thereof by the amount so
allocated, which allocation shall be deemed to have occurred on such
Distribution Date. [Any allocation to the Class B Certificates of a Realized
Loss or a Special Hazard Realized Loss prior to reducing the Special Hazard
Subordination Amount to zero shall have the effect of increasing the Class A
Percentage of future payments of principal on the Mortgage Loans and thereby
decreasing the Subordinate Percentage of such payments of principal.]
"Realized Loss" is defined in the Pooling and Servicing Agreement (i) with
respect to any Liquidated Loan, as the excess of the outstanding principal
balance of such Liquidated Loan over the Liquidation Proceeds, if any,
received in connection with such Liquidated Loan, after application of all
withdrawals permitted to be made by the Master Servicer pursuant to the
Pooling and Servicing Agreement, (ii) with respect to any Mortgage Loan which
has become subject to a valuation by a court of competent jurisdiction of the
Mortgaged Property in an amount less than the then outstanding indebtedness
under the Mortgage Loan, which valuation results from a proceeding under the
United States Bankruptcy Code, as amended from time to time (11 U.S.C.) (a
"Deficient Valuation"), as the excess of the outstanding principal balance of
such Mortgage Loan over the principal amount as reduced in the Deficient
Valuation, or (iii) with respect to any Mortgage Loan purchased by the Master
Servicer or the Depositor pursuant to the Pooling and Servicing Agreement, as
the excess, if any, of 100% of the principal balance of such Mortgage Loan,
together with accrued and unpaid interest at the
S-24
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<PAGE>
applicable Subsidiary Pass-Through Rate to the first day of the month following
the month of such purchase, giving effect to the amount of any unreimbursed
Advances made by the Master Servicer with respect to such Mortgage Loan, over
the purchase price for such Mortgage Loan as the same may be reduced pursuant to
an Opinion of Counsel to prevent such amount from being taxed to the Trust Fund
as a "prohibited transaction", as defined in Section 860F(a)(2) of the Code.
Realized losses may result from, among other things, Special Hazard Realized
Losses. ["Special Hazard Realized Loss" means with respect to any Mortgage Loan
finally liquidated in connection with any physical damage not covered under a
Standard Hazard Insurance Policy or a flood insurance policy, other than
normal wear and tear or other circumstances set forth in the Pooling and
Servicing Agreement an amount equal to the unpaid principal balance of the
Mortgage Loan as of the date of such liquidation, together with interest at
the applicable Mortgage Rate, less the applicable Servicing Fee, from the Due
Date as to which interest was last paid to the Due Date next succeeding such
liquidation, less the proceeds, if any, received in connection with such
liquidation after application of all withdrawals from the Certificate Account
by the Master Servicer permitted pursuant to the Pooling and Servicing
Agreement.]
"Liquidated Loan" means a Mortgage Loan which, as of the close of business
on the Business Day next preceding the Due Date, has been liquidated through
deed in lieu of foreclosure, sale in foreclosure, trustee's sale or other
realization as provided by applicable law of real property subject to the
related Mortgage and any security agreements or with respect to which payment
under related private mortgage insurance or hazard insurance and/or from any
public or governmental authority on account of a taking or condemnation of
any such property has been received.
The protection afforded to the Class A Certificateholders will be
effected by the preferential right of the Class A Certificateholders to
receive the amount of principal and interest otherwise available for
distribution to the Class B Certificateholders on each Distribution Date out
of available funds on deposit in the distribution account for the Master
Trust Fund and by distributing to the Class A Certificateholders a
disproportionately greater percentage of Principal Prepayments received by
the Master Trust Fund from the Certificate Account, to the extent described
herein (the "Class A Prepayment Percentage"). This disproportionate
distribution will have the effect of accelerating the amortization of the
Class A Certificates while increasing the respective interest in the Mortgage
Loans evidenced by the Class B Certificates. Increasing the respective
interest of the Class B Certificates relative to that of the Class A
Certificates is intended to preserve the availability of the subordination
provided by the Class B Certificates.
The Class A Prepayment Percentage for any Distribution Date occurring
before or in will, except as provided below, equal 100%. The Class A
Prepayment Percentage for any Distribution Date occurring subsequent to
will be determined as follows: (a) for any Distribution Date occurring
subsequent to and before or in , the Class A Prepayment Percentage
will equal the Class A Percentage plus % of the Subordinate Percentage for
such Distribution Date, except that prior to the Distribution Date next
succeeding the first Distribution Date, if any, after . , as of
which the Step-down Criteria are satisfied, the Class A Prepayment Percentage
will be 100%; (b) for any Distribution Date occurring subsequent to and before
or in , the Class A Prepayment Percentage will equal the Class A
Percentage plus % of the Subordinate Percentage for such Distribution Date,
except that prior to the Distribution Date next succeeding the first
Distribution Date, if any, after as of which the Step-down Criteria are
satisfied, the Class A Prepayment Percentage will be the Class A Prepayment
Percentage in effect in ; (c) for any Distribution Date occurring
subsequent to and before or in , the Class A Prepayment Percentage will
equal the Class A Percentage plus % of the Subordinate Percentage for such
Distribution Date, except that prior to the Distribution Date next succeeding
the first
S-25
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<PAGE>
Distribution Date, if any, after as of which the Step-down Criteria
are satisfied, the Class A Prepayment Percentage will be the Class A
Prepayment Percentage in effect in ; (d) for any Distribution Date
occurring subsequent to and before or in , the Class A Prepayment
Percentage will equal the Class A Percentage plus % of the Subordinated
Percentage for such Distribution Date, except that prior to the Distribution
Date next succeeding the first Distribution Date, if any, after as of
which the Step-down Criteria are satisfied, the Class A Prepayment Percentage
will be the Class A Prepayment Percentage in effect in ; and (e) for any
Distribution Date occurring subsequent to , the Class A Prepayment
Percentage will equal the Class A Percentage as of such Distribution Date except
that prior to the Distribution Date next succeeding the first Distribution Date,
if any, after as of which the Step-down Criteria are satisfied, the Class
A Prepayment Percentage will be the Class A Prepayment Percentage in effect in
. The foregoing is subject to the following: (i) if on any Distribution
Date the distribution of all Principal Prepayments received in the prior
month to the holders of the Class A Certificates would reduce the outstanding
Class A Certificate Principal Balance below zero, the Class A Prepayment
Percentage for such Distribution Date will be limited to the percentage
necessary to reduce the Class A Principal Certificate Balance to zero and
thereafter the Class A Percentage shall be zero; and (ii) if the Class A
Percentage on any Distribution Date is greater than the initial Class A
Percentage, the Class A Prepayment Percentage for such Distribution Date
shall be 100%.
The Step-down Criteria shall be met as of any Distribution Date in the 12
months commencing subsequent to February of the year specified in the table
below provided that as of such Distribution Date (a) no more than one time
during the preceding months have the principal balances of outstanding
Mortgage Loans days or more delinquent (including loans in foreclosure and
the book value of owned real estate) exceeded % of the Scheduled Principal
Balance at such time, and (b) cumulative Advances deemed to be nonrecoverable
as a percentage of the principal amount of the Class B Certificates as of the
Cut-off Date (the "Subordinated Amount") do not exceed the amounts in the
following table:
<TABLE>
<CAPTION>
CUMULATIVE
NON-RECOVERABLE
ADVANCES AS A
PERCENTAGE OF THE
YEAR SUBORDINATED AMOUNT
- -------------------- -----------------------
<S> <C>
.................. %
..................
..................
..................
or thereafter ...
</TABLE>
The definition of "Step-down Criteria" may be amended by the Depositor and
the Trustee, with prior written notice of such amendment to the Rating
Agency, in a manner that will not result in the lowering or withdrawal of the
then current rating of the Class A Certificates. Such amendment shall not
require the consent of any Certificateholder.
[PURCHASE OF CONVERTED MORTGAGE LOANS
The Pooling and Servicing Agreement provides that is obligated to
purchase from the Subsidiary Trust Fund any Convened Mortgage Loan in the
month following the month in which the related mortgagor exercises the
conversion option, for a price equal to the lesser of (a) 100% of the unpaid
principal balance of such Mortgage Loan, and (b) the Subsidiary Trust Fund's
adjusted federal income tax basis on the date such Mortgage Loan is to be
purchased, in each case plus accrued interest, if any, at the applicable
Subsidiary Pass-Through Rate in effect immediately prior to such conversion
to the last day of the month in which such Mortgage Loan became a Converted
Mortgage Loan, net of the applicable amounts due to the Master Servicer with
respect to that Mortgage
S-26
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<PAGE>
Loan. will be obligated to deposit the amount of the purchase price in
the Certificate Account for distribution on the Distribution Date in the month
following the month of such conversion.
In the event defaults upon its obligation to repurchase any Converted
Mortgage Loan, the Trustee may attempt to sell the Mortgage Loan for the
price which was to be paid by the Master Servicer. A Converted Mortgage Loan
will remain in the Trust as a Mortgage Loan with a fixed Mortgage Rate unless
and until purchased by the Master Servicer or otherwise sold in accordance
with the Pooling and Servicing Agreement. So long as serves as Master
Servicer, the failure of the Master Servicer to repurchase a Converted
Mortgage Loan, after notice, is an Event of Default under the Pooling and
Servicing Agreement. The Trustee and a successor master servicer under the
Pooling and Servicing Agreement will not have any obligation to purchase any
Converted Mortgage Loan.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee payable to the Master Servicer will be payable out of
each interest payment on a Mortgage Loan and will be an adjustable amount
equal to one month's interest (or in the case of any payment of interest
which accompanies a Principal Prepayment made by the Mortgagor, interest for
the number of days covered by such payment of interest) at the applicable
Servicing Fee Rate on the principal balance of such Mortgage Loan. The
Servicing Fee Rate is not the same for each Mortgage Loan. The Servicing Fee
Rate is basis points. The Master Servicer will be permitted to retain or
withdraw from the Certificate Account, in respect of each interest payment
received on a Mortgage Loan, the Servicing Fee with respect to such Mortgage
Loan, calculated on the basis of the same principal amount and period
respecting which the interest payment is computed. In addition, , as
holder of the Subsidiary Residual Interest Certificate, will receive an
amount equal to (i) with respect to each Mortgage Loan, the principal balance
of such Mortgage Loan times the difference, if any, between the Mortgage Rate
(net of the Servicing Fee) and the Subsidiary Pass-Through Rate, [less such
amount as may be necessary to assure that the distributions made to the
Subsidiary Regular Certificateholder on the related Distribution Date include
an amount equal to one full month's interest at the applicable Subsidiary
Pass-Through Rate], and (ii) gains, if any, arising from sale of Mortgaged
Property acquired as a result of foreclosure in respect of a Mortgage Loan or
arising from a repurchase pursuant to an optional termination. See "Certain
Federal Income Tax Consequences" in the Prospectus. See "Description of the
Certificates--Servicing Compensation and Payment of Expenses" in the
Prospectus for information regarding other possible compensation to the
Master Servicer.
The Master Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to
limited reimbursement as described in the Prospectus), including, without
limitation, any amounts payable to the Servicer or any other sub-servicer,
the fees and expenses of the Trustee and the other various items of expense
enumerated in the Prospectus.
[ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH PREPAID MORTGAGE LOANS
When a Mortgage Loan is prepaid, in whole or in part, between schedule
payment dates, the Mortgagor pays interest on the amount prepaid only to the
date of prepayment and not thereafter. As a result, the aggregate amount of
interest which would otherwise be distributed to Certificateholders may be
reduced. To mitigate this reduction in yield, the Pooling and Servicing
Agreement provides that with respect to any such Principal Prepayment, the
Servicing Fee otherwise payable to the Master Servicer will be reduced in
such amount, if any, as may be necessary to assure that the distributions
made to Certificateholders on the related Distribution Date include an
amount equal to one full month's interest at the applicable Subsidiary
Pass-Through Rate for such Mortgage Loan. Thus, so long as there are
sufficient funds otherwise payable from the Servicing Fee on each
Distribution Date,
S-27
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<PAGE>
Certificateholders will always receive a full month's interest with respect to
any such principal prepayments. See "Distributions" above.]
THE TRUSTEE
, a banking association, will act as Trustee for the
Certificates pursuant to the Pooling and Servicing Agreement. The Trustee's
principal executive offices are located at , and its telephone number is
( ) .
REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
Under certain circumstances, the Master Servicer may be required to
repurchase one or more Mortgage Loans from the Subsidiary Trust Fund.
Generally, the repurchase obligation arises when the documentation with
respect to a Mortgage Loan is discovered to be materially defective or when a
breach of a representation or warranty is discovered, which breach materially
and adversely affects the interests of Certificateholders. See "Description
of the Certificates--Assignment of Mortgage Loans" in the Prospectus.
In the event of a repurchase of a Mortgage Loan, the repurchase price
would be equal to the sum of the outstanding principal balance of such
Mortgage Loan on the date of repurchase plus interest accrued thereon at the
Subsidiary Pass-Through Rate to the first day of the month following the
month in which such repurchase is effected; provided, however, that if such
repurchase at the price so determined would result in net income to the
Subsidiary Trust Fund that would be subject to tax as income derived from a
"prohibited transaction," as defined in Section 860F(a)(2) of the Code, or
would otherwise subject the Subsidiary Trust Fund to tax, then,
notwithstanding the foregoing. the repurchase price for such Mortgage Loan
shall be the maximum amount such that the repurchase would not result in such
tax, as evidenced by an Opinion of Counsel, in form and substance
satisfactory to the Trustee, which shall be delivered in the event of any
such reduction.
Within a period of three months, or in the case of a "defective
obligation" within the meaning of Section 860(G)(a)(4)(B) of the Code, within
two years from the Delivery Date of the Certificates, the Depositor or the
Master Servicer may, instead of repurchasing a Mortgage Loan required to be
repurchased pursuant to the Pooling and Servicing Agreement, deliver a
mortgage loan (a "Replacement Mortgage Loan") in substitution for any
Mortgage Loan that would otherwise have been repurchased (a "Deleted Mortgage
Loan"). Generally, the repurchase obligation arises when the documentation
with respect to a Mortgage Loan is discovered to be materially defective or
when a breach of a representation or warranty is discovered, which breach
materially and adversely affects the interests of Certificateholders. See
"Description of the Certificates--Assignment of Mortgage Loans" in the
Prospectus.
To the extent that the Depositor or the Master Servicer, as the case may
be, elects to deliver a Replacement Mortgage Loan for a Mortgage Loan it
would otherwise be obligated to repurchase, such Replacement Mortgage Loan
must, on the date of such substitution: (a) have an outstanding principal
balance, after deduction of payments due in the month of substitution, not in
excess of the principal balance of the Deleted Mortgage Loan; (b) have a
Maximum Mortgage Rate no lower than (and not more than 1% per annum higher
than) the Maximum Mortgage Rate of the Deleted Mortgage Loan; (c) have the
same Index, Gross Margin, Periodic Mortgage Rate Cap and frequency of
Adjustment Dates as those of the Deleted Mortgage Loan; (d) be accruing
interest at a rate no lower than and have the same Payment Adjustment Date as
the Payment Adjustment Date of the Deleted Mortgage Loan; (e) have a
Loan-to-Value Ratio no higher than that of the Deleted Mortgage Loan; (f)
have a term to maturity no greater than (and not more than one year less
than) that of the Deleted Mortgage Loan; and (g) comply with each
representation and warranty with respect to Mortgage Loans in the Pooling and
Servicing Agreement. Upon any such substitution, the Depositor or the Master
Servicer, as the
S-28
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<PAGE>
case may be, will deliver the Mortgage File relating to the Replacement Mortgage
Loan to the Trustee and the Trustee will release the Deleted Mortgage Loan (or
any property acquired in respect thereof) from the Subsidiary Trust Fund.
For any month in which a Replacement Mortgage Loan is substituted for any
Deleted Mortgage Loan, the Master Servicer will determine the amount, if any,
by which the aggregate principal balance of all such Replacement Mortgage
Loans as of the date of substitution is less than the aggregate principal
balance of all such Deleted Mortgage Loans (after application of the
scheduled principal portion of the monthly payments due in such month). The
amount of any such shortage shall be deposited by the Depositor or the Master
Servicer, as the case may be, from its own funds into the Certificate Account
in the month of substitution, without any reimbursement therefor, and will be
distributed to Certificateholders on the Distribution Date in the month
following such substitution. See "Description of the
Certificates--Distributions on Certificates" in the Prospectus.
VOTING RIGHTS
At any time that any Class A Certificates or Class B Certificates are
outstanding, the voting rights of a Class A Certificate or Class B
Certificate are obtained by dividing the then outstanding principal balance
of such Certificate by the aggregate principal balances at such time of all
the Class A Certificates and Class B Certificates.
[OPTIONAL TERMINATION
The Pooling and Servicing Agreement provides that the holder of the
Subsidiary Residual Interest Certificate, at its option, may purchase from
the Subsidiary Trust Fund all Mortgage Loans remaining in the Mortgage Pool
and all property acquired in respect of a Mortgage Loan, provided that the
aggregate unpaid balance of the Mortgage Loans at the time of any such
repurchase is less than % of the Cut-off Date Principal Balance.
Additionally, the holder of the Class B[-2] Certificate, at its option, may
purchase from the Master Trust Fund all Subsidiary Regular Interests
remaining in the Master Trust Fund and all other property in such Trust Fund,
provided that the Subsidiary Regular Interests at the time of any such
repurchase represent interests in less than % of the Cut-off Date Principal
Balance of the Mortgage Loans. The purchase price for any such repurchase
will be 100% of the unpaid principal balance of each Mortgage Loan or
Subsidiary Regular Interest, as the case may be, together with accrued and
unpaid interest with respect to each Mortgage Loan through the last day of
the month of such repurchase. Any property acquired in respect of a Mortgage
Loan and remaining in the applicable Trust Fund at the time such optional
termination is effected will be purchased at its appraised value. Either of
the above purchases would thereby effect early retirement of the Class A
Certificates.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
REMIC ELECTION
An election will be made to treat the assets of the Subsidiary Trust Fund
as a REMIC (the "Subsidiary REMIC") for federal income tax purposes. Amounts
(i) with respect to each Mortgage Loan equal to the principal balance of such
Mortgage Loan times the difference, if any, between the Mortgage Rate (net of
the Servicing Fee) and the Subsidiary Pass-Through Rate and (ii) representing
gains, if any, arising from the sale of Mortgaged Property acquired as a
result of foreclosure in respect of a Mortgage Loan or arising from a
repurchase pursuant to an optional termination will comprise the residual
interest in the Subsidiary REMIC. The regular interests in the Subsidiary
REMIC in the aggregate will encompass the rights to all other amounts
distributable with respect to the Mortgage Loans. An election will be made to
treat as a REMIC (the "Master REMIC") the Master Trust Fund comprised of the
regular interests in the Subsidiary REMIC. The Class A [and B-l] Certificates
will
S-29
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<PAGE>
represent the regular interests in the Master REMIC. initially will
retain the residual interests in both the Master REMIC and the Subsidiary
REMIC. See "Certain Federal Income Tax Consequences" in the Prospectus. The
Internal Revenue Service has announced regulations will be issued permitting
REMICs to issue regular interests bearing variable rates based on (i) certain
fixed formulas using an objective interest index or (ii) a weighted average
of the interest rates of the "qualified mortgages" held by the REMIC.
[ORIGINAL ISSUE DISCOUNT
The Class A Certificates may be issued with original issue discount.
Although no rulings or regulations have been issued by the Internal Revenue
Service clarifying the application of the statutory provisions requiring the
use of a prepayment assumption for the accrual of original issue discount on
REMIC regular interests to variable rate regular interests and the matter is,
therefore, not entirely certain, it appears likely that the rules of the Code
relating to original issue discount would be applied to include in income as
original issue discount any excess of the stated redemption price at maturity
over the issue price of the Class A Certificate as if such Certificate would
bear interest in each period after the first Distribution Date at a rate
determined as if the Index were to remain constant over the life of such
Certificate at its value as of the Closing Date (or possibly as of the date
of pricing of the Certificates). Applying that assumption would effectively
convert such Class A Certificate to a debt instrument having an initial fixed
rate followed by a higher rate in subsequent periods to which the rules
described in the Prospectus under the heading "Certain Federal Income Tax
Consequences--REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" could be applied for purposes of
determining the portion of the excess of the stated redemption price at
maturity of a Class A Certificate over the issue price of such Certificate
that accrues each day. In addition to the daily accrual of the discount
described above, each Class A Certificateholder will be required to accrue,
and include in income daily, the stated interest on each Class A Certificate to
the extent not included in the stated redemption price at maturity. For a more
detailed discussion of the accrual of original issue discount, see "Certain
Federal Income Tax Consequences--REMIC Trust Funds--Taxation of Owners of REMIC
Regular Certificates" in the Prospectus.]
Absent clarification in the regulations, the Master Servicer intends to
report original issue discount to the Internal Revenue Service and to
Certificateholders in the manner described above, using a prepayment
assumption that is a Standard Prepayment Assumption ("SPA") of %. A
prepayment assumption of 100% of SPA assumes a prepayment rate of 0.2% per
annum of the then outstanding principal balance of such mortgage loans in the
first month of the lives increased by 0.2% per annum each month thereafter
until the thirtieth such month. Beginning in the thirtieth month and in each
month thereafter during the lives of the mortgage loans, 100% of SPA assumes
a constant prepayment rate of 6% per annum. No representation is made that
the Mortgage Loans will prepay at this rate or any other rate.
LEGAL INVESTMENT
The Class A Certificates will constitute, for so long as they are rated as
described below, "mortgage-related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the "Enhancement Act"), and, as
such, will be legal investments for certain entities to the extent provided
in the Enhancement Act. Such investments, however, will be subject to general
regulatory considerations governing investment practices under state and
federal law. Institutions whose investment activities are subject to review
by certain regulatory authorities may be, or may become, subject to
restrictions, which may be retroactively imposed by such regulatory
authorities, on the investment by such institutions in certain
mortgage-related securities. Investors should consult their own legal
advisors to determine whether, and to what extent, the Class A Certificates
may be purchased by such investors. See "Legal Investment" in the Prospectus.
S-30
VERSION F
<PAGE>
RATING
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated at least " " by . (" "). Securities rated " " by
are " ."
[The ratings of Moody's on mortgage pass-through Certificates address the
likelihood of the receipt by certificateholders of all distributions on the
underlying mortgage loans. Moody's rating opinions address the structural,
legal, issuer and tax-related aspects associated with the Certificates,
including the nature of the underlying mortgage loans. Moody's ratings on
pass-through Certificates do not represent any assessment of the likelihood
of principal prepayments by mortgagors (including, in the case of the Class A
Certificates, prepayments resulting from the repurchase of Converted Mortgage
Loans) or of the degree to which such payments might differ from that
originally anticipated. Moody's rating of the Class A Certificates will not
represent any assessment of the Master Servicer's ability to repurchase
Converted Mortgage Loans. The rating does not address the possibility that
Certificateholders might suffer a lower than anticipated yield.]
ERISA CONSIDERATIONS *
[A fiduciary of any employee benefit plan and certain other retirement
plans and arrangements (including individual retirement accounts, and
annuities, Keogh plans, and collective investment funds in which such funds,
accounts, annuities or arrangements are invested) that are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the
Code should carefully review with legal advisors whether the purchase or
holding of Certificates could give rise to a transaction that is prohibited
or not otherwise permissible either under ERISA or the Code. See "ERISA
Considerations" in the Prospectus.]
PLAN OF DISTRIBUTION
[The Master Servicer has agreed, pursuant to the Purchase Agreement dated
(the "Purchase Agreement"), to pay the Depositor a fee of $ in
connection with the exchange of the Certificates and the residual interest in
the Subsidiary REMIC for the Mortgage Loans. The Depositor will sell the
Certificates and such residual interest to the Master Servicer in exchange
for the Mortgage Loans subject to the terms and conditions set forth in the
Purchase Agreement. Pursuant to the Purchase Agreement, the Depositor or its
affiliates have certain preferential rights in connection with resales of the
Class A Certificates.]
[ may be deemed, by virtue of the exchange, to be an "Underwriter"
within the meaning of the Securities Act of 1933 in connection with reoffers
and sales by of the Class A Certificates. Until , such reoffers and
sales by Master Servicer will be made pursuant to this Prospectus Supplement
and the Prospectus, as amended and supplemented as of the date of such
reoffering. After such date, this Prospectus Supplement and Prospectus may
not be used in connection with such reoffers and sales. The Depositor has
been advised by that such reoffers and sales may be made by
from time to time in negotiated transactions or otherwise at varying prices
determined at the time of sale, and may be made to or through one or more
Underwriters, agents or dealers, including, without limitation, the Depositor
or one of its affiliates, who may receive compensation in the form of
underwriting discounts, concessions or commissions.]
- ------------
* [Note: If the Series of Certificates offered pursuant to this Version F
Prospectus Supplement evidences interests in Contracts, the disclosure to be
set forth will be substantially similar to the disclosure set forth in
Version E under "ERISA Considerations" or in the Prospectus under "ERISA
Considerations."]
S-31
VERSION F
<PAGE>
[The Purchase Agreement provides that will indemnify the
Depositor and its affiliates against certain liabilities, including
liabilities under the Securities Act of 1933, or contribute to payments the
Depositor and its affiliates, as the case may be required to make in respect
thereof.]
[The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] The First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative.] The [Underwriter[s] named below[
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amounts[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
- -------------------------------- ---------------- ---------------- ---------
<S> <C> <C> <C>
The First Boston Corporation ... $ $ $
Total ......................... $ $ $ ]
---------
</TABLE>
[The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Class A Certificates if any are purchased.]
The Underwriter[s] [[has] [have] advised the Depositor that the
Underwriter[s] propose[s] to offer the Class A Certificates from time to time
for sale in one or more negotiated transactions or otherwise at prices to be
determined at the time of sale. The Underwriter[s] may effect such
transactions by selling the Class A Certificates to or through dealers and
such dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter[s] and any purchasers of the
Class A Certificates for whom they may act as agent.
The Underwriter[s] and any dealers that participate with the
Underwriter[s] in the distribution of the Certificates may be deemed to be
underwriters, and any discounts or commissions received by them and any
profit on the resale of Class A Certificates by them may be deemed to be
underwriting discounts or commissions, under the Securities Act of 1933, as
amended (the "Act").
[The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933 or to
contribute to payments the Underwriter[s] may be required to make in respect
thereof.]
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and
for the Underwriter[s] by Cadwalader, Wickersham & Taft. The material federal
income tax consequences of the Class A Certificates will be passed upon for
the Depositor by Cadwalader, Wickersham & Taft.
USE OF PROCEEDS
[The Certificates are being initially sold and delivered by the Depositor
to in exchange for the Mortgage Loans to be deposited by the Depositor
in the Subsidiary Trust Fund. Other than its fee in connection with such
exchange the Depositor will receive no other proceeds from the sale of the
Certificates. may subsequently sell the Certificates in one or more
transactions. It is expected that will use the proceeds of such sale
for general corporate purposes. See "Plan of Distribution" herein.
[The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired
in privately negotiated transactions by the Depositor from one or more
affiliates.
S-32
VERSION F
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1995
- -----------------------------------------------------------------------------
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 , 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
3
<PAGE>
distributions of 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
4
<PAGE>
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 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
5
<PAGE>
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 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
6
<PAGE>
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 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
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<PAGE>
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").
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 Certifi-
8
<PAGE>
cates) 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 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
9
<PAGE>
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 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
10
<PAGE>
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, 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
CERTIFICATES ........... If so specified in the related Prospectus
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
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<PAGE>
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 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
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<PAGE>
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."
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 pay-
13
<PAGE>
ments of interest (or other payments) as
set forth or determined as described
therein. See "Credit Support--Swap
Agreement."
HAZARD INSURANCE AND
SPECIAL HAZARD
INSURANCE POLICIES .... Unless otherwise specified in the applicable
Prospectus Supplement, all of the Mortgage
Loans (except for the Cooperative Loans)
and the Contracts will be covered by
standard hazard insurance policies
insuring against losses due to various
causes, including fire, lightning and
windstorm. In addition, the Depositor
will, if so specified in the applicable
Prospectus Supplement, obtain an insurance
policy (the "Special Hazard Insurance
Policy") covering losses that result from
certain other physical risks that are not
otherwise insured against (including
earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited in
scope and will cover losses in an amount
specified in the applicable Prospectus
Supplement. Any hazard losses not covered
by either standard hazard policies or the
Special Hazard Insurance Policy will not
be insured against and to the extent that
the amount available under any other
method of credit support available for
such Series is exhausted, will be borne by
Certificateholders of such Series. The
hazard insurance policies and the Special
Hazard Insurance Policy will be subject to
the limitations described under
"Description of Insurance-- Standard
Hazard Insurance Policies on Mortgage
Loans," "--Standard Hazard Insurance
Policies on the Manufactured Homes" and
"--Special Hazard Insurance Policies."
SUBSTITUTION OF TRUST
ASSETS ................. If so specified in the Prospectus Supplement
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
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<PAGE>
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 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 homes.
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<PAGE>
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
be obligated to repurchase from the Trust Fund any such ARM Loan as
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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 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
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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 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.
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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 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
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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 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
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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 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
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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 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,
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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 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
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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 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.
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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
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rate determined by dividing the Mortgage Rate or APR by 365. Full prepayments
will reduce the amount of interest paid by the Mortgagor or the Obligor
because interest on the principal amount of any Mortgage Loan or Contract so
prepaid will be paid only to the date of prepayment instead of for a full
month; however, unless otherwise provided in the applicable Prospectus
Supplement, the Master Servicer with respect to a Series will be required to
advance from its own funds the portion of any interest at the related
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
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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.
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.
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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 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
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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."
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.
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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 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
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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 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.
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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 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
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Trustee together with all principal and interest distributed on such Mortgage
Certificates after the Cut-off Date. Each Mortgage Certificate included in a
Trust Fund will be identified in a schedule appearing as an exhibit to the
applicable Agreement. Such schedule will include information as to the
principal balance of each Mortgage Certificate as of the date of issuance of
the 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
cooperative note endorsed to the order of the Trustee, the original
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security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing statement and the relevant stock
certificate and related blank stock powers. The Master Servicer will file in
the appropriate office a financing statement evidencing the Trustee's
security interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will, generally
within 60 days after receipt thereof, review and hold such documents in trust
for the benefit of the Certificateholders. 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
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that materially and adversely affects the interests of the Certificateholders
of such Series in a Mortgage Loan, the Master Servicer will be obligated
either to cure the breach in all material respects or to purchase such
Mortgage Loan at the price calculated as set forth above.
To the extent described in the 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
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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 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
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out their respective repurchase obligations with respect to Contracts.
However, to the extent that a breach of the representations and warranties of
an Unaffiliated Seller may also constitute a breach of a representation made
by the Depositor or the Master Servicer, the Depositor or the Master Servicer
may have a purchase obligation as described above under "The Trust Fund--The
Contract Pools."
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
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the Buy-Down Fund, to the related Pool Insurer or the insurer under the
related Primary Insurance Policy (the "Primary Insurer") if the Mortgaged
Property is transferred to the Pool Insurer or the Primary Insurer, as the
case may be, which pays 100% of the related claim (including accrued interest
and expenses) in respect of such default, to the L/C Bank in consideration of
such payment under the related Letter of Credit, or to the guarantor or other
person which pays the same pursuant to Alternative Credit Support described
in the applicable Prospectus Supplement. In the case of any such prepaid or
defaulted Buy-Down Loan the amounts in the Buy-Down Fund in respect of which
were supplemented by investment earnings, the Master Servicer will withdraw
from the Buy-Down Fund and remit to the Depositor or the Mortgagor, depending
on the terms of the related buy-down plan, any investment earnings remaining
in the related Buy-Down Fund.
If so specified in the Prospectus Supplement with respect to a Series, in
lieu of, or in addition to the foregoing, the Depositor may deliver cash, a
letter of credit or a guaranteed investment contract to the Trustee to fund
the Buy-Down Fund for such Series, which shall be drawn upon by the Trustee
in the manner and at the times specified in such Prospectus Supplement.
PAYMENTS ON CONTRACTS
A Certificate Account meeting the requirements set forth under
"Description of the Certificates-- Payments on Mortgage Loans" will be
established in the name of the Trustee.
There will be deposited in the Certificate Account 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
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legal fees and expenses incurred by the Trustee in connection with the
prosecution of any such legal action will be reimbursable to the Trustee out
of the proceeds of any such action and will be retained by the Trustee prior
to the deposit of any remaining proceeds in the Certificate Account pending
distribution thereof to Certificateholders of the affected Series. In the
event that the Trustee has reason to believe that the proceeds of any such
legal action may be insufficient to reimburse it for its projected legal fees
and expenses, the Trustee will notify such Certificateholders that it is not
obligated to pursue any such available remedies unless adequate indemnity for
its legal fees and expenses is provided by such Certificateholders.
DISTRIBUTIONS ON CERTIFICATES
On each Distribution Date with respect to a Series of Certificates as to
which credit support is provided by means other than the creation of a
Subordinated Class or Subclasses and the establishment of a Reserve Fund, the
Master Servicer will withdraw from the applicable Certificate Account funds
on deposit therein and distribute, or, if so specified in the applicable
Prospectus Supplement, will withdraw from the Custodial Account funds on
deposit therein and remit to the Trustee, who will distribute, such funds to
Certificateholders of record on the applicable Record Date. Such
distributions shall occur in the manner described herein under "Description
of the Certificates--Distributions of Principal and Interest" and in the
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
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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 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;
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(iv) to each holder of a Multi-Class Certificate on which an
interest distribution and a distribution in reduction of Stated Principal
Balance are then being made, the amount of such interest distribution and
distribution in reduction of Stated Principal Balance, and the Stated
Principal Balance of each Class after giving effect to the distribution
in reduction of Stated Principal Balance made on such Distribution Date
or on any Special Distribution Date occurring subsequent to the last
report;
(v) to each holder of a Multi-Class Certificate on which a
distribution of interest only is then being made, the aggregate Stated
Principal Balance of 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.
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ADVANCES
Unless otherwise stated in the related Prospectus Supplement, each
Servicer and the Master Servicer (with respect to Mortgage Loans or Contracts
serviced by it and with respect to Advances required to be made by the
Servicers that were not so made) will be obligated to advance funds in an
amount equal to the aggregate scheduled installments of payments of principal
and interest (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
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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.
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
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Mortgage Loans or Contracts, it will conclusively be deemed to have satisfied
its obligations to cause to be maintained a Standard Hazard Insurance Policy
for each Mortgage Loan or Contract that it services. This blanket policy may
contain a deductible clause, in which case the Master Servicer will, in the
event that there has been a loss that would have been covered by such policy
absent such deductible, deposit in the Certificate Account the amount not
otherwise payable under the blanket policy because of the application of such
deductible clause.
Since the amount of hazard insurance to be maintained on the improvements
securing the Mortgage Loans or Contracts may decline as the principal
balances owing thereon decrease, and since residential properties have
historically appreciated in value over time, in the event of partial loss,
hazard insurance proceeds may be insufficient to fully restore the damaged
Mortgaged Property or Manufactured Home. See "Description of
Insurance--Special Hazard Insurance Policies" for a description of the
limited protection afforded by a Special Hazard Insurance Policy against
losses occasioned by certain hazards that are otherwise uninsured against as
well as against losses caused by the application of the coinsurance
provisions contained in the Standard Hazard Insurance Policies.
SPECIAL HAZARD INSURANCE
If so specified in the related Prospectus Supplement, the Master Servicer
will be required to exercise its best reasonable efforts to maintain the
Special Hazard Insurance Policy, if any, with respect to a Series of
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."
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PRIMARY MORTGAGE INSURANCE
To the extent specified in the related Prospectus Supplement, the Master
Servicer will be required to keep in force and effect for each Mortgage Loan
secured by Single Family Property serviced by it directly, and each Servicer
of a Mortgage Loan secured by Single Family Property will be required to keep
in full force and effect with respect to each such Mortgage Loan serviced by
it, in each case to the extent required by the underwriting standards of the
Depositor, a Primary Mortgage Insurance Policy issued by a qualified insurer
(the "Primary Mortgage Insurer") with regard to each Mortgage Loan for which
such coverage is required pursuant to the applicable Servicing Agreement and
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.
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If recovery under a Pool Insurance Policy or any related Primary Mortgage
Insurance Policy is not available because the related Servicer or the Master
Servicer has been unable to make the above determinations or otherwise, the
Servicer or the Master Servicer is nevertheless obligated to follow such
normal practices and procedures as are deemed necessary or advisable to
realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation
of the Mortgaged Property or Manufactured Home are less than the principal
balance of the defaulted Mortgage Loan or Contract, respectively, plus
interest accrued thereon at the 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
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Legal Aspects of the Mortgage Loans and Contracts--The Mortgage
Loans--Foreclosure" herein. This approval is usually based on the purchaser's
income and net worth and numerous other factors. Although the Cooperative's
approval is unlikely to be unreasonably withheld or delayed, the necessity of
acquiring such approval could limit the number of potential purchasers for
those shares and otherwise limit the Trust Fund's ability to sell and realize
the value of those shares.
The market value of any Multifamily Property obtained in foreclosure or by
deed in lieu of foreclosure will be based substantially on the operating
income obtained from renting the dwelling units. Since a default on a
Mortgage Loan secured by Multifamily Property is likely to have occurred
because operating income, net of expenses, is insufficient to make debt
service payments on the related Mortgage Loan, it can be anticipated that the
market value of such property will be less than was anticipated when such
Mortgage Loan was originated. To the extent that the equity in the property
does not absorb the loss in market value and such loss is not covered by
other credit support, a loss may be experienced by the related Trust Fund.
With respect to Multifamily Property consisting of an apartment building
owned by a Cooperative, the Cooperative's ability to meet debt service
obligations on the Mortgage Loan, as well as all other operating expenses,
will be dependent in large part on the receipt of maintenance payments from
the tenant-stockholders, as well as any rental income from units or
commercial areas the Cooperative might control. Unanticipated expenditures
may in some cases have to be paid by special assessments of the
tenant-stockholders. The Cooperative's ability to pay the principal amount of
the Mortgage Loan at maturity may depend on its ability to refinance the
Mortgage Loan. The Depositor, the Unaffiliated Seller and the Master Servicer
will have no obligation to provide refinancing for any such Mortgage Loan.
ENFORCEMENT OF "DUE-ON-SALE" CLAUSES; REALIZATION UPON DEFAULTED CONTRACTS
Each Servicing Agreement and Pooling and Servicing Agreement with respect
to Certificates representing interests in a Contract Pool will provide that,
when any Manufactured Home securing a Contract is about to be 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,
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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
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
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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.
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
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Agreement or the Certificates and in the case of the Trustee, resulting from
any error in any tax or information return prepared by the Master Servicer or
from the exercise of any power of attorney granted pursuant to the Pooling
and Servicing Agreement, other than any loss, liability or expense related to
any specific Mortgage Loan, Contract or Mortgage Certificate (except any such
loss, liability or expense otherwise reimbursable pursuant to the applicable
Agreement) and any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of their duties
thereunder or by reason of reckless disregard of their obligations and duties
thereunder. In addition, each Agreement will provide that neither the
Depositor nor the Master Servicer, as the case may be, will be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its duties under the Agreement and that in its opinion may
involve it in any expense or liability. The Depositor or the Master Servicer
may, however, in their discretion, undertake any such action deemed by them
necessary or desirable with respect to the applicable Agreement and the
rights and duties of the parties thereto and the interests of the
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
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by applicable law, accrue interest at the highest Interest Rate borne by any
Certificate of such Series, or in the event any Class of such Series shall
accrue interest at a floating rate, at the weighted average Interest Rate,
calculated on the basis of the maximum interest rate applicable to the Class
having such floating interest rate and on the original principal amount of
the Certificates of that Class. In such event, the holders of a majority in
outstanding principal balance of such Certificates may direct the Trustee to
sell the related Trust Fund, any such direction being irrevocable and binding
upon the holders of all Certificates of such Series and upon the owners of
the residual interests in such Trust Fund. In the absence of such a
direction, the Trustee may not sell all or any portion of such Trust Fund.
EVENTS OF DEFAULT
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
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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.
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.
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CREDIT SUPPORT
Credit support for a Series of Certificates may be provided by one or more
Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Certificates (which may, if so specified in the 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.
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.
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Prospective purchasers of Certificates of a Series with respect to which
credit support is provided by a Letter of Credit must look to the credit of
the L/C Bank, to the extent of its obligations under the Letter of Credit, in
the event of default by Mortgagors or Obligors. If the amount available under
the Letter of Credit is exhausted, or the L/C Bank becomes insolvent, and
amounts in the Reserve Fund, if any, with respect to such Series are
insufficient to pay the entire amount of the loss and still be maintained at
the level specified in the 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.
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
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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 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.
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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 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
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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.
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
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Property, (ii) hazard insurance proceeds in excess of the amount required to
restore such Mortgaged Property and which have not been applied to the
payment of such Mortgage Loan, (iii) amounts expended but not approved by the
Primary Mortgage Insurer, (iv) claim payments previously made by the Primary
Mortgage Insurer, and (v) unpaid premiums.
Unless otherwise specified in the related Prospectus Supplement, as
conditions precedent to the filing of or payment of a claim under a Primary
Mortgage Insurance Policy covering a Mortgage Loan in the related Mortgage
Pool, the Insured will be required to, in the event of default by the
Mortgagor: (i) advance or discharge (A) all hazard insurance premiums and (B)
as necessary and approved in advance by the Primary Mortgage Insurer, (1)
real estate property taxes, (2) all expenses required to preserve, repair and
prevent waste to the Mortgaged Property so as to maintain such Mortgaged
Property in at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (3)
property sales expenses, (4) any outstanding liens (as defined in such
Primary Mortgage Insurance Policy) on the Mortgaged Property and (5)
foreclosure costs, including court costs and reasonable attorneys' fees; (ii)
in the event of a physical loss or damage to the Mortgaged Property, have
restored and repaired the Mortgaged Property to at least as good a condition
as existed at the effective date of such Primary Mortgage Insurance Policy,
ordinary wear and tear excepted; and (iii) tender to the Primary Mortgage
Insurer good and merchantable title to and possession of the mortgaged
property.
Unless otherwise specified in the related Prospectus Supplement, other
provisions and conditions of each Primary Mortgage Insurance Policy covering
a Mortgage Loan in the related Mortgage Pool generally will provide that: (a)
no change may be made in the terms of such Mortgage Loan without the consent
of the Primary Mortgage Insurer; (b) written notice must be given to the
Primary Mortgage Insurer within 10 days after the Insured becomes aware that
a Mortgagor is delinquent in the payment of a sum equal to the aggregate of
two scheduled monthly payments due under such Mortgage Loan or that any
proceedings affecting the Mortgagor's interest in the Mortgaged Property
securing such Mortgage Loan have commenced, and thereafter the Insured must
report monthly to the Primary Mortgage Insurer the status of any such
Mortgage Loan until such Mortgage Loan is brought current, such proceedings
are terminated or a claim is filed; (c) the Primary Mortgage Insurer will
have the right to purchase such Mortgage Loan, at any time subsequent to the
10 days' notice described in (b) above and prior to the commencement of
foreclosure proceedings, at a price equal to the unpaid principal amount of
the Mortgage Loan, plus accrued and unpaid interest thereon and reimbursable
amounts expended by the Insured for the real estate taxes and fire and
extended coverage insurance on the Mortgaged Property for a period not
exceeding 12 months, and less the sum of any claim previously paid under the
Primary Mortgage Insurance Policy and any due and unpaid premiums with
respect to such policy; (d) the Insured must commence proceedings at certain
times specified in the Primary Mortgage Insurance Policy and diligently
proceed to obtain good and merchantable title to and possession of the
Mortgaged Property; (e) the Insured must notify the Primary Mortgage Insurer
of the price specified in (c) above at least 15 days prior to the sale of the
Mortgaged Property by foreclosure, and bid such amount unless the Mortgage
Insurer specifies a lower or higher amount; and (f) the Insured may accept a
conveyance of the Mortgaged Property in lieu of foreclosure with written
approval of the Mortgage Insurer provided the ability of the Insured to
assign specified rights to the Primary Mortgage Insurer are not thereby
impaired or the specified rights of the Primary Mortgage Insurer are not
thereby adversely affected.
Unless otherwise specified in the related Prospectus Supplement, the
Primary Mortgage Insurer will be required to pay to the Insured either: (1)
the insured percentage of the Loss; or (2) at its option under certain of the
Primary Mortgage Insurance Policies, the sum of the delinquent monthly
payments plus any advances made by the Insured, both to the date of the claim
payment, and thereafter, monthly payments in the amount that would have
become due under the Mortgage Loan if it had not been discharged plus any
advances made by the Insured until the earlier of (A) the date the Mortgage
Loan would have been discharged in full if the default had not occurred or
(B) an approved sale. Any rents or other payments collected or received by
the Insured which are derived from or are in any way related to the Mortgaged
Property will be deducted from any claim payment.
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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 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.
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With respect to a defaulted VA Loan, the Servicer is, absent exceptional
circumstances, authorized to announce its intention to foreclose only when
the default has continued for three months. Generally, a claim for the
guarantee is submitted after liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the VA
Loan originally guaranteed applied to indebtedness outstanding as of the
applicable date of computation specified in the VA regulations. Payments
under the guarantee will be equal to the unpaid principal amount of the VA
Loan, interest accrued on the unpaid balance of the VA Loan to the
appropriate date of computation and limited expenses of the mortgagee, but in
each case only to the extent that such amounts have not been recovered
through liquidation of the Mortgaged Property. The amount payable under the
guarantee may in no event exceed the amount of the original guarantee.
STANDARD HAZARD INSURANCE POLICIES ON MORTGAGE LOANS
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
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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 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.
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Unless otherwise specified in the related Prospectus Supplement, the Pool
Insurance Policy will provide that as a condition precedent to the payment of
any claim the Insured will be required (i) to advance hazard insurance
premiums on the Mortgaged Property securing the defaulted Mortgage Loan; (ii)
to advance, as necessary and approved in advance by the Pool Insurer, (a)
real estate property taxes, (b) all expenses required to preserve and repair
the Mortgaged Property, to protect the Mortgaged Property from waste, so that
the Mortgaged Property is in at least as good a condition as existed on the
date upon which coverage under the Pool Insurance Policy with respect to such
Mortgaged Property first became effective (ordinary wear and tear excepted),
(c) property sales expenses, (d) any outstanding liens on the Mortgaged
Property and (e) foreclosure costs including court costs and reasonable
attorneys' fees; and (iii) if there has been physical loss or damage to the
Mortgaged Property, to restore the Mortgaged Property to its condition
(reasonable wear and tear excepted) as of the issue date of the Pool
Insurance Policy. It also will be a condition precedent to the payment of any
claim under the Pool Insurance Policy that the Insured maintain a Primary
Mortgage Insurance Policy that is acceptable to the Pool Insurer on all
Mortgage Loans that have Loan-to-Value Ratios at the time of origination in
excess of 80%. FHA insurance and VA guarantees will be deemed to be an
acceptable Primary Mortgage Insurance Policy under the Pool Insurance Policy.
Assuming satisfaction of these conditions, the Pool Insurer will pay to the
Insured the amount of loss, determined as follows: (i) the amount of the
unpaid principal balance of the Mortgage Loan immediately prior to the
Approved Sale (as described below) of the Mortgaged Property, (ii) the amount
of the accumulated unpaid interest on such Mortgage Loan to the date of claim
settlement at the applicable Mortgage Rate and (iii) advances as described
above, less (a) all rents or other payments (excluding proceeds of fire and
extended coverage insurance) collected or received by the Insured, which are
derived from or in any way related to the Mortgaged Property, (b) amounts
paid under applicable fire and extended coverage policies which are in excess
of the cost of restoring and repairing the Mortgaged Property and which have
not been applied to the payment of the Mortgage Loan, (c) any claims payments
previously made by the Pool Insurer on the Mortgage Loan, (d) due and unpaid
premiums payable with respect to the Pool Insurance Policy and (e) all claim
payments received by the Insured pursuant to any Primary Mortgage Insurance
Policy. An "Approved Sale" is (1) a sale of the Mortgaged Property acquired
because of a default by the Mortgagor to which the Pool Insurer has given
prior approval, (2) a foreclosure or trustee's sale of the Mortgaged Property
at a price exceeding the maximum amount specified by the Pool Insurer, (3)
the acquisition of the Mortgaged Property under the Primary Insurance Policy
by the Primary Mortgage Insurer or (4) the acquisition of the Mortgaged
Property by the Pool Insurer. The Pool Insurer must be provided with good and
merchantable title to the Mortgaged Property as a condition precedent to the
payment of any Loss. If any Mortgaged Property securing a defaulted Mortgage
Loan is damaged and the proceeds, if any, from the related Standard Hazard
Insurance Policy or the applicable Special Hazard Insurance Policy are
insufficient to restore the Mortgaged Property to a condition sufficient to
permit recovery under the Pool Insurance Policy, the Master Servicer or the
Servicer of the related Mortgage Loan will not be required to expend its own
funds to restore the damaged Mortgaged Property unless it is determined (A)
that such restoration will increase the proceeds to the 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
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principal balance with no decrease in the amortization period. A failure of
coverage attributable to one of the foregoing events might result in a breach
of the Master Servicer's insurability representation described under
"Description of the Certificates--Assignment of Mortgage Loans" above, and in
such event, subject to the limitations described therein, might give rise to
an obligation on the part of the Master Servicer to purchase the defaulted
Mortgage Loan if the breach materially and adversely affects the interests of
the Certificateholders of the related Series and cannot be cured by the
Master Servicer. Depending upon the nature of the event, a breach of
representation made by the Depositor or an Unaffiliated Seller may also have
occurred. Such a breach, if it materially and adversely affects the interests
of the Certificateholders of such Series and cannot be cured, would give rise
to a repurchase obligation on the part of the Unaffiliated Seller as more
fully described under "The Trust Fund-- Mortgage Loan
Program--Representations by Unaffiliated Sellers; Repurchases" and
"Description of the Certificates--Assignment of Mortgage Loans."
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Certificates of the related Series by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed Mortgaged
Properties covered thereby. The amount of claims paid will include certain
expenses incurred by the Master Servicer or by the Servicer of the defaulted
Mortgage Loan as well as accrued interest on delinquent Mortgage Loans to the
date of payment of the claim. Accordingly, if aggregate net claims paid under
a Pool Insurance Policy reach the original policy limit, coverage under the
Pool Insurance Policy will lapse and any further losses will be borne by the
holders of the Certificates of such Series. In addition, unless the Master
Servicer or the related Servicer could determine that an Advance in respect
of a delinquent Mortgage Loan would be recoverable to it from the proceeds of
the liquidation of such Mortgage Loan or otherwise, neither such Servicer nor
the Master Servicer would be obligated to make an Advance respecting any such
delinquency, since the Advance would not be ultimately recoverable to it from
either the Pool Insurance Policy or from any other related source. See
"Description of the Certificates--Advances."
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the 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
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Property as a result of default by the Mortgagor. If the sum of the unpaid
principal balance plus accrued interest and certain expenses is paid by the
Special Hazard Insurer, the amount of further coverage under the related
Special Hazard Insurance Policy will be reduced by such amount less any net
proceeds from the sale of the Mortgaged Property. Any amount paid as the cost
of repair of the Mortgaged Property will further reduce coverage by such
amount.
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to maintain the Special Hazard Insurance Policy in full force and
effect throughout the term of the Pooling and Servicing Agreement. If a Pool
Insurance Policy is required to be maintained pursuant to the Pooling and
Servicing Agreement, the Special Hazard Insurance Policy will be designed to
permit full recoveries under the Pool Insurance Policy in circumstances where
such recoveries would otherwise be unavailable because Mortgaged Property has
been damaged by a cause not insured against by a Standard Hazard Insurance
Policy. In such event the Pooling and Servicing Agreement will provide that,
if the related Pool Insurance Policy shall have terminated or been exhausted
through payment of claims, the Master Servicer will be under no further
obligation to maintain such Special Hazard Insurance Policy.
MORTGAGOR BANKRUPTCY BOND
In the event of a personal bankruptcy of a Mortgagor, a bankruptcy court
may establish the value of the related Mortgaged Property or Cooperative
Dwelling at an amount less than the then outstanding principal balance of the
related Mortgage Loan. The amount of the secured debt could be reduced to
such value, and the holder of such Mortgage Loan thus would become an
unsecured creditor to the extent the outstanding principal balance of such
Mortgage Loan exceeds the value so assigned to the Mortgaged Property or
Cooperative Dwelling by the bankruptcy court. In addition, certain other
modifications of the terms of a Mortgage Loan can result from a bankruptcy
proceeding. If so specified in the 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
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and represents the security for the repayment of an obligation that is
customarily evidenced by a promissory note. It is not prior to the lien for
real estate taxes and assessments or other charges imposed under governmental
police powers. Priority with respect to such instruments depends on their
terms, the knowledge of the parties to the mortgage and generally on the
order of recording with the applicable state, county or municipal office.
There are two parties to a mortgage: the mortgagor, who is the borrower and
homeowner, and the mortgagee, who is the lender. In a mortgage state, the
mortgagor delivers to the mortgagee a note or bond evidencing the loan and
the mortgage. Although a deed of trust is similar to a mortgage, a deed of
trust has three parties: the borrower-homeowner called the trustor (similar
to a mortgagor) a lender called the beneficiary (similar to a mortgagee) and
a third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the loan. The
trustee's authority under a deed of trust and the mortgagee's authority under
a mortgage are governed by the express provisions of the deed of trust or
mortgage, applicable law and, in some cases, with respect to the deed of
trust, the directions of the beneficiary.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right to
foreclosure is contested, the legal proceedings necessary to resolve the
issue can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some
states, mortgages may also be foreclosed by advertisement, pursuant to a
power of sale provided in the mortgage. Foreclosure of a mortgage by
advertisement is essentially similar to foreclosure of a deed of trust by
non-judicial power of sale.
Though a deed of trust may also be foreclosed by judicial action,
foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that
authorizes the trustee to sell the property upon a default by the borrower
under the terms of the note or deed of trust. In some states, the trustee
must record a notice of default and send a copy to the borrower-trustor and
to any person who has recorded a request for a copy of a notice of default
and notice of sale. In addition, the trustee must provide notice in some
states to any other individual having an interest in the real property,
including any junior lienholders. If the loan is not reinstated within any
applicable cure period, a notice of sale must be posted in a public place
and, in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest of
record in the property.
In some states, the borrower-trustor has the right to reinstate the loan
at any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in
enforcing the obligation. Certain state laws control the amount of
foreclosure expenses and costs, including attorneys' fees, which may be
recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a
public sale. However, because of a number of factors, including the
difficulty a potential buyer at the sale would have in determining the exact
status of title and the fact that the physical condition of the property may
have deteriorated during the foreclosure proceedings, it is uncommon for a
third party to purchase the property at the foreclosure sale. Rather, it is
common for the lender to purchase the property from the trustee or receiver
for a credit bid less than or equal to the unpaid principal amount of the
note, accrued and unpaid interest and the expenses of foreclosure.
Thereafter, subject to the right of the borrower in some states to remain in
possession during the redemption period, the lender will assume the burdens
of ownership, including obtaining hazard insurance and making such repairs at
its own expense as are necessary to render the property suitable for
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sale. The lender commonly will obtain the services of a real estate broker
and pay the broker a commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Any loss may
be reduced by the receipt of mortgage insurance proceeds.
Cooperative Loans
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also contain Cooperative Loans evidenced
by promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under
the Code and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in the
corporations' buildings. The security agreement will create a lien upon, or
grant a title interest in, the property that it covers, the priority of which
will depend on the terms of the particular security agreement as well as the
order of recordation of the agreement in the appropriate recording office.
Such a lien or title interest is not prior to the lien for real estate taxes
and assessments and other charges imposed under governmental police powers.
A corporation that is entitled to be treated as a housing cooperative
under the Code owns all the real property or some interest therein sufficient
to permit it to own the building and all separate dwelling units therein. The
cooperative is directly responsible for property management and, in most
cases, payment of real estate taxes and hazard and liability insurance. If
there is a blanket mortgage or mortgages on the cooperative apartment
building and/or underlying land, as is generally the case, or an underlying
lease of the land, as is the case in some instances, the cooperative, as
property mortgagor, is also responsible for meeting these mortgage or rental
obligations. The interest of the occupancy under proprietary leases or
occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and
to the interest of the holder of a land lease. If the cooperative is unable
to meet the payment obligations (i) arising under a blanket mortgage, the
mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the land lease could terminate it
and all subordinate proprietary leases and occupancy agreements. Also, a
blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of
principal being due in one final payment at maturity. The inability of the
cooperative to refinance a mortgage and its consequent inability to make such
final payment could lead to foreclosure by the mortgagee. Similarly, a land
lease has an expiration date and the inability of the cooperative to extend
its term or, in the alternative, to purchase the land could lead to
termination of the cooperative's interest in the property and termination of
all proprietary leases and occupancy agreements. A foreclosure by the holder
of a blanket mortgage could eliminate or significantly diminish the value of
any collateral held by the lender who financed an individual
tenant-stockholder of cooperative shares including, in the case of the
Cooperative Loans, the collateral securing the Cooperative Loans. Similarly,
the termination of the land lease by its holder 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
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collateral or tenant-stockholder as an individual as provided in the security
agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of cooperative shares. See "--Realizing upon
Cooperative Loan Security" below.
Tax Aspects of Cooperative Loans
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed a deduction
for amounts paid or accrued within his taxable year to the corporation
representing his proportionate share of certain interest expenses and certain
real estate taxes allowable as a deduction under Section 216(a) of the Code
to the corporation under Sections 163 and 164 of the Code. In order for a
corporation to qualify under Section 216(b)(1) of the Code for its taxable
year in which such items are allowable as a deduction to the corporation,
such section requires, among other things, that at least 80% of the gross
income of the corporation be derived from its tenant-stockholder. By virtue
of this requirement the status of a corporation for purposes of Section
216(b)(1) of the Code must be determined on a year-to-year basis.
Consequently, there can be no assurance that cooperatives relating to the
Cooperative Loans will qualify under such section for any particular year. In
the event that such a cooperative fails to qualify for one or more years, the
value of the collateral securing any related Cooperative Loans could be
significantly impaired because no deduction would be allowable to
tenant-stockholders under Section 216(a) of the Code with respect to those
years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1)
of the Code, the likelihood that such a failure would be permitted to
continue over a period of years appears remote.
Realizing upon Cooperative Loan Security
The cooperative shares and proprietary lease or occupancy agreement owned
by the tenant- stockholder and pledged to the lender are, in almost all
cases, subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease
or occupancy agreement. The proprietary lease or occupancy agreement, even
while pledged, may be cancelled by the cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the cooperative
apartment building incurred by such tenant-stockholder. Commonly, rent and
other obligations and charges arising under a proprietary lease or occupancy
agreement which are owed to the cooperative are made liens upon the shares to
which the proprietary lease or occupancy agreement relates. In addition, the
proprietary lease or occupancy agreement generally permits the cooperative to
terminate such lease or agreement in the event the borrower defaults in the
performance of covenants thereunder. The lender and the cooperative will
typically enter into a recognition agreement which establishes the rights and
obligations of both parties in the event of a default by the
tenant-stockholder on its obligations under the proprietary lease or
occupancy agreement. A default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually constitute a default
under the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize
the lender's lien against proceeds from a sale of the cooperative apartment
subject, however, to the cooperative's right to sums due under such
proprietary lease or occupancy agreement or that have become liens on the
shares relating to the proprietary lease or occupancy agreement. The total
amount owed to the cooperative by the tenant-stockholder, which the lender
generally cannot restrict and does not monitor, could reduce the value of the
collateral below the outstanding principal balance of the cooperative loan
and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event the lender succeeds
to the tenant- shareholder's shares and proprietary lease or occupancy
agreement as the result of realizing upon the collateral for a cooperative
loan, the lender must obtain the approval or consent of the cooperative as
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required by the proprietary lease before transferring the cooperative shares
or assigning the proprietary lease. Such approval or consent is usually based
on the prospective purchaser's income and net worth, among other factors, and
may significantly reduce the number of potential purchasers, which could
limit the ability of the lender to sell and realize upon the value of the
collateral. Generally, the lender is not limited in any rights it may have to
dispossess the tenant-shareholders.
The terms of the Cooperative Loans do not require either the Mortgagor or
the Cooperative to obtain title insurance of any type. Consequently, the
existence of any prior liens or other imperfections of title also may
adversely affect the marketability of the Cooperative Dwelling in the event
of foreclosure.
In New York, lenders generally realize upon the pledged shares and
proprietary lease or occupancy agreement given to secure a cooperative loan
by public sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those
shares. Article 9 of the UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given
the debtor and the method, manner, time, place and terms of the sale.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy
the indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the cooperative corporation to
receive sums due under the proprietary lease or occupancy agreement. If there
are proceeds remaining, the lender must account to the tenant-stockholder for
the surplus. Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency. See
"Anti-Deficiency Legislation and Other Limitations on Lenders" below.
In the case of foreclosure on a Multifamily Property that was converted
from a rental building to a building owned by a cooperative housing
corporation under a non-eviction plan, some states require that a purchaser
at a foreclosure sale take the property subject to rent control and rent
stabilization laws which apply to certain tenants who elected to remain in
the building but not to purchase shares in the cooperative when the building
was so converted. Any such restrictions could adversely affect the number of
potential purchasers for and the value of such property.
Rights of Redemption
In some states, after a sale pursuant to a deed of trust or foreclosure of
a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale.
In certain other states, this right of redemption applies only to a sale
following judicial foreclosure, and not a sale pursuant to a non-judicial
power of sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase
price, accrued interest and taxes. In some states, the right to redeem is an
equitable right. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The exercise of a
right of redemption would defeat the title of any purchaser from the lender
subsequent to foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the lender to retain the
property and pay the expenses of ownership until the redemption period has
run.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In
some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or a
non-judicial sale under a deed of trust. A deficiency judgment is a personal
judgment against the former borrower equal in most cases to the difference
between the amount due to the lender and the net amount realized upon the
foreclosure sale. Other statutes prohibit a deficiency judgment where the
loan proceeds were used to purchase a dwelling occupied by the borrower.
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Some state statutes may require the beneficiary or mortgagee to exhaust
the security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against
the borrower. In certain other states, the lender has the option of bringing
a personal action against the borrower on the debt without first exhausting
such security; however, in some of these states, the lender, following
judgment on such personal action, may be deemed to have elected a remedy and
may be precluded from exercising remedies with respect to the security.
Consequently, the practical effect of the election requirement, when
applicable, is that lenders will usually proceed first against the security
rather than bringing a personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided
for in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
In the case of cooperative loans, lenders generally realize on cooperative
shares and the accompanying proprietary lease or occupancy agreement given to
secure a cooperative loan under Article 9 of the UCC. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless
the creditor establishes that the sale of the collateral (which, in the case
of a Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy
laws, the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state
laws affording relief to debtors, may interfere with or affect the ability of
a secured mortgage lender to realize upon its security. For example, in a
Chapter 13 proceeding under the federal Bankruptcy Code, when a court
determines that the value of a home is less than the principal balance of the
loan, the court may prevent a lender from foreclosing on the home, and, as
part of the rehabilitation plan, reduce the amount of the secured
indebtedness to the value of the home as it exists at the time of the
proceeding, leaving the lender as a general unsecured creditor for the
difference between that value and the amount of outstanding indebtedness. A
bankruptcy court may grant the debtor a reasonable time to cure a payment
default, and in the case of a mortgage loan not secured by the debtor's
principal residence, also may reduce the monthly payments due under such
mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. Certain court decisions have applied such relief to
claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to
certain tax liens over the lien of the mortgage or deed of trust. Numerous
federal and some state consumer protection laws impose substantive
requirements upon mortgage lenders in connection with the origination,
servicing and the enforcement of mortgage loans. These laws include the
federal Truth in Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act,
and related statutes and regulations. These federal laws and state laws
impose specific statutory liabilities upon lenders who originate or service
mortgage loans and who fail to comply with the provisions of the law. In some
cases, this liability may affect assignees of the mortgage loans.
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan secured by Multifamily Property will be a non-recourse loan to
the Mortgagor. As a result, the Mortgagor's obligation to repay the Mortgage
Loan can be enforced only against the Mortgaged Property regardless of
whether the Mortgagor has other assets from which it could repay the loan.
Unless otherwise specified in the related Prospectus Supplement, the
mortgage securing each Mortgage Loan relating to Multifamily Property will
contain an assignment of rents and an assignment of
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leases, pursuant to which the borrower assigns its right, title and interest
as landlord under each lease and the income derived therefrom to the
Depositor, while retaining a license to collect the rents so long as there is
no default. In the event the borrower defaults, the license terminates and
the Trustee (as the assignee of such assignment) is entitled to collect the
rents. The Trustee may enforce its right to such rents by seeking the
appointment of a receiver to collect the rents immediately after giving
notice to the borrower of the default.
"Due-on-Sale" Clauses
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of
the maturity of a loan if the borrower transfers its interest in the
property. The enforceability of these clauses has been subject of legislation
or litigation in many states, and in some cases the enforceability of these
clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in
accordance with their terms, subject to certain limited exceptions. The
Garn-St Germain Act does "encourage" lenders to permit assumption of loans at
the original rate of interest or at some other rate less than the average of
the original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property
may have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a
junior encumbrance. Regulations promulgated under the Garn-St Germain Act
also prohibit the imposition of prepayment penalty upon the acceleration of a
loan pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by
a new home buyer rather than being paid off, which may have an impact upon
the average life of the Mortgage Loans and the number of Mortgage Loans which
may be outstanding until maturity.
Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon late charges which a lender may
collect from a borrower for delinquent payments. State and federal statutes
or regulations may also limit a lender's right to collect a prepayment
penalty when the prepayment is caused by the lender's acceleration of the
loan pursuant to a due-on-sale clause. Certain states also limit the amounts
that a lender may collect from a borrower as an additional charge if the loan
is prepaid. Under the Servicing Agreements and the 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
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addition to the statutorily-prescribed minimum requirements. For the most
part, these cases have upheld the notice provisions as being reasonable or
have found that the sale by a trustee under a deed of trust or under a
mortgage having a power of sale does not involve sufficient state action to
afford constitutional protections to the borrower.
Environmental Considerations
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, a secured party which takes a deed in lieu of
foreclosure or purchases a mortgaged property at a foreclosure sale may
become liable in certain circumstances for the costs of remedial action
("Cleanup Costs") if hazardous wastes or hazardous substances have been
released or disposed of on the property. Such Cleanup Costs may be
substantial. It is possible that such costs could become a liability of the
Trust Fund and reduce the amounts otherwise distributable to the
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
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motor vehicle authority, depending on state law. In some nontitle states,
perfection pursuant to the provisions of the UCC is required. The lender or
Master Servicer may effect such notation or delivery of the required
documents and fees, and obtain possession of the certificate of title, as
appropriate under the laws of the state in which any manufactured home
securing a manufactured housing conditional sales contract is registered. In
the event the Master Servicer or the lender fails, due to clerical errors, to
effect such notation or delivery, or files the security interest under the
wrong law (for example, under a motor vehicle title statute rather than under
the UCC, in a few states), the Certificateholders may not have a first
priority security interest in the Manufactured Home securing a Contract. As
manufactured homes have become larger and often have been attached their
sites without any apparent intention to move them, courts in many states have
held that manufactured homes, under certain circumstances, may become subject
to real estate title and recording laws. As a result, a security interest in
a manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate
law. In order to perfect a security interest in a manufactured home under
real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage
under the real estate laws of the state where the manufactured home is
located. These filings must be made in the real estate records office of the
county where the manufactured home is located. Substantially all of the
Contracts will contain provisions prohibiting the borrower from permanently
attaching the Manufactured Home to its site. So long as the Obligor does not
violate this agreement, a security interest in the Manufactured Home will be
governed by the certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a UCC
financing statement will be effective to maintain the priority of the
seller's security interest in the Manufactured Home. If, however, a
Manufactured Home is permanently attached to its site, other parties could
obtain an interest in the Manufactured Home which is prior to the security
interest originally retained by the Unaffiliated Seller and transferred to
the Depositor. With respect to a Series of Certificates and as described in
the 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.
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In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to another
state and not re-register the Manufactured Home in such state, and if steps
are not taken to re-perfect the Trustee's security interest in such state,
the security interest in the Manufactured Home would cease to be perfected. A
majority of states generally require surrender of a certificate of title to
re-register a Manufactured Home; accordingly, the Trustee, or the Master
Servicer as custodian for the Trustee, must surrender possession if it holds
the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states which provide for notation of lien,
the Trustee would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the
Trustee would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states which do not require
a certificate of title for registration of a Manufactured Home,
re-registration could defeat perfection. In the ordinary course of servicing
manufactured housing 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
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will describe the Assets as of the Cut-off Date. REMIC Certificates held by
certain financial institutions will constitute an "evidence of indebtedness"
within the meaning of Code Section 582(c)(1); in addition, 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 applicable
to REMIC Regular Certificates. Regulations have not yet been proposed or
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adopted interpreting Code Section 1272(a)(6). Further, the application of the
OID Regulations to the REMIC Regular Certificates remains unclear in some
respects because the OID Regulations generally purport not to apply to
instruments to which section 1272(a)(6) applies such as REMIC Regular
Certificates, and separately because they either do not address, or are
subject to varying interpretations with regard to, several relevant issues.
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. It is unclear
how such treatment would be elected under the OID Regulations and whether an
election could be made unilaterally by a Certificateholder.
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.
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A combination of such rates is conclusively presumed to be a single floating
rate if the values of all rates on the Closing Date are within 0.25
percentage points of each other. A variable rate that is subject to an
interest rate cap, floor, "governor" or similar restriction on rate
adjustment may be a qualified floating rate only if such restriction is fixed
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."
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Each holder of a REMIC Regular Certificate must include in gross income
the sum of the "daily portions" of original issue discount on its REMIC
Regular Certificate for each day during its taxable year on which it held
such REMIC Regular Certificate. For this purpose, in the case of an original
holder of a REMIC Regular Certificate, the daily portions of original issue
discount will be determined as follows. A calculation will first be made of
the portion of the original issue discount that accrued during each accrual
period, that is, 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 (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.
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
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Regulations to such Certificates. In the absence of other authority, the
Master Servicer intends to be guided by the provisions of the OID Regulations
governing variable rate debt instruments in adapting the provisions of
Section 1272(a)(6) of the Code to such Certificates for the purpose of
preparing reports furnished to Certificateholders. The effect of the
application of such provisions generally will be to cause Certificateholders
holding Certificates bearing interest at a Single Variable Rate to take into
account for each period an amount corresponding approximately to the sum of
(i) the qualified stated interest accruing on the outstanding face amount of
the REMIC Regular Certificate as the stated interest rate for that
Certificate varies from time to time and (ii) the amount of original issue
discount that would have been attributable to that period on the basis of a
constant yield to maturity for a bond issued at the same time and issue price
as the REMIC Regular Certificate, having the same face amount and schedule of
payments of principal as such Certificate, subject to the same Prepayment
Assumption, and bearing interest at a fixed rate equal to the value of the
applicable qualified floating rate or qualified inverse floating rate in the
case of a Certificate providing for either such rate, or equal to the fixed
rate that reflects the reasonably expected yield on the Certificate in the
case of a Certificate providing for an objective rate other than an inverse
floating rate, in each case as of the issue date. Certificateholders holding
REMIC Regular Certificates bearing interest at a Multiple Variable Rate
generally will take into account interest and original issue discount under a
similar methodology, except that the amounts of qualified stated interest and
original issue discount attributable to such a Certificate first will be
determined for an "equivalent" debt instrument bearing fixed rates, the
assumed fixed rates for which are (a) for each qualified floating rate, the
value of each such rate as of the Closing Date (with appropriate adjustment
for any differences in intervals between interest adjustment dates), (b) for
a qualified inverse floating rate, the value of the rate as of the Closing
Date, and (c) for any other objective rate, the fixed rate that reflects the
yield that is reasonably expected for the Certificate. If the interest paid
or accrued with respect to a Multiple Variable Rate Certificate during an
accrual period differs from the assumed fixed interest rate, such difference
will be an adjustment (to interest or original issue discount, as applicable)
to the Certificateholder's taxable income for the taxable period or periods
to which such difference relates.
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.
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A Certificateholder may elect to include market discount in income
currently as it accrues, rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the
first day of the first taxable year to which such election applies. In
addition, the OID Regulations permit a Certificateholder to elect to accrue
all interest, discount (including de minimis market or original issue
discount) and premium in income as interest, based on a constant yield
method. If such an election were made for a REMIC Regular Certificate with
market discount, the Certificateholder would be deemed to have made an
election to currently include market discount in income with respect to all
other debt instruments having market discount that such Certificateholder
acquires during the year of the election or thereafter. Similarly, a
Certificateholder that makes this election for a Certificate that is acquired
at a premium is deemed to have made an election to amortize bond premium, as
described below, with respect to all debt instruments having amortizable bond
premium that such Certificateholder owns or acquires. The election to accrue
interest, discount and premium on a constant yield method with respect to a
Certificate is irrevocable without the consent of the IRS.
Under a statutory de minimis exception, market discount with respect to a
REMIC Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if such market discount is less than 0.25% of the
stated redemption price at maturity of such REMIC Regular Certificate
multiplied by the number of complete years to maturity remaining after the
date of its purchase. In interpreting a similar de minimis rule with respect
to original issue discount on obligations payable in installments, the OID
Regulations refer to the weighted average maturity of obligations, and it is
likely that the same rule will be applied in determining whether market
discount is de minimis. It appears that de minimis market discount on a REMIC
Regular 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
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Regular Certificate. Any such deferred interest expense is, in general,
allowed as a deduction not later than the year in which the related market
discount income is recognized. If such holder elects to include market
discount in income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
A REMIC Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated
redemption price at maturity will be considered to be purchased at a premium.
The holder of such a REMIC Regular Certificate may elect to amortize such
premium under the constant yield method. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the
Certificateholder as having made the election to amortize premium generally,
as described above. The Committee Report indicates a Congressional intent
that the same rules that will apply to accrual of market discount on
installment obligations will also apply in amortizing bond premium under Code
Section 171 on installment obligations such as the REMIC Regular
Certificates.
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 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 generally should be allowed to
deduct as a short-term capital loss any loss sustained on account of complete
worthlessness of a Subordinated Certificate. A 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 Subordinated Certificates
otherwise have 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 corresponding cash
distributions. This result
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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.
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
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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 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
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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
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Certificates for purposes of the limitations on the deductibility of certain
miscellaneous itemized deductions by individuals contained in Code Sections
56(b)(1) and 67. Generally, any holder of a REMIC 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 original issue discount and the issue date
and requiring such information to be reported to the Treasury Department.
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The REMIC Regular Certificate information reports must include a statement
of the "adjusted issue price" of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports must include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method
would require information relating to the holder's purchase price which the
REMIC Mortgage Pool may not have, it appears that this provision will only
require information pertaining to the appropriate proportionate method of
accruing market discount.
The responsibility for complying with the foregoing reporting rules will
be borne by the Master Servicer.
For purposes of the administrative provisions of the Code, REMIC Pools
will be treated as partnerships and the holders of Residual Certificates will
be treated as partners. The Master Servicer, which will hold at least a
nominal amount of Residual Certificates, 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 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.
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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.
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
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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 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"
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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 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.
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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 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."
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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.
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
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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 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
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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."
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
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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 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
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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 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.
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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 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.
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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.
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
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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 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
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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.
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.
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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 do not include Mortgage Certificates (unless interest
and principal payable with respect to the Mortgage Certificates are
guaranteed by the GNMA, FHLMC or FNMA) or Contracts;
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(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
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holding of Certificates of the applicable Series or Class by, on behalf of or
with "plan assets" of such Plan might be viewed as giving rise to a
prohibited transaction under ERISA and Section 4975 of the Code, unless PTCE
83-1 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, life insurance companies and
pension funds) created pursuant to or existing under the laws of the United
States or of any State 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.
Under SMMEA, if a State enacted legislation on or prior to October 3, 1991
specifically limiting the legal investment authority of any such entities
with respect to "mortgage related securities," such securities will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. Certain States have enacted legislation which
overrides the preemption provisions of SMMEA. SMMEA provides, however, that
in no event will the enactment of any such legislation affect the validity of
any contractual commitment to purchase, hold or invest in "mortgage related
securities," or require the sale or other disposition of such securities, so
long as such contractual commitment was made or such securities acquired
prior to the enactment of 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 with "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.
The Federal Financial Institutions Examination Council has adopted a
supervisory policy statement (the "Policy Statement"), applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the Office of Thrift Supervision
with an effective date of February 10, 1992. There can be no assurance as to
which classes of Certificates would be treated as high-risk under the Policy
Statement. In addition, the
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National Credit Union Administration has issued regulations governing federal
credit union investments which prohibit investment in certain specified types
of securities, which may include certain classes of Certificates. Similar
policy statements have been issued by regulators having jurisdiction over
other types of depository institutions.
Institutions whose investment activities are subject to legal investment
laws and regulations or to review by certain regulatory authorities may be,
or may become, subject to restrictions on investments in the Certificates.
The Depositor makes no representations as to the proper characterization of
any Class of Certificates for legal investment or other purposes, or as to
the ability of particular investors to purchase any Class of Certificates
under applicable legal investment restrictions. 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
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.
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INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE ON WHICH TERM
IS DEFINED IN THE
TERM 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>
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<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH TERM
IS DEFINED IN THE
TERM 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
</TABLE>
114
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH TERM
IS DEFINED IN THE
TERM PROSPECTUS
- ---------------------------------------- ------------------
<S> <C>
non-U.S. Person ......................... 94
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
</TABLE>
115
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH TERM
IS DEFINED IN THE
TERM PROSPECTUS
- ---------------------------------------- ------------------
<S> <C>
Senior Prepayment Percentage ............ 59
Senior Subclass ......................... 3
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>
116
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriters. This Prospectus Supplement and the Prospectus
do not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Available Information .......................
Summary of Terms ............................
Special Considerations ......................
Description of the Mortgage Pool and the
Underlying Properties ......................
Description of the Certificates .............
Rating ......................................
ERISA Considerations ........................
Underwriting ................................
Legal Matters ...............................
Use of Proceeds .............................
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
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 ................................. 57
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 .................................. 112
Index of Terms ................................. 113
</TABLE>
CS First Boston Mortgage
Securities Corp.
Depositor
$
Conduit Mortgage and
Manufactured Housing Contract
Pass-Through Certificates, Series
PROSPECTUS SUPPLEMENT
CS First Boston
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses except for the
registration and filing fees, are estimated.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee ................................ $ 600,000
Legal Fees and Expenses ............................. 900,000
Accounting Fees and Expenses ........................ 150,000
Trustee's Fees and Expenses (including counsel fees) 300,000
Printing and Engraving Fees ......................... 350,000
Rating Agency Fees .................................. 850,000
Miscellaneous ....................................... 200,000
-----------
Total ........................................... $3,350,000
===========
</TABLE>
ITEM 31. SALES TO SPECIAL PARTIES.
Not applicable.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article V of the Certificate of Incorporation of the Depositor and Article
X of the By-laws of the Depositor provide for the indemnification of the
officers and directors of the Depositor in certain circumstances. Reference
is made to Exhibit 3.1 of this Registration Statement for the complete text
of the Certificate of Incorporation and reference is made to Exhibit 3.2 of
this Registration Statement for the complete text of the By-laws.
The ultimate parent of the Depositor carries directors' and officers'
liability insurance that covers certain liabilities and expenses of the
Depositor's directors and officers.
For provisions regarding the indemnification of controlling persons,
directors and officers of the Depositor by Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933,
reference is made to the proposed forms of Underwriting Agreement filed as
Exhibits 1.1 and 1.2 to this Registration Statement.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
II-1
<PAGE>
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements filed as part of the Registration
Statement: none.
(b) Exhibits:
<TABLE>
<CAPTION>
<S> <C>
*1.1 -- Forms of Underwriting Agreement (Mortgage Loans/Mortgage Certificates)
*1.2 -- Form of Underwriting Agreement (Contracts)
*3.1 -- Certificate of Incorporation of Depositor
*3.1.1 -- Certificate of Amendment to the Certificate of Incorporation of Depositor
*3.2 -- By-laws of Depositor
Form of Standard Terms and Provisions of Pooling and Servicing (Mortgage Loans/Mortgage
*4.1 -- Certificates)
*4.2 -- Forms of Reference Agreement (Mortgage Loans/Mortgage Certificates)
*4.3 -- Form of Deposit Trust Agreement between Depositor and Trustee
*4.4 -- Form of Master Seller's Warranty and Servicing Agreement
*4.5 -- Form of Standard Terms and Provisions of Pooling and Servicing (Contracts)
*4.6 -- Forms of Reference Agreement (Contracts)
Form of Standard Terms and Provisions of Pooling and Servicing and Reference Agreement
*4.7 -- (Mortgage Loans)
*4.8 -- Form of Pooling and Servicing Agreement (Mortgage Loans)
Opinion of Cadwalader, Wickersham & Taft with respect to certain matters involving the
5.1 -- Certificates
8.1 -- Opinion of Cadwalader, Wickersham & Taft as to tax matters
24.1 -- Consent of Cadwalader, Wickersham & Taft (to be included as part of Exhibits 5.1 and 8.1)
*25.1 -- Power of Attorney (included on Page II-6 of the Registration Statement)
*25.2 -- Resolutions of the Board of Directors of the Depositor
*28.1 -- Form of Performance Bond
*28.2 -- Form of Letter of Credit
*28.3 -- Form of Primary Mortgage Insurance Policy
*28.4 -- Form of Pool Insurance Policy
*28.5 -- Form of Special Hazard Insurance Policy
*28.6 -- Form of Mortgagor Bankruptcy Bond
</TABLE>
- ------------
* As previously filed in connection with Registration Statement on Form S-11
(Registration No. 33-47579) and incorporated herein by reference.
II-2
<PAGE>
ITEM 36. UNDERTAKINGS.
(a) Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, State of New York on the 17th day of
November, 1995.
CS FIRST BOSTON MORTGAGE SECURITIES CORP.
/s/ WILLIAM S. PITOFSKY
----------------------------------------------
WILLIAM S. PITOFSKY
DIRECTOR
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Andrew D. Stone, John P. Costas, William P.
Pitofsky, Linda H. Hanauer and Thomas Zingalli and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities (including his or her capacity as a director and/or
officer of CS First Boston Mortgage Securities Corp.), to sign any or all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person hereby ratifying
and confirming all that said attorney-in-fact and agents or any of them, or
their or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- --------------------------------- ---------------------
<S> <C> <C>
/s/ ANDREW D. STONE Chairman of the Board, Director November 17, 1995
- ---------------------------- and President (Principal
Andrew D. Stone Executive Officer)
Director
- ----------------------------
JOHN P. COSTAS
/s/ WILLIAM S. PITOFSKY Director November 17, 1995
- ----------------------------
William S. Pitofsky
/s/ LINDA HANAUER Treasurer (Principal Financial November 17, 1995
- ---------------------------- Officer)
Linda Hanauer
/s/ THOMAS ZINGALLI Vice President and Controller November 17, 1995
- ---------------------------- (Principal Accounting Officer)
Thomas Zingalli
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PG. NO.
- ----------- ------------------------------------------------------------------------------------ -----------
<S> <C> <C>
*1.1 --Forms of Underwriting Agreement (Mortgage Loans/Mortgage Certificates)
*1.2 --Form of Underwriting Agreement (Contracts)
*3.1 --Certificate of Incorporation of Depositor
*3.1.1 --Certificate of Amendment to the Certificate of Incorporation of Depositor
*3.2 --By-laws of Depositor
*4.1 --Form of Standard Terms and Provisions of Pooling and Servicing (Mortgage Loans/Mortgage
Certificates)
*4.2 --Forms of Reference Agreement (Mortgage Loans/Mortgage Certificates)
*4.3 --Form of Deposit Trust Agreement between Depositor and Trustee
*4.4 --Form of Master Seller's Warranty and Servicing Agreement
*4.5 --Form of Standard Terms and Provisions of Pooling and Servicing (Contracts)
*4.6 --Forms of Reference Agreement (Contracts)
*4.7 --Form of Standard Terms and Provisions of Pooling and Servicing and Reference Agreement
(Mortgage Loans)
*4.8 --Form of Pooling and Servicing Agreement (Mortgage Loans)
5.1 --Opinion of Cadwalader, Wickersham & Taft with respect to certain matters involving the
Certificates
8.1 --Opinion of Cadwalader, Wickersham & Taft as to tax matters
24.1 --Consent of Cadwalader, Wickersham & Taft (to be included as part of Exhibits 5.1 and
8.1)
*25.1 --Power of Attorney (included on Page II-6 of the Registration Statement)
*25.2 --Resolutions of the Board of Directors of the Depositor
*28.1 --Form of Performance Bond
*28.2 --Form of Letter of Credit
*28.3 --Form of Primary Mortgage Insurance Policy
*28.4 --Form of Pool Insurance Policy
*28.5 --Form of Special Hazard Insurance Policy
*28.6 --Form of Mortgagor Bankruptcy Bond
</TABLE>
- ------------
*As previously filed in connection with Registration Statement on Form S-11
(Registration No. 33-47579) and incorporated herein by reference.
<PAGE>
November 17, 1995
CS First Boston Mortgage
Securities Corp.
55 East 52nd Street
New York, New York 10055
Re: Conduit Mortgage and Manufactured Housing Pass-Through Certificates
Ladies and Gentlemen:
We have acted as your counsel in connection with a Registration Statement
on Form S-3 (the "Registration Statement") to be filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended (the
"Act"). The Registration Statement covers Conduit Mortgage and Manufactured
Pass-Through Certificates ("Certificates") to be sold by CS First Boston
Mortgage Corp. (the "Company") in one or more series (each, a "Series") of
Certificates. Each Series of Certificates will be issued under a pooling and
servicing agreement ("Pooling and Servicing Agreement") between the Company
and a servicer (the "Servicer") and a trustee (the "Trustee") to be identified
in the Prospectus Supplement for such Series of Certificates. Forms of Pooling
and Servicing Agreements are included as exhibits to the Registration
Statement. Capitalized terms used and not otherwise defined herein have the
respective meanings given them in the Registration Statement.
In rendering the opinions set forth below, we have examined and relied on
the following: (1) the Registration Statement and the Prospectus and the forms
of Prospectus Supplement included therein; (2) the forms of the Pooling and
Servicing Agreement included as exhibits to the Registration Statement; and
(3) such other documents, materials, and authorities as we have deemed
necessary in order to enable us to render our opinions set forth below.
In rendering the opinions herein we do not express any opinion concerning
the laws of any jurisdiction other than the substantive laws of the State of
New York (without regard to conflicts of laws principles).
<PAGE>
-2-
CS First Boston November 17, 1995
Mortgage Securities Corp.
Based on and subject to the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a Series of Certificates
has been duly and validly authorized, executed and delivered by the Company,
the Servicer and the Trustee, such Pooling and Servicing Agreement will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, reorganization, insolvency, moratorium and other laws affecting
the enforcement of rights of creditors generally and to general principles of
equity and the discretion of the court (regardless of whether enforceability
is considered in a proceeding in equity or at law).
2. When a Pooling and Servicing Agreement for a Series of Certificates
has been duly and validly authorized, executed and delivered by the Company,
the Servicer and the Trustee, and the Certificates of such Series have been
duly executed, authenticated, delivered and sold as contemplated in the
Registration Statement, such Certificates will be legally and validly issued,
fully paid and nonassessable, and the holders of such Certificates will be
entitled to the benefits of such Pooling and Servicing Agreement.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus and "Legal Matters" in the Prospectus
Supplement forming a part of the Registration Statement. This consent is not
to be construed as an admission that we are a person whose consent is required
to be filed with the Registration Statement under the provisions of the Act.
Very truly yours,
CADWALADER, WICKERSHAM & TAFT
<PAGE>
November 17, 1995
CS First Boston Mortgage
Securities Corp.
55 East 52nd Street
New York, New York 10055
Re: Conduit Mortgage and Manufactured Housing Pass-Through Certificates
Ladies and Gentlemen:
We have acted as your counsel in connection with the proposed issuance of
Conduit Mortgage and Manufactured Housing Pass-Through Certificates (the
"Certificates") pursuant to the Registration Statement on Form S-3 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"). The
Registration Statement covers Conduit Mortgage and Manufactured Housing
Pass-Through Certificates ("Certificates") to be sold by CS First Boston
Mortgage Securities Corp. (the "Company") in one or more series (each, a
"Series") of Certificates. Each Series of Certificates will be issued under a
pooling and servicing agreement ("Pooling and Servicing Agreement") between
the Company and a servicer and a trustee to be identified in the Prospectus
Supplement for such Series of Certificates. Forms of Pooling and Servicing
Agreements are included as exhibits to the Registration Statement. Capitalized
terms used and not otherwise defined herein have the respective meanings given
them in the Registration Statement.
In rendering the opinion set forth below, we have examined and relied on
the following: (1) the Registration Statement and the Prospectus and the forms
of Prospectus Supplement included therein; (2) the forms of the Pooling and
Servicing Agreement included as exhibits to the Registration Statement; and
(3) such other documents, materials, and authorities as we have deemed
necessary in order to enable us to render our opinion set forth below.
<PAGE>
-2-
CS First Boston November 17, 1995
Mortgage Securities Corp.
As your counsel, we have advised you with respect to certain federal
income tax aspects of the proposed issuance of the Certificates of each
Series. Such advice has formed the basis for the description of material
federal income tax consequences for holders of the Certificates that appears
under the heading "Certain Federal Income Tax Consequences" in the Prospectus
Supplement and "Certain Federal Income Tax Consequences" in the Prospectus.
Such descriptions do not purport to discuss all possible federal income tax
ramifications of the proposed issuance of the Certificates, but, with respect
to those federal income tax consequences that are discussed, in our opinion,
the description is accurate in all material respects.
This opinion is based on the facts and circumstances set forth in the
Prospectus and the forms of Prospectus Supplement and in the other documents
reviewed by us. Our opinion as to the matters set forth herein could change
with respect to a particular Series of Certificates as a result of changes in
facts and circumstances, changes in the terms of the documents reviewed by us,
or changes in the law subsequent to the date hereof. As the Registration
Statement contemplates Series of Certificates with numerous different
characteristics, the particular characteristics of each Series of Certificates
must be considered in determining the applicability of this opinion to a
particular Series of Certificates.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to our firm under the heading
"Certain Federal Income Tax Consequences" in the Prospectus and "Certain
Federal Income Tax Consequences" in the Prospectus Supplement. This consent is
not to be construed as an admission that we are a person whose consent is
required to be filed with the Registration Statement under the provisions of
the Act.
Very truly yours,
CADWALADER, WICKERSHAM & TAFT
