<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 33-98604
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 13, 1995
$91,195,000 (Approximate)
CS First Boston Mortgage Securities Corp.
Depositor
MBL Life Assurance Corporation
Seller
GE Capital Asset Management Corporation
Master Servicer
Banc One Management and Consulting Corporation
Special Servicer
Commercial Mortgage Pass-Through Certificates, Series 1995-MBL1
$0 Interest Only Class A-X Certificates
$72,739,000 (Approximate) Class A Certificates
$5,428,000 (Approximate) Class B Certificates
$7,600,000 (Approximate) Class C Certificates
$5,428,000 (Approximate) Class D Certificates
The Commercial Mortgage Pass-Through Certificates, Series 1995-MBL1 (the
"Certificates") will be comprised of the Interest Only Class A-X Certificates
(the "Class A-X Certificates"), the Class A Certificates, the Class B
Certificates, the Class C Certificates, the Class D Certificates, the Class E
Certificates, the Class F Certificates, the Class G Certificates
(collectively, the "Sequential Pay Certificates") and the Class R
Certificate. Only the Class A-X, Class A, Class B, Class C and Class D
Certificates (collectively, the "Offered Certificates") are offered hereby.
It is a condition of the issuance of the Offered Certificates that upon
issuance the Class A-X Certificates and the Class A Certificates be rated
"AAA," the Class B Certificates be rated not lower than "AA," the Class C
Certificates be rated not lower than "A" and the Class D Certificates be
rated not lower than "BBB" by Duff & Phelps Credit Rating Co. ("D&P") and the
Class A Certificates be rated "AAA," the Class B Certificates be rated not
lower than "AA," the Class C Certificates be rated not lower than "A" and the
Class D Certificates be rated not lower than "BBB" by Standard & Poor's
Rating Services ("S&P," and together with D&P, the "Rating Agencies").
The Certificates will evidence beneficial ownership interests in a trust fund
(the "Trust Fund") to be created by CS First Boston Mortgage Securities Corp.
(the "Depositor") pursuant to a Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") to be dated as of November 1, 1995 among the
Depositor, GE Capital Asset Management Corporation, as master servicer (the
"Master Servicer"), Banc One Management and Consulting Corporation, as
special servicer (the "Special Servicer") and State Street Bank and Trust
Company, as trustee (the "Trustee"). The assets of the Trust Fund will
consist primarily of a pool (the "Mortgage Pool") of mortgage loans (the
"Mortgage Loans") secured by mortgages or deeds of trust on multifamily and
commercial properties. The Mortgage Loans, all of which bear interest at
fixed rates, were acquired by MBL Life Assurance Corporation (the "Seller" or
"MBL") from The Mutual Benefit Life Insurance Company ("Mutual Benefit"), and
will be sold by the Seller to the Depositor on the Delivery Date. See "THE
SELLER" herein. The Mortgage Loans are more fully described in this
Prospectus Supplement.
Prospective investors should review the information appearing under the
caption "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS" commencing on page
S-30 herein before purchasing any Offered Certificates.
The Certificate Principal Balances of the Offered Certificates to be issued
may increase or decrease from the amount set forth herein in the event that
certain of the Mortgage Loans described herein are not acquired by the
Depositor prior to the date of the final Prospectus Supplement.
The Offered Certificates are being offered by CS First Boston Corporation
(the "Underwriter") from time to time in negotiated transactions or otherwise
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Proceeds to the Depositor
from the sale of the Offered Certificates will be approximately $96,667,000
plus accrued interest before deducting issuance expenses payable by the
Depositor. For further information with respect to the plan of distribution
and any discounts, commissions and profits on resale that may be deemed
underwriting discounts or commissions, see "PLAN OF DISTRIBUTION" herein.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Offered Certificates are offered by the Underwriter when, as and if
issued by the Depositor, delivered to and accepted by the Underwriter and
subject to its right to reject orders in whole or in part. It is expected
that delivery of the Offered Certificates will be made in book-entry form
through the facilities of DTC on or about November 28, 1995.
CS First Boston
The date of this Prospectus Supplement is November 22, 1995.
<PAGE>
The Certificate Principal Balance of each Class of Offered Certificates
(other than the Class A-X Certificates, which are not entitled to
distributions of principal as described herein) is set forth on the cover
page and is subject to a permitted variance of plus or minus 5%. Interest and
principal, if any, in the amounts and priority set forth herein, will be
distributed to the holders of Certificates entitled thereto on the 20th day
of each month (or, if such day is not a business day, on the following
business day), commencing December 20, 1995 (each, a "Distribution Date").
The rights of the holders of the Class B, Class C, Class D, Class E, Class F
and Class G Certificates and the Class R Certificate (collectively, the
"Subordinate Certificates") to receive distributions of amounts collected or
advanced on in respect of the Mortgage Loans will be subordinated to those of
the holders of the Class A-X and Class A Certificates and the holders of each
other Class of Subordinate Certificates, if any, with an earlier alphabetical
Class designation, in each case to the extent described herein. The Final
Rated Distribution Date for each Class of Offered Certificates is August 20,
2030. The "Final Rated Distribution Date" is the Distribution Date in the
month following the month that is two years after the maturity date of the
Mortgage Loan with the latest maturity date, without taking into account any
scheduled Balloon Payment (defined herein), but instead assuming the full
amortization of the Mortgage Loan in accordance with its current amortization
schedule.
During each Interest Accrual Period (defined herein), the Class A, Class
B, Class C and Class D Certificates will bear interest at a rate per annum
(the "Class A Certificate Rate," the "Class B Certificate Rate," the "Class C
Certificate Rate," and the "Class D Certificate Rate," respectively) equal to
6.425%, 6.760%, 7.125% and 7.590%, respectively. During each Interest Accrual
Period, the Class E, Class F and Class G Certificates will bear interest at a
rate per annum equal to the weighted average of the Net Mortgage Rates of the
Mortgage Loans weighted on the basis of their respective Scheduled Principal
Balances (defined herein) outstanding immediately prior to the related
Distribution Date (the "Weighted Average Net Mortgage Rate"), which, during
the initial Interest Accrual Period, will be 9.395% per annum. The "Net
Mortgage Rate" of each Mortgage Loan will be equal to the rate of interest
thereon (the "Mortgage Rate"), as of the first day of the applicable Due
Period, minus the rate per annum at which the servicing fee payable to the
Master Servicer (the "Servicing Fee Rate") accrues; provided, however, that
the Net Mortgage Rate for any Mortgage Loan will not reflect any adjustments
to its Mortgage Rate in connection with a bankruptcy or similar proceeding
involving the related mortgagor. Accordingly, the amount of interest owed on
the Mortgage Loans may be less than the amount of interest accrued on the
Certificates, which shortfall would adversely affect interest distributions
to the then most subordinated Class of Certificates. For purposes of
calculating the Weighted Average Net Mortgage Rate for any Distribution Date,
the Net Mortgage Rate for any Mortgage Loan that provides for the computation
of interest other than on the basis (a "30/360 basis") of a 360-day year
consisting of twelve 30-day months (that is, the basis on which the
Certificates accrue interest) will be adjusted to reflect that difference.
See "DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED
PROPERTIES--Certain Terms and Conditions of the Mortgage Loans--Mortgage
Rates; Calculations of Interest" herein.
The Class A-X Certificates will not have a Certificate Principal Balance
or entitle their holders to distributions of principal. On each Distribution
Date, the Class A-X Certificates are entitled to distributions of interest
only based on a notional amount (the "Class A-X Certificate Notional Amount")
equal to the sum of the following four components (each, a "Component"): (a)
the aggregate outstanding Certificate Principal Balance of the Class A
Certificates immediately prior to such Distribution Date ("Component A"), (b)
the aggregate outstanding Certificate Principal Balance of the Class B
Certificates immediately prior to such Distribution Date ("Component B"), (c)
the aggregate outstanding Certificate Principal Balance of the Class C
Certificates immediately prior to such Distribution Date ("Component C") and
(d) the aggregate outstanding Certificate Principal Balance of the Class D
Certificates immediately prior to such Distribution Date ("Component D").
With respect to any Distribution Date, the Class A-X Certificates will bear
interest at a per annum rate (the "Class A-X Certificate Rate") equal to the
weighted average of the Component A Rate (defined below), the Component B
Rate (defined below), the Component C Rate (defined below) and the Component
D Rate (defined below), each weighted on the basis of the proportion that the
amount of the related Component (that is, the Component with the same letter
designation) outstanding immediately prior to such Distribution Date bears to
the Class A-X Certificate Notional Amount outstanding immediately prior to
such Distribution Date. With respect to any Interest Accrual Period, the
"Component A Rate" is equal to the Weighted Average Net Mortgage Rate less
the Class A Certificate Rate, the "Component B Rate" is equal to the Weighted
Average Net Mortgage Rate less the Class B Certificate Rate, the "Component C
Rate" is equal to the Weighted Average Net Mortgage Rate less the Class C
Certificate Rate and the "Component D Rate" is equal to the Weighted Average
Net Mortgage Rate less the Class D Certificate Rate.
Any Prepayment Premiums actually collected on the Mortgage Loans will be
distributed to the holders of the Class A-X Certificates separately from the
Available Distribution Amount. See "DESCRIPTION OF THE
CERTIFICATES--Principal and Interest Distributions--Distributions of
Prepayment Premiums" herein.
As described herein, the rights of the holders of Offered Certificates to
receive payments of principal and interest then payable will be subordinated
to the rights of the holders of any Offered Certificates senior thereto. In
addition, as described herein, the principal portions of Realized Losses and
the Appraisal Reduction Capitalization Amount, if any, will be allocated
sequentially to the Class G, Class F, Class E, Class D (and correspondingly,
Component D), Class C (and correspondingly, Component C), Class B (and
correspondingly, Component B) and finally to the Class A (and
correspondingly, Component A) Certificates, until the Certificate Principal
Balance thereof has been reduced to zero, and the interest portions of
Realized Losses (defined herein) will be allocated sequentially to the Class
G, Class F, Class E, Class D, Class C, Class B and finally to the Class A and
Class A-X Certificates, pro rata, in proportion to the respective amounts of
interest accrued thereon. Any Realized Loss allocated as described above to a
Class of Certificates will be allocated among the respective Certificates of
such Class, pro rata, based on their respective Percentage Interest.
The yield to maturity on the Offered Certificates and the aggregate amount
of distributions on the Offered Certificates will be affected by, among other
things, the rate and timing of principal payments (including voluntary and
involuntary prepayments and liquidations) and the extent to which Realized
Losses are realized. The Class A-X Certificates will be extremely sensitive
to the rate and timing of principal payments (including voluntary and
involuntary prepayments and liquidations) on the Mortgage Loans. Investors in
the Class A-X Certificates should fully consider the risks associated with an
investment in such Certificates, including the risk that a rapid rate of
principal payments could result in the failure of investors in such
Certificates to fully recover their initial investment. See "YIELD
CONSIDERATIONS" herein.
S-2
<PAGE>
There is currently no secondary market for the Offered Certificates. The
Underwriter expects to make a secondary market in the Offered Certificates
but has no obligation to do so. There can be no assurance that a secondary
market for the Offered Certificates will develop, or if it does develop, that
it will continue. See "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS -- The
Certificates--Limited Liquidity" herein.
As described herein, two separate "real estate mortgage investment
conduit" ("REMIC") elections will be made with respect to the Trust Fund for
federal income tax purposes. The Offered Certificates will be treated as
REMIC "regular interests." See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES"
herein and in the Prospectus.
The Class A-X, Class A, Class B, Class C and Class D Certificates will be
available to investors only in book-entry form through the facilities of The
Depository Trust Company ("DTC"). Beneficial interests in the Offered
Certificates will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Physical
certificates for the Offered Certificates will be available only under
certain limited circumstances as described herein. See "DESCRIPTION OF THE
CERTIFICATES--Registration" and "--Definitive Certificates" herein.
For a discussion of certain significant matters affecting investments in
the Offered Certificates, see "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS"
herein and "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS" in the Prospectus.
THE OFFERED CERTIFICATES REPRESENT AN INTEREST IN THE TRUST FUND ONLY AND
DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF CS FIRST BOSTON MORTGAGE
SECURITIES CORP., MBL LIFE ASSURANCE CORPORATION, THE MASTER SERVICER, THE
SPECIAL SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. A
CERTIFICATE IS NOT A DEPOSIT AND NEITHER THE CERTIFICATES NOR THE UNDERLYING
MORTGAGE LOANS ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THE OFFERED CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE DEPOSITOR FROM
TIME TO TIME PURSUANT TO ITS PROSPECTUS DATED NOVEMBER 13, 1995, WHICH
ACCOMPANIES THIS PROSPECTUS SUPPLEMENT AND OF WHICH THIS PROSPECTUS
SUPPLEMENT FORMS A PART. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION
REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE
INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN
FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
IT IS EXPECTED THAT DELIVERY OF THE OFFERED CERTIFICATES WILL BE MADE
AGAINST PAYMENT THEREFOR ON OR ABOUT THE DATE SPECIFIED IN THE LAST PARAGRAPH
OF THE COVER PAGE OF THIS PROSPECTUS SUPPLEMENT, WHICH WILL BE THE EIGHTH
BUSINESS DAY FOLLOWING THE INITIAL DATE OF PRICING OF THE OFFERED
CERTIFICATES (SUCH SETTLEMENT CYCLE BEING HEREIN REFERRED TO AS "T+8").
PURCHASERS OF OFFERED CERTIFICATES SHOULD NOTE THAT TRADING OF THE OFFERED
CERTIFICATES ON THE DATE OF PRICING AND THE NEXT FOUR SUCCEEDING BUSINESS
DAYS MAY BE AFFECTED BY THE T+8 SETTLEMENT. SEE "PLAN OF DISTRIBUTION"
HEREIN.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Offered Certificates.
This Prospectus Supplement and the related Prospectus, which form a part of
the Registration Statement, omit certain information contained in such
Registration Statement pursuant to the Rules and Regulations of the
Commission. The Registration Statement can be inspected and copied at the
Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the Commission's regional offices at Seven World
Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will mail monthly reports concerning the Certificates to all
registered Certificateholders. Upon presentation of evidence satisfactory to
the Trustee of their beneficial ownership interest in the Certificates,
beneficial owners of the Certificates are entitled to receive, upon request,
copies of such monthly reports from the Trustee. The Depositor expects to
make available certain information relating to the Certificates and the
Mortgage Loans to beneficial owners of the Certificates through Bloomberg
Information Services.
S-3
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
AVAILABLE INFORMATION .......................... S-3
REPORTS TO CERTIFICATEHOLDERS .................. S-3
SUMMARY OF TERMS ............................... S-7
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS . S-30
The Mortgage Loans ............................ S-30
Limited Recourse .............................. S-30
Commercial and Multifamily Lending Generally S-30
Risks Particular to Certain Types of
Mortgaged Properties ......................... S-30
Environmental Law Considerations .............. S-31
Limited Review ................................ S-31
Concentrations of Mortgage Loans and
Mortgagors ................................... S-32
Substantive Consolidation Concerns ............ S-32
Geographic Concentration ...................... S-32
Early Repayment of Mortgage Loans ............. S-32
Prepayment Premiums ........................... S-33
Balloon Payment at Maturity and Extension of
Maturity ...................................... S-33
Junior Liens .................................. S-34
Limited Repurchase Obligation of the Seller .. S-34
Limited Information ........................... S-34
Lack of Appraisals ............................ S-34
Costs of Compliance with Americans with
Disabilities Act .............................. S-35
The Certificates .............................. S-35
Book-Entry Registration ....................... S-35
Limited Liquidity ............................. S-35
Certain Yield and Maturity Considerations .... S-35
Variability of Average Life ................... S-36
Limited Obligations ........................... S-36
Subordination of Subordinate Certificates .... S-37
Conflicts of Interest ......................... S-37
THE SELLER ..................................... S-37
DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGED PROPERTIES ............... S-39
General ....................................... S-39
Certain Terms and Conditions of the Mortgage
Loans ......................................... S-40
Mortgage Rates; Calculations of Interest ..... S-40
Due Dates; Grace Periods ...................... S-40
Amortization .................................. S-41
Assignments of Leases and Rents ............... S-41
Prepayment Provisions ......................... S-41
Non-recourse Obligations ...................... S-42
"Due-on-Sale" and "Due-on Encumbrance"
Provisions ................................... S-42
Acceleration of Mortgage Loans ................ S-42
Assessments of Property Condition ............. S-42
Appraisals .................................... S-42
Environmental Site Assessments ................ S-42
Property Inspections .......................... S-43
Owner Occupied and Single Tenant Properties . S-43
Leasehold Mortgages ........................... S-43
Secondary Financing ........................... S-43
Insurance ..................................... S-43
Significant Mortgage Loans .................... S-43
Wintergreen Plaza Loan ........................ S-43
Additional Mortgage Loan Information ......... S-44
General ....................................... S-44
The Mortgage Pool ............................. S-47
Assignment of the Mortgage Loans;
Representations and Warranties ............... S-54
Underwriting Standards ........................ S-55
DESCRIPTION OF THE CERTIFICATES ................ S-55
General ....................................... S-55
Registration .................................. S-56
Definitive Certificates ....................... S-57
Principal and Interest Distributions ......... S-58
Distributions of Interest ..................... S-59
Deferred Interest ............................. S-60
Distributions of Principal .................... S-60
Available Distribution Amount ................. S-60
Priority of Distributions ..................... S-61
Distributions of Prepayment Premiums ......... S-62
Example of Distributions ...................... S-63
Treatment of REO Properties ................... S-64
Subordination ................................. S-64
Allocation of Realized Losses ................. S-65
Appraisal Reductions .......................... S-66
Repurchase of Mortgage Loans .................. S-67
Prepayment Interest Shortfalls and Excess
Prepayment Interest ........................... S-68
Class R Certificate ........................... S-68
Reports to Certificateholders ................. S-68
Trustee Reports ............................... S-68
Portfolio Performance Reports ................. S-70
Special Servicer Reports ...................... S-70
Other Information ............................. S-70
Final Rated Distribution Date ................. S-71
Optional Termination .......................... S-71
Voting Rights ................................. S-72
Lists of Certificateholders ................... S-72
Collection Account, Distribution Account and
REO Accounts .................................. S-72
MATURITY CONSIDERATIONS ........................ S-73
YIELD CONSIDERATIONS ........................... S-77
General ....................................... S-77
Effects of Losses on the Mortgage Loans and
Other Matters ................................. S-78
Yield Sensitivity of the Class A-X
Certificates ................................. S-78
SERVICING ...................................... S-79
General ....................................... S-79
The Master Servicer ........................... S-80
Servicing Fee ................................. S-80
S-4
<PAGE>
PAGE
--------
Adjustment to Servicing Fee ................... S-80
The Special Servicer .......................... S-80
Special Servicing Compensation ................ S-81
Specially Serviced Mortgaged Loans ............ S-81
Sale of REO Properties ........................ S-82
The Extension Advisor ......................... S-82
Mortgage Loan Modifications ................... S-83
Advances ...................................... S-83
Monthly Advances .............................. S-83
Expense Advances .............................. S-84
Property Protection Advances .................. S-84
Nonrecoverable Advances ....................... S-84
Interest on Advances; Repayment of Advances . S-85
The Controlling Party ......................... S-85
Insurance ..................................... S-86
Certain Matters with Respect to the
Depositor, the Master Servicer and the
Special Servicer ............................. S-87
Events of Default ............................. S-88
Evidence as to Compliance ..................... S-89
Amendment ..................................... S-89
Termination ................................... S-90
THE TRUSTEE .................................... S-90
Duties of the Trustee ......................... S-91
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ....... S-91
ERISA CONSIDERATIONS ........................... S-92
Availability of Underwriter's Exemption ...... S-93
LEGAL INVESTMENT ............................... S-94
USE OF PROCEEDS ................................ S-95
PLAN OF DISTRIBUTION ........................... S-95
LEGAL MATTERS .................................. S-95
RATINGS ........................................ S-96
GLOSSARY ....................................... S-97
</TABLE>
S-5
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUPPLEMENT .......................... 2
ADDITIONAL INFORMATION ......................... 2
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE ..................................... 2
THE DEPOSITOR .................................. 3
USE OF PROCEEDS ................................ 3
DESCRIPTION OF THE CERTIFICATES ................ 3
General ....................................... 3
Distributions on Certificates ................. 4
Accounts ...................................... 5
Amendment ..................................... 7
Termination; Repurchase of Mortgage Loans ... 8
Reports to Certificateholders ................ 8
The Trustee ................................... 8
THE MORTGAGE POOLS ............................. 9
General ....................................... 9
Assignment of Mortgage Loans .................. 10
Mortgage Underwriting Standards and
Procedures ................................... 11
Representations and Warranties ................ 12
SERVICING OF THE MORTGAGE LOANS ................ 14
General ....................................... 14
Collections and Other Servicing Procedures ... 14
Insurance ..................................... 14
Fidelity Bonds and Errors and Omissions
Insurance .................................... 16
Servicing Compensation and Payment of
Expenses ..................................... 16
Advances ...................................... 16
Modifications, Waivers and Amendments ........ 16
Evidence of Compliance ........................ 17
Certain Matters With Respect to the Master
Servicer, the Special Servicer and the
Trustee ....................................... 17
Events of Default ............................. 18
ENHANCEMENT .................................... 19
General ....................................... 19
Subordinate Certificates ...................... 19
Cross-Support Features ........................ 20
Letter of Credit .............................. 20
Certificate Guarantee Insurance ............... 20
Reserve Funds ................................. 20
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS ... 21
Mortgages and Deeds of Trust Generally ....... 21
Installment Contracts ......................... 22
Junior Mortgages; Rights of Senior Mortgagees
or Beneficiaries .............................. 22
Foreclosure ................................... 24
Environmental Risks ........................... 26
Statutory Rights of Redemption ................ 27
Anti-Deficiency Legislation ................... 28
Bankruptcy Laws ............................... 28
Enforceability of Certain Provisions ......... 30
Prepayment Provisions ......................... 30
Due-on-Sale Provisions ........................ 30
Acceleration on Default ....................... 31
Soldiers' and Sailors' Relief Act ............. 31
Applicability of Usury Laws ................... 31
Alternative Mortgage Instruments .............. 32
Leases and Rents .............................. 32
Secondary Financing; Due-on-
Encumbrance Provisions ....................... 33
Certain Laws and Regulations .................. 33
Type of Mortgaged Property .................... 33
Americans with Disabilities Act ............... 34
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ....... 35
General ....................................... 35
Taxation of the REMIC and its Holders ........ 35
Taxation of Regular Interests ................. 35
Interest and Acquisition Discount ............. 35
Interest Weighted Certificates ................ 37
Variable Rate Regular Interests ............... 38
Market Discount and Premium ................... 39
Interest Election ............................. 39
Treatment of Subordinate Certificates ........ 39
REMIC Expenses ................................ 40
Sale or Exchange of REMIC Regular Interest
Certificates .................................. 40
Taxation of the REMIC ......................... 41
General ....................................... 41
Calculation of REMIC Income ................... 41
Taxation of Holders of Residual Interest
Certificates ................................. 42
Prohibited Transactions and Contributions Tax 42
Limitation on Losses .......................... 42
Distributions ................................. 43
Sale or Exchange .............................. 43
Excess Inclusions ............................. 43
Restrictions on Ownership and Transfer of
Residual Interest Certificates ................ 44
Administrative Matters ....................... 44
Tax Status as a Grantor Trust ................ 45
General ...................................... 45
Discount or Premium on Pass-Through
Certificates ............................... 45
Discount or Premium on Stripped Certificates . 46
Possible Alternative Characterizations ....... 47
Character as Qualifying Mortgage Loans ....... 48
Sale of Certificates ......................... 48
Miscellaneous Tax Aspects .................... 48
Backup Withholding ........................... 48
Tax Treatment of Foreign Investors ........... 49
STATE TAX CONSIDERATIONS ....................... 49
ERISA CONSIDERATIONS ........................... 50
Prohibited Transactions ...................... 50
Unrelated Business Taxable Income --Residual
Interests .................................. 51
LEGAL INVESTMENT ............................... 52
PLAN OF DISTRIBUTION ........................... 53
LEGAL MATTERS .................................. 54
GLOSSARY ....................................... 55
</TABLE>
S-6
<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 accompanying Prospectus. Capitalized terms used in this Prospectus
Supplement and not defined herein have the meanings ascribed to them in the
Prospectus.
Description of the
Certificates ........... The Commercial Mortgage Pass-Through
Certificates, Series 1995-MBL1 (the
"Certificates") will evidence interests in a
trust fund (the "Trust Fund") to be formed
pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing
Agreement") to be dated as of November 1,
1995 among the Depositor, GE Capital Asset
Management Corporation, as master servicer
(the "Master Servicer"), Banc One Management
and Consulting Corporation, as special
servicer (the "Special Servicer") and State
Street Bank and Trust Company, as trustee
(the "Trustee"). The assets of the Trust
Fund will consist primarily of a pool (the
"Mortgage Pool") of fixed rate mortgage
loans secured by mortgages or deeds of trust
on properties operated as multifamily
apartment buildings, office buildings,
retail properties, warehouse/industrial
facilities and a hotel. The Mortgage Loans
have an aggregate principal balance as of
November 1, 1995 (the "Cut-off Date"), after
the application of payments due on or before
the Cut-off Date of approximately
$108,566,369 (the "Initial Pool Balance").
The Trust Fund will also contain any
property which secured a Mortgage Loan and
is acquired by foreclosure or deed in lieu
of foreclosure, and certain other related
property, as more fully described herein and
in the Prospectus. The Mortgage Loans were
originated by The Mutual Benefit Life
Insurance Company ("Mutual Benefit") and
were assigned by Mutual Benefit to MBL Life
Assurance Corporation (the "Seller" or
"MBL") as described herein under "THE
SELLER" and will be sold by the Seller to
the Depositor on the Delivery Date (defined
herein). The Certificates collectively
represent the entire interest in the Trust
Fund. After the Certificate Principal
Balance of the Class A Certificates has been
reduced to zero, all payments of principal
on the Mortgage Loans will be distributed to
the holders of the Class B, Class C, Class
D, Class E, Class F and Class G
Certificates, in that order, until such
Classes receive all payments due them, and
any remaining payments on the Mortgage Loans
will be paid to the holder of the Class R
Certificate, as described herein under
"DESCRIPTION OF THE CERTIFICATES--Principal
and Interest Distributions--Priority of
Distributions."
Securities Offered ..... $91,195,000 (approximate) Certificate
Principal Balance (subject to an upward or
downward variance of up to 5%) of Commercial
Mortgage Pass-Through Certificates, Series
1995- MBL1, consisting of the following
classes of Certificates offered hereby (the
"Offered Certificates"):
$0 Interest Only Class A-X Certificates
$72,739,000 (approximate) Class A
Certificates
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$5,428,000 (approximate) Class B
Certificates
$7,600,000 (approximate) Class C
Certificates
$5,428,000 (approximate) Class D
Certificates
The Certificate Principal Balance of the
Offered Certificates to be issued may
increase or decrease from the amount set
forth herein in the event that certain of
the Mortgage Loans described herein are not
acquired by the Depositor prior to the date
of the final Prospectus Supplement.
Securities Not Offered . The Certificates will also include
$7,057,000 (approximate) Class E
Certificates, $4,343,000 (approximate) Class
F Certificates, $5,971,369 (approximate)
Class G Certificates and the Class R
Certificate. The Class R Certificate will
not have a Certificate Principal Balance.
The Class E, Class F and Class G
Certificates and the Class R Certificate
(collectively, the "Non-Offered
Certificates") have not been registered
under the Securities Act of 1933, as amended
(the "Securities Act"), and are not offered
hereby. On the Delivery Date, the Class E,
Class F and Class G Certificates will be
sold by the Depositor to CS First Boston
Corporation (the "Initial Purchaser") and
thereafter may be sold by the Initial
Purchaser in privately negotiated
transactions. The Class R Certificate will
initially be held by the Depositor or an
affiliate thereof.
Depositor .............. CS First Boston Mortgage Securities Corp., a
Delaware corporation. See "THE DEPOSITOR" in
the Prospectus.
Seller ................. MBL Life Assurance Corporation, a New Jersey
corporation. See "THE SELLER" herein.
Master Servicer ........ GE Capital Asset Management Corporation, a
Delaware corporation. See "SERVICING--The
Master Servicer" herein.
Special Servicer ....... Banc One Management and Consulting
Corporation, an Ohio corporation. See
"SERVICING--The Special Servicer" herein.
Trustee ................ State Street Bank and Trust Company, a
Massachusetts banking corporation. See "THE
TRUSTEE" herein.
Controlling Party ...... The holder (or holders) of the majority of
the Voting Rights (defined herein) allocated
to the Class of Certificates (other than the
Class A-X Certificates and the Class R
Certificate) with the latest alphabetical
Class designation that has a Certificate
Principal Balance exceeding 25% of its
initial Certificate Principal Balance will
have the right to (i) act as Controlling
Party from whom the Special Servicer will
seek approval under the various
circumstances described herein and (ii)
replace the Special Servicer, subject to
certain conditions described herein. See
"SERVICING--The Controlling Party" herein.
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Extension Adviser ..... A majority of the holders of the Offered
Certificates (other than the Class A-X
Certificates) will have the right, subject
to certain conditions described herein, to
elect an adviser (the "Extension Adviser")
from whom the Special Servicer will seek
approval prior to extending the maturity of
any Mortgage Loan beyond the date that is
three years after the maturity date of such
Mortgage Loan as of the Cut-off Date. The
initial Extension Adviser will be the Master
Servicer. See "SERVICING--The Extension
Adviser" herein.
Cut-off Date ........... November 1, 1995.
Delivery Date .......... On or about November 28, 1995.
Book-Entry Certificates;
Denominations ......... Except in certain limited circumstances as
described herein, the Offered Certificates
will be available only in book-entry form,
in minimum denominations of $100,000 and
integral multiples of $1 in excess thereof.
One Certificate of each Class of the Offered
Certificates may be issued in a different
principal amount to accommodate the
remainder of the initial aggregate
Certificate Principal Balance or Class A-X
Certificate Notional Amount, as the case may
be, of the Certificates of such Class. See
"DESCRIPTION OF THE CERTIFICATES--
Registration" and "--Definitive
Certificates" herein.
Record Date ............ The record date (the "Record Date") for each
distribution on the Offered Certificates
will be the last day of the month preceding
the related Distribution Date.
Distribution Date ...... The 20th day of each month (unless such day
is not a business day, in which case
distributions will be made on the next
succeeding business day) (each, a
"Distribution Date"), commencing December
20, 1995.
Principal and Interest
Distributions
A. General ............ On each Distribution Date, interest payments
(less the Servicing Fee (as defined herein))
and principal payments due on the Mortgage
Loans during the related Due Period (defined
below) and collected on or prior to the
related Determination Date (defined below)
or advanced with respect to such
Distribution Date, Principal Prepayments
(defined below) and other unscheduled
collections of principal, including
Liquidation Proceeds, Insurance Proceeds
(other than proceeds applied to restoration
of the related Mortgaged Property) (each as
defined in the Prospectus) and proceeds from
the repurchase of the Mortgage Loans by the
Seller ("Repurchase Proceeds") under the
circumstances described herein, collected
during the related Prepayment Period
(defined below), and the Appraisal Reduction
Capitalization Amount, if any, will
generally be distributed to
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Certificateholders of record as of the
related Record Date. Interest will accrue on
the Certificates with respect to each
related Distribution Date from and including
the second day of the month preceding the
month in which such Distribution Date occurs
to and including the first day of the month
in which such Distribution Date occurs
(each, an "Interest Accrual Period" for the
Certificates).
"Principal Prepayments" are any payments of
principal on a Mortgage Loan received in
advance of its Due Date and 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 payment. The "Due Period" with
respect to any Distribution Date commences
on and includes the second day of the month
preceding the month in which such
Distribution Date occurs (or the day
following the Cut-off Date in the case of
the first Due Period) and ends on and
includes the first day of the month in which
such Distribution Date occurs. The
"Prepayment Period" with respect to any
Distribution Date commences on and includes
the Determination Date in the month
preceding the month in which such
Distribution Date occurs (or the day
following the Cut-off Date, in the case of
the first Distribution Date) and ends on and
includes the day prior to the Determination
Date in the month in which such Distribution
Date occurs. The "Determination Date" with
respect to any Distribution Date is the
earlier of (i) the 15th day of the month in
which such Distribution Date occurs (or, if
such day is not a business day, the
immediately preceding business day) and (ii)
the fourth business day prior to such
Distribution Date.
For purposes of calculating distributions on
the Certificates, quarterly payments of
principal and interest due in respect of any
Quarterly-Pay Loan (defined herein) will be
deemed to consist of three Monthly Payments
(one of which, consisting of the principal
portion of such Quarterly Payment and
interest in respect of such Quarterly-Pay
Loan at the related Mortgage Rate for the
one-month period commencing on the prior
actual Due Date for such Quarterly-Pay Loan,
will be deemed due on the Due Date in the
current month, and each of the other two of
which, consisting of substantially equal
payments of interest only notwithstanding
the related Mortgage Rate, will be deemed
due on the same day in the two subsequent
months).
Any Prepayment Premiums actually collected
on the Mortgage Loans will be distributed to
the holders of the Class A-X Certificates
separately from the Available Distribution
Amount. See "DESCRIPTION OF THE
CERTIFICATES--Principal and Interest
Distributions--Distribution of Prepayment
Premiums" herein.
B. Interest ........... On each Distribution Date, holders of each
Class of Certificates other than the Class
A-X Certificates are entitled to receive,
from the Available Distribution Amount
(defined herein),
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interest accrued during the related Interest
Accrual Period on the outstanding
Certificate Principal Balance of such
Certificates immediately preceding such
Distribution Date at the Certificate Rates
set forth below, reduced (to not less than
zero) by such Class's allocable share of any
Net Aggregate Prepayment Interest Shortfall
(defined herein) for such Distribution Date
and holders of the Class A-X Certificates
are entitled to receive on each Distribution
Date interest accrued at the Class A-X
Certificate Rate during the related Interest
Accrual Period on the Class A-X Certificate
Notional Amount reduced (to not less than
zero) by such Class's allocable share of any
Net Aggregate Prepayment Interest Shortfall
for such Distribution Date (such amounts
payable to holders of the Certificates
collectively, the "Interest Distribution
Amount"). The Net Aggregate Prepayment
Interest Shortfall for any Distribution Date
will be allocated among the respective
Classes of Certificates, pro rata, in
accordance with the respective amounts of
interest accrued for such Classes for such
Distribution Date. For so long as a more
senior Class of Certificates is outstanding,
the amount of interest otherwise
distributable on such Distribution Date to
each Class of Certificates to which an
Appraisal Reduction is allocated on such
Distribution Date will be reduced by the
amount of interest accrued at the applicable
Certificate Rate on the portion of the
Certificate Principal Balance of such Class
equal to the Appraisal Reduction
Capitalization Amount (defined herein)
allocated to such Class for such
Distribution Date. Interest on the
Certificates will be calculated and is
payable on the basis of a 360-day year of
twelve 30-day months. See "DESCRIPTION OF
THE CERTIFICATES--Principal and Interest
Distributions-- Distributions of Interest,"
"--Prepayment Interest Shortfalls and Excess
Prepayment Interest" and "--Appraisal
Reductions" herein.
"Certificate Principal Balance" means, with
respect to any Certificate or Class of
Certificates (other than the Class A-X
Certificates), as of any Distribution Date,
an amount equal to the initial principal
amount set forth on the face of such
Certificate (or, in the case of a Class of
Certificates, the aggregate of such amounts
for the Certificates of such Class), as
increased by any Deferred Interest (defined
below) and any Appraisal Reduction
Capitalization Amount added to such
principal amount, as described herein, less
the amount of all principal distributions
previously made with respect to such
Certificate or Class, and less the principal
portion of all Realized Losses (defined
herein) allocated to such Certificate or
Class pursuant to the Pooling and Servicing
Agreement. As of any Distribution Date, the
"Class A-X Certificate Notional Amount" is
equal to the sum of the following four
components (each, a "Component"): (a) the
aggregate outstanding Certificate Principal
Balance of the Class A Certificates
immediately prior to such Distribution Date
("Component A"), (b) the
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<PAGE>
aggregate outstanding Certificate Principal
Balance of the Class B Certificates
immediately prior to such Distribution Date
("Component B"), (c) the aggregate
outstanding Certificate Principal Balance of
the Class C Certificates immediately prior
to such Distribution Date ("Component C")
and (d) the aggregate outstanding
Certificate Principal Balance of the Class D
Certificates immediately prior to such
Distribution Date ("Component D").
The interest rates for the Offered
Certificates (each a "Certificate Rate,"
which term has the same meaning as the term
"Pass-Through Rate" in the Prospectus) are
as follows:
During each Interest Accrual Period, the
Class A, the Class B, the Class C and the
Class D Certificates will bear interest at a
rate per annum (the "Class A Certificate
Rate," the "Class B Certificate Rate," the
"Class C Certificate Rate" and the "Class D
Certificate Rate," respectively) equal to
6.425%, 6.760%, 7.125% and 7.590%,
respectively. During each Interest Accrual
Period, the Class E, the Class F and the
Class G Certificates will bear interest at a
rate per annum equal to the weighted average
of the Net Mortgage Rates of the Mortgage
Loans weighted on the basis of their
respective Scheduled Principal Balances
outstanding immediately prior to the related
Distribution Date (the "Weighted Average Net
Mortgage Rate") which, during the initial
Interest Period, will be 9.395% per annum.
The "Net Mortgage Rate" of each Mortgage
Loan will be equal to the rate of interest
thereon (the "Mortgage Rate"), as of the
first day of the applicable Due Period,
minus the rate per annum at which the
Servicing Fee (the "Servicing Fee Rate")
accrues; provided, however, that the Net
Mortgage Rate for any Mortgage Loan will not
reflect any adjustments to its Mortgage Rate
in connection with a bankruptcy or similar
proceeding involving the related mortgagor.
Accordingly, the amount of interest owed on
the Mortgage Loans may be less than the
amount of interest accrued on the
Certificates, which shortfall would
adversely affect interest distributions to
the then most subordinated Class of
Certificates. For purposes of calculating
the Weighted Average Net Mortgage Rate for
any Distribution Date, the Net Mortgage Rate
for any Mortgage Loan that provides for the
computation of interest other than on the
basis (a "30/360 basis") of a 360-day year
consisting of twelve 30-day months (that is,
the basis on which the Certificates accrue
interest) will be adjusted to reflect that
difference. See "DESCRIPTION OF THE MORTGAGE
POOL AND THE UNDERLYING MORTGAGED
PROPERTIES--Certain Terms and Conditions of
the Mortgage Loans--Mortgage Rates;
Calculations of Interest" herein.
The Class A-X Certificates will not have a
Certificate Principal Balance or entitle
their holders to distributions of principal.
With respect to any Distribution Date, the
Class A-X Certificates will bear interest at
a per annum rate (the "Class A-X
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<PAGE>
Certificate Rate") equal to the weighted
average of the Component A Rate (defined
below), the Component B Rate (defined
below), the Component C Rate (defined below)
and the Component D Rate (defined below),
each weighted on the basis of the proportion
that the amount of the related Component
(that is, the Component with the same letter
designation) outstanding immediately prior
to such Distribution Date bears to the Class
A-X Certificate Notional Amount outstanding
immediately prior to such Distribution Date.
With respect to any Interest Accrual Period,
the "Component A Rate" is equal to the
Weighted Average Net Mortgage Rate less the
Class A Certificate Rate, the "Component B
Rate" is equal to the Weighted Average Net
Mortgage Rate less the Class B Certificate
Rate, the "Component C Rate" is equal to the
Weighted Average Net Mortgage Rate less the
Class C Certificate Rate and the "Component
D Rate" is equal to the Weighted Average Net
Mortgage Rate less the Class D Certificate
Rate.
C. Deferred Interest .. As of the Cut-off Date, no Mortgage Loan
provides for Deferred Interest (defined
below). However, if a modification to any
Mortgage Loan causes any portion of the
interest on such Mortgage Loan accrued in
any month to be deferred (such amount,
"Deferred Interest"), such portion will be
added to the principal balance of such
Mortgage Loan. On each Distribution Date on
which the portion of the Available
Distribution Amount (defined herein)
allocable to interest on the Mortgage Loans
is insufficient to pay interest accrued on
the Certificates as a result of Deferred
Interest on the Mortgage Loans, such
Deferred Interest will (i) reduce the
Interest Distribution Amount payable to the
holders of the Class G, Class F, Class E,
Class D, Class C and Class B Certificates,
in that order and finally, the Class A-X and
Class A Certificates, pro rata, in
proportion to the respective amounts of
interest accrued thereon, and (ii) will be
added to the Certificate Principal Balances
of the Class G, Class F, Class E, Class D,
Class C, Class B and Class A Certificates,
to the extent of the reduction in the
Interest Distribution Amount payable to the
holders of such Classes. The Class A-X
Certificates are not entitled to
distributions of principal but the Class A-X
Certificate Notional Amount will reflect any
amounts of Deferred Interest added to the
Certificate Principal Balance of the Class
A, Class B, Class C and Class D
Certificates. See "DESCRIPTION OF THE
CERTIFICATES--Principal and Interest
Distributions-- Deferred Interest" herein.
D. Principal .......... The "Principal Distribution Amount" in
respect of any Class of Certificates (other
than the Class A-X Certificates and the
Class R Certificate) for any Distribution
Date will generally equal the sum of (i) the
principal portion of Monthly Payments due on
the related Due Date on each Mortgage Loan,
to the extent received on or prior to the
related Determination Date or otherwise
advanced by the Master Servicer, the Special
Servicer
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<PAGE>
or the Trustee, (ii) for each Mortgage Loan
which was repurchased during the related
Prepayment Period pursuant to the Pooling
and Servicing Agreement, the principal
amount of the Repurchase Proceeds (net of
amounts with respect to which a distribution
of principal has already been made), (iii)
any Principal Prepayments and any other
unscheduled collection of principal received
with respect to the Mortgage Loans during
the related Prepayment Period and (iv) the
Appraisal Reduction Capitalization Amount,
if any, to the extent actually paid by the
related mortgagor.
E. Available
Distribution
Amount ................. The "Available Distribution Amount" for any
Distribution Date will generally equal the
aggregate of (i) Monthly Payments on the
Mortgage Loans due during the related Due
Period and received on or prior to the
related Determination Date, (ii) Principal
Prepayments and other unscheduled
collections of principal received during the
related Prepayment Period, (iii) Monthly
Advances (defined herein) with respect to
such Mortgage Loans made by the Master
Servicer, the Special Servicer or the
Trustee with respect to such Distribution
Date and (iv) amounts relating to REO
Properties required to be deposited from
time to time in the Collection Account
pursuant to the Pooling and Servicing
Agreement, less the sum of:
(a) all Monthly Payments collected but due
on a date subsequent to the related Due
Date;
(b) all other collections allocable to
principal (or applied as recoveries of
principal) received after the related
Prepayment Period (together with any
interest with respect thereto for periods
after the related Prepayment Period);
(c) all amounts that are currently due or
reimbursable to the Master Servicer, the
Special Servicer or the Trustee (including
any fees payable to the Master Servicer and
the Special Servicer and certain amounts
representing reimbursements for Advances
together with interest thereon at the
Advance Rate and expenses incurred by the
Master Servicer, the Special Servicer and
the Trustee); and
(d) Excess Prepayment Interest in excess
of any Prepayment Interest Shortfalls for
the related Prepayment Period.
F. Priority of
Distributions ........ On each Distribution Date, the Available
Distribution Amount will be paid in the
following order of priority:
(i) to distributions of interest to the
holders of the Class A-X and Class A
Certificates, pro rata, in accordance with
the respective amounts of interest
distributable on such Classes of
Certificates on such Distribution Date, in
an amount equal to the Interest Distribution
Amount in respect of each such Class of
Certificates for such Distribution Date and,
to the extent not previously paid, for all
prior Distribution Dates;
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<PAGE>
(ii) to distributions of principal to the
holders of the Class A Certificates in an
amount (not to exceed the then outstanding
Certificate Principal Balance of such Class
of Certificates) equal to the Principal
Distribution Amount for such Distribution
Date;
(iii) to distributions of interest to the
holders of the Class B Certificates in an
amount equal to the Interest Distribution
Amount in respect of such Class of
Certificates for such Distribution Date and,
to the extent not previously paid, for all
prior Distribution Dates;
(iv) if the Class A Certificates have been
retired, to distributions of principal to
the holders of the Class B Certificates in
an amount (not to exceed the then
outstanding Certificate Principal Balance of
such Class of Certificates) equal to the
Principal Distribution Amount for such
Distribution Date, less any portion thereof
distributed in retirement of the Class A
Certificates;
(v) to distributions of interest to the
holders of the Class C Certificates, in an
amount equal to the Interest Distribution
Amount in respect of such Class of
Certificates for such Distribution Date and,
to the extent not previously paid, for all
prior Distribution Dates;
(vi) if the Class A and Class B
Certificates have been retired, to
distributions of principal to the holders of
the Class C Certificates in an amount (not
to exceed the then outstanding Certificate
Principal Balance of such Class of
Certificates) equal to the Principal
Distribution Amount for such Distribution
Date, less any portion thereof distributed
in retirement of the Class A and/or Class B
Certificates;
(vii) to distributions of interest to the
holders of the Class D Certificates, in an
amount equal to the Interest Distribution
Amount in respect of such Class of
Certificates for such Distribution Date and,
to the extent not previously paid, for all
prior Distribution Dates;
(viii) if the Class A, Class B and Class C
Certificates have been retired, to
distributions of principal to the holders of
the Class D Certificates in an amount (not
to exceed the then outstanding Certificate
Principal Balance of such Class of
Certificates) equal to the Principal
Distribution Amount for such Distribution
Date, less any portion thereof distributed
in retirement of the Class A, Class B and/or
Class C Certificates;
(ix) to distributions of interest to the
holders of the Class E Certificates in an
amount equal to the Interest Distribution
Amount in respect of such Class of
Certificates for such Distribution Date and,
to the extent not previously paid, for all
prior Distribution Dates;
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<PAGE>
(x) if the Class A, Class B, Class C and
Class D Certificates have been retired, to
distributions of principal to the holders of
the Class E Certificates in an amount (not
to exceed the then outstanding Certificate
Principal Balance of such Class of
Certificates) equal to the Principal
Distribution Amount for such Distribution
Date, less any portion thereof distributed
in retirement of the Class A, Class B, Class
C and/or Class D Certificates;
(xi) to distributions of interest to the
holders of the Class F Certificates in an
amount equal to the Interest Distribution
Amount in respect of such Class of
Certificates for such Distribution Date and,
to the extent not previously paid, for all
prior Distribution Dates;
(xii) if the Class A, Class B, Class C,
Class D and Class E Certificates have been
retired, to distributions of principal to
the holders of the Class F Certificates in
an amount (not to exceed the then
outstanding Certificate Principal Balance of
such Class of Certificates) equal to the
Principal Distribution Amount for such
Distribution Date, less any portion thereof
distributed in retirement of the Class A,
Class B, Class C, Class D and/or Class E
Certificates;
(xiii) to distributions of interest to the
holders of the Class G Certificates in an
amount equal to the Interest Distribution
Amount in respect of such Class of Certificates
for such Distribution Date and, to the extent
not previously paid, for all prior
Distribution Dates;
(xiv) if the Class A, Class B, Class C,
Class D, Class E and Class F Certificates
have been retired, to distributions of
principal to the holders of the Class G
Certificates in an amount (not to exceed the
then outstanding Certificate Principal
Balance of such Class of Certificates) equal
to the Principal Distribution Amount for
such Distribution Date, less any portion
thereof distributed in retirement of the
Class A, Class B, Class C, Class D, Class E
and/or Class F Certificates;
(xv) to distributions to the holder of the
Class R Certificate in an amount equal to
the balance, if any, of the Available
Distribution Amount remaining after the
distributions to be made on such
Distribution Date as described in clauses
(i) through (xiv) above.
Prepayment Interest
Shortfalls and Excess
Prepayment Interest .... When a voluntary Principal Prepayment is
made between Due Dates on a Mortgage Loan or
certain involuntary prepayments are received
thereon, a full month's interest is not
received. Any interest shortfall resulting
from such prepayments (a "Prepayment
Interest Shortfall") will first be offset by
any Excess Prepayment Interest (defined
below) and the Servicing Fee to the extent
described herein and any remaining interest
shortfall (each, a "Net Aggregate Prepayment
Interest Shortfall") will be
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<PAGE>
allocated pro rata in accordance with the
respective amounts of interest accrued for
such Classes for such Distribution Date, in
each case in reduction of the Interest
Distribution Amounts for such Classes of
Certificates. None of the Master Servicer,
the Special Servicer or the Trustee shall
have any obligation to make any Advance to
cover such interest shortfalls. See
"DESCRIPTION OF THE CERTIFICATES--Prepayment
Interest Shortfalls and Excess Prepayment
Interest" and "--Principal and Interest
Distributions--Distributions of Interest"
herein. In the case in which a voluntary
Principal Prepayment is made during the
Prepayment Period but after the Due Date for
such Mortgage Loan, "Excess Prepayment
Interest" will arise because the amount of
interest (net of the Servicing Fee) which
accrues on the amount of such Principal
Prepayment will exceed the corresponding
amount of interest accruing on the
Certificates. The amount of Excess
Prepayment Interest in any such case will
equal the interest that accrues on the
Mortgage Loan from such Due Date to the date
such payment was made. To the extent that
the aggregate of all Prepayment Interest
Shortfalls for all Mortgage Loans for any
Due Period exceeds the aggregate of all such
Excess Prepayment Interest for all Mortgage
Loans for such Due Period, the Servicing Fee
(but not the compensation of the Special
Servicer) for the corresponding period will
be reduced in an amount necessary (up to
one- twelfth of the product of the Scheduled
Principal Balance of the Mortgage Loans and
0.13%) to offset such additional remaining
Prepayment Interest Shortfalls. See
"SERVICING--The Master Servicer--Adjustment
to Servicing Fee" herein.
Appraisal Reductions ... Within the period of time specified in the
Pooling and Servicing Agreement after the
earliest to occur of (i) the date on which a
change in the principal balance, payment
rate or amortization term (each, a "Money
Term") or in the stated maturity of any
Specially Serviced Mortgage Loan becomes
effective as a result of a modification of
such Mortgage Loan by the Special Servicer,
(ii) 90 days after the date on which an
uncured delinquency occurs in respect of a
Mortgage Loan, (iii) 60 days after the date
on which a receiver is appointed (if such
appointment remains in effect during such 60
day period) in respect of a Mortgaged
Property or (iv) the date on which a
Mortgaged Property becomes an REO Property,
an MAI appraisal will be obtained by the
Special Servicer from an independent MAI
appraiser at the expense of the Trust Fund
(except if an MAI appraisal has been
conducted within the 12 month period
preceding such event) and the Special
Servicer will obtain (at the expense of the
Trust Fund) an update of such MAI appraisal
on an annual basis for so long as (a) the
event giving rise to the requirement that
such MAI appraisal be obtained continues to
exist or (b) the Mortgaged Property referred
to in clause (iv) above remains an REO
Property. As a result of such appraisal or
update, an Appraisal Reduction may
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be created, which Appraisal Reduction will
be allocated, for purposes of determining
distributions of interest, to the
Certificates in the manner and priority
described below.
The "Appraisal Reduction" for any
Distribution Date with respect to any such
Mortgage Loan will be an amount equal to the
excess of (a) the principal balance of such
Mortgage Loan over (b) the excess of (i) 90%
of the appraised value of such Mortgaged
Property as determined by such independent
appraisal of the Mortgaged Property securing
such Mortgage Loan over (ii) the sum of (A)
to the extent not previously advanced, all
then outstanding unpaid interest on such
Mortgage Loan at a per annum rate equal to
the Mortgage Rate, (B) all unreimbursed
Advances, Servicing Fees and Special
Servicer Compensation and interest thereon
at the Advance Rate in respect of such
Mortgage Loan, and (C) all currently due and
delinquent real estate taxes and
assessments, insurance premiums and, if
applicable, ground rents in respect of such
Mortgaged Property. An Appraisal Reduction
related to a Mortgage Loan will be reduced
to zero as of the date on which such
Mortgage Loan is paid in full, liquidated,
repurchased or otherwise disposed of.
Notwithstanding the foregoing, for any
Distribution Date an Appraisal Reduction
will be zero with respect to such a Mortgage
Loan if (i) the event giving rise to such
Appraisal Reduction is the extension of the
maturity of such Mortgage Loan, (ii) the
payments on such Mortgage Loan were not
delinquent during the twelve month period
immediately preceding such extension, and
(iii) the payments on such Mortgage Loan are
then current; provided, that if at any later
date there occurs a delinquency in payment
with respect to such Mortgage Loan, the
Appraisal Reduction will be applied to the
same extent as it would have been previously
applied. In addition, in any case, upon the
occurrence of any event giving rise to a
subsequent Appraisal Reduction (including
the delinquency referred to in the
immediately preceding sentence) more than
twelve months after an appraisal or update
thereof was obtained with respect to an
Appraisal Reduction, the Special Servicer
will obtain a new appraisal as described
above within the period of time specified in
the Pooling and Servicing Agreement
following the occurrence of any such event
giving rise to a subsequent Appraisal
Reduction and will adjust the amount of the
Appraisal Reduction in accordance therewith.
The aggregate Appraisal Reduction will be
allocated on each Distribution Date, for
purposes of determining distributions in
respect of interest on such Distribution
Date, to the Certificate Principal Balance
of the most subordinated Class of
Certificates that would otherwise receive
distributions of interest, after allocation
of Realized Losses. For so long as a more
senior Class of Certificates is outstanding,
the amount of interest otherwise
distributable on such Distribution Date to
each Class of Certificates to which an
Appraisal Reduction is allocated on such
Distribution Date will be reduced by the
amount of interest
S-18
<PAGE>
accrued at the applicable Certificate Rate
on the portion of the Certificate Principal
Balance of such Class equal to the Appraisal
Reduction allocated to such Class for such
Distribution Date and such amount (the
"Appraisal Reduction Capitalization Amount")
will be added to the Certificate Principal
Balance of such Class of Certificates and an
equal amount will be included in the
Principal Distribution Amount for such
Distribution Date to the extent actually
paid by the related mortgagor. The addition
of an amount equal to the Appraisal
Reduction Capitalization Amount to amounts
distributed to any Class of Certificates
will have the effect of accelerating the
distribution of principal to that Class of
Certificates and increasing the Certificate
Principal Balance of the Class or Classes of
Certificates to which the Appraisal
Reduction Capitalization Amount is
allocated.
The creation of an Appraisal Reduction in
respect of a Mortgage Loan proportionately
reduces the Master Servicer's and the
Special Servicer's advancing obligation for
Monthly Payments in respect of such Mortgage
Loan, which may materially and adversely
affect payments on the then most
subordinated Class of Certificates. See
"SERVICING--Advances--Monthly Advances"
herein.
Allocation of Realized
Losses ................ Realized Losses with respect to the Mortgage
Loans will be allocated, in the case of the
principal portions thereof, sequentially to
the Class G, Class F, Class E, Class D,
Class C, Class B and Class A Certificates,
until the Certificate Principal Balance
thereof has been reduced to zero and, in the
case of the interest portions thereof,
sequentially to the Class G, Class F, Class
E, Class D, Class C and Class B Certificates
and finally, to the Class A-X and the Class
A Certificates, pro rata, in proportion to
the respective amounts of interest accrued
thereon. See "DESCRIPTION OF THE
CERTIFICATES--Allocation of Realized Losses"
herein.
` If the Certificate Principal Balance of any
of the Class A, Class B, Class C or Class D
Certificates is reduced by reason of the
allocation of the principal portions of
Realized Losses, the amount of interest
accrued with respect to the Class A-X
Certificates will also be reduced.
Accordingly, although the principal portions
of Realized Losses will not be allocated to
the Class A-X Certificates directly, the
amount of interest to be distributed to the
Class A-X Certificates may be reduced as a
result of the allocation of such Realized
Losses to the Sequential Pay Certificates.
Treatment of REO
Properties ............ Notwithstanding that a Mortgaged Property
may be acquired on behalf of the
Certificateholders through foreclosure, deed
in lieu of foreclosure or otherwise (upon
acquisition, an "REO Property"), the related
Mortgage Loan will be treated, for
S-19
<PAGE>
purposes of determining distributions on the
Certificates, allocations of Realized Losses
to the Certificates and the amount of fees
payable to the Master Servicer and the
Special Servicer, as having remained
outstanding until such REO Property is
liquidated. In connection therewith,
operating revenues and other proceeds
derived from such REO Property (exclusive of
related operating costs, including certain
reimbursements payable to the Master
Servicer and the Special Servicer in
connection with the operation and
disposition of such REO Property) will be
"applied" by the Master Servicer as
principal, interest and other amounts "due"
on such Mortgage Loan.
Optional Termination ... The Master Servicer, the Special Servicer
(in the event that all the Mortgage Loans
remaining in the Trust Fund are Specially
Serviced Mortgage Loans) and the holder of
the Class R Certificate will each have the
option to purchase, in whole but not in
part, the Mortgage Loans and any REO
Properties remaining in the Trust Fund, and
thereby effect a termination of the Trust
and early retirement of the then outstanding
Certificates, on any date on which the
outstanding aggregate Scheduled Principal
Balance (defined herein) of the Mortgage
Loans is less than 10% of the aggregate
Scheduled Principal Balance of the Mortgage
Loans as of the Cut-off Date. See
"DESCRIPTION OF THE CERTIFICATES--Optional
Termination" herein.
The Mortgage Loans ..... The Mortgage Pool will consist of 56
Mortgage Loans with an aggregate Cut-off
Date principal balance of $108,566,369 (the
"Initial Pool Balance"), subject to a
variance of plus or minus 5%. All numerical
information provided herein and in Annex A
hereto with respect to the Mortgage Loans is
provided on an approximate basis.
All of the Mortgage Loans were originated by
Mutual Benefit between 1972 and 1990 through
a network of brokers and mortgage
correspondents and generally in accordance
with Mutual Benefit's underwriting
standards. See "DESCRIPTION OF THE MORTGAGE
POOL AND THE UNDERLYING MORTGAGED
PROPERTIES--Underwriting Standards."
The Mortgage Loans are generally
non-recourse obligations of the related
mortgagors. No Mortgage Loan will be insured
or guaranteed by any governmental entity or
instrumentality, any private insurer, the
Depositor, the Seller, their respective
affiliates or by any other person.
Each Mortgage Loan is secured by a first
mortgage lien (except for one Mortgage Loan,
representing 0.87% of the Initial Pool
Balance, which is secured by a second
mortgage lien where the related first
mortgage lien is included in the Mortgage
Pool) on the mortgagor's fee simple estate
(or, with respect to two Mortgage Loans,
representing 1.65% of the Initial Pool
Balance, on the ground lessor's fee simple
estate and the mortgagor's
S-20
<PAGE>
leasehold estate) in an income producing
real property (each, a "Mortgaged
Property"). Set forth below are the number
of Mortgage Loans, and the approximate
percentage of the Initial Pool Balance
represented by such Mortgage Loans, that are
secured by Mortgaged Properties operated for
each indicated purpose:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
MORTGAGE INITIAL POOL
PROPERTY TYPE LOANS BALANCE
- -------------------- ----------- ---------------
<S> <C> <C>
Multifamily ......... 16 42.32%
Office .............. 21 25.29%
Retail .............. 9 21.27%
Warehouse/Industrial 9 9.82%
Hotel ............... 1 1.30%
</TABLE>
The Mortgaged Properties are located
throughout 26 states. Set forth below are
the number of Mortgage Loans, and the
approximate percentage of the Initial Pool
Balance represented by such Mortgage Loans,
that are secured by Mortgaged Properties
located in the four states with the highest
concentrations:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
MORTGAGE INITIAL POOL
STATE LOANS BALANCE
- ---------- ----------- ---------------
<S> <C> <C>
Georgia .. 8 16.92%
Texas ..... 4 14.94%
Maryland . 2 11.52%
Florida .. 6 8.36%
</TABLE>
See "RISK FACTORS AND OTHER SPECIAL
CONSIDERATIONS--The Mortgage Loans--
Geographic Concentration" herein.
All of the Mortgage Loans bear interest at
annualized rates (each, a "Mortgage Rate")
that will remain fixed for their respective
remaining loan terms except for three
Mortgage Loans whose Mortgage Rates increase
at specified dates. Scheduled payments of
principal and interest on the mortgage loans
("Monthly Payments") are due monthly on the
first day of each month, except for one
Mortgage Loan (representing 3.22% of the
Initial Pool Balance) for which Monthly
Payments are due on the tenth and except for
three Mortgage Loans (representing 0.32% of
the Initial Pool Balance) which provide for
scheduled payments of principal and/or
interest (also, "Monthly Payments" for
purposes hereof) on a quarterly basis (each
such day, as to any Mortgage Loan, its "Due
Date"). Forty Mortgage Loans (representing
80.65% of the Initial Pool Balance), provide
for grace periods ranging from one to
fifteen days. The remaining Mortgage Loans
do not provide for a grace period. See
"DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGED PROPERTIES-- Certain
Terms and Conditions of the Mortgaged Loans"
herein.
Twenty-seven of the Mortgage Loans
(representing 71.69% of the Initial Pool
Balance), provide for Monthly Payments based
S-21
<PAGE>
on amortization schedules significantly
longer than their terms to stated maturity.
As a result, such Mortgage Loans ("Balloon
Loans") may have substantial principal
amounts due and payable (each such payment,
together with the corresponding interest
payment, a "Balloon Payment") on their
respective maturity dates, unless prepaid
prior thereto. Balloon Loans generally
involve a greater risk of default than
self-amortizing loans. See "RISK FACTORS AND
OTHER SPECIAL CONSIDERATIONS--The Mortgage
Loans--Balloon Payment at Maturity and
Extension of Maturity" herein.
As of the Cut-off Date, forty-nine Mortgage
Loans (representing 89.07% of the Initial
Pool Balance), restrict or prohibit
voluntary principal prepayments. In general,
as of the Cut-off Date, those Mortgage Loans
either (i) permit voluntary prepayments of
principal provided that the prepayment is
accompanied by an additional amount (a
"Prepayment Premium") in excess of the
amount prepaid (forty-eight Mortgage Loans,
representing 78.42% of the Initial Pool
Balance), or (ii) prohibit voluntary
prepayments of principal for a period (a
"Lock-out Period") ending on a specified
date and impose Prepayment Premiums in
connection with prepayments made thereafter
(one Mortgage Loan, representing 10.65% of
the Initial Pool Balance). The remaining
seven Mortgage Loans (representing 10.93% of
the Initial Pool Balance) permit voluntary
prepayments of principal without material
restriction; however, beginning May 1, 1996,
one of these loans (representing 1.32% of
the Initial Pool Balance) permits voluntary
prepayments of principal provided that the
prepayment is accompanied by a Prepayment
Premium. See "DESCRIPTION OF THE MORTGAGE
POOL AND THE UNDERLYING MORTGAGED
PROPERTIES--Certain Terms and Conditions of
the Mortgage Loans--Prepayment Provisions"
herein. Any Prepayment Premiums actually
collected on the Mortgage Loans will be
distributed to the holders of the Class A-X
Certificates separately from the Available
Distribution Amount. See "DESCRIPTION OF THE
CERTIFICATES--Principal and Interest
Distributions--Distributions of Prepayment
Premiums" herein. The Depositor makes no
representation as to the enforceability of
the provision of any Mortgage Note requiring
the payment of a Prepayment Premium, or of
the collectability of any Prepayment
Premium. See "RISK FACTORS AND OTHER SPECIAL
CONSIDERATIONS--The Mortgage Loans--
Prepayment Premiums" herein.
Set forth below is certain information
regarding the Mortgage Loans and the
Mortgaged Properties as of the Cut-off Date
(all weighted averages set forth below are
based on the Cut-off Date principal balances
of the respective Mortgage Loans). Such
information is more fully described, and
additional information regarding the
Mortgage Loans and the Mortgaged Properties
is set forth, in the tables under
"DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING
S-22
<PAGE>
MORTGAGED PROPERTIES--Additional Mortgage
Loan Information--The Mortgage Pool" herein
and in Annex A hereto:
<TABLE>
<CAPTION>
<S> <C>
Number of Mortgage Loans ................ 56
Initial Pool Balance .................... $108,566,369
Minimum Cut-off Date Balance ............ $ 33,159
Maximum Cut-off Date Balance ............ $ 11,567,187
Average Cut-off Date Balance ............ $ 1,938,685
Minimum Mortgage Rate ................... 7.00%
Maximum Mortgage Rate ................... 11.875%
Weighted Average Mortgage Rate .......... 9.545%
Minimum Net Mortgage Rate ............... 6.85%
Maximum Net Mortgage Rate ............... 11.725%
Weighted Average Net Mortgage Rate ..... 9.395%
Minimum Original Term to Stated Maturity
(years) ................................ 3.00
Maximum Original Term to Stated Maturity
(years) ................................ 30.08
Weighted Average Original Term to
Stated Maturity (years) ................ 13.45
Minimum Remaining Term to
Stated Maturity (years) ................ 1.42
Maximum Remaining Term to
Stated Maturity (years) ................ 16.75
Weighted Average Remaining Term
to Stated Maturity (years) ............. 5.58
Minimum Debt Service Coverage Ratio .... 1.00x
Maximum Debt Service Coverage Ratio .... 11.85x
Weighted Average Debt Service Coverage
Ratio .................................. 1.49x
</TABLE>
"Debt Service Coverage Ratios" are
calculated for substantially all the
Mortgage Loans as described under
"DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGED PROPERTIES--Additional
Mortgage Loan Information--General" herein.
Yield Considerations ... The yield to maturity on each Class of
Offered Certificates will be sensitive to,
among other things, the rate and timing of
principal payments (including by reason of
voluntary and involuntary prepayments,
defaults and liquidations) on the Mortgage
Loans, and may fluctuate significantly from
time to time. In general, if an Offered
Certificate is purchased at a premium and
principal distributions thereon occur at a
rate faster than anticipated at the time of
purchase, the investor's actual yield to
maturity will be lower than that assumed at
the time of purchase. Conversely, if an
Offered Certificate is purchased at a
discount and principal distributions thereon
occur at a rate slower than that assumed at
the time of purchase, the investor's actual
yield to maturity will be lower than that
assumed at the time of purchase. See "YIELD
CONSIDERATIONS" herein.
S-23
<PAGE>
The yield to maturity on the Class A-X
Certificates will also be sensitive to
changes in the Weighted Average Net Mortgage
Rate, which will decrease if
disproportionate principal payments (whether
resulting from differences in amortization
schedules, full or partial prepayments or
otherwise) are made on Mortgage Loans with
higher Net Mortgage Rates than the then
current Certificate Rates applicable to such
Certificates.
Because the Class A-X Certificates only
represent the right to receive a portion of
the interest paid on the Mortgage Loans, the
yield to maturity on such Certificates will
be extremely sensitive to the rate and
timing of voluntary and involuntary
principal payments on the Mortgage Loans. A
rapid rate of principal prepayments on the
Mortgage Loans could result in the failure
of investors in the Class A-X Certificates
to recoup their initial investment.
The rate and timing of Balloon Payments on
the Mortgage Loans also will affect the
yield to maturity of the Offered
Certificates. The yield to maturity on each
Offered Certificate may also be affected by
Prepayment Interest Shortfalls as described
herein. In addition, the allocation of
Realized Losses will have the effect of
reducing the effective yield on the Classes
of Offered Certificates to which such
Realized Losses are allocated. See
"DESCRIPTION OF THE CERTIFICATES
--Prepayment Interest Shortfalls and Excess
Prepayment Interest" and "--Allocation of
Realized Losses" herein.
Because interest distributable on the
Offered Certificates on a Distribution Date
will accrue through a date other than the
Distribution Date on which payment is being
made, the effective yield on such
Certificates will be lower than if interest
were to accrue to such applicable
Distribution Date.
Representations and
Warranties ............. MBL, as Seller of the Mortgage Loans to the
Depositor, will make certain limited
representations and warranties to the
Depositor as to the status of the mortgages
securing the Mortgage Loans, the payment
status of the Mortgage Loans and certain
other information described herein. See
"DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGED PROPERTIES--Assignment
of the Mortgage Loans; Representations and
Warranties" herein. The Depositor will
assign to the Trustee the benefits of such
representations and warranties. In the event
that any such representation or warranty is
breached in respect of any Mortgage Loan or
a defect in the mortgage file for any
Mortgage Loan is discovered, which breach or
defect materially and adversely affects the
interests of Certificateholders and is not
thereafter cured, the Seller will be
required to purchase such Mortgage Loan from
the Trust Fund. THE SELLER MUST BE NOTIFIED
IN WRITING OF A BREACH OF A REPRESENTATION
OR WARRANTY OR THE EXISTENCE OF A DEFECT IN
A MORTGAGE FILE ON OR BEFORE DECEMBER 31,
1999 IN ORDER FOR THE TRUSTEE TO HAVE
REMEDIES FOR
S-24
<PAGE>
SUCH A BREACH. IF THE SELLER DOES NOT
RECEIVE ANY SUCH NOTIFICATION PRIOR TO
DECEMBER 31, 1999, THERE WILL BE NO RECOURSE
AGAINST THE SELLER AVAILABLE TO THE TRUSTEE
OR THE CERTIFICATEHOLDERS FOR ANY SUCH
BREACH OR DEFECT. The Seller will be the
sole warranting party in respect of the
related Mortgage Loans, and none of the
Depositor, the Trustee, the Master Servicer,
the Special Servicer or any of their
respective affiliates will be obligated to
repurchase or cause the repurchase of any
affected Mortgage Loan in connection with a
breach of the Seller's representations and
warranties or the existence of a defect in a
mortgage file if the Seller defaults on its
obligation to do so or if the Seller's
obligation to repurchase an affected
Mortgage Loan has expired as described
above. See "DESCRIPTION OF THE
CERTIFICATES--Repurchase of Mortgage Loans"
herein.
Servicing Fee .......... The Master Servicer will be entitled to
receive each month, out of payments of
interest received on the Mortgage Loans in
such month, a servicing fee (the "Servicing
Fee") equal to one- twelfth of 0.15% per
annum of the Scheduled Principal Balance of
each Mortgage Loan as compensation for
servicing the Mortgage Loans. See
"SERVICING--The Master Servicer" herein.
Special Servicing
Compensation ........... The Special Servicer will be entitled to
receive, with respect to any Due Period, a
fee (the "Extension Fee") equal to $3,000
with respect to any Mortgage Loan whose
maturity date has been extended by the
Special Servicer during such Due Period, a
special servicing fee (the "Special
Servicing Fee") equal to one-twelfth of
0.50% per annum of the outstanding Scheduled
Principal Balance of each Specially Serviced
Mortgage Loan as of the first day of such
Due Period and a fee (the "Workout Fee")
equal to 1.0% of (i) collections on
Specially Serviced Mortgage Loans during
such Due Period and (ii) the net proceeds
received in connection with a final
disposition of a Specially Serviced Mortgage
Loan or an REO Property during such Due
Period (collectively, the "Special Servicer
Compensation"). The Special Servicer is also
permitted to retain certain mortgagor-paid
fees and charges specified in the Pooling
and Servicing Agreement.
Trustee Fees ........... The Master Servicer is responsible for the
payment of all fees of the Trustee.
Advances ............... The Master Servicer (or, in certain
circumstances, the Special Servicer) will be
obligated to advance delinquent installments
of principal (other than any Balloon Payment
payable at maturity) and interest on the
Mortgage Loans (net of the related Servicing
Fee) including any Assumed Scheduled
Payments on Mortgage Loans with delinquent
Balloon Payments ("Monthly Advances"), but
only if the Master Servicer or the Special
Servicer, as applicable, believes that the
amount advanced, plus interest
S-25
<PAGE>
that will accrue thereon, will not be a
Nonrecoverable Advance (defined below), and
only so long as the Mortgage Loan or the
related Mortgaged Property is included in
the Trust Fund; provided, however, that the
amount of any Monthly Advance required to be
made by the Master Servicer or the Special
Servicer, as applicable, with respect to any
Mortgage Loan as to which there has been an
Appraisal Reduction will be an amount equal
to the product of (i) the amount required to
be advanced by the Master Servicer or the
Special Servicer, as applicable, without
giving effect to this proviso and (ii) a
fraction, the numerator of which is the
outstanding principal balance of such
Mortgage Loan as of the immediately
preceding Determination Date less any
Appraisal Reduction thereof and the
denominator of which is the outstanding
principal balance of the Mortgage Loan.
Under the Pooling and Servicing Agreement,
at the direction of the Special Servicer,
the Master Servicer will, and the Special
Servicer at its option may, advance
foreclosure costs (including reasonable
attorneys' fees) and taxes and assessments
on the Mortgaged Property and insurance
premiums not paid by mortgagors on a timely
basis, but only to the extent that such
advance would not constitute a
Nonrecoverable Advance (each, an "Expense
Advance").
Under the Pooling and Servicing Agreement,
the Special Servicer will advance funds, to
the extent amounts otherwise available are
not sufficient therefor, necessary for the
property operation, management and
maintenance of any Mortgaged Property
acquired in foreclosure or by deed in lieu
of foreclosure, or upon abandonment, or by
transfer to the Special Servicer by a
bankruptcy trustee or by the related
mortgagor as a debtor-in-possession (each,
an "REO Property"), including amounts
necessary with respect to insurance
premiums, real estate taxes and assessments
and costs and expenses of certain
improvements (together, "Property Protection
Advances") to the extent the Special
Servicer believes that the amount advanced
would not be a Nonrecoverable Advance.
A "Nonrecoverable Advance" is a Monthly
Advance, Expense Advance or Property
Protection Advance (collectively,
"Advances") that the Master Servicer, the
Special Servicer or the Trustee, as
applicable, determines in its reasonable
business judgment would ultimately not be
recoverable, together with interest thereon
at the Advance Rate (defined herein), from
subsequent payments or collections
(including Insurance Proceeds and net
Liquidation Proceeds) in respect of the
affected Mortgage Loan. See
"SERVICING--Advances" herein.
Final Rated Distribution
Date .................. The Final Rated Distribution Date for the
Offered Certificates is August 20, 2030. The
"Final Rated Distribution Date" is the
Distribution Date in the month following the
month that is two
S-26
<PAGE>
years after the maturity date of the
Mortgage Loan with the latest maturity date,
without taking into account any scheduled
Balloon Payment (defined herein), but
instead assuming the full amortization of
the Mortgage Loan in accordance with its
current amortization schedule.
Certain Federal Income
Tax Consequences ....... For federal income tax purposes, two
separate REMIC elections will be made with
respect to the Trust Fund. For federal
income tax purposes, the Offered
Certificates will be REMIC "regular
interests." As REMIC regular interests, the
Offered Certificates will generally be
treated as debt for federal income tax
purposes.
The Offered Certificates will be treated as
(i) "qualifying real property loans" within
the meaning of Section 593(d)(1) of the
Internal Revenue Code (the "Code") and (ii)
"real estate assets" within the meaning of
Section 856(c)(6)(B) of the Code, in each
case to the extent described herein and in
the Prospectus. The Offered Certificates
will not be treated as assets described in
Section 7701(a)(19) of the Code except to
the extent of the proportion of the assets
of the Trust Fund represented by Mortgage
Loans secured by multifamily apartment
buildings. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" herein and in the Prospectus.
The Class A-X Certificates will, and other
Classes of the Offered Certificates may, be
treated for federal income tax purposes as
having been issued with original issue
discount and certain Classes may be treated
for federal income tax purposes as having
been issued at a premium. However, based on
final regulations relating to the treatment
of original issue discount, the Internal
Revenue Service could assert that none of
the interest payments on the Offered
Certificates are "qualified stated interest"
and that all of the Offered Certificates
should be treated as having original issue
discount regardless of their issue price.
For the purpose of determining the rate of
accrual of market discount, original issue
discount and premium for federal income tax
purposes, it is assumed that none of the
Mortgage Loans will prepay. No
representation is made as to whether the
Mortgage Loans will prepay. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES" herein and
in the Prospectus.
Legal Investment ....... The Offered Certificates will not constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). The appropriate
characterization of a Class of Offered
Certificates under various legal investment
restrictions, and thus the ability of
investors subject to these restrictions to
purchase Offered Certificates, may be
subject to significant interpretive
uncertainties. All investors whose
investment authority is subject to legal
restric-
S-27
<PAGE>
tions should consult their own legal
advisors to determine whether, and to what
extent, the Offered Certificates will
constitute legal investments for them.
The Depositor makes no representations as to
the proper characterization of the Offered
Certificates for legal investment or
financial institution regulatory purposes,
or as to the ability of particular investors
to purchase the Offered Certificates under
applicable legal investment restrictions.
The uncertainties described above (and any
unfavorable future determinations concerning
legal investment or financial institution
regulatory characteristics of the Offered
Certificates) may adversely affect the
liquidity of the Offered Certificates. See
"LEGAL INVESTMENT" in the Prospectus.
ERISA Considerations ... A fiduciary of an employee benefit plan or
other retirement plan or arrangement subject
to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or Section
4975 of the Code, or an investor that is an
insurance company, should carefully review
with its legal advisors whether the
purchase, holding or sale of the Offered
Certificates could constitute or result in a
transaction that is a prohibited transaction
or not otherwise permissible under ERISA or
Section 4975 of the Code and, if prohibited,
whether any statutory or administrative
prohibited transaction exemption is
applicable to any such purchase, holding or
sale. The United States Department of Labor
has issued an individual exemption to the
Underwriter which generally exempts from the
application of certain of the prohibited
transaction provisions of ERISA, and the
excise taxes imposed on such prohibited
transactions by Sections 4975(a) and (b) of
the Code, transactions relating to the
purchase, holding and sale of certificates
underwritten by the Underwriter such as the
Class A Certificates and the servicing and
operation of asset pools such as the
Mortgage Pool, provided that certain
conditions are satisfied. This exemption is
not applicable to the Class A-X, Class B,
Class C and Class D Certificates; however, a
prohibited transaction class exemption
applicable to certain transactions involving
insurance company general accounts may apply
to the purchase, holding and sale by certain
insurance companies of such Classes,
provided that the conditions of such
exemption are satisfied. See "ERISA
CONSIDERATIONS" herein and in the
Prospectus.
Ratings ................ It is a condition of the issuance of the
Offered Certificates that upon issuance (i)
the Class A-X and the Class A Certificates
be rated "AAA," the Class B Certificates be
rated not lower than "AA," the Class C
Certificates be rated not lower than "A" and
the Class D Certificates be rated not lower
than "BBB" by Duff & Phelps Credit Rating
Co. ("D&P") and (ii) that the Class A
Certificates be rated "AAA," the Class B
Certificates be rated not lower than "AA,"
the Class C Certificates be rated not
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lower than "A" and the Class D Certificate
be rated not lower than "BBB" by Standard &
Poor's Rating Services ("S&P," and together
with D&P, the "Rating Agencies"). In
addition, it is a condition of the issuance
of the Class E and Class F Certificates that
they be rated "BB" and "B," respectively, by
S&P and "BB" and "B-," respectively by D&P.
The Class G Certificates will be unrated.
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. In
addition, a security rating does not address
the frequency of prepayments of Mortgage
Loans, or the corresponding effect on yield
to investors. The ratings on the Class A-X
Certificates do not address the possibility
that the holders of such Certificates may
realize a lower than anticipated yield or
may fail to fully recover their initial
investments. The Class A-X Certificate
Notional Amount on which interest is
calculated is reduced, as described herein,
by the allocation of Realized Losses and
prepayments, whether voluntary or
involuntary, to the Class A, Class B, Class
C and Class D Certificates. The rating of
the Class A-X Certificates does not address
the timing or magnitude of such reduction of
the Class A-X Certificate Notional Amount,
but only the obligation to pay interest on
the Class A-X Certificate Notional Amount.
See "YIELD CONSIDERATIONS" and "RATINGS"
herein.
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RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Investors should consider, among other things, the following risks and
other important considerations in connection with the purchase of the Offered
Certificates:
THE MORTGAGE LOANS
LIMITED RECOURSE
The Mortgage Loans are not insured or guaranteed by any governmental
agency or instrumentality, private mortgage insurer, the Depositor, the
Seller, their respective affiliates or any other person. Although certain of
the Mortgage Loans may be guaranteed by, or provide for recourse to, the
partners, shareholders or affiliates of the related mortgagors (certain of
which may also be limited recourse entities), there can be no assurance that
any such guaranty or recourse will add significantly to the recoveries of the
Trust Fund if a default occurs on the related Mortgage Loan. As a result, it
should be assumed that recourse in the case of a default will be limited to
the related Mortgaged Property.
COMMERCIAL AND MULTIFAMILY LENDING GENERALLY
Commercial and multifamily lending is generally viewed as exposing the
lender to a greater risk of loss than one- to four-family residential
lending. Commercial and multifamily lending typically involves larger loans
to single mortgagors or groups of related mortgagors than residential one- to
four-family mortgage loans. Further, 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 mortgagor's ability
to repay the loan may be impaired. Commercial and multifamily real estate can
be affected significantly by the 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 mortgagor or lender, such
as rent control laws in the case of multifamily mortgage loans, which impact
the future cash flow of the property.
RISKS PARTICULAR TO CERTAIN TYPES OF MORTGAGED PROPERTIES
In the case of multifamily lending in particular, adverse economic
conditions, either local, regional or national, may limit the amount of rent
that can be charged and may result in a reduction in timely rent payments or
a reduction in occupancy levels. Occupancy and rent levels may also be
affected by construction of additional housing units, local military base
closings and national and local politics, including current or future rent
stabilization and rent control laws and agreements. In addition, the level of
mortgage interest rates may encourage tenants to purchase single-family
housing. Further, the cost of operating a multifamily property may increase,
including the costs of utilities and the costs of required capital
expenditures. All of these conditions and events may increase the possibility
that a mortgagor may be unable to meet its obligations under its mortgage
loan.
With respect to mortgage loans secured by retail properties,
warehouse/industrial facilities or office buildings, in addition to risks
generally associated with real estate, such mortgage loans are also affected
significantly by adverse changes in consumer spending patterns, local
competitive conditions (such as the supply of retail, warehouse/industrial or
office space or the existence or construction of new competitive
warehouse/industrial facilities, shopping centers, shopping malls or office
buildings), alternative forms of retailing (such as direct mail and video
shopping networks which reduce the need for retail space by retail
companies), the quality and philosophy of management, the attractiveness of
the properties to tenants and their customers or clients, the public
perception of the safety of customers at retail properties, and the need to
make major repairs or improvements to satisfy the needs of significant
tenants.
Significant tenants at a retail property play an important part in
generating customer traffic and making a retail property a desirable location
for other tenants of the retail property. Retail properties may be adversely
affected if a significant tenant ceases operations at such locations (which
may occur on account of a voluntary decision not to renew a lease, bankruptcy
or insolvency of such tenant, such
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tenant's general cessation of business activities or for other reasons).
Additionally, certain tenants at retail properties may be entitled to have
their rent reduced or to terminate their leases if an "anchor tenant" ceases
operations at such property.
Warehouse/industrial properties may be adversely affected by reduced
demand for warehouse/ industrial space occasioned by a decline in a
particular industry segment (for example, a decline in defense spending), and
a particular warehouse/industrial property that suited the needs of its
original tenant may be difficult to relet to another tenant or may become
functionally obsolete relative to new properties.
ENVIRONMENTAL LAW CONSIDERATIONS
The Mortgaged Properties are commercial properties, and, as such, are
subject to federal, state, and local laws and regulations relating to
environmental protection. Such laws may include laws regulating emissions of
air pollutants, discharges of waste water or storm water, the generation,
transport, storage or disposal of hazardous waste, underground storage tanks,
the removal and disposal of asbestos-containing materials and the management
of electrical equipment containing polychlorinated biphenyls. The failure to
comply with such laws and regulations may result in significant penalties,
including civil and criminal fines, may give rise to a lien on the related
property to assure payment of the cost of clean-up, and may reduce the value
of such property. Environmental contamination may also reduce the value of a
property.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), a lender may be liable, as an
"owner" or "operator," for clean-up costs on a mortgaged property on which
there has been a release or threatened release of hazardous substances if
agents or employees of the lender have become involved in the operations of
the mortgagor, regardless of whether a previous owner caused the
environmental damage. If the lender actually takes possession of the
property, or control of its operations, or a receiver is appointed, it may be
liable for clean-up costs pursuant to CERCLA.
A "Phase I" environmental site assessment was performed not earlier than
July 1, 1995 at each of the Mortgaged Properties by a third party
unaffiliated with the Seller. In general, the environmental site assessment
reports did not disclose the existence of any material and adverse
environmental condition at any Mortgaged Property, and indicated that the
potential risk of environmental contamination from observed or assumed
conditions (for example, the observed or assumed presence of
asbestos-containing materials, elevated levels of radon, lead in drinking
water and abandoned storage tanks) is not material to the interests of the
holders of the Offered Certificates. However, there can be no assurance that
such assessments, individually or collectively, revealed all environmental
risk to the Trust Fund. See "DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGED PROPERTIES--Assessments of Property
Conditions--Environmental Assessments" herein.
The Special Servicer will be required pursuant to the Pooling and
Servicing Agreement to obtain an environmental site assessment of a Mortgaged
Property prior to acquiring title thereto or assuming its operation. Such
requirement effectively precludes enforcement of the security for the related
Mortgage Note until a satisfactory environmental site assessment is obtained
(or until any required remedial action is thereafter taken) but will decrease
the likelihood that the Trust Fund will become liable for a material adverse
environmental condition at the Mortgaged Property. However, there can be no
assurance that the requirements of the Pooling and Servicing Agreement will
effectively insulate the Trust Fund from potential liability for a materially
adverse environmental condition at any Mortgaged Property.
LIMITED REVIEW
The Mortgage Loans were originated during the years 1972 through 1990, and
were underwritten or purchased in general compliance with Mutual Benefit's
lending policies in effect at the time. While the Seller has undertaken a
limited review of the mortgage loan records and files related to the Mortgage
Loans and has caused each Mortgaged Property to be inspected in connection
with the offering of the Certificates, the Mortgage Loans have not been
"re-underwritten" or subjected to the type of review that would typically be
made in respect of a newly originated mortgage loan.
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CONCENTRATIONS OF MORTGAGE LOANS AND MORTGAGORS
In general, concentrations in a mortgage pool of loans with larger than
average principal balances can result in losses that are more severe,
relative to the size of the pool, than would be the case if the aggregate
principal balance of the pool were more evenly distributed. Concentration of
mortgagor representation in a mortgage pool can pose similar risks because
each mortgage loan group can be viewed in some respects as a single loan.
Thus, the commonly owned mortgagors whose mortgage loans are cross- defaulted
with one another, under certain circumstances, could determine that it was in
their collective interest to file bankruptcy petitions that would stay the
enforcement of all those mortgage loans and that might result in the
interruption of related monthly payments for an indefinite period.
Several of the Mortgage Loans have Cut-off Date principal balances that
are significantly higher than the $1,938,685 average Cut-off Date principal
balance of the Mortgage Loans. The largest Mortgage Loan represents
approximately 10.65% of the Initial Pool Balance, and the ten largest
Mortgage Loans represent approximately 49.66% of the Initial Pool Balance.
See "DESCRIPTION OF THE MORTGAGE POOLS AND THE UNDERLYING MORTGAGED
PROPERTIES--Significant Mortgage Loans" for a description of significant
Mortgage Loans in the Mortgage Pool by percentage of Initial Pool Balance.
Certain mortgagors may be considered related as a result of a person or
persons maintaining an ownership interest in one or more mortgagors ("Related
Mortgagors"). At least two groups of mortgagors whose Mortgage Loans are part
of the Mortgage Pool are Related Mortgagors. One group of Related Mortgagors
owns Mortgaged Properties securing 7.48% of the Mortgage Loans by Initial
Pool Balance. The other group of Related Mortgagors owns Mortgaged Properties
securing 0.32% of the Mortgage Loans by Initial Pool Balance. All of the
Mortgage Loans made to Related Mortgagors are nonrecourse, and were
underwritten on the basis that the primary security for each Mortgage Loan
was the related Mortgaged Property. Consequently, the existence of Related
Mortgagors should not materially and adversely affect the ability of the
Trust Fund to enforce remedies available to it (including realization against
the Mortgaged Property) in connection with a defaulted Mortgage Loan.
Substantive Consolidation Concerns. It is possible that in the event of
the bankruptcy of a parent company or other affiliate of a mortgagor, a court
could order the consolidation of the assets and liabilities of such mortgagor
with those of the related parent or other affiliate. If such consolidation
were ordered, the related mortgaged property would be administered as though
it were property of the bankruptcy estate of the bankrupt parent or other
affiliate. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE
LEASES--Bankruptcy Laws" in the Prospectus for a discussion of the possible
consequences of a bankruptcy petition in such circumstances.
GEOGRAPHIC CONCENTRATION
Repayments by mortgagors and the market value of the Mortgaged Properties
can be affected by economic conditions generally or in regions where the
Mortgaged Properties are located, conditions in the real estate market where
the Mortgaged Properties are located, changes in governmental rules and
fiscal policies, acts of nature, including floods, tornadoes and earthquakes
(which may result in uninsured losses), and other factors that are beyond the
control of the mortgagors.
Twenty Mortgage Loans (representing 51.74% of the Initial Pool Balance)
are secured by Mortgaged Properties located in one of four states: Georgia
(eight Mortgage Loans, representing 16.92% of the Initial Pool Balance);
Texas (four Mortgage Loans, representing 14.94% of the Initial Pool Balance);
Maryland (two Mortgage Loans, representing 11.52% of the Initial Pool
Balance) and Florida (six Mortgage Loans, representing 8.36% of the Initial
Pool Balance). Such concentration increases the exposure of the Mortgage Pool
to any adverse economic or other developments or acts of nature that may
occur in the foregoing states.
EARLY REPAYMENT OF MORTGAGE LOANS
Voluntary principal prepayments of the Mortgage Loans and the condemnation
of, or the occurrence of a casualty loss on, the Mortgaged Property securing
any Mortgage Loan, or the acceleration of payments due under a Mortgage Loan
by reason of default, may result in an unscheduled principal prepayment at
any time.
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PREPAYMENT PREMIUMS
As of the Cut-off Date, one Mortgage Loan (representing 10.65% of the
Initial Pool Balance) prohibits voluntary prepayments of principal for a
period (a "Lock-out Period") ending on a date specified in the related
Mortgage Note and requires that prepayments made thereafter be accompanied by
an additional amount (a "Prepayment Premium") in excess of the amount
prepaid. See "--Significant Mortgage Loans--Wintergreen Plaza Loan." As of
the Cut-off Date, forty-eight of the Mortgage Loans (representing 78.42% of
the Initial Pool Balance) permit voluntary principal payments provided that
the prepayment is accompanied by a Prepayment Premium. The remaining seven
Mortgage Loans, representing 10.93% of the Initial Pool Balance, permit
voluntary principal prepayments in whole without material restriction;
however, beginning May 1, 1996, one of these Mortgage Loans (representing
1.32% of the Initial Pool Balance) permits voluntary prepayments of principal
provided that the prepayment is accompanied by a Prepayment Premium. See
"DESCRIPTION OF THE MORTGAGE POOL-- Certain Terms and Conditions of the
Mortgage Loans--Prepayment Provisions" herein.
Any Prepayment Premiums actually collected on the Mortgage Loans will be
distributed to the holders of the Class A-X Certificates separately from the
Available Distribution Amount. See "DESCRIPTION OF THE
CERTIFICATES--Principal and Interest Distributions--Distributions of
Prepayment Premiums" herein. The Depositor, however, makes no representation
as to the enforceability of the provision of any Mortgage Note requiring the
payment of a Prepayment Premium, or of the collectability of any Prepayment
Premium.
The enforceability, under the laws of a number of states, of provisions
similar to the provisions of the Mortgage Loans providing for the payment of
a Prepayment Premium upon an involuntary prepayment is unclear. No assurance
can be given that, at any time that any Prepayment Premium is required to be
made in connection with an involuntary prepayment, the obligation to pay such
Prepayment Premium will be enforceable under applicable law or, if
enforceable, the foreclosure proceeds will be sufficient to make such
payment. Liquidation Proceeds recovered in respect of any defaulted Mortgage
Loan will, in general be applied to cover outstanding servicing expenses and
unpaid principal and interest prior to being applied to cover any Prepayment
Premium due in connection with the liquidation of such Mortgage Loan. See
"CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS--Enforceability of Certain
Provisions-- Prepayment Provisions" in the Prospectus.
No Prepayment Premium will be payable in connection with any repurchase of
a Mortgage Loan by the Seller for a material breach of representation or
warranty on the part of the Seller or any failure to deliver documentation
relating thereto, nor will any Prepayment Premium be payable in connection
with the purchase of all the Mortgage Loans and any REO Properties by the
Master Servicer, the Special Servicer or the Class R Certificateholder in
connection with the termination of the Trust Fund. See "DESCRIPTION OF THE
MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES--Assignment of the
Mortgage Loans; Representations and Warranties" and "DESCRIPTION OF THE
CERTIFICATES--Optional Termination" herein.
BALLOON PAYMENT AT MATURITY AND EXTENSION OF MATURITY
Twenty-seven Mortgage Loans (representing 71.69% of the Initial Pool
Balance) do not fully amortize over their terms to stated maturity and thus,
in each case may have a substantial payment (that is, a Balloon Payment) due
at stated maturity, unless previously prepaid. Mortgage loans with Balloon
Payments involve a greater risk to a lender than self-amortizing loans
because the ability of a mortgagor to make a Balloon Payment will normally
depend on its ability to fully refinance the loan or sell the mortgaged
property at a price sufficient to permit the mortgagor to make the Balloon
Payment. The ability of a mortgagor to effect such a refinancing or sale will
be affected by a number of factors including the value of the related
mortgaged property, the level of available mortgage rates at the time of sale
or refinancing, the mortgagor's equity in the mortgaged property, the
financial condition and operating history of the mortgagor and the mortgaged
property, tax laws, prevailing general economic conditions and the
availability of credit for loans secured by multifamily or commercial, as the
case may be, real properties generally. Neither the Depositor nor any of its
affiliates is under any obligation to refinance any Mortgage Loan.
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The Special Servicer is permitted to extend and modify a defaulted
Mortgage Loan (or one as to which default is reasonably foreseeable) under
certain circumstances and subject to certain limitations. See
"SERVICING--Mortgage Loan Modifications" herein. There can be no assurance,
however, that any such extension or modification will increase the present
value of recoveries in a given case. Any delay in the collection of a Balloon
Payment that would otherwise be distributable in respect of a Class of
Certificates, whether due to default or to modification of the related
Mortgage Loan, will likely extend the weighted average life of such Class of
Certificates. Certificateholders are not entitled to receive distributions of
Balloon Payments when due except to the extent they are actually received.
JUNIOR LIENS
With respect to certain of the Mortgage Loans, there exist junior
mortgages or deeds of trust which are subordinate to the first (and, with
respect to one Mortgage Loan, the second) mortgages or deeds of trust
contained in the Mortgage Pool. For a discussion of the rights of the holders
of senior mortgages when such junior mortgages exist, see "CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS-- Junior Mortgages; Rights of Senior Mortgagees
or Beneficiaries" in the Prospectus. The debt service payments required on,
or the principal balances of, such junior mortgages were not taken into
account when calculating the debt service coverage ratios or the Indicative
LTVs, respectively, set forth in the tables entitled "Debt Service Coverage
Ratios" and "Indicative LTVs" under "DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGED PROPERTIES--Additional Mortgage Loan Information."
LIMITED REPURCHASE OBLIGATION OF THE SELLER
MBL, as Seller of the Mortgage Loans to the Depositor, will make certain
limited representations and warranties to the Depositor as to the status of
the Mortgages securing the Mortgage Loans, the payment status of the Mortgage
Loans and certain other information described herein. See "DESCRIPTION OF THE
MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES-- Assignment of the
Mortgage Loans; Representations and Warranties." The Depositor will assign to
the Trustee the benefits of such representations and warranties. In the event
that any such representation or warranty is breached in respect of any
Mortgage Loan or a defect in the mortgage file for any Mortgage Loan is
discovered, which breach or defect materially and adversely affects the
interests of Certificateholders and is not thereafter cured, the Seller will
be required to purchase such Mortgage Loan from the Trust Fund. THE SELLER
MUST BE NOTIFIED IN WRITING OF A BREACH OF A REPRESENTATION OR WARRANTY OR
THE EXISTENCE OF A DEFECT IN A MORTGAGE FILE ON OR BEFORE DECEMBER 31, 1999
IN ORDER FOR THE TRUSTEE TO HAVE REMEDIES FOR SUCH A BREACH OR DEFECT. IF THE
SELLER DOES NOT RECEIVE SUCH NOTIFICATION PRIOR TO DECEMBER 31, 1999, THERE
WILL BE NO RECOURSE AGAINST THE SELLER AVAILABLE TO THE TRUSTEE OR THE
CERTIFICATEHOLDERS FOR ANY SUCH BREACH OR DEFECT. The Seller will be the sole
warranting party in respect of the related Mortgage Loans, and none of the
Depositor, the Trustee or any of their respective affiliates will be
obligated to repurchase or cause the repurchase of any affected Mortgage Loan
in connection with a breach of the Seller's representations and warranties or
the existence of a defect in a mortgage file if the Seller defaults on its
obligation to do so or if the Seller's obligation to repurchase an affected
Mortgage Loan has expired as described above. See "DESCRIPTION OF THE
CERTIFICATES--Repurchase of Mortgage Loans" herein.
LIMITED INFORMATION
The mortgagors, in many cases, are not required, or cannot practicably be
compelled, to provide the holder of the related Mortgage with all of the
information that a lender would typically obtain from a mortgagor in
connection with the origination or modification of the loan. Therefore,
information contained herein with respect to some of the Mortgage Loans is
not as complete as would be the case if those loans had been newly
originated.
LACK OF APPRAISALS
No current appraisals of the Mortgaged Properties are contained in the
Mortgage Files. None of the Seller, the Depositor, the Underwriter or any
other person makes any representation as to the value of the Mortgaged
Properties.
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COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain Federal requirements related to
access and use by disabled persons. To the extent the Mortgaged Properties do
not comply with the ADA, the related mortgagors are likely to incur costs of
complying with the ADA. In addition, noncompliance could result in the
imposition of fines by the Federal government or an award of damages to
private litigants. The Seller has not conducted an audit or investigation
with respect to any of the Mortgaged Properties to determine their compliance
with the ADA.
THE CERTIFICATES
BOOK-ENTRY REGISTRATION
Each Class of Offered Certificates will be initially represented by one or
more certificates registered in the name of Cede & Co., as the nominee for
DTC, and will not be registered in the names of the related holders of
Certificates or their nominees. As a result, holders of the Offered
Certificates will not be recognized as Certificateholders for certain
purposes. Hence, those beneficial owners will be able to exercise the rights
of holders of Certificates only indirectly through DTC and its participating
organizations. See "DESCRIPTION OF THE CERTIFICATES--Registration" herein.
Issuance of Offered Certificates in book-entry form may reduce the
liquidity thereof in any secondary trading market that may develop therefor
because investors may be unwilling to purchase Offered Certificates for which
they cannot obtain delivery of physical certificates. Further, the issuance
of the Offered Certificates in book-entry form may limit the ability of
investors to pledge such Certificates.
LIMITED LIQUIDITY
There is no secondary market for the Offered Certificates, and no listing
on any securities exchange or other arrangement for secondary market trading
of the Offered Certificates is being made. While the Underwriter has advised
the Depositor that it (or its affiliates) currently intends to make a
secondary market in the Offered Certificates, it is under no obligations to
do so. Accordingly, there can be no assurance that such a market will develop
or, if it does develop, that it will provide holders of the Offered
Certificates with liquidity of investment or continue for the life of such
Certificates.
CERTAIN YIELD AND MATURITY CONSIDERATIONS
The yield on any Offered Certificate will depend on the price paid for
such Certificate and the rate, timing and amount of distributions on such
Certificate. The rate, timing and amount of distributions on any Offered
Certificate will in turn depend on, among other things, (i) the rate, timing
and amount of principal payments (including Principal Prepayments) and other
collections on the Mortgage Loans attributable to principal (including
proceeds from liquidations of Mortgage Loans or as a result of repurchases of
the Mortgage Loans from the Trust by the Seller), (ii) by the order of
priority of distributions of principal in respect of the Certificates and
(iii) the amount of Realized Losses if any, allocated to such Certificates.
The Certificate Interest Rate for the Class A, Class B, Class C and Class
D Certificates for any Distribution Date will be fixed. However, the
Certificate Rate applicable to the Class A-X Certificates for any
Distribution Date will be variable as described herein. Accordingly, the
yields on the Class A-X Certificates will be sensitive to changes in the
relative composition of the Mortgage Pool as a result of scheduled
amortization, voluntary prepayments and liquidations of Mortgage Loans
following default. Further, because the Class A-X Certificate Notional Amount
is equal to the sum of the Certificate Principal Balances of the Class A,
Class B, Class C and Class D Certificates, any reduction in the Certificate
Principal Balance of such corresponding Class of Sequential Pay Certificates
will have a negative effect on the yield to maturity of the Class A-X
Certificates. See "YIELD CONSIDERATIONS" herein.
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Prepayments on the Mortgage Loans will be influenced by the prepayment
provisions of the related Mortgage Notes and may also be affected by a
variety of economic, geographic and other factors, including the difference
between the Mortgage Rates on the Mortgage Loans and prevailing mortgage
rates (giving consideration to limitations imposed by lock-out provisions and
the cost of refinancing, including the payment of a Prepayment Premium) and
the availability of refinancing. In general, if prevailing interest rates
fall significantly below the Mortgage Rates on the Mortgage Loans, the rate
of prepayment on the Mortgage Loans would be expected to increase.
Conversely, if prevailing interest rates rise to a level significantly above
the Mortgage Rates, the rate of prepayment on the Mortgage Loans would be
expected to decrease. The Depositor makes no representations as to the effect
of such lock-out provisions or Prepayment Premiums on the rate of prepayment
of the related Mortgage Loans.
Delays in liquidations of defaulted Mortgage Loans and modifications
extending the maturity of Mortgage Loans will tend to extend the payment of
principal of the Mortgage Loans. Because approximately 71.69% of the Initial
Pool Balance is constituted by Balloon Loans and because the ability of a
mortgagor to make a Balloon Payment typically will depend upon its ability
either to refinance the Mortgage Loan or to sell the related Mortgaged
Property at a price sufficient to permit the mortgagor to make the Balloon
Payment, there is a risk that a number of Mortgage Loans having Balloon
Payments may default at maturity, or that, following such a default, the
Special Servicer may extend the maturity of a number of such Mortgage Loans
in connection with working them out. In the case of defaults, recovery or
proceeds may be delayed by, among other things, bankruptcy of the mortgagor
or adverse conditions in the market where the Mortgaged Property is located.
In order to minimize losses on defaulted Mortgage Loans, the Special
Servicer, with the approval of the Controlling Party and, under certain
circumstances, the Extension Adviser, is given considerable flexibility under
the Special Servicing Agreement (as defined herein) to modify Mortgage Loans
as to which a payment or other material default is reasonably foreseeable has
occurred. See "SERVICING--Mortgage Loan Modifications" herein.
VARIABILITY OF AVERAGE LIFE
The payment experience on the Mortgage Loans will affect the actual
payment experience on and the weighted average lives of the Certificates.
Prepayments on the Mortgage Loans (including prepayments resulting from
repurchases, defaults and liquidations) will tend to shorten the weighted
average lives of the Certificates. Since all principal payments on the
Mortgage Loans initially are directed to reduce the respective Certificate
Principal Balances of the Class A Certificates, prepayments on the Mortgage
Loans will have a disproportionately greater effect on the Class A
Certificates relative to the classes of Certificates subordinate thereto.
Any changes in weighted average life may adversely affect the yield to
Certificateholders. Prepayments resulting in a shortening of such weighted
average lives may be made at a time of low interest rates when a holder may
be unable to reinvest the resulting payments of principal on its Certificates
at a rate comparable to the Certificate Rate payable on such Certificates,
while delays and extensions resulting in a lengthening of such weighted
average lives may occur at a time of high interest rates when a holder may
have been able to reinvest principal payments that would otherwise have been
received by it at higher rates.
LIMITED OBLIGATIONS
The Certificates will represent beneficial ownership interests solely in
the Trust Fund and will not represent an interest in or obligation of the
Underwriter, the Master Servicer, the Special Servicer, the Trustee, the
Seller, the Depositor or any of their respective affiliates or any other
person. Distributions on any Class of Certificates will depend solely on the
amount and timing of payments and other collections in respect of the
Mortgage Loans. Although amounts, if any, otherwise distributable in respect
of the Non-Offered Certificates on any Distribution Date will be available to
make distributions on the Offered Certificates, in the event that Realized
Losses occur, there can be no assurance that these amounts, together with
other payments and collections in respect of the Mortgage Loans, will be
sufficient to make full and timely distributions on the Offered Certificates.
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SUBORDINATION OF SUBORDINATE CERTIFICATES
As and to the extent described herein, the rights of the holders of the
respective Classes of Subordinate Certificates (including the Class B, Class
C and Class D Certificates) to receive distributions of amounts collected or
advanced on or in respect of the Mortgage Loans will be subordinated to those
of the holders of the Class A-X and Class A Certificates and the holders of
each other Class of Subordinate Certificates, if any, with an earlier
alphabetical Class designation. See "DESCRIPTION OF THE
CERTIFICATES--Subordination" herein.
Realized Losses on the Mortgage Loans will reduce interest accrued on and
the outstanding Certificate Principal Balance of a class of Subordinate
Certificates after the Certificate Principal Balances of the Class or Classes
of Certificates subordinate thereto, if any, have been reduced to zero and
prior to any reduction of accrued interest on the Class A-X Certificates and
the Class A Certificates and of the outstanding Certificate Principal Balance
of the Class A Certificates.
Deferred Interest on the Mortgage Loans, and Appraisal Reduction
Capitalization Amounts, if any, may be applied to reduce current interest
distributable on the Class G, Class F, Class E, Class D, Class C and Class B
Certificates, in that order, prior to being applied to reduce current
interest on the Class A-X and Class A Certificates, as described herein under
"DESCRIPTION OF THE CERTIFICATES-- Principal and Interest
Distributions--Deferred Interest."
CONFLICTS OF INTEREST
Because cash flows from the Mortgage Loans will be applied to payments of
the Certificates of each Class in accordance with the priorities described
herein under "DESCRIPTION OF THE CERTIFICATES--Principal and Interest
Distributions--Priority of Distributions," decisions as to when and how to
realize upon a particular Mortgage Loan may affect the amount and timing of
the realization of proceeds thereon to the disadvantage of the holders of the
Certificates of one Class as against the others.
In most instances, the Controlling Party (defined herein) will be entitled
to approve certain actions of the Special Servicer with respect to Specially
Serviced Mortgage Loans (for example, whether to pursue foreclosure on a
defaulted Mortgage Loan or a loan modification and extension). The
Controlling Party may have interests in conflict with those of the holders of
certain other Classes of Certificates. As a result, it is possible that the
Controlling Party may approve certain actions proposed by the Special
Servicer with respect to Specially Serviced Mortgage Loans that conflict with
the interests of the holders of certain other Classes of Certificates. The
Controlling Party also will have the right to replace the Special Servicer,
without cause, but subject to certain conditions. In addition, since there is
no restriction on the Special Servicer's ability to hold a Class of
Certificates, it is likely that the Special Servicer may hold a Class of
Certificates which would make it the Controlling Party. See "SERVICING--The
Controlling Party" herein.
The Trustee's decisions with respect to the exercise of remedies may
disadvantage the holders of the Certificates of one Class as against the
others. Also, any decision whether to declare an Event of Default under the
Pooling and Servicing Agreement, and thereby replace the Master Servicer or
the Special Servicer for cause, may be more advantageous to one Class of
Certificates than the others.
THE SELLER
MBL Life Assurance Corporation (the "Seller" or "MBL") is a stock
insurance company incorporated in New Jersey. MBL acquired the Mortgage Loans
and certain other assets, as described below, from the Mutual Benefit Life
Insurance Company ("Mutual Benefit"). Mutual Benefit, founded in Newark, New
Jersey in 1845, was one of the first life insurance companies established in
the United States. In an effort to generate the yields demanded in an
increasingly competitive insurance industry during the 1980s, Mutual Benefit
invested over 50% of its assets in real estate. Due to its heavy
concentration of real estate investments, Mutual Benefit was particularly
affected by declining real estate markets in the late 1980s and early 1990s.
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In July 1991, Mutual Benefit was placed in rehabilitation under the
control of the Commissioner of Insurance of the State of New Jersey. At that
time, Mutual Benefit had assets of approximately $14 billion, including
mortgage loans and properties with book values of approximately $5 billion,
as well as 2,700 employees, a 1,200 agent distribution force, more than
400,000 individual policyholders and several hundred thousand pension plan
participants.
A rehabilitation plan for Mutual Benefit (the "Plan"), which was confirmed
by the Superior Court of New Jersey in November 1993, was supported by the
National Organization of Life and Health Insurance Guaranty Associations and
a consortium of insurance companies. In exchange for the assignment to it of
Mutual Benefit's assets, MBL agreed to assume the insurance liabilities of
Mutual Benefit.
The Insurance Department of the State of New Jersey and the Superior Court
of New Jersey will oversee MBL's operations during the rehabilitation period,
which expires on December 31, 1999. Currently, six of the ten members of the
board of directors of MBL are appointed by the Commissioner of Insurance of
the State of New Jersey, who is the chairman of MBL's board of directors and
the chairman of the board's investment committee. After the rehabilitation
period, MBL will be able to commence insurance operations and the
shareholders will be authorized to elect all of the members of MBL's board of
directors. A portion of the assets of MBL, which support certain pension
liabilities that are reinsured by a consortium of insurance companies, are
held in a separate account (the "Separate Account"). The Mortgage Loans that
will be sold to the Depositor are currently allocated to the Separate
Account. The Plan requires that the Separate Account begin distributing funds
to its contract holders in 1999, leading to an eventual liquidation of the
Separate Account.
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DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING MORTGAGED PROPERTIES
GENERAL
The following description summarizes certain characteristics of the
Mortgage Loans expected to be included in the Mortgage Pool. Mortgage Loans
may be removed from the Mortgage Pool prior to the date of issuance of the
Certificates as a result of prepayments or delinquencies or for other
reasons. If any of the characteristics of the Mortgage Loans actually
included in the Trust Fund varies in any material respect from those set
forth in the Prospectus Supplement, information as to such characteristics
will be included in a Current Report on Form 8-K filed by the Depositor with
the Securities and Exchange Commission within fifteen days of the issuance of
the Certificates.
The Mortgage Pool will consist of 56 fixed rate, conventional mortgage
loans (the "Mortgage Loans") with an aggregate Cut-Off Date Balance of
$108,566,369 (the "Initial Pool Balance"). The "Cut-off Date Balance" of any
Mortgage Loan is the unpaid principal balance thereof as of November 1, 1995
(the "Cut-off Date"), after application of all payments due on such Mortgage
Loan on or before such date, whether or not received. All percentages of the
Mortgage Loans, or of any specified group of Mortgage Loans, referred to
herein without further description are approximate percentages by aggregate
Cut-off Date Balance. References to percentages of Mortgaged Properties are
references to the percentages of the Initial Pool Balance represented by the
aggregate Cut-Off Date Balance of the related Mortgage Loans. All statistical
information provided herein with respect to the Mortgage Pool is provided on
an approximate basis.
Each Mortgage Loan is evidenced by a promissory note (a "Mortgage Note")
and secured by a mortgage, deed of trust or other similar security instrument
(a "Mortgage") that creates a first mortgage lien (or, in the case of one
Mortgage Loan representing 0.87% of the Initial Pool Balance, a second
mortgage lien) on a mortgagor's fee simple estate (or, in two cases,
representing 1.65% of the Initial Pool Balance, on the ground lessor's fee
simple estate and the mortgagor's leasehold estate) in an income- producing
real property (each, a "Mortgaged Property"). Two Mortgage Notes (together
representing 6.63% of the Initial Pool Balance) are secured by a single
Mortgage on one Mortgaged Property. For purposes of presenting numerical
information in this Prospectus Supplement, each of these two Mortgage Notes
is considered to be a single Mortgage Loan, each secured by the related
Mortgaged Property and having the same Debt Service Coverage Ratio.
Sixteen Mortgage Loans (representing 42.32% of the Initial Pool Balance)
are secured by multifamily apartment buildings; twenty-one Mortgage Loans
(representing 25.29% of the Initial Pool Balance) are secured by office
buildings; nine Mortgage Loans (representing 21.27% of the Initial Pool
Balance) are secured by retail properties; nine Mortgage Loans (representing
9.82% of the Initial Pool Balance) are secured by warehouse/industrial
facilities and one Mortgage Loan (representing 1.30% of the Initial Pool
Balance) is secured by a hotel.
The Mortgage Loans are secured by mortgage liens on Mortgaged Properties
located throughout 26 states, including Georgia (eight Mortgage Loans,
representing 16.92% of the Initial Pool Balance), Texas (four Mortgage Loans,
representing 14.94% of the Initial Pool Balance), Maryland (two Mortgage
Loans, representing 11.52% of the Initial Pool Balance) and Florida (six
Mortgage Loans, representing 8.36% of the Initial Pool Balance).
Five Mortgage Loans (representing 15.20% of the Mortgage Loans by Initial
Pool Balance) had maturity dates that occurred or were scheduled to occur
prior to or shortly after the Cut-off Date but were modified to extend their
maturity dates in anticipation of the sale of the Mortgage Loans by the
Seller to the Depositor and the issuance of the Certificates; however, the
Seller did not "re-underwrite" any such Mortgage Loans at the time of
extension. In addition, the payment terms and/or terms to maturity of twenty
of the Mortgage Loans (representing 43.77% of the Initial Pool Balance), have
been modified by the Seller or, in some cases, by Mutual Benefit, since their
respective origination dates. In general, those
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Mortgage Loans were either (i) modified at or near the time of their original
scheduled maturities to extend their terms to maturity and to modify their
payment terms to reflect market terms, or in some cases, to below market
terms if the loan could not be refinanced at market terms, or (ii) modified
following, or in anticipation of, default.
The Mortgage Loans were originated by The Mutual Benefit Life Insurance
Company ("Mutual Benefit"), between 1972 and 1990 through a network of
brokers and mortgage correspondents. See "THE SELLER" herein.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Mortgage Rates; Calculations of Interest
Three of the Mortgage Loans (representing 9.08% of the Initial Pool
Balance) accrue interest on the basis (a "30/360 basis") of a 360-day year
consisting of twelve 30-day months. The "30/360" method produces equal
monthly interest charges on a fixed rate, interest-only loan and is the
method used to calculate interest on the Certificates. One Mortgage Loan
(representing 4.59% of the Initial Pool Balance) accrues interest for the
actual number of days elapsed each month over a 365-day year (the
"Actual/365" method). The Actual/365 method produces equal daily interest
charges on a fixed rate, interest-only loan. The related loan documents for
the remaining fifty-two Mortgage Loans (representing 86.33% of the Initial
Pool Balance) are silent as to the methodology of interest accrual. For
purposes of this Prospectus Supplement, these Mortgage Loans are assumed to
accrue interest on a 30/360 basis. For purposes of calculating the Weighted
Average Net Mortgage Rate for each Distribution Date, the Net Mortgage Rate
for the one Mortgage Loan that does not accrue interest on a 30/360 basis
will generally be determined by (i) calculating the amount of interest at the
related Mortgage Rate payable with respect to such Mortgage Loan during the
calendar month preceding such Distribution Date, (ii) subtracting from such
amount an amount equal to the fees payable to the Master Servicer
attributable to such Mortgage Loan for that month, calculated at the
applicable aggregate rate per annum for the actual number of days in that
month, and (iii) determining the rate of interest, calculated on a 30/360
basis, that would produce one month's interest in an amount equal to the
remainder of (i) minus (ii).
All but three of the Mortgage Loans bear interest at Mortgage Rates that
will remain fixed for their remaining terms. The remaining three Mortgage
Loans have Mortgage Rates that will adjust as follows:
<TABLE>
<CAPTION>
NEXT NEXT NEXT
PAYMENT STEP-UP STEP-UP
PROPERTY STEP-UP DATE MORTGAGE RATE PAYMENT
<S> <C> <C> <C>
Edgetown Square ......... 9/1/96 8.75% $22,321.20
Silver Shadow Apartments 1/1/96 8.50% 23,682.54
8/1/96 9.00% 24,675.02
8/1/97 9.50% 25,609.95
8/1/98 10.00% 26,563.44
Timbers of Deerbrook ... 4/1/96 9.50% 41,771.34
4/1/97 10.00% 43,326.53
</TABLE>
Due Dates; Grace Periods
All but four of the Mortgage Loans have Due Dates (that is, the dates upon
which the related Monthly Payments first become due) that occur on the first
day of each month. The Due Date for one Mortgage Loan (representing 3.22% of
the Initial Pool Balance) is the tenth day of each month. The remaining three
Mortgage Loans which represent 0.32% of the Initial Pool Balance, have Due
Dates that occur on the first day of every third month (the "Quarterly-Pay
Loans"). In each of those three cases, the first Due Date following the
Cut-off Date occurs in January 1996 and the Seller will be required to pay to
the Master Servicer on the Delivery Date for deposit into the Distribution
Account, an aggregate amount equal to all interest that will, in the absence
of prepayment, accrue on each Quarterly-Pay Loan from the Cut-off Date to but
not including December 1, 1995. Forty Mortgage Loans (representing
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80.65% of the Initial Pool Balance), provide for grace periods ranging from
one to fifteen days. The remaining Mortgage Loans do not provide for a grace
period.
Amortization
Twenty-nine of the Mortgage Loans (representing 28.31% of the Initial Pool
Balance) are self-amortizing. As of the Cut-Off Date, two Mortgage Loans
(representing 5.34% of the Initial Pool Balance) provide for monthly payments
of interest only, with principal payments to commence on January 1, 1996 and
September 1, 1996, respectively. These principal payments will be
insufficient to fully amortize such Mortgage Loans by their respective
maturity dates, thereby leaving Balloon Payments due and payable on their
respective maturity dates, unless prepaid prior thereto. The remaining
Mortgage Loans provide for Monthly Payments based on amortization schedules
significantly longer than their terms to maturity, thereby leaving Balloon
Payments due and payable on their respective maturity dates, unless prepaid
prior thereto. See "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS-- The
Mortgage Loans--Balloon Payment at Maturity and Extension of Maturity"
herein.
Assignments of Leases and Rents
All of the Mortgage Loans are secured by one or more assignments of leases
and rents relating to the Mortgaged Property. Pursuant to an assignment of
leases and rents, a mortgagor assigns its right, title and interest as
landlord under each lease and the income derived therefrom to the lender,
while retaining a right to collect the rents for so long as there is no
default. If such mortgagor defaults, the lender (or its assignee, such as the
Trustee), is entitled to initiate action to collect the rents from tenants to
be applied to the monetary obligations of such mortgagor. State law may limit
or restrict the enforcement of the assignment of leases and rents by a lender
until the lender takes possession of the related Mortgaged Property or a
receiver is appointed. The bankruptcy of a mortgagor prior to such possession
could prevent the lender from collecting the rental cash flows; the rents,
however, will be considered as the lender's "cash collateral" (as such term
is defined in the Bankruptcy Code (defined herein)), entitled to the
protections set forth in Section 363 of the Bankruptcy Code; provided, that
the lender holds a perfected security interest in the rents.
Prepayment Provisions
As of the Cut-off Date one Mortgage Loan (representing 10.65% of the
Initial Pool Balance) prohibits voluntary prepayments of principal for a
period (a "Lock-out Period") ending on September 30, 1996 and requires that
principal prepayments made thereafter be accompanied by an additional amount
(a "Prepayment Premium") in excess of the amount prepaid. See "-- Significant
Mortgage Loans-- Wintergreen Plaza Loan." Forty-eight of the Mortgage Loans
(representing 78.42% of the Initial Pool Balance) permit voluntary principal
payments provided that the prepayment is accompanied by a Prepayment Premium.
The remaining seven Mortgage Loans (representing 10.93% of the Initial Pool
Balance), permit voluntary principal prepayments in whole without material
restriction; however, beginning May 1, 1996, one of these Mortgage Loans
(representing 1.32% of the Initial Pool Balance) permits voluntary
prepayments of principal provided that the prepayment is accompanied by a
Prepayment Premium.
Any Prepayment Premiums actually collected on the Mortgage Loans will be
distributed to the holders of the Class A-X Certificates separately from the
Available Distribution Amount. See "DESCRIPTION OF THE
CERTIFICATES--Principal and Interest Distributions--Distributions of
Prepayment Premiums" herein. The Depositor makes no representation as to the
enforceability of the terms of any Mortgage Note requiring the payment of a
Prepayment Premium, or as to the collectability of any Prepayment Premium.
See "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS--The Mortgage Loans --
Prepayment Premiums" herein.
The prepayment provisions for the Mortgage Loans are more fully described
in the table entitled "Prepayment Premium Analysis" under "--Additional
Mortgage Loan Information."
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Non-recourse Obligations
Substantially all of the Mortgage Loans are non-recourse obligations of
the related mortgagors and, upon any such mortgagor's default in the payment
of any amount due under the related Mortgage Loan, the holder thereof may
look only to the Mortgaged Property securing such loan for satisfaction of
such mortgagor's obligations. In addition, in those cases where recourse to a
mortgagor or guarantor is purportedly permitted, the Depositor has not
undertaken an evaluation of the financial condition of any such person (which
in some case may itself be a limited recourse entity), and prospective
investors should thus consider all of the Mortgage Loans to be non-recourse.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions
Some of the Mortgages contain "due-on-sale" clauses that, in general,
permit the holder of the Mortgage to accelerate the maturity of the related
Mortgage Loan if the mortgagor sells or otherwise transfers the related
Mortgaged Property or that prohibit the mortgagor from doing so without the
consent of the holder of the Mortgage. Several of the Mortgage also contain
"due-on-encumbrance" clauses that, in general, permit the holder of the
Mortgage to accelerate the maturity of the related Mortgage Loan if the
Mortgagor encumbers the related Mortgaged Property or that prohibit the
mortgagor from doing so without the consent of the holder of the Mortgage.
The Master Servicer or the Special Servicer, as applicable, will determine,
in a manner consistent with the servicing standard described hereunder under
"SERVICING--General" and in accordance with the provisions of the Pooling and
Servicing Agreement whether to exercise any right it may have under any such
clause to accelerate payment of the related Mortgage Loan upon, or to
withhold its consent to, any transfer or further encumbrance of the related
Mortgaged Property. In certain cases, the Seller has not enforced due-on-sale
or due-on-encumbrance provisions.
Acceleration of Mortgage Loans
Each Mortgage Loan includes a debt-acceleration clause, which permits the
related lender to accelerate the debt upon a monetary or nonmonetary default
of the related mortgagor. The courts of all states will enforce clauses
providing for acceleration in the event of a material payment default after
giving of appropriate notices. The equity courts of any state, however, may
refuse to foreclose a mortgage or deed of trust when an acceleration of the
indebtedness would be inequitable or unjust, or the circumstances would
render the acceleration unconscionable.
The Master Servicer may accelerate the maturity of any Mortgage Loan (i)
if any installment of principal and/or interest is not paid when due, (ii)
upon the occurrence of certain events relating to the insolvency of the
related mortgagor (subject to applicable restrictions imposed by insolvency
laws) and (iii) in certain other limited circumstances, upon the breach of
any covenant by such mortgagor.
ASSESSMENTS OF PROPERTY CONDITION
Appraisals
No current appraisals with respect to the Mortgaged Properties are
contained in the related Mortgage Files and no appraisals of the Mortgaged
Properties were performed in anticipation of this offering. None of the
Seller, the Depositor, the Underwriter or any other person makes any
representation as to the value of the Mortgaged Properties.
Environmental Site Assessments
A "Phase I" environmental site assessment with respect to each of the
Mortgaged Properties was performed in anticipation of this offering not
earlier than July 1, 1995 by a third party not affiliated with the Seller. In
general, the environmental site assessment reports did not disclose the
existence of any material and adverse environmental condition at any
Mortgaged Property, and indicated that the potential risk of environmental
contamination from observed or assumed conditions (for example, the observed
or assumed presence of asbestos-containing materials, elevated levels of
radon, lead in drinking water and abandoned storage tanks) is not material to
the interests of the holders of the Offered Certificates. However, there can
be no assurance that such assessments, individually or collectively, revealed
all environmental risk to the Trust Fund.
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Property Inspections
Each of the Mortgaged Properties was inspected by or on behalf of the
Seller within the six months prior to the Cut-off Date. Reports of those
inspections did not disclose the existence of any material and adverse
condition at any Mortgaged Property that would materially and adversely
affect the Offered Certificates.
OWNER-OCCUPIED AND SINGLE TENANT PROPERTIES
As of the Cut-off Date, five of the Mortgage Loans (representing 4.57% of
the Initial Pool Balance), are secured by Mortgages on owner-occupied
Mortgaged Properties and thirteen of the Mortgage Loans (representing 13.2%
of the Initial Pool Balance) are secured by Mortgages on Mortgaged Properties
occupied by a single tenant or user.
LEASEHOLD MORTGAGES
Two of the Mortgage Loans (representing 1.65% of the Initial Pool Balance)
are secured by a Mortgage on both the mortgagor's leasehold estate under a
ground lease and the ground lessor's fee simple estate.
SECONDARY FINANCING
Certain of the Mortgaged Properties are encumbered by subordinate debt.
The existence of subordinate indebtedness encumbering any Mortgaged Property
may increase the difficulty of refinancing the related Mortgage Loan at
maturity and the possibility that reduced cash flow could result in the
deferral of maintenance. Also, in the event that the holder of the
subordinate debt has filed for bankruptcy or been placed in involuntary
receivership, foreclosing on the Mortgaged Property could be delayed. See
"CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS--Junior Mortgages; Rights of Senior
Mortgagees or Beneficiaries" in the Prospectus.
INSURANCE
Each Mortgage Loan requires the related mortgagor to maintain insurance
against certain hazards, casualties, liabilities and contingencies, including
losses by fire. All the Mortgage Loans require the related mortgagor to
obtain business or rental interruption insurance.
Each mortgagor is required to maintain hazard insurance in an amount not
less than the lesser of the principal balance of the related Mortgage Loan or
the maximum insurable value of improvements securing such Mortgage Loan. The
hazard insurance policies relating to the Mortgage Loans are underwritten by
different insurers. The policies do not necessarily contain identical terms
and conditions and insurance coverage will be subject to the specific
conditions and exclusions in each policy. Certain risks, including but not
limited to, damage resulting from war, revolution, governmental actions,
floods and other water-related causes, earth movement, environmental
contamination, nuclear reactions, rot, vermin, domestic animals, theft and
vandalism typically will not be covered by the insurance policies on the
Mortgaged Properties. Under certain circumstances, hazard insurance proceeds
may not be sufficient to restore the damaged property in the event of a
partial loss.
SIGNIFICANT MORTGAGE LOANS
Wintergreen Plaza Loan
The Mortgage Pool contains a loan with a principal balance as of the
Cut-off Date of $11,567,187 (the "Senior Wintergreen Plaza Loan"), secured by
a first mortgage lien on the Wintergreen Plaza Shopping Center at 850
Rockville Pike, Rockville, Maryland (the "Wintergreen Plaza Property"). The
Mortgage Pool also contains a Mortgage Loan with a principal balance as of
the Cut-off Date of $944,424 (the "Junior Wintergreen Plaza Loan") secured by
a second Mortgage Lien on the Wintergreen Plaza Property. The aggregate
principal balance of the Senior Wintergreen Plaza Loan and the Junior
Wintergreen Plaza Loan is $12,511,611 or 11.52% of the Initial Pool Balance.
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The Senior Wintergreen Plaza Loan is a refinancing of two construction
loans funded on or about June 25, 1980 by The First National Bank of
Maryland. The Senior Wintergreen Plaza Loan had an original principal balance
of $13,450,000, bears interest at a fixed rate of 11.25% per annum, matures
on October 1, 2011 and is self-liquidating over its term.
The Junior Wintergreen Plaza Loan was funded on October 7, 1987, and matures
on November 1, 1997, with a balloon payment (assuming no prior prepayment of
principal) of $922,317 due on such date. The Junior Wintergreen Plaza Loan
was funded to provide the related mortgagor with sufficient monies to buy-out
the previous anchor tenant's lease and refit the space for Circuit City.
The Wintergreen Plaza Property is a retail shopping center, built in 1981
and located on 9.764 acres. The property contains 146,071 of net rentable
square feet with 579 parking spaces. The property is located within a heavy
retail and commercial corridor on the Rockville Pike, approximately 5 miles
north of the Rockville Pike / I-495 (Beltway) interchange.
Based upon a rent schedule dated May 1, 1995 provided by the related
mortgagor, the Wintergreen Plaza Property is 88% occupied with lease rents
ranging from $9.01 to $72.93 per square foot. The center is anchored by a
28,471 square foot Circuit City store. Circuit City is a specialty retailer
of brand name consumer electronics and appliances. The Circuit City lease is
for 20 years, through January 31, 2008 and includes two five-year renewal
options.
Net operating income for the Wintergreen Plaza Property was reported by
the related mortgagor to be $2,242,910 and $2,022,610 for the fiscal years
1994 and 1993, respectively. The debt service coverage ratio for both the
Senior and Junior Wintergreen Plaza Property based upon operations for fiscal
year 1994 was 1.33x.
ADDITIONAL MORTGAGE LOAN INFORMATION
General
The tables appearing on the following pages set forth certain information
with respect to the entire Mortgage Pool and with respect to the Mortgage
Loans secured by mortgage liens on the various types of Mortgaged Properties
and, in each such case, certain information with respect to the related
Mortgaged Properties. The statistics in certain of such tables were derived
primarily from unaudited information furnished by or on behalf of the related
mortgagors and/or property managers, and such information has not been
independently verified by the Depositor, the Seller or the Underwriter. For a
detailed presentation of certain of the characteristics of the Mortgage Loans
and the Mortgaged Properties, on an individual basis, see Annex A hereto. For
purposes of this Prospectus Supplement, and in particular the following
tables and in Annex A hereto:
(1) References to "Original Term to Stated Maturity" are references to
a Mortgage Loan's original term to stated maturity calculated as the sum
of (i) the number of years from the Mortgage Loan's first payment date
after origination (or the Mortgage Loan's first payment date after
modification if the Mortgage Loan has had a modification of any Money Term
or its Mortgage Rate) to and including the Cut-off Date and (ii) the
number of years from the Cut-off Date to the Mortgage Loan's maturity
date.
(2) References to "Seasoning" are references to a Mortgage Loan's
seasoning calculated as the number of years from the Mortgage Loan's first
payment date after origination (or the Mortgage Loan's first payment date
after modification if the Mortgage Loan has had a modification of any
Money Term or its Mortgage Rate) to and including the Cut-off Date.
(3) References to "Debt Service Coverage Ratios" are references to
ratios used by income property lenders to measure the ratio of (a) net
operating income currently generated by a property that is available for
debt service to (b) required debt service payments. However, debt service
coverage ratios only measure the current, or recent, ability of a property
to service its mortgage debt. If a property does not possess a stable
operating expectancy (for instance, if it is subject to leases that are
scheduled to expire during the loan term and that provide for above-market
rents and/or that may be difficult to replace), a debt service coverage
ratio may not be a reliable indicator of a property's
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ability to service the mortgage debt over the entire remaining loan term.
In addition, a debt service coverage ratio may not adequately reflect the
significant amounts of cash that a property owner may be required to
expend to pay for capital improvements, and for tenant improvements and
leasing commissions when expiring leases are replaced. The Debt Service
Coverage Ratio for any Mortgage Loan for which the ratio was calculated is
the ratio of Net Operating Income (defined below) produced by the related
Mortgaged Property to the annual amount of debt service currently payable
under that Mortgage Loan. "Net Operating Income" for a Mortgaged Property
is, in general, the annual gross operating revenues of a Mortgaged
Property (that is, the gross revenue derived from the use and operation of
a Mortgaged Property for a 12-month period) less annual operating expenses
for the period (such as utilities costs, property insurance premiums, real
estate taxes, ground lease payments, administrative expenses, repairs and
maintenance expenses, management fees and advertising expenses, but
excluding capital expenditures, tenant improvement costs and leasing
commissions).
For forty-two of the Mortgage Loans (representing 94.48% of the
Initial Pool Balance), Net Operating Income was determined by reference to
full year 1994 operating information supplied by the related mortgagors.
For four of these Mortgage Loans (representing 3.75% of the Initial Pool
Balance), the related Mortgaged Property is leased to a single tenant
under a "net" lease, and in those cases, Net Operating Income was
determined to be equal to the rental payments payable under such net
lease. For an additional four of these forty-two Mortgage Loans
(representing 7.45% of the Initial Pool Balance), the related Mortgaged
Property is leased to a single tenant but not under a "net" lease and in
those cases, Net Operating Income was determined to be equal to the rental
payments payable under such lease less property operating expenses paid by
the mortgagor. For an additional three of these forty-two Mortgage Loans
(representing 1.90% of the Initial Pool Balance), the related Mortgaged
Property is owner-occupied and the Net Operating Income was calculated as
the revenues less the expenses of such owner's business operations.
However, such calculation is not necessarily indicative of the ability of
such Mortgaged Property to generate income.
For one Mortgage Loan (representing 1.30% of the Initial Pool
Balance), Net Operating Income was annualized based upon six months of
1994 operating activity. For the remaining thirteen Mortgage Loans
(representing 4.22% of the Initial Pool Balance), Debt Service Coverage
Ratios were not calculated because 1994 operating information was
unavailable for the related Mortgaged Property.
For those Mortgage Loans where the related "Net Operating Income" was
determined by reference to mortgagor-supplied operating information:
(i) The "revenue" component of Net Operating Income is, in general, the
annual gross revenue shown in the mortgagor-supplied operating
information. No assumptions were made as to the future revenue of the
property, and accordingly, no adjustments were made to the reported
revenue, except that non-rental income was adjusted from the amount
reported to eliminate non-recurring items and non-property related
revenue.
(ii)The "expense" component of Net Operating Income is, in general, the
annual operating expenses as shown in the mortgagor-supplied
operating information without further adjustment, except that such
expenses were reduced by (A) the amount of depreciation,
amortization, debt service, or interest expense, if any, included
therein by the mortgagor, and (B) the items reported by the mortgagor
as operating expenses that were re-characterized as capital
expenditures (thus increasing Net Operating Income) where deemed
appropriate.
(iii)Reference to "1994 Net Operating Income" or "1994 NOI" is based on
the mortgagor's fiscal year 1994 and may not reflect the respective
Mortgaged Property's calendar year 1994 operations.
The Debt Service Coverage Ratios are presented for illustrative
purposes only and, as discussed above, are limited in their usefulness in
assuming the current, or predicting the future, ability of a Mortgaged
Property to generate sufficient cash flow to repay the related Mortgage
Loan. Accordingly, no assurance can be given, and no representation is
made, that the Debt Service Coverage Ratios accurately reflect that
ability.
S-45
<PAGE>
(4) References in the tables to "Indicative LTVs" are references to
the ratio, expressed as a percentage, of the Cut-off Date Balance of
certain of the Mortgage Loans to the corresponding Indicative Value
(defined below) of the related Mortgaged Property. Because none of the
Mortgaged Properties were recently appraised by professional, third-party
appraisers, the fair market values of the Mortgaged Properties shown on
the most recent appraisals thereof are unlikely to be reliable indicators
of their current market values. Accordingly, estimates of the current
value (each, an "Indicative Value") for each Mortgaged Property for which
full or partial 1994 operating statements were supplied by the related
mortgagor (forty-three Mortgaged Properties representing security for
95.78% of the Initial Pool Balance) were made based on the appraisal
technique commonly referred to as the "direct capitalization method." That
method is one of two methods used by real estate professionals in
estimating values in accordance with the "income approach" to valuing
income producing properties. It generally converts an estimate of a single
year's income expectancy into an indication of value by dividing the
income estimate by an appropriate rate referred to as a "capitalization
rate." The lower the capitalization rate, the higher the estimate of
value. The other method, the "discounted cash flow method," derives a
value estimate by discounting to their present value (using an appropriate
discount rate) estimated operating cash flows during, and the anticipated
proceeds of a hypothetical sale at the end of, an assumed holding period.
In determining the Indicative Value of such Mortgaged Properties, the
property's Net Operating Income was used as the single year's income
estimate and such Net Operating Income was divided by a capitalization
rate of (i) 9.5% for anchored retail properties and 10.5% for unanchored
retail properties, (ii) 9.0% in the case of multifamily properties, (iii)
10.5% in the case of commercial office properties, (v) 10.0% for
warehouse/industrial properties, and (vi) 11.5% for the hotel property.
The capitalization rates were selected for indicative purposes only and do
not necessarily reflect the capitalization rates that would be used by a
professional appraiser to estimate the value of any of the Mortgaged
Properties.
The estimates of Indicative Values for the Mortgage Properties should
not be considered a substitute for professional appraisals. In general,
appraisals would have reflected two other approaches to value (that is,
the "cost approach", which in general derives a value indication by
estimating the cost of acquiring a comparable site and constructing
comparable improvements adjusted for market depreciation, and the "sales
comparison approach", which estimates value based on recent sales prices
of comparable properties). In addition, professional appraisers would
likely have employed the discounted cash flow method in arriving at a
value estimate for those Mortgaged Properties whose future net income is
expected to change, whereas the Indicative Value determinations, based on
the direct capitalization method, did not account for those expectations.
Further, a professional appraiser would be expected to select a specific
capitalization rate or discount rate for each property based on several
factors, including location, tenant quality, property condition, strength
of the local market, anticipated changes in future net income and recent
sales of comparable properties. The capitalization rates selected in
determining Indicative Values of the Mortgaged Properties were selected
without consideration of the unique attributes of any particular Mortgaged
Properties or its location. Also, an appraiser would generally possess
mortgagor operating statements that are more current or more complete than
those possessed by the Seller and might have made adjustments to the net
operating income reported by mortgagors that differed from those made in
determining the Net Operating Income for the properties. Accordingly,
investors should not place undue reliance on the Indicative Values of the
Mortgaged Properties or the Indicative LTV's derived therefrom. No
representation is made that any Indicative Value would approximate either
the value that would be determined in a current appraisal of the related
Mortgaged Property or the amount that would be realized upon a sale.
(5) References to "Years Built" are references to the year in which a
Mortgaged Property was originally constructed.
(6) References to "weighted averages" are references to averages
weighted on the basis of the Cut-off Date Balances of the related Mortgage
Loans. The weighted average Debt Service Coverage Ratios presented in the
tables were calculated based upon the current monthly payment or quarterly
payment, as applicable, on the Mortgage Loans.
S-46
<PAGE>
The Mortgage Pool
The following tables set forth the indicated information as of the Cut-off
Date with respect to all the Mortgage Loans and Mortgaged Properties. The sum
in any column of any of the following tables may not equal the indicated
total due to rounding.
CUT-OFF DATE PRINCIPAL BALANCES
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
CUT-OFF DATE PRINCIPAL BALANCE MORTGAGE LOANS BALANCE BALANCE
- ------------------------------ -------------- -------------- --------------
<S> <C> <C> <C>
$ 50,000 or less .............. 1 $ 33,159 0.03%
$ 50,001 to $ 100,000 ......... 4 255,032 0.23
$ 100,001 to $ 200,000 ........ 6 918,243 0.85
$ 200,001 to $ 400,000 ........ 7 1,765,526 1.63
$ 400,001 to $ 600,000 ........ 4 2,179,115 2.01
$ 600,001 to $1,000,000 ...... 2 1,916,116 1.76
$1,000,001 to $2,000,000 ..... 9 12,500,543 11.51
$2,000,001 to $3,000,000 ..... 10 25,574,006 23.56
$3,000,001 to $4,000,000 ..... 5 16,733,721 15.41
$4,000,001 to $5,000,000 ..... 6 27,644,589 25.46
$5,000,001 to $10,000,000 .... 1 7,479,130 6.89
$10,000,001 to $15,000,000 ... 1 11,567,187 10.65
-------------- -------------- --------------
Total ....................... 56 $108,566,369 100.00%
============== ============== ==============
<FN>
- ------------
As of the Cut-off Date, the average principal balance of all of the
Mortgage Loans in the Mortgage Pool was $1,938,685.
</TABLE>
ORIGINAL PRINCIPAL BALANCES
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
ORIGINAL PRINCIPAL BALANCE MORTGAGE LOANS BALANCE BALANCE
- --------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
$ 50,001 to $ 100,000 ..... 1 $ 73,116 0.07%
$ 100,001 to $ 200,000 .... 1 58,273 0.05
$ 200,001 to $ 400,000 .... 7 1,043,991 0.96
$ 400,001 to $ 600,000 .... 6 1,157,603 1.07
$ 600,001 to $ 800,000 .... 3 1,608,565 1.48
$ 800,001 to $1,000,000 ... 1 249,882 0.23
$1,000,001 to $2,000,000 .. 12 13,707,789 12.63
$2,000,001 to $3,000,000 .. 9 20,311,703 18.71
$3,000,001 to $4,000,000 .. 8 24,354,497 22.43
$4,000,001 to $5,000,000 .. 3 12,817,578 11.81
$5,000,001 to $10,000,000 . 4 21,616,185 19.91
$10,000,001 to $15,000,000 1 11,567,187 10.65
-------------- -------------- --------------
Total .................... 56 $108,566,369 100.00%
============== ============== ==============
<FN>
- ------------
The average original principal balance of all the Mortgage Loans in the
Mortgage Pool was approximately $2,322,714. Original principal balance refers
to the principal balance of a Mortgage Loan at the time of funding.
</TABLE>
S-47
<PAGE>
MORTGAGE LOANS BY STATE
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
STATE MORTGAGE LOANS BALANCE BALANCE
- -------------- -------------- -------------- --------------
<S> <C> <C> <C>
Georgia ....... 8 $ 18,371,083 16.92%
Texas ......... 4 16,221,312 14.94
Maryland ...... 2 12,511,611 11.52
Florida ....... 6 9,073,487 8.36
North Carolina 3 8,216,259 7.57
Michigan ...... 1 7,479,130 6.89
Pennsylvania . 3 6,170,475 5.68
California .... 4 4,936,270 4.55
Arizona ....... 1 4,426,152 4.08
Connecticut .. 1 4,168,772 3.84
Virginia ...... 3 3,357,643 3.09
New Jersey .... 2 2,989,159 2.75
New York ...... 2 2,749,433 2.53
Delaware ...... 1 2,596,137 2.39
Tennessee ..... 1 2,179,833 2.01
Alabama ....... 1 594,860 0.55
Idaho ......... 1 527,897 0.49
Kansas ........ 1 284,148 0.26
Oklahoma ...... 2 274,985 0.25
Ohio .......... 1 252,851 0.23
Utah .......... 1 234,309 0.22
Wisconsin ..... 1 216,674 0.20
Illinois ...... 2 196,688 0.18
Kentucky ...... 1 188,925 0.17
Washington .... 1 181,392 0.17
Oregon ........ 2 166,884 0.15
-------------- -------------- --------------
Total ........ 56 $108,566,369 100.00%
============== ============== ==============
</TABLE>
MORTGAGE LOANS BY PROPERTY TYPE
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
PROPERTY TYPE MORTGAGE LOANS BALANCE BALANCE
- -------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Multifamily ......... 16 $ 45,949,346 42.32%
Office .............. 21 27,453,482 25.29
Retail .............. 9 23,091,607 21.27
Warehouse/Industrial 9 10,656,271 9.82
Hotel ............... 1 1,415,665 1.30
-------------- -------------- --------------
Total .............. 56 $108,566,369 100.00%
============== ============== ==============
</TABLE>
S-48
<PAGE>
MORTGAGE RATES
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGGREGATE
RANGE OF NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE RATES MORTGAGE LOANS BALANCE BALANCE
- -------------- -------------- -------------- --------------
<S> <C> <C> <C>
7.00%-7.99% .. 2 $ 2,967,851 2.73%
8.00%-8.99% .. 17 23,968,907 22.08
9.00%-9.99% .. 23 51,830,186 47.74
10.00%-10.99% 9 12,982,057 11.96
11.00%-11.99% 5 16,817,369 15.49
-------------- -------------- --------------
Total ........ 56 $108,566,369 100.00%
============== ============== ==============
<FN>
- ------------
As of the Cut-off Date, the weighted average Mortgage Rate on the Mortgage
Loans in the entire Mortgage Pool was 9.55%.
</TABLE>
YEARS OF ORIGINATION
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGGREGATE
YEAR OF NUMBER OF CUT-OFF DATE CUT-OFF DATE
ORIGINATION MORTGAGE LOANS BALANCE BALANCE
- ------------- -------------- -------------- --------------
<S> <C> <C> <C>
1972 ......... 7 $ 641,322 .59%
1973 ......... 5 2,386,583 2.20
1974 ......... 1 158,886 .15
1975 ......... 4 2,387,879 2.20
1976 ......... 2 2,774,693 2.56
1977 ......... 2 2,440,863 2.25
1978 ......... 6 9,812,180 9.04
1980 ......... 2 6,429,341 5.92
1981 ......... 1 11,567,187 10.65
1982 ......... 2 274,985 .25
1983 ......... 4 15,182,518 13.98
1984 ......... 1 2,686,234 2.47
1985 ......... 3 8,209,431 7.56
1986 ......... 1 4,426,152 4.08
1987 ......... 5 8,757,766 8.07
1988 ......... 3 5,687,292 5.24
1989 ......... 5 13,095,155 12.06
1990 ......... 2 11,647,902 10.73
-------------- -------------- --------------
Total ....... 56 $108,566,369 100.00%
============== ============== ==============
<FN>
- ------------
As of the Cut-off Date, the weighted average Year of Origination for the
entire Mortgage Pool was 1984. Year of Origination refers to the year in
which a Mortgage Loan was originally funded.
</TABLE>
S-49
<PAGE>
ORIGINAL TERMS TO STATED MATURITY
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
ORIGINAL AGGREGATE % BY AGGREGATE
TERM TO STATED MATURITY NUMBER OF CUT-OFF DATE CUT-OFF DATE
(YEARS) MORTGAGE LOANS BALANCE BALANCE
- ----------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
5 years or less .............. 13 $ 32,277,892 29.73%
5+ to 7 years ................ 3 9,570,006 8.81
7+ to 10 years ............... 4 15,480,617 14.26
10+ to 15 years .............. 6 14,827,098 13.66
15+ to 20 years .............. 2 9,404,673 8.66
20+ to 30 years .............. 24 12,001,311 11.05
30+ to 40 years .............. 4 15,004,773 13.82
-------------- -------------- --------------
Total ....................... 56 $108,566,369 100.00%
============== ============== ==============
<FN>
- ------------
As of the Cut-off Date, the weighted average Original Term to Stated
Maturity (as defined in "DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING
MORTGAGED PROPERTIES--Additional Mortgage Loan Information.") was 13.45
years.
</TABLE>
SEASONING OF MORTGAGE LOANS
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
AGGREGATE % BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
NUMBER OF YEARS MORTGAGE LOANS BALANCE BALANCE
- --------------- -------------- -------------- --------------
<S> <C> <C> <C>
1 year or less 4 $ 15,416,925 14.20%
1+ to 2 years 5 10,906,906 10.05
2+ to 3 years 5 13,564,091 12.49
3+ to 4 years 3 5,685,869 5.24
4+ to 5 years 1 3,080,000 2.84
5+ to 6 years 1 7,479,130 6.89
6+ to 7 years 3 7,480,188 6.89
7+ to 9 years 3 5,758,131 5.30
Over 10 years 31 39,195,130 36.10
-------------- -------------- --------------
Total ........ 56 $108,566,369 100.00%
============== ============== ==============
<FN>
- ------------
As of the Cut-off Date, the weighted average Seasoning (as defined in
"DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED
PROPERTIES--Additional Mortgage Loan Information.") was 7.87 years.
</TABLE>
REMAINING TERMS TO STATED MATURITY
(BALLOON LOANS)
<TABLE>
<CAPTION>
% OF BALLOON LOANS
REMAINING AGGREGATE BY AGGREGATE
TERM TO STATED MATURITY NUMBER OF CUT-OFF DATE CUT-OFF DATE
(YEARS) MORTGAGE LOANS BALANCE BALANCE
- ----------------------------- -------------- -------------- ------------------
<S> <C> <C> <C>
1+ to 2 years ................ 7 $13,220,699 16.99%
2+ to 3 years ................ 9 27,325,697 35.11
3+ to 4 years ................ 7 17,822,350 22.90
4+ to 5 years ................ 4 19,465,647 25.01
-------------- -------------- ------------------
Total ....................... 27 $77,834,392 100.00%
============== ============== ==================
<FN>
- ------------
As of the Cut-off Date, the weighted average remaining term to stated
maturity of the Balloon Loans was 3.13 years.
</TABLE>
S-50
<PAGE>
REMAINING TERMS TO STATED MATURITY
(SELF-AMORTIZING LOANS)
<TABLE>
<CAPTION>
REMAINING AGGREGATE % OF SELF-AMORTIZING
TERM TO STATED MATURITY NUMBER OF CUT-OFF DATE LOANS BY AGGREGATE
(YEARS) MORTGAGE LOANS BALANCE CUT-OFF DATE BALANCE
- ----------------------------- -------------- -------------- ---------------------
<S> <C> <C> <C>
1+ to 2 years ................ 4 $ 409,653 1.33%
2+ to 3 years ................ 3 530,311 1.73
3+ to 4 years ................ 2 1,102,238 3.59
4+ to 5 years ................ 1 1,415,665 4.61
5+ to 7 years ................ 5 696,087 2.27
7+ to 10 years ............... 7 8,161,530 26.56
10+ to 15 years .............. 4 6,574,322 21.39
15+ to 20 years .............. 3 11,842,172 38.53
-------------- -------------- ---------------------
Total ....................... 29 $30,731,978 100.00%
============== ============== =====================
<FN>
- ------------
As of the Cut-off Date, the weighted average remaining term to stated
maturity of the self-amortizing loans was 11.77 years.
</TABLE>
REMAINING TERMS TO STATED MATURITY
(ALL MORTGAGE LOANS)
<TABLE>
<CAPTION>
REMAINING AGGREGATE % BY AGGREGATE
TERM TO STATED MATURITY NUMBER OF CUT-OFF DATE CUT-OFF DATE
(YEARS) MORTGAGE LOANS BALANCE BALANCE
- ----------------------------- -------------- -------------- ----------------
<S> <C> <C> <C>
1+ to 2 years ................ 11 $ 13,630,352 12.55%
2+ to 3 years ................ 12 27,856,008 25.66
3+ to 4 years ................ 9 18,924,587 17.43
4+ to 5 years ................ 5 20,881,311 19.23
5+ to 7 years ................ 5 696,087 .64
7+ to 10 years ............... 7 8,161,530 7.52
10+ to 15 years .............. 4 6,574,322 6.06
15+ to 20 years .............. 3 11,842,172 10.91
-------------- -------------- ----------------
Total ...................... 56 $108,566,369 100.00%
============== ============== ================
<FN>
- ------------
As of the Cut-off Date, the weighted average remaining term to stated
maturity of all the Mortgage Loans was 5.58 years.
</TABLE>
INDICATIVE LTVS
<TABLE>
<CAPTION>
AGGREGATE % BY AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF DATE
LOAN-TO-VALUE RATIO MORTGAGE LOANS BALANCE BALANCE
- ------------------- -------------- -------------- --------------
<S> <C> <C> <C>
60.00% or less ..... 30 $ 58,355,908 53.75%
60.01% to 65.00% .. 5 14,897,241 13.72
65.01% to 75.00% .. 3 14,818,505 13.65
75.01% to 85.00% .. 5 15,912,343 14.66
Not Calculated ..... 13 4,582,373 4.22
-------------- -------------- --------------
Total ............ 56 $108,566,369 100.00%
============== ============== ==============
<FN>
- ------------
The weighted average Indicative LTVs (as defined in "DESCRIPTION OF THE
MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES--Additional Mortgage
Loan Information.") of the Mortgage Loans for which such calculation was made
was 58.87%.
</TABLE>
S-51
<PAGE>
DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION>
AGGREGATE % BY AGGREGATE
DEBT SERVICE NUMBER OF CUT-OFF DATE CUT-OFF DATE
COVERAGE RATIO MORTGAGE LOANS BALANCE BALANCE
- -------------- -------------- -------------- --------------
<S> <C> <C> <C>
1.00x to 1.09 7 $ 9,798,446 9.03%
1.10x to 1.19 6 22,995,111 21.18
1.20x to 1.29 6 20,495,963 18.88
1.30x to 1.39 2 2,379,024 2.19
1.40x to 1.49 3 18,031,919 16.61
1.50x to 1.99 9 22,512,187 20.74
2.00x to 2.99 6 5,754,904 5.30
3.00x and over 4 2,016,442 1.86
Not Calculated 13 4,582,373 4.22
-------------- -------------- --------------
Total ........ 56 $108,566,369 100.00%
============== ============== ==============
<FN>
- ------------
As of the Cut-off Date, the weighted average Debt Service Coverage Ratio
for the Mortgage Loans for which the Debt Service Coverage Ratio was
calculated was 1.49x. For a description of the method used to determine Debt
Service Coverage Ratio see "DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGED PROPERTIES--Additional Mortgage Loan Information."
</TABLE>
S-52
<PAGE>
PREPAYMENT LOCKOUT/PREMIUM AND YIELD MAINTENANCE ANALYSIS*
<TABLE>
<CAPTION>
PERCENTAGE OF MORTGAGE POOL BY PREPAYMENT RESTRICTION ASSUMING NO PREPAYMENTS
-----------------------------------------------------------------------------
PREPAYMENT PREMIUM CURRENT 12(MO). 24(MO.) 36(MO.) 48(MO.) 60(MO.) 72(MO.) 84(MO.)
OR RESTRICTION NOV. 95 NOV. 96 NOV. 97 NOV. 98 NOV. 99 NOV. 00 NOV. 01 NOV. 02
- ----------------------------- ---------- ---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOCKOUT ...................... 10.65% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
GREATER OF 1% OR YIELD
MAINTENANCE ................. 1.20 1.20 1.38 1.98 0.00 0.00 0.00 0.00
YIELD MAINTENANCE ............ 31.82 32.16 25.06 18.86 24.18 7.85 5.37 1.80
7.0% ......................... 3.84 0.00 0.00 0.00 0.00 0.00 0.00 0.00
6.5% ......................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
6.0% ......................... 0.00 3.85 0.00 0.00 0.00 0.00 0.00 0.00
5.5% ......................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
5.0% ......................... 0.00 10.78 4.42 0.00 0.00 0.00 0.00 0.00
4.5% ......................... 0.49 0.00 12.50 0.00 0.00 0.00 0.00 0.00
4.0% ......................... 3.93 0.48 0.00 24.58 0.00 0.00 0.00 0.00
3.5% ......................... 4.60 1.33 0.55 0.00 26.59 0.00 0.00 0.00
3.0% ......................... 5.15 7.17 1.52 0.78 9.21 51.41 0.00 0.00
2.5% ......................... 2.89 0.00 5.40 2.19 1.11 0.00 55.03 0.00
2.0 .......................... 0.23 8.26 2.83 7.87 3.15 2.09 0.00 60.00
1.5% ......................... 2.47 0.00 3.31 0.00 11.52 5.99 2.15 0.00
1.0% ......................... 21.80 24.86 33.67 25.95 18.62 31.44 36.13 36.76
0.5 .......................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.0% ......................... 10.93 9.90 9.36 17.78 5.61 1.23 1.32 1.44
---------- ---------- --------- --------- --------- --------- --------- ---------
TOTAL ...................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
---------- ---------- --------- --------- --------- --------- --------- ---------
MORTGAGE POOL BALANCE (000'S) $108,566 $104,681 $87,795 $58,338 $38,460 $19,037 $16,889 $14,572
---------- ---------- --------- --------- --------- --------- --------- ---------
% OF INITIAL POOL BALANCE** . 100.00% 96.42% 80.87% 53.74% 35.43% 17.53% 15.56% 13.42%
========== ========== ========= ========= ========= ========= ========= =========
</TABLE>
[TABLE RESTUBBED FROM ABOVE]
<TABLE>
<CAPTION>
PERCENTAGE OF MORTGAGE POOL BY PREPAYMENT
RESTRICTION ASSUMING NO PREPAYMENTS
-----------------------------------------
96(MO.) 108(MO.) 120(MO.)
NOV. 03 NOV. 04 NOV. 05
--------- --------- ---------
<C> <C> <C>
LOCKOUT ...................... 0.00% 0.00% 0.00%
GREATER OF 1% OR YIELD
MAINTENANCE ................. 0.00 0.00 0.00
YIELD MAINTENANCE ............ 0.00 0.00 0.00
7.0% ......................... 0.00 0.00 0.00
6.5% ......................... 0.00 0.00 0.00
6.0% ......................... 0.00 0.00 0.00
5.5% ......................... 0.00 0.00 0.00
5.0% ......................... 0.00 0.00 0.00
4.5% ......................... 0.00 0.00 0.00
4.0% ......................... 0.00 0.00 0.00
3.5% ......................... 0.00 0.00 0.00
3.0% ......................... 0.00 0.00 0.00
2.5% ......................... 0.00 0.00 0.00
2.0 .......................... 0.00 0.00 0.00
1.5% ......................... 64.21 0.00 0.00
1.0% ......................... 34.24 98.34 98.26
0.5 .......................... 0.00 0.00 0.00
0.0% ......................... 1.55 1.66 1.74
--------- --------- ---------
TOTAL ...................... 100.00% 100.00% 100.00%
--------- --------- ---------
MORTGAGE POOL BALANCE (000'S) $12,658 $10,926 $ 9,471
--------- --------- ---------
% OF INITIAL POOL BALANCE** . 11.66% 10.06% 8.72%
========= ========= =========
</TABLE>
- ------------
* This table sets forth an analysis of the percentage of the declining
balance of the Mortgage Pool that, on November 1 of each of the years
indicated, will be within a period in which Principal Prepayments are
prohibited (that is, in a lock-out period) or in which Principal Prepayments
must be accompanied by the indicated Prepayment Premium. The table was
prepared generally on the basis of the Modeling Assumptions used in preparing
the tables set forth under "Maturity Considerations" herein, except that it
was assumed in preparing the table that no Mortgage Loan will be prepaid,
voluntarily or involuntarily.
** Represents the percentage of the Initial Pool Balance that will remain
outstanding at the indicated date based upon the assumptions used.
S-53
<PAGE>
ASSIGNMENT OF THE MORTGAGE LOANS; REPRESENTATIONS AND WARRANTIES
The Depositor will acquire the Mortgage Loans from MBL Life Assurance
Corporation, as Seller, and will cause the Mortgage Loans to be assigned to
the Trustee. The Seller will make certain limited representations and
warranties to the Depositor as to the status of the mortgages securing the
Mortgage Loans, the payment status of the Mortgage Loans and certain other
information. The benefits of such representations and warranties will be
assigned by the Depositor to the Trustee for the benefit of the
Certificateholders. Such representations and warranties will generally
include, among other things: (i) that the information set forth with respect
to each Mortgage Loan in the Mortgage Loan Purchase Agreement pursuant to
which the Mortgage Loans were sold by the Seller is complete, true and
correct in all material respects as of the date of the Mortgage Loan Purchase
Agreement and as of the Cut-off Date; (ii) that the Seller had good title to,
and was the sole owner of, each such Mortgage Loan and has conveyed to the
Depositor all of the Seller's legal and beneficial interest in and to the
Mortgage Loans, free and clear of any pledge, lien or security interest;
(iii) that as of the Delivery Date, no scheduled payment of principal and
interest under any Mortgage Loan was more than 30 days past due; (iv) that
each Mortgage constitutes a valid and enforceable first or, as applicable,
second lien upon the related Mortgaged Property, free and clear of all liens
and encumbrances with the exception of certain permitted liens and
encumbrances; (v) that no Mortgage has been satisfied, cancelled, rescinded
or subordinated in whole or in part, and no Mortgaged Property has been
released in whole or in material part from the lien of the related Mortgage;
(vi) that, to the Seller's knowledge, there is no proceeding pending for the
total or partial condemnation of any Mortgaged Property; (vii) that the lien
of each Mortgage is insured by a title insurance policy insuring the Seller
as to the first or second priority lien of the Mortgage in the original
principal amount of the related Mortgage Loan after all advances of
principal; (viii) that the proceeds of each Mortgage Loan have been fully
disbursed and there is no requirement for future advances thereunder; (ix)
that in the case of any Mortgage which is a deed of trust, a trustee, duly
qualified under applicable law to serve as such, has been properly designated
and currently so serves; (x) that to the Seller's knowledge, except as set
forth in a property inspection report previously delivered by the Seller to
the Depositor, each Mortgaged Property is free and clear of any damage that
would materially and adversely affect its value as security for the related
Mortgage Loan; (xi) that an environmental assessment with respect to each
Mortgaged Property was conducted not earlier than July 1, 1995 and the
Seller, having made no independent inquiry other than reviewing reports of
such assessment, has no knowledge of any material and adverse environmental
condition affecting any Mortgage Property that was not disclosed in such
reports; (xii) that the Mortgage Note, related Mortgage and other agreements
executed in connection therewith are the legal, valid and binding obligation
of the maker thereof; (xiii) that the Mortgaged Property consists of a fee
simple or leasehold estate in real property; and (xiv) that the Seller has
not advanced funds, or induced, solicited or knowingly received any advance
of funds by a party other than the owner of the Mortgaged Property for the
payment of any amount required by the related Mortgage Loan.
In the event that any such representation or warranty is breached in
respect of any Mortgage Loan or a defect in the mortgage file for any
Mortgage Loan is discovered, which breach or defect materially and adversely
affects the interests of Certificateholders and is not thereafter cured, the
Seller will be required to purchase such Mortgage Loan from the Trust Fund.
THE SELLER MUST BE NOTIFIED IN WRITING OF A BREACH OF A REPRESENTATION OR
WARRANTY OR THE EXISTENCE OF A DEFECT IN A MORTGAGE FILE ON OR BEFORE
DECEMBER 31, 1999 IN ORDER FOR THE TRUSTEE TO HAVE REMEDIES FOR SUCH A BREACH
OR DEFECT. IF THE SELLER DOES NOT RECEIVE ANY SUCH NOTIFICATION PRIOR TO
DECEMBER 31, 1999, THERE WILL BE NO RECOURSE AGAINST THE SELLER AVAILABLE TO
THE TRUSTEE OR THE CERTIFICATEHOLDERS FOR ANY SUCH BREACH OR DEFECT. The
Seller will be the sole warranting party in respect of the related Mortgage
Loans, and none of the Depositor, the Trustee or any of their respective
affiliates will be obligated to repurchase or cause the repurchase of any
affected Mortgage Loan in connection with a breach of the Seller's
representations and warranties or the existence of a defect in a mortgage
file if the Seller defaults on its obligation to do so or if the Seller's
obligation to repurchase an affected Mortgage Loan has expired as described
above. See "DESCRIPTION OF THE CERTIFICATES--Repurchase of Mortgage Loans"
herein.
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UNDERWRITING STANDARDS
All of the Mortgage Loans were originated by Mutual Benefit between 1972
and 1990 through a network of brokers and mortgage correspondents and
generally in accordance with Mutual Benefit's underwriting standards in
effect at the time of the applicable Mortgage Loan's origination. No
representation is made by the Depositor, the Seller, the Underwriter or any
other person with respect to such underwriting standards.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Commercial Mortgage Pass-Through Certificates, Series 1995-MBL1 (the
"Certificates") will be comprised of the Interest Only Class A-X Certificates
(the "Class A-X Certificates"), the Class A Certificates, the Class B
Certificates, the Class C Certificates, the Class D Certificates, the Class E
Certificates, the Class F Certificates, the Class G Certificates
(collectively, the "Sequential Pay Certificates") and the Class R
Certificate. Only the Class A-X, Class A, Class B, Class C and Class D
Certificates (collectively, the "Offered Certificates") are offered hereby.
The Class E, Class F and Class G Certificates and the Class R Certificate
(collectively, the "Non-Offered Certificates") have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and are not
offered hereby. Information herein regarding the terms of the Non-Offered
Certificates is provided primarily because of its potential relevance to a
prospective purchaser of an Offered Certificate.
The "Certificate Principal Balance" of any Sequential Pay Certificate, as
of any date of determination, represents the maximum specified dollar amount
of principal to which the holder thereof is then entitled pursuant to the
Pooling and Servicing Agreement, such amount being equal to the initial
principal amount set forth on the face of such Certificate, as increased by
any Deferred Interest and any Appraisal Reduction Capitalization Amounts
added to such principal amount as described herein, less the amount of all
principal distributions previously made with respect to such Certificate and
less the principal portion of all Realized Losses previously allocated to
such Certificate pursuant to the Pooling and Servicing Agreement.
The Class A-X Certificates will not have Certificate Principal Balances or
entitle the holders thereof to distributions of principal. On each
Distribution Date, the Class A-X Certificates are entitled to distributions
of interest only based on a notional amount (the "Class A-X Certificate
Notional Amount") equal to the sum of the following four components (each, a
"Component"): (a) the aggregate outstanding Certificate Principal Balance of
the Class A Certificates immediately prior to such Distribution Date
("Component A"), (b) the aggregate outstanding Certificate Principal Balance
of the Class B Certificates immediately prior to such Distribution Date
("Component B"), (c) the aggregate outstanding Certificate Principal Balance
of the Class C Certificates immediately prior to such Distribution Date
("Component C") and (d) the aggregate outstanding Certificate Principal
Balance of the Class D Certificates immediately prior to such Distribution
Date ("Component D").
The "Percentage Interest" of a Certificate of any Class (other than the
Class R Certificate) at any time means the fraction of such Class evidenced
by such Certificate, expressed as a percentage, the numerator of which is the
Certificate Principal Balance or Class A-X Certificate Notional Amount, as
the case may be, represented by such Certificate determined on the Delivery
Date and the denominator of which is the aggregate Certificate Principal
Balance or aggregate Class A-X Certificate Notional Amount, as the case may
be, of all of the Certificates of such Class determined on the Delivery Date.
With respect to the Class R Certificate, the "Percentage Interest" is stated
on the face of such Certificate.
The Class R Certificate will not have a Certificate Principal Balance but
will represent the right to receive the portion of the Available Distribution
Amount for any Distribution Date remaining after all distributions required
to be made therefrom on such date in respect of the other Classes of
Certificates have been made.
The Certificates will evidence beneficial ownership interests in a trust
fund (the "Trust Fund") to be created by CS First Boston Mortgage Securities
Corp. (the "Depositor"), which will hold interests in a
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pool (the "Mortgage Pool") of mortgage loans (the "Mortgage Loans") secured
by mortgage liens or deeds of trust on properties operated as multifamily
apartment buildings, retail properties, office buildings,
warehouse/industrial facilities and a hotel. The Mortgage Loans will be held
in trust for the benefit of the holders of the Certificates (the
"Certificateholders"). The Mortgage Loans will be sold by the Seller to the
Depositor on or about November 28, 1995 (the "Delivery Date").
The Certificates will be issued pursuant to a pooling and servicing
agreement dated as of November 1, 1995 (the "Pooling and Servicing
Agreement") among the Depositor, the Trustee, the Master Servicer and the
Special Servicer. 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, provided that the
information contained herein supersedes any contrary information set forth in
the Prospectus. The summaries of certain provisions of the Pooling and
Servicing Agreement contained herein 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.
Each Class of Certificates is subordinate to the Class of Certificates
with a preceding alphabetical designation, so that, for instance, the Class
B, Class C, Class D, Class E, Class F and Class G Certificates are
"Subordinate Certificates" relative to the Class A and Class A-X
Certificates, and the Class C, Class D, Class E, Class F and Class G
Certificates are "Subordinate Certificates" relative to the Class B
Certificates.
The Offered Certificates will be available to investors only in book-entry
form through the facilities of The Depository Trust Company ("DTC") in
denominations of $100,000 and in integral multiples of $1 in excess thereof.
One Certificate of each of the Classes of Offered Certificates may be issued
in a different Certificate Principal Balance or Class A-X Certificate
Notional Amount, as the case may be, to accommodate the remainder of the
initial aggregate Certificate Principal Balance or Class A-X Certificate
Notional Amount, as the case may be, of the Certificates of such Class.
Beneficial interests in the Offered Certificates will be shown on, and
transfers thereof will be effected only through, records maintained by DTC
and its participants. Physical certificates with respect to the Offered
Certificates will be available only under certain limited circumstances as
described herein. Distribution of principal and interest in respect of the
Offered Certificates will be made as set forth in "--Registration" below.
REGISTRATION
Each Class of Offered Certificates will initially be represented by one
global Certificate registered in the name of the nominee of DTC. DTC has
advised the Depositor that DTC's nominee will be Cede & Co. ("Cede").
Accordingly, Cede is expected to be the holder of record of the Offered
Certificates. No holder of an Offered Certificate will be entitled to receive
a certificate representing such person's interest in its Certificate. Unless
and until Definitive Certificates (defined below) are issued under the
limited circumstances described herein, all references herein to actions by
holders of Offered Certificates shall refer to actions taken by DTC upon
instructions from DTC Participants (defined below), and all references herein
to distributions, notices, reports, and statements to holders of Offered
Certificates shall refer to distributions, notices, reports and statements to
Cede, as the registered holder of the Offered Certificates, for distribution
to holders of Offered Certificates in accordance with DTC procedures. See
"--Definitive Certificates" herein.
Certificateholders may hold their Offered Certificates through DTC if they
are DTC Participants, or indirectly through organizations which are DTC
Participants. Transfers between DTC Participants will occur in accordance
with DTC rules.
DTC has advised the Depositor that it is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform
Commercial Code (the "UCC"), and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Securities Exchange Act of 1934, as
amended. DTC was created to hold securities
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for its participating organizations ("DTC Participants") and facilitate the
clearance and settlement of securities transactions between DTC Participants
through electronic computerized book-entry changes in accounts of DTC
Participants, thereby eliminating the need for physical movement of
certificates. DTC Participants include CS First Boston Corporation, other
securities brokers and dealers, banks, trust companies, and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system also is available to other entities, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly ("Indirect
DTC Participants"). The rules applicable to DTC, DTC Participants and
Indirect DTC Participants are on file with the Securities and Exchange
Commission.
Certificateholders that are not DTC Participants but desire to purchase,
sell or otherwise transfer ownership of or other interests in Offered
Certificates may do so only through DTC Participants. In addition, unless
Definitive Certificates are issued, holders of Offered Certificates will
receive all distributions of principal of and interest on such Certificates
through DTC Participants. Under a book-entry format, holders of Offered
Certificates will receive payments after the related Distribution Date
because, while payments are required to be forwarded to Cede, as nominee for
DTC, on each such date, DTC will forward such payments to DTC Participants
which thereafter will be required to forward them to Indirect DTC
Participants or beneficial owners of Offered Certificates. Unless Definitive
Certificates are issued as described below, the sole holder of Offered
Certificates will be Cede, as nominee of DTC, and Certificateholders will not
be recognized by the Trustee as holders of Offered Certificates under the
Pooling and Servicing Agreement. Holders of Offered Certificates will be
permitted to exercise the rights of Certificateholders under the Pooling and
Servicing Agreement only indirectly through DTC Participants, who in turn
will exercise their rights through DTC.
Under the rules, regulations, and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry
transfers among DTC Participants on whose behalf it acts with respect to the
Offered Certificates and is required to receive and transmit through DTC
payments of principal of and interest, if any, on such Offered Certificates.
DTC Participants and Indirect DTC Participants with which holders of Offered
Certificates have accounts similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their
respective holders of Offered Certificates. Accordingly, although owners of
Offered Certificates will not possess Definitive Certificates, the Rules
provide a mechanism by which owners of the Offered Certificates, through
their DTC Participants, will receive payments and will be able to transfer
their interests.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Certificateholder to pledge Offered Certificates to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
such Certificates, may be limited due to the lack of a physical certificate
for such Certificates. See "RISK FACTORS AND OTHER SPECIAL
CONSIDERATIONS--The Certificates--Book Entry Registration" herein.
DTC has advised the Depositor that it will take any action permitted to be
taken by a holder of Offered Certificates under the Pooling and Servicing
Agreement only at the direction of one or more DTC Participants to whose
account with DTC the Offered Certificates are credited. Additionally, DTC has
advised the Depositor that it will take such actions with respect to an
Offered Certificate only at the direction of and on behalf of the DTC
Participant whose holdings include that Certificate. DTC may take conflicting
actions with respect to other Offered Certificates to the extent that such
actions are taken on behalf of DTC Participants whose holdings include such
Certificates.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of Offered Certificates among DTC Participants, it is under no
obligation to perform or continue to perform such procedures and such
procedures may be discontinued at any time.
The Trustee initially will serve as registrar (the "Certificate
Registrar") for purposes of recording and of otherwise providing for the
registration, transfer and exchange of the Offered Certificates.
DEFINITIVE CERTIFICATES
The Offered Certificates will be in fully registered, certificated form
("Definitive Certificates") issued to Certificateholders or their nominees,
rather than to DTC or its nominee, only if (i) the Depositor
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advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as depository with respect to the
Offered Certificates and the Depositor is unable to locate a qualified
successor, (ii) the Depositor, at its option, elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an event of
default under the Pooling and Servicing Agreement, beneficial owners of the
Offered Certificates evidencing not less than 66% of the aggregate
outstanding Certificate Principal Balance of the Offered Certificates advise
the Trustee and DTC through DTC Participants in writing that the continuation
of a book-entry system through DTC (or a successor thereto) is no longer in
the best interests of the holders of Offered Certificates.
Upon notice of the occurrence of any of the events described in the
preceding paragraph, DTC is required to notify all DTC Participants of the
availability of Definitive Certificates. Upon surrender by DTC of the global
Certificate of any Class of Offered Certificates and receipt from DTC of
instructions for re-registration, the Trustee will issue such Certificates in
the form of Definitive Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the Pooling and Servicing Agreement.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee or its agent. Definitive Certificates surrendered to
the Trustee for registration of transfer or exchange must be accompanied by a
written instrument of transfer 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.
PRINCIPAL AND INTEREST DISTRIBUTIONS
On each Distribution Date, interest payments (less the Servicing Fee) and
principal payments due on the Mortgage Loans during the related Due Period
(defined below) and collected on or prior to the related Determination Date
(defined below) or advanced with respect to such Distribution Date, and
Principal Prepayments (defined below), and other unscheduled collections of
principal including Liquidation Proceeds, Insurance Proceeds (each, as
defined in the Prospectus) and proceeds from the repurchase of the Mortgage
Loans by the Seller ("Repurchase Proceeds"), collected during the related
Prepayment Period (defined below), will generally be distributed to
Certificateholders of record on the Record Date. For purposes of calculating
distributions on the Certificates, quarterly payments of principal and
interest due in respect of any Quarterly-Pay Loan will be deemed to consist
of three Monthly Payments (one of which, consisting of the principal portion
of such Quarterly Payment and interest in respect of such Quarterly-Pay Loan
at the related Mortgage Rate for the one-month period commencing on the prior
actual Due Date for such Quarterly-Pay Loan, will be deemed due on the Due
Date in the current month, and each of the other two of which, consisting of
substantially equal payments of interest only notwithstanding the related
Mortgage Rate, will be deemed due on the same day in the two subsequent
months. Interest will accrue on the Certificates with respect to each related
Distribution Date from and including the second day of the month immediately
preceding the month in which such Distribution Date occurs to and including
the first day of the month in which such Distribution Date occurs (each, an
"Interest Accrual Period" for the Certificates).
The "Due Period" with respect to any Distribution Date commences on and
includes the second day of the month preceding the month in which such
Distribution Date occurs (or the day following the Cut-off Date in the case
of the first Due Period) and ends on and includes the first day of the month
in which such Distribution Date occurs. "Principal Prepayments" are any
payments of principal on a Mortgage Loan received in advance of its Due Date
and 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 payment. The "Prepayment Period" with respect to any Distribution
Date commences on and includes the Determination Date in the month preceding
the month in which such Distribution Date occurs (or the day following the
Cut-off Date, in the case of the first Distribution Date) and ends on and
includes the day prior to the Determination Date in the month in which such
Distribution Date occurs. The "Determination Date" with respect to any
Distribution Date is the earlier of (i) the 15th day of the month in which
such Distribution Date occurs (or, if such day is not a business day, the
immediately preceding business day) and (ii) the fourth business day prior to
the related Distribution Date.
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Distributions will be made by wire transfer in immediately available
funds for the account of each holder whose initial Certificate Principal
Balance is not less than $4,000,000 (or, in the case of the Class A-X
Certificates, for the account of each holder whose initial Percentage
Interest of such Class is 50%) and who has provided appropriate wire
instructions to the Trustee at least five business days prior to the Record
Date for the Distribution Date on which wire transfers will commence, and to
every other holder by check mailed to the address of such holder as it
appears on the certificate register. The final payment on any Certificate
(whether a Definitive Certificate or a global Certificate registered in the
name of Cede) will be made only upon presentation and surrender of such
Certificate at the offices of the Trustee or its agent or such office or
agency as is specified in the notice of final distribution to holders of
Certificates being retired.
Distributions of Interest
On each Distribution Date, holders of each Class of Certificates other
than the Class A-X Certificates are entitled to receive, from the Available
Distribution Amount, interest accrued during the related Interest Accrual
Period on the outstanding Certificate Principal Balance of such Certificates
immediately preceding such Distribution Date at the rates (each, a
"Certificate Rate," which term has the same meaning as the term "Pass-Through
Rate" in the Prospectus) set forth below, reduced (to not less than zero) by
such Class's allocable share of any Net Aggregate Prepayment Interest
Shortfall for such Distribution Date and holders of the Class A-X
Certificates are entitled to receive on each Distribution Date interest
accrued at the Class A-X Certificate Rate during the related Interest Accrual
Period on the Class A-X Certificate Notional Amount reduced (to not less than
zero) by such Class's allocable share of any Net Aggregate Prepayment
Interest Shortfall for such Distribution Date (such amounts payable to
holders of the Certificates collectively, the "Interest Distribution
Amount"). The Net Aggregate Prepayment Interest Shortfall for any
Distribution Date will be allocated among the respective Classes of
Certificates, pro rata, in accordance with the respective amounts of interest
accrued for such Classes for such Distribution Date. For so long as a more
senior Class of Certificates is outstanding, the amount of interest otherwise
distributable on such Distribution Date to each Class of Certificates to
which an Appraisal Reduction is allocated on such Distribution Date will be
reduced by the amount of interest accrued at the applicable Certificate Rate
on the portion of the Certificate Principal Balance of such Class equal to
the Appraisal Reduction allocated to such Class for such Distribution Date.
Interest on the Certificates will be calculated and payable on the basis of a
360-day year of twelve 30-day months.
The Certificate Rates for the Offered Certificates are as follows: During
each Interest Accrual Period, the Class A, Class B, Class C and Class D
Certificates will bear interest at a rate per annum (the "Class A Certificate
Rate," the "Class B Certificate Rate," the "Class C Certificate Rate" and the
"Class D Certificate Rate," respectively) equal to 6.425%, 6.760%, 7.125% and
7.590%, respectively. During each Interest Accrual Period, the Class E, the
Class F and the Class G Certificates will bear interest at a rate per annum
equal to the weighted average of the Net Mortgage Rates of the Mortgage Loans
weighted on the basis of their respective Scheduled Principal Balances
outstanding immediately prior to the related Distribution Date (the "Weighted
Average Net Mortgage Rate"), which during the initial Interest Period will be
9.395% per annum. The Class A-X Certificates will bear interest at a per
annum rate (the "Class A-X Certificate Rate") equal to the weighted average
of the Component A Rate (defined below), the Component B Rate (defined
below), the Component C Rate (defined below) and the Component D Rate
(defined below), each weighted on the basis of the proportion that the amount
of the related Component (that is, the Component with the same letter
designation) outstanding immediately prior to such Distribution Date bears to
the Class A-X Certificates Notional Amount outstanding immediately prior to
such Distribution Date. With respect to any Interest Accrual Period, the
"Component A Rate" is equal to the Weighted Average Net Mortgage Rate less
the Class A Certificate Rate, the "Component B Rate" is equal to the Weighted
Average Net Mortgage Rate less the Class B Certificate Rate, the "Component C
Rate" is equal to the Weighted Average Net Mortgage Rate less the Class C
Certificate Rate and the "Component D Rate" is equal to the Weighted Average
Net Mortgage Rate less the Class D Certificate Rate. The "Net Mortgage Rate"
of each Mortgage Loan will be equal to the rate of interest thereon (the
"Mortgage Rate"), as of the first day of the applicable Due Period, minus the
rate per annum at which the Servicing Fee (the "Servicing Fee Rate") accrues;
provided, however, that the Net Mortgage Rate for
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any Mortgage Loan will not reflect any adjustments to its Mortgage Rate in
connection with a bankruptcy or similar proceeding involving the related
mortgagor. Accordingly, the amount of interest owed on the Mortgage Loans may
be less than the amount of interest accrued on the Certificates, which
shortfall would adversely affect interest distributions to the then most
subordinated Class of Certificates. For purposes of calculating the Weighted
Average Net Mortgage Rate for any Distribution Date, the Net Mortgage Rate
for any Mortgage Loan that provides for the computation of interest other
than on the basis (a "30/360 basis") of a 360-day year consisting of twelve
30-day months (that is, the basis on which the Certificates accrue interest)
will be adjusted to reflect that difference. See "DESCRIPTION OF THE MORTGAGE
POOL AND THE UNDERLYING MORTGAGED PROPERTIES--Certain Terms and Conditions of
the Mortgage Loans--Mortgage Rates; Calculations of Interest" herein.
Deferred Interest
The Special Servicer is permitted to modify a Mortgage Loan to permit the
accrual of interest thereon; provided, however, that the Special Servicer may
not modify a Mortgage Loan so that the amount of negative amortization added
to the principal balance of such Mortgage Loan resulting from such
modification exceeds 10% of the principal balance of such Mortgage Loan (less
any negative amortization added to the principal balance of such Mortgage
Loan prior to such modification). If a modification to any Mortgage Loan
causes any portion of the interest accrued in any month on such Mortgage Loan
to be deferred (such amount, "Deferred Interest"), such portion will be added
to the principal balance of such Mortgage Loan. On each Distribution Date on
which the portion of the Available Distribution Amount allocable to interest
on the Mortgage Loans is insufficient to pay interest accrued on the
Certificates as a result of Deferred Interest on the Mortgage Loans, such
Deferred Interest will (i) reduce the Interest Distribution Amount payable to
the holders of the Class G, Class F, Class E, Class D, Class C and Class B
Certificates, in that order and finally, the Class A-X and Class A
Certificates, pro rata, in proportion to the respective amounts of interest
accrued thereon, and (ii) will be added to the Certificate Principal Balances
of the Class G, Class F, Class E, Class D, Class C, Class B and Class A
Certificates to the extent of the reduction in the Interest Distribution
Amount payable to the holders of such Classes. The Class A-X Certificates are
not entitled to distributions of principal but the Class A-X Certificate
Notional Amount will reflect any amounts of Deferred Interest added to the
Certificate Principal Balance of the Class A, Class B, Class C and Class D
Certificates.
Distributions of Principal
On each Distribution Date, to the extent the Available Distribution Amount
on such Distribution Date is sufficient therefor, distributions in respect of
principal will be made on the Sequential Pay Certificates in the order of
priority described below in an amount equal to the related Principal
Distribution Amount for such Distribution Date. Such distributions in respect
of principal will be made on each Distribution Date and, to the extent made
in respect of any Class, will reduce the Certificate Principal Balance of
such Class.
The "Principal Distribution Amount" in respect of any Class of
Certificates (other than the Class A-X Certificates and the Class R
Certificate) for any Distribution Date, will generally equal the sum of (i)
the principal portion of Monthly Payments due on the related Due Date on each
Mortgage Loan, to the extent received on or prior to the related
Determination Date or otherwise advanced by the Master Servicer, the Special
Servicer or the Trustee, (ii) for each Mortgage Loan which was repurchased
during the related Prepayment Period pursuant to the Pooling and Servicing
Agreement, the principal amount of the Repurchase Proceeds (net of amounts
with respect to which a distribution of principal has already been made),
(iii) any Principal Prepayments and any other unscheduled collections of
principal received with respect to Mortgage Loans during the related
Prepayment Period and (iv) the Appraisal Reduction Capitalization Amount, if
any, to the extent actually paid by the related mortgagor.
Available Distribution Amount
The "Available Distribution Amount" for any Distribution Date will
generally equal the aggregate of (i) Monthly Payments on the Mortgage Loans
due during the related Due Period and received on or
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prior to the related Determination Date, (ii) Principal Prepayments and other
unscheduled collections of principal received during the related Prepayment
Period, (iii) Monthly Advances with respect to such Mortgage Loans made by
the Master Servicer, the Special Servicer or the Trustee with respect to such
Distribution Date and (iv) amounts relating to REO Properties required to be
deposited from time to time in the Collection Account pursuant to the Pooling
and Servicing Agreement, less the sum of:
(a) all Monthly Payments collected but due on a date subsequent to the
related Due Date;
(b) all other collections allocable to principal (or applied as
recoveries of principal) received after the related Prepayment Period
(together with any interest with respect thereto for periods after the
related Prepayment Period);
(c) all amounts that are currently due or reimbursable to the Master
Servicer, the Special Servicer or the Trustee (including any fees payable
to the Master Servicer and the Special Servicer and certain amounts
representing reimbursements for Advances, together with interest thereon
at the Advance Rate, and expenses incurred by the Master Servicer, the
Special Servicer and the Trustee; and
(d) Excess Prepayment Interest in excess of any Prepayment Interest
Shortfalls for the related Prepayment Period.
PRIORITY OF DISTRIBUTIONS
On each Distribution Date, the Available Distribution Amount will be paid
in the following order of priority:
(i) to distributions of interest to the holders of the Class A-X and
Class A Certificates, pro rata, in accordance with the respective amounts
of interest distributable on such Classes of Certificates on such
Distribution Date, in an amount equal to the Interest Distribution Amount
in respect of each such Class of Certificates for such Distribution Date
and, to the extent not previously paid, for all prior Distribution Dates;
(ii) to distributions of principal to the holders of the Class A
Certificates in an amount (not to exceed the then outstanding Certificate
Principal Balance of such Class of Certificates) equal to the Principal
Distribution Amount for such Distribution Date;
(iii) to distributions of interest to the holders of the Class B
Certificates in an amount equal to the Interest Distribution Amount in
respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(iv) if the Class A Certificates have been retired, to distributions
of principal to the holders of the Class B Certificates in an amount (not
to exceed the then outstanding Certificate Principal Balance of such Class
of Certificates) equal to the Principal Distribution Amount for such
Distribution Date, less any portion thereof distributed in retirement of
the Class A Certificates;
(v) to distributions of interest to the holders of the Class C
Certificates in an amount equal to the Interest Distribution Amount in
respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(vi) if the Class A and Class B Certificates have been retired, to
distributions of principal to the holders of the Class C Certificates in
an amount (not to exceed the then outstanding Certificate Principal
Balance of such Class of Certificates) equal to the Principal Distribution
Amount for such Distribution Date, less any portion thereof distributed in
retirement of the Class A and/or Class B Certificates;
(vii) to distributions of interest to the holders of the Class D
Certificates in an amount equal to the Interest Distribution Amount in
respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(viii) if the Class A, Class B and Class C Certificates have been
retired, to distributions of principal to the holders of the Class D
Certificates in an amount (not to exceed the then outstanding
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Certificate Principal Balance of such Class of Certificates) equal to the
Principal Distribution Amount for such Distribution Date, less any portion
thereof distributed in retirement of the Class A, Class B and/or Class C
Certificates;
(ix) to distributions of interest to the holders of the Class E
Certificates in an amount equal to the Interest Distribution Amount in
respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(x) if the Class A, Class B, Class C and Class D Certificates have
been retired, to distributions of principal to the holders of the Class E
Certificates in an amount (not to exceed the then outstanding Certificate
Principal Balance of such Class of Certificates) equal to the Principal
Distribution Amount for such Distribution Date, less any portion thereof
distributed in retirement of the Class A, Class B, Class C and/or Class D
Certificates;
(xi) to distributions of interest to the holders of the Class F
Certificates in an amount equal to the Interest Distribution Amount in
respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(xii) if the Class A, Class B, Class C, Class D and Class E
Certificates have been retired, to distributions of principal to the
holders of the Class F Certificates in an amount (not to exceed the then
outstanding Certificate Principal Balance of such Class of Certificates)
equal to the Principal Distribution Amount for such Distribution Date,
less any portion thereof distributed in retirement of the Class A, Class
B, Class C, Class D and/or Class E Certificates;
(xiii) to distributions of interest to the holders of the Class G
Certificates in an amount equal to the Interest Distribution Amount in
respect of such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(xiv) if the Class A, Class B, Class C, Class D, Class E and Class F
Certificates have been retired, to distributions of principal to the
holders of the Class G Certificates in an amount (not to exceed the then
outstanding Certificate Principal Balance of such Class of Certificates)
equal to the Principal Distribution Amount for such Distribution Date,
less any portion thereof distributed in retirement of the Class A, Class
B, Class C, Class D, Class E and/or Class F Certificates; and
(xv) to distributions to the holders of the Class R Certificate in an
amount equal to the balance, if any, of the Available Distribution Amount
remaining after the distributions to be made on such Distribution Date as
described in clauses (i) through (xiv) above.
DISTRIBUTIONS OF PREPAYMENT PREMIUMS
Any Prepayment Premiums actually collected on the Mortgage Loans will be
distributed to the holders of the Class A-X Certificates separately from the
Available Distribution Amount. The Depositor makes no representation as to
the enforceability of the provision of any Mortgage Note requiring the
payment of a Prepayment Premium, or of the collectability of any Prepayment
Premium. See "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS--The Mortgage
Loans--Prepayment Premiums" herein.
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EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates for the first month of the Trust Fund's existence, assuming the
Certificates are issued in November, 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
November 1, 1995 (A) Cut-Off Date.
The Master Servicer receives Mortgage Loan payments due after
the Cut-Off Date and on or prior to December 1, 1995, the
November 2, 1995-December 1, 1995 (B) last day of the Due Period.
The Master Servicer receives any Principal Prepayments and
any other unscheduled collections of principal on the Mortgage
Loans made after the Cut-Off Date and on or prior to December
November 2, 1995-December 13, 1995 (C) 13, 1995.
The Due Period. Mortgage Loan payments received or otherwise
advanced by the Master Servicer due during this period will
November 2, 1995-December 1, 1995 (D) be distributed on December 20, 1995.
November 30, 1995 (E) Record Date
December 14, 1995 (F) Determination Date.
December 19, 1995 (G) Master Servicer Remittance Date.
December 20, 1995 (H) Distribution Date.
</TABLE>
Succeeding monthly periods follow the pattern of (B) through (H) (except
as described below).
- ------------
(A) The outstanding principal balance of the Mortgage Loans will be the
aggregate scheduled principal balance of the Mortgage Loans at the close
of business on November 1, 1995 (after deducting principal payments due
on or before such date). Principal payments due on or before such date,
and the accompanying interest payments, are not part of the Trust Fund.
(B) Mortgage Loan payments due after the Cut-Off Date and on or prior to
December 1, 1995, to the extent collected prior to December 14, 1995, the
Determination Date, will be deposited in the Collection Account as
described in "--Collection Account, Distribution Account and REO
Accounts" herein. Each subsequent Due Period will begin on the second day
of the month preceding the month in which the related Distribution Date
occurs.
(C) Any Principal Prepayments and any other unscheduled principal payments
received after the Cut-Off Date and on or prior to December 13, 1995 will
be deposited in the Collection Account as described in "--Collection
Account, Distribution Account and REO Accounts" herein. Each subsequent
Prepayment Period will begin on the Determination Date in the month
preceding the month in which the related Distribution Date occurs and end
on the day prior to the Determination Date in the month in which the
related Distribution Date occurs. The amount of any Prepayment Interest
Shortfalls will be allocated as described in "--Prepayment Interest
Shortfalls and Excess Prepayment Interest" herein.
(D) The Due Period extends from the second day of the month preceding the
month in which the Distribution Date occurs and ends on the first day of
the month in which such Distribution Date occurs.
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(E)Distributions on the next Distribution Date will be made to those persons
that are Certificateholders of record as of the Record Date.
(F) As of the close of business on the Determination Date, the Master
Servicer will have determined the amounts of principal and interest that
will be remitted to the Distribution Account. Payments will be remitted
from the Distribution Account to the Certificateholders.
(G) On or before 1:00 p.m., New York City time, on the business day prior to
the related Distribution Date (the "Master Servicer Remittance Date"),
the Master Servicer will remit to the Trustee for deposit into the
Distribution Account the amount of (i) any Advances it has determined it
must make pursuant to the terms of the Pooling and Servicing Agreement
and (ii) the amount of the Available Distribution Amount for the related
Distribution Date less any Advance previously remitted by the Master
Servicer and subsequently determined to be a Nonrecoverable Advance.
(H) The Trustee will make distributions to Certificateholders on the 20th day
of each month or, if such day is not a business day, the next succeeding
business day.
TREATMENT OF REO PROPERTIES
Notwithstanding that any Mortgaged Property may be acquired on behalf of
the Trust through foreclosure, deed in lieu of foreclosure or otherwise, the
related Mortgage Loan will be treated, for purposes of determining
distributions on the Certificates, allocations of Realized Losses to the
Certificates, and the amount of fees payable to the Master Servicer and the
Special Servicer, as having remained outstanding until such REO Property is
liquidated. In connection therewith, operating revenues and other proceeds
derived from such REO Property (exclusive of related operating costs,
including certain reimbursements payable to the Master Servicer or the
Special Servicer in connection with the operation or disposition of such REO
Property) will be "applied" by the Master Servicer as principal, interest and
other amounts "due" on such Mortgage Loan.
SUBORDINATION
The rights of holders of the Non-Offered Certificates to receive
distributions of amounts collected or advanced on or in respect of the
Mortgage Loans will be subordinated, to the extent described herein, to the
rights of holders of the Offered Certificates; the rights of holders of the
Class D Certificates to receive distributions of amounts collected or
advanced on or in respect of the Mortgage Loans will be subordinated, to the
extent described herein, to the rights of holders of the Classes of
Certificates with a earlier alphabetical designation; the rights of holders
of the Class C Certificates to receive distributions of amounts collected or
advanced on or in respect of the Mortgage Loans will be subordinated, to the
extent described herein, to the rights of holders of the Certificates with a
earlier alphabetical designation and the rights of holders of the Class B
Certificates to receive distributions of amounts collected or advanced on or
in respect of the Mortgage Loans will be subordinated, to the extent
described herein, to the rights of holders of the Class A and Class A-X
Certificates. This subordination is intended to enhance the likelihood of
timely receipt by the holders of the Class A and Class A-X Certificates of
the full amount of all interest payable in respect of such Certificates on
each Distribution Date, and the ultimate receipt by the holders of the Class
A Certificates of principal in an amount equal to the entire aggregate
Certificate Principal Balance of the Class A Certificates. Similarly, but to
decreasing degrees, this subordination is also intended to enhance the
likelihood of timely receipt by the holders of the other Classes of Offered
Certificates of the full amount of interest payable in respect of such
Classes of Certificates on each Distribution Date, and the ultimate receipt
by the holders of such Classes of Certificates of principal equal to, in each
such case, the entire aggregate Certificate Principal Balance of such Class
of Certificates. The protection afforded to the holders of the Class D
Certificates by means of the subordination of the Certificates with a later
alphabetical designation, to the holders of the Class C Certificates by means
of the subordination of the Certificates with a later alphabetical
designation, to the holders of the Class B Certificates by means of the
subordination of Certificates with a later alphabetical designation, and to
the holders of the Class A and Class A-X Certificates by means of the
subordination of the Subordinate Certificates, will be accomplished by the
application of the Available Distribution
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Amount on each Distribution Date in accordance with the order of priority
described under "--Principal and Interest Distributions--Available
Distribution Amount" above. No other form of credit enhancement will be
available for the benefit of the holders of the Offered Certificates.
Allocation to the Class A Certificates, for so long as they are
outstanding, of the entire Principal Distribution Amount for each
Distribution Date will generally have the effect of reducing the aggregate
Certificate Principal Balance of such Class at a faster rate than the
aggregate principal balance of the Mortgage Loans. Thus, as principal is
distributed to the holders of the Class A Certificates, the percentage
interest in the Trust Fund evidenced by the Class A Certificates will
generally be decreased (with a corresponding increase in the percentage
interest in the Trust Fund evidenced by the Subordinate Certificates),
thereby increasing, relative to their aggregate Certificate Principal
Balance, the subordination afforded the Class A Certificates (and,
correspondingly, to the Class A-X Certificates) by the Subordinate
Certificates. Following retirement of the Class A Certificates, the herein
described successive allocation to the Class B Certificates, the Class C
Certificates and the Class D Certificates, in that order, in each case for so
long as they are outstanding, of the entire Principal Distribution Amount for
each Distribution Date will provide a similar benefit to each such Class of
Certificates as regards the relative amount of subordination afforded thereto
by the Certificates with a later alphabetical designation.
ALLOCATION OF REALIZED LOSSES
In the event that a Realized Loss is incurred during any Prepayment
Period, such Realized Loss will be allocated, in the case of the principal
portion thereof, sequentially to the Class G, Class F, Class E, Class D,
Class C, Class B, and finally to the Class A Certificates until the
Certificate Principal Balance thereof has been reduced to zero and, in the
case of the interest portions thereof, sequentially to the Class G
Certificates, Class F Certificates, Class E Certificates, Class D
Certificates, Class C Certificates and Class B Certificates and finally to
the Class A-X and Class A Certificates, pro rata, in proportion to the
respective amounts of interest accrued thereon. The principal portions of
Realized Losses allocated to any Class of Certificates will be allocated
among the Certificates of such Class, pro rata, based upon the Percentage
Interest represented by each such Certificate. Any allocation of the
principal portions of Realized Losses to a Certificate on a Distribution Date
will be made by reducing the Certificate Principal Balance thereof by the
amount so allocated, which allocation shall be deemed to have occurred on
such Distribution Date. Any allocation of the interest portions of Realized
Losses to a Certificate on a Distribution Date will be made by reducing the
amount of any accrued and unpaid interest thereon by the amount so allocated,
which allocation shall occur on such Distribution Date.
"Realized Loss" means (i) with respect to any Liquidated Loan (defined
below), the excess of the principal balance of each Liquidated Loan
immediately prior to liquidation, together with accrued and unpaid interest
thereon and any unreimbursed Advances plus interest thereon at the Advance
Rate over the proceeds, if any, received with respect to such Liquidated
Loan, (ii) with respect to any Mortgage Loan that has become subject to a
valuation by a final order confirming a Chapter 11 plan of reorganization 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 (a "Deficient Valuation") results from a confirmed plan of
reorganization in a Chapter 11 proceeding (a "Bankruptcy Proceeding") under
the United States Bankruptcy Code, as amended from time to time (11 U.S.C.
Section Section 101 et seq. (the "Bankruptcy Code")), the excess of the
outstanding principal balance of such Mortgage Loan over the outstanding
principal balance as reduced in the Deficient Valuation, (iii) with respect
to any Mortgage Loan as to which the amount of the Monthly Payment has been
reduced in a Bankruptcy Proceeding by a final order confirming a Chapter 11
plan of reorganization (a "Debt Service Reduction"), the present value of all
monthly Debt Service Reductions on such Mortgage Loan, assuming that the
related mortgagor pays each Monthly Payment on the applicable Due Date and
that no principal prepayments are received with respect to such Mortgage
Loan, discounted monthly at the applicable Mortgage Rate or (iv) with respect
to a Modified Mortgage Loan (defined below) as to which principal or interest
has been forgiven, the amount of such forgiven principal or interest. The
effect of the accrual of interest at the Advance Rate on Advances made by the
Master Servicer, the Special Servicer or the Trustee will be to increase the
amount of the Realized Loss on the related Mortgage Loan.
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"Liquidated Loan" means, with respect to any Distribution Date, a
Mortgage Loan which, as of the close of business on the business day
immediately preceding the related Determination Date, has been liquidated
through deed in lieu of foreclosure, sale in foreclosure, trustee's sale or
other realization as provided by applicable real property law to which the
related Mortgage is subject and any security agreements, or with respect to
which payment under related hazard insurance and/or from any public
governmental authority on account of a taking or condemnation of any such
property has been received and as to which, in the best judgment of the
Special Servicer, no further proceeds will be received.
The "Scheduled Principal Balance" of each Mortgage Loan means, the
principal balance of such Mortgage Loan as of the beginning of the related
Due Period, after giving effect to (a) any Principal Prepayments, other
unscheduled principal payments and Balloon Payments received on or prior to
the related Determination Date, (b) any payment in respect of principal, if
any, due on or before the related Due Date (other than a Balloon Payment)
whether or not paid by the related mortgagor, and (c) any adjustment thereto
in the amount of a Deficient Valuation resulting from any bankruptcy or
similar proceeding.
"Modified Mortgage Loan" means any Specially Serviced Mortgage Loan that
was modified by the Special Servicer.
APPRAISAL REDUCTIONS
Within the period of time specifed in the Pooling and Servicing Agreement
after the earliest to occur of (i) the date on which a change in the
principal balance, payment rate or amortization term (each, a "Money Term")
or in the stated maturity of any Specially Serviced Mortgage Loan becomes
effective as a result of a modification of such Mortgage Loan by the Special
Servicer, (ii) 90 days after the date on which an uncured delinquency occurs
in respect of a Mortgage Loan, (iii) 60 days after the date on which a
receiver is appointed (if such appointment remains in effect during such 60
day period) in respect of a Mortgaged Property or (iv) after the date on
which a Mortgaged Property becomes an REO Property, an MAI appraisal will be
obtained by the related Special Servicer from an independent MAI appraiser at
the expense of the Trust Fund (except if an MAI appraisal has been conducted
within the 12 month period preceding such event) and the Special Servicer
will obtain (at the expense of the Trust Fund) an update of such MAI
appraisal on an annual basis for so long as (a) the event giving rise to the
requirement that such MAI appraisal be obtained continues to exist or (b) the
Mortgaged Property referred to in clause (iv) above remains an REO Property.
As a result of such appraisal or update, an Appraisal Reduction may be
created, which Appraisal Reduction will be allocated, for purposes of
determining distributions of interest, to the Certificates in the manner and
priority described below.
The "Appraisal Reduction" for any Distribution Date with respect to any
such Mortgage Loan will be an amount equal to the excess of (a) the principal
balance of such Mortgage Loan over (b) the excess of (i) 90% of the appraised
value of such Mortgaged Property as determined by such independent appraisal
of the Mortgaged Property securing such Mortgage Loan over (ii) the sum of
(A) to the extent not previously advanced by the Master Servicer, all then
outstanding unpaid interest on such Mortgage Loan at a per annum rate equal
to the Mortgage Rate, (B) all unreimbursed Advances, Servicing Fees and
Special Servicer Compensation and interest thereon at the Advance Rate in
respect of such Mortgage Loan, and (C) all currently due and delinquent real
estate taxes and assessments, insurance premiums and, if applicable, ground
rents in respect of such Mortgaged Property. An Appraisal Reduction related
to a Mortgage Loan will be reduced to zero as of the date such Mortgage Loan
is paid in full, liquidated, repurchased or otherwise disposed of.
Notwithstanding the foregoing, for any Distribution Date an Appraisal
Reduction will be zero with respect to such a Mortgage Loan if (i) the event
giving rise to such Appraisal Reduction is the extension of the maturity of
such Mortgage Loan, (ii) the payments on such Mortgage Loan were not
delinquent during the twelve month period immediately preceding such
extension, and (iii) the payments on such Mortgage Loan are then current,
provided, that if at any later date there occurs a delinquency in payment
with respect to such Mortgage Loan, the Appraisal Reduction will be applied
to the same extent as it would have been previously applied. In addition, in
any case, upon the occurrence of any event giving rise to a subsequent
Appraisal Reduction (including the delinquency referred to in the immediately
preceding sentence) more then twelve months after an appraisal or update
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thereof was obtained with respect to an Appraisal Reduction, the Special
Servicer will obtain a new appraisal as described above, within the period of
time specified in the Pooling and Servicing Agreement following the
occurrence of any such event giving rise to a subsequent Appraisal Reduction
and will adjust the amount of the Appraisal Reduction in accordance
therewith. The aggregate Appraisal Reduction will be allocated on each
Distribution Date, for purposes of determining distributions in respect of
interest on such Distribution Date, to the Certificate Principal Balance of
the most subordinated Class of Certificates that would otherwise receive
distributions of interest. For so long as a more senior Class of Certificates
is outstanding, the amount of interest otherwise distributable on such
Distribution Date to each Class of Certificates to which an Appraisal
Reduction is allocated on such Distribution Date will be reduced by the
amount of interest accrued at the applicable Certificate Rate on the portion
of the Certificate Principal Balance Amount of such Class equal to the
Appraisal Reduction allocated to such Class for such Distribution Date and
such amount (the "Appraisal Reduction Capitalization Amount") will be added
to the Certificate Principal Balance of such Class of Certificates and an
equal amount will be included in the Principal Distribution Amount for such
Distribution Date to the extent actually paid by the related mortgagor. The
addition of an amount equal to the Appraisal Reduction Capitalization Amounts
to amounts distributed to any Class of Certificates will have the effect of
accelerating the distribution of principal to that Class of Certificates and
increasing the Certificate Principal Balance of the Classes of Certificates
to which the Appraisal Reduction Capitalization Amount is allocated.
The creation of an Appraisal Reduction in respect of a Mortgage Loan
proportionately reduces the Master Servicer's or the Special Servicer's, as
applicable, advancing obligation for Monthly Payments in respect of such
Mortgage Loan, which may materially and adversely affect payments on the then
most subordinated Class of Certificates. See "SERVICING--Advances--Monthly
Advances" herein.
REPURCHASE OF MORTGAGE LOANS
Under certain circumstances, the Seller will be required to repurchase
from the Trust Fund one or more Mortgage Loans. Generally, such repurchase
obligation arises when a breach of certain representations or warranties made
by the Seller or a defect in the mortgage file for a Mortgage Loan is
discovered, which breach or defect materially and adversely affects the
interest of the Depositor or the Certificateholders in such Mortgage Loans
and is not thereafter cured within 90 days of the earlier of either discovery
by the Seller that such representation and warranty has been breached or
defect exists or notice of such breach or defect has been given to the
Seller; provided, however, that if such breach or defect is susceptible of
cure but cannot reasonably be cured within such 90 day period and the Seller
has commenced to cure such breach or defect and is diligently proceeding to
cure such breach or defect within such 90 day period, such 90 day period will
be extended for an additional 90 days. THE SELLER MUST BE NOTIFIED IN WRITING
OF A BREACH OF A REPRESENTATION OR WARRANTY OR THE EXISTENCE OF A DEFECT IN A
MORTGAGE FILE ON OR BEFORE DECEMBER 31, 1999 IN ORDER FOR THE TRUSTEE TO HAVE
REMEDIES FOR SUCH A BREACH OR SUCH A DEFECT. IF THE SELLER DOES NOT RECEIVE
SUCH NOTIFICATION PRIOR TO DECEMBER 31, 1999, THERE WILL BE NO RECOURSE
AGAINST THE SELLER AVAILABLE TO THE TRUSTEE OR THE CERTIFICATEHOLDERS FOR ANY
SUCH BREACH OR DEFECT. The Seller will be the sole warranting party in
respect of the related Mortgage Loans, and none of the Depositor, the
Trustee, the Master Servicer, the Special Servicer or any of their respective
affiliates will be obligated to repurchase any affected Mortgage Loan in
connection with a breach of the Seller's representations and warranties or
the existence of a defect in a mortgage file if the Seller defaults on its
obligation to do so or if the Seller's obligation to repurchase an affected
Mortgage Loan has expired as described above.
In the event of a repurchase of a Mortgage Loan by the Seller, the
repurchase price will be equal to the sum of the Principal Balance of such
Mortgage Loan on the date of repurchase, plus interest accrued thereon at the
applicable Mortgage Rate from the date on which interest has last been paid
or advanced and distributed on such Mortgage Loan to the following Due Date,
plus the amount of any unreimbursed Advances made in respect of such Mortgage
Loan together with interest payable in respect of such Advances at the
Advance Rate (the "Purchase Price").
PREPAYMENT INTEREST SHORTFALLS AND EXCESS PREPAYMENT INTEREST
For any Distribution Date, a "Prepayment Interest Shortfall" will arise
with respect to any Mortgage Loan if a full or partial Principal Prepayment,
other unscheduled principal payment or a Balloon Payment
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is received between Due Dates on a Mortgage Loan. Such a shortfall arises
because the amount of interest which accrues on the amount of such Principal
Prepayment, other unscheduled principal payment, or the principal portion of
such Balloon Payment, as the case may be, will be less than the corresponding
amount of interest accruing on the Certificates and fees payable to the
Master Servicer. In such case, the Prepayment Interest Shortfall will
generally equal the excess of (a) the aggregate amount of interest which
would have accrued on the principal balance of such Mortgage Loan for the
one-month period ending on such Due Date if such Principal Prepayment, other
unscheduled principal payment, or Balloon Payment had not been made over (b)
the aggregate interest that did so accrue during such period through the date
such payment was made.
In any case in which a full or partial Principal Prepayment or a Balloon
Payment is made during any Prepayment Period after the Due Date for the
related Mortgage Loan, "Excess Prepayment Interest" will arise since the
amount of interest which accrues on the amount of such Principal Prepayment
or the principal portion of such Balloon Payment will exceed the
corresponding amount of interest accruing on the Certificates and fees
payable to the Master Servicer. The amount of Excess Prepayment Interest in
any such case will equal, to the extent collected, the interest that accrues
on such Principal Prepayment or the principal portion of such Balloon Payment
from such Due Date to the date such payment was made.
To the extent that the aggregate of all Prepayment Interest Shortfalls for
all Mortgage Loans for any Due Period exceeds the aggregate of all such
Excess Prepayment Interest for all Mortgage Loans for such Due Period, the
Servicing Fee (but not the compensation of the Special Servicer) for the
corresponding period will be reduced in an amount necessary (up to
one-twelfth of the product of the Scheduled Principal Balance of the Mortgage
Loans and 0.13%) to offset such additional remaining Prepayment Interest
Shortfalls. See "SERVICING--The Master Servicer--Adjustment to Servicing Fee"
herein. To the extent that the aggregate of all such Excess Prepayment
Interest for all Mortgage Loans for any Due Period exceeds the aggregate of
all such Prepayment Interest Shortfalls for all Mortgage Loans for such Due
Period, such excess amount (the "Net Aggregate Excess Prepayment Interest"
for such Due Period) will be payable to the Master Servicer as additional
compensation.
Any interest shortfall remaining after the offset by any Excess Prepayment
Interest and the Servicing Fee (a "Net Aggregate Prepayment Interest
Shortfall") will be allocated pro rata in accordance with the respective
amounts of interest accrued for such Classes for such Distribution Date, in
each case in reduction of the Interest Distribution Amounts for such Classes
of Certificates. None of the Master Servicer, the Special Servicer or the
Trustee shall have any obligation to make any Advance to cover such interest
shortfalls.
CLASS R CERTIFICATE
The Class R Certificate will not have a Certificate Principal Balance or a
Certificate Rate assigned thereto. The Class R Certificate will be entitled
to receive any Available Distribution Amount remaining on any Distribution
Date after the Certificate Principal Balances of each other Class of
Certificates receive all payments due to them and also will be entitled to
receive the proceeds of the remaining assets of the Trust Fund, if any, after
the Certificate Principal Balances of all of the Certificates have been
reduced to zero.
REPORTS TO CERTIFICATEHOLDERS
TRUSTEE REPORTS
Based on information provided to the Trustee in monthly reports prepared
by the Master Servicer and the Special Servicer, the Trustee will prepare and
forward by first class mail (or such other medium as the Depositor and the
Trustee will agree, the incremental cost of which will be paid in advance by
the recipient thereof) on each Distribution Date to each Certificateholder,
any beneficial owner of a Certificate who satisfactorily identifies itself as
such to the Trustee, upon request, the Depositor, anyone the Depositor or the
Underwriter reasonably designates, the Master Servicer, the Special Servicer
and each Rating Agency:
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(a) A statement setting forth, to the extent applicable: (i) the
amount, if any, of such distribution to the holders of each Class of
Certificates applied to reduce the respective Certificate Principal
Balances thereof; (ii) the amount of such distribution to holders of each
Class of Certificates allocable to interest accrued at the respective
Certificate Rates, less any Net Aggregate Prepayment Interest Shortfalls;
(iii) the amount of unpaid interest allocated to each Class of
Certificates for such Distribution Date and the cumulative unpaid interest
allocated to each Class of Certificates for all prior Distribution Dates;
(iv) the number of Mortgage Loans, aggregate principal balance of the
Mortgage Loans and aggregate Scheduled Principal Balance of the Mortgage
Loans as of the related Determination Date; (v) the number and aggregate
principal balances of Mortgage Loans (a) delinquent one month, (b)
delinquent two months, (c) delinquent three or more months, (d) delinquent
for the past twelve months and (e) as to which foreclosure proceedings
have been commenced and as to each Mortgage Loan to which this subclause
(v) applies, the property name and the principal balance thereof; (vi)
with respect to any Mortgage Loan as to which an REO Property was acquired
during the preceding calendar month, the principal balance of such
Mortgage Loan as of the date the related REO Property was acquired; (vii)
as of the related Determination Date (a) the book value of any REO
Property, (b) as to any REO Property sold during the related Due Period,
the date of the related determination by the Special Servicer that it has
recovered all payments which it expects to be finally recoverable and the
amount of the proceeds of such sale deposited into the Collection Account,
and (c) the aggregate amount of other revenues collected by the Special
Servicer with respect to each REO Property during the related Due Period
and credited to the Collection Account, in each case identifying such REO
Property by the property name of the related Mortgage Loan; (viii) the
aggregate Certificate Principal Balance of each Class of Certificates
before and after giving effect to the distribution made on such
Distribution Date, (ix) the aggregate amount of Principal Prepayments and
the aggregate amount of other unscheduled principal payments made during
the related Prepayment Period; (x) the Certificate Rate applicable to each
Class of Certificates for such Distribution Date; (xi) the aggregate
amount of Servicing Fees, Special Servicing Fees, Extension Fees and
Workout Fees and any other fees specified in the Pooling and Servicing
Agreement retained by or paid to the Master Servicer and the Special
Servicer; (xii) the amount and application of Prepayment Interest
Shortfalls, Excess Prepayment Interest, Realized Losses and the Appraisal
Reduction Capitalization Amount, if any; (xiii) the aggregate amount of
Monthly Advances made with respect to such Distribution Date and made with
respect to all preceding Distribution Dates, and the aggregate amount of
Expense Advances and Property Protection Advances made during the calendar
month preceding such Distribution Date and during all calendar months
preceding such Distribution Date outstanding which have been made by the
Master Servicer, the Special Servicer and the Trustee; (xiv) the amount
and application of any Appraisal Reductions effected during the related
Due Period on a Mortgage Loan-by-Mortgage Loan basis; (xv) the aggregate
amount of Principal Prepayments and the aggregate amount of other
unscheduled principal payments made during the preceding twelve month
period and (xvi) such other information and in such form as will be
specified in the Pooling and Servicing Agreement. In the case of
information furnished pursuant to subclauses (i), (ii) and (xi) above, the
amounts will be expressed as a dollar amount in the aggregate for all
Certificates of each applicable Class and per single Certificate.
(b) A report containing information provided by the Master Servicer
and the Special Servicer regarding the Mortgage Loans as of the end of the
related Due Period and Prepayment Period, which report will contain
substantially the categories of information regarding the Mortgage Loans
set forth under "DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING
MORTGAGED PROPERTIES--Additional Mortgage Loan Information" and such
information will be presented in a tabular format substantially similar to
the format utilized under such caption and a Mortgage Loan-by-Mortgage
Loan listing (in descending balance order) in a tabular format
substantially similar to the format utilized in the Mortgage Loan Schedule
attached to the Pooling and Servicing Agreement showing property type,
location, unpaid principal balance, interest rate, paid through date,
maturity date and such other information and in such form as will be
specified in the Pooling and Servicing Agreement.
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(c) A report containing information provided by the Master Servicer
and the Special Servicer relating to gross revenues, expenses, net
operating income, current occupancy information and the most recent Debt
Service Coverage Ratio for each Mortgage Loan and the related Mortgaged
Property to the extent such information is received from the related
mortgagors.
PORTFOLIO PERFORMANCE REPORTS
On or about the 15th day of each month, commencing no later than January
1996, the Master Servicer will prepare a "Portfolio Performance Report" with
respect to the Mortgage Loans and deliver it to the Trustee, who is required
to deliver the same to the Special Servicer, the Underwriter, the Depositor,
anyone the Depositor or the Underwriter reasonably designates, the
Certificateholders and each Rating Agency. On or about the 15th day of April
of each year, beginning in April 1996, the Master Servicer will prepare a
summary of such monthly "Portfolio Performance Reports" and deliver such
annual report to the Trustee, who is required to deliver the same to the
Special Servicer, the Underwriter, the Depositor, anyone the Depositor or the
Underwriter reasonably designates, the Certificateholders and each Rating
Agency. The Portfolio Performance Reports will be prepared in part based on
information provided to the Master Servicer each month by the Special
Servicer with respect to Specially Serviced Mortgage Loans and by the
mortgagors as required under the terms of the Mortgage Loans. The Portfolio
Performance Reports will set forth detailed information (on both an aggregate
and loan-by loan basis) with respect to the status of the Mortgage Loans,
including, among other things, the following: (i) number of days delinquent
(ranging from less than one month to over two years) and causes of servicing
transfers, (ii) delinquency status by state, (iii) delinquency status by
property type, (iv) delinquency status by state and property type, (v)
Specially Serviced Mortgage Loans returned to the Master Servicer by the
Special Servicer with and without modifications, (vi) Mortgage Loans
liquidated, including by payment in full, discounted payoff, sale of the
Mortgage Loan, repurchase for breach of representations and warranties and
sale of REO Property, (vii) REO Property by state and property type, (viii)
Mortgage Loans with delinquent taxes and insurance payments, together with
the unpaid balances thereof and (ix) such other information as may be
reasonably requested by the Special Servicer.
SPECIAL SERVICER REPORTS
On each Determination Date, the Special Servicer will prepare the
following reports with respect to Specially Serviced Mortgage Loans
(collectively, the "Special Servicer Reports"): (i) a report showing loan by
loan detail on each Specially Serviced Mortgage Loan which is 60 days
delinquent, 90 days delinquent or in the process of foreclosure, (ii) an REO
status report for each REO Property and (iii) a modification report showing
Mortgage Loan-by-Mortgage Loan for each Specially Serviced Mortgage Loan the
material details for each modification closed during the most recent
reporting period. The Special Servicer Reports will be delivered by the
Special Servicer to the Trustee, and the Trustee will distribute such reports
to the Master Servicer, the Underwriter, the Depositor, anyone the Depositor
or the Underwriter reasonably designates, each Rating Agency and the
Certificateholders. Any person may call the Special Servicer at (214)
290-2674 in order to inquire how to obtain the Special Servicer Reports.
OTHER INFORMATION
The Pooling and Servicing Agreement requires that the Master Servicer upon
written request make available at its offices primarily responsible for
servicing the Mortgage Loans, during normal business hours, for review by the
Depositor, the Trustee, any holder of a Certificate, each Rating Agency or
any other Person designated in writing by the Trustee, including, without
limitation, any beneficial holder of a Certificate, originals or copies of,
among other things, the following items: (i) the Pooling and Servicing
Agreement and any amendments thereto, (ii) all Distribution Date statements
delivered to holders of the relevant Class of Certificates since the Delivery
Date, (iii) all officers' certificates delivered to the Trustee since the
Delivery Date, (iv) all accountants' reports delivered to the Trustee since
the Delivery Date, (v) the most recent property inspection report prepared by
or on behalf of the Master Servicer or the Special Servicer in respect of
each Mortgaged Property, (vi) the most recent Mortgaged Property annual
operating statements, if any, collected by or on behalf of the Master
Servicer or the Special Servicer, (vii)
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any and all modifications, waivers and amendments of the terms of a Mortgage
Loan entered into by the Special Servicer, and (viii) any and all officers'
certificates and other evidence delivered to or by the Trustee to support the
Master Servicer's or the Trustee's determination that any Monthly Advance,
Expense Advance or Property Protection Advance is nonrecoverable or, if made,
would be nonrecoverable. Notwithstanding the foregoing, the Master Servicer
will not be obligated to disclose any proprietary, confidential or legally
privileged documents or those which the Master Servicer is prohibited by law
or the terms of the Mortgage Loans from disclosing. Copies of any and all of
the foregoing items and any Special Servicer Reports will be available from
the Master Servicer in hard copy, upon request; provided, however, the Master
Servicer will be permitted to require payment of a sum sufficient to cover
the reasonable costs and expenses of providing such copies.
In addition, the Depositor expects to make available certain information
relating to the Certificates and the Mortgage Loans to beneficial owners of
the Certificates through Bloomberg Information Services.
FINAL RATED DISTRIBUTION DATE
The Final Rated Distribution Date for the Offered Certificates is August
20, 2030. The "Final Rated Distribution Date" is the Distribution Date in the
month following the month that is two years after the maturity date of the
Mortgage Loan with the latest maturity date, without taking into account any
scheduled Balloon Payment, but instead assuming the full amortization of the
Mortgage Loan in accordance with its current amortization schedule.
The rating assigned by a Rating Agency to any Class of Certificates
entitled to receive distributions in respect of principal reflects an
assessment of the likelihood that Certificateholders of such Class will
receive, on or before the Rated Final Distribution Date, the principal
distributions to which they are entitled. See "RATINGS" herein.
OPTIONAL TERMINATION
On any Distribution Date on or after the date on which the outstanding
aggregate Scheduled Principal Balance of the Mortgage Loans has been reduced
below 10% of the aggregate Scheduled Principal Balance of the Mortgage Loans
as of the Cut-off Date, the Master Servicer, the Special Servicer (in the
event that all the Mortgage Loans remaining in the Trust Fund are Specially
Serviced Mortgage Loans) or the holder of the Class R Certificate each will
have the right to purchase, in whole, but not in part, all of the Mortgage
Loans and any property acquired in respect of the Mortgage Loans at a
purchase price equal to the sum of (a) the greater of (i) the aggregate
outstanding principal balance of each Mortgage Loan plus interest accrued
thereon at the related Mortgage Rate to the last day of the month of
purchase, plus any outstanding compensation payable to the Master Servicer
and the Special Servicer and any unreimbursed Monthly Advances, Expense
Advances and Property Protection Advances made with respect to each such
Mortgage Loan together with interest thereon at the Advance Rate, and (ii)
the fair market value thereof as determined by the Master Servicer, and (b)
the appraised value of any property acquired in respect of the Mortgage
Loans. The proceeds of any such purchase will be treated as a payment of
principal and interest on the Mortgage Loans for purposes of distributions to
Certificateholders and will effect an early retirement of the Certificates.
ANY SUCH TERMINATION WOULD RESULT IN PREPAYMENT IN FULL OF THE
CERTIFICATES AND WOULD HAVE AN ADVERSE EFFECT ON THE YIELD OF ANY OUTSTANDING
CLASS OF CLASS A-X CERTIFICATES AND ANY OTHER OUTSTANDING CERTIFICATES
PURCHASED AT A PREMIUM, BECAUSE TERMINATION WOULD HAVE THE SAME EFFECT AS A
PREPAYMENT IN FULL OF THE MORTGAGE LOANS. SEE "YIELD CONSIDERATIONS" HEREIN.
VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement, 100%
of the voting rights for the series offered hereby (the "Voting Rights") will
be allocated among the respective Classes of Sequential Pay Certificates in
proportion to the outstanding Certificate Principal Balances of such Classes
and none of the Voting Rights will be allocated to the Class A-X Certificates
and the Class R Certificate. When determining the allocation of Voting Rights
among the Classes of Certificates, an Appraisal
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Reduction will be treated as a Realized Loss and allocated in the manner
described herein for the allocation of Realized Losses. The amount of such
Realized Loss allocated or described in the preceding sentence will be
reduced and the Certificate Principal Balance of the affected Class
reinstated to the extent that the amount recovered on a Mortgage Loan and
allocable to principal after the date of the Appraisal Reduction on such
Mortgage Loan exceeds (x) the principal balance of such Mortgage Loan on the
date that such Appraisal Reduction occurred minus (y) such Appraisal
Reduction. Voting Rights allocated to a Class of Certificates will be
allocated among the related Certificateholders in proportion to the
Percentage Interests in such Class evidenced by their respective
Certificates.
LISTS OF CERTIFICATEHOLDERS
If three or more Certificateholders (hereinafter referred to as
"applicant"), apply in writing to the Trustee for a list of the names and
addresses of the Certificateholders, and such application states that the
applicants desire to communicate with other Certificateholders and is
accompanied by a copy of the communication proffered by the applicants to all
Certificateholders, then the Trustee is required, within ten business days
after the receipt of such request, to afford such applicants access during
normal business hours to a current list of the Certificateholders. The
expense of providing any such information requested shall be borne by the
requesting Certificateholders.
COLLECTION ACCOUNT, DISTRIBUTION ACCOUNT AND REO ACCOUNTS
The Master Servicer will establish and maintain an account (the
"Collection Account") in the name of the Trustee for the benefit of the
Certificateholders. All payments and collections received on the Mortgage
Loans and Monthly Advances by the Master Servicer will be deposited in the
Collection Account. Such payments and collections will be deposited in the
Collection Account within one business day of being posted by the Master
Servicer.
The amount at any time credited to the Collection Account may be invested
in Eligible Investments (defined below) that are payable on demand or, in
general, mature or are subject to withdrawal or redemption on or before the
business day preceding the next succeeding Master Servicer Remittance Date.
The Master Servicer will be required to remit amounts required for
distribution to Certificateholders to the Distribution Account on the first
business day preceding the related Distribution Date (the "Master Servicer
Remittance Date"). The income from the investment of funds in the Collection
Account in Eligible Investments will constitute additional servicing
compensation for the Master Servicer, and the risk of loss of funds in the
Collection Account resulting from such investments will be borne by the
Master Servicer. The amount of each such loss will be required to be
deposited by the Master Servicer in the Collection Account not later than the
business day immediately preceding the Distribution Date next succeeding the
date on which such losses are realized.
The Trustee will establish and maintain an account (the "Distribution
Account") in the name of the Trustee on behalf of the Certificateholders. On
the Master Servicer Remittance Date, the Master Servicer will remit to the
Trustee for deposit into the Distribution Account funds held on deposit in
the Collection Account, including any Advances by the Master Servicer, that
are required to be distributed to the Certificateholders on the related
Distribution Date. On each Distribution Date, the Trustee will apply amounts
on deposit in the Distribution Account generally to make distributions of
principal and interest to the Certificateholders as described under
"DESCRIPTION OF THE CERTIFICATES--Principal and Interest Distributions."
In connection with the operation of each REO Property, the Special
Servicer will establish and maintain one or more accounts (collectively, the
"REO Account") in the name of the Trustee for the benefit of the
Certificateholders, and will account separately for funds received or
expended with respect to each REO Property. In general, all revenues and
amounts received or collected by the Special Servicer with respect to each
REO Property will be deposited on a daily basis in the REO Account and the
Special Servicer will withdraw from the REO Account funds that are necessary
for the proper operation, management and maintenance of such REO Property.
Any amounts received or collected by the Special Servicer relating to the
sale or disposition of any Specially Serviced Mortgage Loan or REO Property
will
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be withdrawn by the Special Servicer from the REO Account within one business
day of receipt thereof and remitted to the Master Servicer for deposit in the
Collection Account.
On each Special Servicer Determination Date, the Special Servicer will
withdraw from the REO Account and deposit in the Collection Account the
revenues and amounts received or collected (other than as set forth above)
during the period from the preceding Special Servicer Determination Date to
the date thereof on or with respect to the related REO Property and
reinvestment income thereon, net of expenses; provided, however, that the
Special Servicer may retain in the REO Account sufficient funds for the
proper operation, management and maintenance of the REO Property. The
"Special Servicer Determination Date" means the fifth business day preceding
each Distribution Date.
The amount at any time credited to the REO Account may be invested by the
Special Servicer in Eligible Investments that are payable on demand or, in
general, mature or are subject to withdrawal or redemption before the
business day on which such amounts are required to be remitted to the Master
Servicer for deposit in the Collection Account. The income from the
investment of funds in the REO Account in Eligible Investments will
constitute additional servicing compensation for the Special Servicer, and
the risk of loss of funds in the REO Account resulting from such investments
will be borne by the Special Servicer. The amount of each such loss will be
required to be deposited by the Special Servicer in the REO Account not later
than the business day immediately preceding the Distribution Date next
succeeding the date on which such losses are realized.
The Collection Account, the Distribution Account and the REO Account will
be Eligible Accounts. "Eligible Account" means either (i) an account or
accounts maintained with a federal or state-chartered depository institution
or trust company the long-term unsecured debt obligations of which (or, in
the case of a depository institution or trust company that is the principal
subsidiary of a holding company, the long-term unsecured debt obligations of
such holding company) are rated not lower than "AAA" by the Rating Agencies
(or such other lower ratings as will not result in the rating of the
Certificates being reduced below the rating of the Certificates as of the
Delivery Date as confirmed in writing by the Rating Agencies); provided that
an account or accounts maintained by any depository institution which is an
affiliate of Banc One Corporation or an affiliate of State Street Bank and
Trust Company is deemed to qualify pursuant to this clause (i) as long as the
Special Servicer or the Trustee, as applicable, has not received notice from
the Rating Agencies that Banc One Corporation or State Street Bank and Trust
Company, as applicable, no longer qualifies to hold such account or accounts
pursuant to this clause (i), or (ii) a trust account or accounts maintained
with the trust department of a federal or state chartered depository
institution or trust company acting in its fiduciary capacity, provided that
any such state chartered depository institution is subject to regulation
regarding funds on deposit substantially similar to the regulations set forth
in 12 C.F.R. Section 9.10(b). "Eligible Investments" means certain securities
that are specified in the Pooling and Servicing Agreement.
MATURITY CONSIDERATIONS
Weighted average life refers to the average amount of time that will
elapse from the date of delivery of a Certificate until each dollar of
principal of such Certificate will be repaid to the investor. The weighted
average life of the Certificates will be influenced by the rate at which
principal of the Mortgage Loans is paid, which may be in the form of
scheduled amortization, prepayments or liquidation proceeds, as described
herein.
Prepayments on mortgage loans are commonly measured by a prepayment
standard or model. The model used in this Prospectus Supplement (the "CPR")
represents an assumed constant rate of prepayments each month expressed as an
annual rate, relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such mortgage loans. CPR does not purport to
be either a historical description of the prepayment experience of any pool
of mortgage loans or a prediction of the anticipated rate of prepayment of
any mortgage loans, including the Mortgage Loans. The Depositor does not make
any representation as to the appropriateness of the CPR model.
The tables set forth below have been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Mortgage Pool, as described above under "DESCRIPTION OF THE MORTGAGE POOL AND
THE UNDERLYING MORTGAGED PROPERTIES."
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The "weighted average life" of a Class A, Class B, Class C or Class D
Certificate is determined by (i) multiplying the amount of each distribution
in reduction of the outstanding Certificate Principal Balance of such
Certificate by the number of years from the date of issuance of such
Certificate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the original Certificate Principal Balance of such
Certificate. The respective sets of tables set forth below for each of the
Class A, Class B, Class C and Class D Certificates indicate the weighted
average life of each such Class of Offered Certificates that would result,
and the percentage of the initial aggregate Certificate Principal Balance of
each such Class that would be outstanding after each of the dates shown, if
the Mortgage Loans were to prepay in accordance with the assumptions set
forth in the following paragraph.
The respective sets of tables below have been prepared generally on the
basis of the assumptions (collectively, the "Modeling Assumptions") that (i)
the Class sizes are as shown on the cover of this Prospectus Supplement, (ii)
the settlement date for the sale of the Certificates is November 28, 1995,
(iii) distributions on the Certificates are made on the 20th day of each
month, commencing in December 1995, (iv) except as otherwise specifically
described in these assumptions, the Mortgage Loans have the characteristics
set forth under "DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING
MORTGAGED PROPERTIES" herein, (v) there are no delinquencies or defaults with
respect to the Mortgage Loans, and all Monthly Payments, including all
Balloon Payments, on the Mortgage Loans are timely received on their
respective Due Dates, (vi) each of the Mortgage Loans prepays monthly at the
specified percentages of CPR as set forth in the following tables beginning
on the first Distribution Date on which such Mortgage Loans may be prepaid
with a prepayment premium of 1.50% or less of the principal balance thereof
or if no prepayment premiums are provided for, beginning on the first
Distribution Date on which such Mortgage Loans may be prepaid at par. (vii)
Principal Prepayments are received on the related Mortgage Loan's Due Date in
each month and include one month's interest thereon, (viii) there are no
repurchases of, or other unscheduled principal payments on, Mortgage Loans,
(ix) no Mortgage Loan is modified, (x) all of the Mortgage Loans accrue
interest on a 30/360 basis, (xi) all Quarterly-Pay Loans pay on a monthly
basis with each monthly payment equal to one-third of the scheduled quarterly
payment, (xii) all of the Mortgage Loans have Due Dates which occur on the
first of each month and (xiii) no optional termination of the Trust occurs.
The Modeling Assumptions described above that have been made in preparing
the following table are expected to vary from the actual performance of the
Mortgage Loans. In particular, actual prepayments are not likely to occur at
constant rates or at the assumed rates, and variations in prepayment speeds,
even if averaging to the same constant prepayment rate over time, may have
different effects on the payment rates of the Offered Certificates.
Furthermore, prepayments and Balloon Payments at maturity will likely result
in Prepayment Interest Shortfalls. There can be no assurance as to the actual
rates of prepayment of the MortgageLoans or as to variations in applicable
interest rates.
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PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
FOR THE CLASS A CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
------------------------------------------------
0% 2% 4% 8% 10%
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Distribution Date ........ 100% 100% 100% 100% 100%
November 20, 1996 ................ 95 94 93 91 90
November 20, 1997 ................ 71 70 68 64 62
November 20, 1998 ................ 31 29 27 24 23
November 20, 1999 ................ 4 3 2 0 0
November 20, 2000 ................ 0 0 0 0 0
November 20, 2001 ................ 0 0 0 0 0
November 20, 2002 ................ 0 0 0 0 0
November 20, 2003 ................ 0 0 0 0 0
November 20, 2004 ................ 0 0 0 0 0
November 20, 2005 ................ 0 0 0 0 0
November 20, 2006 ................ 0 0 0 0 0
November 20, 2007 ................ 0 0 0 0 0
November 20, 2008 ................ 0 0 0 0 0
November 20, 2009 ................ 0 0 0 0 0
Weighted average life (years) ... 2.6 2.5 2.5 2.4 2.3
</TABLE>
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
FOR THE CLASS B CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
------------------------------------------------
0% 2% 4% 8% 10%
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Distribution Date ........ 100% 100% 100% 100% 100%
November 20, 1996 ................ 100 100 100 100 100
November 20, 1997 ................ 100 100 100 100 100
November 20, 1998 ................ 100 100 100 100 100
November 20, 1999 ................ 100 100 100 100 96
November 20, 2000 ................ 0 0 0 0 0
November 20, 2001 ................ 0 0 0 0 0
November 20, 2002 ................ 0 0 0 0 0
November 20, 2003 ................ 0 0 0 0 0
November 20, 2004 ................ 0 0 0 0 0
November 20, 2005 ................ 0 0 0 0 0
November 20, 2006 ................ 0 0 0 0 0
November 20, 2007 ................ 0 0 0 0 0
November 20, 2008 ................ 0 0 0 0 0
November 20, 2009 ................ 0 0 0 0 0
Weighted average life (years) ... 4.2 4.2 4.1 4.1 4.1
</TABLE>
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PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
FOR THE CLASS C CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
------------------------------------------------
0% 2% 4% 8% 10%
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Distribution Date ........ 100% 100% 100% 100% 100%
November 20, 1996 ................ 100 100 100 100 100
November 20, 1997 ................ 100 100 100 100 100
November 20, 1998 ................ 100 100 100 100 100
November 20, 1999 ................ 100 100 100 100 100
November 20, 2000 ................ 0 0 0 0 0
November 20, 2001 ................ 0 0 0 0 0
November 20, 2002 ................ 0 0 0 0 0
November 20, 2003 ................ 0 0 0 0 0
November 20, 2004 ................ 0 0 0 0 0
November 20, 2005 ................ 0 0 0 0 0
November 20, 2006 ................ 0 0 0 0 0
November 20, 2007 ................ 0 0 0 0 0
November 20, 2008 ................ 0 0 0 0 0
November 20, 2009 ................ 0 0 0 0 0
Weighted average life (years) ... 4.5 4.5 4.5 4.4 4.4
</TABLE>
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
FOR THE CLASS D CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
------------------------------------------------
0% 2% 4% 8% 10%
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Distribution Date ........ 100% 100% 100% 100% 100%
November 20, 1996 ................ 100 100 100 100 100
November 20, 1997 ................ 100 100 100 100 100
November 20, 1998 ................ 100 100 100 100 100
November 20, 1999 ................ 100 100 100 100 100
November 20, 2000 ................ 31 20 11 0 0
November 20, 2001 ................ 0 0 0 0 0
November 20, 2002 ................ 0 0 0 0 0
November 20, 2003 ................ 0 0 0 0 0
November 20, 2004 ................ 0 0 0 0 0
November 20, 2005 ................ 0 0 0 0 0
November 20, 2006 ................ 0 0 0 0 0
November 20, 2007 ................ 0 0 0 0 0
November 20, 2008 ................ 0 0 0 0 0
November 20, 2009 ................ 0 0 0 0 0
Weighted average life (years) ... 5.1 5.0 4.9 4.8 4.7
</TABLE>
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YIELD CONSIDERATIONS
GENERAL
The yield to maturity on any Offered Certificate will be affected by the
price paid by the holder thereof, the related Certificate Rate, the rate and
timing of principal payments on the Mortgage Loans (including, for this
purpose, principal prepayments, which may include amounts received by virtue
of voluntary prepayments, condemnation, casualty, defaults and repurchases
due to material defects in the mortgage files for Mortgage Loans or breaches
by the Seller of its representations and warranties regarding the Mortgage
Loans and the purchase of the Mortgage Loans, under the circumstances
described under "DESCRIPTION OF THE CERTIFICATES--Optional Termination"
herein) and the extent to which such principal payments are applied in
reduction of the Certificate Principal Balance or Class A-X Certificate
Notional Amount of such Offered Certificate.
The Certificate Rate for each of the Class A, Class B, Class C and Class D
Certificates is fixed. The Certificate Rate applicable to the Class A-X
Certificates on any Distribution Date is variable as described herein.
Accordingly, the yields on the Class A-X Certificates will be sensitive to
changes in the relative composition of the Mortgage Pool as a result of
scheduled amortization, voluntary prepayments and liquidations of Mortgage
Loans following default.
The rate of principal payments on the Class A, Class B, Class C and Class
D Certificates (and, accordingly, the Class A-X Certificate Notional Amount)
will be affected by the rate of principal payments (including voluntary
prepayments) on the Mortgage Loans. Generally, prepayments on the Mortgage
Loans (including prepayments resulting from defaults) will tend to shorten
the weighted average lives of the Class A, Class B, Class C and/or Class D
Certificates whereas delays in liquidations of defaulted Mortgage Loans and
modifications extending the maturity of Mortgage Loans will tend to lengthen
the weighted average lives of such Classes of Certificates. Any change in
such weighted average lives may adversely affect the yield to holders of the
Class A, Class B, Class C and/or Class D Certificates. Prepayments resulting
in a shortening of such weighted average lives may be made at a time of low
interest rates when holders of the Class A, Class B, Class C and/or Class D
Certificates may be unable to reinvest such prepayments at interest rates
equal to the Certificate Rates payable on their Certificates, while delays
and extensions resulting in lengthening of such weighted average lives may
occur at a time of high interest rates when Certificateholders may have been
able to reinvest payments received by them at higher rates.
Principal prepayments may be influenced by a variety of economic,
geographic, demographic, tax, legal and other factors. In general, if
prevailing interest rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the Mortgage Loans are likely to be subject to higher
prepayments than if prevailing rates remain at or above the Mortgage Rates on
such Mortgage Loans (although it should be noted that forty-eight of the
Mortgage Loans provide for Prepayment Premiums). Conversely, if prevailing
interest rates rise significantly above the Mortgage Rates on the Mortgage
Loans, the rate of prepayment would be expected to decrease. Other factors
affecting prepayment of the Mortgage Loans include the availability of credit
for mortgage refinancing, changes in tax laws (including depreciation
benefits), changes in mortgagors' net equity in the Mortgaged Properties,
servicing decisions, prevailing general economic conditions and the relative
economic vitality of the areas in which the Mortgaged Properties are located,
the terms of the Mortgage Loans (for example, the existence of due-on-sale
and due-on encumbrance clauses and, as stated above, provisions imposing
Prepayment Premiums), the quality of management of the Mortgaged Properties
and the availability of other opportunities for investment. The Depositor
makes no representation as to the particular factors that will affect the
rate of prepayment of the Mortgage Loans, the relative importance of any such
factors, the percentage of the principal balance of the Mortgage Loans that
will be paid as of any date or the overall rate of prepayments on the
Mortgage Loans.
The effective yield to holders of the Offered Certificates will differ
from the yield otherwise produced by the applicable Certificate Rate and
purchase prices of such Certificates because interest distributions will not
be payable to such holders until at least 19 days following the period of
accrual (without any additional distribution of interest or earnings thereon
in respect of such delay).
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If the purchaser of an Offered Certificate offered at a discount from its
initial Certificate Principal Balance calculates its anticipated yield to
maturity based on an assumed rate of payment that is faster than that
actually experienced on the Mortgage Loans, the actual yield to maturity may
be lower than that so calculated. Conversely, if the purchaser of an Offered
Certificate offered at a premium calculates its anticipated yield to maturity
based on an assumed rate of payment that is slower than that actually
experienced on the Mortgage Loans, the actual yield to maturity may be lower
than that so calculated.
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal of the
Mortgage Loans occurs, the greater the effect on an investor's yield to
maturity. The effect on an investor's yield of principal payments occurring
at a rate higher (or lower) than the rate anticipated by the investor during
the period immediately following the issuance of the Offered Certificates may
not be offset by a subsequent like decrease (or increase) in the rate of
principal payments. See "MATURITY CONSIDERATIONS" herein.
EFFECTS OF LOSSES ON THE MORTGAGE LOANS AND OTHER MATTERS
The yield to maturity of any Class of Offered Certificates will be
sensitive to the loss experience on the Mortgage Loans as well as the extent
to which certain other expenses (including shortfalls due to certain
additional compensation being required to be paid to the Special Servicer as
a result of Mortgage Loans becoming Specially Serviced Mortgage Loans) may be
incurred from time to time. Because of the priority of payments on the
Certificates and the allocation of Realized Losses, any shortfalls and losses
realized at any time generally will be borne as described above in
"DESCRIPTION OF THE CERTIFICATES--Allocation of Realized Losses" herein and
will, through the diminished cash distributions from the Mortgage Loans to be
made in respect of the affected Class of Certificates, negatively impact the
yield to maturity of any Certificateholder of such Class. In addition, since
the Class A-X Certificate Notional Amount used to calculate interest
distributions on the Class A-X Certificates will be reduced as a result of
the allocations of Realized Losses to the Class A, Class B, Class C and Class
D Certificates, amounts otherwise distributable on the Class A-X Certificates
will be affected by Realized Losses allocated to reduce the aggregate
Certificate Principal Balance of the Class A, Class B, Class C and Class D
Certificates.
In addition, to the extent that the holders of any Class of Offered
Certificates experience a shortfall in the payment of any interest to which
they are entitled, such interest shortfall will be payable on subsequent
Distribution Dates, but will not bear interest and would therefore adversely
affect the yield to maturity of such Class of Certificates for as long as
such interest shortfall is outstanding.
YIELD SENSITIVITY OF THE CLASS A-X CERTIFICATES
The yield to investors on the Class A-X Certificates will be highly
sensitive to the rate and timing of principal payments (including
prepayments) on the Mortgage Loans. INVESTORS IN THE CLASS A-X CERTIFICATES
SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK THAT AN
EXTREMELY RAPID RATE OF PREPAYMENT OF THE MORTGAGE LOANS COULD RESULT IN THE
FAILURE OF SUCH INVESTORS TO RECOUP THEIR INITIAL INVESTMENTS.
The tables below indicate the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of the Class A-X Certificates at various prices
and constant prepayment rates. The yields set forth in each table were
calculated by determining the monthly discount rates that, when applied to
the assumed stream of cash flows to be paid on the Class A-X Certificates,
would cause the discounted present value of such assumed stream of cash flows
to equal the assumed aggregate purchase prices of the Class A-X Certificates
and converting such monthly rates to corporate bond equivalent rates. Such
calculations do not take into account variations that may occur in the
interest rates at which investors may be able to reinvest funds received by
them as distributions on the Class A-X Certificates and consequently do not
purport to reflect the return on any investment in the Class A-X Certificates
when such reinvestment rates are considered.
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The table below has been prepared on the basis of the Modeling
Assumptions and on the assumed purchase prices of the Class A-X Certificates
set forth in the table, which includes accrued interest thereon.
SENSITIVITY OF THE CLASS A-X CERTIFICATES TO PRINCIPAL PREPAYMENTS
PRE-TAX YIELDS TO MATURITY
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE 0% CPR 2% CPR 4% CPR 8% CPR 10% CPR 15% CPR
- -------------------------- -------- -------- -------- -------- --------- ---------
(INCLUDING ACCRUED
INTEREST)
<S> <C> <C> <C> <C> <C> <C>
$6,120,737 16.17% 15.35% 14.56% 13.03% 12.29% 10.44%
</TABLE>
There can be no assurance that the Mortgage Loans will prepay in
accordance with the above assumptions at any of the rates shown in the tables
or at any other particular rate, that the cash flows on the Class A-X
Certificates will correspond to the cash flows shown herein or that the
aggregate purchase price of the Class A-X Certificates will be as assumed. In
addition, it is unlikely that the Mortgage Loans will prepay in accordance
with the above assumptions at any of the specified percentages of CPR until
maturity or that all the Mortgage Loans will so prepay at the same rate.
Timing of changes in the rate of prepayments may significantly affect the
actual yield to maturity to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors. Investors must
make their own decisions as to the appropriate prepayment assumption to be
used in deciding whether to purchase any Class A-X Certificates.
SERVICING
GENERAL
Under the Pooling and Servicing Agreement, the Master Servicer and the
Special Servicer are required to service and administer the Mortgage Loans
with the higher of the following standards of care:
(i) the same manner in which and with the same care, skill, prudence
and diligence with which the Master Servicer or the Special Servicer, as
the case may be, services and administers similar mortgage loans for other
third-party portfolios, giving due consideration to customary and usual
standards of practice of prudent institutional commercial mortgage lenders
servicing their own loans and to the maximization of the net present value
of the mortgage loans; and
(ii) the care, skill, prudence and diligence the Master Servicer or
the Special Servicer, as the case may be, uses for loans which it owns.
The Master Servicer and Special Servicer are required to adhere to the
foregoing servicing standards notwithstanding any potential conflicts of
interest, including, without limitation, (i) any relationship that the Master
Servicer or the Special Servicer, as the case may be, or any of their
respective affiliates may have with a mortgagor or the Depositor; (ii) the
ownership of any Certificates by the Master Servicer or the Special Servicer,
as the case may be, or any of their respective affiliates; (iii) the Master
Servicer's or the Special Servicer's right to receive compensation or other
fees for its services rendered pursuant to the Pooling and Servicing
Agreement; (iv) the Master Servicer's or the Special Servicer's obligations
to make Advances or otherwise incur servicing expenses with respect to the
Mortgage Loans; and (v) the ownership, servicing or management for others of
any other mortgage loans or mortgaged property. The Master Servicer or the
Special Servicer in its individual or any other capacity may become the owner
or pledgee of Certificates with the same rights as it would have if it were
not the Master Servicer or the Special Servicer. Any such interest of the
Master Servicer or the Special Servicer in the Certificates shall not be
taken into account when evaluating whether actions of the Master Servicer or
the Special Servicer are consistent with its obligations in accordance with
the loan servicing and administration procedures set forth in the Pooling and
Servicing Agreement, regardless of whether such actions may have the effect
of benefitting the Class or Classes of Certificates owned by the Master
Servicer or the Special Servicer.
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The Master Servicer or the Special Servicer is permitted to enter into a
servicing agreement with a sub-servicer (the "Sub-Servicer") and such
Sub-Servicer will receive a fee for such services specified in such servicing
agreement; provided, however, that the Master Servicer or the Special
Servicer, as applicable, will remain liable for its servicing obligations
under the Pooling and Servicing Agreement as if the Master Servicer or the
Special Servicer, as applicable, alone were servicing the Mortgage Loans. The
Master Servicer or the Special Servicer, as the case may be, will pay any
servicing compensation due to any Sub-Servicer out of its own funds. If the
Master Servicer or Special Servicer, as applicable, shall cease to serve as
such and shall not have been replaced by a qualified successor, the Trustee
will assume the Master Servicer's or the Special Servicer's duties and
obligations under the Pooling and Servicing Agreement as Master Servicer or
Special Servicer until a qualified successor is put into place.
The Master Servicer and the Special Servicer will pay all expenses
incurred in connection with their responsibilities under the Pooling and
Servicing Agreement, except to the extent that the Master Servicer and the
Special Servicer are entitled to reimbursement for such expenses pursuant to
the Pooling and Servicing Agreement.
THE MASTER SERVICER
GE Capital Asset Management Corporation (the "Master Servicer") is a
wholly-owned subsidiary of General Electric Capital Corporation ("GECC").
GECC is an indirect wholly-owned subsidiary of the General Electric Company.
The Master Servicer's principal offices are located at 2000 West Loop South,
Suite 1200, Houston, Texas 77027. At October 11, 1995, the Master Servicer
serviced approximately 13,000 commercial and multifamily loans, totaling
approximately $8.2 billion in aggregate outstanding principal amounts,
including loans securitized in mortgage-backed securitization transactions.
The information set forth above concerning the Master Servicer has been
provided by the Master Servicer, and none of the Depositor, the Seller, the
Trustee, the Special Servicer or the Underwriter makes any representation or
warranty as to the accuracy or completeness of such information.
SERVICING FEE
The Master Servicer will be entitled to receive each month, out of
payments of interest received on the Mortgage Loans in such month, a
servicing fee (the "Servicing Fee") equal to one-twelfth of 0.15% per annum
on the Scheduled Principal Balance of each Mortgage Loan as compensation for
servicing the Mortgage Loans.
ADJUSTMENT TO SERVICING FEE
To the extent that the aggregate of all Prepayment Interest Shortfalls for
all Mortgage Loans for any Due Period exceeds the aggregate of all such
Excess Prepayment Interest for all Mortgage Loans for such Due Period, the
Servicing Fee (but not the compensation of the Special Servicer) for the
corresponding period will be reduced in an amount necessary (up to
one-twelfth of the product of the Scheduled Principal Balance of the Mortgage
Loans and 0.13%) to offset such additional remaining Prepayment Interest
Shortfalls. See "DESCRIPTION OF THE CERTIFICATES--Prepayment Interest
Shortfalls and Excess Prepayment Interest" herein.
THE SPECIAL SERVICER
Banc One Management and Consulting Corporation, an Ohio corporation (the
"Special Servicer"), will serve as Special Servicer and in such capacity will
be responsible for servicing the Specially Serviced Mortgaged Loans. The
Special Servicer is a wholly-owned subsidiary of BANC ONE CORPORATION. The
Special Servicer's principal executive offices are located at 1717 Main
Street, Dallas, Texas 75201.
BANC ONE CORPORATION is a bank holding company with bank subsidiaries in
several states, as well as non-bank subsidiaries engaged in mortgage banking,
finance, leasing and other related businesses. BANC ONE CORPORATION's bank
and non-bank subsidiaries engage in lending and related activities in a
substantial part of the United States. The Special Servicer or its affiliates
own and
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are in the business of acquiring assets similar in type to the assets of the
Trust. To the extent that assets owned, managed and/or serviced by the
Special Servicer or its affiliates are of a type similar to the assets held
by the Trust Fund, such assets might, depending upon the particular
circumstances (including, for example, the location of such assets), compete
with the Mortgaged Properties for tenants, purchasers, financing and the
like.
The Special Servicer is engaged in asset management, lending, servicing,
liquidation, collection, asset valuation and consulting and related
activities with nonaffiliated companies and governmental entities, including
the Federal Deposit Insurance Corporation and Resolution Trust Corporation.
The Special Servicer or its subsidiaries have operating offices in Dallas,
Texas and Manchester, New Hampshire; and have managed and serviced assets in
all fifty states, the District of Columbia and Puerto Rico.
As of September 30, 1995, the Special Servicer was responsible for
managing and servicing a portfolio of approximately 8,599 assets, consisting
of loans, foreclosed real estate assets and other assets with a total balance
in excess of $4.4 billion. Loan concentrations within such portfolio included
commercial office buildings, retail centers, industrial, and multifamily
projects. Foreclosed real estate assets under management exceeded $42.9
million, with significant concentrations in land, office buildings and retail
centers. Approximately $3.2 billion of the Special Servicer's assets under
management were administered under contracts that may be characterized as
master, primary or general servicing contracts (approximately $200 million of
which the Special Servicer is servicing in multiple capacities), with the
remaining $1.2 billion under contracts which may be characterized as special
servicing contracts. The Special Servicer has provided servicing in some
capacity under 16 commercial mortgage backed securities transactions.
The Special Servicer will have no responsibility for, and makes no
representation with respect to, the origination of the Mortgage Loans, the
validity or sufficiency of the security agreements described herein with
respect to the Mortgage Loans, or the collectibility of amounts due under the
Mortgage Loans.
The information set forth above concerning the Special Servicer has been
provided by the Special Servicer, and none of the Depositor, the Seller, the
Trustee, the Master Servicer or the Underwriter makes any representation or
warranty as to the accuracy or completeness of such information.
SPECIAL SERVICING COMPENSATION
The Special Servicer will be entitled to receive, with respect to any Due
Period, a fee (the "Extension Fee") equal to $3,000 with respect to any
Mortgage Loan whose maturity date has been extended by the Special Servicer
during such Due Period, a special servicing fee (the "Special Servicing Fee")
equal to one-twelfth of 0.50% per annum of the outstanding Scheduled
Principal Balance of each Specially Serviced Mortgage Loan as of the first
day of such Due Period and a fee (the "Workout Fee") equal to 1.0% of (i)
collections on the Specially Serviced Mortgage Loans and (ii) the net
proceeds received in connection with a final disposition of a Specially
Serviced Mortgage Loan or an REO Property during such Due Period
(collectively, the "Special Servicer Compensation"). The Special Servicer is
also permitted to retain certain mortgagor-paid fees and charges specified in
the Pooling and Servicing Agreement.
SPECIALLY SERVICED MORTGAGE LOANS
The Master Servicer will transfer servicing responsibility to the Special
Servicer with respect to (i) any Mortgage Loan as to which a Monthly Payment
(or quarterly payment in the case of a Quarterly-Pay Loan) is more than 60
days delinquent or as to which, in the reasonable judgment of the Master
Servicer, a default in the payment of the Balloon Payment is likely to occur
within 60 days and, in the reasonable judgment of the Master Servicer based
upon correspondence and/or communications with the related mortgagor, such
Balloon Payment will not be paid within 15 days immediately succeeding its
due date; (ii) any Mortgage Loan as to which the mortgagor has entered into
or consented to bankruptcy, reorganization, appointment of a receiver or
conservator or a similar insolvency or similar proceeding, or the mortgagor
has become the subject of a decree or order for such a proceeding which has
remained in force and undischarged or unstayed for a period of 60 or more
days; (iii) any Mortgage Loan as to which the
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Master Servicer has received notice of the foreclosure or proposed
foreclosure of any other lien on the Mortgaged Property; (iv) any Mortgage
Loan as to which a material modification has been proposed by the related
mortgagor; (v) any Mortgage Loan as to which the mortgagor admits in writing
its inability to pay its debts generally as they become due, files a petition
to take advantage of any applicable insolvency or reorganization statute,
makes an assignment for the benefit of its creditors or voluntarily suspends
payment of its obligations; and (vi) any Mortgage Loan as to which, in the
reasonable judgment of the Master Servicer, a payment default (other than
with respect to a default on a Balloon Payment provided in clause (i) above)
has occurred or is likely to occur within 60 days and is likely to remain
uncured by the mortgagor within 60 days thereafter (each, a "Specially
Serviced Mortgage Loan"). The Special Servicer will prepare certain reports
for the Master Servicer with respect to such Specially Serviced Mortgage
Loans. The Master Servicer will have no responsibility for the performance by
the Special Servicer of its duties under the Pooling and Servicing Agreement,
provided that the Master Servicer will continue to perform certain servicing
functions on such Specially Serviced Mortgage Loans, including preparing
certain reports to the Trustee with respect to such Specially Serviced
Mortgage Loans. To the extent any Mortgage Loan, in accordance with its
original terms or as modified in accordance with the Pooling and Servicing
Agreement, becomes a performing Mortgage Loan for at least 90 days, the
Special Servicer will return servicing of such Mortgage Loan to the Master
Servicer and such Mortgage Loan will no longer be deemed a Specially Serviced
Mortgage Loan.
SALE OF REO PROPERTIES
The Pooling and Servicing Agreement will require the Special Servicer to
sell any Mortgaged Property that has been foreclosed upon pursuant to the
procedures specified in the Pooling and Servicing Agreement (each, an "REO
Property"), within two years after such property has been acquired by the
Trust Fund (within the meaning of the REMIC provisions of the Code), unless
the Trustee, the Master Servicer or the Special Servicer on behalf of the
Trustee has received a ruling from the Internal Revenue Service to the effect
that the holding by the Trust Fund of the foreclosed property for an
additional specified period will not result in the imposition of taxes on
"prohibited transactions" of the Trust Fund as defined in Section 860F of the
Code on either REMIC, or cause any REMIC to fail to qualify as a REMIC at any
time that the Certificates are outstanding, in which event such two-year
period will be extended by such additional specified period. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES" herein. No consent of Certificateholders
would be required in connection with such an extension. In addition, under
the REMIC provisions of the Code, the Special Servicer may be required to
hire an independent contractor to operate any Mortgaged Property that has
been foreclosed upon. The costs of such operation may be significantly
greater than the cost of direct operation by the Special Servicer.
THE EXTENSION ADVISER
The initial Extension Adviser will be the Master Servicer. The Extension
Adviser will be responsible for ensuring that the standard for any Mortgage
Loan modification described below in the first six lines of the first
paragraph of the section entitled "--Mortgage Loan Modifications" has been
satisfied in connection with any modification or modifications described
below under clause (i) of the first paragraph of such section that extends
the maturity date of a Mortgage Loan beyond the date that is three years
after its maturity date as of the Cut-off Date, which approval will be deemed
to have been received if the Extension Adviser does not otherwise notify the
Special Servicer within the period of time specified in the Pooling and
Servicing Agreement. The Extension Adviser may not resign as Extension
Adviser unless it is legally impermissible for the Extension Adviser to serve
in such capacity. The Extension Adviser will receive the fee specified in the
Pooling and Servicing Agreement, payable from the Trust Fund, with respect to
each Mortgage Loan whose extension the Extension Adviser has been consulted
on, in accordance with the provisions of the Pooling and Servicing Agreement.
A majority of the holders of the Offered Certificates (other than the Class
A-X Certificate) will have the right to elect the Extension Adviser. At any
time, the holders of a majority of the Voting Rights of the Class A, Class B,
Class C and Class D Certificates may vote to remove the Extension Adviser. In
either such event, the Trustee will hold an election for a substitute
Extension Adviser, which election will be held commencing as soon as
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practicable after the resignation or removal of the Extension Advisor. To
hold such election, the Trustee will call a meeting of the holders of the
Class A, Class B, Class C and Class D Certificates. Notices of the meeting of
the holders of such Classes will be mailed or delivered to each such holder
not less than 10 or more than 60 days prior to the meeting. A majority of the
Voting Rights of such Certificates, present in person or represented by
proxy, shall constitute a quorum for the nomination of Extension Advisor.
MORTGAGE LOAN MODIFICATIONS
The Special Servicer may, subject to the limitations set forth under
"--The Controlling Party" and "--The Extension Advisor" modify, waive or
amend the terms of any Mortgage Loan with respect to which a material default
has occurred (or one on which default is reasonably foreseeable) or a payment
default has occurred, if it determines in its judgment that such
modification, waiver or amendment of the terms of a Mortgage Loan is
reasonably likely to produce a greater recovery on a net present value basis
than liquidation of such Mortgage Loan; provided that the Special Servicer
may not agree to any modification, waiver or amendment that: (i) extends the
maturity date of such Mortgage Loan by more than three (3) years without the
approval of the Extension Advisor, (or with respect to Mortgage Loans secured
by leaseholds, the date which is 10 years prior to the expiration of the
lease); provided, however, that in no event may any such modification, waiver
or amendment extend the maturity date of such Mortgage Loan later than two
years prior to the Final Rated Distribution Date; (ii) permits deferral of
interest without accrual of interest at the Mortgage Rate thereon; (iii)
results in the amount of negative amortization added to the principal balance
of such Mortgage Loan resulting from such modification exceeding 10% of the
principal balance of such Mortgage Loan (less any negative amortization added
to the principal balance of such Mortgage Loan prior to such modification);
or (iv) modifies the Mortgage Rate of any Mortgage Loan. The Special Servicer
may forgive principal on, satisfy at a discount, or modify a Money Term of
any Specially Serviced Mortgage Loan only with the approval of the
Controlling Party and subject to the limits on the Controlling Party as
described in "--The Controlling Party" below. In addition, the Pooling and
Servicing Agreement provides that the Special Servicer must receive certain
opinions of counsel as to certain REMIC matters prior to any modification,
waiver or amendment of any Mortgage Loan. Modifications of a Mortgage Loan,
and in particular modifications that forgive principal or interest, may
result in Realized Losses of principal or interest on such Mortgage Loan.
Modifications of Mortgage Loans may tend to reduce prepayments by avoiding
liquidations and thereafter may extend the weighted average life of the
Certificates beyond that which might otherwise be the case. See "YIELD
CONSIDERATIONS" herein.
ADVANCES
MONTHLY ADVANCES
On the business day immediately preceding each Distribution Date, the
Master Servicer (or, in certain circumstances, the Special Servicer) will be
obligated to advance (i) any Monthly Payment, (other than any Balloon
Payment), that is delinquent as of the close of business on the preceding
Determination Date and (ii) any payments of principal and interest in respect
of Assumed Scheduled Payments deemed due in respect of delinquent Balloon
Payments, in each case net of the related Servicing Fee, and, in each case,
only if the Master Servicer or the Special Servicer, as applicable,
determines that the amount so advanced (each, a "Monthly Advance") would not
be a Nonrecoverable Advance and only so long as the Mortgage Loan or the
related Mortgage Property is included in the Trust Fund; provided, however,
that the amount of any Monthly Advance required to be made by the Master
Servicer or the Special Servicer, as applicable, with respect to any Mortgage
Loan as to which there has been an Appraisal Reduction will be an amount
equal to the product of (i) the amount required to be advanced by the Master
Servicer or the Special Servicer, as applicable, without giving effect to
this proviso and (ii) a fraction, the numerator of which is the Scheduled
Principal Balance of such Mortgage Loan as of the immediately preceding
Determination Date less any Appraisal Reduction thereof and the denominator
of which is the Scheduled Principal Balance of the Mortgage Loan as of the
immediately preceding Determination Date. To the extent that the Master
Servicer or the Special Servicer, as applicable, fails to make a Monthly
Advance
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required to be made, the Trustee will make such required Monthly Advance (i)
if the Trustee determines that such Monthly Advance, if made, would not be a
Nonrecoverable Advance and (ii) subject to certain other conditions set forth
in the Pooling and Servicing Agreement. "Assumed Scheduled Payment" means,
with respect to any Mortgage Loan that is delinquent in respect of its
Balloon Payment (including any Mortgage Loan relating to an REO Property for
which the related Mortgage Note provided for a Balloon Payment), an amount
deemed to be due for such Mortgage Loan on each Distribution Date after the
Due Date on which such Balloon Payment was due, assuming such Balloon Payment
had not become due, which will be equal to the Monthly Payment that would
otherwise have been due thereon on the related Due Date if such Mortgage Loan
did not have a Balloon Payment in accordance with the provisions of the
related Mortgage Note.
EXPENSE ADVANCES
Under the Pooling and Servicing Agreement, at the direction of the Special
Servicer the Master Servicer will, and the Special Servicer at its option
may, advance foreclosure costs (including reasonable attorneys' fees and
court costs) and taxes and assessments on the Mortgaged Property and
insurance premiums not paid by mortgagors on a timely basis, but only to the
extent that such advance would not constitute a Nonrecoverable Advance (each,
an "Expense Advance"). To the extent that the Master Servicer fails to make
an Expense Advance required to be made, the Trustee will be required to make
such required Expense Advance but only if the Trustee determines that such
Expense Advance, if made, would not be a Nonrecoverable Advance.
PROPERTY PROTECTION ADVANCES
Under the Pooling and Servicing Agreement the Special Servicer will
advance funds (a "Property Protection Advance") in the event the funds on
deposit in the REO Account are insufficient to pay amounts due and payable
with respect to (i) insurance premiums in respect of related REO Property,
(ii) real estate taxes and assessments in respect of such REO Property that
may result in the imposition of a lien, (iii) costs and expenses necessary to
maintain, manage or operate such REO Property, and (iv) costs and expenses of
restoration improvements and tenant improvements; provided that the Special
Servicer shall be obligated to make such Property Protection Advances only if
the Special Servicer determines that the amount so advanced will not be a
Nonrecoverable Advance. Notwithstanding the foregoing, the Special Servicer
will not make any expenditures or Property Protection Advances on behalf of
mortgagors (other than with respect to REO Properties) unless either the
amount of such expenditure or Property Protection Advance is permitted to be
recovered from the related mortgagor or such advance would not have been
required but for a default on the related Mortgage Loan. To the extent that
the Special Servicer fails to make a Property Protection Advance and the
Trustee has actual knowledge thereof, the Trustee will be required to make
such required Property Protection Advance (i) if the Trustee determines that
such Advance, if made, would not be a Nonrecoverable Advance and (ii) subject
to certain other conditions set forth in the Pooling and Servicing Agreement.
NONRECOVERABLE ADVANCES
A "Nonrecoverable Advance" is any Monthly Advance, Expense Advance or
Property Protection Advance that the Master Servicer, the Special Servicer or
the Trustee, as applicable, has determined in its reasonable business
judgment would not ultimately be recoverable (together with interest thereon
at the Advance Rate) from subsequent payments or collections (including
Insurance Proceeds and net Liquidation Proceeds) in respect of the affected
Mortgage Loan. The determination by the Master Servicer that any proposed
Monthly Advance, Expense Advance or Property Protection Advance, if made,
would be a Nonrecoverable Advance will be evidenced by an officer's
certificate delivered to the Trustee at the time that such Monthly Advance
would otherwise be required that sets forth in detail the reasons for such
determination, with copies of external appraisals performed on the Mortgaged
Property prepared within the last 12 months in accordance with MAI standards
and methodologies by an MAI appraiser and, if such reports are to be used by
the Master Servicer to determine that any proposed Monthly Advance, Expense
Advance or Property Protection Advance would be nonrecoverable, any
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engineers' reports, environmental surveys, income and expense statements,
rent rolls, or other information relevant thereto which support such
determination. In the case of any proposed Monthly Advance, Expense Advance
or Property Protection Advance by the Special Servicer or the Trustee, the
determination by the Special Servicer or the Trustee, as applicable, that any
proposed Monthly Advance, Expense Advance or Property Protection Advance, if
made, would be a Nonrecoverable Advance will be evidenced by an officer's
certificate of the Special Servicer or the Trustee, as applicable, together
with such supporting information. Any determination by the Master Servicer,
the Special Servicer or the Trustee that a Monthly Advance, Expense Advance
or Property Protection Advance previously made has become Nonrecoverable will
be evidenced in a manner similar to that required for such person to
determine that a proposed Monthly Advance, Expense Advance or Property
Protection Advance would be Nonrecoverable. The cost of obtaining any
appraisal in connection with a Nonrecoverable Advance determination will be
deemed and repaid as an Expense Advance.
INTEREST ON ADVANCES; REPAYMENT OF ADVANCES
Interest on Monthly Advances, Expense Advances and Property Protection
Advances (collectively, the "Advances") made by the Master Servicer, the
Special Servicer or the Trustee will accrue at the daily prime loan rate as
reported in The Wall Street Journal (or, if such rate is not published for
any reason, a daily prime loan rate selected from a comparable periodical) as
most recently available as of the date of each such Monthly Advance, Expense
Advance or Property Protection Advance (the "Advance Rate") and will be
reimbursable from recoveries on the affected Mortgage Loan. Interest on any
Advance will compound monthly and accrue during the period of time from the
date on which such Advance is made to, but not including, the date on which
such Advance is repaid.
Advances together with interest thereon at the Advance Rate will be
reimbursable to the Master Servicer, the Special Servicer and the Trustee
from recoveries on the affected Mortgage Loan and, to the extent an Advance
is determined to be a Nonrecoverable Advance, from any funds on deposit in
the Collection Account prior to the rights of Certificateholders thereto.
THE CONTROLLING PARTY
For so long as the Certificates are outstanding, an entity designated as
described below (the "Controlling Party") will have the right to approve
certain actions of the Special Servicer with respect to the Specially
Serviced Mortgage Loans.
The Special Servicer will advise the Controlling Party in writing of
certain actions the Special Servicer proposes to take with respect to
Specially Serviced Mortgage Loans, and the Special Servicer will not take any
action which the Controlling Party directs in writing will not be taken. If
the Controlling Party has not approved or rejected a recommendation of the
Special Servicer within five business days of the date such recommendation
was made, the Special Servicer may take the actions it had specifically
recommended. The Special Servicer will advise the Controlling Party prior to
the Special Servicer taking any of the following actions: (i) any foreclosure
or comparable conversion (which may include acquisition of an REO Property)
of the Mortgaged Property securing the Specially Serviced Mortgage Loans that
are and continue in default; (ii) any material modification of a Money Term
of a Mortgage Loan; (iii) any extension of the maturity of a Mortgage Loan;
(iv) any proposed sale of a Specially Serviced Mortgage Loan or REO Property
(other than upon termination of the Trust Fund pursuant to the Pooling and
Servicing Agreement); (v) any determination to bring an REO Property into
compliance with applicable environmental laws; (vi) determining whether to
direct the Master Servicer to make, or determining whether the Special
Servicer in its sole discretion (but with the approval of the Controlling
Party) should make, Expense Advances or Property Protection Advances and
whether any Expense Advances or Property Protection Advances will be a
Nonrecoverable Advance; and (vii) any acceptance of substitute or additional
collateral for a Mortgage Loan.
The Controlling Party may reject the recommendation of the Special
Servicer based upon the present value analysis or other factors used in the
recommendation provided. If the Special Servicer's recommendation is rejected
by the Controlling Party, then at the written request of the Special Servicer
an independent third party arbitrator will be selected by the Trustee with
the consent of the Rating
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Agencies within ten days of such request and the Trustee shall deliver the
present value analysis or other factors used in the recommendation to the
arbitrator within five days of the Trustee's selection of such arbitrator
(which arbitrator will be an expense of the Controlling Party) to decide
which present value analysis or other information provided more accurately
reflects the best economic interests of the Trust Fund. The independent
arbitrator will (1) select a course of action based solely on the
recommendations provided by the Controlling Party and the Special Servicer
(rather than on an alternative recommendation provided by the arbitrator),
and (2) render a decision within five business days of receipt of the
analyses. The decision of the arbitrator will be binding upon the Controlling
Party and the Special Servicer. If the arbitrator fails to render a decision
within five business days of its receipt of the analyses referred to above,
the Special Servicer is permitted to take the actions it had specifically
recommended. Notwithstanding the foregoing, the Special Servicer shall not be
obligated to follow any instruction by the Controlling Party or any decision
by the arbitrator that requires or causes the Special Servicer to violate any
provisions of the Pooling and Servicing Agreement including, without
limitation, the standard of care required of it by the Pooling and Servicing
Agreement, the Mortgage Loans or applicable law or adversely affect either
REMIC.
The Pooling and Servicing Agreement will permit the holder (or holders) of
the majority of the Voting Rights allocated to the Class of Certificates (not
including the Class A-X Certificates and the Class R Certificate) with the
latest alphabetical Class designation that has an outstanding Certificate
Principal Balance exceeding 25% of its Initial Certificate Principal Balance
to (i) act as Controlling Party and (ii) replace the Special Servicer as
provided in the Pooling and Servicing Agreement, provided that such
replacement will be subject to receipt from the Rating Agencies of written
confirmation that such replacement will not result in a downgrade, withdrawal
or qualification of any of the then current ratings assigned to the
Certificates of any Class. A Certificateholder will be entitled to appoint
itself or an affiliate as Special Servicer of the Specially Serviced Mortgage
Loans, but any appointment will be subject, among other things, to (i)
receipt from the Rating Agencies of written confirmation that such
appointment will not result in a downgrade, withdrawal or qualification of
any of the then current ratings assigned to the Certificates, and (ii)
receipt by the Trustee of the written agreement of the prospective Special
Servicer of the Specially Serviced Mortgage Loans to be bound by the terms
and conditions of the Pooling and Servicing Agreement.
INSURANCE
The Pooling and Servicing Agreement will require that the Master Servicer
maintain or require each mortgagor to maintain insurance in accordance with
the related mortgage or deed of trust, which generally will include a
standard hazard insurance policy with extended coverage. To the extent
required by the related mortgage or deed of trust, the coverage of each such
standard hazard insurance policy will be in an amount that is not less than
the lesser of the full replacement cost of the improvements securing such
Mortgage Loan or the outstanding principal balance owing on such Mortgage
Loan. If a Mortgaged Property was located at the time of origination of the
related Mortgage Loan in a federally designated special flood hazard area,
the Master Servicer will also maintain or require the related mortgagor to
maintain flood insurance in an amount equal to the lesser of the unpaid
principal balance of the related Mortgage Loan and the maximum amount
obtainable with respect to the Mortgage Loan. The cost of any such flood
insurance maintained by the Master Servicer will be an expense of the Trust
Fund payable out of the Collection Account. The Special Servicer will cause
to be maintained (i) hazard insurance with extended coverage on each REO
Property in an amount which is at least equal to the greater of (x) an amount
not less than the amount necessary to avoid the application of any
coinsurance clause contained in the related insurance policy and (y) the
replacement cost of the improvements which are a part of such property and
(ii) business or rental interruption insurance, as the case may be, in an
amount sufficient to provide proceeds covering not less than one year of
loss. The cost of any such insurance with respect to an REO Property will be
an expense of the Trust Fund. The Special Servicer will maintain flood
insurance providing substantially the same coverage as described above on any
REO Property which was located in a federally designated special flood hazard
area at the time the related Mortgage Loan was originated. The Master
Servicer or the Special Servicer, as applicable, may satisfy its obligation
to cause hazard policies to be maintained by maintaining a blanket insurance
policy.
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In general, the standard form of hazard extended coverage insurance
policy will cover physical damage to, or destruction of, the improvements on
the Mortgaged Property caused by fire, lightning, explosion, smoke,
windstorm, hail, riot, strike and civil commotion, subject to the conditions
and exclusions particularized in each policy. Since the standard hazard
insurance policies relating to the Mortgage Loans will be underwritten by
different insurers and will cover Mortgaged Properties located in various
states, such policies will not contain identical terms and conditions. The
most significant terms thereof, however, generally will be determined by
state law. Most such policies typically will not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list
is merely indicative of certain kinds of uninsured risks and is not intended
to be all-inclusive. Any losses incurred with respect to Mortgage Loans due
to uninsured risks (including earthquakes, mudflows and floods) or
insufficient hazard insurance proceeds could affect distributions to the
Certificateholders.
The standard hazard insurance policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which,
in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of
the dwellings, structures and other improvements on the Mortgaged Property in
order to recover the full amount of any partial loss. If the insured's
coverage falls below this specified percentage, such clause will provide that
the insurer's liability in the event of a partial loss will not exceed such
proportion of the loss, without deduction for depreciation, as the amount of
insurance carried bears to the specified percentage of the full replacement
cost of such dwellings, structures and other improvements.
In addition, to the extent required by the related mortgage or deed of
trust, the Master Servicer will maintain or require each mortgagor to
maintain other forms of insurance including, but not limited to comprehensive
public liability insurance. The Pooling and Servicing Agreement will require
the Special Servicer to maintain public liability insurance with respect to
any REO Properties. Any cost incurred by the Master Servicer or the Special
Servicer, as applicable, in maintaining any such insurance policy will be
added to the amount owing under the Mortgage Loan where the terms of the
Mortgage Loan so permit; provided, however, that the addition of such cost
will not be taken into account for purposes of calculating the distribution
to be made to Certificateholders. Such costs may be recovered by the Master
Servicer or the Special Servicer, as applicable, from the Trust Fund Account,
with interest thereon, as provided by the Pooling and Servicing Agreement.
Any insurance coverage maintained by the Master Servicer and the Special
Servicer, as applicable, will be provided by insurance carriers that have a
claims paying ability of "A" from D&P, or if not rated by D&P, from any of
two other nationally recognized statistical rating organizations and a rating
from S&P that is no more than two rating categories below the highest rating
of the Certificates and in any event, no lower than "BBB."
Neither the Master Servicer nor the Special Servicer, will have any
obligation beyond using its reasonable efforts to enforce the insurance
requirements described above and will have no obligation to advance funds or
expend Trust Fund funds to purchase insurance beyond what is in place on the
Cut-off Date except to the extent the cost of such insurance is reasonable in
the Master Servicer's or the Special Servicer's judgment in relation to the
principal balance of the affected Mortgage Loan. Furthermore, the Master
Servicer or the Special Servicer will not be required in any way to maintain
or obtain insurance coverage (other than what is in place on the Cut-off
Date) beyond what is reasonably available at a cost customarily acceptable to
lenders in such situations and where the cost is recoverable from the Trust
Fund if advanced by the Master Servicer or the Special Servicer.
CERTAIN MATTERS WITH RESPECT TO THE DEPOSITOR, THE MASTER SERVICER AND THE
SPECIAL SERVICER
The Pooling and Servicing Agreement will provide that none of the
Depositor, the Master Servicer, the Special Servicer or any of their
respective directors, officers, employees or agents will be under any
liability to the Trust Fund or the Certificateholders for any action taken,
or for refraining from the taking of any action, in good faith pursuant to
the Pooling and Servicing Agreement, or for errors in judgment; provided,
however, that none of the Depositor, the Master Servicer, the Special
Servicer or any such person will be protected against any breach of
representations or warranties made by such parties in the
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Pooling and Servicing Agreement, or any liability imposed by reason of
willful misfeasance, bad faith or negligence in the performance of its duties
or by reason of reckless disregard of its obligations and duties thereunder.
The Pooling and Servicing Agreement will further provide that the Depositor,
the Master Servicer, the Special Servicer and any of their directors,
officers, employees or agents and each person who controls the Depositor, the
Master Servicer or the Special Servicer will be entitled to indemnification
by the Trust Fund and will be held harmless against any loss, liability or
expense, including attorney's fees and expenses, incurred in connection with
any actual or threatened legal or equitable action or proceeding relating to
the Pooling and Servicing Agreement, any Mortgage Loan, any REO Property or
the Certificates, other than any loss, liability or expense incurred (i) by
reason of willful misfeasance, bad faith or negligence in the performance of
its duties under the Pooling and Servicing Agreement or by reason of reckless
disregard of its obligations and duties thereunder or (ii) in certain other
circumstances specified in the Pooling and Servicing Agreement. Any loss
resulting from such indemnification will reduce amounts distributable to
Certificateholders and will be borne, pro rata, by all Certificateholders
without regard to subordination, if any, of one Class to another.
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 or in the
event the Master Servicer is no longer in the business of servicing
commercial mortgage loans similar to the Mortgage Loans. No such resignation
will become effective until the Trustee or a successor Master Servicer has
assumed the Master Servicer's obligations and duties under the Agreement.
EVENTS OF DEFAULT
Events of default (each, an "Event of Default") with respect to the Master
Servicer or the Special Servicer under the Pooling and Servicing Agreement
will include: (i) any failure by (a) the Master Servicer to remit to the
Trustee for deposit in the Distribution Account for distribution to
Certificateholders any payment required to be made by the Master Servicer
(other than an Advance) under the terms of the Pooling and Servicing
Agreement when due or (b) the Special Servicer to remit to the Master
Servicer for deposit in the Collection Account any payment required to be
made by the Special Servicer when due; (ii) any failure on the part of the
Master Servicer or the Special Servicer duly to observe or perform in any
material respect any other of the covenants or agreements on the part of the
Master Servicer or the Special Servicer, which failure continues unremedied
for a period of 60 days after written notice of such failure has been given
to the Master Servicer or the Special Servicer; (iii) a representation or
warranty made by the Master Servicer or the Special Servicer under the
Pooling and Servicing Agreement proves to be incorrect as of the time made in
any respect that materially and adversely affects the interests of
Certificateholders and such breach continues for 60 days following written
notice to the breaching party; (iv) the entering against the Master Servicer
or the Special Servicer of a decree or order of a court, agency or
supervisory authority for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of
its affairs, provided that any such decree or order shall have remained in
force undischarged or unstayed for a period of 60 days; (v) the consent by
the Master Servicer or the Special Servicer to the appointment of a
conservator or receiver or liquidator or liquidating committee in any
insolvency, readjustment of debt, marshalling of assets and liabilities,
voluntary liquidation or similar proceedings of or relating to the Master
Servicer or the Special Servicer or of or relating to all or substantially
all of its property; (vi) the admission by the Master Servicer or the Special
Servicer in writing of its inability to pay its debts generally as they
become due, the filing by the Master Servicer or the Special Servicer of a
petition to take advantage of any applicable insolvency or reorganization
statute or the making of an assignment for the benefit of its creditors or
the voluntary suspension of the payment of its obligations; and (vii) any
failure of the Master Servicer or the Special Servicer, as applicable, to
make any Monthly Advance, Expense Advance or Property Protection Advance in
the manner and at the time required to be made pursuant to the Pooling and
Servicing Agreement after receipt of notice from the Trustee, which failure,
in the case of any Monthly Advance, continues unremedied on the business day
prior to the Distribution Date and, in the case of any Expense Advance or
Property Protection Advance, continues unremedied for a period of more than
five business days after the date of receipt of such notice.
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As long as an Event of Default remains unremedied, the Trustee may, and
(a) at the written direction of the Holders of Certificates entitled to at
least 51% of the aggregate Voting Rights of the Certificates of any Class in
the case of an Event of Default described in clause (i) above, (b) at the
written direction of Holders of Certificates holding at least 51% of all of
the Voting Rights in the case of any Event of Default described in clauses
(ii), (iii), (vii) or (viii) above, or (c) in all cases of an Event of
Default described in clauses (iv) through (vi) above, will terminate all of
the rights and obligations of the Master Servicer or Special Servicer, as
applicable, whereupon the Trustee or another successor Master Servicer or
Special Servicer, as applicable, appointed by the Trustee will succeed to all
authority and power of the Master Servicer or Special Servicer, as
applicable, under the Pooling and Servicing Agreement and will be entitled to
similar compensation arrangements.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement requires each of the Master Servicer
and the Special Servicer to cause a nationally recognized firm of independent
public accountants, which is a member of the American Institute of Certified
Public Accountants, to furnish to the Trustee, the Depositor and the Rating
Agencies on or before April 30 of each year, beginning April 30, 1997 a
statement to the effect that such firm has examined certain documents and
records relating to the servicing of the Mortgage Loans for the preceding
calendar year, or during the period from the Delivery Date through December
31, 1996 with respect to the first such statement, and that on the basis of
such examination, conducted substantially in compliance with the Uniform
Single Audit Program for Mortgage Bankers, such servicing has been conducted
in compliance with such documents and records and the provisions of the
Pooling and Servicing Agreement, except for such significant exceptions or
errors in records that, in the opinion of such firm, the Uniform Single Audit
Program for Mortgage Bankers require it to report. Copies of such statement
will be provided to any beneficial owner of a Certificate, upon the written
request of such owner, by the Trustee.
The Pooling and Servicing Agreement also requires each of the Master
Servicer and the Special Servicer to deliver to the Trustee, the Depositor
and the Rating Agencies, on or before April 30 of each year, beginning April
30, 1997, an officer's certificate of the Master Servicer or Special
Servicer, as applicable, stating that, to the best of such officer's
knowledge, the Master Servicer or Special Servicer, as applicable, has
fulfilled its obligations under the Pooling and Servicing Agreement in all
material respects throughout the preceding calendar year, or during the
period from the Delivery Date through December 31, 1996 with respect to the
first such officer's certificate, or, if there has been a default, specifying
each default known to such officer.
AMENDMENT
The Pooling and Servicing Agreement provides that it may be amended by the
parties thereto without the consent of any of the Certificateholders to cure
any ambiguity, to correct or supplement any provision therein that may be
inconsistent with any other provision therein, to maintain the qualification
of any of the REMICs as a REMIC or to avoid the imposition of any tax on any
of the REMICs, or to make any other provisions with respect to matters or
questions arising under the Pooling and Servicing Agreement, provided that
such action will not adversely affect in any material respect the interests
of any Certificateholder or adversely affect the status of any of the REMICs
as a REMIC. The Trustee will require an opinion of counsel that such
amendment is permitted under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement also provides that it may be amended
by the parties thereto with the consent of the holders of Certificates
representing not less than 66 2/3 % of the Voting Rights of each Class of the
Certificates for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or modifying in any manner the rights of Certificateholders;
provided, however, that no such amendment may among other things, (i) reduce
in any manner the amount of, delay the timing of, or change the manner of the
distribution of payments received on or with respect to the Mortgage Loans
that are required to be distributed on any Certificate, or modify or alter
the Master Servicer's or the Trustee's advancing obligations under the
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Pooling and Servicing Agreement or modify or alter the servicing standards of
the Master Servicer and the Special Servicer set forth thereunder without the
consent of each affected Certificateholder, (ii) adversely affect in any
material respect the interests of the holders of a Class of Certificates in a
manner other than as set forth in (i) above without the consent of the
holders of such Class representing no less than 66 2/3 % of the Voting Rights
of such Class, or (iii) reduce the aforesaid percentages of Certificates the
holders of which are required to consent to any such amendment, without the
consent of the holders of all Certificates then outstanding.
The Pooling and Servicing Agreement further provides that no amendment by
consent of the Certificateholders to the Pooling and Servicing Agreement will
be made unless there has been delivered in accordance with the Pooling and
Servicing Agreement an opinion of counsel to the effect that such amendment
will not cause any REMIC to fail to qualify as a REMIC or cause a tax to be
imposed on any REMIC.
TERMINATION
The obligations of the parties to the Pooling and Servicing Agreement will
terminate upon the earlier of (a) the purchase by the Master Servicer, the
Special Servicer (in the event that all Mortgage Loans remaining in the Trust
Fund are Specially Serviced Mortgage Loans) or any holder of the Class R
Certificate, at its election, of all Mortgage Loans and all property acquired
in respect of any Mortgage Loan remaining in the Trust Fund on any
Distribution Date on or after the date on which the aggregate Scheduled
Principal Balance of the Mortgage Loans has been reduced below 10% of the
aggregate Scheduled Principal Balance of the Mortgage Loans as of the Cut-off
Date, and (b) the later of (i) the maturity or other liquidation (or any
advance with respect thereto) of the last Mortgage Loan remaining in the
Trust Fund and the disposition of all REO Property and (ii) the remittance to
the Certificateholders of all amounts due to them under the Pooling and
Servicing Agreement. The Trustee will give or cause to be given written
notice of termination of the Pooling and Servicing Agreement to each
Certificateholder and the final distribution under the Pooling and Servicing
Agreement will be made only upon surrender and cancellation of the related
Certificates at an office or agency specified in the notice of termination.
THE TRUSTEE
State Street Bank and Trust Company, a Massachusetts banking corporation,
will act as Trustee pursuant to the Pooling and Servicing Agreement. The
Trustee's corporate trust office is located at 225 Franklin Street, Boston,
Massachusetts 02110, Attention: Corporate Trust Department.
The Trustee will be obligated, among things to pursue remedies under the
Pooling and Servicing Agreement in the event of a breach of an obligation
thereunder; to establish and maintain the Distribution Account; to withdraw
from the Distribution Account and distribute to Certificateholders of record
on the applicable Record Date the amounts required to be distributed on each
Distribution Date; and under certain circumstances to make Monthly Advances,
Expense Advances and Property Protection Advances.
The Trustee may resign at any time by giving written notice to the
Depositor, the Rating Agencies and the Certificateholders not less than 60
days before the date specified in such notice for such resignation to take
effect, provided that a successor trustee must have been appointed by the
Depositor and must have accepted such appointment before such resignation can
take effect. If no successor trustee is appointed within 30 days after the
giving of such notice of resignation, the resigning trustee may petition the
court for appointment of a successor trustee.
The Depositor may remove the Trustee if the Trustee ceases to be eligible
to continue as such under the Pooling and Servicing Agreement or if at any
time the Trustee becomes incapable of acting, or is adjudged bankrupt or
insolvent, or a receiver of the Trustee or its property is appointed or any
public officer takes charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation.
Holders of Certificates evidencing not less than 51% of the Voting Rights of
all outstanding Certificates may remove the Trustee. Any resignation or
removal of the Trustee and
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appointment of a successor trustee will not become effective until acceptance
of the appointment by the successor trustee. The appointment of any successor
trustee may not result in a downgrading, withdrawal or qualification of the
then current ratings assigned to any Class of Certificates by the Rating
Agencies.
The Trustee will not be deemed to have knowledge of any default or Event
of Default or any other action which would require it to take action unless
an officer in the corporate trust department of the Trustee has actual
knowledge thereof.
The Master Servicer will be responsible for paying the Trustee any fees
payable to the Trustee as compensation for its services as Trustee under the
Pooling and Servicing Agreement.
DUTIES OF THE TRUSTEE
The Trustee will make no representation as to the validity or sufficiency
of the Pooling and Servicing Agreement, the Certificates, the Mortgage Loans
or related documents. The Trustee will not be accountable for the use or
application by the Depositor, the Master Servicer or the Special Servicer of
any funds paid to the Depositor, the Master Servicer or the Special Servicer
in respect of the Mortgage Loan, or any funds deposited in or withdrawn from
the Collection Account, the Distribution Account or any account maintained by
or on behalf of the Master Servicer or the Special Servicer, other than any
funds held by or on behalf of the Trustee in accordance with the Pooling and
Servicing Agreement.
In the event that the Master Servicer or the Special Servicer fails to
make a required Monthly Advance, the Trustee will make such Advance, provided
that the Trustee shall be obligated to make any Monthly Advance (i) if it
determines that such Monthly Advance, if made, would not be a Nonrecoverable
Advance and (ii) subject to certain other conditions set forth in the Pooling
and Servicing Agreement. The Trustee shall also be entitled to rely
conclusively on any determination by the Master Servicer or the Special
Servicer, as applicable that a Monthly Advance, if made, would be
Nonrecoverable. The Trustee will be entitled to reimbursement for each
Monthly Advance made by it in the same manner and to same extent as the
Master Servicer or the Special Servicer, as applicable.
If no Event of Default has occurred and after the curing of all Events of
Default which may have occurred, the Trustee is required to perform only
those duties specifically required under the Pooling and Servicing Agreement.
Upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee is required to examine such
documents and to determine whether they conform on their face to the
requirements of the Pooling and Servicing Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, two separate "real estate mortgage
investment conduit" ("REMIC") elections will be made with respect to the
Trust Fund, creating two REMICS. Upon the issuance of the Offered
Certificates, Milbank, Tweed, Hadley & McCloy will deliver its opinion,
generally to the effect that, assuming compliance with all provisions of the
Pooling and Servicing Agreement, (i) each pool of assets with respect to
which a REMIC election is made will qualify as a REMIC under the Internal
Revenue Code of 1986 (the "Code") and (ii) (a) the Class A, Class B, Class C,
Class D, Class E, Class F and Class G Certificates will be REMIC "regular
interests" and (b) each of the two uncertificated residual interests, which
are represented by the Class R Certificate, will be the sole "residual
interest" in one of the two REMICs. Holders of the Offered Certificates will
be required to include in income all interest on such Certificates in
accordance with the accrual method of accounting regardless of such
Certificateholders' usual methods of accounting.
The Class A-X Certificates will be treated for federal income tax
reporting purposes as having been issued with original issue discount. Other
Classes of Certificates may be treated for federal income tax reporting
purposes as having been issued with original issue discount. For the purposes
of determining the rate of accrual of market discount, original issue
discount and premium for federal income tax purposes, none of the Mortgage
Loans will be assumed to prepay. No representation is made as to whether the
Mortgage Loans will prepay. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--
Taxation of Regular Interests" and "--Interest and Acquisition Discount" in
the Prospectus. Certain
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Classes of the Offered Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any Holder of such a
Class of Certificates will be treated as holding a Certificate with
amortizable bond premium will depend on such Certificateholder's purchase
price. Holders of such Classes of Certificates should consult their own tax
advisors regarding the possibility of making an election to amortize any such
premium. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxation of Regular
Interests" in the Prospectus. Based on final regulations relating to the
treatment of original issue discount, the Internal Revenue Service could
assert that none of the interest payments on the Certificates are qualified
stated interest, and all of the Offered Certificates should be treated as
having original issue discount regardless of their issue price.
Offered Certificates held by a mutual savings bank or domestic building
and loan association will represent interests in "qualifying real property
loans" within the meaning of Section 593(d) of the Code. Offered Certificates
held by a real estate investment trust will constitute "real estate assets"
within the meaning of Section 856(c)(6)(B) of the Code, and income with
respect to Offered Certificates will be considered "interest on obligations
secured by mortgages on real property or on interests in property" within the
meaning of Section 856(c)(3)(B) of the Code. Offered Certificates held by a
domestic building and loan association will generally not constitute "a
regular or a residual interest in a REMIC" with the meaning of Section
7701(a)(19)(C)(xi) of the Code except in the proportion that the assets of
the Trust Fund are represented by Mortgage Loans secured by multifamily
apartment buildings. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxation
of the REMIC and its Holders" in the Prospectus.
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 fiduciaries of ERISA Plans. In
accordance with the general fiduciary standards of ERISA, a fiduciary of an
ERISA Plan should consider whether an investment in the Offered Certificates
is permitted under ERISA and the documents and instruments governing the
ERISA Plan, is consistent with the ERISA Plan's overall investment policy and
is appropriate in view of the composition of the ERISA Plan's investment
portfolio.
In addition to imposing general fiduciary standards, ERISA prohibits
sales, exchanges, loans and certain other transactions involving assets of an
ERISA Plan and certain related persons ("Parties in Interest"). Section 4975
of the Code imposes an excise tax on similar transaction between employee
benefit plans subject to such Section (such plans collectively with ERISA
Plans, "Plans") and similarly related persons ("Disqualified Persons"). An
otherwise prohibited transaction may be exempt from the prohibitions and
excise taxes of ERISA and the Code if a statutory or administrative exemption
applies thereto. The acquisition and holding of the Offered Certificates on
behalf of, or using the assets of, a Plan may constitute or result in a
prohibited transaction because the Depositor, the Seller, the Master
Servicer, the Special Servicer, the Trustee or any obligor in respect of any
obligation held in the Mortgage Pool may be considered to be, or may become
considered to be, a Party in Interest or a Disqualified Person with respect
to any Plan. Therefore, a statutory or administrative exemption must apply to
any purchase of the Offered Certificates on behalf of, or using the assets
of, a Plan.
Potential investors that are insurance companies should also consider
whether an investment in the Offered Certificates could constitute or result
in a prohibited transaction under ERISA or the Code. Based on the holding of
the United States Supreme Court in John Hancock Mutual Life Ins. Co. v.
Harris Trust and Savings Bank, 114 S.Ct. 517 (1993), the assets of a Plan may
include assets held in the general account of an insurance company. To the
extent that assets in an insurance company's general account are deemed to be
"plan assets" under ERISA and the Code, the insurance company, in acquiring
the Offered Certificates, would be deemed to be using the assets of a Plan.
Therefore, a statutory or administrative exemption must apply to any purchase
of the Offered Certificates for an insurance company general account.
Employee benefit plans that are governmental plans and certain church
plans (if no election has been made under Section 410(a) of the Code) are not
subject to ERISA or Section 4975 of the Code. Whether
S-92
<PAGE>
assets of such plans may be invested in the Offered Certificates is
determined under the provisions of applicable law and, in the case of a plan
that is qualified under Section 401(a) of the Code, any restrictions under
Section 503 of the Code.
AVAILABILITY OF UNDERWRITER'S EXEMPTION
The Underwriter (defined below) is the recipient of a final prohibited
transaction exemption, PTE 89-90, 54 Fed. Reg. 42597 (Oct. 17, 1989) (the
"Underwriter's Exemption"), which may accord protection from violations under
Sections 406 and 407 of ERISA and Section 4975 of the Code for Plans that
acquire the Class A Certificates. The Underwriter's Exemption 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 the Underwriter
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 Exemption 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 Regulations (as defined under "ERISA
CONSIDERATIONS" in the Prospectus)).
Among the conditions that must be satisfied for the Underwriter's
Exemption to apply are:
(a) assets of the type included in the Trust Fund 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 Ratings Group, Moody's Investors Service, Inc., Duff &
Phelps Credit Rating Company 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
Exemption;
(c) at the time of such acquisition, the Class of Offered 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 Offered Certificates evidence ownership in the assets of the
Trust Fund 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 manufactured housing contracts;
(f) the Class of Offered Certificates acquired by the Plan are not
subordinated to other Classes of Offered Certificates with respect to the
right to receive payment in the event of defaults or delinquencies on the
underlying assets of the Trust Fund;
(g) the Plan is an "accredited investor" (as defined in Rule 501(a)(1)
of Regulation D under the Act);
(h) the acquisition of the Offered Certificates by a Plan is on terms
(including the price for the Offered 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 any Underwriter or
member of the underwriting syndicate in connection with the distribution
of the Offered Certificates represents not more than reasonable
compensation for underwriting the Offered Certificates; the sum of all
payments made to and related by the Depositor pursuant to the sale of
assets to the Trust Fund represents not more than the fair market value of
such assets; and the sum of all payments made to and retained by the
Master Servicer and the Special Servicer represents not more than
reasonable compensation for the Master Servicer's and the Special
Servicer's services under the Pooling and Servicing Agreement and
reimbursement of the Master Servicer's and the Special Servicer's
reasonable expenses in connection therewith.
S-93
<PAGE>
In addition, the Underwriter's Exemption will not apply to a Plan's
investment in Offered Certificates if the Plan fiduciary responsible for the
decision to invest in the Offered Certificates is a mortgagor or obligor with
respect to more than 5% of the fair market value of the obligations
constituting the assets of the Trust Fund or an affiliate of such a person,
unless:
(1) the Plan's investment in any Class of Offered Certificates does
not exceed 25% of the outstanding Offered Certificates of that Class at
the time of acquisition;
(2) immediately after the Plan's acquisition of the Offered
Certificates, 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;
(3) the Plan is not sponsored by the Depositor, the Underwriter, the
Trustee, the Master Servicer, the Special Servicer, any servicer, any
pool, special hazard or primary mortgage insurer or the obligor under any
other credit support mechanism, a mortgagor with respect to obligations
constituting more than 5% of the aggregate unamortized principal balance
of the Trust Fund on the date of the initial issuance of Certificates (a
"Major Obligor"), or any of their affiliates (together, the "Restricted
Group"); and
(4) in the case of an acquisition in connection with the initial
issuance of Offered Certificates, at least 50% of each Class of Offered
Certificates in which Plans have invested is acquired by persons
independent of the members of the Restricted Group and at least 50% of the
aggregate interest in the Trust Fund is acquired by persons independent of
the Restricted Group.
Plans acquiring Class A Certificates may be eligible for protection under
the Underwriter's Exemption. The Underwriter believes that conditions (a)
through (f) to the availability of the Underwriter's Exemption as described
above will be satisfied with respect to the Class A of Certificates and that
condition (i) as described above is likely to be satisfied. Whether the other
requirements of the Underwriter's Exemption are met will depend upon the
particular circumstances at the time a Plan acquires the Class A
Certificates.
The Class A-X, Class B, Class C and Class D Certificates will not satisfy
the requirements of the Underwriter's Exemption; therefore, the purchase or
holding of such Classes of Certificates by a Plan could result in prohibited
transactions and the imposition of excise taxes or civil penalties. The Class
A-X, Class B, Class C and Class D Certificates may not be acquired on behalf
of, or using the assets of, a Plan. The foregoing prohibition does not apply
to the acquisition and holding of Class A-X, Class B, Class C and Class D by
an insurance company investing general account assets, provided that the
requirements of Section III of the Prohibited Transaction Class Exemption
95-60, 56 Fed. Reg. 27543 ("PTCE "95-60") are satisfied with respect to such
acquisition and holding. Each purchaser of a Class A-X, Class B, Class C or
Class D Certificates will be deemed to represent, warrant and covenant that
either (i) it is not acquiring such Certificate with the assets of any Plan
or (ii) it is an insurance company and PTCE 95-60 applies to its acquisition
and holding of such Certificate. In addition, in no event will a Class A-X,
Class B, Class C or Class D Certificate, or any interest therein, be
transferred unless the prospective transferee has provided to the Certificate
Registrar and the Depositor, a certificate, in form satisfactory to the
Certificate Registrar and the Depositor, that either (i) it is not acquiring
such Certificate with the assets of any Plan or (ii) it is an insurance
company and PTCE 95-60 applies to its acquisition and holding of such
Certificate.
BEFORE PURCHASING ANY OF THE OFFERED CERTIFICATES, A FIDUCIARY OF A PLAN
SHOULD ITSELF CONFIRM THAT THE CONDITIONS OF THE UNDERWRITER'S EXEMPTION AND
THE OTHER REQUIREMENTS DISCUSSED ABOVE AND IN THE PROSPECTUS (SEE "ERISA
CONSIDERATIONS" THEREIN) WOULD BE SATISFIED. DUE TO THE COMPLEXITY OF THE
APPLICABLE PROVISIONS OF ERISA AND THE CODE, IT IS PARTICULARLY IMPORTANT
THAT PERSONS RESPONSIBLE FOR INVESTMENT DECISIONS WITH RESPECT TO PLANS AND,
IN VIEW OF THE DECISION IN JOHN HANCOCK, INVESTMENT DECISIONS WITH RESPECT TO
INSURANCE COMPANY GENERAL ACCOUNTS, REVIEW CAREFULLY THE DISCUSSION ABOVE AND
IN THE PROSPECTUS, AND CONSULT THEIR COUNSEL REGARDING THE CONSEQUENCES UNDER
ERISA AND THE CODE OF ACQUIRING AND HOLDING THE OFFERED CERTIFICATES.
S-94
<PAGE>
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). The appropriate characterization of a Class of Offered
Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase Offered
Certificates, may be subject to significant interpretive uncertainties. All
investors whose investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether, and to what extent,
the Offered Certificates will constitute legal investments for them.
The Depositor makes no representations as to the proper characterization
of the Offered Certificates for legal investment or financial institution
regulatory purposes, or as to the ability of particular investors to purchase
the Offered Certificates under applicable legal investment restrictions. The
uncertainties referred to above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory
characteristics of the Offered Certificates) may adversely affect the
liquidity of the Offered Certificates. See "LEGAL INVESTMENT" in the
Prospectus.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates toward the simultaneous purchase of the Mortgage Loans from the
Seller.
PLAN OF DISTRIBUTION
The Depositor will enter into an underwriting agreement to be dated
November 28, 1995 (the "Underwriting Agreement") with CS First Boston
Corporation (the "Underwriter"), an affiliate of the Depositor. The
Underwriting Agreement will provide that the obligations of the Underwriter
are subject to certain conditions precedent, and that the Underwriter will be
obligated to purchase all of the Offered Certificates if any are purchased.
The Underwriter has advised the Depositor that the Underwriter proposes to
offer the Offered Certificates from time to time for sale in one or more
transactions (which may include block transactions), in negotiated
transactions or otherwise, or a combination of such methods of sale, at
market prices prevailing at the time of sale, or prices related to such
prevailing market prices or at negotiated prices. The Underwriter may effect
such transactions by selling the Offered Certificates to or through dealers,
and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Underwriter and/or purchasers
of the Offered Certificates for whom they may act as agent.
It is expected that delivery of the Offered Certificates will be made in
book-entry form through the facilities of DTC against payment therefor on or
about November 28, 1995, which is the eighth business day following the date
of pricing of the Certificates. Under Rule 15c6-1 recently adopted by the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended, trades in the secondary market generally are required to settle
in three business days, unless the parties to any such trade expressly agree
otherwise. Accordingly, purchasers who wish to trade Offered Certificates on
the date of pricing or the next four succeeding business days are required,
by virtue of the fact that such Classes of Certificates initially will settle
in T +8, to specify an alternate settlement cycle at the time of any such
trade to prevent a failed settlement.
In connection with the sale of the Offered Certificates the Underwriter
may be deemed to have received compensation from the Depositor in the form of
underwriting discounts and the Underwriter may also receive commissions from
purchasers of the Offered Certificates for whom it may act as agent. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters,
and any discounts or commissions received by them and any profit on the
resale of Offered Certificates by them may be deemed to be underwriting
discounts or commissions, under the Securities Act.
The Depositor has agreed to indemnify the Underwriter against certain
liabilities, including civil liabilities under the Securities Act or
contribute to payments which the Underwriter may be required to make in
respect thereof.
S-95
<PAGE>
LEGAL MATTERS
The legality of the Offered Certificates and the material federal income
tax consequences of the Offered Certificates will be passed upon for the
Depositor by Milbank, Tweed, Hadley & McCloy, New York, New York. The
legality of the Offered Certificates will be passed upon for the Underwriter
by Milbank, Tweed, Hadley & McCloy, New York, New York.
RATINGS
It is a condition of the issuance of the Offered Certificates that upon
issuance (i) the Class A and the Class A-X Certificates be rated "AAA," the
Class B Certificates be rated not lower than "AA," the Class C Certificates
be rated not lower than "A" and the Class D Certificates be rated not lower
than "BBB" by Duff & Phelps Credit Rating Co. ("D&P") and (ii) the Class A
Certificates be rated "AAA," the Class B Certificates be rated not lower than
"AA," the Class C Certificates be rated not lower than "A" and the Class D
Certificates be rated not lower than "BBB" by Standard & Poor's Rating
Services ("S&P" and together with D&P, the "Rating Agencies"). In addition,
it is a condition of the issuance of the Class E and Class F Certificates
that they be rated "BB" and "B," respectively by S&P and "BB" and "B-",
respectively by D&P. The Class G Certificates will be unrated.
The ratings on mortgage pass-through certificates address the likelihood
of the receipt by certificateholders of all distributions on the underlying
mortgage loans to which they are entitled including the receipt of all
principal payments by the Final Rated Distribution Date. Such ratings do not
represent any assessment of (i) the likelihood or frequency of principal
prepayments on the underlying mortgage loans, (ii) the degree to which such
prepayments might differ from those originally anticipated or (iii) whether
and to what extent prepayment premiums will be received.
The ratings do not address the fact that the Certificate Rates on the
Certificates, to the extent determined based on the Net Mortgage Rates, may
be affected by changes therein. In addition, the ratings do not represent any
assessment of the yield to maturity that investors may experience or, in the
case of the rating assigned to the Class A-X Certificates by D&P the
possibility that the holders of the Class A-X Certificates might not fully
recover their investment in the event of rapid prepayments of the Mortgage
Loans (including both voluntary and involuntary prepayments). In general, the
ratings thus address credit risk and not prepayment risk. As described
herein, the amounts payable with respect to the Class A-X Certificates
consist only of interest. If the entire Mortgage Pool were to prepay in the
initial month, with the result that the Class A-X Certificateholders receive
only a single month's interest, all amounts "due" to such Holders will
nevertheless have been paid, and such result is consistent with the "AAA"
rating assigned to the Class A-X Certificates by D&P. The Class A-X
Certificate Notional Amount on which interest is calculated is reduced, as
described herein, by the allocation of Realized Losses and prepayments,
whether voluntary or involuntary, to the Class A, Class B, Class C and Class
D Certificates. The rating of the Class A-X Certificates does not address the
timing or magnitude of such reduction of the Class A-X Certificate Notional
Amount, but only the obligation to pay interest on the Class A-X Certificate
Notional Amount. Accordingly, the rating of the Class A-X Certificates should
be evaluated independently from similar ratings on other types of securities.
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 organizations. Each security rating should be evaluated independently
of any other security rating. In addition, a security rating does not address
the frequency of prepayments of Mortgage Loans or the corresponding effect on
yield to investors, or the possibility that a rapid rate of principal
prepayments could result in a failure of investors in the Class A-X
Certificates to fully recover their initial investment. See "YIELD
CONSIDERATIONS" herein.
S-96
<PAGE>
GLOSSARY
<TABLE>
<CAPTION>
<S> <C>
ADA ............................................. S-35
Advance Rate .................................... S-85
Advances ........................................ S-26, S-85
Appraisal Reduction ............................. S-17, S-66
Appraisal Reduction Capitalization Amount ...... S-19, S-67
Assumed Scheduled Payment ....................... S-84
Available Distribution Amount ................... S-14, S-60
Balloon Loans ................................... S-22
Balloon Payment ................................. S-22
Bankruptcy Proceeding ........................... S-65
Cede ............................................ S-56
CERCLA .......................................... S-31
Certificateholders .............................. S-56
Certificate Principal Balance ................... S-11, S-55
Certificate Registrar ........................... S-57
Certificate Rates ............................... S-12, S-59
Certificates .................................... S-1, S-7, S-12, S-55
Class A Certificate Rate ........................ S-2, S-12, S-59
Class A-X Certificate Rate ...................... S-2, S-13, S-59
Class A-X Certificates .......................... S-1, S-55
Class A-X Certificate Notional Amount ........... S-2, S-11, S-55
Class B Certificate Rate ........................ S-2, S-12, S-59
Class C Certificate Rate ........................ S-2, S-12, S-59
Class D Certificate Rate ........................ S-2, S-12, S-59
Code ............................................ S-91
Collection Account .............................. S-72
Commission ...................................... S-3
Component ....................................... S-2, S-11, S-55
Component A ..................................... S-2, S-12, S-55
Component B ..................................... S-2, S-12, S-55
Component C ..................................... S-2, S-12, S-55
Component D ..................................... S-2, S-12, S-55
Component A Rate ................................ S-2, S-13, S-59
Component B Rate ................................ S-2, S-13, S-59
Component C Rate ................................ S-2, S-13, S-59
Component D Rate ................................ S-2, S-13, S-59
Controlling Party ............................... S-8, S-85
CPR ............................................. S-73
Cut-off Date .................................... S-7, S-9, S-39
D&P ............................................. S-1, S-29, S-96
Debt Service Coverage Ratio ..................... S-44
Debt Service Reduction .......................... S-65
Deferred Interest ............................... S-13, S-60
Deficient Valuation ............................. S-65
Definitive Certificates ......................... S-57
Delivery Date ................................... S-9, S-56
Depositor ....................................... S-1, S-8, S-55
Determination Date .............................. S-10, S-58
Distribution Account ............................ S-72
S-97
<PAGE>
Distribution Date ............................... S-2, S-9
DTC Participants ................................ S-57
DTC ............................................. S-3, S-35, S-56
Due Date ........................................ S-22
Due Period ...................................... S-10, S-58
Eligible Account ................................ S-73
Eligible Investments ............................ S-73
ERISA ........................................... S-28, S-92
ERISA Plans ..................................... S-92
Excess Prepayment Interest ...................... S-17, S-68
Expense Advance ................................. S-26, S-84
Extension Adviser ............................... S-9
Extension Fee ................................... S-25, S-81
Event of Default ................................ S-88
Final Rated Distribution Date ................... S-2, S-27, S-71
GECC ............................................ S-80
Indirect DTC Participants ....................... S-57
Indicative LTVs ................................. S-46
Initial Pool Balance ............................ S-7, S-39
Initial Purchaser ............................... S-8
Interest Accrual Period ......................... S-10, S-58
Interest Distribution Amount .................... S-11, S-59
Junior Wintergreen Plaza Loan ................... S-43
Liquidated Loans ................................ S-66
Lock-out Period ................................. S-22, S-33
Major Obligor ................................... S-94
Master Servicer ................................. S-1, S-7, S-8, S-80
Master Servicer Remittance Date ................. S-64, S-72
MBL ............................................. S-1, S-7, S-37
Modified Mortgage Loan .......................... S-66
Money Term ...................................... S-17, S-66
Monthly Advances ................................ S-26
Monthly Advance ................................. S-83
Monthly Payments ................................ S-21
Mortgage ........................................ S-39
Mortgage Loans .................................. S-1, S-39, S-56
Mortgage Note ................................... S-39
Mortgage Pool ................................... S-1, S-7, S-56
Mortgage Rate ................................... S-2, S-12, S-21, S-59
Mortgaged Property .............................. S-21, S-39
Mutual Benefit .................................. S-1, S-7, S-37, S-40
Net Aggregate Excess Prepayment Interest ....... S-68
Net Aggregate Prepayment Interest Shortfall .... S-17, S-68
Net Mortgage Rate ............................... S-2, S-12, S-59
Net Operating Income ............................ S-45
Non-Offered Certificates ........................ S-8, S-55
Nonrecoverable Advance .......................... S-26, S-84
Offered Certificates ............................ S-1, S-7, S-55
Percentage Interest ............................. S-55
Plan ............................................ S-38
Pooling and Servicing Agreement ................. S-1, S-7, S-56
S-98
<PAGE>
Portfolio Performance Report .................... S-70
Prepayment Period ............................... S-10, S-58
Prepayment Premium .............................. S-22, S-33
Prepayment Interest Shortfall ................... S-17, S-68
Principal Distribution Amount ................... S-14, S-60
Principal Prepayments ........................... S-10, S-58
Property Protection Advance ..................... S-26, S-84
Purchase Price .................................. S-67
Quarterly-Pay Loans ............................. S-40
Rating Agencies ................................. S-1, S-29, S-96
Realized Loss ................................... S-65
Record Date ..................................... S-9
Related Mortgagors .............................. S-32
REMIC ........................................... S-3, S-91
REO Account ..................................... S-72
REO Property .................................... S-20, S-26, S-82
Repurchase Proceeds ............................. S-9, S-58
Restricted Group ................................ S-94
Rules ........................................... S-57
S&P ............................................. S-1, S-29, S-96
Scheduled Principal Balance ..................... S-66
Securities Act .................................. S-3, S-8, S-55
Seller .......................................... S-1, S-7, S-8, S-37
Senior Wintergreen Plaza Loan ................... S-43
Separate Account ................................ S-38
Sequential Pay Certificates ..................... S-1, S-55
Servicing Fee ................................... S-25, S-80
Servicing Fee Rate .............................. S-2, S-12, S-59
SMMEA ........................................... S-28, S-94, S-103
Special Servicer ................................ S-1, S-7, S-8, S-80
Special Servicer Compensation ................... S-25, S-81
Special Servicer Determination Date ............. S-73
Special Servicing Fee ........................... S-25, S-81
Special Servicer Reports ........................ S-70
Specially Serviced Mortgage Loan ................ S-82
Subordinate Certificates ........................ S-2, S-56
Sub-Servicer .................................... S-80
Trust Fund ...................................... S-1, S-7, S-55
Trustee ......................................... S-1, S-7, S-8
UCC ............................................. S-56
Underwriter ..................................... S-1, S-95
Underwriter's Exemption ......................... S-93
Underwriting Agreement .......................... S-95
Voting Rights ................................... S-72
Weighted Average Net Mortgage Rate .............. S-2, S-12, S-59
Wintergreen Plaza Property ...................... S-43
Workout Fee ..................................... S-25, S-81
</TABLE>
S-99
<PAGE>
ANNEX A
CHARACTERISTICS OF MORTGAGE LOANS
<TABLE>
<CAPTION>
UNITS/ NET
SQUARE
PROPERTY NAME CITY STATE PROPERTY TYPE FEET(1) OCCUPANCY(2) YEAR BUILT
- ------------------------------------- ----------------- ------- -------------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Wintergreen Plaza Shopping Center Rockville MD Retail 146,071 88% 1981
Mapletree Apartments Southfield MI Multifamily 233 92 1979
Tahoe North Apartments - Phase II Roswell GA Multifamily 300 96 1980
Timbers of Deerbrook Apartments Humble TX Multifamily 260 94 1982
Summer Place Apartments Addison TX Multifamily 212 89 1977
Entrada de Oro Shopping Center Tucson AZ Retail 86,928 91 1980
Eagle Pointe Apartments Norcross GA Multifamily 252 91 1978
Hart Street Medical New Britain CT Office 55,613 99 1966
Southeastern Eye Center Greensboro NC Office 48,000 100 1984
Victoria Station Apartments Victoria TX Multifamily 224 94 1982
Cooper's Pond Apartments Raleigh NC Multifamily 172 92 1982
Tahoe North Apartments - Phase I Roswell GA Multifamily 208 89 1978
Silver Shadow Apartments Houston TX Multifamily 288 94 1976
Hit Promotional Products Building Largo FL Warehouse/Industrial 112,400 100 1981
Eagle Pointe Apartments Norcross GA Multifamily 252 91 1978
Edgetowne Square Coraopolis PA Office 53,510 99 1975
Rockbottom Plaza Hicksville NY Retail 41,024 100 1963
Parkway Place at Southpoint - I Jacksonville FL Office 46,111 100 1986
Shrewsbury Business Center Shrewsbury NJ Office 59,912 100 1986
Bank of New York Building Newark DE Office 49,072 100 1983
Division Street Warehouses Orlando FL Warehouse/Industrial 110,749 95 1967
Cookeville Mall Shopping Center Cookeville TN Retail 138,557 96 1977
S. Boucher/Matlack West Chester PA Warehouse/Industrial 50,659 100 1986
Courtyard Industrial Building Lancaster CA Warehouse/Industrial 39,080 91 1988
What Cheer House Sacramento CA Office 37,049 89 1977(10)
Laguna Hills Medical Arts, Building B Laguna Hills CA Office 24,160 92 1979
Tech One Building Sterling VA Office 43,772 100 1989
Double Tree Guest Suites Alexandria VA Hotel/Motel 225 79(8) 1964
Spectra Office Building Franklin Park PA Office 24,455 92 1988
Waterfall Village Apartments Marietta GA Multifamily 152 74 1972
Stonegate Industrial Stone Mountain GA Warehouse/Industrial 189,100 100 1974
The Surgery Center Jacksonville NC Office 8,500 100 1988
Spring Lake Club Apartments Miami FL Multifamily 108 96 1971
Wintergreen Plaza Shopping Center Rockville MD Retail 146,071 88 1981
Hamilton Square Shopping Center Huntsville AL Retail 147,338 99 1976
Jordan, Jones, and Goulding Building Doraville GA Office 40,000 100 1973
Olde Towne Square Boise ID Multifamily 48 90 1977
The Palms Apartments Richmond VA Multifamily 208 81 1972
Newark Public Radio Building Newark NJ Office 11,970 100 1920
Commerce Square Center Overland Park KS Retail 15,056 79 1974
Clarkwood Gardens Warrensville OH Multifamily 224 97(9) 1963
Arden Fair Sacramento CA Retail 39,909 100 1972
Tracy Collins Bank Building Salt Lake City UT Office 10,585 100 1975
11624 - 11712 West Dixon Street West Allis WI Warehouse/Industrial 36,483 100 1968
Will Rogers Office Park Oklahoma City OK Office 50,290 91 1982
The Francis Whitman Building Lexington KY Office 12,911 100 1975
Pacific Power Building Yakima WA Office 22,140 100 1965
Colony Center Tamarac FL Retail 23,920 100 1974
Continental Office Plaza Tamarac FL Office 16,650 100 1972
Lakeview Terrace Apartments Lake Villa IL Multifamily 53 96(9) 1971
328 Webster Avenue Bend OR Office 10,841 100 1967
Will Rogers Service Center Oklahoma City OK Office 42,500 48 1981
3811 47th Avenue Long Island City NY Warehouse/Industrial 63,131 100 1952
Circuit Systems, Inc. Elk Grove Village IL Warehouse/Industrial 43,000 100 1960
416 Highway 101 Lincoln City OR Office 5,203 100 1969
2453 I-85 Frontage Road Norcross GA Warehouse/Industrial 30,000 100 1971
Total
</TABLE>
A-1
<PAGE>
ANNEX A
<TABLE>
<CAPTION>
ORIGINAL
TERM TO DEBT
ORIGINAL CUT-OFF DATE CURRENT STATED SERVICE
PRINCIPAL PRINCIPAL MORTGAGE CURRENT MONTHLY MATURITY MATURITY INDICATIVE 1994 FULL COVERAGE
BALANCE(3) BALANCE RATE PAYMENT (MONTHS)(4) DATE LTV(5) YEAR NOI(6) RATIO(7)
- -------------- --------------- ----------- --------------- ----------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 13,450,000 $ 11,567,187 11.250% $130,690.00 361 10/01/11 48.99% $2,242,910 1.43x
7,500,000 7,479,130 9.875 65,126.15 120 05/01/00 72.08 933,898 1.19
5,800,000 4,988,823 10.375 52,539.00 240 01/01/00 59.34 756,721 1.20
5,040,000 4,979,460 9.000(12) 40,246.41(12) 121 03/01/99 81.03 553,087 1.15
4,900,000 4,665,532 9.000 39,223.21 39 09/01/98 70.61 594,656 1.26
4,550,000 4,426,152 8.750 39,236.10 36 09/01/98 83.79 501,838 1.07
3,100,000 4,415,850 9.750 47,254.00 209 01/02/98 63.15(15) 1,026,130 1.12(15)
5,500,000 4,168,772 8.000 38,937.48 82 10/01/00 63.96 684,356 1.46
4,300,000 3,725,893 9.500 58,689.00 120 04/01/03 43.47 900,000 1.28
4,000,000 3,496,320(11) 8.000 27,013.57 49 09/01/99 58.36 539,193 1.66
3,600,000 3,294,772 8.600 32,384.89 60 05/01/98 42.81 692,648 1.78
3,500,000 3,136,736 9.500 33,634.00 360 01/01/10 58.42 483,279 1.20
3,080,000 3,080,000 8.500(12) 21,816.67(12) 103 07/31/99 53.65 516,664 1.97
3,200,000 2,828,921 10.000 39,123.23 57 12/31/99 52.60 537,807 1.15
2,850,000 2,784,372 11.875 29,046.25 156 01/01/98 63.15(15) 1,026,130 1.12(15)
2,975,000 2,715,000 7.000(12) 15,837.50(12) 70 09/01/98 80.21 355,414 1.87
3,050,000 2,686,234 8.000 23,279.48 61 06/30/97 56.59 498,439 1.78
2,950,000 2,673,843 9.250 26,101.25 60 10/01/97 71.83 390,852 1.25
2,835,000 2,663,367 9.375 23,602.00 121 08/01/97 48.39 577,881 2.04
2,780,000 2,596,137 10.000 27,238.34 59 03/01/98 83.16 327,810 1.00
2,325,000 2,295,960 9.750 20,718.95 60 08/01/99 63.07 364,048 1.46
3,000,000 2,179,833 9.750 30,053.00 329 01/01/05 31.93 648,595 1.80
2,200,000 2,150,340 9.375 18,315.00 121 09/01/97 55.29 408,382 1.86
1,800,000 1,776,699 9.500 15,135.38 48 11/01/97 NA NA NA
2,000,000 1,469,171 9.750 17,184.00 361 10/01/07 47.41 325,358 1.58
1,820,000 1,440,518 9.625 15,470.00 361 03/01/10 41.21 367,014 1.98
1,650,000 1,434,601 9.750 16,735.00 55 12/01/98 55.64 270,722 1.35
3,400,000 1,415,665 9.750 30,298.67 301 11/01/00 11.54 1,410,494 3.88
1,500,000 1,305,135 10.750 15,238.00 121 07/01/99 59.19 231,518 1.27
1,750,000 1,232,287 8.625 14,000.00 59 01/01/98 63.70 174,106 1.04
1,540,000 1,230,875 9.000 11,015.98 60 01/01/99 36.48 337,435 2.55
1,215,000 1,195,593 11.375 12,241.13 120 11/01/98 81.26 154,499 1.05
1,600,000 971,692 9.250 13,451.00 325 09/01/04 NA NA NA
667,000 944,424 11.000 9,525.00 121 11/01/97 52.99(14) 2,242,910 1.33(14)
1,850,000 594,860 10.250 17,482.50 277 04/01/99 9.33 605,721 2.89
1,071,000 548,981 8.750 8,630.48 324 01/01/03 26.16 220,342 2.13
700,000 527,897 9.500 5,886.00 361 12/01/08 31.28 151,892 2.15
1,800,000 507,378 9.000 15,000.00 310 03/01/99 22.15 206,142 1.15
600,000 325,793 11.000 3,302.98 60 04/01/97 14.73 232,246 5.86
515,000 284,148 9.500 4,500.00 300 04/01/03 NA NA NA
2,100,000 252,851 7.500 15,742.00 289 04/01/97 NA NA NA
980,000 249,882 8.750 8,722.00 301 08/01/98 NA NA NA
355,000 234,309 10.250 3,183.17 360 09/01/05 NA NA NA
380,000 216,674 9.250 3,255.00 301 08/01/03 NA NA NA
235,800 201,869 10.000 2,069.31 360 08/01/12 12.31 172,257 6.94
370,000 188,925 9.625 3,208.82 324 07/01/02 20.12 98,617 2.56
406,500 181,392 8.125 9,070.50(13) 358 04/01/02 52.50 36,282 1.00
510,000 158,886 10.500 4,900.00 312 12/01/00 NA NA NA
600,000 144,184 8.750 4,932.90 301 08/01/98 NA NA NA
615,000 136,244 8.500 4,920.00 308 06/01/98 NA NA NA
243,300 108,611 8.125 5,428.75(13) 358 04/01/02 52.52 21,715 1.00
86,700 73,116 10.000 760.85 359 07/01/12 6.76 108,204 11.85
450,000 63,199 8.250 3,843.75 297 05/01/97 NA NA NA
370,000 60,444 8.500 2,979.40 300 09/01/97 NA NA NA
131,700 58,273 8.125 2,940.50(13) 358 04/01/02 52.02 11,762 1.00
275,000 33,159 8.375 2,197.83 298 04/01/97 NA NA NA
- -------------- ---------------
$130,072,000 $108,566,369
</TABLE>
Footnotes on Following Page
A-2
<PAGE>
(1) Units/Net Square Feet for each Mortgage Loan secured by a multifamily
or hotel property refers to the number of dwelling units (in the case
of multifamily properties) or guest rooms (in the case of the hotel);
and for each Mortgage Loan secured by a retail, office, or
warehouse/industrial property refers to the net rentable square feet
of such property.
(2) For each Mortgage Loan secured by a multifamily property, occupancy
is based upon a rent roll schedule dated between February, 1993 and
August, 1995. For each Mortgage Loan secured by an office, retail or
warehouse/industrial property, occupancy is based upon a rent roll
schedule dated between May, 1972 and June, 1995.
(3) Represents the Mortgage Loan's principal balance as of the original
note date.
(4) The Original Term to Stated Maturity as described herein under
"DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED
PROPERTIES--Additional Mortgage Loan Information" (except in months
instead of years).
(5) The Indicative LTV as described herein under "DESCRIPTION OF THE
MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES--Additional
Mortgage Loan Information."
(6) Based on 1994 operating information provided by the mortgagors.
(7) The Debt Service Coverage Ratio as described herein under
"DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED
PROPERTIES--Additional Mortgage Loan Information."
(8) Based upon the year-to-date average occupancy as of June 30, 1995 as
set forth in the related mortgagor's operating information.
(9) Based upon information provided by the related property manager as of
August, 1995.
(10) The year in which the Mortgaged Property was built is unknown; year
indicated is the year in which the Mortgaged Property was
significantly renovated.
(11) The Mortgage Loan's Due Date is the 10th of the month; the Cut-off
Date Principal Balance represents the balance as of October 10, 1995,
after the October 1995 payment.
(12) The Mortgage Loan is a Mortgage Loan whose Mortgage Rate adjusts
during the term of such Mortgage Loan. See "DESCRIPTION OF THE
MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES--Certain Terms
and Conditions of the Mortgage Loans-- Mortgage Rates; Calculations
of Interest."
(13) Represents the fixed quarterly payment of principal and interest due.
(14) The Debt Service Coverage Ratio and the Indicative LTV for the Junior
Wintergreen Plaza Mortgage Loan were calculated on a combined basis
as follows: (i) the Debt Service Coverage Ratio represents the ratio
of the Net Operating Income of the Mortgaged Property to the current
combined annual debt service for both the Senior and Junior
Wintergreen Plaza Mortgage Loans, and (ii) the Indicative LTV of the
Junior Wintergreen Plaza Mortgage Loan is the ratio of (a) the sum of
the Cut-off Date Balances for both the Junior and Senior Mortgage
Loans to (b) the Indicative Value of the related Mortgaged Property.
(15) The Debt Service Coverage Ratios and the Indicative LTVs for the two
Eagle Pointe Apartment Mortgage Loans, which are together secured by
a single Mortgage on one Mortgaged Property were calculated on a
combined basis as follows: (i) the Debt Service Coverage Ratio
represents the ratio of the Net Operating Income of the Mortgaged
Property to the sum of the current annual debt service for both
Mortgage Loans and (ii) the Indicative LTV represents the ratio of
the sum of the Cut-off Date balances for both Mortgage Loans to the
Indicative Value of the Mortgaged Property.
A-3
<PAGE>
CS First Boston Mortgage Securities Corp.
Depositor
Commercial/Multifamily Mortgage Pass-Through Certificates
(Issuable in Series)
CS First Boston Mortgage Securities Corp. (the "Depositor") from time to time
will offer Commercial/Multifamily Mortgage Pass-Through Certificates (the
"Certificates") in "Series" by means of this Prospectus and a separate
Prospectus Supplement for each Series. The Certificates of each Series will
evidence beneficial ownership interests in a trust fund (the "Trust Fund") to
be established by the Depositor. The Certificates of a Series may be divided
into two or more "Classes" which may have different interest rates and which
may receive principal payments in differing proportions and at different
times. In addition, rights of the holders of certain Classes to receive
principal and interest may be subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on commercial real estate
properties, multifamily residential properties, cooperatively owned
multifamily properties and/or mixed residential/commercial properties, and
related property and interests, conveyed to such Trust Fund by the Depositor,
and other assets, including any reserve funds established with respect to a
Series, insurance policies on the Mortgage Loans, letters of credit,
certificate guarantee insurance policies or other enhancement described in
the related Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Mortgage Pool may also include participation interests in
such types of mortgage loans, installment contracts for the sale of such
types of properties and/or mortgage pass-through certificates. Such mortgage
loans, participation interests, mortgage pass-through certificates and
installment contracts are hereinafter referred to as the "Mortgage Loans."
The Mortgage Loans will have fixed or adjustable interest rates. Some
Mortgage Loans will fully amortize over their remaining terms to maturity and
others will provide for balloon payments at maturity. The Mortgage Loans will
provide for recourse against only the Mortgaged Properties or provide for
recourse against the other assets of the obligors thereunder. The Mortgage
Loans will be newly originated or seasoned, and will be acquired by the
Depositor either directly or through one or more affiliates. Information
regarding each Series of Certificates, including interest and principal
payment provisions for each Class, as well as information regarding the size,
composition and other characteristics of the Mortgage Pool relating to such
Series, will be furnished in the related Prospectus Supplement. The Mortgage
Loans will be serviced by a Master Servicer identified in the related
Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
The Depositor, as specified in the related Prospectus Supplement, may elect
to treat all or a specified portion of the collateral securing any Series of
Certificates as a "real estate mortgage investment conduit" (a "REMIC"), or
an election may be made to treat the arrangement by which a Series of
Certificates is issued as a REMIC. If such election is made, each Class of
Certificates of a Series will be either Regular Interest Certificates or
Residual Interest Certificates, as specified in the related Prospectus
Supplement. If no such election is made, the Trust Fund, as specified in the
related Prospectus Supplement, will be classified as a grantor trust for
federal income tax purposes. See "Certain Federal Income Tax Consequences."
- -----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR AD- EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, which may include CS First
Boston Corporation, an affiliate of the Depositor, as more fully described
under "Plan of Distribution" herein and in the related Prospectus Supplement.
Certain offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
There will have been no public market for the Certificates of any Series
prior to the offering thereof. No assurance can be given that such a market
will develop as a result of such offering or, if it does develop, that it
will continue.
This Prospectus may not be used to consummate sales of the Certificates
offered hereby unless accompanied by a Prospectus Supplement.
CS First Boston
The date of this Prospectus is November 13, 1995.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of Certificates will,
among other things, set forth with respect to such Series of Certificates:
(i) the identity of each Class within such Series; (ii) the initial aggregate
principal amount, the interest rate (the "Pass-Through Rate") (or the method
for determining it) and the authorized denominations of each Class of
Certificates of such Series; (iii) certain information concerning the
Mortgage Loans relating to such Series, including the principal amount, type
and characteristics of such Mortgage Loans on the date of issue of such
Series of Certificates, and, if applicable, the amount of any Reserve Fund
for such Series; (iv) the circumstances, if any, under which the Certificates
of such Series are subject to redemption prior to maturity; (v) the final
scheduled distribution date of each Class of Certificates of such Series;
(vi) the method used to calculate the aggregate amount of principal available
and required to be applied to the Certificates of such Series on each
Distribution Date; (vii) the order of the application of principal and
interest payments to each Class of Certificates of such Series and the
allocation of principal to be so applied; (viii) the extent of subordination
of any Subordinate Certificates; (ix) the principal amount of each Class of
Certificates of such Series that would be outstanding on specified
Distribution Dates, if the Mortgage Loans relating to such Series were
prepaid at various assumed rates; (x) the Distribution Dates for each Class
of Certificates of such Series; (xi) relevant financial information with
respect to the Borrower(s) and the Mortgaged Properties underlying the
Mortgage Loans relating to such Series, if applicable; (xii) information with
respect to the terms of the Subordinate Certificates or Residual Interest
Certificates, if any, of such Series; (xiii) additional information with
respect to the Enhancement relating to such Series; (xiv) additional
information with respect to the plan of distribution of such Series; and (xv)
whether the Certificates of such Series will be registered in the name of the
nominee of The Depository Trust Company or another depository.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of
the information set forth in the Registration Statement (the "Registration
Statement") of which this Prospectus and the related Prospectus Supplement is
a part. For further information, reference is made to such Registration
Statement and the exhibits thereto which the Depositor has filed with the
Securities and Exchange Commission (the "Commission"), under the Securities
Act of 1933, as amended (the "Act"). Statements contained in this Prospectus
and any Prospectus Supplement as to the contents of any contract or other
document referred to are summaries and in each instance reference is made to
the copy of the contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects
by such reference. Copies of the Registration Statement may be obtained from
the Commission, upon payment of the prescribed charges, or may be examined
free of charge at the Commission's offices. Reports and other information
filed with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at
Seven World Trade Center, 13th Floor, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Copies of the Agreement pursuant to which a
Series of Certificates is issued will be provided to each person to whom a
Prospectus and the related Prospectus Supplement are delivered, upon written
or oral request directed to: Treasurer, CS First Boston Mortgage Securities
Corp., Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055,
telephone number (212) 909-2000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
prior to the termination of the offering of Certificates offered hereby. The
Depositor will provide or cause to be provided without charge to each person
to whom this Prospectus
2
<PAGE>
is delivered in connection with the offering of one or more Classes of
Certificates, upon request, a copy of any or all such documents or reports
incorporated herein by reference, in each case to the extent such documents
or reports relate to one or more of such Classes of such Certificates, other
than the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor
should be directed to: CS First Boston Mortgage Securities Corp., Park Avenue
Plaza, 55 East 52nd Street, New York, New York 10055, telephone number (212)
909-2000.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on December 31,
1985, as a wholly-owned subsidiary of CS First Boston Securities Corporation
("CSFBSC"). CSFBSC is a wholly-owned subsidiary of CS First Boston, Inc. CS
First Boston Corporation, which may act as an underwriter in offerings made
hereby, as described in "PLAN OF DISTRIBUTION" below, is also a wholly-owned
subsidiary of CS First Boston, Inc. The principal executive offices of the
Depositor are located at 55 East 52nd Street, New York, N.Y. 10055. Its
telephone number is (212) 909-2000.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will insure or guarantee distributions on
the Certificates of any Series.
The assets of the Trust Funds will be acquired by the Depositor directly
or through one or more affiliates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the related Prospectus
Supplement to purchase the Mortgage Loans relating to such Series, to repay
indebtedness which has been incurred to obtain funds to acquire Mortgage
Loans, to establish the Reserve Funds, if any, for the Series, to obtain
other Enhancement, if any, for the Series and to pay costs of structuring and
issuing the Certificates. If so specified in the related Prospectus
Supplement, Certificates may be exchanged by the Depositor for Mortgage
Loans.
<F1>
DESCRIPTION OF THE CERTIFICATES*
The Certificates of each Series will be issued pursuant to a separate
Pooling and Servicing Agreement (the "Agreement") to be entered into among
the Depositor, the Master Servicer and the Trustee for that Series and any
other parties described in the applicable Prospectus Supplement,
substantially in the form filed as an exhibit to the Registration Statement
of which this Prospectus is a part or in such other form as may be described
in the applicable Prospectus Supplement. The following summaries describe
certain provisions expected to be common to each Series and the Agreement
with respect to the underlying Trust Fund. However, the Prospectus Supplement
for each Series will describe more fully the Certificates and the provisions
of the related Agreement, which may be different from the summaries set forth
below.
At the time of issuance, the Certificates of each Series will be rated
"investment grade," typically one of the four highest generic rating
categories, by at least one nationally recognized statistical rating
organization. Each of such rating organizations specified in the applicable
Prospectus Supplement as rating the Certificates of the related Series is
hereinafter referred to as a "Rating Agency." A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning Rating Agency.
GENERAL
The Certificates of each Series will be issued in registered or book-entry
form and will representbeneficial ownership interests in the trust fund (the
"Trust Fund") created pursuant to the Agreement for
- ------------
* Whenever in this Prospectus the terms "Certificates," "Trust Fund" and
"Mortgage Pool" are used, such terms will be deemed to apply, unless the
context indicates otherwise, for a specific Series of Certificates, the Trust
Fund underlying the related Series and the related Mortgage Pool.
3
<PAGE>
such Series. The Trust Fund for each Series will comprise, to the extent
provided in the Agreement: (i) the Mortgage Pool, consisting primarily of the
Mortgage Loans conveyed to the Trustee pursuant to the Agreement; (ii) all
payments on or collections in respect of the Mortgage Loans; (iii) all
property acquired by foreclosure or deed in lieu of foreclosure with respect
to the Mortgage Loans; and (iv) such other assets or rights as are described
in the related Prospectus Supplement. In addition, the Trust Fund for a
Series may include private mortgage pass-through certificates, certificates
issued or guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"),
the Federal National Mortgage Association ("FNMA") or the Governmental
National Mortgage Association ("GNMA") or mortgage pass-through certificates
previously created by the Depositor, as well as various forms of credit
enhancement, such as, but not limited to, insurance policies on the Mortgage
Loans, letters of credit, certificate guarantee insurance policies, the right
to make draws upon one or more Reserve Funds or other arrangements acceptable
to each Rating Agency rating the Certificates. See "ENHANCEMENT." Such other
assets will be described more fully in the related Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, Certificates of a
given Series may be issued in several Classes which may pay interest at
different rates, may represent different allocations of the right to receive
principal and interest payments, and certain of which may be subordinated to
other Classes in the event of shortfalls in available cash flow from the
underlying Mortgage Loans. Alternatively, or in addition, Classes may be
"time-tranched" and, therefore, structured to receive principal payments in
sequence. Each Class in a group of "time-tranched" Classes would be entitled
to be paid in full before the next Class in the group is entitled to receive
any principal payments. A Class of Certificates may also provide for payments
of principal only or interest only or for disproportionate payments of
principal and interest. Subordinate Certificates of a given Series of
Certificates may be offered in the same Prospectus Supplement as the Senior
Certificates of such Series or may be offered in a separate Prospectus
Supplement. Each Class of Certificates of a Series will be issued in the
minimum denominations specified in the related Prospectus Supplement.
The Prospectus Supplement for any Series including Classes similar to any
of those described above will contain a complete description of their
characteristics and risk factors, including, as applicable, (i) mortgage
principal prepayment effects on the weighted average lives of Classes, (ii)
the risk that interest only, or disproportionately interest weighted, Classes
purchased at a premium may not return their purchase prices under rapid
prepayment scenarios and (iii) the degree to which an investor's yield is
sensitive to principal prepayments.
The Certificates of each Series will be freely transferable and
exchangeable at the office specified in the related Agreement and Prospectus
Supplement, provided, however, that certain Classes of Certificates may be
subject to transfer restrictions described in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, the
Certificates may be transferable only on the books of The Depository Trust
Company or another depository identified in such Prospectus Supplement.
DISTRIBUTIONS ON CERTIFICATES
Distributions of principal and interest on the Certificates of each Series
will be made to the registered holders thereof ("Certificateholders" or
"Holders") by the Trustee (or such other paying agent as may be identified in
the related Prospectus Supplement) on the day (the "Distribution Date")
specified in the related Prospectus Supplement, beginning in the period
specified in the related Prospectus Supplement following the establishment of
the related Trust Fund. Distributions for each Series will be made by check
mailed to the address of the person entitled thereto as it appears on the
certificate register for such Series maintained by the Trustee, by wire
transfer or by such other method as is specified in the related Prospectus
Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, the final distribution in retirement of the Certificates of each
Series will be made only upon presentation and surrender of the Certificates
at the office or agency specified in the notice to the Certificateholders of
such final distribution. In addition, the Prospectus Supplement relating to
each Series will set forth the applicable due period, prepayment period,
record date, Cut-Off Date and determination date in respect of each Series of
Certificates.
4
<PAGE>
With respect to each Series of Certificates on each Distribution Date, the
Trustee (or such other paying agent as may be identified in the applicable
Prospectus Supplement) will distribute to the Certificateholders the amounts
described in the related Prospectus Supplement that are due to be paid on
such Distribution Date. In general, such amounts will include previously
undistributed payments of principal (including principal prepayments, if any)
and interest on the Mortgage Loans received by the Trustee after a date
specified in the related Prospectus Supplement (the "Cut-Off Date") and prior
to the day preceding each Distribution Date specified in the related
Prospectus Supplement.
ACCOUNTS
It is expected that the Agreement for each Series of Certificates will
provide that the Trustee establish an account (the "Distribution Account")
into which the Master Servicer will deposit amounts held in the Collection
Account from which account distributions will be made with respect to a given
Distribution Date. On each Distribution Date, the Trustee will apply amounts
on deposit in the Distribution Account generally to make distributions of
interest and principal to the Certificateholders in the manner described in
the related Prospectus Supplement.
It is also expected that the Agreement for each Series of Certificates
will provide that the Master Servicer establish and maintain a special trust
account (the "Collection Account") in the name of the Trustee for the benefit
of Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will deposit into the Collection Account, as
more fully described in the related Prospectus Supplement: (1) all payments
on account of principal, including principal prepayments, on the Mortgage
Loans; (2) all payments on account of interest on the Mortgage Loans and all
Prepayment Premiums; (3) all proceeds from any insurance policy relating to a
Mortgage Loan ("Insurance Proceeds") other than proceeds applied to
restoration of the related Mortgaged Property; (4) all proceeds from the
liquidation of a Mortgage Loan ("Liquidation Proceeds"), including the sale
of any Mortgaged Property acquired on behalf of the Trust Fund through
foreclosure or deed in lieu of foreclosure ("REO Property"); (5) all proceeds
received in connection with the taking of a Mortgaged Property by eminent
domain; (6) any amounts required to be deposited by the Master Servicer to
cover net losses on Permitted Investments made with funds held in the
Collection Account; (7) any amounts required to be deposited in connection
with the application of co-insurance clauses, flood damage to REO Properties
and blanket policy deductibles; (8) any amounts required to be deposited from
income with respect to any REO Property; and (9) any amounts received from
Borrowers which represent recoveries of Property Protection Expenses.
"Prepayment Premium" means any premium paid or payable by the related
Borrower in connection with any principal prepayment on any Mortgage Loan.
"Property Protection Expenses" comprise certain costs and expenses incurred
in connection with defaulted Mortgage Loans, acquiring title or management of
REO Property or the sale of defaulted Mortgage Loans or REO Properties, as
more fully described in the related Agreement. As set forth in the Agreement
for each Series, the Master Servicer will be entitled to make certain
withdrawals from the Collection Account to, among other things: (i) remit
certain amounts for the related Distribution Date into the Distribution
Account; (ii) reimburse Property Protection Expenses and pay taxes,
assessments and insurance premiums and certain third-party expenses in
accordance with the Agreement; (iii) pay accrued and unpaid servicing fees to
the Master Servicer out of all Mortgage Loan collections; and (iv) reimburse
the Master Servicer, the Trustee and the Depositor for certain expenses and
provide indemnification to the Depositor and the Master Servicer as described
in the Agreement.
The amount at any time credited to the Collection Account may be invested
in Permitted Investments that are payable on demand or in general mature or
are subject to withdrawal or redemption on or before the business day
preceding the next succeeding Master Servicer Remittance Date. The Master
Servicer will be required to remit amounts required for distribution to
Certificateholders to the Distribution Account on the business day preceding
the related Distribution Date (the "Master Servicer Remittance Date"). The
income from the investment of funds in the Collection Account in Permitted
Investments will constitute additional servicing compensation for the Master
Servicer, and the risk of loss of funds in the Collection Account resulting
from such investments will be borne by the Master Servicer. The amount of
each such loss will be required to be deposited by the Master Servicer in the
Collection Account immediately as realized.
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It is expected that the Agreement for each Series of Certificates will
provide that a special trust account (the "REO Account") will be established
and maintained in order to be used in connection with REO Properties and, if
specified in the related Prospectus Supplement, certain other Mortgaged
Properties. To the extent set forth in the Agreement, certain withdrawals
from the REO Account will be made to, among other things, (i) make
remittances to the Collection Account as required by the Agreement, (ii) pay
taxes, assessments, insurance premiums, other amounts necessary for the
proper operation, management and maintenance of the REO Properties and such
Mortgaged Properties and certain third-party expenses in accordance with the
Agreement and (iii) provide for the reimbursement of certain expenses in
respect of the REO Properties and such Mortgaged Properties.
The amount at any time credited to the REO Account will be fully insured
to the maximum coverage possible or will be invested in Permitted Investments
that mature, or are subject to withdrawal or redemption, on or before the
business day on which such amounts are required to be remitted to the Master
Servicer for deposit in the Collection Account. The income from the
investment of funds in the REO Account in Permitted Investments shall be
deposited in the REO Account for remittance to the Collection Account, and
the risk of loss of funds in the REO Account resulting from such investments
will be borne by the Trust Fund.
Unless otherwise specified in the applicable Prospectus Supplement,
"Permitted Investments" will consist of one or more of the following:
(i) direct obligations of, or guarantees as to timely payment of
principal and interest by, the United States or any agency or
instrumentality thereof provided that such obligations are backed by the
full faith and credit of the United States of America;
(ii) direct obligations of, or guarantees as to timely payment of
principal and interest by, the FHLMC, FNMA or the Federal Farm Credit
System, provided that any such obligation, at the time of purchase of
such obligation or contractual commitment providing for the purchase
thereof, is qualified by each Rating Agency as an investment of funds
backing securities having ratings equivalent to each Rating Agency's
highest initial rating of the Certificates;
(iii) demand and time deposits in or certificates of deposit of, or
bankers' acceptances issued by, any bank or trust company, savings and
loan association or savings bank, provided that, in the case of
obligations that are not fully FDIC-insured deposits, the commercial
paper and/or long-term unsecured debt obligations of such depository
institution or trust company (or in the case of the principal depository
institution in a holding company system, the commercial paper or
long-term unsecured debt obligations of such holding company) have the
highest rating available for such securities by each Rating Agency (in
the case of commercial paper) or have received one of the two highest
ratings available for such securities by each Rating Agency (in the case
of long-term unsecured debt obligations), or such lower rating as will
not result in the downgrade or withdrawal of the rating or ratings then
assigned to the Certificates by any Rating Agency;
(iv) general obligations of or obligations guaranteed by any state of
the United States or the District of Columbia receiving one of the two
highest long-term debt ratings available for such securities by each
Rating Agency, or such lower rating as will not result in the downgrading
or withdrawal of the rating or ratings then assigned to the Certificates
by any such Rating Agency;
(v) commercial or finance company paper (including both
non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more than one
year after the date of issuance thereof) that is rated by each Rating
Agency in its highest short-term unsecured rating category at the time of
such investment or contractual commitment providing for such investment,
and is issued by a corporation the outstanding senior long-term debt
obligations of which are then rated by each Rating Agency in one of its
two highest long-term unsecured rating categories, or such lower rating
as will not result in the downgrading or withdrawal of the rating or
ratings then assigned to the Certificates by any Rating Agency;
(vi) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation rated in one of the two highest ratings
available to such issuers by each Rating Agency
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at the time of such investment provided that any such agreement must by
its terms provide that it is terminable by the purchaser without penalty
in the event any such rating is at any time lower than such level;
(vii) repurchase obligations with respect to any security described
in clause (i) or (ii) above entered into with a depository institution or
trust company (acting as principal) meeting the ratings standard
described in (iii) above;
(viii) securities bearing interest or sold at a discount issued by
any corporation incorporated under the laws of the United States or any
state thereof and rated by each Rating Agency in one of its two highest
long-term unsecured rating categories at the time of such investment or
contractual commitment providing therefor; provided, however, that
securities issued by any such corporation will not be Permitted
Investments to the extent that investment therein would cause the then
outstanding principal amount of securities issued by such corporation and
held as part of the Collection Account or the Distribution Account to
exceed 20% of the aggregate principal amount of all Permitted Investments
held in the Collection Account and the Distribution Account;
(ix) units of taxable money market funds which funds are regulated
investment companies, seek to maintain a constant net asset value per
share and invest solely in obligations backed by the full faith and
credit of the United States, and have been designated in writing by each
Rating Agency as Permitted Investments with respect to this definition;
(x) if previously confirmed in writing to the Trustee, any other
demand, money market or time deposit, or any other obligation, security
or investment, as may be acceptable to each Rating Agency as an
investment of funds backing securities having ratings equivalent to each
Rating Agency's highest initial rating of the Certificates; and
(xi) such other obligations as are acceptable as Permitted
Investments to each Rating Agency;
provided, however, that (a) such instrument or security shall qualify as a
"cash flow investment" pursuant to the Internal Revenue Code of 1986, as
amended (the "Code") and (b) no instrument or security shall be a Permitted
Investment if (i) such instrument or security evidences a right to receive
only interest payments or (ii) the stated interest rate on such investment is
in excess of 120% of the yield to maturity produced by the price at which
such investment was purchased.
AMENDMENT
The Agreement for each Series will provide that it may be amended by the
parties thereto without the consent of any of the Certificateholders to cure
any ambiguity, to correct or supplement any provision therein that may be
inconsistent with any other provision therein, to maintain the rating or
ratings assigned to the Certificates by a Rating Agency or to make other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions of the Agreement, provided
that such action will not, as evidenced by an opinion of counsel acceptable
to the Depositor and the Trustee, adversely affect in any material respect
the interests of any Certificateholder.
Each Agreement will also provide that it may be amended by the parties
thereto with the consent of the Holders of Certificates representing an
aggregate outstanding principal amount of not less than a percentage
specified in the related Agreement of each Class of Certificates affected by
the proposed amendment for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Agreement
or modifying in any manner the rights of Certificateholders; provided,
however, that no such amendment may (i) reduce in any manner the amount of,
or delay the timing of, payments received on Mortgage Loans which are
required to be distributed on any Certificate without the consent of each
affected Certificateholder, (ii) reduce the aforesaid percentage of
Certificates the Holders of which are required to consent to any such
amendment, without the consent of the Holders of all Certificates then
outstanding, or (iii) alter the servicing standard set forth in the
Agreement. Further, the Agreement for each Series may provide that the
parties thereto, at any time and from time to time, without the consent of
the Certificateholders, may amend the Agreement to modify, eliminate or add
to any of its provisions to such extentas shall be necessary to maintain the
qualification of the REMIC Pool
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as a REMIC at all times that any of the Certificates are outstanding;
provided, however, that such action, as evidenced by an opinion of counsel
acceptable to the Trustee, is necessary or helpful to maintain such
qualification, and would not adversely affect in any material respect the
interest of any Certificateholder.
The Agreement relating to each Series may provide that no amendment to
such Agreement will be made unless there has been delivered in accordance
with such Agreement an opinion of counsel to the effect that such amendment
will not cause such Series to fail to qualify as a REMIC at any time that any
of the Certificates are outstanding.
The Prospectus Supplement for a Series may describe other or different
provisions concerning the amendment of the related Agreement.
TERMINATION; REPURCHASE OF MORTGAGE LOANS
The obligations of the parties to the Agreement for each Series will
terminate upon: (i) the purchase of all of the assets of the related Trust
Fund, as described in the related Prospectus Supplement; (ii) the later of
(a) the distribution to Certificateholders of that Series of final payment
with respect to the last outstanding Mortgage Loan or (b) the disposition of
all property acquired upon foreclosure or deed in lieu of foreclosure with
respect to the last outstanding Mortgage Loan and the remittance to the
Certificateholders of all funds due under the Agreement; (iii) the sale of
the assets of the related Trust Fund after the principal amounts of all
Certificates have been reduced to zero under circumstances set forth in the
Agreement; or (iv) mutual consent of the parties and all Certificateholders.
With respect to each Series, the Trustee will give or cause to be given
written notice of termination of the Agreement to each Certificateholder and,
unless otherwise specified in the applicable Prospectus Supplement, the final
distribution under the Agreement will be made only upon surrender and
cancellation of the related Certificates at an office or agency specified in
the notice of termination.
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution for each Series, the Trustee (or such
other paying agent as may be identified in the applicable Prospectus
Supplement) will forward to each Certificateholder a statement setting forth
such information relating to such distribution as is specified in the
Agreement and described in the applicable Prospectus Supplement.
THE TRUSTEE
The Depositor will select a bank or trust company to act as trustee (the
"Trustee") under the Agreement for each Series and the Trustee will be
identified, and its obligations under that Agreement will be described, in
the applicable Prospectus Supplement.
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THE MORTGAGE POOLS
GENERAL
Each Mortgage Pool will consist of mortgage loans secured by first or
junior mortgages, deeds of trust or similar security instruments
("Mortgages") on, or installment contracts ("Installment Contracts") for the
sale of, fee simple or leasehold interests in commercial real estate
property, multifamily residential property, cooperatively owned multifamily
properties and/or mixed residential/commercial property, and related property
and interests (each such interest or property, as the case may be, a
"Mortgaged Property"). A Mortgaged Pool may also include any or all of the
participation interests in such types of mortgage loans, private mortgage
pass-through certificates, certificates issued or guaranteed by FHLMC, FNMA
or GNMA and mortgage pass-through certificates previously created by the
Depositor. Each such mortgage loan, Installment Contract, participation
interest or certificate is herein referred to as a "Mortgage Loan."
All Mortgage Loans will be of one or more of the following types:
1. mortgage loans with fixed interest rates;
2. mortgage loans with adjustable interest rates;
3. mortgage loans whose principal balances fully amortize over their
remaining terms to maturity;
4. mortgage loans whose principal balances do not fully amortize but
instead provide for a substantial principal payment at the stated
maturity of the loan;
5. mortgage loans that provide for recourse against only the
Mortgaged Properties;
6. mortgage loans that provide for recourse against the other assets
of the related Borrowers (as defined below); and
7. any other types of mortgage loans described in the applicable
Prospectus Supplement.
Certain Mortgage Loans ("Simple Interest Loans") may provide that
scheduled interest and principal payments thereon are applied first to
interest accrued from the last date to which interest has been paid to the
date such payment is received and the balance thereof is applied to
principal, and other Mortgage Loans may provide for payment of interest in
advance rather than in arrears.
Mortgage Loans may also be secured by one or more assignments of leases
and rents, management agreements or operating agreements relating to the
Mortgaged Property and in some cases by certain letters of credit, personal
guarantees or both. Pursuant to an assignment of leases and rents, the
obligor (the "Borrower") on the related promissory note (the "Note") assigns
its right, title and interest as landlord under each lease and the income
derived therefrom to the related lender, while retaining a license to collect
the rents for so long as there is no default. If the Borrower defaults, the
license terminates and the related lender is entitled to collect the rents
from tenants to be applied to the monetary obligations of the Borrower. State
law may limit or restrict the enforcement of the assignment of leases and
rents by a lender until the lender takes possession of the related Mortgaged
Property and a receiver is appointed. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS --Leases and Rents."
A Trust Fund may consist of a single Mortgage Loan or a number of Mortgage
Loans with a single obligor or related obligors thereunder, or multiple
Mortgage Loans with multiple unrelated obligors thereunder, as specified in
the related Prospectus Supplement. The Mortgage Loans will be newly
originated or seasoned, and will be acquired by the Depositor either directly
or through one or more affiliates.
Unless otherwise specified in the Prospectus Supplement for a Series, the
Mortgage Loans will not be insured or guaranteed by the United States, any
governmental agency, any private mortgage insurer or any other person or
entity.
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The Prospectus Supplement relating to each Series will specify the
originator or originators relating to the Mortgage Loans, which may include,
among others, commercial banks, savings and loan associations, other
financial institutions, insurance companies or real estate developers, and
the underwriting criteria to the extent available in connection with
originating the Mortgage Loans. The criteria applied by the Depositor in
selecting the Mortgage Loans to be included in a Mortgage Pool will vary from
Series to Series. The Prospectus Supplement relating to each Series also will
provide specific information regarding the characteristics of the Mortgage
Loans, as of the Cut-Off Date, including, among other things: (i) the
aggregate principal balance of the Mortgage Loans; (ii) the types of
properties securing the Mortgage Loans and the aggregate principal balance of
the Mortgage Loans secured by each type of property; (iii) the interest rate
or range of interest rates of the Mortgage Loans; (iv) the origination dates
and the original and, with respect to seasoned Mortgage Loans, remaining
terms to stated maturity of the Mortgage Loans; (v) the loan-to-value ratios
at origination and, with respect to seasoned Mortgage Loans, current loan
balance-to-original value ratios of the Mortgage Loans; (vi) the geographic
distribution of the Mortgaged Properties underlying the Mortgage Loans; (vii)
the minimum interest rates, margins, adjustment caps, adjustment frequencies,
indices and other similar information applicable to adjustable rate Mortgage
Loans; (viii) the debt service coverage ratios relating to the Mortgage
Loans; and (ix) payment delinquencies, if any, relating to the Mortgage
Loans. The applicable Prospectus Supplement will also specify any inadequate,
incomplete or obsolete documentation relating to the Mortgage Loans and other
characteristics of the Mortgage Loans relating to each Series. If specified
in the applicable Prospectus Supplement, the Depositor may segregate the
Mortgage Loans in a Mortgage Pool into separate "Mortgage Loan Groups" (as
described in the related Prospectus Supplement) as part of the structure of
the payments of principal and interest on the Certificates of a Series. In
such case, the Depositor will disclose the above-specified information by
Mortgage Loan Group.
The Depositor will file a current report on Form 8-K (the "Form 8-K") with
the Securities and Exchange Commission within 15 days after the initial
issuance of each Series of Certificates (each, a "Closing Date"), as
specified in the related Prospectus Supplement, which will set forth
information with respect to the Mortgage Loans included in the Trust Fund for
a Series as of the related Closing Date. The Form 8-K will be available to
the Certificateholders of the related Series promptly after its filing.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates of each Series, the Depositor
will cause the Mortgage Loans to be assigned to the Trustee, together with,
as more fully specified in the related Prospectus Supplement, all principal
and interest due on or with respect to such Mortgage Loans, other than
principal and interest due on or before the Cut-Off Date and principal
prepayments received on or before the Cut-Off Date. The Trustee, concurrently
with such assignment, will execute and deliver Certificates evidencing the
beneficial ownership interests in the related Trust Fund to the Depositor in
exchange for the Mortgage Loans. Each Mortgage Loan will be identified in a
schedule appearing as an exhibit to the Agreement for the related Series (the
"Mortgage Loan Schedule"). The Mortgage Loan Schedule will include, among
other things, as to each Mortgage Loan, information as to its outstanding
principal balance as of the close of business on the Cut-Off Date, as well as
information respecting the interest rate, the scheduled monthly (or other
periodic) payment of principal and interest as of the Cut-Off Date and the
maturity date of each Note.
In addition, except to the extent otherwise specified in the applicable
Prospectus Supplement, the Depositor will, as to each Mortgage Loan, deliver
to the Trustee: (i) the Note, endorsed to the order of the Trustee without
recourse; (ii) the Mortgage and an executed assignment thereof in favor of
the Trustee or otherwise as required by the Agreement; (iii) any assumption,
modification or substitution agreements relating to the Mortgage Loan; (iv) a
lender's title insurance policy (or owner's policy in the case of an
Installment Contract), together with its endorsements, or an attorney's
opinion of title issued as of the date of origination of the Mortgage Loan;
(v) if the assignment of leases, rents and profits is separate from the
Mortgage, an executed re-assignment of assignment of leases, rents and
profits to the Trustee; and (vi) such other documents as may be described in
the Agreement (such documents collectively, the "Mortgage Loan File"). Unless
otherwise expressly permitted by the Agreement, all documents included in the
Mortgage Loan File are to be original executed documents, provided, however,
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that in instances where the original recorded Mortgage, Mortgage assignment
or any document necessary to assign the Depositor's interest in Installment
Contracts to the Trustee, as described in the Agreement, has been retained by
the applicable jurisdiction or has not yet been returned from recordation,
the Depositor may deliver a photocopy thereof certified to be the true and
complete copy of the original thereof submitted for recording.
The Trustee will hold the Mortgage Loan File for each Mortgage Loan in
trust for the benefit of all Certificateholders. Pursuant to the Agreement,
the Trustee is obligated to review the Mortgage Loan File for each Mortgage
Loan within a specified number of days after the execution and delivery of
the Agreement. Unless otherwise specified in the related Prospectus
Supplement, if any document in the Mortgage Loan Fileis found to be defective
in any material respect, the Trustee will promptly notify the Depositor and
the Master Servicer. Unless otherwise specified in the related Prospectus
Supplement, if the Master Servicer or other entity cannot cure such defect
within the time period specified in such Prospectus Supplement, the Master
Servicer or such other entity will be obligated to either substitute the
affected Mortgage Loan for a Substitute Mortgage Loan or Loans, or to
repurchase the related Mortgage Loan from the Trustee within the time period
specified in such Prospectus Supplement at a price equal to the principal
balance thereof as of the date of purchase or, in the case of a Series as to
which an election has been made to treat the related Trust Fund as a REMIC,
at such other price as may be necessary to avoid a tax on a prohibited
transaction, as described in Section 860F(a) of the Code, in each case
together with accrued interest at the applicable Pass-Through Rate to the
first day of the month following such repurchase, plus the amount of any
unreimbursed advances made by the Master Servicer in respect of such Mortgage
Loan. Unless otherwise specified in the applicable Prospectus Supplement,
this purchase obligation constitutes the sole remedy available to the Holders
of Certificates or the Trustee for a material defect in a constituent
document.
MORTGAGE UNDERWRITING STANDARDS AND PROCEDURES
The underwriting procedures and standards for Mortgage Loans included in a
Mortgage Pool will be specified in the related Prospectus Supplement to the
extent such procedures and standards are known or available. Such Mortgage
Loans may be originated in contemplation of the transactions contemplated by
this Prospectus and the related Prospectus Supplement or may have been
originated by third-parties and acquired by the Depositor directly or through
its affiliates in negotiated transactions.
Except as otherwise set forth in the related Prospectus Supplement for a
Series, the originator of a Mortgage Loan will have applied underwriting
procedures intended to evaluate, among other things, the income derived from
the Mortgaged Property, the capabilities of the management of the project,
including a review of management's past performance record, its management
reporting and control procedures (to determine its ability to recognize and
respond to problems) and its accounting procedures to determine cash
management ability, the obligor's credit standing and repayment ability and
the value and adequacy of the Mortgaged Property as collateral. Mortgage
Loans insured by the Federal Housing Administration ("FHA"), a division of
the United States Department of Housing and Urban Development ("HUD"), will
have been originated by mortgage lenders which are approved by HUD as an FHA
mortgagee in the ordinary course of their real estate lending activities and
will comply with the underwriting policies of FHA.
If so specified in the related Prospectus Supplement, the adequacy of a
Mortgaged Property as security for repayment will generally have been
determined by appraisal by appraisers selected in accordance with
preestablished guidelines established by or acceptable to the loan originator
for appraisers. If so specified in the related Prospectus Supplement, the
appraiser must have personally inspected the property and verified that it
was in good condition and that construction, if new, has been completed.
Unless otherwise stated in the applicable Prospectus Supplement, the
appraisal will have been based upon a cash flow analysis and/or a market data
analysis of recent sales of comparable properties and, when deemed
applicable, a replacement cost analysis based on the current cost of
constructing or purchasing a similar property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. Further, there is no assurance that
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appreciation of real estate values generally will limit loss experiences on
commercial properties or multifamily residential properties. If the
commercial real estate market should experience an overall decline in
property values such that the outstanding balances of the Mortgage Loans and
any additional financing on the Mortgaged Properties in a particular Mortgage
Pool become equal to or greater than the value of the Mortgaged Properties,
the actual rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending industry. To the
extent that such losses are not covered by the methods of Enhancement or the
insurance policies described herein, the ability of the Depositor to pay
principal of and interest on the Certificates may be adversely affected. Even
where credit support covers all losses resulting from defaults and
foreclosure, the effect of defaults and foreclosures may be to increase
prepayment experience on the Mortgage Loans, thus shortening weighted average
life and affecting yield to maturity.
REPRESENTATIONS AND WARRANTIES
Unless otherwise specified in the related Prospectus Supplement, the
seller (the "Unaffiliated Seller") of a Mortgage Loan to the Depositor or any
of its affiliates (or the Master Servicer, if the Unaffiliated Seller is also
the Master Servicer under the Agreement) will have made representations and
warranties in respect of the Mortgage Loans sold by such Unaffiliated Seller
(or the Master Servicer) to the Depositor or its affiliates. Such
representations and warranties will generally include, among other things:
(i) with respect to each Mortgaged Property, that title insurance (or in the
case of Mortgaged Properties located in areas where such policies are
generally not available, an attorney's opinion of title) and any required
hazard insurance was effective at the origination of each Mortgage Loan, and
that each policy (or opinion of title) remained in effect on the date of
purchase of the Mortgage Loan from the Unaffiliated Seller; (ii) that the
Unaffiliated Seller had good and marketable title to each such Mortgage Loan;
(iii) with respect to each Mortgaged Property, that each mortgage constituted
a valid first lien on the Mortgaged Property (subject only to permissible
title insurance exceptions), unless otherwise specified in the related
Prospectus Supplement; (iv) that there were no delinquent tax or assessment
liens against the Mortgaged Property; and (v) that each Mortgage Loan was
current as to all required payments (unless otherwise specified in the
related Prospectus Supplement).
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate.
A substantial period of time may have elapsed between such date and the date
of the initial issuance of the Series of Certificates evidencing an interest
in such Mortgage Loan. Since the representations and warranties of an
Unaffiliated Seller do not address events that may occur following the sale
of a Mortgage Loan by an Unaffiliated Seller, the repurchase obligation of
the Unaffiliated Seller described below will not arise if, on or after the
date of the sale of a Mortgage Loan by the Unaffiliated Seller to the
Depositor or its affiliates, the relevant event occurs that would have given
rise to such an obligation. However, the Depositor will not include any
Mortgage Loan in the Trust Fund for any Series of Certificates if anything
has come to the Depositor's attention that would cause it to believe that the
representations and warranties of an Unaffiliated Seller will not be accurate
and complete in all material respects in respect of such Mortgage Loanas of
the related Cut-Off Date. If so specified in the related Prospectus
Supplement, the Depositor will make certain representations and warranties
for the benefit of Holders of Certificates of a Series in respect of a
Mortgage Loan that relate to the period commencing on the date of sale of
such Mortgage Loan to the Depositor or its affiliates.
Unless otherwise set forth or specified in the related Prospectus
Supplement, upon the discovery of the breach of any representation or
warranty made by an Unaffiliated Seller in respect of a Mortgage Loan that
materially and adversely affects the interests of the Certificateholders of
the related Series, such Unaffiliated Seller or, if so specified in the
related Prospectus Supplement, the Master Servicer will be obligated to
repurchase such Mortgage Loan at a purchase price equal to 100% of the unpaid
principal balance thereof at the date of repurchase or, in the case of a
Series of Certificates as to which the Depositor has elected to treat the
related Trust Fund as a REMIC, as defined in the Code, at such other price as
may be necessary to avoid a tax on a prohibited transaction, as described in
Section 860F(a) of the Code, in each case together with accrued interest at
the Pass-Through Rate for the related Mortgage Pool, to the first day of the
month following such repurchase and the amount of any unreimbursed
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advances made by the Master Servicer in respect of such Mortgage Loan. The
Master Servicer will be required to enforce such obligation of the
Unaffiliated Seller for the benefit of the Trustee and the
Certificateholders, following the practices it would employ in its good faith
business judgment were it the owner of such Mortgage Loan. Unless otherwise
specified in the applicable Prospectus Supplement and subject to the ability
of the Unaffiliated Seller or the Master Servicer to deliver Substitute
Mortgage Loans for certain Mortgage Loans as described below, this repurchase
obligation constitutes the sole remedy available to the Certificateholders of
such Series for a breach of a representation or warranty by an Unaffiliated
Seller.
Any obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller defaults on its obligation to do so is subject to
limitations, and no assurance can be given that an Unaffiliated Seller will
carry out its repurchase obligation with respect to the Mortgage Loans.
The Depositor will make representations and warranties with respect to the
Mortgage Loans in a Mortgage Pool, as specified in the related Prospectus
Supplement. Upon a breach of any representation or warranty by the Depositor
that materially and adversely affects the interests of the
Certificateholders, the Depositor will be obligated either to cure the breach
in all material respects or to purchase the Mortgage Loan at the purchase
price set forth above. Unless otherwise specified in the applicable
Prospectus Supplement and subject to the ability of the Depositor to deliver
Substitute Mortgage Loans for certain Mortgage Loans as described below, this
repurchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for a breach of representation or warranty
by the Depositor.
The proceeds of any repurchase of a Mortgage Loan will be deposited,
subject to certain limitations set forth in the related Agreement, into the
Collection Account.
Within the period of time specified in the related Prospectus Supplement,
following the date of issuance of a Series of Certificates, the Depositor,
the Master Servicer or the Unaffiliated Seller, as the case may be, may
deliver to the Trustee Mortgage Loans ("Substitute Mortgage Loans") in
substitution for any one or more of the Mortgage Loans ("Deleted Mortgage
Loans") initially included in the Trust Fund but which do not conform in one
or more respects to the description thereof contained in the related
Prospectus Supplement, as to which a breach of a representation or warranty
is discovered, which breach materially and adversely affects the interests of
the Certificateholders, or as to which a document in the related Mortgage
Loan File is defective in any material respect. Unless otherwise specified in
the related Prospectus Supplement, the required characteristics of any
Substitute Mortgage Loan will generally include, among other things, that
such Substitute Mortgage Loan on the date of substitution, will (i) have an
outstanding principal balance, after deduction of all scheduled payments due
in the month of substitution, not in excess of the outstanding principal
balance of the Deleted Mortgage Loan (the amount of any shortfall to be
distributed to Certificateholders in the month of substitution), (ii) have a
per annum interest rate (the "Mortgage Interest Rate") not less than (and not
more than 1% greater than) the Mortgage Interest Rate of the Deleted Mortgage
Loan, (iii) have a remaining term to maturity not greater than (and not more
than one year less than) that of the Deleted Mortgage Loan and (iv) comply
with all the representations and warranties set forth in the Agreement as of
the date of substitution.
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SERVICING OF THE MORTGAGE LOANS
GENERAL
The Prospectus Supplement related to a Series will identify the master
servicer, or if there is only one servicer of the Mortgage Loans, the
servicer thereof (as applicable, the "Master Servicer") and will set forth
certain information concerning the Master Servicer. The Master Servicer may
be an affiliate of the Depositor and may have other business relationships
with the Depositor and its affiliates.
The Master Servicer will be responsible for servicing the Mortgage Loans
pursuant to the Agreement for the related Series. If so specified in the
related Prospectus Supplement, the Master Servicer may subcontract the
servicing of all or a portion of the Mortgage Loans to one or more
sub-servicers and may subcontract the servicing of certain Mortgage Loans
that are in default or otherwise require special servicing (the "Specially
Serviced Mortgage Loans") to a special servicer (the "Special Servicer"), and
certain information with respect to the Special Servicer will be set forth in
such Prospectus Supplement. Such sub-servicers and the Special Servicer may
be an affiliate of the Depositor and may have other business relationships
with Depositor and its affiliates.
COLLECTIONS AND OTHER SERVICING PROCEDURES
The Master Servicer will make reasonable efforts to collect all payments
called for under the Mortgage Loans and will, consistent with the related
Agreement, following such collection procedures as it deems necessary or
desirable. Consistent with the above, the Master Servicer may, in its
discretion, waive any late payment or assumption charge or penalty interests
in connection with late payment or assumption of a Mortgage Loan and, if so
specified in the related Prospectus Supplement, may extend the due dates for
payments due on a Note.
It is expected that the Agreement for each Series will provide that the
Master Servicer establish and maintain an escrow account (the "Escrow
Account") in which the Master Servicer will be required to deposit amounts
received from each Borrower, if required by the terms of the related Note,
for the payment of taxes, assessments, certain mortgage and hazard insurance
premiums and other comparable items. The Special Servicer, if any, will be
required to remit amounts received for such purposes on Mortgage Loans
serviced by it for deposit in the Escrow Account, and will be entitled to
direct the Master Servicer to make withdrawals from the Escrow Account as may
be required for servicing of such Mortgage Loans. Withdrawals from the Escrow
Account may be made to effect timely payment of taxes, assessments, mortgage
and hazard insurance premiums, to refund to Borrowers amounts determined to
be overages, to remove amounts deposited therein in error, to pay interest to
Borrowers on balances in the Escrow Account, if required, to repair or
otherwise protect the Mortgaged Properties and to clear and terminate such
account. The Master Servicer will be entitled to all income on the funds in
the Escrow Account invested in Permitted Investments not required to be paid
to Borrowers under applicable law. The Master Servicer will be responsible
for the administration of the Escrow Account. If amounts on deposit in the
Escrow Account are insufficient to pay any tax, insurance premium or other
similar item when due, such item will be payable from amounts on deposit in
the Collection Account or, to the extent such amounts are insufficient, in
the manner set forth in the Prospectus Supplement and Agreement for the
related Series.
INSURANCE
Unless otherwise specified in the applicable Prospectus Supplement, the
Agreement for each Series will require that the Master Servicer maintain or
require each Borrower to maintain insurance in accordance with the related
Mortgage, which generally will include a standard fire and hazard insurance
policy with extended coverage. To the extent required by the related
Mortgage, the coverage of each such standard hazard insurance policy will be
in an amount that is not less than the lesser of the full replacement cost of
the improvements securing such Mortgage Loan or the outstanding principal
balance owing on such Mortgage Loan. If a Mortgaged Property was located at
the time of origination of the related Mortgage Loan in a federally
designated special flood hazard area, the Master Servicer will also
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maintain or require the related Borrower to maintain flood insurance in an
amount equal to the lesser of the unpaid principal balance of the related
Mortgage Loan and the maximum amount obtainable with respect to the Mortgage
Loan. To the extent set forth in the related Prospectus Supplement, the cost
of any such insurance maintained by the Master Servicer will be an expense of
the Trust Fund payable out of the Collection Account. The Master Servicer
will cause to be maintained fire and hazard insurance with extended coverage
on each REO Property in an amount which is at least equal to the greater of
(i) an amount not less than the amount necessary to avoid the application of
any coinsurance clause contained in the related insurance policy and (ii) the
replacement cost of the improvements which are a part of such property. The
cost of any such insurance with respect to an REO Property will be an expense
of the Trust Fund payable out of amounts on deposit in the related REO
Account or, if such amounts are insufficient, from the Collection Account.
The Master Servicer will maintain flood insurance providing substantially the
same coverage as described above on any REO Property which was located in a
federally designated special flood hazard area at the time the related
Mortgage Loan was originated. The related Agreement will provide that the
Master Servicer may satisfy its obligation to cause hazard policies to be
maintained by maintaining a master, or single interest blanket, insurance
policy insuring against losses on the Mortgage Loans or REO Properties, as
the case may be. The incremental cost of such insurance allocable to any
particular Mortgage Loan, if not borne by the related Borrower, will be an
expense of the Trust Fund. Alternatively, the Master Servicer may satisfy its
obligation by maintaining, at its expense, a blanket policy (i.e., not a
single interest or master policy) insuring against losses on the Mortgage
Loans or REO Properties, as the case may be. If such a blanket policy
contains a deductible clause, the Master Servicer will be obligated to
deposit in the Collection Account all sums which would have been deposited
therein but for such clause.
In general, the standard form of fire and hazard extended coverage policy
will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions and
exclusions particularized in each policy. Since the standard hazard insurance
policies relating to the Mortgage Loans will be underwritten by different
insurers and will cover Mortgaged Properties located in various states, such
policies will not contain identical terms and conditions. The most
significant terms thereof, however, generally will be determined by state law
and conditions. Most such policies typically will not cover any physical
damage resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list
is merely indicative of certain kinds of uninsured risks and is not intended
to be all-inclusive. Any losses incurred with respect to Mortgage Loans due
to uninsured risks (including earthquakes, mudflows and floods) or
insufficient hazard insurance proceeds could affect distributions to the
Certificateholders.
The standard hazard insurance policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which,
in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of
the dwellings, structures and other improvements on the Mortgaged Property in
order to recover the full amount of any partial loss. If the insured's
coverage falls below this specified percentage, such clause will provide that
the insurer's liability in the event of partial loss will not exceed the
greater of (i) the actual cash value (the replacement cost less physical
depreciation) of the structures and other improvements damaged or destroyed
and (ii) such proportion of the loss, without deduction for depreciation, as
the amount of insurance carried bears to the specified percentage of the full
replacement cost of such dwellings, structures and other improvements.
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the Borrower to maintain other forms of insurance
including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance, and the
related Agreement may require the Master Servicer to maintain public
liability insurance with respect to any REO Properties. Any cost incurred by
the Master Servicer in maintaining any such insurance policy will be added to
the amount owing under the Mortgage Loan where the terms of the Mortgage Loan
so permit;
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provided, however, that the addition of such cost will not be taken into
account for purposes of calculating the distribution to be made to
Certificateholders. Such costs may be recovered by the Master Servicer from
the Collection Account, with interest thereon, as provided by the Agreement.
Unless otherwise specified in the applicable Prospectus Supplement, no
pool insurance policy, special hazard insurance policy, bankruptcy bond,
repurchase bond or guarantee insurance will be maintained with respect to the
Mortgage Loans, nor will any Mortgage Loan be subject to FHA insurance.
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under the National Housing Act of
1934, as amended, and the United States Housing Act of 1937, as amended. To
the extent specified in the related Prospectus Supplement, all or a portion
of the Mortgage Loans may be insured by the FHA. The Master Servicer will be
required to take such steps as are reasonably necessary to keep such
insurance in full force and effect.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the applicable Prospectus Supplement, the
Agreement for each Series will require that the Master Servicer obtain and
maintain in effect a fidelity bond or similar form of insurance coverage
(which may provide blanket coverage) or any combination thereof insuring
against loss occasioned by fraud, theft or other intentional misconduct of
the officers, employees and agents of the Master Servicer. The related
Agreement will allow the Master Servicer to self-insure against loss
occasioned by the errors and omissions of the officers, employees and agents
of the Master Servicer so long as certain criteria set forth in the Agreement
are met.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer's principal compensation for its activities under the
Agreement for each Series will come from the payment to it or retention by
it, with respect to each Mortgage Loan, of a "Servicing Fee" (as defined in
the related Prospectus Supplement). The exact amount and calculation of such
Servicing Fee will be established in the Prospectus Supplement and Agreement
for the related Series. Since the aggregate unpaid principal balance of the
Mortgage Loans will generally decline over time, the Master Servicer's
servicing compensation will ordinarily decrease as the Mortgage Loans
amortize.
In addition, the Agreement for a Series may provide that the Master
Servicer be entitled to receive, as additional compensation, (i) Prepayment
Premiums, late fees and certain other fees collected from Borrowers and (ii)
any interest or other income earned on funds deposited in the Collection
Account (as described under "DESCRIPTION OF THE CERTIFICATES -- Accounts")
and, except to the extent such income is required to be paid to the related
Borrowers, the Escrow Account.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will pay the fees and expenses of the Trustee.
If the Master Servicer subcontracts the servicing of Specially Serviced
Mortgage Loans to a Special Servicer, the exact amount and calculation of the
Special Servicer Fee will be established in the Prospectus Supplement and
Agreement for the related Series.
In addition to the compensation described above, the Master Servicer (or
any other party specified in the applicable Prospectus Supplement) may
retain, or be entitled to the reimbursement of, such other amounts and
expenses as are described in the applicable Prospectus Supplement.
ADVANCES
The applicable Prospectus Supplement will set forth the obligations, if
any, of the Master Servicer to make any advances with respect to delinquent
payments on Mortgage Loans, payments of taxes, insurance and Property
Protection Expenses or otherwise. Any such advances will be made in the form
and manner described in the Prospectus Supplement and Agreement for the
related Series.
MODIFICATIONS, WAIVERS AND AMENDMENTS
If so specified in the related Prospectus Supplement, the Agreement for
each Series will provide that the Master Servicer or the Special Servicer, if
any, may have the discretion, subject to certain conditions
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set forth herein, to modify, waive or amend certain of the terms of any
Mortgage Loan without the consent of the Trustee or any Certificateholder.
The extent to which the Master Servicer or the Special Servicer, if any, may
modify, waive or amend any terms of the Mortgage Loans without such consent
will be specified in the related Prospectus Supplement.
The Special Servicer, if any, may, with respect to any Specially Serviced
Mortgage Loan, subject to the terms and conditions set forth in the
Agreement, modify, waive or amend the terms of such Mortgage Loan if the
Special Servicer determines that a material default has occurred or a payment
default has occurred or is reasonably foreseeable. The Special Servicer, if
any, may extend the maturity date of such Mortgage Loan to a date not later
than the date described in the related Prospectus Supplement.
Unless otherwise provided in the applicable Prospectus Supplement, the
Special Servicer, if any, will not agree to any modification, waiver or
amendment of the payment terms of a Mortgage Loan unless the Special Servicer
has determined that such modification, waiver or amendment is reasonably
likely to produce a greater recovery on a present value basis than
liquidation of the Mortgage Loan. Prior to agreeing to any such modification,
waiver or amendment of the payment terms of a Mortgage Loan, the Special
Servicer, if any, will give notice thereof in the manner set forth in the
Prospectus Supplement and Agreement for the related Series.
The Prospectus Supplement for a Series may describe other or different
provisions concerning the modification, waiver or amendment of the terms of
the related Mortgage Loans.
EVIDENCE OF COMPLIANCE
The Agreement for each Series will provide that the Master Servicer, at
its expense, will cause a firm of independent public accountants to furnish
to the Trustee, annually on or before a date specified in the Agreement, a
statement as to compliance by the Master Servicer with the Agreement.
In addition, the Agreement will provide that the Master Servicer will
deliver to the Trustee, annually on or before a date specified in the
Agreement, a statement signed by an officer to the effect that, based on are
view of its activities during the preceding calendar year, to the best of
such officer's knowledge, the Master Servicer has fulfilled its obligations
under the Agreement throughout such year or, if there has been a default in
the fulfillment of any such obligation, specifying each such default and the
nature and status thereof.
CERTAIN MATTERS WITH RESPECT TO THE MASTER SERVICER, THE SPECIAL SERVICER AND
THE TRUSTEE
The Agreement for each Series will also provide that neither the Master
Servicer nor any of its directors, officers, employees or agents will be
under any liability to the Trust Fund or the Certificateholders for any
action taken, or for refraining from the taking of any action, in good faith
pursuant to the Agreement, or for errors in judgment; provided, however, that
neither the Master Servicer nor any such person will be protected against any
breach of representations or warranties made by the Master Servicer in the
Agreement, or any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith, or negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
thereunder. The Agreement will further provide that the Master Servicer and
any of its directors, officers, employees or agents will be entitled to
indemnification by the Trust Fund and will be held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
the Agreement or the Certificates, other than any loss, liability or expense
incurred (i) by reason of willful misfeasance, bad faith or negligence in the
performance of its duties or by reason of reckless disregard of its
obligations and duties thereunder or (ii) in certain other circumstances
specified in the Agreement. Any loss resulting from such indemnification will
reduce amounts distributable to Certificateholders and will be borne pro rata
by all Certificateholders without regard to subordination, if any, of one
Class to another.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer may not resign from its obligations and duties under the Agreement
except upon a determination that its duties thereunder are no longer
permissible under applicable law. No such resignation will become effective
until the Trustee or a successor Master Servicer has assumed the Master
Servicer's obligations and duties under the Agreement.
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If the Master Servicer subcontracts the servicing of Specially Serviced
Mortgage Loans to a Special Servicer, the standard of care for, and any
indemnification to be provided to, the Special Servicer will be set forth in
the related Agreement.
The Trustee under each Agreement will be named in the applicable
Prospectus Supplement. The commercial bank or trust company serving as
Trustee may have normal banking relationships with the Depositor and/or its
affiliates and with the Master Servicer and/or its affiliates.
The Trustee may resign from its obligations under the Agreement at any
time, in which event a successor Trustee will be appointed. In addition, the
Depositor may remove the Trustee if the Trustee ceases to be eligible to act
as Trustee under the Agreement or if the Trustee becomes insolvent, at which
time the Depositor will become obligated to appoint a successor Trustee. The
Trustee may also be removed at any time by the Holders of Certificates
evidencing the Voting Rights specified in the applicable Prospectus
Supplement. Any resignation and removal of the Trustee, and the appointment
of a successor Trustee, will not become effective until acceptance of such
appointment by the successor Trustee.
EVENTS OF DEFAULT
Events of default (each, an "Event of Default") with respect to the Master
Servicer under the Agreement for each Series will, unless otherwise provided
in the applicable Prospectus Supplement, include: (i) any failure by the
Master Servicer to remit to the Trustee for deposit in the Distribution
Account for distribution to Certificateholders any payment required to be
made by the Master Servicer under the terms of the Agreement at least one
business day prior to the related Distribution Date; (ii) any failure on the
part of the Master Servicer duly to observe or perform in any material
respect any other of the covenants or agreements on the part of the Master
Servicer, which failure continues unremedied for a period of 90 days after
written notice of such failure has been given to the Master Servicer; (iii)
the entering against the Master Servicer of a decree or order of a court,
agency or supervisory authority for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, provided that any such decree or order shall have
remained in force undischarged or unstayed for a period of 60 days; (iv) the
consent by the Master Servicer to the appointment of a conservator or
receiver or liquidator or liquidating committee in any insolvency,
readjustment of debt, marshalling of assets and liabilities, voluntary
liquidation or similar proceedings of or relating to the Master Servicer or
of or relating to all or substantially all of its property; and (v) the
admission by the Master Servicer in writing of its inability to pay its debts
generally as they becomedue, the filing by the Master Servicer of a petition
to take advantage of any applicable insolvency or reorganization statute or
the making of an assignment for the benefit of its creditors or the voluntary
suspension of the payment of its obligations.
As long as an Event of Default remains unremedied, the Trustee may, and
(a) at the written direction of the Holders of Certificates (other than Class
R Certificates) entitled to at least 25% of the aggregate Voting Rights of
the Certificates of any Class in the case of an Event of Default described in
clause (i) above, (b) at the written direction of Holders of Certificates
holding at least 25% of all of the Voting Rights, or (c) in all cases of an
Event of Default described in clauses (ii) through (v) above, shall terminate
all of the rights and obligations of the Master Servicer whereupon the
Trustee or another successor Master Servicer appointed by the Trustee will
succeed to all authority and power of the Master Servicer under the Agreement
and will be entitled to similar compensation arrangements. "Voting Rights"
means the portion of the voting rights of all Certificates that is allocated
to any Certificate in accordance with the terms of the Agreement.
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ENHANCEMENT
GENERAL
If specified in the related Prospectus Supplement for any Series, credit
enhancement may be provided with respect to one or more Classes thereof or
the related Mortgage Loans (the "Enhancement").Enhancement may be in the form
of a letter of credit, the subordination of one or more Classes of the
Certificates of such Series, the establishment of one or more reserve funds,
overcollateralization, cross collateralization provisions in the Mortgage
Loans, certificate guarantee insurance, the use of cross- support features or
another method of Enhancement described in the related Prospectus Supplement,
or any combination of the foregoing.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by Enhancement or which are not covered by the Enhancement,
Certificateholders will bear their allocable share of deficiencies.
If Enhancement is provided with respect to a Series, or the related
Mortgage Loans, the applicable Prospectus Supplement will include a
description of (a) the amount payable under such Enhancement, (b) any
conditions to payment thereunder not otherwise described herein, (c) the
conditions (if any) under which the amount payable under such Enhancement may
be reduced and under which such Enhancement may be terminated or replaced and
(d) the material provisions of any agreement relating to such Enhancement.
Additionally, the applicable Prospectus Supplement will set forth certain
information with respect to the issuer of any third-party Enhancement,
including (i) a brief description of its principal business activities, (ii)
its principal place of business, place of incorporation and the jurisdiction
under which it is chartered or licensed to do business, (iii) if applicable,
the identity of regulatory agencies which exercise primary jurisdiction over
the conduct of its business and (iv) its total assets, and its stockholders'
or policyholders' surplus, if applicable, as of the date specified in such
Prospectus Supplement.
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more Classes
of a Series may be Subordinate Certificates. If so specified in the related
Prospectus Supplement, the rights of the Holders of subordinate Certificates
(the "Subordinate Certificates") to receive distributions of principal and
interest from the Collection Account on any Distribution Date will be
subordinated to such rights of the Holders of senior Certificates (the
"Senior Certificates") to the extent specified in the related Prospectus
Supplement. The Agreement may require a trustee that is not the Trustee to be
appointed to act on behalf of Holders of Subordinate Certificates.
A Series may include one or more Classes of Subordinate Certificates
entitled to receive cash flows remaining after distributions are made to all
other Senior Certificates of such Series. Such right to receive payments will
effectively be subordinate to the rights of other Holders of Senior
Certificates. A Series may also include one or more Classes of Subordinate
Certificates entitled to receive cash flows remaining after distributions are
made to other Subordinate Certificates of such Series. If so specified in the
related Prospectus Supplement, the subordination of a Class may apply only in
the event of (or may be limited to) certain types of losses not covered by
insurance policies or other credit support, such as losses arising from
damage to property securing a Mortgage Loan not covered by standard hazard
insurance policies.
The related Prospectus Supplement will set forth information concerning
the amount of subordination of a Class or Classes of Subordinate Certificates
in a Series, the circumstances in which such subordination will be
applicable, the manner, if any, in which the amount of subordination will
decrease over time, the manner of funding any related Reserve Fund and the
conditions under which amounts in any applicable Reserve Fund will be used to
make distributions to Holders of Senior Certificates and/or to Holders of
Subordinate Certificates or be released from the applicable Trust Fund. If
cash flows
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otherwise distributable to Holders of Subordinate Certificates secured by a
Mortgage Loan Group will be used as credit support for Holders of Senior
Certificates secured by another Mortgage Loan Group within the Trust Fund,
the applicable Prospectus Supplement will specify the manner and conditions
for applying such a cross-support feature.
CROSS-SUPPORT FEATURES
If the Mortgage Pool for a Series is divided into separate Mortgage Loan
Groups, each securing a separate Class or Classes of a Series, credit support
may be provided by a cross-support feature which requires that distributions
be made on Senior Certificates secured by one Mortgage Loan Group prior to
distributions on Subordinate Certificates secured by another Mortgage Loan
Group within the Trust Fund. The related Prospectus Supplement for a Series
which includes a cross-support feature will describe the manner and
conditions for applying such cross-support feature.
LETTER OF CREDIT
If specified in the related Prospectus Supplement, a letter of credit with
respect to a Series of Certificates will be issued by the bank or financial
institution specified in such Prospectus Supplement (the "L/C Bank"). Under
the letter of credit, the L/C Bank will be obligated to honor drawings
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, equal to the percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Loans on the
applicable Cut-Off Date or of one or more Classes of Certificates (the "L/C
Percentage"). If so specified in the related Prospectus Supplement, the
letter of credit may permit drawings in the event of losses not covered by
insurance policies or other credit support, such as losses arising from
damage not covered by standard hazard insurance policies. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder. The obligations of the L/C
Bank under the letter of credit for each Series of Certificates will expire
at the earlier of the date specified in the related Prospectus Supplement or
the termination of the Trust Fund. A copy of the letter of credit for a
Series, if any, will be filed with the Commission as an exhibit to a Current
Report on Form 8-K to be filed within 15 days of issuance of the Certificates
of the applicable Series.
CERTIFICATE GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, certificate
guarantee insurance, if any, with respect to a Series of Certificates will be
provided by one or more insurance companies. Such certificate guarantee
insurance will guarantee, with respect to one or more Classes of Certificates
of the applicable Series, timely distributions of interest and full
distributions of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified in the
related Prospectus Supplement. If so specified in the related Prospectus
Supplement, the certificate guarantee insurance will also guarantee against
any payment made to a Certificateholder which is subsequently covered as a
"voidable preference" payment under the Bankruptcy Code. A copy of the
certificate guarantee insurance for a Series, if any, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be filed with the
Commission within 15 days of issuance of the Certificates of the applicable
Series.
RESERVE FUNDS
If specified in the related Prospectus Supplement, one or more reserve
funds (each, a "Reserve Fund") may be established with respect to a Series,
in which cash, a letter of credit, Permitted Investments or a combination
thereof, in the amounts, if any, so specified in the related Prospectus
Supplement will be deposited. The Reserve Funds for a Series may also be
funded over time by depositing therein a specified amount of the
distributions received on the applicable Mortgage Loans if specified in the
related Prospectus Supplement. The Depositor may pledge the Reserve Funds to
a separate collateral agent specified in the related Prospectus Supplement.
Amounts on deposit in any Reserve Fund for a Series, together with the
reinvestment income thereon, if any, will be applied by the Trustee for the
purposes, in the manner, and to the extent specified
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in the related Prospectus Supplement. A Reserve Fund may be provided to
increase the likelihood of timely payments of principal of and interest on
the Certificates, if required as a condition to the rating of such Series by
each Rating Agency. If so specified in the related Prospectus Supplement,
Reserve Funds may be established to provide limited protection, in an amount
satisfactory to each Rating Agency, against certain types of losses not
covered by insurance policies or other credit support, such as losses arising
from damage not covered by standard hazard insurance policies. Reserve Funds
may also be established for other purposes and in such amounts as will be
specified in the related Prospectus Supplement. Following each Distribution
Date amounts in any Reserve Fund in excess of any amount required to be
maintained therein may be released from the Reserve Fund under the conditions
and to the extent specified in the related Prospectus Supplement and will not
be available for further application by the Trustee.
Moneys deposited in any Reserve Fund will be invested in Permitted
Investments at the direction of the Depositor, except as otherwise specified
in the related Prospectus Supplement. Unless otherwise specified in the
related Prospectus Supplement, any reinvestment income or other gain from
such investments will be credited to the related Reserve Fund for such
Series, and any loss resulting from such investments will be charged to such
Reserve Fund. If specified in the related Prospectus Supplement, such income
or other gain may be payable to the Master Servicer as additional servicing
compensation, and any loss resulting from such investment will be borne by
the Master Servicer. The Reserve Fund, if any, for a Series will not be a
part of the Trust Fund unless otherwise specified in the related Prospectus
Supplement, but the right of the Trustee to make draws on the Reserve Fund
will be an asset of the Trust Fund.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purpose for which funds in the Reserve Fund
may be applied to make distributions to Certificateholders and use of
investment earnings from the Reserve Fund, if any.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because many of the legal aspects
of mortgage loans are governed by applicable state laws (which may vary
substantially), the following summaries do not purport to be complete, to
reflect the laws of any particular state, to reflect all the laws applicable
to any particular Mortgage Loan or to encompass the laws of all states in
which the properties securing the Mortgage Loans are situated. The summaries
are qualified in their entirety by reference to the applicable federal and
state laws governing the Mortgage Loans. In the event that the Trust Fund for
a given Series includes Mortgage Loans having characteristics other than as
described below, the applicable Prospectus Supplement will set forth
additional legal aspects relating thereto.
MORTGAGES AND DEEDS OF TRUST GENERALLY
The Mortgage Loans (other than Installment Contracts) included in the
Mortgage Pool for a Series will consist of (or, in the case of mortgage
pass-through certificates, be supported by) loans secured by either mortgages
or deeds of trust or other similar security instruments. There are two
parties to a mortgage, the mortgagor, who is the borrower and owner of the
mortgaged property, and the mortgagee, who is the lender. In a mortgage
transaction, the mortgagor delivers to the mortgagee a note, bond or other
written evidence of indebtedness and a mortgage. A mortgage creates a lien
upon the real property encumbered by the mortgage as security for the
obligation evidenced by the note, bond or other evidence of indebtedness.
Although a deed of trust is similar to a mortgage, a deed of trust has three
parties, the borrower-property owner called the trustor (similar to a
mortgagor), a lender called the beneficiary (similar to a mortgagee), and a
third-party grantee called the trustee. Under a deed of trust, the borrower
irrevocably grants the property to the trustee, until the debt is paid, in
trust for the benefit of the beneficiary to secure payment of the obligation
generally with a power of sale. The trustee's authority under a deed of trust
and the mortgagee's authority under amortgage are governed by applicable law,
the express provisions of the deed of trust or mortgage, and, in some cases,
the directions of the beneficiary.
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The real property covered by a mortgage is most often the fee estate in
land and improvements. However, a mortgage may encumber other interests in
real property such as a tenant's interest in a lease of land or improvements,
or both, and the leasehold estate created by such lease. A mortgage covering
an interest in real property other than the fee estate requires special
provisions in the instrument creating such interest or in the mortgage to
protect the mortgagee against termination of such interest before the
mortgage is paid. Certain representations and warranties in the related
Agreement will be made with respect to the Mortgage Loans which are secured
by an interest in a leasehold estate.
Priority of the lien on mortgaged property created by mortgages and deeds
of trust depends on their terms and, generally, on the order of filing with a
state, county or municipal office, although such priority may in some states
be altered by the mortgagee's or beneficiary's knowledge of unrecorded liens,
leases or encumbrances against the mortgaged property. However, filing or
recording does not establish priority over governmental claims for real
estate taxes and assessments or, in some states, for reimbursement of
remediation costs of certain environmental conditions. See "--Environmental
Risks." In addition, the Code provides priority to certain tax liens over the
lien of the mortgage.
INSTALLMENT CONTRACTS
The Mortgage Loans included in the Mortgage Pool for a Series may also
consist of InstallmentContracts. Under an Installment Contract the seller
(hereinafter referred to in this Section as the "lender") retains legal title
to the property and enters into an agreement with the purchaser (hereinafter
referred to in this Section as the "borrower") for the payment of the
purchase price, plus interest, over the term of such contract. Only after
full performance by the borrower of the contract is the lender obligated to
convey title to the real estate to the purchaser. As with mortgage or deed of
trust financing, during the effective period of the Installment Contract, the
borrower is generally responsible for maintaining the property in good
condition and for paying real estate taxes, assessments and hazard insurance
premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the buyer's equitable interest in the property is forfeited. The lender
in such a situation does not have to foreclose in order to obtain title to
the property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the
borrower may be granted some grace period during which the contract may be
reinstated upon full payment of the default amount and the borrower may have
a post-foreclosure statutory redemption right. In other states, courts in
equity may permit a borrower with significant investment in the property
under an Installment Contract for the sale of real estate to share in the
proceeds of sale of the property after the indebtedness is repaid or may
otherwise refuse to enforce the forfeiture clause. Nevertheless, generally
speaking, the lender's procedures for obtaining possession and clear title
under an Installment Contract for the sale of real estate in a given state
are simpler and less time-consuming and costly than are the procedures for
foreclosing and obtaining clear title to a mortgaged property.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be secured by junior mortgages or deeds of trust which are subordinate to
senior mortgages or deeds of trust held by other lenders or institutional
investors. The rights of the Trust Fund (and therefore the
Certificateholders), as beneficiary under a junior deed of trust or as
mortgagee under a junior mortgage, are subordinate to those
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of the mortgagee or beneficiary under the senior mortgage or deed of trust,
including the prior rights of the senior mortgagee or beneficiary to receive
rents, hazard insurance and condemnation proceeds and to cause the property
securing the Mortgage Loan to be sold upon default of the mortgagor or
trustor, thereby extinguishing the junior mortgagee's or junior beneficiary's
lien unless the Master Servicer asserts its subordinate interest in a
property in foreclosure litigation or satisfies the defaulted senior loan. As
discussed more fully below, in many states a junior mortgagee or beneficiary
may satisfy a defaulted senior loan in full, or may cure such default and
bring the senior loan current, in either event adding the amounts expended to
the balance due on the junior loan. Absent a provision in the senior
mortgage, no notice of default is required to be given to the junior
mortgagee.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the
mortgagee or beneficiary under the senior mortgage or deed of trust will have
the prior right to collect any insurance proceeds payable under a hazard
insurance policy and any award of damages in connection with the condemnation
and to apply the same to the indebtedness secured by the senior mortgage or
deed of trust. Proceeds in excess of the amount of senior mortgage
indebtedness will, in most cases, be applied to the indebtedness of a junior
mortgage or trust deed. The laws of certain states may limit the ability of
mortgagees or beneficiaries to apply the proceeds of hazard insurance and
partial condemnation awards to the secured indebtedness. In such states, the
mortgagor or trustor must be allowed to use the proceeds of hazard insurance
to repair the damage unless the security of the mortgagee or beneficiary has
been impaired. Similarly, in certain states, the mortgagee or beneficiary is
entitled to the award for a partial condemnation of the real property
security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence,
that additional amounts advanced to or on behalf of the mortgagor or trustor
by the mortgagee or beneficiary are to be secured by the mortgage or deed of
trust. While such a clause is valid under the laws of most states, the
priority of any advance made under the clause depends, in some states, on
whether the advance was an "obligatory" or "optional" advance. If the
mortgagee or beneficiary is obligated to advance the additional amounts, the
advance may be entitled to receive the same priority as amounts initially
made under the mortgage or deed of trust, notwithstanding that there may be
intervening junior mortgages or deeds of trust and other liens between the
date of recording of the mortgage or deed of trust and the date of the future
advance, and notwithstanding that the mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust and other
liens at the time of the advance. Where the mortgagee or beneficiary is not
obligated to advance the additional amounts and has actual knowledge of the
intervening junior mortgages or deeds of trust and other liens, the advance
may be subordinate to such intervening junior mortgages or deeds of trust and
other liens. Priority of advances under a"future advance" clause rests, in
many other states, on state law giving priority to all advances made under
the loan agreement up to a "credit limit" amount stated in the recorded
mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor
to pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior
to the mortgage or deed of trust, to provide and maintain fire insurance on
the property, to maintain and repair the property and not to commit or permit
any waste thereof, and to appear in and defend any action or proceeding
purporting to affect the property or the rights of the mortgagee or
beneficiary under the mortgage or deed of trust. Upon a failure of the
mortgagor or trustor to perform any of these obligations, the mortgagee or
beneficiary is given the right under the mortgage or deed of trust to perform
the obligation itself, at its election, with the mortgagor or trustor
agreeing to reimburse the mortgagee or beneficiary for any sums expended by
the mortgagee or beneficiary on behalf of the trustor. All sums so expended
by the mortgagee or beneficiary become part of the indebtedness secured by
the mortgage or deed of trust.
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The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged
property, including, without limitation, leasing activities (including new
leases and termination or modification of existing leases), alterations and
improvements to buildings forming a part of the mortgaged property and
management and leasing agreements for the mortgaged property. Tenants will
often refuse to execute a lease unless the mortgagee or beneficiary executes
a written agreement with the tenant not to disturb the tenant's possession of
its premises in the event of a foreclosure. A senior mortgagee or beneficiary
may refuse to consent to matters approved by a junior mortgagee or
beneficiary with the result that the value of the security for the junior
mortgage or deed of trust is diminished. For example, a senior mortgagee or
beneficiary may decide not to approve a lease or to refuse to grant to a
tenant a non-disturbance agreement. If, as a result, the lease is not
executed, the value of the mortgaged property may be diminished.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action
initiated by the service of legal pleadings upon all necessary parties having
an interest in the real property. Delays in completion of foreclosure may
occasionally result from difficulties in locating necessary parties
defendant. When the mortgagee's right to foreclose is contested, the legal
proceedings necessary to resolve the issue can be time-consuming. A judicial
foreclosure may be subject to most of the delays and expenses of other
litigation, sometimes requiring up to several years to complete. At the
completion of the judicial foreclosure proceedings, if the mortgagee
prevails, the court ordinarily issues a judgment of foreclosure and appoints
a referee or other designated official to conduct the sale of the property.
Such sales are made in accordance with procedures which vary from state to
state. The purchaser at such sale acquires the estate or interest in real
property covered by the mortgage. If the mortgage covered the tenant's
interest in a lease and leasehold estate, the purchaser will acquire such
tenant's interest subject to the tenant's obligations under the lease to pay
rent and perform other covenants contained therein.
In a majority of cases, foreclosure of a deed of trust is accomplished by
a non-judicial trustee's sale under a specific provision in the deed of trust
and/or applicable statutory requirements which authorizes the trustee,
generally following a request from the beneficiary/lender, to sell the
property at public sale upon any default by the borrower under the terms of
the note or deed of trust. A number of states may also require that a lender
provide notice of acceleration of a note to the borrower. Notice requirements
under a trustee's sale vary from state to state. In some states, prior to the
trustee's sale the trustee must record a notice of default and send a copy to
the borrower-trustor, to any person who has recorded a request for a copy of
a notice of default and notice of sale and to any successor in interest to
the trustor. In addition, the trustee must provide notice in some states to
any other person having an interest in the real property, including any
junior lienholders, and to certain other persons connected with the deed of
trust. In some states, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
(in some states, limited to reasonable costs and expenses) incurred in
enforcing the obligation. Generally, state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, which may be
recovered by a lender. If the deed of trust is not reinstated, a notice of
sale must be posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition, some state
laws require that a copy of the notice of sale be posted on the property and
sent to all parties having an interest in the real property.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated official or by the trustee is often a
public sale. However, because of the difficulty a potential buyer at the sale
might have in determining the exact status of title to the property subject
to the lien of the mortgage or deed of trust and the redemption rights that
may exist (see "-- Statutory Rights of Redemption" below), and because the
physical condition and financial performance of the property may have
deteriorated during the foreclosure proceedings and/or for a variety of other
reasons, a third party may be unwilling to purchase the property at the
foreclosure sale. Some states require that the lender disclose to potential
bidders at a trustee's sale all known facts materially affecting the value of
the property. Such disclosure may have an adverse effect on the trustee's
ability to sell the property or the sale
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price thereof. Potential buyers may further question the prudence of
purchasing property at a foreclosure sale as a result of the 1980 decision of
the United States Court of Appeals for the Fifth Circuit in Durrett v.
Washington National Insurance Company, other decisions that have followed the
reasoning of Durrett and the codification of the Durrett reasoning in the
federal bankruptcy code, as amended from time to time (11 U.S.C.) (the
"Bankruptcy Code"). Under the reasoning of Durrett, even a non-collusive,
regularly conducted foreclosure sale may be a fraudulent transfer, regardless
of the parties' intent, and, therefore, may be rescinded in favor of the
bankrupt's estate, if (i) the foreclosure sale is held while the debtor is
insolvent and not more than one year prior to the filing of the bankruptcy
petition (or if applicable state fraudulent conveyance law also allows the
avoidance of such a foreclosure sale, the applicable state statute of
limitations if the bankruptcy trustee elects to proceed under state
fraudulent conveyance law), and (ii) the price paid for the foreclosed
property does not represent "fair consideration". In May 1994 the Supreme
Court held in BFP v. RTC that in the absence of actual intent to defraud a
non-collusive, regularly conducted foreclosure sale cannot be rescinded as a
fraudulent transfer under federal bankruptcy law. However, BFP does not
address state law, and the impact of BFP on potential buyers' willingness to
purchase property at a foreclosure sale can not yet be assessed. Prior to
BFP, a common practice was for the lender to purchase the property from the
trustee, referee or other designated official for an amount equal to the
outstanding principal amount of the indebtedness secured by the mortgage or
deed of trust, together with accrued and unpaid interest and the expenses of
foreclosure, in which event, if the amount bid by the lender equals the full
amount of such debt, interest and expenses, the mortgagee's debt will be
extinguished. Thereafter, the lender will assume the burdens of ownership,
including paying operating expenses and real estate taxes and making repairs.
The lender is then obligated as an owner until it can arrange a sale of the
property to a third party. Frequently, the lender employs a third-party
management company to manage and operate the property. The costs of operating
and maintaining commercial property may be significant and may be greater
than the income derived from that property. The costs of management and
operation of those mortgaged properties which are hotels, motels or nursing
or convalescent homes or hospitals may be particularly significant because of
the expertise, knowledge and, with respect to nursing or convalescent homes
or hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's
and the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure and/or
bankruptcy proceedings. Furthermore, some states require that any
environmental hazards be eliminated before a property may be resold. In
addition, a lender may be responsible under federal or state law for the cost
of cleaning up a mortgaged property that is environmentally contaminated. See
"-- Environmental Risks" below. As a result, a lender could realize an
overall loss on a mortgage loan even if the related mortgaged property is
sold at foreclosure or resold after it is acquired through foreclosure for an
amount equal to the full outstanding principal amount of the mortgage loan,
plus accrued interest.
In foreclosure proceedings, some courts have applied general equitable
principles. These equitable principles are generally designed to relieve the
borrower from the legal effect of his defaults under the loan documents.
Examples of judicial remedies that have been fashioned include judicial
requirements that the lender undertake affirmative and expensive actions to
determine the causes of the borrower's default and the likelihood that the
borrower will be able to reinstate the loan. In some cases, courts have
substituted their judgment for the lender's judgment and have required that
lenders reinstate loans or recast payment schedules in order to accommodate
borrowers who are suffering from temporary financial disability. In other
cases, courts have limited the right of the lender to foreclose if the
default under the mortgage instrument is not monetary, such as the borrower's
failing to maintain adequately the property or the borrower's executing a
second mortgage or deed of trust affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under deeds of trust or mortgages receive
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notices in addition to the statutorily prescribed minimum. For the most part,
these cases have upheld the notice provisions as being reasonable or have
found that the sale by a trustee under a deed of trust, or under a mortgage
having a power of sale, does not involve sufficient state action to afford
constitutional protections to the borrower.
Under the REMIC provision of the Code and the related Agreement, the
Master Servicer or Special Servicer, if any, may be permitted to hire an
independent contractor to operate any REO Property. The costs of such
operation may be significantly greater than the costs of direct operation by
the Master Servicer or Special Servicer, if any. See "SERVICING OF THE
MORTGAGE LOANS -- Collections and Other Servicing Procedures."
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to potential
environmental risks. Of particular concern may be those mortgaged properties
which are, or have been, the site of manufacturing, industrial or disposal
activity. Such environmental risks may give rise to a diminution in value of
property securing any Mortgage Loan or, as more fully described below,
liability for cleanup costs or other remedial actions, which liability could
exceed the value of such property or the principal balance of the related
Mortgage Loan. In certain circumstances, a lender may choose not to foreclose
on contaminated property rather than risk incurring liability for remedial
actions.
Under the laws of certain states where the Mortgaged Properties are
located, the owner's failure to perform remedial actions required under
environmental laws may in certain circumstances give rise to a lien on the
Mortgaged Property to ensure the reimbursement of remedial costs incurred by
the state. In several states such lien has priority over the lien of an
existing mortgage against such property. Because the costs of remedial action
could be substantial, the value of a Mortgaged Property as collateral for a
Mortgage Loan could be adversely affected by the existence of an
environmental condition giving rise to a lien.
The state of the law is currently unclear as to whether and under what
circumstances cleanup costs, or the obligation to take remedial actions, can
be imposed on a secured lender such as the Trust Fund with respect to each
Series. Under the laws of some states and under the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), current ownership or operation of a property provides a
sufficient basis for imposing liability for the costs of addressing prior or
current releases or threatened releases of hazardous substances on that
property. Under such laws, a secured lender who holds indicia of ownership
primarily to protect its interest in a property may, by virtue of holding
such indicia, fall within the literal terms of the definition of "owner or
operator"; consequently, such laws often specifically exclude such a secured
lender from the definitions of "owner" or "operator", provided that the
lender does not participate in the management of the facility.
Court interpretations as to what constitutes participation in management
of a facility historically have been inconsistent. A decision in May 1990 of
the United States Court of Appeals for the Eleventh Circuit in United States
v. Fleet Factors Corp. very narrowly construed CERCLA's secured creditor
exemption, suggesting that the secured creditor exemption could be lost if
the creditor merely possessed the capacity to influence the management of the
facility. The court's interpretation of the secured creditor exemption left
open the question of the level of participation in management that would void
the exemption, and generated considerable apprehension among secured lenders.
In addition, a number of other decisions had raised questions as to the
effect of foreclosure on the exemption. On April 29, 1992, the United States
Environmental Protection Agency (the "EPA") issued a final rule interpreting
and delineating CERCLA's secured creditor exemption. This rule defined and
specified the range of permissible actions that may be undertaken by a lender
who holds a contaminated facility as collateral without exceeding the bounds
of the secured creditor exemption. Issuance of this rule by the EPA under
CERCLA also did not necessarily affect the potential for liability under
state law. However, the EPA final rule was recently vacated in the decision
of Kelley v. EPA, 15 F.3d 1100 (D.C. Cir. 1994), reh'g denied, 1994 U.S. App.
LEXIS 14470 (June 14, 1994). Pending legislation may reinstate the EPA final
rule, but whether and when such legislation would be passed by Congress is
uncertain.
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Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, it is possible that no
environmental assessment or a very limited environmental assessment of the
Mortgaged Properties was conducted.
The related Agreement will provide that the Master Servicer, acting on
behalf of the Trust Fund, may not acquire title to, or possession of, a
Mortgaged Party underlying a Mortgage Loan, take over its operation or take
any other action that might subject a given Trust Fund to liability under
CERCLA or comparable laws unless the Master Servicer has previously
determined, based upon a phase I or other specified environmental assessment
prepared by a person who regularly conducts such environmental assessments,
that the Mortgaged Property is in compliance with applicable environmental
laws and that there are no circumstances relating to use, management or
disposal of any Hazardous Materials for which investigation, monitoring,
containment, clean-up or remediation could be required under applicable
environmental laws, or that it would be in the best economic interest of a
given Trust Fund to take such actions as are necessary to bring the Mortgaged
Property into compliance therewith or as may be required under such laws.
This requirement effectively precludes enforcement of the security for the
related Note until a satisfactory environmental assessment is obtained or any
required remedial action is taken, reducing the likelihood that a given Trust
Fund will become liable for any environmental conditions affecting a
Mortgaged Property, but making it more difficult to realize on the security
for the Mortgage Loan. However, there can be no assurance that any
environmental assessment obtained by the Master Servicer will detect all
possible environmental conditions or that the other requirements of the
Agreement, even if fully observed by the Master Servicer will in fact
insulate a given Trust Fund from liability for environmental conditions.
"Hazardous Materials" are generally defined as any dangerous, toxic or
hazardous pollutants, chemicals, wastes or substances, including, without
limitation, those so identified pursuant to CERCLA or any other environmental
laws now existing, and specifically including, without limitation, asbestos
and asbestos-containing materials, polychlorinated biphenyls, radon gas,
petroleum and petroleum products, urea formaldehyde and any substances
classified as being "in inventory," "usable work in process" or similar
classification which would, if classified as unusable, be included in the
foregoing definition.
If a lender is or becomes liable for clean-up costs, it may bring an
action for contribution against the current owners or operators, the owners
or operators at the time of on-site disposal activity or any other party who
contributed to the environmental hazard, but such persons or entities may be
bankrupt or otherwise judgment proof. Furthermore, such action against the
Borrower may be adversely affected by the limitations on recourse in the loan
documents. Similarly, in some states anti-deficiency legislation and other
statutes requiring the lender to exhaust its security before bringing a
personal action against the borrower-trustor (see"-- Anti-Deficiency
Legislation" below) may curtail the lender's ability to recover from its
borrower the environmental clean-up and other related costs and liabilities
incurred by the lender. Shortfalls occurring as the result of imposition of
any clean-up costs will be addressed in the Prospectus Supplement and
Agreement for the related Series.
STATUTORY RIGHTS OF REDEMPTION
In some states, after foreclosure sale pursuant to a deed of trust or a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale.
In some states, redemption may occur only upon payment of the entire
principal balance of the loan, accrued interest and expenses of foreclosure.
In other states, redemption may be authorized if the former borrower pays
only a portion of the sums due. The effect of a statutory right of redemption
is to diminish the ability of the lender to sell the foreclosed property. The
right of redemption may defeat the title of any purchaser at a foreclosure
sale or any purchaser from the lender subsequent to a foreclosure sale.
Certain states permit a lender to avoid a post-sale redemption by waiving its
right to a deficiency judgment. Consequently, the practical effect of the
redemption right is often to force the lender to retain the property and pay
the expenses of ownership until the redemption period has run. In some
states, there is no right to redeem property after a trustee's sale under a
deed of trust.
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Borrowers under Installment Contracts generally do not have the benefits
of redemption periods such as exist in the same jurisdiction for mortgage
loans. Where redemption statutes do exist under state laws for Installment
Contracts, the redemption period is usually far shorter than for mortgages.
ANTI-DEFICIENCY LEGISLATION
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be nonrecourse loans as to which, in the event of default by a Borrower,
recourse may be had only against the specific property pledged to secure the
related Mortgage Loan and not against the Borrower's other assets. Even if
recourse is available pursuant to the terms of the Mortgage Loan against the
Borrower's assets in addition to the Mortgaged Property, certain states have
imposed statutory prohibitions which impose prohibitions against or
limitations on such recourse. For example, some state statutes limit the
right of the beneficiary or mortgagee to obtain a deficiency judgment against
the borrower following foreclosure or sale under a deed of trust. A
deficiency judgment is a personal judgment against the former borrower equal
in most cases to the difference between the net amount realized upon the
public sale of the real property and the amount due to the lender. Other
statutes require the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the borrower.
In certain states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing
personal action against the borrower. Other statutory provisions limit any
deficiency judgment against the former borrower following a judicial sale to
the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a beneficiary or a mortgagee from obtaining a large deficiency
judgment against the former borrower as a result of low bids or the absence
of bids at the judicial sale.
BANKRUPTCY LAWS
Numerous statutory provisions, including the Bankruptcy Code and state
laws affording relief to debtors, may interfere with and delay the ability of
the secured mortgage lender to obtain payment of the loan, to realize upon
collateral and/or to enforce a deficiency judgment. For example, under the
Bankruptcy Code, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of
the bankruptcy petition, and, often, no interest or principal payments are
made during the course of the bankruptcy proceeding. The delay and
consequences thereof caused by such automatic stay can be significant. Also,
under the Bankruptcy Code, the filing of a petition in bankruptcy by or on
behalf of a junior lienor, including, without limitation, any junior
mortgagee or beneficiary, may stay the senior lender from taking action to
foreclose out such junior lien. Certain of the Mortgaged Properties may have
a junior "wraparound" mortgage or deed of trust encumbering such Mortgaged
Property. In general terms, a "wraparound" mortgage is a junior mortgage
where the full amount of the mortgage is increased by an amount equal to the
principal balance of the senior mortgage and where the junior lender agrees
to pay the senior mortgage out of the payments received from the mortgagor
under the "wraparound" mortgage. As with other junior mortgages, the filing
of a petition under the Bankruptcy Code by or on behalf of such a "wrap"
mortgagee may stay the senior lender from taking action to foreclose upon
such junior "wrap" mortgage.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage or deed
of trust secured by property of the debtor may be modified under certain
circumstances. The outstanding amount of the loan secured by the real
property may be reduced to the then current value of the property (with a
corresponding partial reduction of the amount of the lender's security
interest), thus leaving the lender a general unsecured creditor for the
difference between such value and the outstanding balance of the loan. Other
modifications may include the reduction in the amount of each monthly
payment, which reduction may result from a reduction in the rate of interest
and/or the alteration of the repayment schedule (with or without affecting
the unpaid
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principal balance of the loan), and/or an extension (or reduction) of the
final maturity date. Some bankruptcy courts have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years. Also,
under the Bankruptcy Code, a bankruptcy court may permit a debtor through its
plan to de-accelerate a secured loan and to reinstate the loan even though
the lender accelerated the mortgage loan and final judgment of foreclosure
had been entered in state court (provided no sale of the property had yet
occurred) prior to the filing of the debtor's petition. This may be done even
if the full amount due under the original loan is never repaid. Other types
of significant modifications to the terms of the mortgage may be acceptable
to the bankruptcy court, often depending on the particular facts and
circumstances of the specific case.
A "deficient valuation" with respect to any mortgage loan is the excess of
(a)(i) the then outstanding principal balance of the mortgage loan, plus (ii)
accrued and unpaid interest and expenses reimbursable under the terms of the
related note to the date of the bankruptcy petition (collectively, the
"Outstanding Balance"), over (b) a valuation by a court of competent
jurisdiction of the mortgaged property which reduces the principal balance
receivable on such mortgage loan to an amount less than the Outstanding
Balance of the mortgage loan, which valuation results from a proceeding
initiated under the Bankruptcy Code. As used herein, "Deficient Valuation"
means, with respect to any Mortgage Loan, the deficient valuation described
in the preceding sentence, without giving effect to clause (a)(ii) thereof.
If the terms of a court order in respect of any retroactive Deficient
Valuation provide for a reduction in the indebtedness of a Mortgage Loan and
the earlier maturity thereof, the term Deficient Valuation includes an
additional amount equal to the excess, if any, of (a) the amount of principal
that would have been due on such Mortgage Loan for each month retroactively
affected (i.e. each month occurring after the effective date of such
Deficient Valuation but before the distribution of amounts in respect of such
Deficient Valuation to Certificateholders pursuant to the related Agreement),
based on the original payment terms and amortization schedule of such
Mortgage Loan over (b) the amount of principal due on such Mortgage Loan for
each such retroactive month (assuming the effect of such retroactive
application according to such Mortgage Loan's revised amortization schedule).
A "Debt Service Reduction," with respect to any Mortgage Loan, is a reduction
in the scheduled monthly payment, as described in the Agreement, for such
Mortgage Loan by a court of competent jurisdiction in a proceeding under the
Bankruptcy Code, except such a reduction resulting from a Deficient
Valuation.
Federal bankruptcy law may also interfere with or affect the ability of
the secured mortgage lender to enforce an assignment by a mortgagor of rents
and leases related to the mortgaged property if the related mortgagor is in a
bankruptcy proceeding. Under Section 362 of the Bankruptcy Code, the
mortgagee will be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue can be time-consuming and may
result in significant delays in the receipt of the rents. Rents may also
escape an assignment thereof (i) if the assignment is not fully perfected
under state law prior to commencement of the bankruptcy proceeding, (ii) to
the extent such rents are used by the borrower to maintain the mortgaged
property, or for other court authorized expenses, or (iii) to the extent
other collateral may be substituted for the rents.
To the extent a mortgagor's ability to make payment on a mortgage loan is
dependent on payments under a lease of the related property, such ability may
be impaired by the commencement of a bankruptcy proceeding relating to a
lessee under such lease. Under the Bankruptcy Code, the filing of a petition
in bankruptcy by or on behalf of a lessee results in a stay in bankruptcy
against the commencement or continuation of any state court proceeding for
past due rent, for accelerated rent, for damages or for a summary eviction
order with respect to a default under the lease that occurred prior to the
filing of the lessee's petition.
In addition, federal bankruptcy law generally provides that a trustee or
debtor in possession in a bankruptcy or reorganization case under the
Bankruptcy Code may, subject to approval of the court, (a) assume the lease
and retain it or assign it to a third party or (b) reject the lease. If the
lease is assumed, the trustee or debtor in possession (or assignee, if
applicable) must cure any defaults under the lease, compensate the lessor for
its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, however, as the lessor may be
forced to continue under the lease with a lessee that is a poor credit risk
or an unfamiliar tenant if the lease was assigned, and any
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assurances provided to the lessor may, in fact, be inadequate. Furthermore,
there is likely to be a period of time between the date upon which a lessee
files a bankruptcy petition and the date upon which the lease is assumed or
rejected. Although the lessee is obligated to make all lease payments
currently with respect to the post-petition period, there is a risk that such
payments will not be made due to the lessee's poor financial condition. If
the lease is rejected, the lessor will be treated as an unsecured creditor
with respect to its claim for damages fortermination of the lease and the
mortgagor must relet the mortgaged property before the flow of lease payments
will recommence. In addition, pursuant to Section 502(b)(6) of the Bankruptcy
Code, a lessor's damages for lease rejection are limited.
In a bankruptcy or similar proceeding action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would beprotected depends upon the
facts specific to a particular transaction.
ENFORCEABILITY OF CERTAIN PROVISIONS
PREPAYMENT PROVISIONS
Courts generally enforce claims requiring prepayment fees unless
enforcement would be unconscionable. However, the laws of certain states may
render prepayment fees unenforceable after a mortgage loan has been
outstanding for a certain number of years, or may limit the amount of any
prepayment fee to a specified percentage of the original principal amount of
the mortgage loan, to a specified percentage of the outstanding principal
balance of a mortgage loan, or to a fixed number of months' interest on the
prepaid amount. In certain states, prepayment fees payable on default or
other involuntary acceleration of a mortgage loan may not be enforceable
against the mortgagor. Some state statutory provisions may also treat certain
prepayment fees as usurious if in excess of statutory limits. See
"--Applicability of Usury Laws." Some of the Mortgage Loans included in the
Mortgage Pool for a Series may not require the payment of specified fees as a
condition to prepayment or such requirements have expired, and to the extent
some Mortgage Loans do require such fees, such fees generally may not deter
Borrowers from prepaying their Mortgage Loans.
DUE-ON-SALE PROVISIONS
The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states, and in some cases, typically
involving single family residential mortgage transactions, their
enforceability has been limited or denied. In any event, the Garn-St Germain
Depository Institutions Act of 1982 (the "Garn-St Germain Act") preempts
state constitutional, statutory and case law that prohibits the enforcement
of due-on-sale clauses and permits lenders to enforce these clauses in
accordance with their terms, subject to certain exceptions. As a result,
due-on-sale clauses have become generally enforceable except in those states
whose legislatures exercised their authority to regulate the enforceability
of such clauses with respect to mortgage loans that were (i) originated or
assumed during the "window period" under the Garn-St Germain Act, which ended
in all cases not later than October 15, 1982, and (ii) originated by lenders
other than national banks, federal savings institutions and federal credit
unions. FHLMC has taken the position in its published mortgage servicing
standards that, out of a total of eleven "window period states," five states
(Arizona, Michigan, Minnesota, New Mexico and Utah) have enacted statutes
extending, on various terms and for varying periods, the prohibition on
enforcement of due-on-sale clauses with respect to certain categories of
window period loans. Also, the Garn-St Germain Act does "encourage" lenders
to permit assumption of loans at the original rate of interest or at some
other rate less than the average of the original rate and the market rates.
The Agreement for each Series will provide that if any Mortgage Loan
contains a provision in the nature of a "due-on-sale" clause, which by its
terms provides that: (i) such Mortgage Loan shall (or may at the mortgagee's
option) become due and payable upon the sale or other transfer of an interest
in the related Mortgaged Property; or (ii) such Mortgage Loan may not be
assumed without the consent of the related mortgagee in connection with any
such sale or other transfer, then, for so long as such Mortgage
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Loan is included in the Trust Fund, the Master Servicer, on behalf of the
Trustee, shall take such actions as it deems to be in the best interest of
the Certificateholders in accordance with the servicing standard set forth in
the Agreement, and may waive or enforce any due-on-sale clause contained in
the related Note or Mortgage.
In addition, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
ACCELERATION ON DEFAULT
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
include a "debt- acceleration" clause, which permits the lender to accelerate
the full debt upon a monetary or nonmonetary default of the Borrower. The
courts of all states will enforce clauses providing for acceleration in the
event of a material payment default after giving effect to any appropriate
notices. The equity courts of any state, however, may refuse to foreclose a
mortgage or deed of trust when an acceleration of the indebtedness would be
inequitable or unjust or the circumstances would render the acceleration
unconscionable. Furthermore, in some states, the Borrower may avoid
foreclosure and reinstate an accelerated loan by paying only the defaulted
amounts and the costs and attorneys' fees incurred by the lender in
collecting such defaulted payments.
State courts also are known to apply various legal and equitable
principles to avoid enforcement of the forfeiture provisions of Installment
Contracts. For example, a lender's practice of accepting late payments from
the borrower may be deemed a waiver of the forfeiture clause. State courts
also may impose equitable grace periods for payment of arrearages or
otherwise permit reinstatement of the contract following a default. Not
infrequently, if a borrower under an Installment Contract has significant
equity in the property, equitable principles will be applied to reform or
reinstate the contract or to permit the borrower to share the proceeds upon a
foreclosure sale of the property if the sale price exceeds the debt.
SOLDIERS' AND SAILORS' RELIEF ACT
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a Borrower who enters military service after the
origination of such Borrower's Mortgage Loan (including a Borrower who is a
member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not
be charged interest (including fees and charges) above an annual rate of 6%
during the period of such Borrower's active duty status, unless a court
orders otherwise upon application of the lender. Any shortfall in interest
collections resulting from the application ofthe Relief Act, to the extent
not covered by any applicable credit enhancements, could result in losses to
the Holders of the Certificates. The Relief Act applies to mortgagors who are
members of the Army, Navy, Air Force, Marines, National Guard, Reserves,
Coast Guard and officers of the U.S. Public Health Service assigned to duty
with the military. Because the Relief Act applies to mortgagors who enter
military service (including reservists who are later called to active duty)
after origination of the related Mortgage Loan, no information can be
provided as to the number of Mortgage Loans that may be affected by the
Relief Act. Some of the Mortgaged Properties relating to Mortgage Loans
included in the Mortgage Pool for a Series may be owned by Borrowers who are
individuals. In addition, the Relief Act imposes limitations which would
impair the ability of the Master Servicer to foreclose on an affected
Mortgage Loan during the Borrower's period of active duty status and, under
certain circumstances, during an additional three months there after. Thus,
in the event that such a Mortgage Loan goes into default, there may be delays
and losses occasioned by the inability to realize upon the Mortgage Property
in a timely fashion.
APPLICABILITY OF USURY LAWS
State and federal usury laws limit the interest that lenders are entitled
to receive on a mortgage loan. In determining whether a given transaction is
usurious, courts may include charges in the form of "points" and "fees" as
"interest," but may exclude payments in the form of "reimbursement of
foreclosure
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expenses" or other charges found to be distinct from "interest." If, however,
the amount charged for the use of the money loaned is found to exceed a
statutorily established maximum rate, the form employed and the degree of
overcharge are both immaterial. Statutes differ in their provision as to the
consequences of a usurious loan. One group of statutes requires the lender to
forfeit the interest above the applicable limit or imposes a specified
penalty. Under this statutory scheme, the borrower may have the recorded
mortgage or deed of trust cancelled upon paying its debt with lawful
interest, or the lender may foreclose, but only for the debt plus lawful
interest. A second group of statutes is more severe. A violation of this type
of usury law results in the invalidation of the transaction, thereby
permitting the borrower to have the recorded mortgage or deed of trust
cancelled without any payment and prohibiting the lender from foreclosing.
Under the Agreement, a representation and warranty will be made to the
effect that the Mortgage Loans included in a given Trust Fund complied at
origination with applicable laws, including usury laws. If this
representation and warranty is breached with respect to any Mortgage Loan in
a manner that materially and adversely affects the interests of
Certificateholders, a Substitute Mortgage Loan will be substituted for such
Mortgage Loan or such Mortgage Loan will be repurchased in accordance with
the applicable Agreement. See "THE MORTGAGE POOLS--Representations and
Warranties."
The Agreement for each Series will provide that the Master Servicer not
charge interest in excess of that permitted under any applicable state and
federal usury laws, notwithstanding that the applicable Note may provide for
a higher rate.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans, originated by non- federally chartered lenders have historically been
subjected to a variety of restrictions. Such restrictions differed from state
to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender was in
compliance with applicable law. These difficulties were alleviated
substantially as a result of the enactment of Title VIII of the Garn-St
Germain Act ("Title VIII"). Title VIII provides that, notwithstanding any
state law to the contrary, state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks, state-chartered credit unions may
originate alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration (the "NCUA") with
respect to origination of alternative mortgage instruments by federal credit
unions, and all other non-federally chartered housing creditors, including
state-chartered savings and loan associations, state-chartered savings banks
and mortgage banking companies, may originate alternative mortgage
instruments in accordance with the regulations promulgated by the Federal
Home Loan Bank Board (now the Office of Thrift Supervision) with respect to
origination of alternative mortgage instruments by federal savings and loan
associations. Title VIII provides that any state may reject applicability of
the provision of Title VIII by adopting, prior to October 15, 1985, a law or
constitutional provision expressly rejecting the applicability of such
provisions. Certain states have taken such action.
LEASES AND RENTS
Some of the Mortgage Loans included in the Mortgage Pool for a Series may
be secured by an assignment of leases and rents, either through a separate
document of assignment or as incorporated in the mortgage. Under such
assignments, the borrower under the mortgage loan typically assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while retaining a license to collect the rents for
so long as there is no default under the mortgage loan documentation. The
manner of perfecting the lender's interest in rents may depend on whether the
borrower's assignment was absolute or one granted as security for the loan.
Failure to properly perfect the lender's interest in rents may result in the
loss of a substantial pool of funds which could otherwise serve as a source
of repayment for the loan. In the event the Borrower defaults, the license
terminates and the lender may be entitled to collect rents. Some state laws
may require that to perfect its interest in rents, the lender must take
possession of the property and/or obtain judicial appointment of a receiver
before
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becoming entitled to collect the rents. Lenders that actually take possession
of the property, however, may incur potentially substantial risks attendant
to being a mortgagee in possession. Such risks include liability for
environmental clean-up costs and other risks inherent to property ownership.
In addition, if bankruptcy or similar proceedings are commenced by or in
respect of the borrower, the lender's ability to collect the rents may be
adversely affected. In the event of borrower default, the amount of rent the
lender is able to collect from the tenants can significantly affect the value
of the lender's security interest.
SECONDARY FINANCING; DUE-ON-ENCUMBRANCE PROVISIONS
Some of the Mortgage Loans included in the Mortgage Pool for a Series may
not restrict secondary financing, thereby permitting the Borrower to use the
Mortgaged Property as security for one or more additional loans. Some of the
Mortgage Loans may preclude secondary financing (often by permitting the
first lender to accelerate the maturity of its loan if the Borrower further
encumbers the Mortgaged Property) or may require the consent of the senior
lender to any junior or substitute financing; however, such provisions may be
unenforceable in certain jurisdictions under certain circumstances. The
Agreement for each Series will provide that if any Mortgage Loan contains a
provision in the nature of a "due-on-encumbrance" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the mortgagee's option)
become due and payable upon the creation of any lien or other encumbrance on
the related Mortgaged Property; or (ii) requires the consent of the related
mortgagee to the creation of any such lien or other encumbrance on the
related Mortgaged Property, then for so long as such Mortgage Loan is
included in a given Trust Fund, the Master Servicer or, if such Mortgage Loan
is a Specially Serviced Mortgage Loan, the Special Servicer, if any, on
behalf of such Trust Fund, shall exercise (or decline to exercise) any right
it may have as the mortgagee of record with respect to such Mortgage Loan (x)
to accelerate the payments thereon, or (y) to withhold its consent to the
creation of any such lien or other encumbrance, in a manner consistent with
the servicing standard set forth in the Agreement.
Where the Borrower encumbers the Mortgaged Property with one or more
junior liens, the senior lender is subjected to additional risk. First, the
Borrower may have difficulty servicing and repaying multiple loans. Second,
acts of the senior lender which prejudice the junior lender or impair the
junior lender's security may create a superior equity in favor of the junior
lender. For example, if the Borrower and the senior lender agree to an
increase in the principal amount of or the interest rate payable on the
senior loan, the senior lender may lose its priority to the extent an
existing junior lender is prejudiced or the Borrower is additionally
burdened. Third, if the Borrower defaults on the senior loan and/or any
junior loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender and can
interfere with, delay and in certain circumstances even prevent the taking of
action by the senior lender. Fourth, the bankruptcy of a junior lender may
operate to stay foreclosure or similar proceedings by the senior lender.
CERTAIN LAWS AND REGULATIONS
The Mortgage Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply
(together with an inability to remedy any such failure) could result in
material diminution in the value of a Mortgaged Property which could,
together with the possibility of limited alternative uses for a particular
Mortgaged Property (i.e., a nursing or convalescent home or hospital), result
in a failure to realize the full principal amount of the related Mortgage
Loan.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and
use of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care
institutions. Mortgages on Mortgaged Properties which are owned by the
Borrower under a condominium form of ownership are subject to the
declaration, by-laws and other rules and regulations of the condominium
association. Mortgaged Properties which are hotels or motels may present
additional risk to the lender in that: (i) hotels and motels are typically
operated pursuant to franchise, management and operating agreements
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which may be terminable by the operator; and (ii) the transferability of the
hotel's operating, liquor and other licenses to the entity acquiring the
hotel either through purchase or foreclosure is subject to the vagaries of
local law requirements. In addition, Mortgaged Properties which are
multifamily residential properties or cooperatively owned multifamily
properties may be subject to rent control laws, which could impact the future
cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which
are structural in nature from existing places of public accommodation to the
extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so
that, to the maximum extent feasible, such altered portions are readily
accessible to and usable by disabled individuals. The "readily achievable"
standard takes into account, among other factors, the financial resources of
the affected site, owner, landlord or other applicable Person. In addition to
imposing a possible financial burden on the borrower in its capacity as owner
or landlord, the ADA may also impose such requirements on a foreclosing
lender who succeeds to the interest of the Borrower as owner or landlord.
Furthermore, since the "readily achievable" standard may vary depending on
the financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the Borrower of complying with the requirements
of the ADA may be subject to more stringent requirements than those to which
the Borrower is subject.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of certain anticipated federal income tax
consequences of the purchase, ownership, and disposition of the Certificates.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations,
and the judicial and administrative rulings and decisions now in effect, all
of which are subject to change or possible differing interpretations. The
statutory provisions, regulations, and interpretations on which this summary
is based are subject to change, and such change could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily
upon investors who will hold Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code,
but much of the discussion is applicable to other investors as well.
Potential purchasers of Certificates are advised to consult their own tax
advisers concerning the federal, state or local tax consequences to them of
the purchase, holding and disposition of Certificates.
TAXATION OF THE REMIC AND ITS HOLDERS
General. In the opinion of Milbank, Tweed, Hadley & McCloy or Orrick,
Herrington and Sutcliffe, as specified in the applicable Prospectus
Supplement, special counsel to the Depositor, if a REMIC election is made
with respect to a Series of Certificates, then the arrangement by which the
Certificates of that Series are issued will be treated as one or more REMICs
as long as all of the provisions of the applicable Agreement are complied
with and the statutory and regulatory requirements are satisfied.
Certificates will be designated as "Regular Interests" or "Residual
Interests" in the REMICs, as specified in the related Prospectus Supplement.
The opinion of special counsel may in certain cases be based on
representations of the Depositor or other persons.
If a REMIC election is made with respect to a Series of Certificates, (i)
Certificates held by a mutual savings bank or domestic building and loan
association will represent interests in "qualifying real property loans"
within the meaning of Code Section 593(d) (assuming that at least 95% of the
REMIC's assets are "qualifying real property loans"); (ii) Certificates held
by a domestic building and loan association will constitute "a regular or a
residual interest in a REMIC" within the meaning of Code Section
7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's assets consist
of cash, government securities, "loans secured by an interest in real
property," and other types of assets described in Code Section 7701(a)(19)(C)
(except that if the underlying Mortgage Loans are not residential Mortgage
Loans, the Certificates will not so qualify)); and (iii) Certificates held by
a real estate investment trust will constitute "real estate assets" within
the meaning of Code Section 856(c)(5)(A), and income with respect to the
Certificates will be considered "interest on obligations secured by mortgages
on real property or on interests in real property" within the meaning of Code
Section 856(c)(3)(B) (assuming, for both purposes, that at least 95% of the
REMIC's assets are qualifying assets). If less than 95% of the REMIC's assets
consist of assets described in (i), (ii) or (iii) above, then a Certificate
will qualify for the tax treatment described in (i), (ii) or(iii) in the
proportion that such REMIC assets are qualifying assets.
It is possible that various reserves or funds will reduce the proportion
of REMIC assets which qualify under the standards described above.
TAXATION OF REGULAR INTERESTS
Interest and Acquisition Discount. Certificates representing Regular
Interests in a REMIC ("Regular Interest Certificates") are generally taxable
to Holders in the same manner as evidences of indebtedness issued by the
REMIC. Stated interest on the Regular Interest Certificates will be taxable
as ordinary income and taken into account using the accrual method of
accounting, regardless of the Certificateholder's normal accounting method.
Reports will be made annually to the Internal Revenue Service (the "IRS") and
to Holders of Regular Interest Certificates that are not excepted from the
reporting requirements regarding amounts treated as interest (including
accrual of original issue discount) on Regular Interest Certificates.
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Certificates on which interest is not paid currently ("Compound Interest
Certificates") will, and certain of the other Certificates constituting
Regular Interests may, be issued with original issue discount ("OID") within
the meaning of Code Section 1273. Rules governing OID are set forth in
Sections 1271-1275 of the Code and certain final regulations of the U.S.
Department of the Treasury issued in 1994 (the "Final Regulations") and
certain proposed regulations of the U.S. Department of the Treasury issued in
1986, and modified in 1991 and 1994 (the "Proposed Regulations"). The
discussion herein is based in part on the Proposed Regulations, which are
subject to change before being adopted as final regulations and which will
not be effective for obligations issued before such final regulations are
adopted. Moreover, although the Code contains specific provisions governing
the calculation of OID on securities, such as the Certificates, on which
principal is required to be prepaid based on prepayments of the underlying
assets, regulations interpreting those provisions have not yet been issued.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Regular Interest Certificate and its issue
price. A Holder of a Regular Interest Certificate must include such OID in
gross income as ordinary income as it accrues under a method taking into
account an economic accrual of the discount. In general, OID must be included
in income in advance of the receipt of the cash representing that income. The
amount of OID on a Regular Interest Certificate will be considered to be zero
if it is less than a de minimis amount determined under the Code.
The issue price of a Regular Interest Certificate of a Class will
generally be the initial offering price at which a substantial amount of the
Certificates in the Class is sold to the public, and will be treated by the
Depositor as including, in addition, the amount paid by the Certificateholder
for accrued interest that relates to a period prior to the issue date of such
Regular Interest Certificate. Under the Final Regulations, the stated
redemption price at maturity is the sum of all payments on the Certificate
other than any "qualified stated interest" payments. Qualified stated
interest is interest that is unconditionally payable at least annually during
the entire term of the Certificate at either (a) a single fixed rate that
appropriately takes into account the length of the interval between payments
or (b) the current values of (i) a single "qualified floating rate" or (ii) a
single "objective rate" (each a "Single Variable Rate"). A "current value" is
the value of a variable rate on any day that is no earlier than three months
prior to the first day on which that value is in effect and no later than one
year following that day. A qualified floating rate is a rate the variations
in which reasonably can be expected to measure contemporaneous variations in
the cost of newly borrowed funds in the currency in which the Regular
Interest Certificate is denominated (e.g., LIBOR). Such a rate remains
qualified even though it is multiplied by a fixed, positive multiple not
exceeding 1.35, increased or decreased by a fixed rate, or both. Certain
combinations of rates constitute a single qualified floating rate, including
(a) interest stated at a fixed rate for an initial period of less than one
year followed by a qualified floating rate, if the value of the qualified
floating rate on the issue date is intended to approximate the fixed rate,
and (b) two or more qualified floating rates that can reasonably be expected
to have approximately the same values throughout the term of the Regular
Interest Certificate. A combination of such rates is conclusively presumed to
be a single qualified floating rate if the values of all rates on the issue
date are within .25 percentage points of each other. Avariable rate that is
subject to an interest rate cap, floor, "governor" or similar restriction on
rate adjustment may be a qualified floating rate only if such restriction is
fixed throughout the term of the instrument, or is notreasonably expected as
of the issue date to cause the yield on the debt instrument to differ
significantly fromthe expected yield absent the restriction. An objective
rate is a rate, other than a qualified floating rate, determined by a single
formula that is fixed throughout the term of the Regular Interest Certificate
and is based on (i) one or more qualified floating rates (including a
multiple or inverse of a qualified floating rate), (ii) one or more rates
each of which would be a qualified floating rate for a debt instrument
denominated in a foreign currency, (iii) the yield or the changes in the
price of one or more items of "actively traded" personal property, (iv) a
combination of rates described in (i), (ii) or (iii), or (v) other rates
designated by the IRS. Each rate described in (i) through (iv) above will not
be considered an objective rate, however, if it is reasonably expected that
the average value of the rate during the first half of the Regular Interest
Certificate's term will differ significantly from the average value of the
rate during the final half of its term. A combination of interest stated at a
fixed rate for an initial period of less than one year followed by an
objective rate is treated as a single objective rate if the value of the
objective rate on the issue date is intended to approximate the fixed rate;
such a combination of rates is conclusively
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presumed to be a single objective rate if the value of the objective rate on
the issue date does not differ from the value of the fixed rate by more than
.25 percentage points. The rules for determining the qualified stated
interest payable with respect to certain variable rate Regular Interest
Certificates not bearing interest at a Single Variable Rate are discussed
below under "--Variable Rate Regular Interests." In the case of the Compound
Interest Certificates, Interest Weighted Certificates, and certain of the
other Regular Interest Certificates, none of the payments under the
instrument will be considered qualified stated interest, and thus the
aggregate amount of all payments will be included in the stated redemption
price at maturity. Because Certificateholders are entitled to receive
interest only to the extent that payments are made on the Mortgage Loans,
interest might not be considered to be "unconditionally payable."
The Holder of a Regular Interest Certificate issued with OID must include
in gross income, for all days during its taxable year on which it holds such
Regular Interest Certificate, the sum of the "daily portions" of such OID.
Under Code Section 1272(a)(6), the amount of OID to be included in income by
a Holder of a debt instrument, such as a Regular Interest Certificate, that
is subject to acceleration due to prepayments on other debt obligations
securing such instruments, is computed by taking into account the anticipated
rate of prepayments assumed in pricing the debt instrument (the "Prepayment
Assumption"). The amount of OID includible in income by a Holder will be
computed by allocating to each day during a taxable year a pro-rata portion
of the OID that accrued during the relevant accrual period. The amount of OID
that will accrue during an accrual period (generally the period between
interest payments or compounding dates) is the excess(if any) of the sum of
(a) the present value of all payments remaining to be made on the Regular
Interest Certificate as of the close of the accrual period and (b) the
payments during the accrual period of amounts included in the stated
redemption price of the Regular Interest Certificate, over the "adjusted
issue price" of the Regular Interest Certificate at the beginning of the
accrual period. The adjusted issue price of a Regular Interest Certificate is
the sum of its issue price plus prior accruals of OID, reduced by the total
payments made with respect to such Regular Interest Certificate in all prior
periods, other than qualified stated interest payments. Code Section
1272(a)(6) requires the present value of the remaining payments to be
determined on the basis of three factors: (i) the original yield to maturity
of the Regular Interest Certificate (determined on the basis of compounding
at the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the
accrual period and (iii) the assumption that the remaining payments will be
made in accordance with the original Prepayment Assumption. The effect of
this method would be to increase the portions of OID required to be included
in income by a Certificateholder taking into account prepayments with respect
to the Mortgage Loans at a rate that exceeds the Prepayment Assumption, and
to decrease (but not below zero for any period) the portions of OID required
to be included in income by a Certificateholder taking into account
prepayments with respect to the Mortgage Loans at a rate that is slower than
the Prepayment Assumption. Although OID will be reported to
Certificateholders based on the Prepayment Assumption, no representation is
made to Certificateholders that Mortgage Loans will be prepaid at that rate
or at any other rate.
Certain classes of Certificates may represent more than one class of REMIC
Regular Interests. Unless the applicable Prospectus Supplement specifies
otherwise, the Trustee intends, based on the Final Regulations, to calculate
OID on such Certificates as if, solely for the purposes of computing OID, the
separate Regular Interests were a single debt instrument.
A subsequent Holder of a Regular Interest Certificate will also be
required to include OID in gross income, but such a Holder who purchases such
Regular Interest Certificate for an amount that exceeds its adjusted issue
price will be entitled (as will an initial Holder who pays more than a
Regular Interest Certificate's issue price) to offset such OID by comparable
economic accruals of portions of such excess.
Interest Weighted Certificates. It is not clear how income should be
accrued with respect to Regular Interest Certificates the payments on which
consist solely or primarily of a specified portion of the interest payments
on qualified mortgages held by the REMIC ("Interest Weighted Certificate").
The Depositor intends to take the position that all of the income derived
from an Interest Weighted Certificate should be treated as OID and that the
amount and rate of accrual of such OID should be calculated by treating the
Interest Weighted Certificate as a Compound Interest Certificate. However,
the IRS could assert that
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income derived from an Interest Weighted Certificate should be calculated as
if the Interest Weighted Certificatewere a Certificate purchased at a premium
equal to the excess of the price paid by such Holder for the Interest
Weighted Certificate over its stated principal amount, if any. Under this
approach, a Holder would be entitled to amortize such premium only if it has
in effect an election under Section 171 of the Code with respect to all
taxable debt instruments held by such holder, as described below.
Alternatively, the IRS could assert that the Interest Weighted Certificate
should be taxable under certain proposed rules governing bonds issued with
contingent principal payments, in which case a Holder might recognize income
at a slower rate than if the Interest Weighted Certificate were treated as a
Compound Interest Certificate.
Variable Rate Regular Interests. Regular Interest Certificates bearing
interest at one or more variable rates are subject to certain special rules.
The qualified stated interest payable with respect to certain variable rate
debt instruments not bearing interest at a Single Variable Rate generally is
determined under the Final Regulations by converting such instruments into
fixed rate debt instruments. Instruments qualifying for such treatment
generally include those providing for stated interest at (i) more than one
qualified floating rates, orat (ii) a single fixed rate and (a) one or more
qualified floating rates or (b) a single "qualified inverse floating rate"
(each, a "Multiple Variable Rate"). A qualified inverse floating rate is an
objective rate equal to a fixed rate reduced by a qualified floating rate,
the variations in which can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds (disregarding
permissible rate caps, floors, governors, and similar restrictions such as
are described above).
Purchasers of Regular Interest Certificates bearing a variable rate of
interest should be aware that there is uncertainty concerning the application
of Code Section 1272(a)(6), the Final Regulations, and the Proposed
Regulations to such Certificates. In the absence of other authority, the
Depositor intends to be guided by the provisions of the Final Regulations
governing variable rate debt instruments in adapting the provisions of Code
Section 1272(a)(6) to such Certificates for the purpose of preparing reports
furnished to the IRS and Certificateholders. In that regard, in determining
OID with respect to Regular Interest Certificates bearing interest at a
Single Variable Rate, (a) all stated interest with respect to a Regular
Interest Certificate is treated as qualified stated interest and (b) the
amount and accrual of OID, if any, is determined under the OID rules
applicable to fixed rate debt instruments discussed above by assuming that
the Single Variable Rate is a fixed rate equal to (i) in the case of a
qualified floating rate or qualified inverse floating rate, the issue date
value of the rate, or (ii) in the case of any other objective rate, a fixed
rate that reflects the yield that is reasonably expected for the Regular
Interest Certificate. Interest and OID attributable to Regular Interest
Certificates bearing interest at a Multiple Variable Rate similarly will be
taken into account under a methodology that converts the Certificate into an
equivalent fixed rate debt instrument. However, in determining the amount and
accrual of OID, the assumed fixed rates are (a) for each qualified floating
rate, the value of each such rate as of the issue date (with appropriate
adjustment for any differences in intervals between interest adjustment
dates), (b) for a qualified inverse floating rate, the value of the rate as
of the issue date, and (c) for any other objective rate, the fixed rate that
reflects the yield that is reasonably expected for the Certificate. In the
case of a Certificate that provides for stated interest at a fixed rate in
one or more accrual periods and either one or more qualified floating rates
or a qualified inverse floating rate in other accrual periods, the fixed rate
is initially converted into a qualified floating rate (or a qualified inverse
floating rate, if the Certificate provides for a qualified inverse floating
rate). The qualified floating rate or qualified inverse floating rate that
replaces the fixed rate must be such that the fair market value of the
Regular Interest Certificate as of its issue date is approximately the same
as the fair market value of an otherwise identical debt instrument that
provides for either the qualified floating rate or the qualified inverse
floating rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the Regular
Interest Certificate is then converted into an equivalent fixed rate debt
instrument in the manner described above. If the interest paid or accrued
with respect to a Single Variable Rate or Multiple Variable Rate Certificate
during an accrual period differs from the assumed fixed interest rate, such
difference will be an adjustment (to interest or OID, as applicable) to the
Certificateholder's taxable income for the taxable period or periods to which
such difference relates.
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Purchasers of Certificates bearing a variable rate of interest should be
aware that the provisions of the Final Regulations governing variable rate
debt instruments are limited in scope and may not apply to some Regular
Interest Certificates having variable rates. If such a Certificate is not
subject to the provisions of the Final Regulations governing variable rate
debt instruments, it may be subject to the provisions of the Proposed
Regulations applicable to debt instruments having contingent payments. The
application of those provisions to instruments such as variable rate Regular
Interest Certificates is subject to differing interpretations. Prospective
purchasers of variable rate Regular Interest Certificates should consult
their tax advisers concerning the appropriate tax treatment of such
Certificates.
Market Discount and Premium. A purchaser of a Regular Interest Certificate
may also be subject to the market discount rules of the Code. Such purchaser
generally will be required to recognize accrued market discount as ordinary
income as payments of principal are received on such Regular Interest
Certificate, or upon sale or exchange of the Regular Interest Certificate. In
general terms, until regulations are promulgated, market discount may be
treated as accruing, at the election of the Holder, either (i) under a
constant yield method, taking into account the Prepayment Assumption, or (ii)
in proportion to accruals of OID (or, if thereis no OID, in proportion to
accruals of stated interest). A Holder of a Regular Interest Certificate
having market discount may also be required to defer a portion of the
interest deductions attributable to any indebtedness incurred or continued to
purchase or carry the Regular Interest Certificate. As an alternative to the
inclusion of market discount in income on the foregoing basis, the Holder may
elect to include such market discount in income currently as it accrues on
all market discount instruments acquired by such Holder in that taxable year
or thereafter, in which case the interest deferral rule will not apply.
A Holder who purchases a Regular Interest Certificate (other than an
Interest Weighted Certificate, to the extent described above) at a cost
greater than its stated redemption price at maturity, generally will be
considered to have purchased the Certificate at a premium, which it may elect
to amortize as an offset to interest income on such Certificate (and not as a
separate deduction item) on a constant yield method. Although no regulations
addressing the computation of premium accrual on collateralized mortgage
obligations or REMIC Regular Interests have been issued, the legislative
history of the Tax Reform Act of 1986 (the "1986 Act") indicates that premium
is to be accrued in the same manner as market discount. Accordingly, it
appears that the accrual of premium on a Regular Interest Certificate will be
calculated using the prepayment assumption used in pricing such Regular
Interest Certificate. If a Holder makes an election to amortize premium on a
Certificate, such election will apply to all taxable debt instruments
(including all REMIC Regular Interests) held by the Holder at the beginning
of the taxable year in which the election ismade, and to all taxable debt
instruments acquired thereafter by such Holder, and will be irrevocable
without the consent of the IRS. Purchasers who pay a premium for Regular
Interest Certificates should consult their tax advisers regarding the
election to amortize premium and the method to be employed.
Interest Election. Under the Final Regulations, holders of Regular
Interest Certificates generally may elect to include all accrued interest on
a Regular Interest Certificate in gross income using the constant yield to
maturity method. For purposes of this election, interest includes stated
interest, original issue discount, de minimis original issue discount, market
discount, de minimis market discount and unstated interest, as adjusted by
any premium. If a holder of a Regular Interest Certificate makes such an
election and (i) the Regular Interest Certificate has amortizable bond
premium, the holder is deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires, or (ii) the Regular Interest
Certificate has market discount, the holder is deemed to have made an
election to include market discount in income currently for all debt
instruments having market discount acquired during the year of the election
or thereafter. See "--Market Discount and Premium" above. A holder of a
Regular Interest Certificate should consult its tax adviser before making
this election.
Treatment of Subordinate Certificates. As described above under
"ENHANCEMENT -- Subordinate Certificates," certain Series of Certificates may
contain one or more Classes of Subordinate Certificates. Holders of
Subordinate Certificates will be required to report income with respect to
such Certificates on the accrual method without giving effect to delays and
reductions in distributions
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attributable to defaults or delinquencies on any Mortgage Loans, except
possibly to the extent that it can be established that such amounts are
uncollectible. As a result, the amount of income reported by a Holder of a
Subordinate Certificate in any period could significantly exceed the amount
of cash distributed to such Holder in that period.
Although not entirely clear, it appears that a corporate Holder generally
should be allowed to deduct as an ordinary loss any loss sustained on account
of partial or complete worthlessness of a Subordinate Certificate. Although
similarly unclear, a noncorporate Holder generally should be allowed to
deduct as a short-term capital loss any loss sustained on account of complete
worthlessness of a Subordinate Certificate. A noncorporate Holder
alternatively may be allowed such a loss deduction as the principal balance
of a Subordinate Certificate is reduced by reason of realized losses
resulting from liquidated Mortgage Loans; however, the IRS could contend that
a noncorporate Holder should be allowed such losses only after all Mortgage
Loans in the Trust Fund have been liquidated or the Subordinate Certificates
otherwise have been retired. Special rules are applicable to banks and thrift
institutions, including rules regarding reserves for baddebts. Holders of
Subordinate Certificates should consult their own tax advisers regarding the
appropriate timing, character and amount of any loss sustained with respect
to Subordinate Certificates.
REMIC EXPENSES
As a general rule, all of the expenses of a REMIC will be taken into
account by Holders of the Residual Interest Certificates. In the case of a
"single-class REMIC," however, the expenses will be allocated, under
temporary Treasury regulations, among the Holders of the Regular Interest
Certificates and the Holders of the Residual Interest Certificates on a daily
basis in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In the case of a Regular Interest
Certificateholder who is an individual or a "pass-through interest holder"
(including certain pass-through entities but not including real estate
investment trusts), such expenses will be deductible only to the extent that
such expenses, plus other "miscellaneous itemized deductions" of the
Certificateholder, exceed 2% of such Certificateholder's adjusted gross
income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (for 1995, $114,700, or
$57,350, in the case of a separate return of a married individual within the
meaning of Code Section 7703, which amounts will be adjusted annually for
inflation) will be reduced by the lesser of (i) 3% of the excess of adjusted
gross income over the applicable amount, or (ii) 80% of the amount of
itemized deductions otherwise allowable for such taxable year. The
disallowance of this deduction may have a significant impact on the yield of
the Regular Interest Certificate to such a Holder. In general terms, a
single-class REMIC is one that either (i) would qualify, under existing
Treasury regulations, as a grantor trust if it were not a REMIC (treating all
interests as ownership interests, even if they would be classified as debt
for federal income tax purposes) or (ii) is similar to such a trust and is
structured with the principal purpose of avoiding the single-class REMIC
rules.
SALE OR EXCHANGE OF REMIC REGULAR INTEREST CERTIFICATES
A Regular Interest Certificateholder's tax basis in its Regular Interest
Certificate is the price such Holder pays for a Certificate, plus amounts of
OID or market discount included in income and reduced by any payments
received (other than qualified stated interest payments) and any amortized
premium. Gain or loss recognized on a sale, exchange, or redemption of a
Regular Interest Certificate, measured by the difference between the amount
realized and the Regular Interest Certificate's basis as so adjusted, will
generally be capital gain or loss, assuming that the Regular Interest
Certificate is held as a capital asset. If, however, a Certificateholder is a
bank, thrift, or similar institution described in Section 582 of the Code,
gain or loss realized on the sale or exchange of a Certificate will be
taxable as ordinary income or loss. In addition, gain from the disposition of
a Regular Interest Certificate that might otherwise be capital gain will be
treated as ordinary income to the extent of the excess, if any, of (i) the
amount that would have been includible in the Holder's income if the yield on
such Regular Interest Certificate had equaled 110% of the applicable federal
rate as of the beginning of such Holder's holding period, over (ii) the
amount of
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ordinary income actually recognized by the Holder with respect to such
Regular Interest Certificate. For taxable years beginning after December 31,
1993, the maximum tax rate on ordinary income for individual taxpayers is
39.6% and the maximum tax rate on long-term capital gains reported after
December 31, 1993 for such taxpayers is 28%. The maximum tax rate on both
ordinary income and long-term capital gains of corporate taxpayers is 35%.
In addition, all or a portion of any gain from the sale of a Certificate
that might otherwise be capital gain may be treated as ordinary income (i) if
such Certificate is held as part of a "conversion transaction" as defined in
Code Section 1258(c), up to the amount of interest that would have accrued on
the Holder's net investment in the conversion transaction at 120% of the
appropriate applicable Federal rate under Code Section 1274(d) in effect at
the time the taxpayer entered into the transaction reduced by any amount
treated as ordinary income with respect to any prior disposition of property
that was held as part of such transaction, or (ii) in the case of a
noncorporate taxpayer that has made an election under Code Section 163(d)(4)
to have net capital gains taxed as investment income at ordinary income
rates.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level taxation. Rather,
except in the case of a "single-class REMIC," the taxable income or net loss
of a REMIC is taken into account by the Holders of Residual Interests. The
Regular Interests are generally taxable as debt of the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income
produced by the REMIC's assets, including stated interest and any OID or
market discount on loans and other assets, and (ii) deductions, including
stated interest and OID accrued on Regular Interest Certificates,
amortization of any premium with respect to loans, and servicing fees and
other expenses of the REMIC. A Holder of a Residual Interest Certificate that
is an individual or a "pass-through interest holder" (including certain
pass-through entities, but not including real estate investment trusts) will
be unable to deduct servicing fees payable on the loans or other
administrative expenses of the REMIC for a given taxable year to the extent
that such expenses, when aggregated with the Residual Interest
Certificateholder's other miscellaneous itemized deductions for that year, do
not exceed two percent of such Holder's adjusted gross income. In addition,
Code Section 68 provides that the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount (for 1995, $114,700, or $57,350 in the case of
a separate return of a married individual within the meaning of Code Section
7703, which amounts will be adjusted annually for inflation) will be reduced
by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount, or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the Regular Interests and the Residual Interests on the
Startup Day (generally, the day that the interests are issued). That
aggregate basis will be allocated among the assets of the REMIC in proportion
to their respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on
or after March 2, 1984, and the market discount provisions apply to all
loans. Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of OID or market discount income on such loans will be
equivalent to the method under which Holders of Regular Interest Certificates
accrue OID (i.e., under the constant yield method taking into account the
Prepayment Assumption). The REMIC will deduct OID on the Regular Interest
Certificates in the same manner that the Holders of the Certificates include
such discount in income, but without regard to the de minimis rules. See
"--Taxation of Regular Interests" above. However, a REMIC that acquires loans
at a market discount must include such market discount in income currently,
as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized
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over the life of the loans (taking into account the Prepayment Assumption) on
a constant yield method. Although the law is somewhat unclear regarding
recovery of premium attributable to loans originated on or before such date,
it is possible that such premium may be recovered in proportion to payments
of loan principal.
TAXATION OF HOLDERS OF RESIDUAL INTEREST CERTIFICATES
The Holder of a Certificate representing a residual interest (a "Residual
Interest Certificate") will take into account the "daily portion" of the
taxable income or net loss of the REMIC for each day during the taxable year
on which such Holder held the Residual Interest Certificate. The daily
portion is determined by allocating to each day in any calendar quarter its
ratable portion of the taxable income or net loss of the REMIC for such
quarter, and by allocating that amount among the Holders (on such day) of the
Residual Interest Certificates in proportion to their respective holdings on
such day.
Prohibited Transactions and Contributions Tax. The REMIC will be subject
to a 100% tax on any net income derived from a "prohibited transaction." For
this purpose, net income will be calculated without taking into account any
losses from prohibited transactions or any deductions attributable to any
prohibited transaction that resulted in a loss. In general, prohibited
transactions include (i) subject to limited exceptions, the sale or other
disposition of any qualified mortgage transferred to the REMIC; (ii) subject
to a limited exception, the sale or other disposition of a cash flow
investment; (iii) the receipt of any income from assets not permitted to be
held by the REMIC pursuant to the Code; or (iv) the receipt of any fees or
other compensation for services rendered by the REMIC. It is anticipated that
a REMIC will not engage in any prohibited transactions in which it would
recognize a material amount of net income. In addition, subject to a number
of exceptions, a tax is imposed at the rate of 100% on amounts contributed to
a REMIC after the close of the three-month period beginning on the Startup
Day. The Holders of Residual Interest Certificates will generally be
responsible for the payment of any such taxes imposed on the REMIC. To the
extent not paid by such Holders or otherwise, however, such taxes will be
paid out of the Trust Fund and will be allocated pro-rata to all outstanding
Classes of Certificates of such REMIC.
The Holder of a Residual Interest Certificate must report its
proportionate share of the taxable income of the REMIC whether or not it
receives cash distributions from the REMIC attributable to such income or
loss. The reporting of taxable income without corresponding distributions
could occur, for example, in certain REMICs in which the loans held by the
REMIC were issued or acquired at a discount, since mortgage prepayments cause
recognition of discount income, while the corresponding portion of the
prepayment could be used in whole or in part to make principal payments on
REMIC Regular Interests issued without any discount or at an insubstantial
discount. (If this occurs, it is likely that cash distributions will exceed
taxable income in later years.) Taxable income may also be greater in the
earlier years of certain REMICs as a result of the fact that interest expense
deductions, as a percentage of outstanding principal of REMIC Regular
Interest Certificates, will typically increase over time as lower yielding
Certificates are paid, whereas interest income with respect to loans will
generally remain constant over time as a percentage of loan principal.
In any event, because the Holder of a Residual Interest is taxed on the
net income of the REMIC, the taxable income derived from a Residual Interest
Certificate in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pre-tax yield. Therefore, the after-tax
yield on the Residual Interest Certificate may be less than that of such a
bond or instrument.
Limitation on Losses. The amount of the REMIC's net loss that a Holder may
take into account currently is limited to the Holder's adjusted basis at the
end of the calendar quarter in which such loss arises. A Holder's basis in a
Residual Interest Certificate will initially equal such Holder's purchase
price, and will subsequently be increased by the amount of the REMIC's
taxable income allocated to the Holder, and decreased (but not below zero) by
the amount of distributions made and the amount of the REMIC's net loss
allocated to the Holder. Any disallowed loss may be carried forward
indefinitely, but
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may be used only to offset income of the REMIC generated by the same REMIC.
The ability of Residual Interest Certificateholders to deduct net losses may
be subject to additional limitations under the Code, as to which such Holders
should consult their tax advisers.
Distributions. Distributions on a Residual Interest Certificate (whether
at their scheduled times or as a result of prepayments) will generally not
result in any additional taxable income or loss to a Holder of a Residual
Interest Certificate. If the amount of such payment exceeds a Holder's
adjusted basis in the Residual Interest Certificate, however, the Holder will
recognize gain (treated as gain from the sale of the Residual Interest
Certificate) to the extent of such excess.
Sale or Exchange. A Holder of a Residual Interest Certificate will
recognize gain or loss on the sale or exchange of a Residual Interest
Certificate equal to the difference, if any, between the amount realized and
such Certificateholder's adjusted basis in the Residual Interest Certificate
at the time of such sale or exchange. Any such loss may be a capital loss
subject to limitation; gain which might otherwise be capital may be treated
as ordinary income under certain circumstances. See "--Sale or Exchange of
REMIC Regular Interest Certificates" above. Except to the extent provided in
regulations, which have not yet been issued, any loss upon disposition or a
Residual Interest Certificate will be disallowed if the selling
Certificateholder acquires any residual interest in a REMIC or similar
mortgage pool within six months before or after such disposition.
EXCESS INCLUSIONS
The portion of a Residual Interest Certificateholder's REMIC taxable
income consisting of "excess inclusion" income may not be offset by other
deductions or losses, including net operating losses, on such
Certificateholder's federal income tax return. An exception applies to
organizations to which Code Section 593 applies (generally, certain thrift
institutions); however, such exception will not apply if the aggregate value
of the Residual Interest Certificates is not considered to be "significant,"
as described below. Further, if the Holder of a Residual Interest Certificate
is an organization subject to the tax on unrelated business income imposed by
Code Section 511, such Residual Interest Certificateholder's excess inclusion
income will be treated as unrelated business taxable income of such
Certificateholder. In addition, under Treasury regulations yet to be issued,
if a real estate investment trust, a regulated investment company, a common
trust fund, or certain cooperatives were to own a Residual Interest
Certificate, a portion of dividends (or other distributions) paid by the real
estate investment trust (or other entity) would be treated as excess
inclusion income. If a Residual Certificate is owned by a foreign person,
excess inclusion income is subject to tax at a rate of 30%, which rate may
not be reduced by treaty and is not eligible for treatment as "portfolio
interest." Treasury regulations under the REMIC provisions of the Code (the
"REMIC Regulations") provide that a Residual Interest Certificate has
significant value only if (i) the aggregate issue price of the Residual
Interest Certificates is at least 2% of the aggregate of the issue prices of
all Regular Interest Certificates and Residual Interest Certificates in the
REMIC and (ii) the anticipated weighted average life (determined as specified
inthe REMIC Regulations) of the Residual Interest Certificates is at least
20% of the anticipated weighted average life of the REMIC.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to
a Residual Interest Certificate, over the daily accruals for such quarterly
period of (i) 120% of the long term applicable federal rate on the Startup
Day multiplied by (ii) the adjusted issue price of such Residual Interest
Certificate at the beginning of such quarterly period. The adjusted issue
price of a Residual Interest at the beginning of each calendar quarter will
equal its issue price (calculated in a manner analogous to the determination
of the issue price of a Regular Interest), increased by the aggregate of the
daily accruals for prior calendar quarters, and decreased (but not below
zero) by the amount of loss allocated to a Holder and the amount of
distributions made on the Residual Interest Certificate before the beginning
of the quarter. The long-term federal rate, which is announced monthly by the
Treasury Department, is an interest rate that is based on the average market
yield of outstanding marketable obligations of the United States government
having remaining maturities in excess of nine years.
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Under the REMIC Regulations, in certain circumstances, transfers of
Residual Certificates may be disregarded. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES --Restrictions on Ownership and Transfer of Residual Interest
Certificates" and "--Tax Treatment of Foreign Investors."
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF RESIDUAL INTEREST CERTIFICATES
As a condition to qualification as a REMIC, reasonable arrangements must
be made to prevent the ownership of a REMIC Residual Interest by any
"Disqualified Organization." Disqualified Organizations include the United
States, any State or political subdivision thereof, any foreign government,
any international organization, or any agency or instrumentality of any of
the foregoing, a rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the applicable Agreement will
prohibit Disqualified Organizations from owning a Residual Interest
Certificate. In addition, no transfer of a Residual Interest Certificate will
be permitted unless the proposed transferee shall have furnished to the
Trustee an affidavit representing and warranting that it is neither a
Disqualified Organization nor an agent or nominee acting on behalf of a
Disqualified Organization.
If a Residual Interest Certificate is transferred to a Disqualified
Organization (in violation of the restrictions set forth above), a
substantial tax will be imposed on the transferor of such Residual Interest
Certificate at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity (including, among
others, a partnership, trust, real estate investment trust, regulated
investment company, or any person holding as nominee) that owns a Residual
Interest Certificate, the pass-through entity will be required to pay an
annual tax on its allocable share of the excess inclusion income of the
REMIC. Legislation presently pending before the United States Congress, The
Tax Simplification and Technical Corrections Act of 1993 (the "Simplification
Act"), would apply this tax on an annual basis to "large partnerships."
Generally, the Simplification Act would treat partnerships that have, or have
had, 250 or more partners as a large partnership for this purpose. The
Simplification Act would not limit application of tax to excess inclusions
allocable to Disqualified Organizations, and in fact would apply the tax to
large partnerships having no Disqualified Organizations as partners. If
enacted in its present form, the Simplification Act would apply to
partnership taxable years ending on or after December 31, 1994.
Under the REMIC Regulations, if a Residual Interest Certificate is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Certificate to a United States person will be disregarded for all
Federal tax purposes unless no significant purpose of the transfer was to
impede the assessment or collection of tax. A Residual Interest Certificate
is a "noneconomic residual interest" unless, at the time of the transfer (i)
the present value of the expected future distributions on the Residual
Interest Certificate at least equals the product of the present value of the
anticipated excess inclusions and the highest rate of tax for the year in
which the transfer occurs, and (ii) the transferor reasonably expects that
the transferee will receive distributions from the REMIC at or after the time
at which the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The present value is calculated
based on the Prepayment Assumption, using a discount rate equal to the
"applicable federal rate" at the time of transfer. If a transfer of a
Residual Interest is disregarded, the transferor would be liable for any
Federal income tax imposed upon the taxable income derived by the transferee
from the REMIC. A significant purpose to impede the assessment or collection
of tax exists if the transferor, at the time of transfer, knew or should have
known that the transferee would be unwilling or unable to pay taxes on its
share of the taxable income of the REMIC. A similar type of limitation exists
with respect to certain transfers of residual interests by foreign persons to
United States persons. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Tax
Treatment of Foreign Investors."
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the IRS
in a unified administrative proceeding.
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TAX STATUS AS A GRANTOR TRUST
General. In the opinion of Milbank, Tweed, Hadley & McCloy or Orrick,
Herrington and Sutcliffe, as specified in the applicable Prospectus
Supplement, special counsel to the Depositor, if a REMIC election is not made
with respect to a Series of Certificates, the Trust Fund will be classified
for federal income tax purposes as a grantor trust under Subpart E, Part 1 of
Subchapter J of the Code and not as an association taxable as a corporation.
In some Series ("Pass-Through Certificates"), there will be no separation of
the principal and interest payments on the Mortgage Loans. In such
circumstances, a Certificateholder will be considered to have purchased an
undivided interest in each of the Mortgage Loans. In other cases ("Stripped
Certificates"), sale of the Certificates will produce a separation in the
ownership of the principal payments and interest payments on the Mortgage
Loans.
Each Certificateholder must report on its federal income tax return its
pro rata share of the gross income derived from the Mortgage Loans (not
reduced by the amount payable as fees to the Trustee and the Master Servicer
and similar fees (collectively, the "Trustee/Master Servicer Fee")), at the
same time and in the same manner as such items would have been reported under
the Certificateholder's tax accounting method had it held its interest in the
Mortgage Loans directly, received directly its share of the amounts received
with respect to the Mortgage Loans, and paid directly its share of the
Trustee/Master Servicer Fees. In the case of Pass-Through Certificates, such
gross income will consist of a pro rata share of all of the income derived
from all of the Mortgage Loans and, in the case of Stripped Certificates,
such income will consist of a pro rata share of the income derived from each
stripped bond or stripped coupon in which the Certificateholder owns an
interest. The Holder of a Certificate will generally be entitled to deduct
such Trustee/Master Servicer Fees under Section 162 or Section 212 of the
Code to the extent that such Trustee/Master Servicer Fees represent
"reasonable" compensation for the services rendered by the Trustee and the
Master Servicer (and Servicer, if other than the Master Servicer). In the
case of a noncorporate holder, however, Trustee/Master Servicer Fees (to the
extent not otherwise disallowed, e.g., because they exceed reasonable
compensation) will be deductiblein computing such Holder's regular tax
liability only to the extent that such fees, when added to other
miscellaneous itemized deductions, exceed 2% of adjusted gross income and may
not be deductible to any extent in computing such Holder's alternative
minimum tax liability. In addition, Code Section 68 provides that the amount
of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount (for
1994, $111,800, or $55,900 in the case of a separate return of a married
individual within the meaning of Code Section 7703, which amount will be
adjusted annually for inflation) will be reduced by the lesser of (i) 3% of
the excess of adjusted gross income over the applicable amount, or (ii) 80%
of the amount of itemized deductions otherwise allowable for such taxable
year.
Discount or Premium on Pass-Through Certificates. The Holder's purchase
price of a Pass-Through Certificate is to be allocated among the Mortgage
Loans in proportion to their fair market values, determined as of the time of
purchase of the Certificates. In the typical case, the Trustee believes it is
reasonable for this purpose to treat each Mortgage Loan as having a fair
market value proportional to the share of the aggregate principal balances of
all of the Mortgage Loans that it represents, since the Mortgage Loans,
unless otherwise specified in the applicable Prospectus Supplement, will have
a relatively uniform interest rate and other common characteristics. To the
extent that the portion of the purchase price of a Certificate allocated to a
Mortgage Loan (other than to a right to receive any accrued interest thereon
and any undistributed principal payments) is less than or greater than the
portion of the principal balance of the Mortgage Loan allocable to the
Certificate, the interest in the Mortgage Loan allocable to the Certificate
will be deemed to have been acquired at a discount or premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Mortgage Loan with OID in
excess of a prescribed de minimis amount, a Holder of a Certificate will be
required to report as interest income in each taxable year its share of the
amount of OID that accrues during that year, determined under a constant
yield method by reference to the initial yield to maturity of the Mortgage
Loan, in advance of receipt of the cash attributable to such income and
regardless of the method of federal income tax accounting employed by that
Holder. OID with respect to a Mortgage Loan could arise, for example, by
virtue of the financing of points by the originator of the Mortgage Loan, or
by virtue of the charging of points by the originator of the Mortgage Loan in
an
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amount greater than a statutory de minimis exception, in circumstances under
which the points are not currently deductible pursuant to applicable Code
provisions. However, the Code provides for a reduction in the amount of OID
includible in the income of a Holder who acquires an obligation after its
initial issuance at a price greater than the sum of the original issue price
of the Mortgage Loan and the previously accrued OID, less prior payments of
principal. Accordingly, if the Mortgage Loans acquired by a Certificateholder
are purchased at a price equal to the then unpaid principal amount of such
Mortgage Loans, any OID should be reduced or eliminated.
Certificateholders also may be subject to the market discount rules of
Sections 1276-1278 of the Code. A Certificateholder that acquires an interest
in Mortgage Loans with more than a prescribed de minimis amount of "market
discount" (generally, the excess of the principal amount of the Mortgage
Loans over the purchaser's purchase price) will be required under Section
1276 of the Code to include accrued market discount in income as ordinary
income in each month, but limited to an amount not exceeding the principal
payments on the Mortgage Loans received in that month and, if the
Certificates are sold, the gain realized. Such market discount would accrue
in a manner to be provided in Treasury regulations. The legislative history
of the 1986 Act indicates that, until such regulations are issued, such
market discount would in general accrue either (i) on the basis of a constant
interest rate or (ii) in the ratio of (a) in the case of Mortgage Loans not
originally issued with OID, stated interest payable in the relevant period to
total stated interest remaining to bepaid at the beginning of the period, or
(b) in the case of Mortgage Loans originally issued at a discount, OID in the
relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date, the excess of interest paid or accrued to purchase or carry a loan with
market discount over interest received on such loan is allowed as a current
deduction only to the extent such excess is greater than the market discount
that accrued during the taxable year in which such interest expense was
incurred. In general, the deferred portion of any interest expense will be
deductible when such market discount is included in income, including upon
the sale, disposition, or repayment of the loan. A Holder may elect to
include market discount in income currently as it accrues, on all market
discount obligations acquired by such Holder during the taxable year such
election is made and thereafter, in which case the interest deferral rule
discussed above will not apply.
A Certificateholder who purchases a Certificate at a premium generally
will be deemed to have purchased its interest in the underlying Mortgage
Loans at a premium. A Certificateholder who holds a Certificate as a capital
asset may generally elect under Section 171 of the Code to amortize such
premium as an offset to interest income on the Mortgage Loans (and not as a
separate deduction item) on a constant yield method. The legislative history
of the 1986 Act suggests that the same rules that will apply to the accrual
of market discount (described above) will generally also apply in amortizing
premium with respect to Mortgage Loans originated after September 27, 1985.
If a Holder makes an election to amortize premium, such election will apply
to all taxable debt instruments held by such Holder at the beginning of the
taxable year in which the election is made, and to all taxable debt
instruments acquired thereafter by such Holder, and will be irrevocable
without the consent of the IRS. Purchasers who pay a premium for the
Certificates should consult their tax advisers regarding the election to
amortize premium and the method to be employed. Although the law is somewhat
unclear regarding recovery of premium allocable to Mortgage Loans originated
before September 28, 1985, it is possible that such premium may be recovered
in proportion to payments of Mortgage Loan principal.
Discount or Premium on Stripped Certificates. A Stripped Certificate may
represent a right to receive only a portion of the interest payments on the
Mortgage Loans, a right to receive only principal payments on the Mortgage
Loans, or a right to receive certain payments of both interest and principal.
Certain Stripped Certificates ("Ratio Strip Certificates") may represent a
right to receive differing percentages of both the interest and principal on
each Mortgage Loan. Pursuant to Section 1286 of the Code, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the
principal payments results in the creation of "stripped bonds" with respect
to principal payments and "stripped coupons" with respect to interest
payments. Section 1286 of the Code applies the OID rules to stripped bonds
and stripped coupons. For purposes of computing OID, a stripped bond or a
stripped coupon is treated as a debt instrument issued on the date that such
stripped interest is purchased with an issue price equal to its
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purchase price or, if more than one stripped interest is purchased, the
ratable share of the purchase price allocable to such stripped interest. The
Code, Final Regulations, Proposed Regulations, and judicial decisions provide
little direct guidance as to how the OID rules are to apply to Stripped
Certificates, although regulations indicate that in determining whether the
portion of the interest on a Mortgage Loan payable to a particular Class of
Certificates is "qualified stated interest," all principal and interest
payments payable to that Class from that Mortgage Loan are taken into
account. Under the method described above for REMIC Regular Interest
Certificates (the "Cash Flow Bond Method"), a prepayment assumption is used
and periodic recalculations are made which take into account with respect to
each accrual period the effect of prepayments during such period. The Code
prescribes the same method for debt instruments "secured by" other debt
instruments, the maturity of which may be affected by prepayments on the
underlying debt instruments. However, the Code does not, absent Treasury
regulations, appear specifically to cover instruments such as the Stripped
Certificates which technically represent ownership interests in the
underlying Mortgage Loans, rather than being debt instruments "secured by"
those loans. Nevertheless, it is believed that the Cash Flow Bond Method is a
reasonable method of reporting income for such Certificates, and it is
expected that OID will be reported on that basis unless otherwise specified
in the related Prospectus Supplement. In applying the calculation to Stripped
Certificates, the Trustee will treat all payments to be received with respect
to a Class of Certificates as payments on a single installment obligation.
The IRS could, however, assert that OID must be calculated separately for
each Mortgage Loan underlying a Class of Certificates.
Under certain circumstances, if the Mortgage Loans prepay at a rate faster
than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a Certificateholder's recognition of income. If, however, the
Mortgage Loans prepay at a rate slower that the prepayment assumption, in
some circumstances the use of this method may decelerate a
Certificateholder's recognition of income.
In the case of a Stripped Certificate the payments on which consist solely
or primarily of a specified portion of the interest payments on the Mortgage
Loans ("Interest Weighted Stripped Certificate"), additional uncertainty
exists because of the enhanced potential for applicability of the contingent
principal provisions of the Proposed Regulations.
Under the contingent principal provisions, "contingent principal"
represents the portion of the purchase price in excess of the amount of
principal payments. Under this method, the Certificateholder is in effect put
on the cash method with respect to interest income at the applicable federal
rate. First, each payment denominated "interest" is treated as interest to
the extent of accrued and unpaid interest on the debt instrument at the time
that the payment is received. Second, the portion of a payment denominated as
interest that is not treated as interest, as described in the preceding
sentence, is treated as a repayment of contingent principal. The interest for
any accrual period is the product of the applicable federal rate (published
monthly by the Treasury Department and adjusted for the length of the accrual
period) at the time of the debt instrument's issuance and the adjusted issue
price at the beginning of the accrual period (the sum of the purchase price
of the instrument plus the accrued interest for all prior accrual periods,
reduced by the total of payments received in all prior periods). The total of
the payments denominated as interest with respect to the Interest Weighted
Stripped Certificate that may be treated as principal may not exceed the
amount of contingent principal. If the contingent principal has been
completely recovered, all subsequent payments will be treated as interest.
The Proposed Regulations provide that if all contingent principal is not
recovered as of the final payment, then the final payment will be treated as
principal to the extent of such unrecovered principal and interest to the
extent of the remainder, if any. To the extent the final payment is not
sufficient to cover the principal amount, the Certificateholders will
recognize a loss. Any such loss may be an ordinary loss since loss recognized
on retirement of a debt instrument issued by a natural person (e.g., a
mortgage loan) is not a loss from a sale or exchange. However, the IRS might
contend that such loss should be a capital loss if the Certificateholder held
its Certificate as a capital asset within the meaning of Section 1221 of the
Code.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates described above are not the only possible
interpretations of the applicable Code provisions. Among other
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possibilities, the IRS could contend that (i) in certain Series, each
Stripped Certificate other than an Interest Weighted Stripped Certificate is
composed of an unstripped, undivided ownership interest in Mortgage Loans and
an installment obligation consisting of stripped principal payments; (ii) the
Stripped Certificates other than theInterest Weighted Stripped Certificates
are subject to the contingent payment provisions of the Proposed Regulations;
or (iii) each Interest Weighted Stripped Certificate is composed of an
unstripped undivided ownership interest in Mortgage Loans and an installment
obligation consisting of stripped interest payments.
Given the variety of alternatives for treatment of the Certificates and
the different federal income tax consequences that result from each
alternative, potential purchasers are urged to consult their own tax advisers
regarding the proper treatment of the Certificates for federal income tax
purposes.
Character as Qualifying Mortgage Loans. In the case of Stripped
Certificates there is no specific legal authority existing regarding whether
the character of the Certificates, for federal income tax purposes, will
bethe same as the Mortgage Loans. The IRS could take the position that the
Mortgage Loans' character is not carried over to the Certificates in such
circumstances. Pass-Through Certificates will be, and, although the matter is
not free from doubt, Stripped Certificates should be considered to represent
"qualifying real property loans" within the meaning of Section 593(d) of the
Code, "real estate assets" within the meaning of Section 856(c)(5)(A) of the
Code, and "loans secured by an interest in real property" within the meaning
of Section 7701(a)(19)(C)(v) of the Code (except that if the underlying
Mortgage Loans are not residential Mortgage Loans, the Certificates will not
so qualify): interest income attributable to the Certificates should be
considered to represent "interest on obligations secured by mortgages on real
property or on interests in real property" within the meaning of Section
856(c)(3)(B) of the Code. Reserves or funds underlying theCertificates may
cause a proportionate reduction in the above-described qualification of
Certificates.
Sale of Certificates. As a general rule, if a Certificate is sold, gain or
loss will be recognized by the Holder thereof in an amount equal to the
difference between the amount realized on the sale and the
Certificateholder's adjusted tax basis in the Certificate. Such gain or loss
will generally be capital gain or loss if the Certificate is held as a
capital asset. In the case of Pass-Through Certificates, such tax basis will
generally equal the Holder's cost of the Certificate increased by any
discount income with respect to the loans represented by such Certificate
previously included in income, and decreased by the amount of any
distributions of principal previously received with respect to the
Certificate. Such gain, to the extent not otherwise treated as ordinary
income, will be treated as ordinary income to the extent of any accrued
market discount not previously reported as income. Gain attributable to a
Certificate held as part of a conversion transaction or subject to an
election under Code Section 163(d)(4) may also be treated in whole or part as
ordinary income. See "--Sale or Exchange of REMIC Regular Interest
Certificates" above. In the case of Stripped Certificates, the tax basis will
generally equal the Certificateholde's cost for the Certificate, increased by
any discount income with respect to the Certificate previously included in
income, and decreased by the amount of all payments previously received with
respect to such Certificate.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. A Certificateholder, other than a REMIC Residual
Certificateholder, may, under certain circumstances, be subject to "backup
withholding" at the rate of 31% with respect to distributions or the proceeds
of a sale of certificates to or through brokers that represent interest or
original issue discount on the Certificates. This withholding generally
applies if the Holder of a Certificate (i) fails to furnish the Trustee with
its taxpayer identification number ("TIN"); (ii) furnishes the Trustee an
incorrect TIN; (iii) fails to report properly interest, dividends or other
"reportable payments" as defined in the Code; or (iv) under certain
circumstances, fails to provide the Trustee or such Holder's securities
broker with a certified statement, signed under penalty of perjury, that the
TIN provided is its correct TIN and that the Holder is not subject to backup
withholding. Backup withholding will not apply, however, with respect to
certain payments made to Certificateholders, including payments to certain
exempt recipients (such as exempt organizations) and to certain Nonresidents
(as defined below). Holders of the Certificates should consult their tax
advisers as to their qualification for exemption from backup withholding and
the procedure for obtaining the exemption.
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The Trustee will report to the Certificateholders and to the Master
Servicer for each calendar year the amount of any "reportable payments"
during such year and the amount of tax withheld, if any, with respect to
payments on the Certificates.
TAX TREATMENT OF FOREIGN INVESTORS
Under the Code, unless interest (including OID) paid on a Certificate
(other than a Residual Interest Certificate) is considered to be "effectively
connected" with a trade or business conducted in the United States by a
nonresident alien individual, foreign partnership or foreign corporation
("Nonresidents"), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of
10% or more of the capital or profits interest in the issuer or (ii) the
recipient is a controlled foreign corporation as to which the issuer is a
related person) and will be exempt from Federal income tax. Upon receipt of
appropriate ownership statements, the issuer normally will be relieved of
obligations to withhold tax from such interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the issuer to withhold at a 30% rate (unless reduced or
eliminated by an applicable tax treaty) on, among other things, interest and
other fixed or determinable, annual or periodical income paid to
Nonresidents. Holders of Pass-Through Certificates and Stripped Certificates,
including Ratio Certificates, however, may be subject to withholding to the
extent that the Mortgage Loans were originated on or before July 18, 1984.
Interest and OID of Certificateholders who are foreign persons are not
subject to withholding if they are effectively connected with a United States
business conducted by the Certificateholder. They will, however, generally be
subject to the regular United States income tax.
Payments to Holders of Residual Interest Certificates who are foreign
persons will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume that
such income does not qualify for exemption from United States withholding tax
as "portfolio interest." It is clear that, to the extent that a payment
represents a portion of REMIC taxable income that constitutes excess
inclusion income, a Holder of a Residual Interest Certificate will not be
entitled to an exemption from or reduction of the 30% (or lower treaty rate)
withholding tax. If the payments are subject to United States withholding
tax, they generally will be taken into account for withholding tax purposes
only when paid or distributed (or when the Residual Interest Certificate is
disposed of). The Treasury has statutory authority, however, to promulgate
regulations which would require such amounts to be taken into account at an
earlier time in order to prevent the avoidance of tax. Such regulations
could, for example, require withholding prior to the distribution of cash in
the case of Residual Interest Certificates that do not have significant
value. Under the Proposed Regulations, if a Residual Interest Certificate has
tax avoidance potential, a transfer of a Residual Interest Certificate to a
Nonresident will be disregarded for all Federal tax purposes. A Residual
Interest Certificate has tax avoidance potential unless, at the time of the
transfer, the transferor reasonably expects that the REMIC will distribute to
the transferee Residual Interest holder amounts that will equal at least 30%
of each excess inclusion, and that such amounts will be distributed at or
after the time at which the excess inclusion accrues and not later than the
close of the calendar year following the calendar year of accrual. If a
Nonresident transfers a Residual Interest Certificate to a United States
person, and if the transfer has the effect of allowing the transferor to
avoid tax on accrued excess inclusions, then the transfer is disregarded and
the transferor continues to be treated as the owner of the Residual Interest
Certificate for purposes of the withholding tax provisions of the Code. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Excess Inclusions."
STATE TAX CONSIDERATIONS
In addition to the Federal income tax consequences described in "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition
of the Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state. Therefore, potential
investors should consult their own tax advisers with respect to the various
state tax consequences of an investment in the Certificates.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to ERISA
("ERISA Plans") and prohibits certain transactions between ERISA Plans and
persons who are parties in interest (as defined under ERISA) ("parties in
interest") with respect to assets of such Plans. Section 4975 of the Code
prohibits a similar set of transactions between certain plans ("Code Plans,"
and together with ERISA Plans, "Plans") and persons who are disqualified
persons (as defined in the Code) with respect to Code Plans. Certain employee
benefit plans, such as governmental plans and church plans (if no election
has been made under Section 410(d) of the Code), are not subject to the
requirements of ERISA or Section 4975 of the Code, and assets of such plans
may be invested in Certificates, subject to the provisions of other
applicable federal and state law. Any such plan which is qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of
the Code is, however, subject to the prohibited transaction rules set forth
in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance
with the documents governing the ERISA Plan. Before investing in a
Certificate, an ERISA Plan fiduciary should consider, among other factors,
whether to do so is appropriate in view of the overall investment policy and
liquidity needs of the ERISA Plan. Such fiduciary should especially consider
the sensitivity of the investments to the rate of principal payments
(including prepayments) on the Mortgage Loans, as discussed in the Prospectus
Supplement related to a Series.
Based on the holding of the United States Supreme Court in John Hancock
Mutual Life Ins. Co. v. Harris Trust and Savings Bank, 114 S. Ct. 517 (1993),
the assets of Plan may include assets held in the general account of an
insurance company. Before investing in a Certificate, an insurance company
should consider the effects of such holding on an investment of its general
accounts and the potential applicability of ERISA and Section 4975 of the
Code.
PROHIBITED TRANSACTIONS
Section 406 of ERISA and Section 4975 of the Code prohibit parties in
interest and disqualified persons with respect to ERISA Plans and Code Plans
from engaging in certain transactions involving such Plans or "plan assets"
of such Plans unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code and Sections 502(i) and 502(l) of ERISA
provide for the imposition of certain excise taxes and civil penalties on
certain persons that engage or participate in such prohibited transactions.
The Depositor, the Master Servicer, any Special Servicer or the Trustee or
certain affiliates thereof may be considered or may become parties in
interest or disqualified persons with respect to an investing Plan. If so,
the acquisition or holding of Certificates by, on behalf of or with "plan
assets" of such Plan may be considered to give rise to a "prohibited
transaction" within the meaning of ERISA and/or the Section 4975 of Code
unless an administrative exemption described below or some other exemption is
available.
Special caution should be exercised before "plan assets" of a Plan are
used to purchase a Certificate if, with respect to such assets, the
Depositor, the Master Servicer, any Special Servicer or the Trustee or an
affiliate thereof either (a) has investment discretion with respect to the
investment of such assets, or (b) has authority or responsibility to give, or
regularly gives investment advice with respect to such assets for a fee and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such assets and that
such advice will be based on the particular investment needs of the Plan.
Further, if the assets included in a Trust Fund were deemed to constitute
"plan assets," a Plan's investment in the Certificates may be deemed to
constitute a delegation, under ERISA, of the duty to manage plan assets by
the fiduciary deciding to invest in the Certificates, and certain
transactions involved in the operation of the Trust Fund may be deemed to
constitute prohibited transactions under ERISA and/or the Code. Neither ERISA
nor Section 4975 of the Code defines the term "plan assets."
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The U.S. Department of Labor (the "Department") has issued regulations
(the "Regulations") concerning whether or not a Plan's assets would be deemed
to include an interest in the underlying assets of an entity (such as the
Trust Fund), for purposes of the reporting and disclosure and general
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code, if the Plan acquires an
"equity interest" (such as a Certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the
Certificates instead of being deemed to include an interest in the assets of
the Trust Fund. However, it cannot be predicted in advance, nor can there be
a continuing assurance whether such exceptions may be met, because of the
factual nature of certain of the rules set forth in the Regulations. For
example, one of the exceptions in the Regulations states that the underlying
assets of an entity will not be considered "plan assets" if less than 25% of
the value of each class of equity interests is held by "benefit plan
investors," which are defined as ERISA Plans, Code Plans, and employee
benefit plans not subject to ERISA (for example, governmental plans), but
this exemption is tested immediately after each acquisition of an equity
interest in the entity whether upon initial issuance or in the secondary
market.
Pursuant to the Regulations, if the assets of the Trust Fund were deemed
to be "plan assets" by reason of the investment of assets of a Plan in any
Certificates, the "plan assets" of such Plan would include an undivided
interest in the Mortgage Loans, the mortgages underlying the Mortgage Loans
and any other assets held in the Trust Fund. Therefore, because the Mortgage
Loans and other assets held in the Trust Fund may be deemed to be "plan
assets" of each Plan that purchases Certificates, in the absence of an
exemption, the purchase, sale or holding of Certificates of any Series or
Class by or with "plan assets" of a Plan may result in a prohibited
transaction and the imposition of civil penalties or excise taxes.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase, sale or holding of
Certificates of any Series or Class by a Plan, for example, Prohibited
Transaction Class Exemption ("PTCE") 95-60, which exempts certain
transactions with insurance company general acounts; PTCE 91-38 (formerly
PTCE 80-51), which exempts certain transactions between bank collective
investment funds and parties in interest; PTCE 90-1 (formerly PTCE 78-19),
which exempts certain transactions between insurance company pooled separate
accounts and parties in interest; or PTCE 84-14, which exempts certain
transactions effected on behalf of a plan by a "qualified professional asset
manager." Also, the Department has issued administrative exemptions from
application of certain prohibited transaction restrictions of ERISA and the
Code to most underwriters of mortgage-backed securities (each, an
"Underwriter's Exemption"). Such an Underwriter's Exemption can only apply to
mortgage-backed securities which, among other conditions, are sold in an
offering with respect to which such underwriter serves as the sole or a
managing underwriter, or as a selling or placement agent. If such an
Underwriter's Exemption might be applicable to a Series of Certificates, the
related Prospectus Supplement will refer to such possibility.
ANY FIDUCIARY OR OTHER PLAN INVESTOR (WHICH COULD INCLUDE AN INSURANCE
COMPANY INVESTING GENERAL ACCOUNTS ASSETS) WHO PROPOSES TO INVEST "PLAN
ASSETS" OF A PLAN IN CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH
ITS COUNSEL WITH RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND
SECTION 4975 OF THE CODE OF ANY SUCH ACQUISITION AND OWNERSHIP OF SUCH
CERTIFICATES.
UNRELATED BUSINESS TAXABLE INCOME -- RESIDUAL INTERESTS
The purchase of a Certificate evidencing an interest in the Residual
Interest in a Series that is treated as a REMIC by any employee benefit or
other plan that is exempt from taxation under Code Section 501(a), including
most varieties of Plans, may give rise to "unrelated business taxable income"
as described in Code Sections 511-515 and 860E. Further, prior to the
purchase of an interest in a Residual Interest, a prospective transferee may
be required to provide an affidavit to a transferor that it is not, nor is it
purchasing an interest ina Residual Interest on behalf of, a "Disqualified
Organization," which term as defined above includes certain tax-exempt
entities not subject to Code Section 511, such as certain governmental plans,
as discussed above under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Taxation
of Holders of Residual Interest Certificates" and "--Restrictions on
Ownership and Transfer of Residual Interest Certificates."
51
<PAGE>
Due to the complexity of these rules and the penalties imposed upon
Persons involved in prohibited transactions, it is particularly important
that individuals responsible for investment decisions with respect to ERISA
Plans and Code Plans consult with their counsel regarding the consequences
under ERISA and/or the Code of their acquisitions and ownership of
Certificates.
The sale of Certificates to a Plan is in no respect a representation by
the Depositor or the applicable underwriter that this investment meets all
relevant legal requirements with respect to investments by Plans generally or
any particular Plan, or that this investment is appropriate for Plans
generally or any particular Plan.
LEGAL INVESTMENT
The Prospectus Supplement for each Series will identify those Classes of
Certificates, if any, which constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act").
Such Classes will constitute "mortgage related securities" for so long as
they are rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization (the "SMMEA
Certificates"). As "mortgage related securities," the SMMEA Certificates will
constitute legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including, but not
limited to, state-chartered savings banks, commercial banks, savings and loan
associations and insurance companies, as well as trustees and state
government employee retirement systems) created pursuant to or existing under
the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued
by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for such
entities. Pursuant to the Enhancement Act, a number of states enacted
legislation, on or before the October 3, 1991 cutoff for such enactments,
limiting to varying extents the ability of certain entities (in particular,
insurance companies) to invest in mortgage related securities, in most cases
by requiring the affected investors to rely solely upon existing state law,
and not the Enhancement Act. Accordingly, the investors affected by such
legislation will be authorized to invest in SMMEA Certificates only to the
extent provided in such legislation.
The Enhancement Act also amended the legal investment authority of
federally chartered depository institutions as follows: federal savings and
loan associations and federal savings banks may invest in, sell or otherwise
deal with, mortgage related securities without limitation as to the
percentage of their assets represented thereby, federal credit unions may
invest in mortgage related securities, and national banks may purchase
mortgage related securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the
applicable federal regulatory authority may prescribe. In this connection,
federal credit unions should review the NCUA Letter to Credit Unions No. 96,
as modified by Letter No. 108, which includes guidelines to assist federal
credit unions in making investment decisions for mortgage related securities.
The NCUA has adopted rules which prohibit federal credit unions from
investing in certain mortgage related securities, except under limited
circumstances.
All depository institutions considering an investment in the Certificates
should review the Supervisory Policy Statement on Securities Activities dated
January 28, 1992 (the "Policy Statement") of the Federal Financial
Institutions Examination Council. The Policy Statement, which has been
adopted by the Board of Governors of the Federal Reserve System, the FDIC,
the Comptroller of the Currency and the Office of Thrift Supervision and by
the NCUA (with certain modifications) prohibits depository institutions from
investing in certain "high-risk" mortgage securities, except under limited
circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any SMMEA
Certificates, as SMMEA Certificates may be deemed unsuitable investments, or
may otherwise be restricted, under such rules, policies or guidelines (in
certain instances irrespective of the Enhancement Act).
52
<PAGE>
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits,
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income-paying," and provisions which may restrict
or prohibit investments in securities which are issued in book-entry form.
Investors should consult with their own legal advisers in determining
whether, and to what extent, SMMEA Certificates constitute legal investments
for such investors.
Other Classes of Certificates will not constitute "mortgage related
securities" under the Enhancement Act (the "Non-SMMEA Certificates"). The
appropriate characterization of the Non-SMMEA Certificates under various
legal investment restrictions, and thus the ability of investors subject to
these restrictions to purchase Non-SMMEA Certificates, may be subject to
significant interpretive uncertainties. All investors whose investment
authority is subject to legal restrictions should consult their own legal
advisers to determine whether, and to what extent, the Non-SMMEA Certificates
will constitute legal investments for them.
Except as to the status of SMMEA Certificates identified in the Prospectus
Supplement for a Series as "mortgage related securities" under the
Enhancement Act, the Depositor will make no representation as to the proper
characterization of the Certificates for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory
characteristics of the Certificates) may adversely affect the liquidity of
the Certificates.
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of the related
Prospectus Supplements may be sold directly by the Depositor or may be
offered through CS First Boston Corporation, an affiliate of the Depositor,
or underwriting syndicates represented by CS First Boston Corporation (the
"Underwriters"). The Prospectus Supplement with respect to each such Series
of Certificates will set forth the terms of the offering of such Series of
Certificates, including the name or names of the Underwriters, the proceeds
to the Depositor, and either the initial public offering price, the discounts
and commissions to the Underwriters and any discounts or concessions allowed
or reallowed to certain dealers, or the method by which the price at which
the Underwriters will sell such Certificates will be determined.
Unless otherwise specified in the related Prospectus Supplement, the
Underwriters will be obligated to purchase all of the Certificates of a
Series described in the related Prospectus Supplement with respect to such
Series if any such Certificates are purchased. The Certificates may be
acquired by the Underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the time
of sale.
If specified in the applicable Prospectus Supplement, the Depositor will
authorize Underwriters or other persons acting as the Depositor's agents to
solicit offers by certain institutions to purchase the Certificates from the
Depositor pursuant to contracts providing for payment and delivery on a
future date. Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and others, but in all
cases such institutions must be approved by the Depositor. The obligation of
any purchaser under any such contract will be subject to the condition that
the purchase of the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject. The Underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
The Depositor may also sell the Certificates offered hereby by means of
the related Prospectus Supplements from time to time in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Depositor may effect such transactions by selling Certificates to or through
dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Depositor and any
purchasers of Certificates for whom they may act as agents.
53
<PAGE>
The place and time of delivery for each Series of Certificates offered
hereby and by means of the related Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
LEGAL MATTERS
Certain legal matters relating to the Certificates offered hereby will be
passed upon for the Depositor and for the Underwriters by Milbank, Tweed,
Hadley & McCloy, 1 Chase Manhattan Plaza, New York, New York 10005-1413, or,
as specified in the related Prospectus Supplement, by Orrick, Herrington &
Sutcliffe, 599 Lexington Avenue, New York, New York 10022.
54
<PAGE>
GLOSSARY
Act .................... the Securities Act of 1933, as amended, p. 2.
ADA .................... the Americans with Disabilities Act of 1990
and the rules promulgated thereunder, p. 34.
Agreement .............. the Pooling and Servicing Agreement dated as
of the Cut-Off Date among the Depositor,
the Master Servicer, the Trustee and any
other party specified in the Prospectus
Supplement for the related Series relating
to the Certificates of such Series, p. 3.
Bankruptcy Code ........ the Federal Bankruptcy Code, as amended from
time to time (11 U.S.C.), p. 25.
Borrower ............... the obligor on a Note, p. 9.
Cash Flow Bond Method .. as defined on p. 47.
CERCLA ................. the federal Comprehensive Environmental
Response, Compensation and Liability Act
of 1980, as amended, p. 26.
Certificateholders ..... the registered holders of Certificates, p.
4.
Certificates ........... the Commercial/Multifamily Mortgage
Pass-Through Certificates evidencing a
beneficial ownership interest in a given
Trust Fund, p. 1.
Classes ................ the Certificates of a Series may be divided
into one or more classes of Certificates
and will be described in the applicable
Prospectus Supplement, p. 1.
Closing Date ........... the date of the initial issuance of a Series
of Certificates, as specified in the
related Prospectus Supplement, p. 10.
Code ................... the Internal Revenue Code of 1986, as
amended, p. 7.
Code Plans ............. as defined on p. 50.
Collection Account ..... the special trust account established and
maintained by the Master Servicer pursuant
to the Agreement for each Series, p. 5.
Commission ............. the United States Securities and Exchange
Commission, p. 2.
Compound Interest
Certificates ........... as defined on p. 36.
CSFBSC ................. CS First Boston Securities Corporation, p.
3.
Cut-Off Date ........... as defined on p. 5.
Debt Service Reduction . with respect to any Mortgage Loan, a
reduction in the scheduled monthly
payment, as described in the Agreement,
for such Mortgage Loan by a court of
competent jurisdiction in a proceeding
under the Bankruptcy Code, except such a
reduction resulting from a Deficient
Valuation, p. 29.
Deficient Valuation .... as defined on p. 29.
55
<PAGE>
Deleted Mortgage Loans . Mortgage Loans that are deleted from a Trust
Fund and replaced by Substitute Mortgage
Loans, p. 13.
Department ............. U.S. Department of Labor, p. 50.
Depositor .............. CS First Boston Mortgage Securities Corp., a
Delaware corporation, p. 1.
Disqualified
Organization ........... as defined on p. 44.
Distribution Account ... the account established by the Trustee into
which the Master Servicer will deposit
amounts from which distributions will be
made to Certificateholders on each
Distribution Date, p. 5.
Distribution Date ...... the date in each time period on which
distributions of principal and interest
are made to Certificateholders, as
specified in the applicable Prospectus
Supplement, p. 4.
Enhancement ............ the credit enhancement for a Series, if any,
specified in the related Prospectus
Supplement, p. 19.
Enhancement Act ........ the Secondary Mortgage Market Enhancement
Act of 1984, p. 52.
EPA .................... the United States Environmental Protection
Agency, p. 26.
ERISA .................. the Employee Retirement Income Security Act
of 1974, as amended, p. 50.
ERISA Plans ............ employee benefit plans subject to ERISA, p.
50.
Escrow Account ......... an account provided for in the Agreement for
each Series in which the Master Servicer
is required to deposit amounts received
from each Borrower, if required by the
terms of the related Note, for the payment
of taxes, assessments, certain mortgage
and hazard insurance premiums and other
comparable items, p. 14.
Event of Default ....... any of the items listed under the heading
"SERVICING OF THE MORTGAGE LOANS--Events
of Default," p. 18.
FHA .................... The Federal Housing Administration, a
division of HUD, p. 11.
FHLMC .................. the Federal Home Loan Mortgage Corporation,
p. 4.
Final Regulations ...... as defined on p. 36.
FNMA ................... the Federal National Mortgage Association,
p. 4.
Form 8-K ............... as defined on p. 10.
Garn-St Germain Act .... the Garn-St Germain Depository Institutions
Act of 1982, p. 30.
GNMA ................... the Government National Mortgage
Association, p. 4.
Holders ................ the registered holders of Certificates, p.
4.
HUD .................... The United States Department of Housing and
Urban Development, p. 11.
56
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Installment Contracts .. installment contracts for the sale of real
estate pursuant to which the seller
retains legal title to the property and
the purchaser covenants to pay the
purchase price, plus interest, over the
term of such contracts, p. 9. See also
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS-- Installment Contracts".
Insurance Proceeds ..... the proceeds from any insurance policy
relating to a Mortgage Loan other than
proceeds applied to restoration of the
related Mortgaged Property, p. 5.
Interest Weighted
Certificate ............ a Class of Certificates the payments on
which consist solely or primarily of a
specified portion of the interest payments
on the Mortgage Loans held by a REMIC, p.
37.
Interest Weighted
Stripped
Certificate ........... as defined on p. 47.
IRS .................... the Internal Revenue Service, p. 35.
L/C Bank ............... the bank or financial institution issuing a
letter of credit with respect to a Series,
as specified in the related Prospectus
Supplement, p. 20.
L/C Percentage ......... as defined on p. 20.
Liquidation Proceeds ... the proceeds from the liquidation of a
Mortgage Loan, p. 5.
Master Servicer ........ the master servicer or servicer selected by
the Depositor to be the master servicer or
servicer under the Agreement for a Series,
as described in the related Prospectus
Supplement, p. 14.
Master Servicer
Remittance Date ........ with respect to any Distribution Date, the
business day preceding such date, p. 5.
Mortgage Interest Rate . the per annum rate of interest charged on
the principal balance of a Mortgage Loan,
p. 13.
Mortgage Loan File ..... as defined on p. 10.
Mortgage Loan Groups ... Mortgage Loans in a Mortgage Pool that have
been segregated into a separate mortgage
loan groups, p. 10.
Mortgage Loan Schedule . the list of Mortgage Loans attached as an
exhibit to the Agreement for each Series,
p. 10.
Mortgage Loans ......... the adjustable and fixed rate, amortizing
and balloon payment, commercial,
multifamily residential, cooperatively
owned residential and mixed
residential/commercial mortgage loans,
participation interests in such mortgage
loans, mortgage pass-through certificates
and Installments Contracts included in the
Mortgage Pool and which constitute the
Trust Fund, p. 9.
Mortgage Pool .......... a pool of one or more Mortgage Loans which
will be the primary assets of a Trust
Fund, p. 1.
57
<PAGE>
Mortgaged Property ..... fee simple or leasehold interests in
commercial real estate, multifamily
residential property, cooperatively owned
multifamily property and/or mixed
residential/commercial property securing a
Mortgage Loan and such other property, as
the context requires, p. 9.
Mortgages .............. mortgages, deeds of trust or similar
security instruments creating a first or
junior lien on Mortgaged Properties, p. 9.
Multiple Variable Rate . as defined on p. 38
NCUA ................... the National Credit Union Administration, p.
32.
Non-SMMEA Certificates . Certificates which do not constitute
"mortgage related securities" for purposes
of the Enhancement Act, p. 53.
Nonresidents ........... a nonresident alien individual, foreign
partnership or foreign corporation, p. 49.
Note ................... a promissory note and/or agreement
evidencing an obligation under a Mortgage
Loan, p. 9.
1986 Act ............... the Tax Reform Act of 1986, p. 39.
OID .................... original issue discount within the meaning
of Section 1273 of the Code, p. 36.
Outstanding Balance .... as defined on p. 29.
Pass-Through
Certificates ........... as defined on p. 45.
Pass-Through Rate ...... the interest rate for each Class of
Certificates of a Series, as described in
the applicable Prospectus Supplement, p.
2.
Permitted Investments .. as defined on p. 6.
Plans .................. ERISA Plans together with Code Plans, p. 50.
Policy Statement ....... the Supervisory Policy Statement on
Securities Activities dated January 28,
1992, p. 52.
Prepayment Assumption .. the anticipated rate of prepayment on the
Mortgage Loans used for calculations with
respect to amortization of original issue
discount, p. 37.
Prepayment Premium ..... any premium paid or payable by the related
Borrower in connection with any principal
prepayment on any Mortgage Loan, p. 5.
Property Protection
Expenses ............... any costs and expenses incurred in
connection with defaulted Mortgage Loans,
acquiring title or management of REO
Properties or the sale of defaulted
Mortgage Loans or REO Properties, as more
fully described in the Agreement for each
Series, p. 5.
58
<PAGE>
Proposed Regulations ... proposed Treasury regulations issued under
Sections 1271-1275 of the Code, p. 36.
PTCE ................... as defined on p. 51.
Rating Agency .......... a nationally recognized statistical rating
organization that is providing a rating
for the Certificates, p. 3.
Ratio Strip Certificates
........................ as defined on p. 46.
Registration Statement . Registration Statement 33-82354 filed with
the Commission relating to the
Certificates, p. 2.
Regular Interests ...... regular interests in a REMIC, p. 35.
Regular Interest
Certificates ........... as defined on p. 35.
Regulations ............ regulations issued by the Department with
respect to Plans, p. 50.
Relief Act ............. the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended, p. 31.
REMIC .................. a "real estate mortgage investment conduit,"
p. 1.
REMIC Regulations ...... as defined on p. 43.
REO Account ............ the special trust account established and
maintained in order to be used in
connection with REO Properties and other
Mortgaged Properties, p. 6.
REO Property ........... any Mortgaged Property which has been
acquired on behalf of the Trust Fund for
each Series through foreclosure or deed in
lieu of foreclosure, p. 5.
Reserve Fund ........... as defined on p. 20.
Residual Interests ..... residual interests in a REMIC, p. 35.
Residual Interest
Certificate ............ as defined on p. 42.
Senior Certificates .... a Class of Certificates which are senior in
right and priority to the extent described
in the applicable Prospectus Supplement to
payment of principal and interest to all
Subordinate Certificates of such Series,
p. 19.
Series ................. the Certificates may be offered from time to
time in a series and each series will be
identified in a separate Prospectus
Supplement, p. 1.
Servicing Fee .......... the fee paid to the Master Servicer with
respect to each Mortgage Loan, as
described in the applicable Prospectus
Supplement, p. 16.
59
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Simple Interest Loans .. Mortgage Loans as to which the monthly
payments thereon are applied first to
interest accrued from the last date to
which interest has been paid to the date
such monthly payment is received and the
balance thereof is applied to principal,
p. 9.
Simplification Act ..... as defined on p. 44.
Single Variable Rate ... as defined on p. 36.
SMMEA Certificates ..... Certificates which constitute "mortgage
related securities" for purposes of the
Enhancement Act so long as they are rated
in one of the two highest rating
categories by at least one Rating Agency,
p. 52.
Special Servicer ....... the entity selected by the Depositor to be
the special servicer under the Agreement
for a Series, as described in the related
Prospectus Supplement, p. 14.
Specially Serviced
Mortgage Loans ......... the Mortgage Loans for which certain
servicing obligations have been
transferred from the Master Servicer to
the Special Servicer together with the REO
Properties, p. 14.
Stripped Certificates .. as defined on p. 45.
Subordinate Certificates
........................ a Class of Certificates which are
subordinate in right and priority to the
extent described in the applicable
Prospectus Supplement to payment of
principal and interest to all Senior
Certificates of such Series, p. 19.
Substitute Mortgage
Loans .................. Mortgage Loans that are substituted for
Deleted Mortgage Loans, p. 13.
TIN .................... as defined on p. 48.
Title VIII ............. Title VIII of the Garn-St Germain Act, p.
32.
Trust Fund ............. the trust fund created by the Agreement for
each Series and whose principal assets are
the Mortgage Loans, p. 1.
Trustee ................ the bank or trust company selected by the
Depositor to act as Trustee under the
Agreement for each Series, p. 8.
Trustee/Master Servicer
Fee .................... as defined on p. 45.
Unaffiliated Seller .... the seller of a Mortgage Loan to the
Depositor or any of its affiliates, p. 12.
Underwriter's Exemption
........................ as defined on p. 51.
Underwriters ........... as defined on p. 53.
Voting Rights .......... the portion of the voting rights of all of
the Certificates that is allocated to any
Certificate, p. 18.
60
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL 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 UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE DEPOSITOR SINCE SUCH
DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUPPLEMENT
Available Information .......................... S-3
Reports to Certificateholders .................. S-3
Summary of Terms ............................... S-7
Risk Factors and Other Special Considerations . S-30
The Seller ..................................... S-37
Description of the Mortgage Pool and the
Underlying Mortgaged Properties ............... S-39
Description of the Certificates ................ S-55
Maturity Considerations ........................ S-73
Yield Considerations ........................... S-77
Servicing ...................................... S-79
The Trustee .................................... S-90
Certain Federal Income Tax Consequences ....... S-91
ERISA Considerations ........................... S-92
Legal Investment ............................... S-94
Use of Proceeds ................................ S-95
Plan of Distribution ........................... S-95
Legal Matters .................................. S-95
Ratings ........................................ S-96
Glossary ....................................... S-97
Annex A ........................................ A-1
PROSPECTUS
Prospectus Supplement .......................... 2
Additional Information ......................... 2
Incorporation of Certain Information by
Reference ..................................... 2
The Depositor .................................. 3
Use of Proceeds ................................ 3
Description of the Certificates ................ 3
The Mortgage Pools ............................. 9
Servicing of the Mortgage Loans ................ 14
Enhancement .................................... 19
Certain Legal Aspects of the Mortgage Loans ... 21
Certain Federal Income Tax Consequences ....... 35
State Tax Considerations ....................... 49
ERISA Considerations ........................... 50
Legal Investment ............................... 52
Plan of Distribution ........................... 53
Legal Matters .................................. 54
Glossary ....................................... 55
</TABLE>
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER THE PROSPECTUS
SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CS First Boston Mortgage
Securities Corp.
Depositor
MBL Life Assurance Corporation
Seller
GE Capital Asset
Management Corporation
Master Servicer
Banc One Management and
Consulting Corporation
Special Servicer
$91,195,000
(Approximate)
Commercial Mortgage
Pass-Through Certificates
Series 1995-MBL1
$0 Interest Only Class A-X Certificates
$72,739,000 (approximate) Class A Certificates
$5,428,000 (approximate) Class B Certificates
$7,600,000 (approximate) Class C Certificates
$5,428,000 (approximate) Class D Certificates
PROSPECTUS SUPPLEMENT
[LOGO] CS FIRST BOSTON
