<PAGE>
RULE NO. 424(b)(2)
REGISTRATION NO. 333-15833
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 21, 1996)
$278,285,932
CS First Boston Mortgage Securities Corp.,
Depositor
Wilshire Mortgage Funding Company IV, Inc.,
Unaffiliated Seller
Wilshire Servicing Corporation,
Servicer
Wilshire Funding Corporation Mortgage-Backed Certificates, Series 1996-3
(Principal and interest payable on the twenty-fifth day of each month,
beginning January 27, 1997).
The Wilshire Funding Corporation Mortgage Backed Certificates, Series 1996-3
(the "Certificates") will represent beneficial interests in a trust (the
"Trust"), the assets of which (the "Trust Fund") will consist primarily of a
pool of fixed and adjustable rate, closed-end loans secured by mortgages on
residential one-to-four family properties (the "Mortgage Loans") purchased
by Girard Savings Bank, F.S.B., First Bank of Beverly Hills and Wilshire
Credit Corporation (collectively, the "Wilshire Sellers") in the
ordinary course of their business and conveyed, together with certain
related property described herein, to Wilshire Mortgage Funding
Company IV, Inc. (the "Seller"). The Seller will then convey such
property to CS First Boston Mortgage Securities Corp. (the
"Depositor"), which will then convey it to the Trust. The Trust will
be created and the Certificates will be issued pursuant to a
Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") among the Depositor, Wilshire Servicing Corporation,
as Servicer and Bankers Trust Company of California, N.A., as
Trustee. See "Description of the Certificates" herein.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" HEREIN ON PAGE S-28 AND PAGE 16 OF THE ACCOMPANYING PROSPECTUS.
THE OFFERED CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF
CS FIRST BOSTON MORTGAGE SECURITIES CORP., THE TRUSTEE, THE SELLER, THE
SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. THE OFFERED
CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Underwriter has agreed to purchase the Offered Certificates for
approximately 100.33615% of the principal amount thereof, subject to the
terms and conditions set forth in the Underwriting Agreement referred
to herein under "Underwriting." The aggregate proceeds to the
Depositor from the sale of all classes of Certificates, before
deducting expenses payable by or on behalf of the Trust,
estimated at $500,000, but after deduction of the underwriting
fee will be $270,719,132.37.
The Underwriter proposes to offer the Offered Certificates form time to
time in negotiated transactions or otherwise, at price determined at
the time of sale. For further information with respect to the
plan of distribution and any discounts, commissions or
profits that may be deemed underwriting discounts or
commissions, see "Underwriting" herein.
----------------
The Offered Certificates are offered by Credit Suisse First Boston (the
"Underwriter") when, as and if delivered to and accepted by the Underwriter,
subject to prior sale, withdrawal or modification of the offer without notice,
the approval of counsel and other conditions. It is expected that the Offered
Certificates will be delivered through the Same Day Funds Settlement system of
The Depository Trust Company, on or about December 30, 1996.
CREDIT SUISSE FIRST BOSTON
The date of this Prospectus Supplement is December 19, 1996.
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--------------------
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTEREST IN THE DEPOSITOR,
THE SELLER, THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL AGENCIES OR BY ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
--------------------
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.
--------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
--------------------
The Certificates will be part of a separate series of Conduit Mortgage and
Manufactured Housing Pass-Through Certificates being offered by the Depositor
from time to time pursuant to a Prospectus dated November 21, 1996 (the
"Prospectus"), of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains important
information about the offering of this Offered Certificates that is not
contained herein, and prospective investors are urged to read both this
Prospectus Supplement and the Prospectus in full. Sales of the Offered
Certificates may not be consummated unless the purchaser has received both
this Prospectus Supplement and the Prospectus.
--------------------
AVAILABLE INFORMATION
The Depositor, as sponsor of the Trust, has filed a Registration Statement
under the Securities Act of 1933, as amended, with the Securities and Exchange
Commission (the "Commission") with respect to the Offered Certificates offered
pursuant to this Prospectus Supplement and the related Prospectus. This
Prospectus Supplement and the related Prospectus, which form a part of the
Registration Statement, omit certain information contained in such Registration
Statement pursuant to the Rules and Regulations of the Commission. The
Registration Statement can be inspected and copied at the Public Reference Room
of the Commission at 450 Fifth Street, N.W., Washington, D.C., and the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Citicorp 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 and electronically through the Commission's
Electronic Data Gathering, Analysis and Retrieval system at the Commission's web
site (http:\\www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued (which will occur under
the limited circumstances described herein), unaudited monthly and unaudited
annual reports concerning the Trust will be sent by the Trustee to Cede & Co.,
as the nominee of DTC and registered holder of the Offered Certificates. So
long as the Offered Certificates are in book-entry form, DTC will supply such
reports to Beneficial Owners (as defined herein) in accordance with its normal
procedures. Such reports will not contain financial information that has been
examined and reported upon by an independent or certified public accountant.
See "Description of the Certificates-Certain Covenants of the Trustee-Reporting
Requirements".
This Prospectus Supplement contains a number of defined terms, the meanings
of which are necessary for potential investors to understand in order for them
to evaluate the Offered Certificates. See the "Index of Principal Definitions"
in this Prospectus Supplement for the location of the definitions of certain
capitalized terms. See the
S-2
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"Index of Principal Definitions" in the Prospectus for the location of the
definitions of capitalized terms not otherwise defined in this Prospectus
Supplement.
UNTIL THE DATE 90 DAYS FROM THE DATE HEREOF ALL DEALERS EFFECTING
TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-3
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement. Reference is
made to the Index of Principal Terms for the location herein of the
definitions of such capitalized terms.
Securities Issued...... The Wilshire Funding Corporation Mortgage Backed
Certificates, Series 1996-3 (the
"Certificates") will be issued pursuant to a
pooling and servicing agreement (the "Pooling
and Servicing Agreement") to be dated as of
December 1, 1996 among CS First Boston Mortgage
Securities Corp. (the "Depositor"), Wilshire
Servicing Corporation (the "Servicer"), and
Bankers Trust Company of California, N.A. as
Trustee (the "Trustee") and as Back-Up Servicer
(the "Back-Up Servicer").
The Certificates will consist of seven Classes
of senior Certificates (respectively, the
"Class A-1 Certificates", the "Class A-2-A
Certificates," the "Class A-2-B Certificates,"
the "Class A-2-C Certificates" (the Class A-1,
Class A-2-A, Class A-2-B and Class A-2-C
Certificates, the "Class A Certificates"), the
"Class F-IO Certificates," the "Class A-IO
Certificates" and the "Class PO Certificates,"
and collectively with the Class A Certificates,
the "Senior Certificates") and six Classes of
subordinate Certificates (respectively, the
"Class M-1 Certificates", the "Class M-2
Certificates", the "Class M-3 Certificates"
(the Class M-1, Class M-2 and Class M-3
Certificates, collectively, the "Class M
Certificates"), the "Class B-1 Certificates",
the "Class B-2 Certificates" and the "Class B-3
Certificates" (the Class B-1, Class B-2 and
Class B-3 Certificates, the "Class B
Certificates") and collectively with the Class
M Certificates, the "Subordinate
Certificates").
The Trust will also issue a "residual interest"
with respect to each REMIC held by the Trust
(collectively, the "Residual Certificates").
The Senior Certificates, the Subordinate
Certificates and the Residual Certificates are
collectively referred to as the "Certificates".
The Senior Certificates and the Class M
Certificates are collectively referred to as
the "Offered Certificates."
The Offered Certificates will be issued in the
amounts (with respect to each Class, the
related "Initial Certificate Principal
Balance") and bear the initial pass-through
rates (with respect to each Class, the "Initial
Pass-Through Rate") set forth below:
S-4
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Initial Final
Initial Pass- Scheduled
Certificate Through Distribution
Class Balance Rate Date
- --------------- --------------- ----------- ---------------
Class A-1 $48,211,248.00 7.0000% August 25, 2032
Certificates
Class A-2-A $90,635,697.00 6.7513%(1) August 25, 2032
Certificates
Class A-2-B $56,843,117.00 7.5715%(2) August 25, 2032
Certificates
Class A-2-C $19,098,571.00 7.5198%(3) August 25, 2032
Certificates
Class F-IO (4) 1.3582%(5) August 25, 2032
Certificates
Class A-IO (6) 0.4561%(7) August 25, 2032
Certificates
Class PO $ 2,274,391.00 (8) August 25, 2032
Certificates
Class M-1 $ 8,348,577.00 8.3582%(9) August 25, 2032
Certificates
Class M-2 $15,305,726.00 8.3582%(9) August 25, 2032
Certificates
Class M-3 $13,914,296.00 8.3582%(9) August 25, 2032
Certificates
(1) The Class A-2-A Pass-Through Rate will equal,
with respect to any Distribution Date, a per
annum rate equal to the lesser of (x) the Pool
II Gross WAC less 0.25% and (y) the Adjusted
Pool II Gross WAC for such Distribution Date,
less 0.395%.
----
(2) The Class A-2-B Pass-Through Rate will equal,
with respect to any Distribution Date, a per
annum rate equal to the lesser of (x) the Pool
III Gross WAC less 0.35% and (y) the Adjusted
Pool III Gross WAC for such Distribution Date,
less 0.395%.
----
(3) The Class A-2-C Pass-Through Rate will equal,
with respect to any Distribution Date, a per
annum rate equal to the lesser of (x) the Pool
IV Gross WAC less 1.75% and (y) the Adjusted
Pool IV Gross WAC for such Distribution Date,
less 0.395%.
----
(4) The Class F-IO Certificates are "interest-
only" Certificates and do not have a principal
balance. Distributions will be calculated on
the "Class F-IO Notional Balance" which, as of
any date, will equal the Class A-1 Principal
Balance as of such date.
S-5
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(5) The Class F-IO Pass-Through Rate will equal,
with respect to any Distribution Date, a per
annum rate equal to the greater of (a) the
excess of (x) the Pool I Adjusted Net WAC for
such Distribution Date, over (y) the Class A-
1 Pass-Through Rate and (b) zero.
(6) The Class A-IO Certificates are "interest-
only" Certificates and do not have a
principal balance. Distributions will be
calculated on the "Class A-IO Notional
Balance", which, as of any date, shall equal
the sum of the Class A-2-A Principal Balance,
the Class A-2-B Principal Balance and the
Class A-2-C Principal Balance as of such
date.
(7) The Class A-IO Pass-Through Rate will equal,
with respect to any Distribution Date, a per
annum rate equal to the Adjusted ARM Gross
WAC with respect to such Distribution Date
less----the weighted average of the Class
A-2-A Pass-Through Rate, the Class A-2-B
Pass-Through Rate and the Class A-2-C Pass-
Through Rate for such Distribution Date, less
0.395%.
-----
(8) The Class PO Certificates are "principal-only"
Certificates and do not pay interest.
(9) The Pass-Through Rate for each of the Class M-
1, Class M-2, and Class M-3 Certificates will
equal, with respect to any Distribution Date,
the Adjusted Pool I Gross WAC for such
Distribution Date, less 0.395%.
----
Securities Offered....... The only Certificates being
offered hereby (the "Offered Certificates") are
the following classes: Class A-1, Class A-2-A,
Class A-2-B, Class A-2-C, Class F-IO, Class A-IO,
Class PO, Class M-1, Class M-2 and Class M-3. The
Class B-1, Class B-2, Class B-3 and the Residual
Certificates are not offered hereby. Such
Certificates may be offered in a private
placement transactions, or may be retained by the
Seller. The Offered Certificates will be issued
in book-entry form in minimum denominations of
$1,000 and integral multiples of $1 in excess
thereof (with the exception of one odd-
denomination Certificate of each Class). The
Offered Certificates initially will be
represented by certificates registered in the
name of Cede & Co., as the nominee of The
Depository Trust Company ("DTC").
Certificates representing the Offered Certificates
will be issued in definitive form only under the
limited circumstances described herein. All
references herein to "holders" or "holders of the
Offered Certificates" shall reflect the rights of
beneficial owners of Offered
S-6
<PAGE>
Certificates issued in book-entry form
("Certificateholders") as they may indirectly
exercise such rights through DTC, and
participating members thereof, except as otherwise
specified herein. See "Risk Factors -- Book-Entry
Registration" and "Description of the Certificates
-- Registration of the Offered Certificates"
herein and "Risk Factors -- Limitation on Rights
Due to Book Entry Registration" in the Prospectus.
The Offered Certificates will evidence undivided
interests in the Mortgage Loans and all other
assets of the trust fund, (as defined herein)
(collectively, the "Trust Fund"). The undivided
percentage interest (the "Percentage Interest") of
an individual Certificate in distributions on the
related Class of Certificates will equal the
percentage obtained from dividing the original
denomination of such Certificate by the Initial
Certificate Principal Balance of the related Class
(or, with respect to the Class F-IO and the Class
A-IO Certificates, the Percentage Interest set
forth on the face of such Certificate).
The Offered Certificates will not represent
interests in or obligations of the Depositor, the
Seller, the Servicer, the Back-Up Servicer, the
Trustee, any Sub-Servicer or any of their
respective affiliates. Neither the Offered
Certificates nor the underlying Mortgage Loans
will be insured or guaranteed by any governmental
agency or instrumentality.
Cut-Off Date........... December 1, 1996, after application of all payments
due on or before such date.
Closing Date........... On or about December 20, 1996 (the "Closing Date").
Depositor.............. CS First Boston Mortgage Securities Corp., a
Delaware corporation.
Seller................. Wilshire Mortgage Funding Company IV, Inc., a
Delaware corporation. The majority of the Mortgage
Loans sold by the Seller were acquired from Girard
Savings Bank, F.S.B. and First Bank of Beverly
Hills F.S.B., two affiliated companies (the
"Savings Banks"). As a result of the rapid asset
growth of the Savings Banks and certain pools of
auto loans, concerns about management at the
Savings Bank level and other matters, the Office
of Thrift Supervision recently imposed cease-and-
desist orders on the Savings Banks restricting
their asset growth and requiring that the Savings
Banks improve management and implement polices and
procedures relating to internal asset reviews,
internal audits, loan loss reserves, loan
purchases and hedging transactions. The Savings
Banks have recently hired
S-7
<PAGE>
additional management and taken a number of other
steps to address these concerns.
Servicer............ Wilshire Servicing Corporation, a Delaware
corporation.
Trustee............. Bankers Trust Company of California, N.A., a
national banking association.
Mortgage Loan Pool
Statistical Data.... The statistical information presented in this
Prospectus Supplement concerning the pools of
Mortgage Loans is based on the pools as of the
Cut-Off Date. Unless otherwise noted, all
statistical percentages in this Prospectus
Supplement are measured by the aggregate principal
balance, including Arrearage (as hereinafter
defined) of the Mortgage Loan Pool, or any sub-
pool thereof, as of the Cut-Off Date.
Distribution Dates and
Record Dates........... Distributions to the holders of the Certificates
of a Class on each Distribution Date will be made
in an amount equal to their respective Percentage
Interests multiplied by the aggregate amount
distributed on such Class of Certificates on such
Distribution Date. Distributions on the
Certificates will be made on the 25th day of each
month (or, if such 25th day is not a Business Day,
on the next succeeding Business Day) (each, a
"Distribution Date"), commencing January 27, 1997.
"Business Day" shall mean any day other than (i) a
Saturday or Sunday, or (ii) any day on which
banking institutions located in the States of New
York or California are authorized or obligated by
law or executive order to close.
So long as the Offered Certificates are registered
in the name of Cede & Co., as nominee of DTC,
distributions on each Distribution Date will be
made to the holders of record of the related
Offered Certificates (the "Certificateholders") as
of the close of business on the last day of the
calendar month immediately preceding such
Distribution Date (each, a "Record Date"), except
that the final distribution in respect of the
Certificates will only be made upon presentation
and surrender of the Certificates at the office or
agency appointed by the Trustee for that purpose
in New York, New York.
Accrual Periods and
Calculation of
Interest........... For each Distribution Date, interest with respect
to the Certificates (other than the Class PO
Certificates, which do not bear interest) will
accrue at the related Pass-Through Rate for the
calendar month immediately preceding the calendar
month in which such Distribution Date occurs. Each
such calendar month is the "Accrual Period" for
the related Class of Certificates.
S-8
<PAGE>
All calculations of interest on the Certificates
(other than the Class PO Certificates, which do
not bear interest) will be made on the basis of a
360-day year assumed to consist of twelve 30-day
months.
The Class PO Certificates are "principal-only"
certificates which do not bear interest.
The final scheduled Distribution Date (each, a
"Final Scheduled Distribution Date") for each
Class of Certificates will be August 25, 2032.
However, in the event of defaults or prepayments
on the Mortgage Loans, final payment with respect
to the related Class of Certificates could occur
prior to, or later than, such date.
Distributions....... General. The Certificateholders will be entitled
to receive distributions monthly, on each
Distribution Date, commencing January 27, 1997.
Such distributions, to the extent of Available
Funds, will consist of (i) for all Classes other
than the Class PO Certificates, a distribution of
interest accrued during the related Accrual
Period, together with (ii) for all Classes other
than the Class F-IO and the Class A-IO
Certificates, a distribution of principal, subject
to the priorities described herein.
The Mortgage Loan pool primarily consists of four
types of Mortgage Loans: Mortgage Loans having a
fixed rate of interest (such Mortgage Loans,
"Fixed Rate Loans"); Mortgage Loans primarily
having an adjustable rate of interest based on the
Eleventh District Cost of Funds (such Mortgage
Loans, "COFI Loans"); Mortgage Loans primarily
having an adjustable rate of interest based on a
Constant Maturity Treasury (such Mortgage Loans,
the "CMT Loans") and Mortgage Loans primarily
having an adjustable rate of interest based on
six-month LIBOR (such Mortgage Loans, the "LIBOR
Loans"). In addition, certain other Mortgage
Loans have an adjustable rate of interest based on
an index other than described above.
All of the Mortgage Loans originally assigned to
Pool I (the "Pool I Loans") are Fixed Rate Loans.
The Mortgage Loans originally assigned to Pool II
(the "Pool II Loans") are primarily COFI Loans,
although certain Pool II Mortgage Loans have an
adjustable rate of interest based on an index
other than COFI. The Mortgage Loans originally
assigned to Pool III (the "Pool III Loans") are
primarily CMT Loans, although certain Pool III
Mortgage Loans have an adjustable rate of interest
based on an index other than CMT. The Mortgage
Loans originally assigned to Pool IV (the "Pool IV
Loans") are primarily LIBOR Loans although
S-9
<PAGE>
certain Pool IV Mortgage Loans have an adjustable
rate of interest based on an index other than six
month LIBOR.
The Class A-1, Class F-IO, Class PO, Class M-1,
Class M-2, Class M-3, Class B-1, Class B-2 and
Class B-3 Certificates are originally supported by
Pool I; the Class A-2-A Certificates are
originally supported by Pool II; the Class A-2-B
Certificates are originally supported by Pool III;
and the Class A-2-C Certificates are originally
supported by Pool IV;
Pool II, Pool III and Pool IV are collectively
referred to as the "ARM Pools". The Class A-IO
Certificates are originally supported by the ARM
Pools.
As a result of the shifting-interest and cross-
support features of the Trust, the amortization of
the Certificates relating to a particular Pool may
not exactly follow the amortization of Mortgage
Loans in the related Pool, although the cash-flow
mechanics of the Trust do, in many instances,
follow the amortization of the Certificates
relating to a particular Pool to the amortization
of the Mortgage Loans in the related Pool.
The amounts due to the Class F-IO
Certificateholders will be based on the Notional
Balance thereof, which on any date will be equal
to the Class A-1 Principal Balance as of such
date. The amounts due to the Class A-IO
Certificateholders will be based on the Notional
Balance of the Class A-IO Certificates, which, on
any date will be equal to the sum of the Class A-
2-A Principal Balance, the Class A-2-B Principal
Balance and the Class A-2-C Principal Balance as
of such date.
Certain of the Fixed Rate Loans have Net Coupon
Rates less than 7.00%; such Fixed-Rate Loans are
the "Discount Loans". The Original Certificate
Principal Balance of the Class PO Certificates is
equal to the aggregate amount of the PO Portion of
the Principal Balances of the Discount Loans as of
the Cut-Off Date, plus the Aggregate PO Arrearage
Amount (defined below) as of the Cut-Off Date.
The "PO Portion" of a Discount Loan's Principal
Balance as of the Cut-Off Date is the product of
the PO Percentage for such Discount Loan and the
Principal Balance thereof. The amortization of
the Class PO Certificates will generally follow
the amortization of the Discount Loans and of the
Aggregate PO Arrearage Amount. The Class PO
Certificates do not pay interest.
Special Rules Relating to Chapter 13 Bankruptcy
Loans. Certain of the Mortgage Loans in each Pool
relate to
S-10
<PAGE>
Obligors which are the subject of a bankruptcy
proceeding under Chapter 13 of the Bankruptcy
Code. Under the terms of the related payment
plans ordered by the court in such proceedings,
the portion of such Obligor's payments which were
delinquent (the "Arrearage") and arose prior to
the bankruptcy petition are due and payable by the
Obligor under a payment plan. The Arrearage does
not bear interest and generally amortizes over a
three or five year period.
The "Adjusted Gross Coupon Rate" for any Mortgage
Loan as of any Distribution Date is equal to the
percentage equivalent of a fraction, the numerator
-------------
of which is the product of (x) the Principal
--------
Balance of such Mortgage Loan (exclusive of the
amount of any Arrearage) as of the end of the
second preceding Collection Period (or as of the
Cut-Off Date with respect to the first
Distribution Date) and (y) the Coupon Rate for
such Mortgage Loan (as of the Due Date in the
related Collection Period) and the denominator of
------------------
which is equal to the Principal Balance (inclusive
-----
of the Arrearage) of such Mortgage Loan as of the
end of the second preceding Collection Period (or
as of the Cut-Off Date with respect to the first
Distribution Date).
The "Adjusted Net Coupon Rate" for any Mortgage
Loan as of any Distribution Date is equal to the
Adjusted Gross Coupon Rate less 0.395%
The "Aggregate PO Arrearage Amount" is the
aggregate of the Arrearage on all Fixed Rate Loans
having an Adjusted Net Coupon Rate as of the Cut-
Off Date of less than 7.00%. Any principal
received in the reduction of Aggregate PO
Arrearage Amount is considered Scheduled
Principal. "Arrearage Loans" are Mortgage Loans
which have Arrearages which are not included in
the Aggregate PO Arrearage Amount.
For purposes of calculating amounts to be
distributed on the Certificates, the "Net Coupon
Rate" of an Arrearage Loan is equal to its
Adjusted Net Coupon Rate as of the Due Date in the
related Collection Period, and the "Gross Coupon
Rate" of an Arrearage Loan is equal to its
Adjusted Gross Coupon Rate as of the Due Date in
the related Collection Period. With respect to
all other Mortgage Loans, the "Net Coupon Rate" is
equal to such Mortgage Loan's Gross Coupon Rate,
less 0.395% and the "Gross Coupon Rate" is equal
----
to the gross rate of such Mortgage Loan. Further,
for purposes of calculating amounts to be
distributed on the Certificates, the "Principal
Balance" of any Arrearage Loan is equal to the
unpaid principal balance
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<PAGE>
thereof, plus the Arrearage. For any Mortgage
Loan which is not an Arrearage Loan, the
Arrearage, if any, will not be included in the
"Principal Balance" thereof (which "Principal
Balance" will equal the unpaid principal balance);
such amount rather will be included in the
Aggregate PO Arrearage Amount.
The Class A-1 Certificates will accrue interest
based on a fixed rate of interest, the Class A-1
Pass-Through Rate. All other Classes bear
interest at variable rates of interest, as set
forth above under "Securities Issued".
The Pooling and Servicing Agreement generally
provides for the distribution of three types of
amounts to Certificateholders: (i) except with
respect to the Class PO Certificates, interest,
(ii) except for the Class F-IO and A-IO
Certificates, scheduled principal and (iii) except
for the Class F-IO and A-IO Certificates,
unscheduled principal.
The priority of payment set forth in the Pooling
and Servicing Agreement generally requires that
the following six amounts to be paid to the
related Certificateholders in the following order
of priority: first, interest (including unpaid
-----
interest shortfalls from prior periods) on the
Senior Certificates, second, scheduled principal
------
on the Senior Certificates, third, unscheduled
-----
principal on the Senior Certificates, fourth,
------
interest (including unpaid interest shortfalls
from prior periods) on the Subordinate
Certificates, fifth, scheduled principal on the
-----
Subordinate Certificates and sixth, unscheduled
-----
principal on the Subordinate Certificates, subject
to the availability of Available Funds. The
Classes of Senior Certificates have a pari passu
---- -----
claim, among themselves, with respect to amounts
to be distributed among the various Classes of
Senior Certificates. The Subordinate
Certificateholders have, among themselves,
separate and distinct claims with respect to
amounts to be distributed among the various
Classes of Subordinate Certificates, with the
relative level of subordination being greatest
with respect to the Class B-3 Certificates (the
most subordinate Class, other than the Residual
Certificates) and least with respect to the Class
M-1 Certificates (the least subordinate Class of
Subordinate Certificates).
Although the calculation of the payments to the
various Classes of Certificates will generally
reflect the experience of the related Mortgage
Loans, the funding of such payments will be made
without distribution or tracing to the source of
such funding from collections on any type of
Mortgage Loan. Further, Realized Losses will be
allocated to the Subordinate Certificates, in
order of their respective
S-12
<PAGE>
level of subordination, without distinction or
tracing as to such Realized Loss relating to an
Adjustable Rate Loan or a Fixed Rate Loan.
Certain of the ARM Loan contain a "negative
amortization" provision. Pursuant to such
provisions, if, on any Due Date, the scheduled
interest payment due on such ARM Loan exceeds the
scheduled monthly payment due on such Due Date,
the entire amount paid by the related Mortgagor is
applied to the interest due, and any interest due
and not paid is added to the Principal Balance of
such ARM Loan. The Pooling and Servicing
Agreement provides that if, with respect to any
Collection Period, the aggregate amount of such
negative amortization with respect to any Pool
exceeds the aggregate Scheduled Principal
Collections with respect to such Pool for such
Collection Period, such amount (the "Pool Negative
Amortization Amount") shall be deemed added to the
Certificate Principal Balances of the related
Classes. For the purposes of calculating
distributions, the negative amortization is
considered a negative amount in Scheduled
Principal Collections.
An additional general feature of the Certificates
is the "shifting interest" feature. Pursuant to
the shifting interest provisions, Unscheduled
Principal Collections will be allocated to the
Senior Certificates on the one hand and to the
Subordinate Certificates on the other hand
pursuant to the Shifting Interest Schedule
described herein, which will generally provide for
a larger proportion of such unscheduled principal
collection being applied to the amortization of
the Senior Certificates than would be case if such
amounts were distributed pro rata among all
--- ----
Classes. Distributions of Scheduled Principal
Collections, by contrast, will be made pro rata
--- ----
with respect to the related Pools.
Interest. On each Distribution Date the holders of
each Class of Certificates will be entitled to
receive their respective Interest Distribution
Amounts. The Subordinate Certificates will only
be entitled to receive such amounts after the
payment of interest and principal to the Senior
Certificates. Any interest due and not paid on a
Distribution Date (an "Interest Shortfall") with
respect to any Class will be carried-forward and
will be due on subsequent Distribution Date,
subject to the availability of funds for such
purpose; such amounts so carried-forward will not
themselves accrue interest.
Scheduled Principal. On each Distribution Date,
the Certificateholders of each Class will receive
an amount with respect to collections of Scheduled
Principal
S-13
<PAGE>
Collections with respect to the related Mortgage
Loans, provided, that the aggregate amount
--------
available for distribution to the Senior
Certificates with respect to Scheduled Principal
Collections will be limited to the amount of
Available Funds remaining after the payment of the
Interest Distribution Amounts for the Senior
Certificates, and the aggregate amount for
distribution to the Subordinate Certificates with
respect to Scheduled Principal Collections will be
limited to the amount of Available Funds remaining
after the payment of the Interest Distribution
Amount to all Classes of Certificates, and after
the payment of scheduled and unscheduled principal
to the Senior Certificates.
Prior to any application of the cross-support
feature described below, the entire amount of the
principal distribution with respect to Scheduled
Principal Collections on the Pool II Loans will be
distributed to the Class A-2-A Certificateholders.
Prior to any application of the cross-support
feature described below, the entire amount of the
principal distributions with respect to Scheduled
Principal Collections on the Pool III Loans will
be distributed to the Class A-2-B
Certificateholders. Prior to any application of
the cross-support feature described below, the
entire amount of the principal distributions with
respect to Scheduled Principal Collections on the
Pool IV Loans will be distributed to the Class A-
2-C Certificateholders. Prior to any application
of the cross-support feature described below, the
entire amount of the Scheduled Principal
Collections on the Pool I Loans (other than the PO
Portion of Scheduled Principal Collections on the
Discount Loans) will be distributed to the holders
of the Class A-1, Class M-1, Class M-2, Class M-3,
Class B-1, Class B-2 and Class B-3 Certificates
pro rata in accordance with their then relative
--- ----
Certificate Principal Balances.
Unscheduled Principal. On each Distribution Date,
the Trustee will distribute an amount with respect
to Unscheduled Principal Collections; provided,
--------
that the aggregate amount available for
distribution to the Senior Classes of Certificates
with respect to Unscheduled Principal Collections
will be limited to the amount of Available Funds
remaining after the payment of the Interest
Distribution Amount for the Senior Certificates,
and after the payment of the aggregate amount
distributed relating to Scheduled Principal
Collections to the Senior Classes.
Prior to any application of the cross-support
feature described below, the entire amount of the
principal distribution with respect to Unscheduled
Principal Collections on the Pool II Loans will be
distributed to the Class A-2-A
S-14
<PAGE>
Certificateholders. Prior to any application of
the cross-support feature described below, the
entire amount of the principal collections with
respect to unscheduled principal on the Pool III
Loans will be distributed to the Class A-2-B
Certificateholders. Prior to any application of
the cross-support feature described below, the
entire amount of the principal collections with
respect to unscheduled principal on the Pool IV
Loans will be distributed to the Class A-2-C
Certificateholders. The PO Portion of Unscheduled
Principal Collections and an amount equal to the
PO Portion of Realized Losses on the Discount
Loans will be distributed as principal to the
Class PO Certificateholders. The amount of the
Unscheduled Principal Collections with respect to
the Pool I Loans (other than PO Portion of
Unscheduled Principal Collections on the Discount
Loans) will be distributed as principal in
accordance with the "shifting-interest" feature,
which generally provides that a disproportionate
amount (the "Shifted Percentage") of such
Unscheduled Principal Collections on the Pool I
Loans be applied to the amortization of the Senior
Certificates (with a further requirement first to
pay the Class A-1 Principal Balance to zero before
paying such Unscheduled Principal Collections to
the Class A-2-A Certificates, the Class A-2-B
Certificates and the Class A-2-C Certificates).
The Shifted Percentage may decrease or "step down"
in the future, subject to the occurrence of a
triggering event based on certain loss,
subordination, delinquency and other tests.
Distributions of principal among the Subordinate
Certificate Classes will be made in accordance
with certain eligibility tests.
The Subordinate Certificates of any Class will only
be entitled to receive distributions of
unscheduled principal on a Distribution Date if
such Class is an "Eligible Subordinate Class" on
such Distribution Date. A Subordinate Class is an
"Eligible Subordinate Class" only if the Class
immediately senior to it maintains, as of such
Distribution Date, the same (or greater) relative
amount of protection in the form of Subordinate
Certificates which are junior in priority to such
immediately senior Class as such Class had on the
Closing Date; provided, however, that the Class M-
-------- -------
1 Certificates are an Eligible Subordinate Class
with respect to each Distribution Date.
Cross-Support Feature. Pursuant to the cash flow
structure of the Trust, even though the
distributions due to the Certificateholders of the
various Classes will generally reflect the
activity of the related Mortgage Loans (e.g., the
----
Class A-2-A Certificates receive distributions
based generally on the activity of the Pool II
Loans) all of the
S-15
<PAGE>
Mortgage Loans provide support for all of the
Certificates. The credit enhancement features of
the Trust provide that Realized Losses will be
allocated to the Certificates in order of their
level of subordination (i.e., first to the Class
----
B-3 Certificates); since all of the Subordinate
Certificates relate to the Pool I Loans, this
allocation provision allocates Realized Losses on
the Pool II, Pool III and Pool IV Loans, as well
as on the Pool I Loans, to the Subordinate
Certificates.
The cash flow structure of the Trust further
provides that Unscheduled Principal Collections
with respect to the Fixed Rate Loans (other than
the PO Portion of Unscheduled Principal Collections
on the Discount Loans) shall be allocated, to a
certain extent, to the amortization of the Classes
of Certificates relating to the ARM Loans (the
Class A-2-A, Class A-2-B and Class A-2-C
Certificates) once the Senior Certificates relating
to the Fixed Rate Loans (the Class A-1
Certificates) have been paid to zero. The feature
described in this paragraph may result, in certain
periods, in an "extra" amount of collateral with
respect to each Class of Certificates relating to
the ARM Loans (e.g., as a result of this feature,
----
the collateral balance of the Pool II Loans may
exceed the Class A-2-A Principal Balance in certain
periods).
The unpaid principal balance of the Mortgage Loans
in any Pool may be greater than the aggregate
Certificate Principal Balance of the Classes
relating to such Pool, resulting in "extra"
collateral (i.e., collateral not necessary to
----
support the related Classes). The collections with
respect to this "extra" collateral across all pools
of Mortgage Loans will be available on each
Distribution Date to fund distributions of interest
and principal with respect to any Class of
Certificates (considering the Class A-1
Certificates and the Subordinate Certificates,
collectively as a single Class for this purpose)
which, as a result of Realized Losses experienced
with respect to the related Mortgage Loans, has a
collateral deficit (i.e., the amount of collateral
----
relating to such Class is less than the related
Certificate Principal Balance).
As a result of such cross-support feature, on any
particular Distribution Date, there may be
distributed to any Class of Certificates a portion
of the principal and interest collections with
respect to any unrelated Mortgage Loans type (e.g.,
----
a portion of the principal collections on Pool III
Loans and on the Fixed Rate Loans may be
distributed with respect to the Class A-2-A
Certificates (which generally relate only to the
Pool II Loans)), and the Pass-Through Rate of any
Class of Certificates (other than the Class A-1
Certificates) may be calculated, in part, based on
the weighted average Coupon Rate with respect to
any Mortgage Loan type.
S-16
<PAGE>
Credit Enhancement.. The rights of the holders of the Class M
Certificates to receive distributions will be
subordinated to the rights of the holders of the
Senior Certificates to receive distributions, to
the extent described herein. The rights of the
holders of the Class B Certificates to receive
distributions will be subordinated to the rights
of the holders of the Senior Certificates and the
rights of the holders of the Class M Certificates.
Among the Class M Certificates, the Class M-1
Certificates are senior to the Class M-2
Certificates, and the Class M-2 Certificates are
senior to the Class M-3 Certificates. Among the
Class B Certificates, the Class B-1 Certificates
are senior to the Class B-2 Certificates, and the
Class B-2 Certificates are senior to the Class B-3
Certificates. This subordination provides a
certain amount of protection to the holders of the
Senior Certificates (to the extent of the
subordination of the Class M and Class B
Certificates), the Class M Certificates (to the
extent of the subordination of the Class B
Certificates) and, among the Class M and Class B
Certificates, to the subclasses thereof (to the
extent of the subordination of the subclasses with
higher numerical designations) against delays in
the receipt of scheduled payments of interest and
principal and against losses associated with the
liquidation of defaulted Mortgage Loans and
certain losses resulting from the bankruptcy of a
mortgagor.
In general, the protection afforded the holders of
the Senior Certificates by means of this
subordination will be effected in two ways: (i)
by the preferential right of the holders of the
Senior Certificates to receive, prior to any
distribution being made on any Distribution Date
in respect of the Subordinate Certificates, the
amounts of interest and principal due the holders
of the Class A Certificates and the amount of
principal due the holders of the Class PO
Certificates on such date and, if necessary, by
the right of such holders to receive future
distributions on the Mortgage Loans that would
otherwise have been allocated to the holders of
the Subordinate Certificates and (ii) by the
allocation to the Subordinate Certificates, until
their respective principal balances are reduced to
zero, of certain losses resulting from the
liquidation of defaulted Mortgage Loans or the
bankruptcy of mortgagors prior to the allocation
of such losses to the Senior Certificates. See
"Description of the Certificates--Distributions"
in this Term Sheet.
In general, the protection afforded the holders of
the Class M Certificates by means of this
subordination will also be effected in two ways:
(i) by the preferential right of the holders of
the Class M Certificates to receive, prior to any
S-17
<PAGE>
distribution being made on any Distribution Date
in respect of interest on the Class B
Certificates, the amounts of interest due the
holders of the Class M Certificates on such date,
the preferential right of the holders of the Class
M Certificates to receive, prior to any
distribution being made on any Distribution Date
in respect of principal on the Class B
Certificates on such date and, if necessary, by
the right of such holders to receive future
distributions on the Mortgage Loans that would
otherwise have been allocated to the holders of
the Class B Certificates and (ii) by the
allocation to the Class B Certificates, until
their principal balance has been reduced to zero,
of certain losses resulting from the liquidation
of defaulted Mortgage Loans or the bankruptcy of
mortgagors prior to the allocation of such losses
to the Class M Certificates. See "Description of
the Certificates--Distributions" in this Term
Sheet.
In general, the protection afforded the holders of
a subclass of Class B Certificates by means of
this subordination will also be effected in two
ways: (i) by the preferential right of the
holders of such subclass to receive, prior to any
distribution being made on any Distribution Date
in respect of the subclasses of Class B
Certificates with higher numerical designations,
the amounts of interest and principal due the
holders of such subclass on such date and, if
necessary, by the right of such holders to receive
future distributions on the Mortgage Loans that
would otherwise have been allocated to the holders
of the subclasses of Class B Certificates with
higher numerical designations and (ii) by the
allocation to the subclasses of Class B
Certificates with higher numerical designations,
until their principal balances have been reduced
to zero, of certain losses resulting from the
liquidation of defaulted Mortgage Loans or the
bankruptcy of mortgagors prior to the allocation
of such losses to such subclass. See "Description
of the Certificates--Distributions" in this Term
Sheet.
In addition, in order to increase the period during
which the principal balances of the Class M and
Class B Certificates remain available as credit
enhancement to the Senior Certificates, a
disproportionate amount of prepayments and certain
unscheduled recoveries with respect to the
Mortgage Loans will be allocated to the Class A
Certificates. This allocation has the effect of
accelerating the amortization of the Class A
Certificates while, in the absence of losses in
respect of the liquidation of defaulted Mortgage
Loans or losses resulting from the bankruptcy of
mortgagors, increasing the respective percentage
interest in the principal balance of the Mortgage
Loans evidenced by the Subordinated Certificates.
S-18
<PAGE>
Prepayment.......... Interest Shortfalls If, on any
Distribution Date, and as a result of full or
partial prepayments received with respect to the
Mortgage Loans during the related Due Period, the
amount of interest due on such Mortgage Loans is
decreased such that the Available Funds will be
insufficient to fund the full amount of the
interest accrued on the Certificates (other than
the Class F-IO and the Class A-IO Certificates)
and due on such Distribution Date, the Servicer
will be required to remit to the Collection
Account the lesser of (x) the amount of such
insufficiency due to such prepayments and (y) the
aggregate Servicing Fee due to the Servicer on
such Distribution Date with respect to such Trust.
The Servicer will be required to remit such amount
(each such amount, "Prepayment Interest") not
later than the close of business on each "Servicer
Remittance Date" (the 24th day, or if such day is
not a Business Date, the next following Business
Day of each month, commencing January 24, 1997).
The excess of any such insufficiency over the
amount of such aggregate Servicing Fee is the
"Prepayment Interest Shortfall" for such
Distribution Date.
The effect of shortfalls in interest due to full or
partial prepayments on the related Mortgage Loans
will be borne by the Class F-IO and the Class A-IO
Certificates in the first instance. The amount of
any additional Prepayment Interest Shortfall on
any Distribution Date will be deducted from the
amount of interest due on the other Certificates
on such Distribution Date, pro rata.
--- ----
Civil Relief Act
Interest Shortfalls.. The Servicer is not obligated to offset any of the
Servicing Fee against, or to provide any other
funds to cover, any shortfalls ("Civil Relief Act
Interest Shortfalls") in interest collections
payable on the Certificates that are attributable
to application of the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended (the "Civil Relief
Act"). See "Risk Factors--Limitations on Interest
Payments and Foreclosures" in this Term Sheet.
Effects of Prepayments on
Investment Expectations.. The actual rate of prepayment of principal on the
Mortgage Loans cannot be predicted. The investment
performance of the Offered Certificates may vary
materially and adversely from the investment
expectations of investors due to prepayments on
the Mortgage Loans being higher or lower than
anticipated by investors. The actual yield to the
holder of an Offered Certificate may not be equal
to the yield anticipated at the time of purchase
of the Offered Certificate or, notwithstanding
that the actual yield is equal to the yield
anticipated at that time, the total return on
investment expected by the investor or the
expected
S-19
<PAGE>
weighted average life of the Offered Certificate
may not be realized. These effects are summarized
below. In deciding whether to purchase any
Offered Certificates, an investor should make an
independent decision as to the appropriate
prepayment assumptions to be used.
OFFERED CERTIFICATES OTHER THAN THE CLASS F-IO,
CLASS A-IO AND CLASS PO CERTIFICATES
Yield. If an investor purchases an Offered
Certificate (other than a Class F-IO, a Class A-IO
or a Class PO Certificate) at an amount equal to
its unpaid principal balance (that is, at "par"),
the effective yield to that investor (assuming that
there are no interest shortfalls and assuming the
full return of the purchaser's invested principal)
will approximate the pass-through rates in effect
from time to time on that Offered Certificate. If
an investor pays less or more than the unpaid
principal balance of the Offered Certificate (that
is, buys the Offered Certificate at a "discount" or
"premium," respectively), then, based on the
assumptions set forth in the preceding sentence,
the effective yield to the investor will be higher
or lower, respectively, than the stated interest
rate on the Offered Certificate, because such
discount or premium will be amortized over the life
of the Offered Certificate. Any deviation in the
actual rate of prepayments on the related Mortgage
Loans from the rate assumed by the investor will
affect the period of time over which, or the rate
at which, the discount or premium will be amortized
and, consequently, will change the investor's
actual yield from that anticipated.
An investor that purchases any Offered Certificates
at a discount should carefully consider the risk
that a slower than anticipated rate of principal
payments on the related Mortgage Loans will result
in an actual yield that is lower than such
investor's expected yield.
Reinvestment Risk. As stated above, if an Offered
Certificate (other than a Class F-IO, a Class A-IO
or a Class PO Certificate) is purchased at an
amount equal to its unpaid principal balance,
fluctuations in the rate of distributions of
principal will generally not affect the yield to
maturity of that Offered Certificate. However,
the total return on any purchaser's investment,
including an investor who purchases at par, will
be reduced to the extent that principal
distributions received on its Offered Certificate
cannot be reinvested at a rate as high as the
stated interest rate of the Offered Certificate.
Investors in the Offered Certificates should
consider the risk that rapid rates of prepayments
on the related Mortgage Loans may coincide with
periods of low prevailing market interest rates.
During periods of low
S-20
<PAGE>
prevailing market interest rates, mortgagors may
be expected to prepay or refinance Mortgage Loans
that carry interest rates significantly higher
than then-current interest rates for mortgage
loans. Consequently, the amount of principal
distributions available to an investor for
reinvestment at such low prevailing interest rates
may be larger than would be the case at higher
prevailing interest rates. Conversely, slow rates
of prepayments on the Mortgage Loans may coincide
with periods of high prevailing market interest
rates. During such periods, it is less likely
that mortgagors will elect to prepay or refinance
Mortgage Loans and, therefore, the amount of
principal distributions available to an investor
for reinvestment at such high prevailing interest
rates may be smaller than would be the case at
lower prevailing market interest rates.
Weighted Average Life Volatility. One indication
of the impact of varying prepayment speeds on a
security is the change in its weighted average
life. The "weighted average life" of an Offered
Certificate is the average amount of time that
will elapse between the date of issuance of the
Offered Certificate and the date on which each
dollar in reduction of the principal balance of
the Certificate is distributed to the investor.
Low rates of prepayment may result in the
extension of the weighted average life of an
Offered Certificate; high rates, in the shortening
of such weighted average life. In general, if the
weighted average life of an Offered Certificate
purchased at par is extended beyond that initially
anticipated, such Offered Certificate's market
value may be adversely affected even though the
yield to maturity on the Offered Certificate is
unaffected.
CLASS F-IO AND CLASS A-IO CERTIFICATES
General Character as Interest-Only Securities. As
the owners of an interest-only strip security, the
holders of the Class F-IO and Class A-IO
Certificates will be entitled to receive monthly
distributions only of interest, as described
herein. Because they will not receive any
distributions of principal, the holders of the
Class F-IO and Class A-IO Certificates will be
affected by prepayments, liquidations and other
dispositions (including optional redemptions
described herein) of the related Mortgage Loans to
a greater degree than will the holders of the
other Offered Certificates. As an extreme
illustration, in the event that all of the related
Mortgage Loans prepay in full during the first
month, then on the initial Distribution Date the
holders of the Certificates will receive the full
par value of their Certificates while the holders
of the Class F-IO Certificates will suffer nearly
a complete loss (except for one month's interest
on their investment).
S-21
<PAGE>
In general, losses due to liquidations,
repurchases by the Seller and other dispositions
of the related Mortgage Loans from the Trust will
have the same effect on the holders of the Class
F-IO and Class A-IO Certificates as do prepayments
of principal and are collectively referred to as
"Prepayments".
Limitations in amounts of Prepayment Interest
payable by the Servicer will also adversely affect
the yield to the holders of the Class F-IO and
Class A-IO Certificates (see "Prepayment Interest
Shortfalls" above).
Because the yield to the holders of the Class F-IO
and Class A-IO Certificates is highly sensitive to
rates of prepayment, it is advisable for potential
investors in the Class F-IO and Class A-IO
Certificates to consider carefully, and to make
their own evaluation of, the effect of any
particular assumption regarding the rates and
timing of prepayments. In general, when interest
rates decline, prepayments in a pool of
receivables such as the Fixed Loans will increase
as borrowers seek to refinance at lower rates.
This will have the effect of reducing the future
stream of payments available to an owner of an
interest-only security based on such receivables
pool, then adversely affecting such investor's
yield. Conversely, when interest rates increase,
prepayments will tend to decrease (because
attractive refinancing opportunities are not
available) and the future stream of payments
available to such an owner of an interest-only
security may not decline as rapidly as originally
anticipated, thus positively affecting such
investor's yield. See "Prepayment and Yield
Considerations - Yield Sensitivity of the Class F-
IO and Class A-IO Certificates" herein for other
factors which may also influence prepayment rates.
Due to the cross-support feature of the Trust, as
described above, the Class A-IO Certificates may
experience a further reduction in yield due to the
reallocation of collections from one Pool to
another, and such reallocation's corresponding
effect on such other Pool's Adjusted WAC.
Applicability of Credit Enhancement to the Class
F-IO and Class A-IO Certificates. The credit
enhancement features of the Trust includes
provisions which subordinate the distributions on
the Subordinate Certificates for each Payment Date
for the purposes, inter alia, of funding the full
amounts due on each Class of the Senior
Certificates, including the Class F-IO and Class
A-IO Certificates, on each Distribution Date. In
general, the protection afforded by such features
is for credit risk and not for prepayment risk.
The credit enhancement features do not guarantee
or
S-22
<PAGE>
insure that any particular rate of prepayment is
experienced by the Trust.
Accrual of "Original Issue Discount." The Class
F-IO and Class A-IO Certificates will be issued
with "original issue discount" within the meaning
of the Code. As a result, in certain rapid
prepayment environments the effect of the rules
governing the accrual of original issue discount
may require holders of the Class F-IO and Class A-
IO Certificates to accrue original issue discount
at a rate in excess of the rate at which
distributions are received by such holders. See
"Certain Federal Income Tax Consequences" herein
and in the Prospectus.
Advances............ On each Servicer Remittance Date,
the Servicer will be required to advance funds
(each, a "Delinquency Advance") to cover any
scheduled payment of interest and principal due on
a Mortgage Loan during the related Due Period that
was not received on a timely basis by the Servicer
for a reason other than prepayment of such
Mortgage Loan; provided, however, that the
-------- -------
Servicer will not be required to make any such
Delinquency Advance if it determines in reasonable
good faith that such Delinquency Advance would not
be recoverable from collections with respect to
such Mortgage Loan. The Back-Up Servicer, as
successor servicer, will be obligated to make
Delinquency Advances unless it determines
reasonably and in good faith that such Delinquency
Advances would not be recoverable. Delinquency
Advances by the Servicer and the Back-Up Servicer
will add to the funds available for distribution
to the Certificateholders, but the Servicer and
the Back-Up Servicer will be entitled to
reimbursement for such Delinquency Advances from
subsequent payments on the Mortgage Loans or
amounts held in the Collection Account.
Payments
on Mortgage Loans... All payments on the
Mortgage Loans will be made by the Obligors to a
lock-box account established at Bank of America
Oregon, N.A. (the "Lock-box Account"). On each
business day, appropriate amounts on deposit in
the Lock-box Account will be transferred to the
Collection Account. The Servicer will be
entitled to the investment income with respect
to all amounts on deposit in the Collection
Account, and will be responsible for all losses
on investments thereon.
S-23
<PAGE>
Servicing of
the Mortgage Loans... Pursuant to the Pooling
and Servicing Agreement, the Servicer will be
responsible for servicing, managing and
collecting the Mortgage Loans. The Servicer
will carry out such servicing activities in
accordance with industry servicing standards.
In certain limited circumstances, Wilshire
Servicing Corporation may be removed as
Servicer, in which event the Back-Up Servicer
will be appointed as successor servicer, subject
to the terms of the Pooling and Servicing
Agreement. The Servicer and the Trustee will be
responsible for certain administrative functions
including, without limitation, preparing certain
reports and computing the amounts owing to the
Offered Certificateholders.
On each Distribution Date the Servicer will
receive a monthly servicing fee (the "Servicing
Fee") equal to one-twelfth of 0.375% times the
outstanding principal balance (except for the
Arrearages on 13 Mortgage Loans) of the Mortgage
Loans as of the beginning of the related
Collection Period, but only to the extent of
interest collections on the related Mortgage
Loans.
Trustee's Fee....... The Trustee on each
Distribution Date will receive a fee (the
"Trustee's Fee") equal to one-twelfth of 0.020%
times the outstanding principal balances (except
for the Arrearages on 13 Mortgage Loans) of the
Mortgage Loans as of the beginning of the
related Collection Period.
Use of
Proceeds............ The net proceeds from the sale of the Offered
Certificates will be used by the Depositor to
acquire the Mortgage Loans from the Seller, and to
pay certain expenses in connection with the
offering.
Mandatory
Repurchases
of Mortgage Loans... Wilshire and certain of its affiliates will make
certain representations and warranties with
respect to the Mortgage Loans conveyed to the
Trust. Wilshire or such affiliates will be
obligated to repurchase a Mortgage Loan sold by
it at a price equal to the then outstanding
principal balance and accrued and unpaid
interest thereon, together with any outstanding
Advances (the "Repurchase Price") if the value
of, or the interest of the Trust in, such
Mortgage Loan is materially and adversely
affected by the breach of such representations
and warranties, or by the breach of a covenant
to cooperate with the Trustee in respect of
taking certain necessary additional actions to
evidence the transfer of
S-24
<PAGE>
the Mortgage Loans to the Trust, subject to
certain grace periods.
Optional
Termination......... Wilshire Servicing Corporation ("Wilshire") and its
affiliates will have the option, subject to
certain conditions, to cause the early termination
of the Trust and thereby cause early repayment of
the Certificates on any Distribution Date on which
the aggregate outstanding principal balance of the
Mortgage Loans held by the Trust is reduced to 10%
or less of the aggregate outstanding principal
balance of such Mortgage Loans as of the Cut-Off
Date.
Certain Federal Income Tax
Consequences........ For federal income tax purposes, one or more
elections will be made to treat certain assets of
the Trust Fund as a "real estate mortgage
investment conduit" (a "REMIC"). The Senior
Certificates, and the Subordinate Certificates
will be designated as "regular interests" issued
by a REMIC and will be treated as debt instruments
issued by a REMIC for federal income tax purposes.
The Residual Certificates will be designated as
the "residual interest" in a REMIC. Holders of
Offered Certificates, including Holders that
generally report income on the cash method of
accounting, will be required to include interest
on the Offered Certificates in income in
accordance with the accrual method of accounting.
In general, as a result of being "regular
interests" in a REMIC, the Offered Certificates
will be treated as "regular . . . interest(s) in a
REMIC" under Section 7701(a)(19)(C) of the Code
and "real estate assets" under Section 856(c) of
the Code in the same proportion that the assets in
the REMIC consist of qualifying assets under such
Sections. In addition, as a result of being
"regular interests" in a REMIC, interest on the
Offered Certificates will be treated as "interest
on obligations secured by mortgages on real
property" under Section 856(c) of the Code to the
extent that such Senior Certificates are treated
as "real estate assets" under Section 856(c) of
the Code. See "Certain Federal Income Tax
Consequences."
ERISA
Considerations...... The Offered Certificates are not generally eligible
for purchase by employee benefit plans that are
subject to ERISA.
S-25
<PAGE>
Ratings............. It is a condition to the original issuance of the
Offered Certificates that they receive the
following ratings from Moody's Investors Service,
Inc. ("Moody's"), Fitch Investors Service, L.P.
("Fitch") and Duff & Phelps Credit Rating Co.
("DCR").
Class Moody's Rating Fitch Rating DCR Rating
----- -------------- ------------ ----------
A-1 Aaa AAA AAA
PO Aaa AAA AAA
F-IO Aaa AAA AAA
A-IO Aaa AAA AAA
A-2-A Aaa AAA AAA
A-2-B Aaa AAA AAA
A-2-C Aaa AAA AAA
M-1 Aa2 AA AA
M-2 A2 A A
M-3 Baa2
Such ratings assess the likelihood of timely
payment of interest and the ultimate payment of
principal to the Certificateholders. There is no
assurance that any rating will not be lowered or
withdrawn if, in the judgement of the assigning
entity, circumstances in the future so warrant.
The ratings assigned to the Class A-2-A, Class A-2-
B and Class A-2-C Certificates relate, with
respect to interest, only to the payment of such
interest at the lesser of the related Formula Rate
and the related Net Funds Cap Rate (i.e., at the
----
related Pass-Through Rate) and do not address the
likelihood that such Certificates will receive
interest based solely on the applicable Formula
Rate.
Ratings of the Class F-IO and Class A-IO
Certificates. Ratings which are assigned to
securities such as the Class F-IO Certificates
generally value the ability of the issuer (i.e.
the Trust) to make payments, as required by such
securities. The amounts distributable on the
Class F-IO and Class A-IO Certificates consist
only of interest. In general, the ratings of such
Certificates address only credit risk and not
prepayment risk. See "Ratings" and "Summary of
Terms-Nature of Class F-IO and Class A-IO
Certificates" herein.
Legal Investment
Considerations...... The Class A, Class F-IO, Class A-IO, Class PO and
Class M-1 Certificates will constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market
S-26
<PAGE>
Enhancement Act of 1984 ("SMMEA"). The Class M-2,
Class M-3, Class B-1, Class B-2 and Class B-3 will
not constitute "mortgage related securities" for
purposes of SMMEA. Accordingly, many institutions
with legal authority to invest in comparably rated
securities may not legally be authorized to invest
in the Class M-2, Class M-3, Class B-1, Class B-2
or Class B-3 Certificates.
S-27
<PAGE>
RISK FACTORS
Prospective Offered Certificateholders should consider, among other
things, the following factors in connection with the purchase of the Offered
Certificates:
THE PRIOR SELLERS; LIMITED INFORMATION. All of the Mortgage Loans were
purchased by Girard Savings Bank, F.S.B., First Bank of Beverly Hills and
Wilshire Credit Corporation (collectively, the "Wilshire Sellers") from
others (collectively, the "Prior Sellers"). Only limited information was
available concerning the origination and servicing of the Mortgage Loans
prior to such purchases, and none of the Wilshire Sellers, the Servicer, the
Seller or the Depositor were able independently to verify such information.
None of the Wilshire Sellers, the Servicer, the Seller or the Depositor have
been able to obtain historical loss and delinquency statistics with respect
to loans originated and serviced by the Prior Sellers which they consider
reliable and, accordingly, no such statistics are included herein. It is
possible that financial difficulties experienced by certain of the Prior
Sellers may have had an adverse effect on the standards and procedures by
which the Mortgage Loans were originated and on the manner in which such
Mortgage Loans were serviced prior to the assumption of such responsibilities
by the Servicer. Each Wilshire Seller is making certain representations and
warranties regarding the Mortgage Loans which it assigned to the Seller and
is obligated to repurchase such Mortgage Loans as to which there is a breach
of such representations or warranties which materially adversely affects the
value of, or interest of the Trust in, such Mortgage Loan.
The Pools contain, among other Mortgage Loans, Mortgage Loans acquired
by the Prior Sellers in three bulk acquisitions:
. EMC BANKRUPTCY PLAN LOANS. This acquisition originally consisted
-------------------------
of 488 Mortgage Loans with an aggregate unpaid principal balance of
approximately $50 million and an aggregate amount of Arrearage of
approximately $7.5 million (see "Special Rules Relating to Chapter
13 Bankruptcy Loans" in the Summary). The portfolio was acquired
from EMC Mortgage Corporation and consists of Mortgage Loans where
the mortgagor, at the time of acquisition, was in a Chapter 13
bankruptcy and making payments under a court-approved plan.
Typically, the plans require that both post-petition and pre-
petition payments be made. The weighted average LTV at the time of
purchase was 88%.
. PRUDENTIAL HOME MORTGAGE LOANS. This portfolio consists of
------------------------------
Mortgage Loans originated or purchased by Prudential Home Mortgage.
The portfolio originally included 782 loans with an unpaid
principal balance of approximately $132 million. A portion of the
portfolio consists of relocation loans. Upon Wilshire's
acquisition of this portfolio over 70% of the Mortgage Loans had an
original LTV below 80%.
. EMC COFI LOANS. This acquisition originally consisted of
--------------
approximately 500 Mortgage Loans, all of which bear interest at a
variable rate based on COFI, with an approximate aggregate unpaid
principal balance at the time of acquisition of $45 million. A
portion of these loans were "reperforming" loans at the time of the
acquisition by the Wilshire Sellers; i.e., such loans were current
----
at the time of the acquisition, but previously may have been non-
performing. This portfolio was acquired by the Wilshire Sellers
from EMC Mortgage Corporation.
The most-recently acquired Mortgage Loans were acquired in September,
1996. All servicing transfers of the Mortgage Loans have been completed.
COLLATERAL VALUES. An overall decline in the residential real estate
market, the general condition of the Mortgaged Property, or other factors,
could adversely affect the values of the Mortgaged Property such that the
outstanding balances of the Mortgage Loans, together with any other loans
secured by senior liens on the related Mortgaged Property, equal or exceed
the value of the related Mortgaged Property. Such a decline could extinguish
the interest of the Trust in the related Mortgaged Property before having any
S-28
<PAGE>
effect on the interest of the related senior mortgagees. There is no
reliable information available with respect to the rate at which real estate
values have declined in any specific market areas in which the Mortgaged
Property is located. In the event that there have been declines in any
specific markets, none of the Servicer, the Seller, any Wilshire Seller or
the Depositor can quantify the impact of any recent property value declines
on the Mortgage Loans nor predict whether, to what extent, or how long such
declines may continue. In a period of such decline, the rates of
delinquencies, foreclosures and losses on the Mortgage Loans could be higher
than those heretofore experienced in the mortgage lending industry in
general. In addition, adverse economic conditions (which may or may not
affect real property values) may affect the timely payment by borrowers of
scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the actual rates of delinquencies, foreclosures and losses with
respect to the Trust.
Information is provided under "The Mortgage Loan Pools" with respect to
the Loan-to-Value Ratios Pools as of the Cut-Off Date. As discussed above,
the value of the Mortgaged Property underlying such Mortgage Loans could be
adversely affected by a number of factors. As a result, despite the
amortization of the Mortgage Loans on such properties, there can be no
assurance that the Loan-to-Value Ratios of such Mortgage Loans, determined as
of a date subsequent to the origination date, will be the same or lower than
the Loan-to-Value Ratios for such Mortgage Loans, determined as of the
related origination date.
Even assuming that the Mortgaged Property provided adequate security for
the related Mortgage Loans, substantial delays could be encountered in
connection with the liquidation of such Mortgaged Property and corresponding
delays in the receipt of such proceeds by the Trust could occur. Further,
the Servicer will be entitled to deduct from Liquidation Proceeds received in
respect of a fully liquidated Mortgage Loan all outstanding, unreimbursed
advances and expenses incurred in attempting to recover amounts due on such
Mortgage Loan and not yet repaid, including payments to senior mortgagees,
legal fees, real estate taxes, and maintenance and preservation expenses,
(liquidation proceeds net of such amounts, "Net Liquidation Proceeds")
thereby reducing collections available to the Trust.
Liquidation expenses with respect to defaulted loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in
collecting a defaulted loan having a small remaining principal balance as it
would in the case of a defaulted loan having a larger principal balance, the
amount realized after expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of the smaller loan than
would be the case with a larger loan. Because the average outstanding
principal balances of the Mortgage Loans are small relative to the size of
the loans in a typical pool of newly-originated first mortgages, Net
Liquidation Proceeds on defaulted Mortgage Loans may also be smaller as a
percentage of the principal amount of the loans than would such net
realizations in the case of a typical pool of newly-originated first mortgage
loans.
CHARACTERISTICS OF CERTAIN OF THE MORTGAGE LOANS. Approximately 6.47%
by Principal Balance of the Mortgage Loans are Mortgage Loans that provide
for the payment of the unamortized principal balance of each such Mortgage
Loan in a single payment at maturity (the "Balloon Loans"). Balloon Loans
provide for equal monthly payments, consisting of principal and interest,
generally based on a twenty to thirty year amortization schedule, and a
single payment of the remaining balance of the Balloon Loan, generally five
to fifteen years after origination. Amortization of a Balloon Loan based on
a scheduled period that is longer than the term of the loan results in a
remaining principal balance at maturity that is substantially larger than the
regular scheduled payments and may result in a balloon maturity payment which
may be equal to a high percentage of the original amount financed. The
Servicer does not have information regarding the default and prepayment
history of payments on Balloon Loans. Because borrowers of Balloon Loans are
required to make substantial single payments upon maturity, the default risk
associated with the Balloon Loans may be greater than that associated with
fully-amortizing mortgage loans.
Certain of the Mortgage Loans are vacation, second home and non-owner
occupied properties. It is possible that the rate of delinquencies,
foreclosures and losses on Mortgage Loans secured by such properties could be
higher than the loans secured by the primary residence of such Obligor.
S-29
<PAGE>
Certain of the Mortgage Loans in the ARM Pools contain a limited
negative amortization feature. Negative amortization of such a Mortgage Loan
may occur if the index applicable to such Mortgage Loan adjusts upward while
the monthly payment due under such Mortgage Loan remains fixed for a period
of time following such upward adjustment. As a result, the interest payment
then due will be in excess of such monthly payment prior to the next date on
which such monthly payment may be adjusted; the excess interest is then
capitalized (i.e., added to such Mortgage Loan's principal balance) to a
----
limited extent.
In certain cases the margin and the minimum Coupon Rate on a Mortgage
Loan held in the ARM Pools may each be zero; thus the Coupon Rate on such a
Mortgage Loan could theoretically be zero if the index falls to zero.
CALCULATION OF COUPON RATE. As described herein, the Mortgage Loans in
the ARM Pools are adjustable rate Mortgage Loans which provide for periodic
adjustments of the Coupon Rate and the related scheduled monthly payment. It
is believed by the Servicer that, with respect to certain of such Mortgage
Loans, the monthly payments thereon may have previously been incorrectly
calculated by the prior Servicers. The Servicer hired a third party
contractor to perform a verification of the monthly payments on each
adjustable rate Mortgage Loan to the extent the required data was available.
The Servicer has made corrections to the related adjustable rate information
based on the results of such verification.
MORTGAGE LOAN DOCUMENTATION DEFECTS. Certain of the Loan Files being
transferred to the Trust are known by the Servicer to have one or more of the
following document defects: (i) the Loan File did not contain the original
note or a lost note affidavit for the related Mortgage Loan; (ii) the note
was missing the proper endorsements; (iii) the Loan File did not contain the
original mortgage or a copy thereof for the related Mortgage Loan; (iv) the
Loan File was missing intervening assignments; and (v) the Loan file was
missing a copy of certain assumptions, modifications or waivers.
Notwithstanding the foregoing, the related Wilshire Seller will represent and
warrant that each Loan file is complete and will be obligated to repurchase
any Mortgage Loan if such Mortgage Loan's value to the Trust, or the Trust's
interest in such Mortgage Loan, is materially adversely affected by such
documentation defect.
LEGAL CONSIDERATIONS. Applicable state laws generally regulate interest
rates and other charges, require certain disclosures, and require licensing
of loan originators and servicers. In addition, most states have other laws,
public policy and general principles of equity relating to the protection of
consumers, unfair and deceptive practices and practices which may apply to
the origination, servicing and collection of the Mortgage Loans. Depending
on the provisions of the applicable law and the specific facts and
circumstances involved, violations of these laws, policies and principles may
limit the ability of the Servicer to collect all or part of the principal of
or interest on the Mortgage Loans, may entitle the related Obligor to a
refund of amounts previously paid and could subject the Servicer to damages
and administrative sanctions. See "Certain Legal Aspects of the Mortgage
Loans" in the Prospectus.
The Mortgage Loans are also subject to federal laws, including: (i) the
Federal Truth in Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of the
Mortgage Loans; (ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of age,
race, color, sex, religion, marital status, national origin, receipt of
public assistance or the exercise of any right under the Consumer Credit
Protection Act, in the extension of credit; and (iii) the Fair Credit
Reporting Act, which regulates the use and reporting of information related
to the borrower's credit experience.
PREPAYMENT CONSIDERATIONS. Substantially all of the Mortgage Loans may
be prepaid in whole or in part at any time without penalty. The rate of
principal payment of the Mortgage Loans is unpredictable and will likely
depend upon a number of factors. In the case of some borrowers, home
improvement and home equity loans are not viewed as permanent financing of
home ownership. Consequently, home improvement and home equity loans may
experience a higher rate of prepayments than traditional amortizing first
mortgage loans. A wide variety of additional factors may also be expected to
affect the prepayment experience of the Mortgage Loans, including general
economic conditions, interest rates, the availability of alternative
financing, homeowner mobility and changes affecting the deductibility for
federal
S-30
<PAGE>
income tax purposes of interest payments on home improvement and home equity
loans. In addition, Balloon Loans may experience a higher rate of prepayment
than other loans as borrowers seek to refinance to avoid substantial balloon
payments at maturity. The Pooling and Servicing Agreement permits the
Servicer to modify and extend the maturity of a Balloon Loan to prevent a
realized loss which matures and which is not otherwise paid in full at such
maturity date by the related Obligor; provided that the rescheduled final
maturity date of such Mortgage Loan is not beyond one year of the stated
maturity date, the related Coupon Rate is not decreased, the Obligor does not
receive any additional proceeds and subject to certain other conditions
contained in the Pooling and Servicing Agreement. Such modified and extended
Balloon Loans will be permitted to remain in the Trust. Substantially all of
the Mortgage Loans contain "due-on-sale" provisions. The Servicer is
required to enforce such provisions unless such enforcement is not permitted
by applicable law.
The yield to maturity of the Offered Certificates of each Class will be
affected by the rate of payment of principal (including prepayments),
liquidations due to defaults, and repurchases due to breaches of
representations and warranties, in each case with respect to the related
Mortgage Loans and the price paid by the related Offered Certificateholders.
Such yield may be adversely affected by a higher or lower than anticipated
rate of prepayment on the related Mortgage Loans. Investors should also
consider the risk that rapid rates of prepayment on the Mortgage Loans may
also coincide with low prevailing interest rates and that the effective rates
on securities in which an investor may choose to invest amounts received in
respect of such prepayments may be lower than the applicable Pass-Through
Rate. See "Maturity, Prepayment and Yield Considerations" herein.
See "Description of the Certificates--Assignment of Mortgage Loans;
Representations and Warranties" for a description of the related Wilshire
Seller's obligation to repurchase certain Defective Mortgage Loans and
"Description of the Certificates--Termination of the Trust" for a description
to terminate the Trust when the aggregate Principal Balance of the Mortgage
Loans remaining in the Trust is less than 10% of the aggregate principal
balance of such Mortgage Loans as of the Cut-Off Date.
BOOK ENTRY REGISTRATION. Issuance of the Offered Certificates in book-
entry form may reduce the liquidity of such Offered Certificates in the
secondary trading market since investors may be unwilling to purchase
securities for which they cannot obtain physical certificates. See
"Description of the Offered Certificates--Registration of Certificates".
Beneficial Owners will not be recognized by the Trustee as "Offered
Certificateholders," as such term is used herein, and Beneficial Owners will
be permitted to exercise the rights of Offered Certificateholders only
indirectly through DTC and its Participants.
Since transactions in Offered Certificates can be effected only through
DTC, participating organizations, indirect participants and certain banks,
the ability of a Beneficial Owner to pledge a Class A Certificate to persons
or entities that do not participate in the DTC system, or otherwise to take
actions in respect of such Certificates, may be limited due to lack of a
physical certificate representing the Offered Certificates. See "Description
of the Offered Certificates--Registration of the Offered Certificates".
Beneficial Owners may experience some delay in their receipt of
distributions of principal and interest on the Offered Certificates since
such distributions will be forwarded by the Trustee to DTC and DTC will
credit such distributions to the accounts of its Participants which will
thereafter credit them to the accounts of Beneficial Owners either directly
or indirectly through indirect participants. None of the Depositor, the
Servicer, the Certificate Insurer or the Trustee or any of their respective
affiliates will have any liability for any actions taken by DTC or its
nominee, including, without limitation, actions for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Offered Certificates held by Cede & Co., as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests. See "Description of the Offered Certificates--
Registration of the Offered Certificates".
LIMITED LIQUIDITY. Prior to their issuance there has been no market for
the Offered Certificates nor can there be any assurance that one will develop
or, if it does develop, that it will provide the Offered
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<PAGE>
Certificateholders with liquidity or will continue for the life of the
Offered Certificates of the related class. The Underwriter intends, but is
not obligated, to make a market in the Offered Certificates.
UNAUDITED REPORTS. Unaudited monthly and unaudited annual reports,
prepared by the Servicer and delivered by it to the Trustee, concerning the
Trust will be sent by the Trustee to Cede & Co., as nominee of DTC and, so
long as the Offered Certificates are in book-entry form, DTC will supply such
reports to Beneficial Owners in accordance with its normal procedures.
However, such reports will not contain financial information that has been
examined and reported upon by an independent or certified public accountant.
FAILURE TO REPURCHASE DEFECTIVE MORTGAGE LOANS. Wilshire will be
obligated to repurchase Mortgage Loans as to which there exists an uncured
breach of certain of its representations and warranties, which materially
adversely affects the value of, or interest of the Trust in, such Mortgage
Loan. See "Description of the Offered Certificates--Assignment of Mortgage
Loans; Representations and Warranties".
LIMITATIONS ON INTEREST PAYMENTS AND FORECLOSURES. Generally, under the
Civil Relief Act, an Obligor who enters military service after the
origination of such Obligor's loan (including an Obligor who was in reserve
status and is called to active duty after origination of the loan), shall not
be charged interest (including fees and charges) above an annual rate of 6%
during the period of such Obligor's active duty status, unless a court orders
otherwise upon application of the lender. The Civil Relief Act applies to
obligors 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 Civil Relief Act applies to
obligors who enter military service (including reservists who are called to
active duty) after origination of the related loan, no information can be
provided as to the number of loans that may be affected by the Civil Relief
Act. Application of the Civil Relief Act would adversely affect, for an
indeterminate period of time until cessation of active duty status, the
ability of the Servicer to collect full amounts of interest on certain of the
Mortgage Loans to which it applies, if any. Any shortfall (such shortfall, a
"Civil Relief Act Interest Shortfall") in interest collections on any
Mortgage Loan resulting from the application of the Civil Relief Act will
result in a reduction of the amounts distributable to the related Class A
Certificateholders, and would not be covered by Delinquency Advances. The
Servicer is not obligated to offset any of the Servicing Fee against, or to
provide any other funds to cover, any Civil Relief Act Interest Shortfall.
In addition, the Civil Relief Act imposes limitations which would impair the
ability of the Servicer to foreclose on an affected Mortgage Loan during the
Obligor's period of active duty status and, under certain circumstances,
during an additional period thereafter.
THE MORTGAGE LOAN POOLS
The Mortgage Loans are evidenced by notes secured by liens on the
related mortgaged properties. All of the Mortgage Loans were originated
directly or indirectly by the Prior Sellers or their predecessors and will be
sold to the Depositor by the Seller on or before the date of initial issuance
of the Certificates. The Mortgage Loans were acquired by the Wilshire
Sellers, which are affiliates of the Seller, from the Prior Sellers. All of
the Mortgage Loans are conventional in that they are not insured or
guaranteed by the FHA, the Department of Veteran Affairs or any other
governmental agency or instrumentality or any other person or entity.
POOL I
The Mortgage Loans in Pool I consist of 925 loans under which the
related Mortgaged Properties are located in 48 states and the District of
Columbia, as set forth herein. The Mortgage Loans in Pool I have an
aggregate principal balance of $111,708,544.61, the minimum principal balance
of any such Mortgage Loan in Pool I is $9,942.75, the maximum principal
balance thereof is $1,190,855.56 and the average principal balance of such
Mortgage Loans is approximately $120,765.99. The Mortgage Rates on the
Mortgage Loans range from 5.000% to 21.990% per annum, and the weighted
average Mortgage Rate
S-32
<PAGE>
of such Mortgage Loans is 8.626% per annum. Certain of the principal
balance, $571,162.16, is Arrearage (as defined herein) and does not accrue
interest.
The Mortgage Loans in Pool I have remaining terms to stated maturity
from 6 months to 397 months, a weighted average remaining term to stated
maturity of 241 months and a weighted average seasoning of 49 months. No
Mortgage Loan in Pool I has a stated maturity later than January 20, 2030.
82.24% of the Mortgage Loans in Pool I by aggregate principal balance require
monthly payments of principal that will fully amortize the Mortgage Loans by
their respective maturity dates and 15.68% of such Mortgage Loans by
aggregate principal balance are Balloon Loans. 2.08% of the Mortgage Loans
have no information regarding a Balloon Payment, but the Mortgage Loans
appear to require monthly payments of principal that will fully amortize such
Mortgage Loans.
The weighted average amortized LTV (as defined herein) of the Mortgage
Loans in Pool I is 86.22%.
3.99% of the Mortgage Loans in Pool I by aggregate principal balance are
in Chapter 13 bankruptcy. 5.34% of the Mortgage Loans in Pool I have been
modified.
The following tables describe the Pool I Mortgage Loans and the related
Mortgaged Properties as of the Cut-Off Date.
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<PAGE>
POOL I
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Alabama............... 4 $ 301,010.91 0.27%
Alaska................ 1 173,417.09 0.16
Arizona............... 72 3,785,443.44 3.39
Arkansas.............. 1 64,142.54 0.06
California............ 177 37,457,587.72 33.53
Colorado.............. 10 806,464.71 0.72
Connecticut........... 18 2,102,437.31 1.88
District of Columbia.. 3 150,183.96 0.13
Delaware.............. 7 601,255.98 0.54
Florida............... 50 4,045,311.44 3.62
Georgia............... 40 3,289,989.70 2.95
Hawaii................ 5 3,229,513.13 2.89
Illinois.............. 16 1,741,940.06 1.56
Indiana............... 5 354,180.76 0.32
Iowa.................. 3 479,647.72 0.43
Kansas................ 2 266,835.75 0.24
Kentucky.............. 3 271,482.08 0.24
Louisiana............. 23 1,204,185.98 1.08
Maine................. 1 169,453.39 0.15
Maryland.............. 16 1,879,862.44 1.68
Massachusetts......... 17 1,807,257.71 1.62
Michigan.............. 17 1,793,076.63 1.61
Minnesota............. 7 895,658.62 0.80
Mississippi........... 9 616,134.13 0.55
Missouri.............. 5 586,259.12 0.52
Montana............... 2 164,728.08 0.15
Nebraska.............. 2 105,162.29 0.09
Nevada................ 3 550,113.78 0.49
New Hampshire......... 3 215,412.17 0.19
New Jersey............ 106 10,949,429.10 9.80
New Mexico............ 4 141,805.13 0.13
New York.............. 129 15,478,057.47 13.86
North Carolina........ 13 1,043,223.95 0.93
North Dakota.......... 1 167,351.41 0.15
Ohio.................. 8 611,793.13 0.55
Oklahoma.............. 6 365,935.77 0.33
Oregon................ 3 380,775.18 0.34
Pennsylvania.......... 30 1,977,080.52 1.77
Rhode Island.......... 4 756,399.98 0.68
South Carolina........ 5 377,386.25 0.34
Tennessee............. 12 1,319,044.28 1.18
Texas................. 47 5,176,968.83 4.63
Utah.................. 4 261,985.58 0.23
Vermont............... 3 311,582.29 0.28
Virginia.............. 17 2,075,155.32 1.86
Washington............ 5 616,954.94 0.55
West Virginia......... 1 63,405.75 0.06
Wisconsin............. 2 61,932.42 0.06
Wyoming............... 3 464,127.87 0.42
--- --------------- --------
TOTAL.............. 925 $111,708,544.61 100.00%*
=== =============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-34
<PAGE>
POOL I
DISTRIBUTION OF AMORTIZED LTVS**
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
AMORTIZED LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
100.01% or greater 144 $ 24,285,232.07 21.74%
95.01 - 100.00....... 52 5,744,758.92 5.14
90.01 - 95.00....... 91 11,750,576.18 10.52
85.01 - 90.00....... 68 10,627,079.12 9.51
80.01 - 85.00....... 68 10,313,678.62 9.23
75.01 - 80.00....... 85 10,186,742.17 9.12
70.01 - 75.00....... 71 10,301,039.20 9.22
65.01 - 70.00....... 52 5,855,794.67 5.24
60.01 - 65.00....... 49 4,086,086.70 3.66
55.01 - 60.00....... 36 4,335,090.97 3.88
50.01 - 55.00....... 48 3,669,688.64 3.29
00.01 - 50.00....... 154 10,440,509.45 9.35
Unavailable........... 7 112,267.90 0.10
--- --------------- --------
TOTAL.............. 925 $111,708,544.61 100.00%*
=== =============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
** The amortized LTV of a Mortgage Loan is based on the Aggregate Principal
Balance as of the Cut-Off Date and an opinion of value, where available,
that was received subsequent to the origination of the Mortgage Loan, and
in most cases, in conjunction with the Sellers acquisition of the Mortgage
Loan. Approximately 74% of such opinions of value were received in 1996.
POOL I
DISTRIBUTION OF CURRENT DELINQUENCY
<TABLE>
<CAPTION>
CURRENT NUMBER OF AGGREGATE % OF AGGREGATE
DELINQUENCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Current............. 772 $ 97,401,135.00 87.19%
30 - 59 days........ 136 13,131,795.07 11.76
60 - 89 days........ 17 1,175,614.54 1.05
--- --------------- --------
TOTAL............ 925 $111,708,544.61 100.00%*
=== =============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-35
<PAGE>
POOL I
DISTRIBUTION OF CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
CURRENT MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
6.00% or less........... 18 $ 2,704,844.84 2.42%
6.01 - 7.00............. 88 13,131,792.91 11.76
7.01 - 8.00............. 210 35,982,230.27 32.21
8.01 - 9.00............. 191 28,324,186.62 25.36
9.01 - 10.00............ 128 12,814,819.34 11.47
10.01 - 11.00........... 122 11,106,914.21 9.94
11.01 - 12.00........... 49 2,805,609.66 2.51
12.01 - 13.00........... 28 1,149,977.19 1.03
13.01 - 14.00........... 19 558,648.63 0.50
14.01 - 15.00........... 12 455,498.03 0.41
15.01 - 16.00........... 18 607,221.62 0.54
16.01 - 17.00........... 18 776,217.02 0.69
17.01 - 18.00........... 16 470,032.39 0.42
18.01 - 19.00........... 6 212,216.18 0.19
19.01 or greater........ 2 37,173.54 0.03
Non Accrual**........... N/A 571,162.16 0.51
--- --------------- --------
TOTAL................ 925 $111,708,544.61 100.00%*
=== =============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
** Certain of the principal balance is Arrearage and does not accrue interest.
POOL I
AMORTIZED TERM TO MATURITY DISTRIBUTION**
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MONTHS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
60 or less..... 26 $ 545,200.60 0.49%
61 - 120....... 144 5,337,622.31 4.78
121 - 180....... 122 10,313,223.91 9.23
181 - 240....... 38 2,773,244.04 2.48
241 - 300....... 186 21,750,253.63 19.47
301 - 360....... 397 69,596,533.89 62.30
361 - 420....... 1 54,111.70 0.05
421 or greater.. 11 1,338,354.53 1.20
--- --------------- --------
TOTAL........ 925 $111,708,544.61 100.00%*
=== =============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
** The amortized term to maturity is based solely upon the features of the
original or modified Mortgage Loan without regard to any Arrearage.
S-36
<PAGE>
POOL I
DISTRIBUTION OF CURRENT PRINCIPAL BALANCES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
CURRENT PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
$ 1 - 50,000........... 304 $ 8,732,858.57 7.82%
50,001 - 100,000............ 233 17,114,885.48 15.32
100,001 - 150,000........... 150 18,123,054.32 16.22
150,001 - 200,000........... 72 12,629,154.50 11.31
200,001 - 250,000........... 56 12,524,630.92 11.21
250,001 - 300,000........... 43 11,890,082.42 10.64
300,001 - 350,000........... 21 6,810,401.28 6.10
350,001 or greater.......... 46 23,883,477.12 21.38
--- --------------- --------
TOTAL.................... 925 $111,708,544.61 100.00%*
=== =============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL I
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
1-4 Family........ 729 $ 98,244,437.58 87.95%
CO-OP............. 32 2,276,337.00 2.04
Condominium....... 129 10,097,704.57 9.04
MF Double Wide.... 4 114,314.25 0.10
MF Single Wide.... 27 509,340.89 0.46
Mobile Home Park.. 1 25,483.60 0.02
Multi-Family...... 3 440,926.72 0.39
--- --------------- --------
TOTAL........... 925 $111,708,544.61 100.00%*
=== =============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-37
<PAGE>
POOL I
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Non-Owner Occupied.. 46 $ 6,251,987.69 5.60%
Other............... 10 527,572.31 0.47
Owner-Occupied...... 823 102,148,792.21 91.44
Second Home......... 5 198,731.02 0.18
Unknown............. 41 2,581,461.38 2.31
--- --------------- --------
TOTAL............ 925 $111,708,544.61 100.00%*
=== =============== ========
</TABLE>
- ---------------
* Percentages may not add to 100% due to rounding.
POOL I
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Home Improvement....... 12 $ 501,690.15 0.45%
Purchase............... 450 41,873,456.20 37.48
Refinance.............. 291 47,727,342.85 42.72
Relocation............. 120 18,895,638.24 16.92
Unknown................ 52 2,710,417.17 2.43
--- --------------- --------
TOTAL............... 925 $111,708,544.61 100.00%*
=== =============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL I
DISTRIBUTION OF SEASONING
<TABLE>
<CAPTION>
MONTHS NUMBER OF AGGREGATE % OF AGGREGATE
OF SEASONING MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
0.............. 4 $ 360,241.12 0.32%
1 - 12......... 56 11,689,885.74 10.46
13 - 24......... 181 27,873,509.42 24.95
25 - 36......... 111 18,368,346.80 16.44
37 - 48......... 66 8,813,037.65 7.89
49 - 60......... 63 8,685,288.64 7.77
61 - 84......... 136 14,748,950.70 13.20
85 - 120........ 213 17,188,473.34 15.39
121 or greater.. 95 3,980,811.20 3.56
--- --------------- --------
TOTAL........ 925 $111,708,544.61 100.00%*
=== =============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-38
<PAGE>
POOL II
The Mortgage Loans in Pool II consist of 799 loans under which the related
Mortgaged Properties are located in 25 states and the District of Columbia, as
set forth herein. The Mortgage Loans in Pool II have an aggregate principal
balance of $90,635,697.98, the minimum principal balance of any of such Mortgage
Loans is $10,012.26; the maximum principal balance thereof is $706,044.39 and
the average principal balance of such Mortgage Loans is approximately
$113,436.42. The current Mortgage Rates of the Mortgage Loans in Pool II range
from 2.000% to 12.250%, and the weighted average current Mortgage Rate is 7.523%
and the weighted average margin is 2.386%. Certain of the principal balance,
$1,521,052.88, is Arrearage (as defined herein) and does not accrue interest.
The Mortgage Loans in Pool II have remaining terms to stated maturity from
10 months to 426 months, a weighted average remaining term to stated maturity of
288 months and a weighted average seasoning of 100 months. No Mortgage Loan in
Pool II has a stated maturity later than June 10, 2032. 95.42% of the Mortgage
Loans in Pool II by aggregate principal balance require monthly payments of
principal that will fully amortize such Mortgage Loans by their respective
maturity dates. 4.58% of the Mortgage Loans have no information regarding a
Balloon Payment, but the Mortgage Loans appear to require monthly payments of
principal that will fully amortize such Mortgage Loans.
The weighted average amortized LTV (as defined herein) of the Mortgage
Loans included in Pool II is 75.97%.
92.02% of the Mortgage Loans in Pool II are indexed on 11th District COFI;
6.31% are indexed on the National Average Contract Rate; 1.32% are indexed on
FHLBB. Less than 0.36% have indices other than 11th District COFI, National
Average Contract Rate and FHLBB.
66.54% of the Mortgage Loans in Pool II have monthly interest rate and
annual payment adjustment frequencies. 7.09% of the Mortgage Loans in Pool II
have annual interest rate and annual payment adjustment frequencies. 19.45% of
the Mortgage Loans in Pool II have semi-annual interest rate and semi-annual
payment adjustment frequencies. 6.04% of the loans in Pool II have three-year
interest rate and three-year payment adjustment frequencies. The Mortgage Loans
in Pool II have a weighted average margin of 2.386%. The margins for the
Mortgage Loans in Pool II range from -1.860% to 5.000%. 11.37% of the Mortgage
Loans in Pool II have a periodic rate adjustment cap of 1.00%; 6.27% of the
Mortgage Loans have a periodic rate adjustment cap of 1.50%; 2.18% of the
Mortgage Loans have a periodic rate adjustment cap of 2.00%; 79.79% of the
Mortgage Loans have no periodic rate adjustment cap. The weighted average
number of months until the next reset date is approximately 2 months. The
weighted average maximum stated Mortgage Rate is 14.266%, with maximum stated
Mortgage Rates that range from 10.875% to 19.750%. The weighted average minimum
stated Mortgage Rate is 6.507%, with minimum stated Mortgage Rates that range
from 0.879% to 12.250%.
21.86% of the Mortgage Loans in Pool II by aggregate principal balance are
in Chapter 13 bankruptcy. 4.51% of the Mortgage Loans in Pool II have been
modified.
The following tables describe the Pool II Mortgage Loans and the related
Mortgaged Properties as of the Cut-Off Date.
S-39
<PAGE>
POOL II
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Arizona............... 20 $ 1,470,115.55 1.62%
California............ 359 57,085,582.83 62.98
Colorado.............. 3 349,494.97 0.39
Connecticut........... 2 212,941.31 0.23
District of Columbia.. 2 364,333.06 0.40
Florida............... 224 11,762,060.20 12.98
Georgia............... 15 1,181,351.36 1.30
Hawaii................ 1 345,490.57 0.38
Illinois.............. 25 1,863,584.18 2.06
Indiana............... 1 30,426.45 0.03
Louisiana............. 1 183,987.40 0.20
Maine................. 1 60,205.93 0.07
Maryland.............. 6 989,401.93 1.09
Massachusetts......... 5 855,175.20 0.94
Minnesota............. 9 1,096,960.81 1.21
Missouri.............. 18 1,225,288.81 1.35
Nevada................ 2 498,860.27 0.55
New Jersey............ 3 573,569.63 0.63
New York.............. 24 4,314,056.62 4.76
North Carolina........ 7 308,999.64 0.34
Ohio.................. 19 1,098,553.38 1.21
Oregon................ 4 180,708.59 0.20
Tennessee............. 14 1,132,373.94 1.25
Texas................. 20 1,613,712.12 1.78
Virginia.............. 7 1,186,880.90 1.31
Washington............ 7 651,582.33 0.72
--- -------------- --------
TOTAL.............. 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-40
<PAGE>
POOL II
DISTRIBUTION OF AMORTIZED LTVS**
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
AMORTIZED LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
100.01% or greater.... 81 $13,439,538.09 14.83%
95.01 - 100.00....... 20 3,293,685.06 3.63
90.01 - 95.00......... 42 6,694,694.42 7.39
85.01 - 90.00......... 38 4,563,769.40 5.04
80.01 - 85.00......... 51 6,765,953.58 7.46
75.01 - 80.00......... 60 5,376,021.14 5.93
70.01 - 75.00......... 84 9,772,839.17 10.78
65.01 - 70.00......... 94 11,130,556.15 12.28
60.01 - 65.00......... 71 6,522,941.35 7.20
55.01 - 60.00......... 61 6,831,950.85 7.54
50.01 - 55.00......... 55 5,675,418.87 6.26
00.01 - 50.00......... 142 10,568,329.90 11.66
--- -------------- --------
TOTAL.............. 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
** The amortized LTV of a Mortgage Loan is based on the Aggregate Principal
Balance as of the Cut-Off Date and an opinion of value, where available,
that was received subsequent to the origination of the Mortgage Loan, and
in most cases, in conjunction with the Sellers acquisition of the Mortgage
Loan. Approximately 70% of such opinions of value were received in 1996.
POOL II
DISTRIBUTION OF CURRENT DELINQUENCY
<TABLE>
<CAPTION>
CURRENT NUMBER OF AGGREGATE % OF AGGREGATE
DELINQUENCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Current............. 703 $80,218,953.21 88.51%
30 - 59 days........ 72 8,033,979.68 8.86
60 - 89 days........ 24 2,382,765.09 2.63
--- -------------- --------
TOTAL............ 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-41
<PAGE>
POOL II
DISTRIBUTION OF CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
CURRENT MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
6.00% or less........... 5 $ 736,720.84 0.81%
6.01 - 7.00........... 101 9,246,267.00 10.20
7.01 - 8.00........... 610 70,604,895.77 77.90
8.01 - 9.00........... 28 2,685,273.02 2.96
9.01 - 10.00............ 34 3,375,240.62 3.72
10.01 - 11.00........... 17 2,085,344.56 2.30
11.01 - 12.00........... 3 284,370.67 0.31
12.01 - 13.00........... 1 96,532.62 0.11
Non-Accrual**........... N/A 1,521,052.88 1.68
--- -------------- --------
TOTAL................ 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
** Certain of the principal balance is Arrearage and does not accrue interest.
POOL II
STATED REMAINING TERM TO MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MONTHS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
60 or less...... 6 $ 707,635.30 0.78%
61 - 120........ 15 1,755,929.61 1.94
121 - 180....... 130 5,611,844.29 6.19
181 - 240....... 95 7,346,125.01 8.11
241 - 300....... 357 46,957,411.22 51.81
301 - 360....... 34 4,241,727.87 4.68
361 - 420....... 161 23,816,243.10 26.28
421 or greater.. 1 198,781.58 0.22
--- -------------- --------
TOTAL........ 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-42
<PAGE>
POOL II
DISTRIBUTION OF CURRENT PRINCIPAL BALANCES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
CURRENT PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
$ 1 - 50,000......... 217 $ 7,393,562.45 8.16%
50,001 - 100,000........... 223 16,269,257.22 17.95
100,001 - 150,000........... 152 18,566,716.58 20.48
150,001 - 200,000........... 92 15,988,783.45 17.64
200,001 - 250,000........... 55 12,147,242.52 13.40
250,001 - 300,000........... 35 9,446,305.15 10.42
300,001 - 350,000........... 11 3,542,521.30 3.91
350,001 or greater.......... 14 7,281,309.31 8.03
--- -------------- --------
TOTAL.................... 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL II
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
1-4 Family..... 680 $82,685,177.29 91.23%
Condominium.... 118 7,828,774.44 8.64
Multi-Family... 1 121,746.25 0.13
--- -------------- --------
TOTAL....... 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-43
<PAGE>
POOL II
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Non-Owner Occupied.. 111 $ 6,697,630.52 7.39%
Other............... 36 6,161,346.83 6.80
Owner Occupied...... 619 73,633,097.01 81.24
Second Home......... 6 652,115.21 0.72
Unknown............. 27 3,491,508.41 3.85
--- -------------- --------
TOTAL............ 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL II
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Home Improvement....... 39 $ 5,016,346.31 5.53%
Purchase............... 458 56,165,381.08 61.97
Refinance.............. 143 21,664,748.75 23.90
Unknown................ 159 7,789,221.84 8.59
--- -------------- --------
TOTAL............... 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL II
DISTRIBUTION OF SEASONING
<TABLE>
<CAPTION>
MONTHS NUMBER OF AGGREGATE % OF AGGREGATE
SEASONING MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Not Given....... 13 $ 1,065,846.83 1.18%
1 - 12......... 3 364,749.10 0.40
13 - 24......... 2 518,886.63 0.57
25 - 36......... 5 1,129,066.98 1.25
37 - 48......... 3 440,330.60 0.49
49 - 60......... 9 1,852,870.32 2.04
61 - 84......... 164 26,748,299.24 29.51
85 - 120........ 360 44,122,992.62 48.68
121 or greater.. 240 14,392,655.66 15.88
--- -------------- --------
TOTAL........ 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-44
<PAGE>
POOL II
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MAXIMUM MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
No stated maximum rate.. 37 $ 2,286,400.34 2.52%
10.00+ to 11.00%........ 3 982,458.39 1.08
11.00+ to 12.00......... 5 928,640.93 1.02
12.00+ to 13.00......... 65 8,611,951.83 9.50
13.00+ to 14.00......... 300 41,299,888.50 45.57
14.00+ to 15.00......... 172 21,661,178.51 23.90
15.00+ to 16.00......... 59 5,510,334.40 6.08
16.00+ to 17.00......... 101 6,720,780.49 7.42
17.00+ to 18.00......... 40 1,964,419.51 2.17
18.00+ to 19.00......... 11 406,507.62 0.45
19.00+ or greater....... 6 263,137.46 0.29
--- -------------- --------
TOTAL................ 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL II
DISTRIBUTION OF MINIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MINIMUM MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
No stated minimum rate.. 174 $23,486,256.12 25.91%
4.00% or less........... 33 4,059,681.84 4.48
4.00+ to 5.00........... 20 1,876,418.28 2.07
5.00+ to 6.00........... 205 21,440,888.12 23.66
6.00+ to 7.00........... 247 29,087,107.90 32.09
7.00+ to 8.00........... 52 3,755,960.50 4.14
8.00+ to 9.00........... 19 1,448,472.28 1.60
9.00+ to 10.00.......... 28 2,902,077.19 3.20
10.00+ to 11.00......... 17 2,197,932.46 2.43
11.00+ to 12.00......... 3 284,370.67 0.31
12.00+ or greater....... 1 96,532.62 0.11
--- -------------- --------
TOTAL................ 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-45
<PAGE>
POOL II
DISTRIBUTION OF MARGINS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MARGINS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Negative........ 96 $ 4,409,895.54 4.87%
0.000%.......... 11 425,153.40 0.47
0.001 to 1.000.. 40 1,637,324.33 1.81
1.001 to 2.000.. 57 5,489,473.08 6.06
2.001 to 3.000.. 531 70,484,392.67 77.77
3.001 to 4.000.. 48 6,240,273.51 6.89
4.001 to 5.000.. 16 1,949,185.45 2.15
--- -------------- --------
TOTAL........ 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL II
DISTRIBUTION OF RATE CHANGE FREQUENCY
<TABLE>
<CAPTION>
RATE CHANGE NUMBER OF AGGREGATE % OF AGGREGATE
FREQUENCY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
1 Month...... 483 $61,089,276.83 67.40%
1 Year....... 68 6,370,303.42 7.03
2.5 Year..... 1 41,851.98 0.05
3 Month...... 1 24,809.59 0.03
3 Year....... 129 5,477,122.35 6.04
6 Month...... 117 17,632,333.81 19.45
--- -------------- --------
TOTAL..... 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL II
DISTRIBUTION OF PAYMENT CHANGE FREQUENCY
<TABLE>
<CAPTION>
PAYMENT CHANGE NUMBER OF AGGREGATE % OF AGGREGATE
FREQUENCY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
1 Month......... 6 $ 782,596.33 0.86%
1 Year.......... 546 66,701,793.51 73.59
2.5 Year........ 1 41,851.98 0.05
3 Year.......... 129 5,477,122.35 6.04
6 Month......... 117 17,632,333.81 19.45
--- -------------- --------
TOTAL........ 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-46
<PAGE>
POOL II
NEGATIVE AMORTIZATION LIMIT DISTRIBUTION
<TABLE>
<CAPTION>
NEGATIVE NUMBER OF AGGREGATE % OF AGGREGATE
AMORTIZATION LIMIT MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
No negative amortization.. 318 $29,900,395.18 32.99%
110.000%.................. 3 868,287.20 0.96
115.000................... 1 116,807.56 0.13
125.000................... 31 4,285,243.38 4.73
127.000................... 1 114,781.49 0.13
150.000................... 13 1,427,742.63 1.58
Unlimited................. 432 53,922,440.54 59.49
--- -------------- --------
TOTAL.................. 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL II
PERIODIC RATE CAP DISTRIBUTION
<TABLE>
<CAPTION>
PERIODIC NUMBER OF AGGREGATE % OF AGGREGATE
RATE CAP MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------- -------------- ----------------- ------------------
<S> <C> <C> <C>
0.0000%... 588 $72,319,787.42 79.79%
0.7500.... 1 103,823.89 0.11
1.0000.... 61 10,302,108.53 11.37
1.5000.... 130 5,685,311.05 6.27
1.7500.... 1 88,597.48 0.10
2.0000.... 16 1,974,588.34 2.18
2.5000.... 1 41,851.98 0.05
5.0000.... 1 119,629.29 0.13
--- -------------- --------
TOTAL... 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL II
PERIODIC PAYMENT CAP DISTRIBUTION
<TABLE>
<CAPTION>
PERIODIC NUMBER OF AGGREGATE % OF AGGREGATE
PAYMENT CAP MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
0.0000%...... 441 $51,773,844.64 57.12%
2.0000....... 1 64,005.60 0.07
7.5000....... 334 37,606,032.40 41.49
10.0000...... 23 1,191,815.34 1.32
--- -------------- --------
TOTAL..... 799 $90,635,697.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-47
<PAGE>
Pool III
The Mortgage Loans in Pool III consist of 387 loans under which the related
Mortgaged Properties are located in 30 states and the District of Columbia, as
set forth herein. The Mortgage Loans in Pool III have an aggregate principal
balance of $56,843,117.92, the minimum principal balance of any of such Mortgage
Loan is $203.77, the maximum principal balance thereof is $2,268,850.57 and the
average principal balance of such Mortgage Loans is approximately $146,881.44.
The current Mortgage Rates on the Mortgage Loans in Pool III range from 4.000%
to 12.250%, and the weighted average current Mortgage Rate is 8.385% and the
weighted average margin is 2.947%. Certain of the principal balance,
$464,225.35, is Arrearage (as defined herein) and does not accrue interest.
The Mortgage Loans in Pool III have remaining terms to stated maturity from
20 months to 349 months, a weighted average remaining term to stated maturity of
296 months and a weighted average seasoning of 60 months. No Mortgage Loan in
Pool III has a stated maturity later than January 1, 2026. 99.07% of the
Mortgage Loans in Pool III by aggregate principal balance require monthly
payments of principal that will fully amortize such Mortgage Loans by their
respective maturity dates. 0.04% of the Mortgage Loans in Pool III by aggregate
principal balance are Balloon Loans. 0.90% of the Mortgage Loans have no
information regarding a Balloon Payment, but the Mortgage Loans appear to
require monthly payments of principal that will fully amortize such Mortgage
Loans.
The weighted average amortized LTV (as defined herein) of the Mortgage Loans
included in Pool III is 81.12%.
91.28% of the Mortgage Loans in Pool III are indexed on the weekly average of
the one-year constant maturity treasury; 0.82% are indexed on the monthly
average of the one-year constant maturity treasury; 3.86% are indexed on the
weekly average of the three-year constant maturity treasury; 0.64% are indexed
on the monthly average of the three-year constant maturity treasury; 1.82% are
indexed on the auction average of the six-month treasury. Less than 1.58% have
indices other than the one-year constant maturity treasury; the three-year
constant maturity treasury, and the auction average of the six-month treasury.
92.06% of the Mortgage Loans in Pool III have annual interest rate and annual
payment adjustment frequencies. 3.91% of the Mortgage Loans in Pool III have
three-year interest rate and three-year payment adjustment frequencies. 2.35%
of the Mortgage Loans in Pool III have semi-annual interest and semi-annual
payment adjustment frequencies. The Mortgage Loans in Pool III have a weighted
average margin of 2.947%. The margins for the Mortgage Loans in Pool III range
from 0.400% to 6.500%. 2.81% of the Mortgage Loans have a periodic rate
adjustment cap of 1.00%; 0.11% of the Mortgage Loans have a periodic rate
adjustment cap of 1.50%; 90.98% of the Mortgage Loans have a periodic rate
adjustment cap of 2.00%; 5.36% of the Mortgage Loans have no periodic rate
adjustment cap. The weighted average number of months until the next reset date
is approximately 9 months. The weighted average maximum stated Mortgage Rate
was 13.446%, with maximum stated Mortgage Rates that range from 3.250% to
26.260%. The weighted average minimum stated Mortgage Rate was 5.896%, with
minimum stated Mortgage Rates that range from 1.375% to 18.500%.
6.19% of the Mortgage Loans in Pool III by aggregate principal balances are
in Chapter 13 bankruptcy. 2.40% of the Mortgage Loans in Pool III have been
modified.
S-48
<PAGE>
The following tables describe the Pool III Mortgage Loans and the related
Mortgaged Properties as of the Cut-Off Date.
POOL III
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Alabama............... 2 $ 325,089.27 0.57%
Arizona............... 5 322,089.02 0.57
California............ 79 18,360,890.18 32.30
Colorado.............. 6 601,831.75 1.06
Connecticut........... 18 2,663,594.25 4.69
Delaware.............. 2 304,029.56 0.53
District of Columbia.. 2 751,146.50 1.32
Florida............... 46 2,338,701.36 4.11
Georgia............... 6 505,947.71 0.89
Hawaii................ 4 2,461,377.41 4.33
Idaho................. 1 276,069.40 0.49
Indiana............... 1 93,393.14 0.16
Kansas................ 1 84,563.17 0.15
Louisiana............. 9 662,173.47 1.16
Maine................. 1 73,871.55 0.13
Maryland.............. 5 1,192,260.19 2.10
Massachusetts......... 42 6,197,019.69 10.90
Michigan.............. 6 852,726.99 1.50
Minnesota............. 1 212,163.32 0.37
Mississippi........... 1 95,915.31 0.17
Missouri.............. 2 252,455.55 0.44
Nevada................ 5 1,006,844.98 1.77
New Jersey............ 56 6,686,676.29 11.76
New Mexico............ 4 264,577.34 0.47
New York.............. 36 4,504,249.65 7.92
North Carolina........ 3 445,758.53 0.78
Ohio.................. 1 223,481.63 0.39
Oklahoma.............. 2 215,134.25 0.38
Oregon................ 2 372,662.36 0.66
Pennsylvania.......... 8 797,501.00 1.40
Rhode Island.......... 1 132,075.74 0.23
South Carolina........ 2 290,487.15 0.51
Texas................. 16 1,857,978.20 3.27
Vermont............... 2 283,614.21 0.50
Virginia.............. 5 542,917.35 0.96
Washington............ 4 591,850.45 1.04
--- -------------- --------
TOTAL.............. 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ----------------------
* Percentages may not add to 100% due to rounding.
S-49
<PAGE>
POOL III
DISTRIBUTION OF AMORTIZED LTVS**
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
AMORTIZED LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Unavailable........... 1 $ 12,400.32 0.02%
100.01% or greater.... 45 7,100,755.75 12.49
95.01 - 100......... 23 4,399,966.77 7.74
90.01 - 95.00....... 21 2,965,806.29 5.22
85.01 - 90.00....... 32 5,981,309.34 10.52
80.01 - 85.00....... 34 6,553,804.40 11.53
75.01 - 80.00....... 37 8,373,349.17 14.73
70.01 - 75.00....... 43 7,743,842.15 13.62
65.01 - 70.00....... 35 2,712,082.75 4.77
60.01 - 65.00....... 25 2,468,418.37 4.34
55.01 - 60.00....... 24 2,160,698.96 3.80
50.01 - 55.00....... 15 1,545,178.22 2.72
00.01 - 50.00....... 52 4,825,505.43 8.49
--- -------------- --------
TOTAL.............. 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
** The amortized LTV of a Mortgage Loan is based on the Aggregate Principal
Balance as of the Cut-Off Date and an opinion of value, where available, that
was received subsequent to the origination of the Mortgage Loan, and in most
cases, in conjunction with the Sellers acquisition of the Mortgage Loan.
Approximately 74% of such opinions of value were received in 1996.
POOL III
DISTRIBUTION OF CURRENT DELINQUENCY
<TABLE>
<CAPTION>
CURRENT DELINQUENCY NUMBER OF AGGREGATE % OF AGGREGATE
STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Current.............. 303 $46,315,992.16 81.48%
30 - 59 Days......... 65 7,439,218.31 13.09
60 - 89 Days......... 19 3,087,907.45 5.43
--- -------------- --------
TOTAL............. 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-50
<PAGE>
POOL III
DISTRIBUTION OF CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF CURRENT NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
6.00% or less..... 3 $ 363,056.88 0.64%
6.01 - 7.00...... 14 1,811,370.20 3.19
7.01 - 8.00....... 81 13,083,017.74 23.02
8.01 - 9.00....... 232 36,757,221.70 64.66
9.01 - 10.00...... 35 3,439,806.93 6.05
10.01 - 11.00..... 16 804,784.04 1.42
11.01 - 12.00..... 5 107,234.76 0.19
12.01 - 13.00..... 1 12,400.32 0.02
Non Accrual**..... N/A 464,225.35 0.82
--- -------------- --------
TOTAL.......... 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------
* Percentages may not add to 100% due to rounding.
** Certain of the principal balance is Arrearage and does not accrue interest.
POOL III
STATED REMAINING TERM TO MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MONTHS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
60 or less.. 5 $ 84,279.46 0.15%
61 - 120.... 14 431,272.67 0.76
121 - 180.... 18 550,218.03 0.97
181 - 240.... 66 5,435,267.22 9.56
241 - 300.... 167 18,978,165.09 33.39
301 - 360.... 117 31,363,915.45 55.18
--- -------------- --------
TOTAL..... 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-51
<PAGE>
POOL III
DISTRIBUTION OF CURRENT PRINCIPAL BALANCES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
CURRENT PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
$ 1 - 50,000........ 79 $ 2,366,923.89 4.16%
50,001 - 100,000........... 118 8,808,139.48 15.50
100,001 - 150,000........... 83 9,927,373.16 17.46
150,001 - 200,000........... 36 6,239,016.80 10.98
200,001 - 250,000........... 17 3,778,134.64 6.65
250,001 - 300,000........... 21 5,621,166.11 9.89
300,001 - 350,000........... 7 2,231,825.08 3.93
350,001 or greater.......... 26 17,870,538.76 31.44
--- -------------- --------
TOTAL.................... 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL III
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
1-4 Family...... 341 $51,863,988.56 91.24%
CO-OP........... 1 59,693.55 0.11
Condominium..... 38 4,755,154.15 8.37
MF Double Wide.. 2 53,658.37 0.09
MF Single Wide.. 5 110,623.29 0.19
--- -------------- --------
TOTAL........ 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-52
<PAGE>
POOL III
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Non-Owner Occupied.. 33 $ 3,210,505.08 5.65%
Other............... 22 1,782,537.85 3.14
Owner-Occupied...... 300 47,373,264.09 83.34
Second Home......... 2 168,951.93 0.30
Unknown............. 30 4,307,858.97 7.58
--- -------------- --------
TOTAL............ 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL III
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Home Improvement....... 2 $ 169,075.40 0.30%
Purchase............... 226 28,664,119.65 50.43
Refinance.............. 105 20,879,868.93 36.73
Relocation............. 29 3,837,622.86 6.75
Unknown................ 25 3,292,431.08 5.79
--- -------------- --------
TOTAL............... 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-53
<PAGE>
POOL III
DISTRIBUTION OF SEASONING
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MONTHS SEASONING MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
0 4 $ 281,457.20 0.50%
1 - 12.......... 5 612,853.81 1.08
13 - 24.......... 54 15,961,649.46 28.08
25 - 36.......... 42 13,129,211.13 23.10
37 - 48.......... 17 1,778,533.18 3.13
49 - 60.......... 4 308,486.23 0.54
61 - 84.......... 23 3,111,935.07 5.47
85 - 120......... 170 16,966,992.77 29.85
121 or greater.... 68 4,691,999.07 8.25
--- -------------- --------
TOTAL.......... 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL III
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MAXIMUM MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
No stated maximum rate.. 72 $ 6,219,820.34 10.94%
10.00% or less.......... 9 904,392.55 1.59
10.00 + - 11.00......... 18 2,441,765.44 4.30
11.00 + - 12.00......... 30 6,201,516.63 10.91
12.00 + - 13.00......... 29 8,935,019.79 15.72
13.00 + - 14.00......... 87 18,410,739.85 32.39
14.00 + - 15.00......... 63 8,425,678.19 14.82
15.00 + - 16.00......... 30 2,319,055.63 4.08
16.00 + - 17.00......... 33 2,204,833.56 3.88
17.00 + - 18.00......... 9 466,844.06 0.82
18.00 + - 19.00......... 4 78,537.32 0.14
19.00 + or greater...... 3 234,914.56 0.41
--- -------------- --------
TOTAL................ 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-54
<PAGE>
POOL III
DISTRIBUTION OF MINIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MINIMUM MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
No stated minimum rate.. 287 $47,356,496.44 83.31%
4.00% or less.......... 27 3,657,723.44 6.43
4.00 + - 5.00......... 10 1,019,132.31 1.79
5.00 + - 6.00......... 5 288,618.74 0.51
6.00 + - 7.00......... 12 1,361,307.38 2.39
7.00 + - 8.00......... 13 1,386,437.07 2.44
8.00 + - 9.00......... 5 564,230.18 0.99
9.00 + - 10.00......... 9 471,903.43 0.83
10.00 + - 11.00......... 9 294,921.59 0.52
11.00 + - 12.00......... 5 107,234.76 0.19
12.00 + or greater...... 5 335,112.58 0.59
--- -------------- --------
TOTAL................ 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL III
DISTRIBUTION OF MARGINS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MARGINS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
0.001 to 1.000%... 3 $ 167,866.80 0.30%
1.001 to 2.000.... 23 1,126,754.38 1.98
2.001 to 3.000.... 279 42,136,923.64 74.13
3.001 to 4.000.... 76 13,055,087.73 22.97
4.001 to 5.000.... 3 249,374.04 0.44
5.001 or greater.. 3 107,111.33 0.19
--- -------------- --------
TOTAL.......... 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-55
<PAGE>
POOL III
RATE CHANGE FREQUENCY DISTRIBUTION
<TABLE>
<CAPTION>
RATE CHANGE NUMBER OF AGGREGATE % OF AGGREGATE
FREQUENCY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
1 Month...... 3 $ 213,966.63 0.38%
1 Year....... 323 52,328,260.02 92.06
2 Year....... 1 155,005.37 0.27
3 Month...... 1 205,630.19 0.36
3 Year....... 37 2,221,809.92 3.91
5 Year....... 9 257,624.74 0.45
6 Month...... 13 1,460,821.05 2.57
--- -------------- --------
TOTAL..... 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL III
PAYMENT CHANGE FREQUENCY DISTRIBUTION
<TABLE>
<CAPTION>
PAYMENT CHANGE NUMBER OF AGGREGATE % OF AGGREGATE
FREQUENCY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------- -------------- ----------------- ------------------
<S> <C> <C> <C>
1 Year......... 327 $52,747,856.84 92.80%
10 Year......... 1 75,769.24 0.13
2 Year......... 1 155,005.37 0.27
3 Year......... 38 2,300,820.29 4.05
5 Year......... 9 226,091.86 0.40
6 Month........ 11 1,337,574.32 2.35
--- -------------- --------
TOTAL........ 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-56
<PAGE>
POOL III
NEGATIVE AMORTIZATION LIMIT DISTRIBUTION
<TABLE>
<CAPTION>
NEGATIVE NUMBER OF AGGREGATE % OF AGGREGATE
AMORTIZATION LIMIT MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
No negative amortization.. 378 $56,053,069.70 98.61%
110.0000%................. 1 99,885.50 0.18
125.0000.................. 4 400,426.85 0.70
Unlimited................. 4 289,735.87 0.51
--- -------------- --------
TOTAL.................. 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL III
PERIODIC RATE CAP DISTRIBUTION
<TABLE>
<CAPTION>
PERIODIC NUMBER OF AGGREGATE % OF AGGREGATE
RATE CAP MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------- -------------- ----------------- ------------------
<S> <C> <C> <C>
0.0000%... 46 $ 3,048,317.69 5.36%
1.0000.... 13 1,597,739.32 2.81
1.5000.... 1 62,886.43 0.11
2.0000.... 323 51,718,421.27 90.98
2.5000.... 1 107,558.98 0.19
3.0000.... 1 104,247.37 0.18
5.0000.... 2 203,946.86 0.36
--- -------------- --------
TOTAL... 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL III
PERIODIC PAYMENT CAP DISTRIBUTION
<TABLE>
<CAPTION>
PERIODIC NUMBER OF AGGREGATE % OF AGGREGATE
PAYMENT CAP MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
0.0000%...... 384 $56,466,052.30 99.34%
7.5000....... 3 377,065.62 0.66
--- -------------- --------
TOTAL..... 387 $56,843,117.92 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-57
<PAGE>
POOL IV
The Mortgage Loans in Pool IV consist of 147 loans under which the related
Mortgaged Properties are located in 28 states, as set forth herein. The
Mortgage Loans in Pool IV have an aggregate principal balance of $19,098,571.98,
the minimum principal balance of any of such Mortgage Loan is $10,989.39, the
maximum principal balance thereof is $1,365,468.38 and the average principal
balance of such Mortgage Loans is approximately $129,922.26. The current
Mortgage Rates on the Mortgage Loans in Group IV range from 7.250% to 21.000%,
and the weighted average current Mortgage Rate is 9.679% and the weighted
average margin was 3.743%. Certain of the principal balance, $27,374.65, is
Arrearage (as defined herein) and does not accrue interest.
The Mortgage Loans in Pool IV have remaining terms to stated maturity from
12 months to 358 months, a weighted average remaining term to stated maturity of
310 months and a weighted average seasoning of 41 months. No Mortgage Loan in
Pool IV has a stated maturity later than October 1, 2026. 96.40% of the
Mortgage Loans in Pool IV by aggregate principal balance require monthly
payments of principal that will fully amortize such Mortgage Loans by their
respective maturity dates. 2.46% of the Mortgage Loans in Pool IV by aggregate
principal balance are Balloon Loans. 1.14% of the Mortgage Loans have no
information regarding a Balloon Payment, but the Mortgage Loans appear to
require monthly payments of principal that will fully amortize such Mortgage
Loans.
The weighted average amortized LTV (as defined herein) of the Mortgage
Loans included in Pool IV is 74.90%.
79.85% of the Mortgage Loans in Pool IV are indexed on six-month LIBOR
rate; 0.50% are indexed on one-month LIBOR; 16.59% are indexed on Prime Rate;
3.06% are indexed on the six-month CD rate from the secondary market.
82.09% of the Mortgage Loans in Pool IV have semi-annual interest rate and
semi-annual payment adjustment frequencies. 6.68% of the Mortgage Loans in Pool
IV have monthly interest rate and monthly payment adjustment frequencies. 4.18%
of the Mortgage Loans in Pool IV have monthly interest rate and annual payment
adjustment frequencies. 2.80% of the Mortgage Loans in Pool IV have annual
interest rate and annual payment adjustment frequencies. 1.98% of the Mortgage
Loans in Pool IV have daily interest rate and monthly payment adjustment
frequencies. The Mortgage Loans in Pool IV have a weighted average margin of
3.743%. The margins for the Mortgage Loans in Pool IV range from -5.995% to
15.000%. 49.02% of the Mortgage Loans in Pool IV have a periodic rate
adjustment cap of 1.00%; 11.23% of the Mortgage Loans have a periodic rate
adjustment cap of 1.25%; 3.16% of the Mortgage Loans have a periodic rate
adjustment cap of 1.50%; 6.56% of the Mortgage Loans have a periodic rate
adjustment cap of 2.00%; 30.03% of the Mortgage Loans have no periodic rate
adjustment cap. The weighted average number of months until the next reset date
is approximately 3 months. The weighted average maximum stated Mortgage Rate
was 14.770%, with maximum stated Mortgage Rates that range from 9.250% to
55.000%. The weighted average minimum stated Mortgage Rate was 8.087%, with
minimum stated Mortgage Rates that range from 4.400% to 21.000%.
3.16% of the Mortgage Loans in Pool IV by aggregate principal balance are
in Chapter 13 bankruptcy. 10.87% of the Mortgage Loans in Pool IV have been
modified.
S-58
<PAGE>
The following tables describe the Pool IV Mortgage Loans and the related
Mortgaged Properties as of the Cut-Off Date.
POOL IV
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Alabama......... 1 $ 85,084.12 0.45%
Arizona......... 1 70,461.20 0.37
California...... 61 10,826,181.22 56.69
Colorado........ 1 218,425.81 1.14
Connecticut..... 10 759,065.27 3.97
Delaware........ 1 56,327.66 0.29
Florida......... 3 163,063.50 0.85
Georgia......... 4 353,214.35 1.85
Hawaii.......... 2 1,438,292.01 7.53
Idaho........... 2 302,466.79 1.58
Kentucky........ 1 49,084.83 0.26
Louisiana....... 1 23,243.93 0.12
Maryland........ 1 36,637.03 0.19
Massachusetts... 14 1,197,713.59 6.27
Mississippi..... 1 44,205.93 0.23
Missouri........ 1 33,462.26 0.18
Nevada.......... 1 506,242.65 2.65
New Hampshire... 2 147,628.80 0.77
New Jersey...... 2 114,024.11 0.60
New York........ 8 746,955.99 3.91
North Carolina.. 1 17,404.95 0.09
Oklahoma........ 1 25,463.24 0.13
Oregon.......... 10 646,932.10 3.39
Rhode Island.... 6 409,216.97 2.14
Texas........... 6 356,469.63 1.87
Utah............ 1 195,103.22 1.02
Virginia........ 1 57,362.04 0.30
Washington...... 3 218,838.78 1.15
--- -------------- --------
TOTAL........ 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-59
<PAGE>
POOL IV
DISTRIBUTION OF AMORTIZED LTVS**
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
AMORTIZED LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
100.01% or greater.... 11 $ 1,447,073.91 7.58%
95.01 - 100.00....... 4 434,606.66 2.28
90.01 - 95.00....... 6 613,073.26 3.21
85.01 - 90.00....... 10 1,347,434.08 7.06
80.01 - 85.00....... 12 2,063,794.50 10.81
75.01 - 80.00....... 20 2,813,424.87 14.73
70.01 - 75.00....... 18 2,032,413.05 10.64
65.01 - 70.00....... 15 1,902,596.96 9.96
60.01 - 65.00....... 14 2,722,630.95 14.26
55.01 - 60.00....... 5 516,523.19 2.70
50.01 - 55.00....... 8 1,272,912.52 6.66
00.01 - 50.00....... 21 1,786,483.22 9.35
Unavailable........... 3 145,604.81 0.76
--- -------------- --------
TOTAL.............. 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
** The amortized LTV of a Mortgage Loan is based on the Aggregate Principal
Balance as of the Cut-Off Date and an opinion of value, where available,
that was received subsequent to the origination of the Mortgage Loan, and
in most cases, in conjunction with the Sellers acquisition of the Mortgage
Loan. Approximately 32% of such opinions of value were received in 1996.
POOL IV
DISTRIBUTION OF CURRENT DELINQUENCY
<TABLE>
<CAPTION>
CURRENT NUMBER OF AGGREGATE % OF AGGREGATE
DELINQUENCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Current............. 119 $16,376,131.98 85.74%
30 - 59 Days........ 23 2,237,590.21 11.72
60 - 89 Days........ 5 484,849.79 2.54
--- -------------- --------
TOTAL............ 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-60
<PAGE>
POOL IV
DISTRIBUTION OF CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF CURRENT NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
7.01 - 8.00%...... 4 $ 506,771.68 2.65%
8.01 - 9.00....... 33 8,232,795.95 43.11
9.01 - 10.00...... 39 4,517,209.57 23.65
10.01 - 11.00..... 32 2,849,220.14 14.92
11.01 - 12.00..... 21 1,855,752.49 9.72
12.01 - 13.00..... 8 674,715.97 3.53
13.01 - 14.00..... 6 296,095.10 1.55
14.01 - 15.00..... 2 46,355.95 0.24
15.01 or greater.. 2 92,280.48 0.48
Non Accrual**..... N/A 27,374.64 0.14
-------------- -------------- --------
TOTAL.......... 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
** Certain of the principal balance is Arrearage and does not accrue interest.
POOL IV
STATED REMAINING TERM TO MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MONTHS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Not Given or 0.. 7 $ 407,589.89 2.13%
60 or less..... 7 339,045.24 1.78
61 - 120....... 10 402,796.65 2.11
121 - 180....... 15 868,760.04 4.55
181 - 240....... 2 158,314.90 0.83
241 - 300....... 15 1,575,424.90 8.25
301 - 360....... 91 15,346,640.36 80.35
--- -------------- --------
TOTAL........ 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-61
<PAGE>
POOL IV
DISTRIBUTION OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
$ 1 - 50,000 34 $ 1,029,743.79 5.39%
50,001 - 100,000... 56 4,152,198.56 21.74
100,001 - 150,000... 21 2,670,450.34 13.98
150,001 - 200,000... 15 2,525,375.74 13.22
200,001 - 250,000... 5 1,106,580.82 5.79
250,001 - 300,000... 3 831,449.94 4.35
300,001 - 350,000... 3 963,450.45 5.04
350,001 or greater.. 10 5,819,322.34 30.47
--- -------------- --------
TOTAL............ 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- -----------------------
* Percentages may not add to 100% due to rounding.
S-62
<PAGE>
POOL IV
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
1-4 Family...... 134 $18,533,641.97 97.04%
Condominium..... 10 437,331.71 2.29
MF Double Wide.. 1 63,558.06 0.33
MF Single Wide.. 2 64,040.24 0.34
--- -------------- --------
TOTAL........ 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL IV
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Non-Owner Occupied.. 7 $ 791,826.14 4.15%
Other............... 9 703,805.18 3.69
Owner-Occupied...... 103 14,780,227.33 77.39
Second Home......... 9 536,435.48 2.81
Unknown............. 19 2,286,277.85 11.97
--- -------------- --------
TOTAL............ 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL IV
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Home Improvement....... 3 $ 316,956.92 1.66%
Purchase............... 76 9,127,613.04 47.79
Refinance.............. 49 8,226,250.86 43.07
Relocation............. 1 163,484.35 0.86
Unknown................ 18 1,264,266.81 6.62
--- -------------- --------
TOTAL............... 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-63
<PAGE>
POOL IV
DISTRIBUTION OF SEASONING
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MONTHS SEASONING MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
0............... 5 $ 343,919.82 1.80%
1 - 12.......... 9 1,528,379.70 8.00
13 - 24.......... 32 5,084,319.08 26.62
25 - 36.......... 46 7,067,495.30 37.01
37 - 48.......... 1 957,439.35 5.01
49 - 60.......... 4 203,683.92 1.07
61 - 84.......... 9 1,170,844.70 6.13
85 - 120......... 31 2,363,149.95 12.37
121 or greater.... 10 379,340.16 1.99
--- -------------- --------
TOTAL.......... 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- -----------------------
* Percentages may not add to 100% due to rounding.
POOL IV
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MAXIMUM MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
No stated maximum rate 26 $ 1,468,895.32 7.69%
10.00% or less.......... 1 26,343.42 0.14
10.00 + - 11.00......... 11 2,361,569.77 12.37
11.00 + - 12.00......... 17 3,692,164.88 19.33
12.00 + - 13.00......... 8 1,486,205.69 7.78
13.00 + - 14.00......... 8 1,773,997.97 9.29
14.00 + - 15.00......... 17 2,865,035.81 15.00
15.00 + - 16.00......... 21 2,384,348.87 12.48
16.00 + - 17.00......... 5 585,101.76 3.06
17.00 + - 18.00......... 8 573,511.89 3.00
18.00 + - 19.00......... 5 310,782.90 1.63
19.00 + or greater...... 20 1,570,613.70 8.22
--- -------------- --------
TOTAL................ 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- -----------------------
* Percentages may not add to 100% due to rounding.
S-64
<PAGE>
POOL IV
DISTRIBUTION OF MINIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MINIMUM MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
No stated minimum rate.. 59 $ 8,924,190.01 46.73%
4.00 + - 5.00%........ 19 2,725,266.18 14.27
5.00 + - 6.00......... 5 341,493.05 1.79
6.00 + - 7.00......... 2 131,538.22 0.69
7.00 + - 8.00......... 14 1,701,530.88 8.91
8.00 + - 9.00......... 8 1,744,196.69 9.13
9.00 + - 10.00......... 16 1,605,860.11 8.41
10.00 + - 11.00......... 4 547,280.06 2.87
11.00 + - 12.00......... 7 519,936.26 2.72
12.00 + or greater...... 13 857,280.52 4.49
--- -------------- --------
TOTAL................ 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL IV
DISTRIBUTION OF MARGINS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MARGINS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------ -------------- ----------------- ------------------
<S> <C> <C> <C>
Negative.......... 1 $ 41,122.54 0.22%
0.000%............ 2 54,041.98 0.28
0.001 to 1.000.... 7 571,110.73 2.99
1.001 to 2.000.... 19 1,110,144.51 5.81
2.001 to 3.000.... 19 5,303,437.66 27.77
3.001 to 4.000.... 25 4,043,205.25 21.17
4.001 to 5.000.... 57 5,966,095.60 31.24
5.001 to 6.000.... 12 1,703,699.94 8.92
6.001 to 7.000.... 2 190,189.36 1.00
7.001 or greater.. 3 115,524.41 0.60
--- -------------- --------
TOTAL.......... 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-65
<PAGE>
POOL IV
RATE CHANGE FREQUENCY DISTRIBUTION
<TABLE>
<CAPTION>
RATE CHANGE NUMBER OF AGGREGATE % OF AGGREGATE
FREQUENCY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
1 Month....... 25 $ 2,074,359.46 10.86%
1 Year........ 8 534,930.15 2.80
3 Month....... 1 53,129.34 0.28
3 Year........ 3 71,503.48 0.37
5 Year........ 1 36,637.03 0.19
6 Month....... 100 15,747,617.37 82.45
Daily......... 7 378,285.37 1.98
None/Unknown.. 2 202,109.78 1.06
--- -------------- --------
TOTAL....... 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL IV
PAYMENT CHANGE FREQUENCY DISTRIBUTION
<TABLE>
<CAPTION>
PAYMENT CHANGE NUMBER OF AGGREGATE % OF AGGREGATE
FREQUENCY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
1 Month........ 28 $ 1,682,564.03 8.81
1 Year......... 14 1,507,120.73 7.89
3 Month........ 1 53,129.34 0.28
3 Year......... 3 71,503.48 0.37
5 Year......... 2 107,098.23 0.56
6 Month........ 99 15,677,156.17 82.09
--- -------------- --------
TOTAL........ 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-66
<PAGE>
POOL IV
NEGATIVE AMORTIZATION LIMIT DISTRIBUTION
<TABLE>
<CAPTION>
NEGATIVE NUMBER OF AGGREGATE % OF AGGREGATE
AMORTIZATION LIMIT MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
No Negative Amortization.. 132 $17,649,525.05 92.41%
110.0000%................. 1 354,098.74 1.85
125.0000.................. 4 444,091.84 2.33
Unlimited................. 10 650,856.35 3.41
--- -------------- --------
TOTAL.................. 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL IV
PERIODIC RATE CAP DISTRIBUTION
<TABLE>
<CAPTION>
PERIODIC NUMBER OF AGGREGATE % OF AGGREGATE
RATE CAP MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------- -------------- ----------------- ------------------
<S> <C> <C> <C>
0.0000%... 59 $ 5,735,457.33 30.03%
1.0000.... 53 9,362,186.83 49.02
1.2500.... 19 2,144,557.31 11.23
1.5000.... 4 603,289.47 3.16
2.0000.... 12 1,253,081.04 6.56
--- -------------- --------
TOTAL... 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
POOL IV
PERIODIC PAYMENT CAP DISTRIBUTION
<TABLE>
<CAPTION>
PERIODIC NUMBER OF AGGREGATE % OF AGGREGATE
PAYMENT CAP MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
0.0000%...... 143 $18,654,480.14 97.67%
7.5000....... 4 444,091.84 2.33
--- -------------- --------
TOTAL..... 147 $19,098,571.98 100.00%*
=== ============== ========
</TABLE>
- ------------------------
* Percentages may not add to 100% due to rounding.
S-67
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of distributions in reduction of the Certificate Principal
Balances of the Offered Certificates, the aggregate amount of distributions
on the Offered Certificates and the yield to maturity of Offered Certificates
purchased at a discount or premium will be effected by the rate of payments
of principal on the Mortgage Loans in the Trust, or in the case of the Class
PO Certificates, on the Discount Mortgage Loans and with respect to the
Aggregate PO Arrearage Amount, and the amount and timing of mortgagor
defaults resulting in Realized Losses with respect to such Mortgage Loans.
The rate of principal payments on the Mortgage Loans will in turn be affected
by the amortization schedules of the Mortgage Loans, the rate of principal
prepayments (including full and partial prepayments) thereon by mortgagors,
liquidations of defaulted Mortgage Loans, repurchases by the Seller and/or
its affiliates of Mortgage Loans as a result of defective documentation or
breaches of representations and warranties and optional purchases by the
Class R Certificateholders of all of the Mortgage Loans in connection with
the termination of the Trust. Mortgagors are permitted to prepay the
Mortgage Loans, in whole or in part, at any time and, in most cases, without
penalty. As described under "Flow of Funds", all or a disproportionate
percentage of principal prepayments on the Mortgage Loans (including
liquidations and repurchases of Mortgage Loans) will generally be distributed
to the holders of the related Class A Certificates (other than the Class F-IO
and Class A-IO Certificates) then entitled to distributions in respect of
unscheduled principal and, to the extent that such principal prepayments are
made in respect of a Discount Mortgage Loan, to the Class PO Certificates to
the extent of the related PO Portion. The Class F-IO and Class A-IO
Certificates will primarily be affected by prepayments on the Pool I Loans
and ARM Loans, respectively. Prepayments (which, as used herein, include all
unscheduled payments of principal, including payments as the result of
liquidations, purchases and repurchases) of the Mortgage Loans in the Trust
will result in distributions to Certificateholders then entitled to
distributions in respect of unscheduled principal of amounts which would
otherwise be distributed over the remaining terms of such Mortgage Loans.
Because the rate of prepayment on the Mortgage Loans will depend on future
events and a variety of factors, no assurance can be given as to such rate or
the rate of principal payments on the Offered Certificates or the aggregate
amount of distributions on the Offered Certificates.
The rate of payments (including prepayments) on pools of mortgage loans
is influenced by a variety of economic, geographic, social and other factors.
If prevailing rates for similar mortgage loans fall significantly below the
Coupon Rates on the Mortgage Loans, the rate of prepayment would generally be
expected to increase. Conversely, if interest rates on similar mortgage
loans rise significantly above the Coupon Rates on the Mortgage Loans, the
rate of prepayment would generally be expected to decrease.
Other factors affecting prepayment of mortgage loans include changes in
mortgagors' housing needs, job transfers, unemployment or, in the case of
self-employed mortgagors or mortgagors relying on commission income,
substantial fluctuations in income, significant declines in real estate
values and adverse economic conditions either generally or in particular
geographic areas, mortgagors' equity in the Mortgaged Properties and
servicing decisions.
The timing of changes in the rate of prepayment on the Mortgage Loans
may significantly affect the actual yield to maturity experienced by an
investor who purchases an Offered Certificate at a price other than parity,
even if the average rate of principal prepayments experienced over time is
consistent with such investor's expectation. In general, the earlier a
prepayment of principal on the underlying Mortgage Loans, the greater the
effect on such investor's yield to maturity. As a result, the effect on such
investor's yield of principal prepayments occurring at a rate higher (or
lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Certificates would not be
fully offset by a subsequent like reduction (or increase) in the rate of
principal prepayments.
The yield to maturity on Subordinate Certificates will be more sensitive
to losses due to defaults on the Mortgage Loans (and the timing thereof) than
the Senior Certificates, because the entire amount of
S-68
<PAGE>
such losses will be allocated to such Subordinate Classes before being
allocated to more senior Classes, except as otherwise provided herein. Thus,
for example, the yield to maturity of the Class M-2 Certificates will be more
sensitive to losses than the Class M-1 Certificates. To the extent not
covered by Delinquency Advances, delinquencies on Mortgage Loans may also
have a similar effect on the yield to investors in such Certificates.
Amounts otherwise distributable to the holders of a certain Class will be
made available to protect the holders of more senior Classes of Certificates
against interruptions in distributions due to certain Mortgagor
delinquencies. Such delinquencies, to the extent not covered by Classes of
Certificates subordinate to such Classes, even if subsequently cured, may
affect the timing of the receipt of distributions by the holders of such
Class of Certificates, because the entire amount of those delinquencies would
be borne by such Class of Certificates before being borne by the more senior
Class of Certificates.
No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of any subclass or Class of
Offered Certificates. Investors are urged to make their own investment
decisions with respect to any subclass or Class of Offered Certificates based
on the anticipated yield to maturity of such subclass or Class resulting from
the purchase price and such investors' own determination as to anticipated
Mortgage Loan prepayment rates under a variety of scenarios. The extent to
which any subclass or Class of Offered Certificates is purchased at a
discount or a premium, the degree to which the timing of payments on such
subclass or Class is sensitive to prepayments and, in the case of the Class
A-2-A, Class A-2-B, Class A-2-C and Class A-IO Certificates, and to the
extent of any cross-support, the Class M-1, Class M-2, Class M-3, Class B-1,
Class B-2 and Class B-3 Certificates, the degree to which the various indices
relating to the ARM Loans vary from the levels anticipated by the investor,
will determine the extent to which the yield to maturity of such subclass or
Class may vary from the anticipated yield. Investors should carefully
consider the associated risks, including, in the case of any subclass or
Class of Offered Certificates purchased at a discount, particularly the Class
PO Certificates, the risk that a slower than anticipated rate of principal
payments on the Discount Mortgage Loans could result in an actual yield to
such investor that is lower than the anticipated yield and, in the case of
any subclass or Class of Offered Certificates purchased at a premium,
particularly the Class F-IO and Class A-IO Certificates, the risk that a
faster than anticipated rate of principal payments could result in an actual
yield to such investor that is lower than the anticipated yield. INVESTORS
IN THE CLASS A-IO AND CLASS F-IO CERTIFICATES SHOULD CONSIDER THE RISK THAT A
RAPID RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN THE
FAILURE OF SUCH INVESTORS TO RECOVER FULLY THEIR INVESTMENT.
Investors should consider the risk that rapid rates of prepayments on
the Mortgage Loans, and therefore of amounts distributable in reduction of
principal balance of the Classes of Offered Certificates, may coincide with
periods of low prevailing interest rates. During such periods, the effective
interest rates on securities in which investors may choose to reinvest
amounts distributed in reduction of the principal balance of such investors'
Offered Certificate may be lower than the applicable Pass-Through Rate.
Conversely, slower rates of prepayments on the Mortgage Loans, and therefore
of amounts distributable in reduction of principal balance of the Offered
Certificates, may coincide with periods of high prevailing interest rates.
During such periods, the amount of principal distributions available to an
investor for reinvestment at such high prevailing interest rates may be
relatively small.
MODELING ASSUMPTIONS
For purposes of preparing the tables below, the following assumptions
(the "Modeling Assumptions") have been made:
(i) the Mortgage Loans are, for purposes of this analysis, grouped
within Pools by similar characteristics into a number of synthetic Mortgage
Loans, each having similar characteristics, for each Pool; Arrearages are not
modelled separately, but have been rolled into the appropriate synthetic
Mortgage Loan;
(ii) all scheduled payments on the Mortgage Loans are timely received
on the first day of each month, commencing January 1, 1997;
S-69
<PAGE>
(iii) there are no defaults, losses or delinquencies on the Mortgage
Loans;
(iv) the Mortgage Loans prepay monthly at the specified constant annual
percentages of PSA (with respect to the Fixed Rate Loans) or CPR (with
respect to the ARM Loans);
(v) the Settlement Date used for all calculations is December 30, 1996;
(vi) cash distributions are received by the Certificateholders on the
25th day of each month, commencing in January, 1997;
(vii) the initial principal amounts of the Offered Securities are as
follows:
A-1 $48,278,467.64
PO $ 2,207,171.82
F-IO $ 48,278,467.64 (Notional)
A-2-A $90,635,697.98
A-2-B $56,843,117.92
A-2-C $19,098,571.98
A-IO $166,577,387.88 (Notional)
M-1 $ 8,348,577.97
M-2 $15,305,726.29
M-3 $13,914,296.62
B-1 $ 6,261,433.48
B-2 $ 4,870,003.82
B-3 $12,522,866.96
(viii) all principal prepayments represent prepayments in full of the
Mortgage Loans and are received on the last day of each month commencing
December 31, 1996 and include 30 days' of interest thereon;
(ix) there are no repurchases of or substitutions for the Mortgage
Loans;
(x) no early redemption of the Offered Securities or early termination
of the Trust is effected;
(xi) the Index Rates are as follows:
11th District COFI 4.8390%
5 year CMT 6.1215%
6 month Auction Average 5.2116%
1 year CMT 5.4788%
2 year CMT 5.7995%
3 year CMT 5.9387%
FHLBB Contract Rate 7.6800%
National COFI 4.8400%
6 month LIBOR 5.5938%
1 month LIBOR 5.5977%
3 month LIBOR 5.5312%
Prime 8.2500%
Other Rates 4.8390%
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in herein with respect to the
Fixed Rate Loans, the Prepayment Standard
S-70
<PAGE>
Assumption ("PSA"), represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of new mortgage
loans. A prepayment assumption of 100% PSA assumes constant prepayment rates
of 0.2% per annum of the then outstanding principal balance of such mortgage
loans in the first month of the life of the mortgage loans increasing by an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life
of the mortgage loans, 100% PSA assumes a constant prepayment rate of 6% per
annum each month. As used in the table below, "0% PSA" assumes prepayment
rates equal to 0% of PSA, i.e., no prepayments. Correspondingly, "200% PSA"
assumes prepayment rates equal to 200% of PSA, and so forth.
The model used herein with respect to the ARM Loans is the "Constant
Prepayment Rate" or "CPR" assumption, which represents an assumed annualized
rate of prepayment relative to the then-outstanding balance of a pool of new
mortgage loans.
Based upon the PSA and CPR assumptions set forth below, the tables on
the following pages indicate the weighted average life of each Class of
Offered Certificates, and set forth the percentages of the Initial
Certificate Balances or Initial Notional Balances of each Class.
PSA and CPR do not purport to be historical descriptions of prepayment
experience or predictions of the anticipated rate of prepayment of any pool
of mortgage loans, including the Mortgage Loans.
0% Slow II Slow I Base Fast I Fast II
-- ------- ------ ---- ------ -------
POOL I 0% PSA 100% PSA 150% PSA 235% PSA 300% PSA 500% PSA
POOL II 0% CPR 4% CPR 8% CPR 12% CPR 16% CPR 20% CPR
POOL III 0% CPR 15% CPR 20% CPR 25% CPR 35% CPR 40% CPR
POOL IV 0% CPR 15% CPR 20% CPR 25% CPR 35% CPR 40% CPR
Interest on Mortgage Loans prepaid in full or any portion thereof
prepaid in part is accrued only to the date of application of such
prepayment. Any interest shortfall on any Certificates other than the Class
A-IO and Class F-IO Certificates with respect to prepayments in full or in
part will be offset only to the extent of the Servicing Fee relating to
mortgagor payments or other recoveries distributed on the related
Distribution Date. Any excess of such shortfall above the Servicing Fee in
any month will result in a pro rata reduction of interest distributable to
the holders of each Class of Certificates.
S-71
<PAGE>
PERCENTAGE OF CERTIFICATE PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-1 CERTIFICATES CLASS A-2-A CERTIFICATES
AT VARIOUS PREPAYMENT SPEEDS AT VARIOUS PREPAYMENT SPEEDS
DISTRIBUTION DATE 0% SLOW II SLOW I BASE FAST I FAST II 0% SLOW II SLOW I BASE FAST I FAST II
---- ------- ------ ---- ------ ------- ---- ------- ----- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance 100 100 100 100 100 100 100 100 100 100 100 100
December 25, 1997 98 85 79 68 60 35 98 94 90 86 82 78
December 25, 1998 90 67 56 38 25 0 96 88 81 74 68 57
December 25, 1999 84 53 38 15 0 0 94 83 73 64 55 32
December 25, 2000 77 39 23 0 0 0 91 78 65 54 38 12
December 25, 2001 75 30 12 0 0 0 89 73 59 41 23 0
December 25, 2002 71 23 4 0 0 0 86 68 52 32 14 0
December 25, 2003 68 17 0 0 0 0 84 63 46 24 7 0
December 25, 2004 65 12 0 0 0 0 81 58 40 19 3 0
December 25, 2005 63 8 0 0 0 0 78 54 35 15 2 0
December 25, 2006 60 4 0 0 0 0 74 49 31 13 1 0
December 25, 2007 57 1 0 0 0 0 71 45 27 11 1 0
December 25, 2008 54 0 0 0 0 0 67 41 23 9 1 0
December 25, 2009 52 0 0 0 0 0 63 37 20 7 1 0
December 25, 2010 49 0 0 0 0 0 59 33 17 6 1 0
December 25, 2011 46 0 0 0 0 0 55 30 15 5 0 0
December 25, 2012 44 0 0 0 0 0 51 27 13 4 0 0
December 25, 2013 41 0 0 0 0 0 47 24 11 3 0 0
December 25, 2014 37 0 0 0 0 0 43 20 9 3 0 0
December 25, 2015 34 0 0 0 0 0 38 18 7 2 0 0
December 25, 2016 30 0 0 0 0 0 33 15 6 2 0 0
December 25, 2017 26 0 0 0 0 0 28 12 5 1 0 0
December 25, 2018 22 0 0 0 0 0 23 9 3 1 0 0
December 25, 2019 18 0 0 0 0 0 18 7 3 1 0 0
December 25, 2020 15 0 0 0 0 0 14 5 2 0 0 0
December 25, 2021 11 0 0 0 0 0 9 3 1 0 0 0
December 25, 2022 7 0 0 0 0 0 5 2 1 0 0 0
December 25, 2023 4 0 0 0 0 0 2 1 0 0 0 0
December 25, 2024 1 0 0 0 0 0 0 0 0 0 0 0
December 25, 2025 0 0 0 0 0 0 0 0 0 0 0 0
December 25, 2026 0 0 0 0 0 0 0 0 0 0 0 0
December 25, 2027 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Avg Life years(1) 13.5 3.9 2.6 1.7 1.4 0.8 15.5 10.9 7.9 5.3 3.5 2.3
<CAPTION>
CLASS A-2-B CERTIFICATES
AT VARIOUS PREPAYMENT SPEEDS
DISTRIBUTION DATE 0% SLOW II SLOW I BASE FAST I FAST II
---- ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Initial Balance 100 100 100 100 100 100
December 25, 1997 99 84 79 74 64 59
December 25, 1998 97 70 62 55 41 32
December 25, 1999 95 58 49 40 26 14
December 25, 2000 93 49 38 29 14 4
December 25, 2001 91 41 30 19 7 0
December 25, 2002 89 34 23 13 3 0
December 25, 2003 87 28 18 8 1 0
December 25, 2004 84 23 14 5 0 0
December 25, 2005 82 19 10 4 0 0
December 25, 2006 79 16 8 3 0 0
December 25, 2007 76 13 6 2 0 0
December 25, 2008 72 10 5 1 0 0
December 25, 2009 69 8 4 1 0 0
December 25, 2010 65 7 3 1 0 0
December 25, 2011 61 5 2 0 0 0
December 25, 2012 56 4 1 0 0 0
December 25, 2013 51 3 1 0 0 0
December 25, 2014 46 2 1 0 0 0
December 25, 2015 41 2 1 0 0 0
December 25, 2016 36 1 0 0 0 0
December 25, 2017 30 1 0 0 0 0
December 25, 2018 25 1 0 0 0 0
December 25, 2019 21 0 0 0 0 0
December 25, 2020 17 0 0 0 0 0
December 25, 2021 13 0 0 0 0 0
December 25, 2022 9 0 0 0 0 0
December 25, 2023 5 0 0 0 0 0
December 25, 2024 1 0 0 0 0 0
December 25, 2025 0 0 0 0 0 0
December 25, 2026 0 0 0 0 0 0
December 25, 2027 0 0 0 0 0 0
Weighted Avg Life years(1) 16.4 5.3 4.1 3.1 2.1 1.6
</TABLE>
/(1)/ The weighted average life of the Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Settlement Date to the related Payment Date, (ii) adding the
results, and (iii) dividing the sum by the initial respective Certificate
Principal Balance for such Class of Certificates.
S-72
<PAGE>
PERCENTAGE OF CERTIFICATE PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS A-2-C CERTIFICATES CLASS F-IO CERTIFICATES/(2)/
AT VARIOUS PREPAYMENT SPEEDS AT VARIOUS PREPAYMENT SPEEDS
DISTRIBUTION DATE 0% SLOW I SLOW II BASE FAST I FAST II 0% SLOW I SLOW II BASE FAST I FAST II
---- ------ ------- ---- ------ ------- ---- ------ ------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance 100 100 100 100 100 100 100 100 100 100 100 100
December 25, 1997 98 84 79 74 64 59 98 85 79 68 60 35
December 25, 1998 97 70 62 54 41 32 90 67 56 38 25 0
December 25, 1999 95 58 49 40 26 14 84 53 38 15 0 0
December 25, 2000 93 49 38 29 14 4 77 39 23 0 0 0
December 25, 2001 91 40 30 19 7 0 75 30 12 0 0 0
December 25, 2002 89 34 23 13 3 0 71 23 4 0 0 0
December 25, 2003 87 28 18 8 1 0 68 17 0 0 0 0
December 25, 2004 85 23 14 6 0 0 65 12 0 0 0 0
December 25, 2005 83 19 11 4 0 0 63 8 0 0 0 0
December 25, 2006 81 16 8 3 0 0 60 4 0 0 0 0
December 25, 2007 78 13 6 2 0 0 57 1 0 0 0 0
December 25, 2008 76 11 5 1 0 0 54 0 0 0 0 0
December 25, 2009 74 9 4 1 0 0 52 0 0 0 0 0
December 25, 2010 71 7 3 1 0 0 49 0 0 0 0 0
December 25, 2011 68 6 2 1 0 0 46 0 0 0 0 0
December 25, 2012 65 5 2 0 0 0 44 0 0 0 0 0
December 25, 2013 62 4 1 0 0 0 41 0 0 0 0 0
December 25, 2014 58 3 1 0 0 0 37 0 0 0 0 0
December 25, 2015 54 2 1 0 0 0 34 0 0 0 0 0
December 25, 2016 49 2 1 0 0 0 30 0 0 0 0 0
December 25, 2017 45 1 0 0 0 0 26 0 0 0 0 0
December 25, 2018 40 1 0 0 0 0 22 0 0 0 0 0
December 25, 2019 34 1 0 0 0 0 18 0 0 0 0 0
December 25, 2020 28 1 0 0 0 0 15 0 0 0 0 0
December 25, 2021 22 0 0 0 0 0 11 0 0 0 0 0
December 25, 2022 16 0 0 0 0 0 7 0 0 0 0 0
December 25, 2023 9 0 0 0 0 0 4 0 0 0 0 0
December 25, 2024 3 0 0 0 0 0 1 0 0 0 0 0
December 25, 2025 1 0 0 0 0 0 0 0 0 0 0 0
December 25, 2026 0 0 0 0 0 0 0 0 0 0 0 0
December 25, 2027 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Avg Life years(1) 18.1 5.4 4.1 3.1 2.1 1.6 13.5 3.9 2.6 1.7 1.4 0.8
<CAPTION>
CLASS A-IO CERTIFICATES/(2)/
AT VARIOUS PREPAYMENT SPEEDS
DISTRIBUTION DATE 0% SLOW II SLOW I BASE FAST I FAST II
---- ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Initial Balance 100 100 100 100 100 100
December 25, 1997 98 89 85 81 74 70
December 25, 1998 96 80 72 65 55 46
December 25, 1999 94 72 62 53 42 23
December 25, 2000 92 64 53 43 27 8
December 25, 2001 90 58 46 31 16 0
December 25, 2002 88 52 39 23 9 0
December 25, 2003 85 47 33 17 4 0
December 25, 2004 82 42 28 13 2 0
December 25, 2005 80 38 24 10 1 0
December 25, 2006 77 34 20 8 1 0
December 25, 2007 73 30 17 7 1 0
December 25, 2008 70 27 15 5 0 0
December 25, 2009 66 24 13 4 0 0
December 25, 2010 63 21 11 4 0 0
December 25, 2011 59 19 9 3 0 0
December 25, 2012 55 17 8 2 0 0
December 25, 2013 50 14 6 2 0 0
December 25, 2014 46 12 5 2 0 0
December 25, 2015 41 10 4 1 0 0
December 25, 2016 36 9 3 1 0 0
December 25, 2017 31 7 3 1 0 0
December 25, 2018 26 5 2 0 0 0
December 25, 2019 21 4 1 0 0 0
December 25, 2020 16 3 1 0 0 0
December 25, 2021 12 2 1 0 0 0
December 25, 2022 7 1 0 0 0 0
December 25, 2023 3 0 0 0 0 0
December 25, 2024 1 0 0 0 0 0
December 25, 2025 0 0 0 0 0 0
December 25, 2026 0 0 0 0 0 0
December 25, 2027 0 0 0 0 0 0
Weighted Avg Life years(1) 16.1 8.4 6.1 4.3 2.8 2.0
</TABLE>
/(1)/ The weighted average life of the Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Settlement Date to the related Payment Date, (ii) adding the
results, and (iii) dividing the sum by the initial respective Certificate
Principal Balance for such Class of Certificates.
/(2)/ The Class F-IO and Class A-IO have notional principal balances.
S-73
<PAGE>
PERCENTAGE OF CERTIFICATE PRINCIPAL BALANCE OUTSTANDING FOR:
<TABLE>
<CAPTION>
CLASS PO CERTIFICATES CLASS M-1, CLASS M-2 AND CLASS M-3 CERTIFICATES
AT VARIOUS PREPAYMENT SPEEDS AT VARIOUS PREPAYMENT SPEEDS
DISTRIBUTION DATE 0% SLOW II SLOW I BASE FAST I FAST II 0% SLOW II SLOW I BASE FAST I FAST II
--- ------- ------ ---- ------ ------- ---- ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Balance 100 100 100 100 100 100 100 100 100 100 100 100
December 25, 1997 96 90 88 83 79 68 98 98 98 98 98 98
December 25, 1998 74 65 61 55 50 36 90 90 90 90 90 90
December 25, 1999 69 58 52 44 38 24 84 84 84 84 84 86
December 25, 2000 32 25 22 17 14 8 77 77 77 77 78 82
December 25, 2001 30 22 19 14 11 5 75 75 75 75 76 75
December 25, 2002 27 19 15 11 8 3 71 69 69 68 68 54
December 25, 2003 26 17 13 9 6 2 68 65 64 61 60 39
December 25, 2004 24 15 11 7 5 1 65 62 58 54 52 29
December 25, 2005 23 13 10 6 4 1 63 58 52 46 42 21
December 25, 2006 21 11 8 5 3 1 60 55 45 38 33 16
December 25, 2007 19 10 7 4 2 0 57 51 39 31 26 11
December 25, 2008 17 8 6 3 2 0 54 47 34 25 21 8
December 25, 2009 16 7 5 2 1 0 52 42 29 21 16 6
December 25, 2010 14 6 4 2 1 0 49 37 25 17 13 5
December 25, 2011 14 5 3 1 1 0 46 33 22 14 10 3
December 25, 2012 13 5 3 1 1 0 44 29 19 11 8 2
December 25, 2013 12 4 2 1 0 0 41 26 16 9 6 2
December 25, 2014 11 4 2 1 0 0 37 22 13 7 4 1
December 25, 2015 10 3 2 1 0 0 34 19 11 5 3 1
December 25, 2016 9 3 1 0 0 0 30 16 9 4 2 1
December 25, 2017 8 2 1 0 0 0 26 13 7 3 2 0
December 25, 2018 7 2 1 0 0 0 22 10 5 2 1 0
December 25, 2019 5 1 1 0 0 0 18 8 4 2 1 0
December 25, 2020 4 1 0 0 0 0 15 6 3 1 1 0
December 25, 2021 3 1 0 0 0 0 11 4 2 1 0 0
December 25, 2022 2 0 0 0 0 0 7 3 1 0 0 0
December 25, 2023 1 0 0 0 0 0 4 1 1 0 0 0
December 25, 2024 0 0 0 0 0 0 1 0 0 0 0 0
December 25, 2025 0 0 0 0 0 0 0 0 0 0 0 0
December 25, 2026 0 0 0 0 0 0 0 0 0 0 0 0
December 25, 2027 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Avg Life years(1) 6.6 4.6 4.0 3.3 2.9 2.1 13.5 11.5 10.1 9.0 8.5 6.9
</TABLE>
/(1)/The weighted average life of the Certificates is determined by (i)
multiplying the amount of each principal payment by the number of
years from the Settlement Date to the related Payment Date, (ii)
adding the results, and (iii) dividing the sum by the initial
respective Certificate Principal Balance for such Class of
Certificates.
S-74
<PAGE>
SENSITIVITY OF THE CLASS A-IO, CLASS A-2-A, CLASS A-2-B, CLASS A-2-C, CLASS
F-IO AND CLASS PO CERTIFICATES
The yield to investors in the Class A-IO, Class A-2-A, Class A-2-B and
Class A-2-C Certificates will be highly sensitive to the level of the indices
relating to the related ARM Loans (the "Indices") and sensitive to the rate
and timing of principal payments (including prepayments) of the related ARM
Loans, which may fluctuate significantly from time to time.
Since there can be no assurance that the level of the Indices will
correlate with the levels of prevailing mortgage interest rates, it is
possible that lower prevailing mortgage rates, which might be expected to
result in faster prepayments, could occur concurrently with an increased
level of any Index.
To illustrate the significance of changes in the level of both the Indices
and in prepayments on the yield to maturity of the Class A-IO, Class A-2-A,
Class A-2-B and Class A-2-C Certificates, the tables below indicate the pre-
tax yields to maturity (on a corporate bond equivalent basis) under the
assumptions discussed below at the different constant percentages of CPR and
PSA and the constant levels of the Indices indicated. It is not likely that
the Mortgage Loans will prepay at a constant level of CPR or PSA until
maturity, that all of the Mortgage Loans in each Pool will prepay at the same
rate or that the level of the Indices will remain constant.
The yield to investors in the Class A-IO and F-IO Certificates will be
extremely sensitive to both the timing of receipt of prepayments and the
overall rate of principal payments.
The yield to investors in the Class PO Certificates will be extremely
sensitive to the rate and timing of principal payments (including
prepayments) on the Discount Mortgage Loans, respectively, which rate may
vary significantly from time to time. Investors should fully consider the
associated risks, including the risk that a relatively low rate of principal
payments (including prepayments) on the Discount Mortgage Loans will have a
negative effect on the yield to investors in the Class PO Certificates.
The pre-tax yields set forth in the following tables were calculated by (i)
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Class A-IO, Class A-2-A, Class A-2-B,
Class A-2-C, Class F-IO and Class PO Certificates would cause the discounted
present value of such assumed streams of cash flows to equal the respective
assumed purchase price set forth in the tables below for such Class, and (ii)
converting such monthly rates to a semi-annual corporate bond equivalent rate.
Such calculation does not take into account the interest rate at which investors
will be able to reinvest funds received by them and does not purport to reflect
the return on any investment in any such Classes when such reinvestment rates
are considered.
S-75
<PAGE>
SENSITIVITY OF PRE-TAX YIELDS TO MATURITY OF THE CLASS A-2-A, A-2-B, A-2-C, AND
A-I-O CERTIFICATES TO PREPAYMENTS AND CHANGES TO THE INDEX RATES/*/
<TABLE>
<CAPTION>
CLASS A-IO CERTIFICATES CLASS A-2-A CERTIFICATES
AT VARIOUS PREPAYMENT SPEEDS AT VARIOUS PREPAYMENT SPEEDS
0% SLOW II SLOW I BASE FAST I FAST II 0% SLOW II SLOW I BASE FAST I FAST II
------ ------- ------ ---- ------ ------- ------ ------- ------ ---- ------ -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -3.00% 26.724 14.207 8.670 0.808 -14.392 -38.438 5.621 5.615 5.608 5.599 5.587 5.572
Unchanged 27.232 14.655 9.107 1.281 -13.668 -37.963 6.788 6.780 6.766 6.742 6.705 6.641
+3.00% 27.985 15.500 9.963 2.273 -11.864 -36.607 9.646 9.606 9.560 9.487 9.389 9.232
Assuming a Purchase Price of $2,657,076 plus accrued interest. Assuming a Purchase Price of $90,621,536 plus accrued interest.
<CAPTION>
CLASS A-2-B CERTIFICATES
AT VARIOUS PREPAYMENT SPEEDS
0% SLOW II SLOW I BASE FAST I FAST II
------ ------- ------ ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
- -3.00% 4.822 4.704 4.638 4.545 4.320 4.112
Unchanged 7.441 7.008 6.832 6.600 6.136 5.711
+3.00% 10.069 9.316 9.029 8.661 7.954 7.305
</TABLE>
Assuming a Purchase Price of $58,237,551 plus accrued interest.
<TABLE>
<CAPTION>
CLASS A-2-C CERTIFICATES CLASS F-IO CERTIFICATES
AT VARIOUS PREPAYMENT SPEEDS AT VARIOUS PREPAYMENT SPEEDS
0% SLOW II SLOW I BASE FAST I FAST II 0% SLOW II SLOW I BASE FAST I FAST II
------ ------- ------ ---- ------ ------- ------ ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-3.00% 5.389 5.083 4.961 4.799 4.468 4.168
Unchanged 7.420 6.979 6.800 6.565 6.096 5.668 58.375 38.946 25.380 -1.702 -23.669 -87.786
+3.00% 9.889 9.263 9.019 8.705 8.088 7.524
Assuming a Purchase Price of $19,561,116 plus accrued interest. Assuming a Purchase Price of $1,086,266 plus accrued interest.
CLASS PO CERTIFICATES
AT VARIOUS PREPAYMENT SPEEDS
0% SLOW II SLOW I BASE FAST I FAST II
------ ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
-3.00%
Unchanged 5.253 7.371 8.413 10.185 11.567 16.207
+3.00%
Assuming a Purchase Price of $1,651,585.
</TABLE>
/*/ "-3.00%" means a 3.00% decrease in such Index listed on Modeling Assumption
(xii) above; "Unchanged" means the Indexes were assumed to be at the level
indicated, and "+3.00% means an increase in each Index listed in Modeling
Assumption (xii) above.
S-76
<PAGE>
THE SELLER
Wilshire Mortgage Funding Company, IV, Inc., a Delaware corporation (the
"Seller"), will be organized as a limited purpose company on or before the
Closing Date and will be substantially owned by Wilshire Funding Corporation.
The Seller will be organized for limited purposes, which will include
purchasing loans and receivables and debt obligations secured by collateral,
and transferring such loans receivable and debt obligations to third parties
and any activities incidental to and necessary or convenient for the
accomplishment of such purposes (including, without limitation, entering into
and performing its obligations under the Pooling and Servicing Agreement and
the Loan Purchase Agreements). The Seller will be located at 1776 S.W.
Madison Street, Portland, Oregon 97205, and its telephone number will be
(503) 223-5600.
The only obligations, if any, of the Seller with respect to the
Certificates may be pursuant to certain limited representations and
warranties and limited undertakings to enforce its rights against the related
Wilshire Seller under certain circumstances. Each of the Wilshire Sellers,
including two which are federally regulated thrift institution, will make
certain representations and warranties with respect to the Mortgage Loans
conveyed by it to the Seller and none of the Wilshire Sellers, other than
Wilshire Credit Corporation, will make any other representations and
warranties. Each Wilshire Seller will be liable only with respect to the
representations and warranties made with respect to the Mortgage Loans
conveyed by such Wilshire Seller and Wilshire Servicing Corporation, as
Servicer, will be liable for certain servicing-related data with respect
thereto. Wilshire Credit Corporation will be the only Wilshire Seller that
will make any additional representations and warranties. The Seller will
have no servicing obligations or responsibilities with respect to any
Mortgage Loans or any of the assets of either Trust. The Seller will not
have on the Closing Date, nor is it expected in the future to have, any
significant assets other than certain of the Subordinate Certificates.
Neither the Seller nor Wilshire Credit Corporation nor any of their
affiliates will insure or guarantee the Certificates.
THE PRIOR SELLERS
Each of the Prior Sellers had underwriting policies or standards
applicable to the origination or purchase of residential mortgage loans that
may have differed from those of other Prior Sellers. There can be no
assurance that the Mortgage Loans were originated or acquired in all cases in
accordance with the related Prior Seller's underwriting standards then in
effect. In addition, the underwriting standards employed by the Prior
Sellers at the time of the origination or acquisition of the Mortgage Loans
may not have met standards acceptable to FNMA or FHLMC. It is uncertain how
many of the Mortgage Loans were approved under underwriting policies not
acceptable to FNMA or FHLMC. See "RISK FACTORS-Limited Information" herein.
None of the Depositor, the Seller, the Wilshire Sellers or the Servicer has
complete and reliable information regarding the origination and documentation
requirements employed by the Prior Sellers in connection with the origination
of the Mortgage Loans. It is uncertain how many of the Mortgage Loans were
originated under limited documentation programs, which typically omitted
verification of certain information regarding the related Obligor, such as
the Obligor's employment and income, or under so-called "no documentation"
programs, which typically omitted verification of the Obligor's assets as
well as the Obligor's employment and income.
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THE SERVICER
Wilshire Servicing Corporation, a Delaware corporation ("WSC"), is a
wholly owned subsidiary of Wilshire Financial Services Group, Inc. ("WFSG"),
a publicly traded company engaged in a wide variety of activities including
the acquisition, origination, ownership and securitization of loan
portfolios, banking and non-traditional bankcard processing. WSC was
recently formed to engage in the loan servicing business and to continue the
loan servicing business conducted by Wilshire Credit Corporation, an
affiliate of WFSG, once WSC has obtained all necessary licenses (which is
currently expected to be approximately two to three years from the date of
this prospectus supplement). WSC will retain Wilshire Credit Corporation to
act as its sub-servicer with respect to the Mortgage Loans until such time as
WSC is fully licensed.
The Sub-Servicer, Wilshire Credit Corporation, a Nevada corporation, is
a privately held corporation based in Portland, Oregon. Wilshire Credit
Corporation is a member of a group of affiliated companies which engage in a
wide variety of financial activities, including banking and the acquisition,
ownership, servicing and securitization of financial assets. Wilshire Credit
Corporation's principal executive offices are located at 1776 S.W. Madison
Street, Portland, Oregon 97205. The telephone number of such offices is
(503) 223-5600. As of December 31, 1995, Wilshire Credit Corporation's
fiscal year end, the total assets of Wilshire Credit Corporation and a group
of affiliated companies, other than the Bank Affiliates (as defined herein)
(the "Wilshire Group") equaled $231,582,810 (unaudited). Shareholder's
equity in the Wilshire Group totaled $3,035,103 (unaudited) as of December
31, 1995. Total revenues and net income for the 12-month period ended
December 31, 1995 equaled $10,651,473 (unaudited) and $1,670,931 (unaudited),
respectively. No separately audited financial information has been made
available with respect to Wilshire Credit Corporation apart from the Wilshire
Group.
Wilshire Credit Corporation was formed in May 1989 to manage the
Wilshire Group's activities in the loan and lease servicing business and to
service the Wilshire Group's heavy industrial equipment leasing portfolio
which consisted of leases of containers, railroad cars and other similar
equipment. In 1990, Wilshire Credit Corporation began to expand its
activities by acquiring portfolios of financial assets from the Resolution
Trust Corporation, the Federal Deposit Insurance Corporation and other
parties and selling participation in such portfolios to institutional
investors while retaining the servicing rights and a participation in the
overall return on such portfolios. As of December 31, 1995, Wilshire Credit
Corporation has acquired, and is providing servicing for, more than 362
portfolios of financial assets having total principal and accrued interest in
excess of $1.2 billion. Portfolios acquired by Wilshire Credit Corporation
include performing, non-performing and charged-off consumer and commercial
loans or receivables, including home mortgage loans, home equity loans,
commercial real estate loans, commercial and business loans, auto loans,
manufactured housing loans, marine or boat loans and consumer loans.
Wilshire Credit Corporation also services loans originated or acquired by its
affiliates, First Bank of Beverly Hills, F.S.B. and Girard Savings Bank,
F.S.B. (together, the "Bank Affiliates"). Wilshire Credit Corporation also
acts as a servicer for approximately $20.8 million worth of loan portfolios
held by third parties. Included in the total $1.2 billion serviced are a $44
million securitized portfolio of consumer receivables, a $30.8 million
securitized portfolio of manufactured housing loans, a $65 million
securitized portfolio of mortgage loans, a $62 million securitized portfolio
of non-performing loans and "real-estate owned," and a $125 million
securitized portfolio of mortgage loans.
The information set forth herein concerning the Servicer has been
provided by it. Accordingly, the Depositor makes no representation as to the
accuracy and completeness of such information.
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USE OF PROCEEDS
Substantially all of the aggregate proceeds to the Depositor as set
forth on the cover page of this Prospectus Supplement to be received from the
sale of the Offered Certificates will be used by the Depositor to purchase
simultaneously the Mortgage Loans or to reimburse the Depositor for amounts
previously used to effect the purchase of the Mortgage Loans and to pay other
expenses connected with pooling the Mortgage Loans and issuing the Offered
Certificates.
DESCRIPTION OF THE CERTIFICATES
The following summaries describing certain provisions of the
Certificates and the Pooling and Servicing Agreement are considered material
to an investment in the Certificates, but 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. Capitalized terms used
and not otherwise defined herein have the meanings assigned in the Pooling
and Servicing Agreement.
GENERAL
Each Class of the Offered Certificates will be offered for purchase in
minimum denominations of $1,000 (except that one Certificate for each Class
of Class A Certificates may be issued in a different amount) and integral
multiples of $1 in excess thereof and will each initially be represented by
one or more global certificates registered in the name of the nominee of DTC,
except as provided below. The Depositor has been informed by DTC that DTC's
nominee will be Cede & Co. No person acquiring a physical beneficial
interest in an Offered Certificate (a "Beneficial Owner") will be entitled to
receive a physical certificate representing such person's interest, except as
set forth below under "Definitive Certificates." Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references to actions by Offered Certificateholders shall refer to actions
taken by DTC upon instructions from its Participants (as defined below), and
all references herein to distributions, notices, statements to DTC or Cede &
Co., as the registered holder of the Offered Certificates, as the case may
be, for distribution to Beneficial Owners in accordance with DTC procedures.
See "Registration of the Offered Certificates" and "Definitive Offered
Certificates."
DISTRIBUTIONS
General. The Certificateholders will be entitled to receive
distributions monthly, on each Distribution Date, commencing January 27,
1997. Such distributions, to the extent of Available Funds, will consist of
(i) for all Classes other than the Class PO Certificates, a distribution of
interest accrued during the related Accrual Period, together with (ii) for
all Classes other than the Class F-IO and the Class A-IO Certificates, a
distribution of principal, subject to the priorities described herein.
The Mortgage Loan pool primarily consists of four types of Mortgage
Loans: Mortgage Loans having a fixed rate of interest (such Mortgage Loans,
"Fixed Rate Loans"); Mortgage Loans primarily having an adjustable rate of
interest based on the Eleventh District Cost of Funds (such Mortgage Loans,
"COFI Loans"); Mortgage Loans primarily having an adjustable rate of interest
based on a Constant Maturity Treasury (such Mortgage Loans, the "CMT Loans")
and Mortgage Loans primarily having an adjustable rate of interest based on
six-month LIBOR (such Mortgage Loans, the "LIBOR Loans"). In addition,
certain other Mortgage Loans have an adjustable rate of interest based on an
index other than described above.
All of the Mortgage Loans originally assigned to Pool I (the "Pool I
Loans") are Fixed Rate Loans. The Mortgage Loans originally assigned to Pool
II (the "Pool II Loans") are primarily COFI Loans, although certain Pool II
Mortgage Loans have an adjustable rate of interest based on an index other
than
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COFI. The Mortgage Loans originally assigned to Pool III (the "Pool III
Loans") are primarily CMT Loans, although certain Pool III Mortgage Loans
have an adjustable rate of interest based on an index other than CMT. The
Mortgage Loans originally assigned to Pool IV (the "Pool IV Loans") are
primarily LIBOR Loans although certain Pool IV Mortgage Loans have an
adjustable rate of interest based on an index other than six-month LIBOR.
The Class A-1, Class F-IO, Class PO, Class M-1, Class M-2, Class M-3,
Class B-1, Class B-2 and Class B-3 Certificates are originally supported by
Pool I; the Class A-2-A Certificates are originally supported by Pool II; the
Class A-2-B Certificates are originally supported by Pool III; and the Class
A-2-C Certificates are originally supported by Pool IV;
Pool II, Pool III and Pool IV are collectively referred to as the "ARM
Pools". The Class A-IO Certificates relate to the ARM Pools.
As a result of the shifting-interest and cross-support features of the
Trust, the amortization of the Certificates relating to a particular Pool may
not exactly follow the amortization of Mortgage Loans in the related Pool,
although the cash-flow mechanics of the Trust do, in many instances, gear the
amortization of the Certificates relating to a particular Pool to the
amortization of the Mortgage Loans in the related Pool.
The amounts due to the Class F-IO Certificateholders will be based on
the Notional Balance thereof, which on any date will be equal to the Class A-
1 Principal Balance as of such date; the amortization of the Class A-1
Principal is generally tied to the amortization of the Fixed Rate Loans. The
amounts due to the Class A-IO Certificateholders will be based on the
Notional Balance of the Class A-IO Certificates, which, on any date will be
equal to the sum of the Class A-2-A Principal Balance, the Class A-2-B
Principal Balance and the Class A-2-C Principal Balance as of such date.
Certain of the Fixed Rate Loans have Net Coupon Rates less than 7.00%;
such Fixed-Rate Loans are the "Discount Loans". The Original Certificate
Principal Balance of the Class PO Certificates is equal to the aggregate
amount of the PO Portion of the Principal Balances of the Discount Loans as
of the Cut-Off Date, plus the Aggregate PO Arrearage Amount (defined below)
as of the Cut-Off Date. The "PO Portion" of a Discount Loan's Principal
Balance as of the Cut-Off Date is the product of the PO Percentage for such
Discount Loan and the Principal Balance thereof. The amortization of the
Class PO Certificates will generally follow the amortization of the Discount
Loans and of the Aggregate PO Arrearage Amount. The Class PO Certificates do
not pay interest.
Special Rules Relating to Chapter 13 Bankruptcy Loans. Certain of the
Mortgage Loans in each Pool relate to Obligors which are the subject of a
bankruptcy proceeding under Chapter 13 of the Bankruptcy Code. Under the
terms of the related payment plans ordered by the court in such proceedings,
the portion of such Obligor's payments which were delinquent (the
"Arrearage") and arose prior to the bankruptcy petition are due and payable
by the Obligor under a payment plan. The Arrearage does not bear interest
and generally amortizes over a three or five year period.
The "Adjusted Gross Coupon Rate" for any Mortgage Loan as of any
Distribution Date is equal to the percentage equivalent of a fraction, the
---
numerator of which is the product of (x) the Principal Balance of such
------------------
Mortgage Loan (exclusive of the amount of any Arrearage Amount) as of the end
of the second preceding Collection Period (or as of the Cut-Off Date with
respect to the first Distribution Date) and (y) the Coupon Rate for such
Mortgage Loan (as of the Due Date in the related Collection Period) and the
---
denominator of which is equal to the Principal Balance (inclusive of the
--------------------
Arrearage) of such Mortgage Loan as of the end of the second preceding
Collection Period (or as of the Cut-Off Date with respect to the first
Distribution Date).
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<PAGE>
The "Aggregate PO Arrearage Amount" is the aggregate of the Arrearage on
all Fixed Rate Mortgage Loans having an Adjusted Net Coupon Rate (as defined
herein) as of the Cut-Off Date of less than 7.00%. "Arrearage Loans" are
Mortgage Loans which have Arrearages which are not included in the Aggregate
PO Arrearage Amount. Any principal received in the reduction of Aggregate PO
Arrearage Amount is considered Scheduled Principal.
For purposes of calculating amounts to be distributed on the
Certificates, the "Net Coupon Rate" of an Arrearage Loan is equal to its
Adjusted Net Coupon Rate as of the Due Date in the related Collection Period,
and the "Gross Coupon Rate" of an Arrearage Loan is equal to its Adjusted
Gross Coupon Rate as of the Due Date in the related Collection Period. With
respect to all other Mortgage Loans, the "Net Coupon Rate" is equal to such
Mortgage Loan's Coupon Rate, less 0.395%. Further, for purposes of
----
calculating amounts to be distributed on the Certificates, the "Principal
Balance" of any Arrearage Loan is equal to the unpaid principal balance
thereof, plus the Arrearage. For any Mortgage Loan which is not an Arrearage
Loan, the Arrearage, if any, will not be included in the "Principal Balance"
thereof (which "Principal Balance" will equal the unpaid principal balance);
such amount rather will be included in the Aggregate PO Arrearage Amount.
The Class A-1 Certificates will accrue interest based on a fixed rate of
interest, the Class A-1 Pass-Through Rate. All other Classes bear interest
at variable rates of interest, as set forth above under "Securities Issued".
The Pooling and Servicing Agreement generally provides for the
distribution of three types of amounts to Certificateholders: (i) except
with respect to the Class PO Certificates, interest, (ii) except for the
Class F-IO and A-IO Certificates, scheduled principal and (iii) except for
the Class F-IO and A-IO Certificates, unscheduled principal.
The priority of payment set forth in the Pooling and Servicing Agreement
generally requires that the following six amounts to be paid to the related
Certificateholders in the following order of priority: first, interest
-----
(including unpaid interest shortfalls from prior periods) on the Senior
Certificates, second, scheduled principal on the Senior Certificates, third,
------ -----
unscheduled principal on the Senior Certificates, fourth, interest (including
------
unpaid interest shortfalls from prior periods) on the Subordinate
Certificates, fifth, scheduled principal on the Subordinate Certificates and
-----
sixth, unscheduled principal on the Subordinate Certificates, subject to the
-----
availability of Available Funds. The Classes of Senior Certificates have a
pari passu claim, among themselves, with respect to amounts to be distributed
---- -----
among the various Classes of Senior Certificates. The Subordinate
Certificateholders have, among themselves, separate and distinct claims with
respect to amounts to be distributed among the various Classes of Subordinate
Certificates, with the relative level of subordination being greatest with
respect to the Class B-3 Certificates (the most subordinate Class, other than
the Residual Certificates) and least with respect to the Class M-1
Certificates (the least subordinate Class of Subordinate Certificates).
Although the calculation of the payments to the various Classes of
Certificates will generally reflect the experience of the related Mortgage
Loans, the funding of such payments will be made without distribution or
tracing to the source of such funding from collections on any type of
Mortgage Loan. Further, Realized Losses will be allocated to the Subordinate
Certificates, in order of their respective level of subordination, without
distinction or tracing as to such Realized Loss relating to an Adjustable
Rate Loan or a Fixed Rate Loan.
Certain of the ARM Loan contain a "negative amortization" provision.
Pursuant to such provisions, if, on any Due Date, the scheduled interest
payment due on such ARM Loan exceeds the scheduled monthly payment due on
such Due Date, the entire amount paid by the related Mortgagor is applied to
the interest due, and any interest due and not paid is added to the Principal
Balance of such ARM Loan. The Pooling and Servicing Agreement provides that
if, with respect to any Collection Period, the aggregate amount of such
negative amortization with respect to any Pool exceeds the aggregate
Scheduled Principal Collections
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<PAGE>
with respect to such Pool for such Collection Period, such amount (the "Pool
Negative Amortization Amount") shall be deemed added to the Certificate
Principal Balances of the related Classes. For the purposes of calculating
distributions, the negative amortization is considered a negative amount in
Scheduled Principal Collections.
An additional general feature of the Certificates is the "shifting
interest" feature. Pursuant to the shifting interest provisions, Unscheduled
Principal Collections will be allocated to the Senior Certificates on the one
hand and to the Subordinate Certificates on the other hand pursuant to the
Shifting Interest Schedule described herein, which will generally provide for
a larger proportion of such unscheduled principal collection being applied to
the amortization of the Senior Certificates than would be case if such
amounts were distributed pro rata among all Classes. Distributions of
--- ----
Scheduled Principal Collections, by contrast, will be made pro rata with
--- ----
respect to the related Pools.
Interest. On each Distribution Date the holders of each Class of
Certificates will be entitled to receive their respective Interest
Distribution Amounts. The Subordinate Certificates will only be entitled to
receive such amounts after the payment of interest and principal to the
Senior Certificates. Any interest due and not paid on a Distribution Date
(an "Interest Shortfall") with respect to any Class will be carried-forward
and will be due on subsequent Distribution Date, subject to the availability
of funds for such purpose; such amounts so carried-forward will not
themselves accrue interest.
Scheduled Principal. On each Distribution Date, the Certificateholders
of each Class will receive an amount with respect to collections of Scheduled
Principal Collections with respect to the related Mortgage Loans, provided,
--------
that the aggregate amount available for distribution to the Senior
Certificates with respect to Scheduled Principal Collections will be limited
to the amount of Available Funds remaining after the payment of the Interest
Distribution Amounts for the Senior Certificates, and the aggregate amount
for distribution to the Subordinate Certificates with respect to Scheduled
Principal Collections will be limited to the amount of Available Funds
remaining after the payment of the Interest Distribution Amount to all
Classes of Certificates, and after the payment of scheduled and unscheduled
principal to the Senior Certificates.
Prior to any application of the cross-support feature described below,
the entire amount of the principal distribution with respect to Scheduled
Principal on the Pool II Loans will be distributed to the Class A-2-A
Certificateholders. Prior to any application of the cross-support feature
described below, the entire amount of the principal with respect to Scheduled
Principal on the Pool III Loans will be distributed to the Class A-2-B
Certificateholders. Prior to any application of the cross-support feature
described below, the entire amount of the principal collections with respect
to Scheduled Principal on the Pool IV Loans will be distributed to the Class
A-2-C Certificateholders. Prior to any application of the cross-support
feature described below, the entire amount of the Scheduled Principal
Collections on the Pool I Loans (other than the PO Portion of Scheduled
Principal Collections on the Discount Loans) will be distributed to the
holders of the Class A-1, Class M-1, Class M-2, Class M-3, Class B-1, Class
B-2 and Class B-3 Certificates pro rata in accordance with their then
--- ----
relative Certificate Principal Balances.
Unscheduled Principal. On each Distribution Date, the Trustee will
distribute an amount with respect to Unscheduled Principal Collections;
provided, that the aggregate amount available for distribution to the Senior
--------
Classes of Certificates with respect to Unscheduled Principal Collections
will be limited to the amount of Available Funds remaining after the payment
of the Interest Distribution Amount for the Senior Certificates, and after
the payment of the aggregate amount distributed relating to Scheduled
Principal Collections to the Senior Classes.
Prior to any application of the cross-support feature described below,
the entire amount of the principal distribution with respect to Unscheduled
Principal Collections on the Pool II Loans will be distributed to the Class
A-2-A Certificateholders. Prior to any application of the cross-support
feature described below, the entire amount of the principal collections with
respect to unscheduled principal on the
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<PAGE>
Pool III Loans will be distributed to the Class A-2-B Certificateholders.
Prior to any application of the cross-support feature described below, the
entire amount of the principal collections with respect to unscheduled
principal on the Pool IV Loans will be distributed to the Class A-2-C
Certificateholders. The PO Portion of Unscheduled Principal Collections and
an amount equal to the PO Portion of Realized Losses on the Discount Loans
will be distributed as principal to the Class PO Certificateholders. The
amount of the Unscheduled Principal Collections with respect to the Pool I
Loans (other than PO Portion of Unscheduled Principal Collections on the
Discount Loans) will be distributed as principal in accordance with the
"shifting-interest" feature, which generally provides that a disproportionate
amount (the "Shifted Percentage") of such Unscheduled Principal Collections
on the Pool I Loans be applied to the amortization of the Senior Certificates
(with a further requirement first to pay the Class A-1 Principal Balance to
zero before paying such Unscheduled Principal Collections to the Class A-2
Certificates). The Shifted Percentage may decrease or "step down" in the
future, subject to the occurrence of a triggering event based on certain
loss, subordination, delinquency and other tests.
Distributions of principal among the Subordinate Certificate Classes
will be made in accordance with certain eligibility tests.
The Subordinate Certificates of any Class will only be entitled to
receive distributions of unscheduled principal on a Distribution Date if such
Class is an "Eligible Subordinate Class" on such Distribution Date. A
Subordinate Class is an "Eligible Subordinate Class" only if the Class
immediately senior to it maintains, as of such Distribution Date, the same
(or greater) relative amount of protection in the form of Subordinate
Certificates which are junior in priority to such immediately senior Class as
such Class had on the Closing Date; provided, however, that the Class M-1
-------- -------
Certificates are an Eligible Subordinate Class with respect to each
Distribution Date.
Cross-Support Feature. Pursuant to the cash flow structure of the
Trust, even though the distributions due to the Certificateholders of the
various Classes will generally reflect the activity of the related Mortgage
Loans (e.g., the Class A-2-A Certificates receive distributions based
----
generally on the activity of the Pool II Loans) all of the Mortgage Loans
provide support for all of the Certificates. The credit enhancement features
of the Trust provide that Realized Losses will be allocated to the
Certificates in order of their level of subordination (i.e., first to the
----
Class B-3 Certificates); since all of the Subordinate Certificates relate to
the Pool I Loans, this allocation provision allocates Realized Losses on the
Pool II, Pool III and Pool IV Loans, as well as on the Pool I Loans, to the
Subordinate Certificates.
The cash flow structure of the Trust further provides that Unscheduled
Principal Collections with respect to the Fixed Rate Loans (other than the PO
Portion of Unscheduled Principal Collections on the Discount Loans) shall be
allocated, to a certain extent, to the amortization of the Classes of
Certificates relating to the ARM Loans (the Class A-2-A, Class A-2-B and
Class A-2-C Certificates) once the Senior Certificates relating to the Fixed
Rate Loans (the Class A-1 Certificates) have been paid to zero. The feature
described in this paragraph may result, in certain periods, in an "extra"
amount of collateral with respect to each Class of Certificates relating to
the ARM Loans (e.g., as a result of this feature, the collateral balance of
----
the Pool II Loans may exceed the Class A-2-A Principal Balance in certain
periods).
The unpaid principal balance of the Mortgage Loans in any Pool may be
greater than the aggregate Certificate Principal Balance of the Classes
relating to such Pool, resulting in "extra" collateral (i.e., collateral not
----
necessary to support the related Classes). The collections with respect to
this "extra" collateral across all pools of Mortgage Loans will be available
on each Distribution Date to fund distributions of interest and principal
with respect to any Class of Certificates (considering the Class A-1
Certificates and the Subordinate Certificates, collectively as a single Class
for this purpose) which, as a result of Realized Losses experienced with
respect to the related Mortgage Loans, has a collateral deficit (i.e., the
----
amount of collateral relating to such Class is less than the related
Certificate Principal Balance).
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<PAGE>
As a result of such cross-support feature, on any particular
Distribution Date, there may be distributed to any Class of Certificates a
portion of the principal and interest collections with respect to any
unrelated Mortgage Loans type (e.g., a portion of the principal collections
----
on Pool III Loans and on the Fixed Rate Loans may be distributed with respect
to the Class A-2-A Certificates (which generally relate only to the Pool II
Loans)), and the Pass-Through Rate of any Class of Certificates (other than
the Class A-1 Certificates) may be calculated, in part, based on the weighted
average Coupon Rate with respect to any Mortgage Loan type.
DISTRIBUTION DATES AND RECORD DATES
Distributions to the holders of the Certificates of a Class on each
Distribution Date will be made in an amount equal to their respective
Percentage Interests multiplied by the aggregate amount distributed on such
Class of Certificates on such Distribution Date. Distributions on the
Certificates will be made on the 25th day of each month (or, if such 25th day
is not a Business Day, on the next succeeding Business Day) (each, a
"Distribution Date"), commencing January 27, 1997. "Business Day" shall mean
any day other than (i) a Saturday or Sunday, or (ii) any day on which banking
institutions located in the States of New York or California are authorized
or obligated by law or executive order to close.
So long as the Offered Certificates are registered in the name of Cede &
Co., as nominee of DTC, distributions on each Distribution Date will be made
to the holders of record of the related Offered Certificates (the
"Certificateholders") as of the close of business on the last day of the
calendar month immediately preceding such Distribution Date (each, a "Record
Date"), except that the final distribution in respect of the Certificates
will only be made upon presentation and surrender of the Certificates at the
office or agency appointed by the Trustee for that purpose in New York, New
York.
ACCRUAL PERIODS AND CALCULATION OF INTEREST
For each Distribution Date, interest with respect to the Certificates
(other than the Class PO Certificates, which do not bear interest) will
accrue at the related Pass-Through Rate for the calendar month immediately
preceding the calendar month in which such Distribution Date occurs. Each
such calendar month is the "Accrual Period" for the related Class of
Certificates.
All calculations of interest on the Certificates (other than the Class
PO Certificates, which do not bear interest) will be made on the basis of a
360-day year assumed to consist of twelve 30-day months.
The Class PO Certificates are "principal-only" certificates which do not
bear interest.
The final scheduled Distribution Date (each, a "Final Scheduled
Distribution Date") for each Class of Certificates will be August 25, 2032.
However, in the event of defaults or prepayments on the Mortgage Loans, final
payment with respect to the related Class of Certificates could occur prior
to, or later than, such date.
CREDIT ENHANCEMENT
The rights of the holders of the Class M Certificates to receive
distributions will be subordinated to the rights of the holders of the Senior
Certificates to receive distributions, to the extent described herein. The
rights of the holders of the Class B Certificates to receive distributions
will be subordinated to the rights of the holders of the Senior Certificates,
and the rights of the holders of the Class M Certificates. Among the Class M
Certificates, the Class M-1 Certificates are senior to the Class M-2
Certificates, and the Class M-2 Certificates are senior to the Class M-3
Certificates. Among the Class B Certificates, the Class B-1 Certificates are
senior to the Class B-2 Certificates, and the Class B-2 Certificates are
senior to the Class B-3 Certificates. This subordination provides a certain
amount of protection to the holders of the Senior Certificates (to the extent
of the subordination of the Class M and Class B Certificates), the Class
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<PAGE>
M Certificates (to the extent of the subordination of the Class B
Certificates) and, among the Class M and Class B Certificates, to the
subclasses thereof (to the extent of the subordination of the subclasses with
higher numerical designations) against delays in the receipt of scheduled
payments of interest and principal and against losses associated with the
liquidation of defaulted Mortgage Loans and certain losses resulting from the
bankruptcy of a mortgagor.
In general, the protection afforded the holders of the Senior
Certificates by means of this subordination will be effected in two ways:
(i) by the preferential right of the holders of the Senior Certificates to
receive, prior to any distribution being made on any Distribution Date in
respect of the Subordinate Certificates, the amounts of interest and
principal due the holders of the Class A Certificates and the amount of
principal due the holders of the Class PO Certificates on such date and, if
necessary, by the right of such holders to receive future distributions on
the Mortgage Loans that would otherwise have been allocated to the holders of
the Subordinate Certificates and (ii) by the allocation to the Subordinate
Certificates, until their respective principal balances are reduced to zero,
of certain losses resulting from the liquidation of defaulted Mortgage Loans
or the bankruptcy of mortgagors prior to the allocation of such losses to the
Senior Certificates. See "Description of the Certificates--Distributions" in
this Term Sheet.
In general, the protection afforded the holders of the Class M
Certificates by means of this subordination will also be effected in two
ways: (i) by the preferential right of the holders of the Class M
Certificates to receive, prior to any distribution being made on any
Distribution Date in respect of interest on the Class B Certificates, the
amounts of interest due the holders of the Class M Certificates on such date,
the preferential right of the holders of the Class M Certificates to receive,
prior to any distribution being made on any Distribution Date in respect of
principal on the Class B Certificates on such date and, if necessary, by the
right of such holders to receive future distributions on the Mortgage Loans
that would otherwise have been allocated to the holders of the Class B
Certificates and (ii) by the allocation to the Class B Certificates, until
their principal balance has been reduced to zero, of certain losses resulting
from the liquidation of defaulted Mortgage Loans or the bankruptcy of
mortgagors prior to the allocation of such losses to the Class M
Certificates. See "Description of the Certificates--Distributions" in this
Term Sheet.
In general, the protection afforded the holders of a subclass of Class B
Certificates by means of this subordination will also be effected in two
ways: (i) by the preferential right of the holders of such subclass to
receive, prior to any distribution being made on any Distribution Date in
respect of the subclasses of Class B Certificates with higher numerical
designations, the amounts of interest and principal due the holders of such
subclass on such date and, if necessary, by the right of such holders to
receive future distributions on the Mortgage Loans that would otherwise have
been allocated to the holders of the subclasses of Class B Certificates with
higher numerical designations and (ii) by the allocation to the subclasses of
Class B Certificates with higher numerical designations, until their
principal balances have been reduced to zero, of certain losses resulting
from the liquidation of defaulted Mortgage Loans or the bankruptcy of
mortgagors prior to the allocation of such losses to such subclass. See
"Description of the Certificates--Distributions" in this Term Sheet.
In addition, in order to increase the period during which the principal
balances of the Class M and Class B Certificates remain available as credit
enhancement to the Senior Certificates, a disproportionate amount of
prepayments and certain unscheduled recoveries with respect to the Mortgage
Loans will be allocated to the Class A Certificates. This allocation has the
effect of accelerating the amortization of the Class A Certificates while, in
the absence of losses in respect of the liquidation of defaulted Mortgage
Loans or losses resulting from the bankruptcy of mortgagors, increasing the
respective percentage interest in the principal balance of the Mortgage Loans
evidenced by the Subordinated Certificates.
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REGISTRATION OF THE OFFERED CERTIFICATES
The Offered Certificates will be book-entry Certificate (the "Book-Entry
Certificates"). Certificateholders will hold their Offered Certificates
through the DTC in the United States, if they are participants of such
systems, or indirectly through organizations which are participants in such
systems. The Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate principal balance of the Offered
Certificates and will initially be registered in the name of Cede & Co., the
nominee of DTC. Except as described below, no person acquiring a Book-Entry
Certificate will be entitled to receive a physical certificate representing
such Certificate (a "Definitive Certificate"). Unless and until Definitive
Certificates are issued, it is anticipated that the only "Certificateholder"
of the Offered Certificates will be Cede & Co., as nominee of DTC.
Certificateholders will not be "Certificateholders" as that term is used in
the Pooling and Servicing Agreement. Certificateholders will be permitted to
exercise their rights only indirectly through Participants and DTC.
A Certificateholder's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each a "Financial Intermediary") that maintains
the beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on
the records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be recorded on the
records of DTC, if the Certificateholder's Financial Intermediary is not a
DTC participant.
Certificateholders will receive all distributions of principal of and
interest on the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under
the circumstances described below), under the rules, regulations and
procedures creating and affecting DTC and its operations (the "Rules"), DTC
is required to make book-entry transfers among Participants on whose behalf
it acts with respect to the Offered Certificates and is required to receive
and transmit distributions of principal of, and interest on, the Offered
Certificates. Participants and indirect participants make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificateholders. Accordingly, although Certificateholders will
not possess certificates representing their respective interests in the
Offered Certificates, the Rules provide a mechanism by which
Certificateholders will receive distributions and will be able to transfer
their interest.
Certificateholders will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless
and until Definitive Certificates are issued, Certificateholders who are not
Participants may transfer ownership of Offered Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
Ownership of Offered Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Certificateholders.
Transfers between Participants will occur in accordance with DTC rules.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the Book-
Entry Certificates, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the Rules, as in effect from time to time.
Distributions on Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for
crediting the amount of such payments to the accounts of the
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applicable DTC participants in accordance with DTC's normal procedures. Each
DTC participant will be responsible for disbursing such payments to the
beneficial owners of the Book-Entry Certificates that it represents and to
each Financial Intermediary for which it acts as agent. Each such Financial
Intermediary will be responsible for disbursing funds to the beneficial
owners of the Book-Entry Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede. Because DTC can only
act on behalf of Financial Intermediaries, the ability of a beneficial owner
to pledge Book-Entry Certificates to persons or entities that do not
participate in the Depository system, or otherwise take actions in respect of
such Book-Entry Certificates, may be limited due to the lack of physical
certificates for such Book-Entry Certificates. In addition, issuance of the
Book-Entry Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market since certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates. See "Risk Factors--Limited Liquidity" herein.
Monthly and annual reports on the Trust will be provided to Cede, as
nominee of DTC, and may be made available by Cede to Certificateholders upon
request in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such Certificateholders are credited.
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<PAGE>
FLOW OF FUNDS
The Servicer shall remit or cause to be remitted by wire transfer to the
Collection Account, held by the Trustee (i) within five Business Days after
the Closing Date, the aggregate amount of all Collections received by the
Servicer from but excluding the Cut-Off Date through and including the
Closing Date and (ii) beginning from and excluding the Closing Date, all
Collections (other than penalty interest, late charges, prepayment penalties
and premiums, modification fees and assumption and substitution fees and
certain escrow amounts), including all payments by or on behalf of the
Mortgagors on the Mortgage Loans and all amounts with respect to the Mortgage
Loans, as collected not later than one Business Day following the Business
Day on which such amounts are received by a lock-box bank (or by the Servicer
directly and are identified by the Servicer as relating to the Mortgage
Loans); provided, however, that it is not necessary for the Servicer to remit
-------- -------
Collections on any Business Day when the aggregate amount in the Servicer's
possession from the Collections prior to such Business Day is less than
$1,000.
On each Determination Date, the Servicer shall determine the amount of
Collections received by the Servicer with respect to the Mortgage Loans
during the prior Collection Period (including, with respect to the first
Distribution Date, all Collections with respect to the Mortgage Loans
received by the Servicer from the Cut-off Date to the Closing Date), together
with the aggregate Repurchase Price applicable to such Determination Date,
which in each case have been deposited in the Collection Account in
accordance with the terms of this Agreement (the "Gross Available Funds").
On each Servicer Remittance Date, the Servicer shall direct the Trustee
to remit to the Servicer the aggregate Servicing Fees, and to pay to the
Trustee the Trustee's Fee, in each case from the Gross Available Funds then
on deposit in the Collection Account, and to deposit to the remainder of the
Gross Available Funds (the "Available Funds") to the Certificate Account held
by the Trustee.
On each Distribution Date the Trustee shall distribute from the
Certificate Account the Available Funds in the following order of priority as
follows:
On each Distribution Date the Trustee shall distribute the Available
Funds as follows:
(i) first, from the Available Funds, the Senior Interest Distribution
-----
Amount, pari passu, as follows:
---- -----
(a) to the Class A-1 Certificateholders, the Class A-1 Interest
Distribution Amount;
(b) to the Class A-2-A Certificateholders, the Class A-2-A
Interest Distribution Amount;
(c) to the Class A-2-B Certificateholders, the Class A-2-B
Interest Distribution Amount;
(d) to the Class A-2-C Certificateholders, the Class A-2-C
Interest Distribution Amount;
(e) to the Class F-IO Certificateholders, the Class F-IO Interest
Distribution Amount;
(f) to the Class A-IO Certificateholders, the Class A-IO Interest
Distribution Amount;
(ii) second, from the Available Funds, the Class PO Principal
------
Distribution Amount;
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<PAGE>
(iii) third, from the Senior Scheduled Principal Distribution Amount,
-----
the following amounts, pari passu:
----------
(a) to the Class A-1 Certificateholders, the lesser of (x) the
Class A-1 Scheduled Principal Distribution Amount and (y) the
amount necessary to reduce the Class A-1 Principal Balance to
zero;
(b) to the Class A-2-A Certificateholders, the lesser of (x) the
Class A-2-A Scheduled Principal Distribution Amount and (y)
the amount necessary to reduce the Class A-2-A Principal
Balance to zero;
(c) to the Class A-2-B Certificateholders, the lesser of (x) the
Class A-2-B Scheduled Principal Distribution Amount and (y)
the amount necessary to reduce the Class A-2-B Principal
Balance to zero;
(d) to the Class A-2-C Certificateholders, the lesser of (x) the
Class A-2-C Scheduled Principal Distribution Amount and (y)
the amount necessary to reduce the Class A-2-C Principal
Balance to zero;
(iv) fourth, from the Senior Unscheduled Principal Distribution Amount,
------
the following amounts, in the following order of priority:
(a) first, the following amounts, pari passu:
----- ---- -----
(1) to the Class A-1 Certificateholders, the lesser of (x)
the Class A-1 Unscheduled Principal Distribution Amount
and (y) the amount necessary to reduce the Class A-1
Principal Balance to zero;
(2) to the Class A-2-A Certificateholders, the lesser of (x)
the Class A-2-A Unscheduled Principal Distribution Amount
and (y) the amount necessary to reduce the Class A-2-A
Principal Balance to zero;
(3) to the Class A-2-B Certificateholders, the lesser of (x)
the Class A-2-B Unscheduled Principal Distribution Amount
and (y) the amount necessary to reduce the Class A-2-B
Principal Balance to zero;
(4) to the Class A-2-C Certificateholders, the lesser of (x)
the Class A-2-C Unscheduled Principal Distribution Amount
and (y) the amount necessary to reduce the Class A-2-C
Principal Balance to zero;
(b) second, the Shifted Unscheduled Principal Distribution Amount
------
shall be paid in the following order of priority:
(1) if the Class A-1 Principal Balance is greater than zero
(after taking into account any reductions thereof
resulting from the application of amounts described in
clauses (iii)(a) and (iv)(a)(1) above), to the Class A-1
Certificateholders, the lesser of (x) the Shifted
Unscheduled Principal Distribution Amount and (y) the
amount necessary to reduce the Class A-1 Principal
Balance to zero;
(2) if the Class A-1 Principal Balance is zero (after taking
into account any reductions thereof resulting from the
applications of amounts described in clauses (iii)(a) and
(iv)(a)(1) preceding), the Unscheduled Principal
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Distribution Amount (less, on the Distribution Date on
which the Class A-1 Principal Balance is reduced to zero,
any portion thereof described in clause (iv)(b)(1)
preceding) to the Holders of the Class A-2-A, Class A-2-B
and Class A-2-C Certificates, the lesser of (x) the
Shifted Unscheduled Principal Distribution Amount (less,
on the Distribution Date on which the Class A-1 Principal
Balance is reduced to zero, any portion thereof described
in clause (iv)(b)(1) preceding) and (y) the amount
necessary to reduce the sum of the Class A-2-A Principal
Balance, the Class A-2-B Principal Balance and the Class
A-2-C Principal Balance to zero, the following amounts,
pro rata:
--- ----
(x) to the Class A-2-A Certificateholders, the lesser of
(i) the Class A-2-A Shifted Unscheduled Principal
Distribution Amount and (ii) the amount necessary to
reduce the Class A-2-A Principal Balance to zero;
(y) to the Class A-2-B Certificateholders, the lesser of
(i) the Class A-2-B Shifted Unscheduled Principal
Distribution Amount and (ii) the amount necessary to
reduce the Class A-2-B Principal Balance to zero;
and
(z) to the Class A-2-C Certificateholders, the lesser of
(i) the Class A-2-C Shifted Unscheduled Principal
Distribution Amount and (ii) the amount necessary to
reduce the Class A-2-C Principal Balance to zero;
(v) fifth, from the Subordinate Interest Distribution Amount, the
-----
following amounts, in the following order of priority:
(a) to the Class M-1 Certificateholders, the Class M-1 Interest
Distribution Amount;
(b) to the Class M-2 Certificateholders, the Class M-2 Interest
Distribution Amount;
(c) to the Class M-3 Certificateholders, the Class M-3 Interest
Distribution Amount;
(d) to the Class B-1 Certificateholders, the Class B-1 Interest
Distribution Amount;
(e) to the Class B-2 Certificateholders, the Class B-2 Interest
Distribution Amount;
(f) to the Class B-3 Certificateholders, the Class B-3 Interest
Distribution Amount;
(vi) sixth, to the Class M-1 Certificateholders, the lesser of (x) the
-----
Class M-1 Scheduled Principal Distribution Amount and (y) the
amount necessary to reduce the Class M-1 Principal Balance to zero;
(vii) seventh, to the Class M-1 Certificateholders, the lesser of (I)
-------
the Class M-1 Unscheduled Principal Distribution Amount and (II)
the amount necessary to reduce the Class M-1 Principal Balance
(after taking into account any reductions therein resulting from
the application of amounts described in clause (vi) above) to
zero;
(viii) eighth, to the Class M-2 Certificateholders, the lesser of (x)
------
the Class M-2 Scheduled Principal Distribution Amount and (y)
the amount necessary to reduce the Class M-2 Principal Balance
to zero;
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<PAGE>
(ix) ninth, if the Class M-2 Certificates are an Eligible Subordinate
-----
Class as of such Distribution Date,to the Class M-2
Certificateholders, the lesser of (I) the Class M-2 Unscheduled
Principal Distribution Amount and (II) the amount necessary to
reduce the Class M-2 Principal Balance (after taking into account
any reductions therein resulting from the application of amounts
described in clause (viii) above) to zero;
(x) tenth, to the Class M-3 Certificateholders, the lesser of (x) the
-----
Class M-3 Scheduled Principal Distribution Amount and (y) the
amount necessary to reduce the Class M-3 Principal Balance to
zero;
(xi) eleventh, if the Class M-3 Certificates are an Eligible
--------
Subordinate Class as of such Distribution Date, to the Class M-3
Certificateholders, the lesser of (I) the Class M-3 Unscheduled
Principal Distribution Amount and (II) the amount necessary to
reduce the Class M-3 Principal Balance (after taking into account
any reductions therein resulting from the application of amounts
described in clause (x) above) to zero;
(xii) twelfth, to the Class B-1 Certificateholders, the lesser of (x)
-------
the Class B-1 Scheduled Principal Distribution Amount and (y) the
amount necessary to reduce the Class B-1 Principal Balance to
zero;
(xiii) thirteenth, if the Class B-1 Certificates are an Eligible
----------
Subordinate Class as of such Distribution Date, to the Class B-1
Certificateholders, the lesser of (I) the Class B-1 Unscheduled
Principal Distribution Amount and (II) the amount necessary to
reduce the Class B-1 Principal Balance (after taking into account
any reductions therein resulting from the application of amounts
described in clause (xii) above) to zero;
(xiv) fourteenth, to the Class B-2 Certificateholders, the lesser of
----------
(x) the Class B-2 Scheduled Principal Distribution Amount and (y)
the amount necessary to reduce the Class B-2 Principal Balance to
zero;
(xv) fifteenth, if the Class B-2 Certificates are an Eligible
---------
Subordinate Class as of such Distribution Date, to the Class B-2
Certificateholders, the lesser of (I) the Class B-2 Unscheduled
Principal Distribution Amount and (II) the amount necessary to
reduce the Class B-2 Principal Balance (after taking into account
any reductions therein resulting from the application of amounts
described in clause (xiv) above) to zero;
(xvi) sixteenth, to the Class B-3 Certificateholders, the lesser of (x)
---------
the Class B-3 Scheduled Principal Distribution Amount and (y) the
amount necessary to reduce the Class B-3 Principal Balance to
zero; and
(xvii) seventeenth, if the Class B-3 Certificates are an Eligible
-----------
Subordinate Class as of such Distribution Date, to the Class B-3
Certificateholders, the lesser of (I) the Class B-3 Unscheduled
Principal Distribution Amount and (II) the amount necessary to
reduce the Class B-3 Principal Balance (after taking into account
any reductions therein resulting from the application of amounts
described in clause (xvi) above) to zero.
ALLOCATION OF REALIZED LOSSES.
On each Distribution Date, following the application of the Available
Funds as described above, and after taking into account such application, the
Aggregate Realized Loss Amount, if any, with respect to the related
Collection Period shall be allocated as a reduction in the Aggregate
Certificate Principal Balance, as follows:
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<PAGE>
(i) if the Class R Amount is greater than zero, as a reduction in the
Class R Amount, until the Class R Amount has been reduced to zero;
(ii) if the Class B-3 Principal Balance is greater than zero, any
remaining amount of the Aggregate Realized Loss Amount, after
taking into account any portion thereof previously allocated on
such Distribution Date, as described in clause (i) preceding, as a
reduction in the Class B-3 Principal Balance until the Class B-3
Principal Balance has been reduced to zero;
(iii) if the Class B-2 Principal Balance is greater than zero, any
remaining amount of the Aggregate Realized Loss Amount, after
taking into account any portion thereof previously allocated on
such Distribution Date, as described in clauses (i) - (ii)
preceding, as a reduction in the Class B-2 Principal Balance until
the Class B-2 Principal Balance has been reduced to zero;
(iv) if the Class B-1 Principal Balance is greater than zero, any
remaining amount of the Aggregate Realized Loss Amount, after
taking into account any portion thereof previously allocated on
such Distribution Date, as described in clauses (i) - (iii)
preceding, as a reduction in the Class B-1 Principal Balance until
the Class B-1 Principal Balance has been reduced to zero;
(v) if the Class M-3 Principal Balance is greater than zero, any
remaining amount of the Aggregate Realized Loss Amount, after
taking into account any portion thereof previously allocated on
such Distribution Date, as described in clauses (i) - (iv)
preceding, as a reduction in the Class M-3 Principal Balance until
the Class M-3 Principal Balance has been reduced to zero;
(vi) if the Class M-2 Principal Balance is greater than zero, any
remaining amount of the Aggregate Realized Loss Amount, after
taking into account any portion thereof previously allocated on
such Distribution Date, as described in clauses (i) - (v)
preceding, as a reduction in the Class M-2 Principal Balance until
the Class M-2 Principal Balance has been reduced to zero;
(vii) if the Class M-1 Principal Balance is greater than zero, any
remaining amount of the Aggregate Realized Loss Amount, after
taking into account any portion thereof previously allocated on
such Distribution Date, as described in clauses (i) - (vi)
preceding, as a reduction in the Class M-1 Principal Balance until
the Class M-1 Principal Balance has been reduced to zero; and
(viii) if the Senior Principal Balance is greater than zero, any
remaining amount of the Aggregate Realized Loss Amount after
taking into account any portion thereof previously allocated on
such Distribution Date, as described in clauses (i) through (vii)
preceding, (the "Remaining Aggregate Realized Loss Amount") as a
reduction in the Senior Principal Balance until the Senior
Principal Balance has been reduced to zero, such reduction to be
applied:
(a) as a reduction in the Class A-1 Principal Balance in an amount
equal to the product of (x) the Remaining Aggregate Realized
Loss Amount and (y) a fraction, the numerator of which is the
Class A-1 Principal Balance and the denominator of which is
the Senior Principal Balance;
(b) as a reduction in the Class A-2-A Principal Balance in an
amount equal to the product of (x) the Remaining Aggregate
Realized Loss Amount and (y) a
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fraction, the numerator of which is the Class A-2-A Principal
Balance and the denominator of which is the Senior Principal
Balance;
(c) as a reduction in the Class A-2-B Principal Balance in an
amount equal to the product of (x) the Remaining Aggregate
Realized Loss Amount and (y) a fraction, the numerator of
which is the Class A-2-B Principal Balance and the denominator
of which is the Senior Principal Balance; and
(d) as a reduction in the Class A-2-C Principal Balance in an
amount equal to the product of (x) the Remaining Aggregate
Realized Loss Amount and (y) a fraction, the numerator of
which is the Class A-2-C Principal Balance and the denominator
of which is the Senior Principal Balance;
RELATED DEFINITIONS.
"A-2-A Pool II Fraction" means, with respect to any Distribution Date,
----------------------
the percentage equivalent of a fraction, the numerator of which is the lesser
-------------------------
of (x) the Pool II Pool Balance as of the end of the second preceding
Collection Period (or as of the Cut-Off Date, with respect to the first
Distribution Date) and (y) the Class A-2-A Principal Balance immediately
prior to such Distribution Date and the denominator of which is the Pool II
------------------------
Pool Balance as of the end of the second preceding Collection Period (or as
of the Cut-Off Date, with respect to the first Distribution Date).
"A-2-B Pool III Fraction" means, with respect to any Distribution Date,
-----------------------
the percentage equivalent of a fraction, the numerator of which is the lesser
-------------------------
of (x) the Pool III Pool Balance as of the end of the second preceding
Collection Period (or as of the Cut-Off Date, with respect to the first
Distribution Date) and (y) the Class A-2-B Principal Balance immediately
prior to such Distribution Date and the denominator of which is the Pool III
------------------------
Pool Balance as of the end of the second preceding Collection Period (or as
of the Cut-Off Date, with respect to the first Distribution Date).
"A-2-C Pool IV Fraction" means, with respect to any Distribution Date,
----------------------
the percentage equivalent of a fraction, the numerator of which is the lesser
-------------------------
of (x) the Pool IV Pool Balance as of the end of the second preceding
Collection Period (or as of the Cut-Off Date, with respect to the first
Distribution Date) and (y) the Class A-2-C Principal Balance immediately
prior to such Distribution Date and the denominator of which is the Pool IV
------------------------
Pool Balance as of the end of the second preceding Collection Period (or as
of the Cut-Off Date, with respect to the first Distribution Date).
"Adjusted Arm Gross WAC" means, with respect to any Distribution Date,
----------------------
the percentage equivalent of a fraction, the numerator of which is the sum of
-------------------------
(i) the product of (x) the Pool II Gross WAC and (y) the excess of (1) the
Pool II Pool Balance as of the end of the second preceding Collection Period
(or as of the Cut-Off Date with respect to the first Distribution Date) over
(2) the Extra Pool II Collateral Amount plus (ii) the product of (x) the Pool
----
III Gross WAC and (y) the excess of (1) the Pool III Pool Balance as of the
end of the second preceding Collection Period (or as of the Cut-Off Date with
respect to the first Distribution Date) over (2) the Extra Pool III
Collateral Amount plus (iii) the product of (x) the Pool IV Gross WAC and (y)
----
the excess of (1) the Pool IV Pool Balance as of the end of the second
preceding Collection Period (or as of the Cut-Off Date with respect to the
first Distribution Date) over (2) the Extra Pool IV Collateral Amount plus
----
(iv) the product of (x) the Cross-Support Gross WAC and (y) the sum of (1)
the Pool II Deficit, (2) the Pool III Deficit and (3) the Pool IV Deficit and
the denominator of which is (x) the sum of the Pool II Pool Balance as of the
---------------------------
end of the second preceding Collection Period (or as of the Cut-Off Date with
respect to the first Distribution Date), the Pool III Pool Balance as of the
end of the second preceding Collection Period (or as of the Cut-Off Date with
respect to the first Distribution Date) and the Pool IV Balance as of the end
of the second preceding Collection Period (or as of the Cut-Off Date with
respect to the first Distribution Date) minus (y) the sum of the Extra Pool
-----
II Collateral Amount, the Extra Pool III Collateral Amount and the Extra Pool
IV Collateral Amount plus (z) the sum of the Pool II Deficit, the Pool III
----
Deficit and the Pool IV Deficit.
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"Adjusted Fixed Unscheduled Principal" means, with respect to any
------------------------------------
Distribution Date, the sum of (i) the product of (x) the aggregate of all
Unscheduled Principal Collections with respect to the Pool I Loans (other
than the PO Portion of any Discount Loan) included in the related Servicer
Remittance Amount and (y) a fraction, the numerator of which is the Fixed
Supporting Fixed Amount and the denominator of which is the Pool I Pool
Balance as of the end of the second preceding Collection Period (or as of the
Cut-Off Date, with respect to the first Distribution Date) and (ii) the
product of (x) the Cross-Support Unscheduled Principal Distribution Amount
and (y) a fraction, the numerator of which is the ARM Supporting Fixed Amount
and the denominator of which is the Collateral Amount Available for Cross-
Support.
"Adjusted Net Coupon Rate" means, with respect to any Mortgage Loan and
------------------------
Distribution Date, the Adjusted Gross Coupon Rate for such Mortgage Loan and
Distribution, less 0.395%.
----
"Adjusted Pool I Gross WAC" means, with respect to any Distribution
-------------------------
Date, the percentage equivalent of a fraction, the numerator of which is the
----------------------
sum of (i) the product of (x) Pool I Gross WAC and (y) the Fixed Supporting
Fixed Amount and (ii) the product of (x) the Cross-Support Gross WAC and (y)
the ARM Supporting Fixed Amount and the denominator of which is the sum of
------------------------
(A) the Fixed Supporting Fixed Amount and (B) the ARM Supporting Fixed
Amount.
"Adjusted Pool II Gross WAC" means, with respect to any Distribution
--------------------------
Date, the percentage equivalent of a fraction, the numerator of which is the
----------------------
sum of (i) the product of (x) the Pool II Gross WAC and (y) the Pool II Pool
Balance as of the end of the second preceding Collection Period (or as of the
Cut-Off Date, with respect to the first Distribution Date) and (ii) the
product of (x) the Cross-Support Gross WAC and (y) the Pool II Collateral
Deficit and the denominator of which is the sum of (A) the Pool II Pool
------------------------
Balance as of the end of the second preceding Collection Period (or as of the
Cut-Off Date, with respect to the first Distribution Date) and (B) the Pool
II Collateral Deficit.
"Adjusted Pool III Gross WAC" means, with respect to any Distribution
---------------------------
Date, the percentage equivalent of a fraction, the numerator of which is the
----------------------
sum of (i) the product of (x) the Pool III Gross WAC and (y) the Pool III
Pool Balance as of the end of the second preceding Collection Period (or as
of the Cut-Off Date, with respect to the first Distribution Date) and (ii)
the product of (x) the Cross-Support Gross WAC and (y) the Pool III
Collateral Deficit and the denominator of which is the sum of (A) the Pool
------------------------
III Pool Balance as of the end of the second preceding Collection Period (or
as of the Cut-Off Date, with respect to the first Distribution Date) and (B)
the Pool III Collateral Deficit.
"Adjusted Pool IV Gross WAC" means, with respect to any Distribution
--------------------------
Date, the percentage equivalent of a fraction, the numerator of which is the
----------------------
sum of (i) the product of (x) the Pool IV Gross WAC and (y) the Pool IV Pool
Balance as of the end of the second preceding Collection Period (or as of the
Cut-Off Date, with respect to the first Distribution Date) and (ii) the
product of (x) the Cross-Support Gross WAC and (y) the Pool IV Collateral
Deficit and the denominator of which is the sum of (A) the Pool IV Pool
------------------------
Balance as of the end of the second preceding Collection Period (or as of the
Cut-Off Date, with respect to the first Distribution Date) and (B) the Pool
IV Collateral Deficit.
"Advance Payment" means, with respect to any Mortgage Loan, a payment
---------------
received from the related Mortgagor and intended as an early payment of one
or more (but not more than three) upcoming Monthly Mortgage payments.
"Aggregate Certificate Principal Balance" means, as of any date, the sum
---------------------------------------
of the Class A-1 Principal Balance, the Class PO Principal Balance, the Class
A-2-A Principal Balance, the Class A-2-B Principal Balance, the Class A-2-C
Principal Balance, the Class M-1 Principal Balance, the Class M-2 Principal
Balance, the Class M-3 Principal Balance, the Class B-1 Principal Balance,
the Class B-2 Principal Balance, and the Class B-3 Principal Balance as of
such date.
S-94
<PAGE>
"Aggregate Class A-2 Principal Balance" means, as of any date, the sum
-------------------------------------
of the Class A-2-A of Principal Balance, the Class A-2-B Principal Balance
and the Class A-2-C Principal Balance as of such date.
"Aggregate Fixed Rate Certificate Principal Balance" means, as of any
--------------------------------------------------
date, the sum of the Class A-1 Principal Balance and the Aggregate
Subordinate Certificate Principal Balance as of such date.
"Aggregate Realized Loss Amount" means, with respect to any Distribution
------------------------------
Date, the aggregate amount of Realized Losses posted by the Servicer with
respect to the Mortgage Loans during the related Collection Period.
"Aggregate Subordinate Certificate Principal Balance" means, as of any
---------------------------------------------------
date, the sum of the Class M-1 Principal Balance, the Class M-2 Principal
Balance, the Class M-3 Principal Balance, the Class B-1 Principal Balance,
the Class B-2 Principal Balance and the Class B-3 Principal Balance as of
such date.
"ARM Collateral Deficit" means, with respect to any Distribution Date,
----------------------
the sum of the Pool II Collateral Deficit, the Pool III Collateral Deficit
and the Pool IV Collateral Deficit.
"ARM Loans" means all Mortgage Loans having an adjustable rate of
---------
interest.
"ARM Pool Principal Balance" means, as of any date, the sum of the Pool
--------------------------
II Pool Balance, the Pool III Pool Balance and Pool IV Pool Balance as of
such date.
"ARM Supporting Fixed Amount" means, with respect to any Distribution
---------------------------
Date, the excess, if any, of (x) the ARM Pool Principal Balance as of the end
of the second preceding Collection Period over (y) the Aggregate Class A-2
Principal Balance immediately prior to such Distribution Date.
"ARM Supporting Floating Amount" means, with respect to any Distribution
------------------------------
Date, the lesser of (x) the Aggregate Class A-2 Principal Balance immediately
prior to such Distribution Date and (y) the ARM Pool Principal Balance as of
the end of the second preceding Collection Period.
"Available Funds" means, with respect to any Distribution Date, the
---------------
amount of the Servicer Remittance Amount transferred from the Collection
Account to the Certificate Account on the related Servicer Remittance Date.
"Class A-1 Formula Interest Current Amount" means, with respect to any
-----------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class A-1 Pass-
Through Rate and (y) the Class A-1 Principal Balance immediately prior to
such Distribution Date.
"Class A-1 Formula Interest Distribution Amount" means, with respect to
----------------------------------------------
any Distribution Date, the sum of (i) the Class A-1 Formula Interest Current
Amount and (ii) the Class A-1 Interest Shortfall Amount.
"Class A-1 Interest Distribution Amount" means, with respect to any
--------------------------------------
Distribution Date, the lesser of (x) the Class A-1 Formula Interest
Distribution Amount and (y) the product of (i) the Senior Interest
Distribution Amount and (ii) a fraction, the numerator of which is the Class
A-1 Formula Interest Distribution Amount and the denominator of which is the
Senior Formula Interest Distribution Amount.
"Class A-1 Interest Shortfall Amount" means, with respect to any
-----------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class A-1 Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class A-1 Certificateholders on all prior Distribution Dates pursuant to
clause (i)(a) under "Flow of Funds" above.
"Class A-1 Pass-Through Rate" means 7.0000% per annum.
---------------------------
S-95
<PAGE>
"Class A-1 Principal Balance" means, as of any date, the Original Class
---------------------------
A-1 Principal Balance minus the aggregate cumulative amount of (i) amounts
described in clause (iii)(a) of "Flow of Funds" above prior to such date,
(ii) amounts described in clause (iv)(a)(1) of "Flow of Funds" above prior to
such date, (iii) amounts described in clause (iv)(b)(1) of "Flow of Funds"
above prior to such date and (iv) amounts described in clause (viii)(a) under
"Allocation of Realized Losses" above prior to such date.
"Class A-1 Scheduled Principal Distribution Amount" means, with respect
-------------------------------------------------
to any Distribution Date, the product of
(A) the sum of (i) the product of (x) a fraction, the numerator of
----------------
which is the Fixed Supporting Fixed Amount and the denominator of which
-----
is the Pool I Pool Balance as of the end of the second preceding
Collection Period (or as of the Cut-Off Date with respect to the first
Distribution Date) and (y) the Pool I Scheduled Principal Collections
during the related Collection Period and (ii) the product of (x) a
fraction, the numerator of which is the ARM Supporting Fixed Amount and
----------------------
the denominator of which is the Collateral Amount Available for Cross-
------------------------
Support and (y) the Cross-Support Scheduled Principal Distribution
Amount; and
(B) a fraction, the numerator of which is the Class A-1 Principal
-------------------------
Balance immediately prior to such Distribution Date and the denominator
of which is the sum of the Class A-1 Principal Balance, the Class M-1
Principal Balance, the Class M-2 Principal Balance, the Class M-3
Principal Balance, the Class B-1 Principal Balance, the Class B-2
Principal Balance and the Class B-3 Principal Balance immediately prior
to such Distribution Date.
"Class A-1 Unscheduled Principal Distribution Amount" means, with
---------------------------------------------------
respect to any Distribution Date, the product of
(A) the sum of (i) the product of (x) a fraction, the numerator of
----------------
which is the Fixed Supporting Fixed Amount and the denominator of which
-----
is the Pool I Pool Balance as of the end of the second preceding
Collection Period (or as of the Cut-Off Date with respect to the first
Distribution Date) and (y) the aggregate Unscheduled Principal
Collections with respect to the Pool I Loans (other than the PO Portion
of any Discount Loan) during the related Collection Period and (ii) the
product of (x) a fraction, the numerator of which is the ARM Supporting
----------------------
Fixed Amount and the denominator of which is the Collateral Amount
------------------------
Available for Cross-Support and (y) the Cross-Support Unscheduled
Principal Distribution Amount; and
(B) a fraction, the numerator of which is the Class A-1 Principal
-------------------------
Balance immediately prior to such Distribution Date and the denominator
of which is the sum of the Class A-1 Principal Balance, the Class M-1
Principal Balance, the Class M-2 Principal Balance, the Class M-3
Principal Balance, the Class B-1 Principal Balance, the Class B-2
Principal Balance and the Class B-3 Principal Balance immediately prior
to such Distribution Date.
"Class A-2 Principal Balance" means, as of any date, the sum of the
---------------------------
Class A-2-A Principal Balance, the Class A-2-B Principal Balance and the
Class A-2-C Principal Balance as of such date.
"Class A-2-A Formula Interest Current Amount" means, with respect to any
-------------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class A-2-A Pass-
Through Rate applicable to such Distribution Date and (y) the Class A-2-A
Principal Balance immediately prior to such Distribution Date.
"Class A-2-A Formula Interest Distribution Amount" means, with respect
------------------------------------------------
to any Distribution Date, the sum of (i) the Class A-2-A Formula Interest
Current Amount and (ii) the Class A-2-A Interest Shortfall Amount.
S-96
<PAGE>
"Class A-2-A Interest Distribution Amount" means, with respect to any
----------------------------------------
Distribution Date, the lesser of (x) the Class A-2-A Formula Interest
Distribution Amount and (y) the product of (i) the Senior Interest
Distribution Amount and (ii) a fraction, the numerator of which is the Class
A-2-A Formula Interest Distribution Amount and the denominator of which is
the Senior Formula Interest Distribution Amount.
"Class A-2-A Interest Shortfall Amount" means, with respect to any
-------------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class A-2-A Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class A-2-A Certificateholders on all prior Distribution Dates pursuant
to clause (i)(b) under "Flow of Funds" above.
"Class A-2-A Pass-Through Rate" means, with respect to any Distribution
-----------------------------
Date, a per annum rate equal to the lesser of (x) the Pool II Gross WAC for
such Distribution Date less 0.25% and (y) the Adjusted Pool II Gross WAC for
----
such Distribution Date, less 0.395%.
----
"Class A-2-A Principal Balance" means, as of any date, the Original
-----------------------------
Class A-2-A Principal Balance minus the aggregate cumulative amount of (i)
amounts described in clause (iii)(b) under "Flow of Funds" above prior to
such date, (ii) amounts described in clause (iv)(a)(2) under "Flow of Funds"
above prior to such date, (iii) amounts described in clause (iv)(b)(2)(x)
under "Flow of Funds" above prior to such date and (iv) amounts described in
clause (viii)(b) under "Allocation of Realized Losses" above prior to such
date.
"Class A-2-A Scheduled Principal Distribution Amount" means, with
---------------------------------------------------
respect to any Distribution Date, the sum of (x) the product of (i) the A-2-A
Pool II Fraction and (2) the aggregate Scheduled Principal Collections with
respect to the Pool II Loans during the related Collection Period and (y) the
product of (1) a fraction, the numerator of which is the Pool II Collateral
----------------------
Deficit and the denominator of which is the Collateral Amount Available for
------------------------
Cross-Support and (2) the Cross-Support Scheduled Principal Distribution
Amount.
"Class A-2-A Shifted Unscheduled Principal Distribution Amount" means,
-------------------------------------------------------------
with respect to any Distribution Date on which the Class A-1 Principal
Balance is zero, the product of (x) the Shifted Unscheduled Principal
Distribution Amount for such Distribution Date less, on the Distribution Date
on which the Class A-1 Principal Balance is reduced to zero, any portion
thereof described in clause (iv)(b)(1) under "Flow of Funds" above on such
Distribution Date and (y) a fraction, the numerator of which is an amount
----------------------
equal to the Class A-2-A Principal Balance immediately prior to such
Distribution Date, less any amount distributed in reduction thereof on such
----
Distribution Date pursuant to clause (iii)(b) under "Flow of Funds" above and
the denominator of which is the sum of (i) the Class A-2-A Principal Balance
---------------------------
immediately prior to such Distribution Date, less any amount distributed in
reduction thereof on such Distribution Date pursuant to clause (iii)(b) under
"Flow of Funds" above, (ii) the Class A-2-B Principal Balance immediately
prior to such Distribution Date, less any amount distributed in reduction
----
thereof on such Distribution Date pursuant to clause (iii)(c) under "Flow of
Funds" above, and (iii) the Class A-2-C Principal Balance immediately prior
to such Distribution Date, less any amount distributed in reduction thereof
----
on such Distribution Date pursuant to clause (iii)(d) under "Flow of Funds"
above.
"Class A-2-A Unscheduled Principal Distribution Amount" means, with
-----------------------------------------------------
respect to any Distribution Date, the sum of (x) the product of (i) the A-2-A
Pool II Fraction and (2) the aggregate Unscheduled Principal Collections with
respect to the Pool II Loans during the related Collection Period and (y) the
product of (1) a fraction, the numerator of which is the Pool II Collateral
----------------------
Deficit and the denominator of which is the Collateral Amount Available for
------------------------
Cross-Support and (2) the Cross-Support Unscheduled Principal Distribution
Amount.
"Class A-2-B Formula Interest Current Amount" means, with respect to any
-------------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class A-2-B Pass-
Through Rate applicable to such Distribution Date and (y) the Class A-2-B
Principal Balance immediately prior to such Distribution Date.
S-97
<PAGE>
"Class A-2-B Formula Interest Distribution Amount" means, with respect
------------------------------------------------
to any Distribution Date, the sum of (i) the Class A-2-B Formula Interest
Current Amount and (ii) the Class A-2-B Interest Shortfall Amount.
"Class A-2-B Interest Distribution Amount" means, with respect to any
----------------------------------------
Distribution Date, the lesser of (x) the Class A-2-B Formula Interest
Distribution Amount and (y) the product of (i) the Senior Interest
Distribution Amount and (ii) a fraction, the numerator of which is the Class
A-2-B Formula Interest Distribution Amount and the denominator of which is
the Senior Formula Interest Distribution Amount.
"Class A-2-B Interest Shortfall Amount" means, with respect to any
-------------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class A-2-B Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class A-2-B Certificateholders on all prior Distribution Dates pursuant
to clause (i)(c) under "Flow of Funds" above.
"Class A-2-B Pass-Through Rate" means, with respect to any Distribution
-----------------------------
Date, a per annum rate equal to the lesser of (x) the Pool III Gross WAC for
such Distribution Date less 0.35% and (y) the Adjusted Pool III Gross WAC for
----
such Distribution Date, less 0.395%.
----
"Class A-2-B Principal Balance" means, as of any date, the Original
-----------------------------
Class A-2-B Principal Balance minus the aggregate cumulative amount of (i)
amounts described in clause (iii)(c) under "Flow of Funds" above prior to
such date, (ii) amounts described in clause (iv)(a)(3) under "Flow of Funds"
above prior to such date, (iii) amounts described in clause (iv)(b)(2)(y)
under "Flow of Funds" above prior to such date and (iv) amounts described in
clause (viii)(c) under "Allocation of Realized Losses" above prior to such
date.
"Class A-2-B Scheduled Principal Distribution Amount" means, with
---------------------------------------------------
respect to any Distribution Date, the sum of (x) the product of (1) the A-2-B
Pool III Fraction and (2) the aggregate Scheduled Principal Collections with
respect to the Pool III Loans during the related Collection Period and (y)
the product of (1) a fraction, the numerator of which is the Pool III
----------------------
Collateral Deficit and the denominator of which is the Collateral Amount
------------------------
Available for Cross-Support and (2) the Cross-Support Scheduled Principal
Distribution Amount.
"Class A-2-B Shifted Unscheduled Principal Distribution Amount" means,
-------------------------------------------------------------
with respect to any Distribution Date on which the Class A-1 Principal
Balance is zero, the product of (x) the Shifted Unscheduled Principal
Distribution Amount for such Distribution Date, less, on the Distribution
Date on which the Class A-1 Principal Balance is reduced to zero, any portion
thereof described in clause (iv)(b)(1) under "Flow of Funds" above on such
Distribution Date and (y) a fraction, the numerator of which is an amount
----------------------
equal to the Class A-2-B Principal Balance immediately prior to such
Distribution Date, less any amount distributed in reduction thereof on such
----
Distribution Date pursuant to clause (iii)(c) under "Flow of Funds" above and
the denominator of which is the sum of (i) the Class A-2-A Principal Balance
---------------------------
immediately prior to such Distribution Date, less any amount distributed in
reduction thereof on such Distribution Date pursuant to clause (iii)(b) under
"Flow of Funds" above, (ii) the Class A-2-B Principal Balance immediately
prior to such Distribution Date, less any amount distributed in reduction
----
thereof on such Distribution Date pursuant to clause (iii)(c) under "Flow of
Funds" above, and (iii) the Class A-2-C Principal Balance immediately prior
to such Distribution Date, less any amount distributed in reduction thereof
----
on such Distribution Date pursuant to clause (iii)(d) under "Flow of Funds"
above.
"Class A-2-B Unscheduled Principal Distribution Amount" means, with
-----------------------------------------------------
respect to any Distribution Date, the sum of (x) the product of (1) the A-2-B
Pool III Fraction and (2) the aggregate Unscheduled Principal Collections
with respect to the Pool III Loans during the related Collection Period and
(y) the product of (1) a fraction, the numerator of which is the Pool III
----------------------
Collateral Deficit and the denominator of which is the Collateral Amount
------------------------
Available for Cross-Support and (2) the Cross-Support Unscheduled Principal
Distribution Amount.
S-98
<PAGE>
"Class A-2-C Formula Interest Current Amount" means, with respect to any
-------------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class A-2-C Pass-
Through Rate applicable to such Distribution Date and (y) the Class A-2-C
Principal Balance immediately prior to such Distribution Date.
"Class A-2-C Formula Interest Distribution Amount" means, with respect
------------------------------------------------
to any Distribution Date, the sum of (i) the Class A-2-C Formula Interest
Current Amount and (ii) the Class A-2-C Interest Shortfall Amount.
"Class A-2-C Interest Distribution Amount" means, with respect to any
----------------------------------------
Distribution Date, the lesser of (x) the Class A-2-C Formula Interest
Distribution Amount and (y) the product of (i) the Senior Interest
Distribution Amount and (ii) a fraction, the numerator of which is the Class
A-2-C Formula Interest Distribution Amount and the denominator of which is
the Senior Formula Interest Distribution Amount.
"Class A-2-C Interest Shortfall Amount" means, with respect to any
-------------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class A-2-C Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class A-2-C Certificateholders on all prior Distribution Dates pursuant
to clause (i)(d) under "Flow of Funds" above.
"Class A-2-C Pass-Through Rate" means, with respect to any Distribution
-----------------------------
Date, a per annum rate equal to the lesser of (x) the Pool IV Gross WAC for
such Distribution Date less 1.75% and (y) the Adjusted Pool IV WAC for such
Distribution Date, less 0.395%.
----
"Class A-2-C Principal Balance" means, as of any date, the Original
-----------------------------
Class A-2-C Principal Balance minus the aggregate cumulative amount of (i)
amounts described in clause (iii)(d) under "Flow of Funds" above prior to
such date, (ii) amounts described in clause (iv)(a)(4) under "Flow of Funds"
above prior to such date, (iii) amounts described in clause (iv)(b)(2)(z)
under "Flow of Funds" above prior to such date and (iv) amounts described in
clause (viii)(d) under "Allocation of Realized Losses" above prior to such
date.
"Class A-2-C Scheduled Principal Distribution Amount" means, with
---------------------------------------------------
respect to any Distribution Date, the sum of (x) the product of (1) the A-2-C
Pool IV Fraction and (2) the aggregate Scheduled Principal Collections with
respect to the Pool IV Loans during the related Collection Period and (y) the
product of (1) a fraction, the numerator of which is the Pool IV Collateral
----------------------
Deficit and the denominator of which is the Collateral Amount Available for
------------------------
Cross-Support and (2) the Cross-Support Scheduled Principal Distribution
Amount.
"Class A-2-C Shifted Unscheduled Principal Distribution Amount" means,
-------------------------------------------------------------
with respect to any Distribution Date on which the Class A-1 Principal
Balance is zero, the product of (x) the Shifted Unscheduled Principal
Distribution Amount for such Distribution Date, less, on the Distribution
Date on which the Class A-1 Principal Balance is reduced to zero, any portion
thereof described in clause (iv)(b)(1) under "Flow of Funds" above on such
Distribution Date and (y) a fraction, the numerator of which is an amount
----------------------
equal to the Class A-2-C Principal Balance immediately prior to such
Distribution Date, less any amount distributed in reduction thereof on such
----
Distribution Date pursuant to clause (iii)(d) under "Flow of Funds" above and
the denominator of which is the sum of (i) the Class A-2-A Principal Balance
---------------------------
immediately prior to such Distribution Date, less any amount distributed in
reduction thereof on such Distribution Date pursuant to clause (iii)(b) under
"Flow of Funds" above, (ii) the Class A-2-B Principal Balance immediately
prior to such Distribution Date, less any amount distributed in reduction
----
thereof on such Distribution Date pursuant to clause (iii)(c) under "Flow of
Funds" above, and (iii) the Class A-2-C Principal Balance immediately prior
to such Distribution Date, less any amount distributed in reduction thereof
----
on such Distribution Date pursuant to clause (iii)(d) under "Flow of Funds"
above.
"Class A-2-C Unscheduled Principal Distribution Amount" means, with respect
-----------------------------------------------------
to any Distribution Date, the sum of (x) the product of (1) the A-2-C Pool IV
Fraction and (2) the aggregate Unscheduled Principal
S-99
<PAGE>
Collections with respect to the Pool IV Loans during the related Collection
Period and (y) the product of (1) a fraction, the numerator of which is the
----------------------
Pool IV Collateral Deficit and the denominator of which is the Collateral
------------------------
Amount Available for Cross-Support and (2) the Cross-Support Unscheduled
Principal Distribution Amount.
"Class A-IO Formula Interest Current Amount" means, with respect to any
------------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class A-IO Pass-
Through Rate and (y) the Class A-IO Notional Principal Balance.
"Class A-IO Formula Interest Distribution Amount" means, with respect to
-----------------------------------------------
any Distribution Date, the sum of (i) the Class A-IO Formula Interest Current
Amount and (ii) the Class A-IO Interest Shortfall Amount.
"Class A-IO Interest Distribution Amount" means, with respect to any
---------------------------------------
Distribution Date, the lesser of (x) the Class A-IO Formula Interest
Distribution Amount and (y) the product of (i) the Senior Interest
Distribution Amount and (ii) a fraction, the numerator of which is the Class
A-IO Formula Interest Distribution Amount and the denominator of which is the
Senior Formula Interest Distribution Amount.
"Class A-IO Interest Shortfall Amount" means, with respect to any
------------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class A-IO Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class A-IO Certificateholders on all prior Distribution Dates pursuant to
clause (i)(f) under "Flow of Funds" above.
"Class A-IO Pass-Through Rate" means, with respect to any Distribution
----------------------------
Date, a per annum rate equal to the Adjusted ARM Gross WAC with respect to
such Distribution Date less the weighted average of the Class A-2-A Pass-
----
Through Rate, the Class A-2-B Pass-Through Rate and the Class A-2-C Pass-
Through Rate for such Distribution Date, less 0.395%.
----
"Class B-1 Formula Interest Current Amount" means, with respect to any
-----------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class B-1 Pass-
Through Rate applicable to such Distribution Date and (y) the Class B-1
Principal Balance immediately prior to such Distribution Date.
"Class B-1 Formula Interest Distribution Amount" means, with respect to
----------------------------------------------
any Distribution Date, the sum of (i) the Class B-1 Formula Interest Current
Amount and (ii) the Class B-1 Interest Shortfall Amount.
"Class B-1 Interest Distribution Amount" means, with respect to any
--------------------------------------
Distribution Date, the lesser of (x) the Class B-1 Formula Interest
Distribution Amount and (y) the excess of (i) the Subordinate Interest
Distribution Amount over (ii) the sum of the Class M-1 Interest Distribution
Amount, the Class M-2 Interest Distribution Amount and the Class M-3 Interest
Distribution Amount.
"Class B-1 Interest Shortfall Amount" means, with respect to any
-----------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class B-1 Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class B-1 Certificateholders on all prior Distribution Dates pursuant to
clause (v)(d) under "Flow of Funds" above.
"Class B-1 Pass-Through Rate" means, with respect to any Distribution
---------------------------
Date, a per annum rate equal to the Adjusted Pool I Gross WAC for such
Distribution Date, less 0.395%.
----
"Class B-1 Percentage" means, with respect to any Distribution Date, the
--------------------
percentage equivalent of a fraction, the numerator of which is the Class B-1
Principal Balance immediately prior to such Distribution Date and the
denominator of which is the Aggregate Subordinate Certificate Principal
Balance immediately prior to such Distribution Date.
S-100
<PAGE>
"Class B-1 Principal Balance" means, as of any date, the Original Class
---------------------------
B-1 Principal Balance minus the aggregate cumulative amount of (i) amounts
described in clause (xii) under "Flow of Funds" above prior to such date,
(ii) amounts described in clause (xiii) under "Flow of Funds" above, prior to
such date and (iii) amounts described in clause (iv) under "Allocation of
Realized Losses" above prior to such date.
"Class B-1 Scheduled Principal Distribution Amount" means, with respect
-------------------------------------------------
to any Distribution Date, the product of (x) the Class B-1 Percentage
applicable to such Distribution Date and (y) the Subordinate Scheduled
Principal Distribution Amount.
"Class B-1 Unscheduled Principal Distribution Amount" means: (x) with
---------------------------------------------------
respect to any Distribution Date on which the Class B-1 Certificates are not
an Eligible Subordinate Class, zero; (y) with respect to any Distribution
Date on which the Class B-1 Certificates are an Eligible Subordinate Class,
the product of (i) the Subordinate Unscheduled Principal Distribution Amount
and (ii) a fraction, the numerator of which is the Class B-1 Principal
Balance and the denominator is the aggregate Eligible Subordinate Balance.
"Class B-2 Formula Interest Current Amount" means, with respect to any
-----------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class B-2 Pass-
Through Rate applicable to such Distribution Date and (y) the Class B-2
Principal Balance immediately prior to such Distribution Date.
"Class B-2 Formula Interest Distribution Amount" means, with respect to
----------------------------------------------
any Distribution Date, the sum of (i) the Class B-2 Formula Interest Current
Amount and (ii) the Class B-2 Interest Shortfall Amount.
"Class B-2 Interest Distribution Amount" means, with respect to any
--------------------------------------
Distribution Date, the lesser of (x) the Class B-2 Formula Interest
Distribution Amount and (y) the excess of (i) the Subordinate Interest
Distribution Amount over (ii) the sum of the Class M-1 Interest Distribution
Amount, the Class M-2 Interest Distribution Amount, the Class M-3 Interest
Distribution Amount and the Class B-1 Interest Distribution Amount.
"Class B-2 Interest Shortfall Amount" means, with respect to any
-----------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class B-2 Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class B-2 Certificateholders on all prior Distribution Dates pursuant to
clause (v)(e) under "Flow of Funds" above.
"Class B-2 Pass-Through Rate" means, with respect to any Distribution
---------------------------
Date, a per annum rate equal to the Adjusted Pool I Gross WAC for such
Distribution Date, less 0.395%.
----
"Class B-2 Percentage" means, with respect to any Distribution Date, the
--------------------
percentage equivalent of a fraction, the numerator of which is the Class B-2
Principal Balance immediately prior to such Distribution Date and the
denominator of which is the Aggregate Subordinate Certificate Principal
Balance immediately prior to such Distribution Date.
"Class B-2 Principal Balance" means, as of any date, the Original Class
---------------------------
B-2 Principal Balance minus the aggregate cumulative amount of (i) amounts
described in clause (xiv) under "Flow of Funds" above prior to such date,
(ii) amounts described in clause (xv) under "Flow of Funds" above prior to
such date and (iii) amounts described in clause (iii) under "Allocation of
Realized Losses" above prior to such date.
"Class B-2 Scheduled Principal Distribution Amount" means, with respect
-------------------------------------------------
to any Distribution Date, the product of (x) the Class B-2 Percentage
applicable to such Distribution Date and (y) the Subordinate Scheduled
Principal Distribution Amount.
S-101
<PAGE>
"Class B-2 Unscheduled Principal Distribution Amount" means: (x) with
---------------------------------------------------
respect to any Distribution Date on which the Class B-2 Certificates are not
an Eligible Subordinate Class, zero; (y) with respect to any Distribution
Date on which the Class B-2 Certificates are an Eligible Subordinate Class,
the product of (i) the Subordinate Unscheduled Principal Distribution Amount
and (ii) a fraction, the numerator of which is the Class B-2 Principal
Balance and the denominator is the aggregate Eligible Subordinate Balance.
"Class B-3 Formula Interest Current Amount" means, with respect to any
-----------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class B-3 Pass-
Through Rate and (y) the Class B-3 Principal Balance immediately prior to
such Distribution Date.
"Class B-3 Formula Interest Distribution Amount" means, with respect to
----------------------------------------------
any Distribution Date, the sum of (i) the Class B-3 Formula Interest Current
Amount and (ii) the Class B-3 Interest Shortfall Amount.
"Class B-3 Interest Distribution Amount" means, with respect to any
--------------------------------------
Distribution Date, the lesser of (x) the Class B-3 Formula Interest
Distribution Amount and (y) the excess of (i) the Subordinate Interest
Distribution Amount over (ii) the sum of the Class M-1 Interest Distribution
Amount, the Class M-2 Interest Distribution Amount, the Class M-3 Interest
Distribution Amount, the Class B-1 Interest Distribution Amount, and the
Class B-2 Interest Distribution Amount.
"Class B-3 Interest Shortfall Amount" means, with respect to any
-----------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class B-3 Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class B-3 Certificateholders on all prior Distribution Dates pursuant to
clause (v)(f) under "Flow of Funds" above.
"Class B-3 Pass-Through Rate" means, with respect to any Distribution
---------------------------
Date, a per annum rate equal to the Adjusted Pool I Gross WAC for such
Distribution Date, less 0.395%.
----
"Class B-3 Percentage" means, with respect to any Distribution Date, the
--------------------
percentage equivalent of a fraction, the numerator of which is the Class B-3
Principal Balance immediately prior to such Distribution Date and the
denominator of which is the Aggregate Subordinate Certificate Principal
Balance immediately prior to such Distribution Date.
"Class B-3 Principal Balance" means, as of any date, the Original Class
---------------------------
B-3 Principal Balance minus the aggregate cumulative amount of (i) amounts
described in clause (xvi) under "Flow of Funds" above prior to such date,
(ii) amounts described in clause (xvii) under "Flow of Funds" above, prior to
such date and (iii) amounts described in clause (ii) under "Allocation of
Realized Losses" above prior to such date.
"Class B-3 Scheduled Principal Distribution Amount" means, with respect
-------------------------------------------------
to any Distribution Date, the product of (x) the Class B-3 Percentage
applicable to such Distribution Date and (y) the Subordinate Scheduled
Principal Distribution Amount.
"Class B-3 Unscheduled Principal Distribution Amount" means: (x) with
---------------------------------------------------
respect to any Distribution Date on which the Class B-3 Certificates are not
an Eligible Subordinate Class, zero; (y) with respect to any Distribution
Date on which the Class B-3 Certificates are an Eligible Subordinate Class,
the product of (i) the Subordinate Unscheduled Principal Distribution Amount
and (ii) a fraction, the numerator of which is the Class B-3 Principal
Balance and the denominator is the aggregate Eligible Subordinate Balance.
S-102
<PAGE>
"Class F-IO Formula Interest Current Amount" means, with respect to any
------------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class F-IO Pass-
Through Rate and (y) the Class F-IO Notional Balance immediately prior to
such Distribution Date.
"Class F-IO Formula Interest Distribution Amount" means, with respect to
-----------------------------------------------
any Distribution Date, the sum of (i) the Class F-IO Formula Interest Current
Amount and (ii) the Class F-IO Interest Shortfall Amount.
"Class F-IO Interest Distribution Amount" means, with respect to any
---------------------------------------
Distribution Date, the lesser of (x) the Class F-IO Formula Interest
Distribution Amount and (y) the product of (i) the Senior Interest
Distribution Amount and (ii) a fraction, the numerator of which is the Class
F-IO Formula Interest Distribution Amount and the denominator of which is the
Senior Formula Interest Distribution Amount.
"Class F-IO Interest Shortfall Amount" means, with respect to any
------------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class F-IO Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class F-IO Certificateholders on all prior Distribution Dates pursuant to
clause (i)(e) under "Flow of Funds" above.
"Class F-IO Pass-Through Rate" means with respect to any Distribution
----------------------------
Date, a per annum rate equal to the greater of (a) the excess of (x) the Pool
I Adjusted Net WAC for such Distribution Date, over (y) the Class A-1 Pass-
Through Rate and (b) zero..
"Class M-1 Formula Interest Current Amount" means, with respect to any
-----------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class M-1 Pass-
Through Rate applicable to such Distribution Date and (y) the Class M-1
Principal Balance immediately prior to such Distribution Date.
"Class M-1 Formula Interest Distribution Amount" means, with respect to
----------------------------------------------
any Distribution Date, the sum of (i) the Class M-1 Formula Interest Current
Amount and (ii) the Class M-1 Interest Shortfall Amount.
"Class M-1 Interest Distribution Amount" means, with respect to any
--------------------------------------
Distribution Date, the lesser of (x) the Class M-1 Formula Interest
Distribution Amount and (y) the Subordinate Interest Distribution Amount.
"Class M-1 Interest Shortfall Amount" means, with respect to any
-----------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class M-1 Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class M-1 Certificateholders on all prior Distribution Dates pursuant to
clause (v)(a) under "Flow of Funds" above.
"Class M-1 Pass-Through Rate" means, with respect to any Distribution
---------------------------
Date, a per annum rate equal to the Adjusted Pool I Gross WAC for such
Distribution Date, less 0.395%.
----
"Class M-1 Percentage" means, with respect to any Distribution Date, the
--------------------
percentage equivalent of a fraction, the numerator of which is the Class M-1
Principal Balance immediately prior to such Distribution Date and the
denominator of which is the Aggregate Subordinate Certificate Principal
Balance immediately prior to such Distribution Date.
"Class M-1 Principal Balance" means, as of any date, the Original Class
---------------------------
M-1 Principal Balance minus the aggregate cumulative amount of (i) amounts
described in clause (vi) under "Flow of Funds" above prior to such date, (ii)
amounts described in clause (vii) under "Flow of Funds" above, prior to such
date and (iii) amounts described in clause (vii) under "Allocation of
Realized Losses" above prior to such date.
S-103
<PAGE>
"Class M-1 Scheduled Principal Distribution Amount" means, with respect
-------------------------------------------------
to any Distribution Date, the product of (x) the Class M-1 Percentage
applicable to such Distribution Date and (y) the Subordinate Scheduled
Principal Distribution Amount.
"Class M-1 Unscheduled Principal Distribution Amount" means, with
---------------------------------------------------
respect to any Distribution Date, the product of (i) the Subordinate
Unscheduled Principal Distribution Amount and (ii) a fraction, the numerator
of which is the Class M-1 Principal Balance and the denominator is the
aggregate Certificate Principal Balances of all Eligible Subordinate Classes.
"Class M-2 Formula Interest Current Amount" means, with respect to any
-----------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class M-2 Pass-
Through Rate applicable to such Distribution Date and (y) the Class M-2
Principal Balance immediately prior to such Distribution Date.
"Class M-2 Formula Interest Distribution Amount" means, with respect to
----------------------------------------------
any Distribution Date, the sum of (i) the Class M-2 Formula Interest Current
Amount and (ii) the Class M-2 Interest Shortfall Amount.
"Class M-2 Interest Distribution Amount" means, with respect to any
--------------------------------------
Distribution Date, the lesser of (x) the Class M-2 Formula Interest
Distribution Amount and (y) the excess of (i) the Subordinate Interest
Distribution Amount over (ii) the Class M-1 Interest Distribution Amount.
"Class M-2 Interest Shortfall Amount" means, with respect to any
-----------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class M-2 Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class M-2 Certificateholders on all prior Distribution Dates pursuant to
clause (v)(b) under "Flow of Funds" above.
"Class M-2 Pass-Through Rate" means, with respect to any Distribution
---------------------------
Date, a per annum rate equal to the Adjusted Pool I Gross WAC for such
Distribution Date, less 0.395%.
----
"Class M-2 Percentage" means, with respect to any Distribution Date, the
--------------------
percentage equivalent of a fraction, the numerator of which is the Class M-2
Principal Balance immediately prior to such Distribution Date and the
denominator of which is the Aggregate Subordinate Certificate Principal
Balance immediately prior to such Distribution Date.
"Class M-2 Principal Balance" means, as of any date, the Original Class
---------------------------
M-2 Principal Balance minus the aggregate cumulative amount of (i) amounts
described in clause (viii) under "Flow of Funds" above prior to such date,
(ii) amounts described in clause (ix) under "Flow of Funds" above, prior to
such date and (iii) amounts described in clause (vi) under "Allocation of
Realized Losses" above prior to such date.
"Class M-2 Scheduled Principal Distribution Amount" means, with respect
-------------------------------------------------
to any Distribution Date, the product of (x) the Class M-2 Percentage
applicable to such Distribution Date and (y) the Subordinate Scheduled
Principal Distribution Amount.
"Class M-2 Unscheduled Principal Distribution Amount" means: (x) with
---------------------------------------------------
respect to any Distribution Date on which the Class M-2 Certificates are not
an Eligible Subordinate Class, zero; (y) with respect to any Distribution
Date on which the Class M-2 Certificates are an Eligible Subordinate Class,
the product of (i) the Subordinate Unscheduled Principal Distribution Amount
and (ii) a fraction, the numerator of which is the Class M-2 Principal
Balance and the denominator is the aggregate Certificate Principal Balances
of all Eligible Subordinate Classes.
S-104
<PAGE>
"Class M-3 Formula Interest Current Amount" means, with respect to any
-----------------------------------------
Distribution Date, the product of (x) one-twelfth of the Class M-3 Pass-
Through Rate applicable to such Distribution Date and (y) the Class M-3
Principal Balance immediately prior to such Distribution Date.
"Class M-3 Formula Interest Distribution Amount" means, with respect to
----------------------------------------------
any Distribution Date, the sum of (i) the Class M-3 Formula Interest Current
Amount and (ii) the Class M-3 Interest Shortfall Amount.
"Class M-3 Interest Distribution Amount" means, with respect to any
--------------------------------------
Distribution Date, the lesser of (x) the Class M-3 Formula Interest
Distribution Amount and (y) the excess of (i) the Subordinate Interest
Distribution Amount over (ii) the Class M-1 Interest Distribution Amount plus
the Class M-2 Interest Distribution Amount.
"Class M-3 Interest Shortfall Amount" means, with respect to any
-----------------------------------
Distribution Date, the excess, if any, of (x) the aggregate, cumulative
amount of the Class M-3 Formula Interest Current Amounts due on all prior
Distribution Dates over (y) the aggregate, cumulative amount distributed to
----
the Class M-3 Certificateholders on all prior Distribution Dates pursuant to
clause (v)(c) under "Flow of Funds" above.
"Class M-3 Pass-Through Rate" means, with respect to any Distribution
---------------------------
Date, a per annum rate equal to the Adjusted Pool I Gross WAC for such
Distribution Date, less 0.395%.
----
"Class M-3 Percentage" means, with respect to any Distribution Date, the
--------------------
percentage equivalent of a fraction, the numerator of which is the Class M-3
Principal Balance immediately prior to such Distribution Date and the
denominator of which is the Aggregate Subordinate Certificate Principal
Balance immediately prior to such Distribution Date.
"Class M-3 Principal Balance" means, as of any date, the Original Class
---------------------------
M-3 Principal Balance minus the aggregate cumulative amount of (i) amounts
described in clause (x) under "Flow of Funds" above prior to such date, (ii)
amounts described in clause (xi) under "Flow of Funds" above, prior to such
date and (iii) amounts described in clause (v) under "Allocation of Realized
Losses" above prior to such date.
"Class M-3 Scheduled Principal Distribution Amount" means, with respect
-------------------------------------------------
to any Distribution Date, the product of (x) the Class M-3 Percentage
applicable to such Distribution Date and (y) the Subordinate Scheduled
Principal Distribution Amount.
"Class M-3 Unscheduled Principal Distribution Amount" means: (x) with
---------------------------------------------------
respect to any Distribution Date on which the Class M-3 Certificates are not
an Eligible Subordinate Class, zero; (y) with respect to any Distribution
Date on which the Class M-3 Certificates are an Eligible Subordinate Class,
the product of (i) the Subordinate Unscheduled Principal Distribution Amount
and (ii) a fraction, the numerator of which is the Class M-3 Principal
Balance and the denominator is the aggregate Certificate Principal Balances
of all Eligible Subordinate Classes.
"Class PO Distribution Amount" means, with respect to any Distribution
----------------------------
Date, the excess of (x) the Available Funds over (y) the Senior Interest
Distribution Amount.
"Class PO Principal Distribution Amount" means, with respect to any
--------------------------------------
Distribution Date, the sum of (A) the aggregate for all Discount Loans of the
following amounts with respect to each Discount Loan: the product of (x) a
fraction, the numerator of which is the Discount Percentage for such Discount
Loan and the denominator of which is 7.00% and (y) the sum of (i) any
Scheduled Principal Collection with respect to such Discount Loan included in
the related Servicer Remittance Amount, (ii) any Unscheduled Principal
Collection with respect to such Discount Loan included in the related
Servicer Remittance Amount and (iii) the amount of any Realized Loss
experienced by such Discount Loan during the related Collection Period and
(B) the reduction, during the related Collection Period, in the Aggregate PO
Arrearage Amount.
S-105
<PAGE>
"Class R Amount" means, as of any date, the Original Class R Amount less
--------------
any reductions therein resulting from the allocation thereto of any Realized
Losses, pursuant to clause (i) under "Allocations of Realized Losses" below
prior to such date.
"Collateral Amount Available For Cross-Support" means, with respect to
---------------------------------------------
any Distribution Date, the sum of the Extra Pool II Collateral Amount, the
Extra Pool III Collateral Amount, the Extra Pool IV Collateral Amount and the
Fixed Supporting Floating Amount.
"Cross-Support Gross WAC" means, with respect to any Distribution Date,
-----------------------
the percentage equivalent of a fraction, the numerator of which is the sum of
----------------------
(i) the product of (x) the Extra Pool II Collateral Amount and (y) the Pool
II Gross WAC, (ii) the product of (x) the Extra Pool III Collateral Amount
and (y) the Pool III Gross WAC, (iii) the product of (x) the Extra Pool IV
Collateral Amount Balance and (y) the Pool IV Gross WAC and (iv) the product
of (x) the Fixed Supporting Floating Amount and (y) the Pool I Gross WAC and
---
the denominator of which is the Collateral Amount Available For Cross-
------------------------
Support.
"Cross-Support Scheduled Principal Distribution Amount" means, with
-----------------------------------------------------
respect to any Distribution Date, the sum of the Extra Pool II Scheduled
Principal Distribution Amount, the Extra Pool III Scheduled Principal
Distribution Amount, the Extra Pool IV Scheduled Principal Distribution
Amount and the Fixed Supporting Floating Scheduled Principal Distribution
Amount.
"Cross-Support Unscheduled Principal Distribution Amount" means, with
-------------------------------------------------------
respect to any Distribution Date, the sum of the Extra Pool II Unscheduled
Principal Distribution Amount, the Extra Pool III Unscheduled Principal
Distribution Amount, the Extra Pool IV Unscheduled Principal Distribution
Amount and the Fixed Supporting Floating Unscheduled Principal Distribution
Amount.
"Deficient Valuation" means, with respect to any Mortgage Loan, the
-------------------
dollar amount of any reduction in the principal balance owed by the related
mortgagor, as ordered by a court in connection with a bankruptcy proceeding
with respect to the related Mortgagor.
"Discount Loan" means any Fixed Rate Loan having a Net Coupon Rate less
-------------
than 7.00% per annum.
"Discount Percentage" means, with respect to any Discount Loan, the
-------------------
excess of (x) 7.00% over (y) the Net Coupon Rate for such Discount Loan.
"Eligible Subordinate Balance" means, with respect to any Distribution
----------------------------
Date, the sum of the Certificate Principal Balances of all Eligible
Subordinate Classes immediately prior to such Distribution Date.
"Eligible Subordinate Class" means, as of any Distribution Date, any
--------------------------
Subordinate Class as to which the Related Subordination Percentage,
calculated immediately prior to such Distribution Date, equals or exceeds the
Related Original Subordination Percentage.
"Extra Pool II Collateral Amount" means, with respect to any
-------------------------------
Distribution Date, the greater of (x) the excess of (i) the Pool II Pool
Balance as of the end of the second preceding Collection Period (or as of the
Cut-Off Date, in the case of the first Distribution Date) over (ii) the Class
A-2-A Principal Balance immediately prior to such Distribution Date and (y)
zero.
"Extra Pool II Scheduled Principal Distribution Amount" means, with
-----------------------------------------------------
respect to any Distribution Date, the product of (x) a fraction, the
---
numerator of which is the Extra Pool II Collateral Amount and the denominator
------------------ ---------------
of which is the Pool II Pool Balance as of the end of the second preceding
--------
Collection Period
S-106
<PAGE>
(or as of the Cut-Off Date, in the case of the first Distribution Date) and
(y) the aggregate Scheduled Principal Collections with respect to the Pool II
Loans during the related Collection Period.
"Extra Pool II Unscheduled Principal Distribution Amount" means, with
-------------------------------------------------------
respect to any Distribution Date, the product of (x) a fraction, the
---
numerator of which is the Extra Pool II Collateral Amount and the denominator
------------------ ---------------
of which is the Pool II Pool Balance as of the end of the second preceding
--------
Collection Period (or as of the Cut-Off Date, in the case of the first
Distribution Date) and (y) the aggregate Unscheduled Principal Collections
with respect to the Pool II Loans during the related Collection Period.
"Extra Pool III Collateral Amount" means, with respect to any
--------------------------------
Distribution Date, the greater of (x) the excess of (i) the Pool III Pool
Balance as of the end of the second preceding Collection Period (or as of the
Cut-Off Date, in the case of the first Distribution Date) over (ii) the Class
A-2-B Principal Balance immediately prior to such Distribution Date and (y)
zero.
"Extra Pool III Scheduled Principal Distribution Amount" means, with
------------------------------------------------------
respect to any Distribution Date, the product of (x) a fraction, the
---
numerator of which is the Extra Pool III Collateral Amount and the
------------------ ---
denominator of which is the Pool III Pool Balance as of the end of the second
--------------------
preceding Collection Period (or as of the Cut-Off Date, in the case of the
first Distribution Date) and (y) the aggregate Scheduled Principal
Collections with respect to the Pool III Loans during the related Collection
Period.
"Extra Pool III Unscheduled Principal Distribution Amount" means, with
--------------------------------------------------------
respect to any Distribution Date, the product of (x) a fraction, the
---
numerator of which is the Extra Pool III Collateral Amount and the
------------------ ---
denominator of which is the Pool III Pool Balance as of the end of the second
--------------------
preceding Collection Period (or as of the Cut-Off Date, in the case of the
first Distribution Date) and (y) the aggregate Unscheduled Principal
Collections with respect to the Pool III Loans during the related Collection
Period.
"Extra Pool IV Collateral Amount" means, with respect to any
-------------------------------
Distribution Date, the greater of (x) the excess of (i) the Pool IV Pool
Balance as of the end of the second preceding Collection Period (or as of the
Cut-Off Date, in the case of the first Distribution Date) over (ii) the Class
A-2-C Principal Balance immediately prior to such Distribution Date and (y)
zero.
"Extra Pool IV Scheduled Principal Distribution Amount" means, with
-----------------------------------------------------
respect to any Distribution Date, the product of (x) a fraction, the
---
numerator of which is the Extra Pool IV Collateral Amount and the denominator
------------------ ---------------
of which is the Pool IV Pool Balance as of the end of the second preceding
--------
Collection Period (or as of the Cut-Off Date, in the case of the first
Distribution Date) and (y) the aggregate Scheduled Principal Collections with
respect to the Pool IV Loans during the related Collection Period.
"Extra Pool IV Unscheduled Principal Distribution Amount" means, with
-------------------------------------------------------
respect to any Distribution Date, the product of (x) a fraction, the
---
numerator of which is the Extra Pool IV Collateral Amount and the denominator
------------------ ---------------
of which is the Pool IV Pool Balance as of the end of the second preceding
--------
Collection Period (or as of the Cut-Off Date, in the case of the first
Distribution Date) and (y) the aggregate Unscheduled Principal Collections
with respect to the Pool IV Loans during the related Collection Period.
"Fixed Supporting Fixed Amount" means, with respect to any Distribution
-----------------------------
Date, the excess of (x) the Pool I Pool Balance as of the end of the second
preceding Collection Period (or as of the Cut-Off Date with respect to the
first Distribution Date) over (y) the Fixed Supporting Floating Amount.
"Fixed Supporting Floating Amount" means, with respect to any
--------------------------------
Distribution Date, the excess of (x) the Aggregate Class A-2 Principal
Balance immediately prior to such Distribution Date over (y) the ARM Pool
Principal Balance as of the end of the second preceding Collection Period (or
as of the Cut-Off Date with respect to the first Distribution Date).
S-107
<PAGE>
"Fixed Supporting Floating Scheduled Principal Distribution Amount"
-----------------------------------------------------------------
means, with respect to any Distribution Date, the product of (i) a fraction,
the numerator of which is the Fixed Supporting Floating Amount and the
---------------------- ---
denominator of which is the Pool I Pool Balance as of the end of the second
--------------------
preceding Collection Period (or as of the Cut-Off Date, with respect to the
first Distribution Date) and (ii) the Pool I Scheduled Principal Collections
during the related Collection Period.
"Fixed Supporting Floating Unscheduled Principal Distribution Amount"
-------------------------------------------------------------------
means, with respect to any Distribution Date, the product of (i) a fraction,
the numerator of which is the Fixed Supporting Floating Amount and the
---------------------- ---
denominator of which is the Pool I Pool Balance as of the end of the second
--------------------
preceding Collection Period (or as of the Cut-Off Date, with respect to the
first Distribution Date) and (ii) the Pool I Unscheduled Principal
Collections during the related Collection Period.
"Gross Coupon Rate" means, with respect to any Arrearage Loan and
-----------------
Distribution Date, the Adjusted Gross Coupon Rate for such Arrearage Loan as
of the Due Date in the related Collection Period and for any Mortgage Loan
which is not an Arrearage Loan, the Gross Coupon Rate is equal to the gross
rate of such Mortgage Loan.
"Monthly Mortgage Payment" means, with respect to any Mortgage Loan and
------------------------
Due Date, the scheduled amount due on such Due Date, as calculated in
accordance with the terms of the related Note.
"Non-Recoverable Advance" means any Delinquency Advance which the
-----------------------
Servicer has determined will not ultimately be recovered from the related
Mortgage Loan.
"Pool I Classes" means the Class A-1 Certificates, the Class PO
--------------
Certificates, the Class F-IO Certificates, the Class M-1 Certificates, the
Class M-2 Certificates, and the Class M-3 Certificates, the Class B-1
Certificates, the Class B-2 Certificates, and the Class B-3 Certificates, .
"Pool I Gross WAC" means, with respect to any Distribution Date, the
----------------
weighted average Coupon Rate of all Pool I Loans with respect to the related
Collection Period calculated using the Coupon Rates in effect on the related
Due Dates, except in the case of a Discount Loan, in which case the Coupon
Rate shall be deemed to be 7.395%).
"Pool I Loan" means any Mortgage Loan designated by the Seller as
-----------
belonging to Pool I.
"Pool I Pool Balance" means, as of any date, the sum of the Principal
-------------------
Balances of all Pool I Loans as of such date.
"Pool I Net WAC" means, with respect to any Distribution Date, the Pool
--------------
I Gross WAC less 0.395%.
----
"Pool I Scheduled Principal Collections" means, with respect to Pool I
--------------------------------------
and for any Collection Period, the sum of all Scheduled Principal Collections
with respect to Pool I Loans other than (a) the PO Portion of any Discount
Loan and (b) principal receipts in reduction of the Aggregate PO Arrearage
Amount.
"Pool II Classes" means the Class A-2-A Certificates and the portion
---------------
Class A-IO Certificates allocable to interest payable on the Pool II Loans.
"Pool II Collateral Deficit" means, with respect to any Distribution
--------------------------
Date, the excess of (i) the Class A-2-A Principal Balance immediately prior
to such Distribution Date over (ii) the Pool II Pool Balance as of the end of
the second preceding Collection Period (or as of the Cut-Off Date, in the
case of the first Distribution Date).
S-108
<PAGE>
"Pool II Gross WAC" means, with respect to any Distribution Date, the
-----------------
weighted average Coupon Rate of all Pool II Loans with respect to the related
Collection Period calculated using the Coupon Rates in effect on the related
Due Dates.
"Pool II Loan" means any Mortgage Loan designated by the Seller as
------------
belonging to Pool II.
"Pool II Net WAC" means, with respect to any Distribution Date, Pool II
---------------
Gross WAC less 0.395%.
----
"Pool II Pool Balance" means, as of any date, the sum of the Principal
--------------------
Balances of all Pool II Loans as of such date.
"Pool III Classes" means the Class A-2-B Certificates and the portion
----------------
Class A-IO Certificates allocable to interest payable on the Pool III Loans.
"Pool III Collateral Deficit" means, with respect to any Distribution
---------------------------
Date, the excess of (i) the Class A-2-B Principal Balance immediately prior
to such Distribution Date over (ii) the Pool III Pool Balance as of the end
of the second preceding Collection Period (or as of the Cut-Off Date, in the
case of the first Distribution Date).
"Pool III Gross WAC" means, with respect to any Distribution Date, the
------------------
weighted average Coupon Rate of all Pool III Loans with respect to the
related Collection Period calculated using the Coupon Rates in effect on the
related Due Dates.
"Pool III Loan" means any Mortgage Loan designated by the Seller as
-------------
belonging to Pool III.
"Pool III Net WAC" means, with respect to any Distribution Date, the
----------------
Pool III Gross WAC less 0.395%.
----
"Pool III Pool Balance" means, as of any date, the sum of the Principal
---------------------
Balances of all Pool III Loans as of such date.
"Pool IV Classes" means the Class A-2-C Certificates and the portion
---------------
Class A-IO Certificates allocable to interest payable on the Pool IV Loans.
"Pool IV Collateral Deficit" means, with respect to any Distribution
--------------------------
Date, the excess of (i) the Class A-2-C Principal Balance immediately prior
to such Distribution Date over (ii) the Pool IV Pool Balance as of the end of
the second preceding Collection Period (or as of the Cut-Off Date, in the
case of the first Distribution Date).
"Pool IV Gross WAC" means, with respect to any Distribution Date, the
-----------------
weighted average Coupon Rate of all Pool IV Loans with respect to the related
Collection Period calculated using the Coupon Rates in effect on the related
Due Dates.
"Pool IV Loan" means any Mortgage Loan designated by the Seller as
------------
belonging to Pool IV.
"Pool IV Net WAC" means, with respect to any Distribution Date, the Pool
---------------
IV Gross WAC less 0.395%.
----
"Pool IV Pool Balance" means, as of any date, the sum of the Principal
--------------------
Balances of all Pool IV Loans as of such date.
"PO Percentage" means, with respect to any Discount Loan, the Discount
-------------
Percentage divided by 7.00%.
----------
S-109
<PAGE>
"Prepayment" means, with respect to any Mortgage Loan, any payment made
----------
by the related Mortgagor other than (i) Monthly Mortgage Payments, (ii)
amounts to be applied against arrearages in Monthly Mortgage Payments
previously due but delinquent, and (iii) Advance Payments.
"Realized Loss" means, with respect to any Mortgage Loan, the dollar
-------------
amount of (a) a Deficient Valuation or (b) if such Mortgage Loan becomes a
Liquidated Mortgage Loan, the excess of (x) the Principal Balance of such
Mortgage Loan immediately prior to such Mortgage Loan's becoming a Liquidated
Mortgage Loan over (y) the related Net Liquidation Proceeds.
"Related Original Subordination Percentage" means:
-----------------------------------------
(a) with respect to and including the Class M-2 Certificates, 19%.
(b) with respect to and including the Class M-3 Certificates, 13.5%.
"Related Subordination Percentage" means, as of any Distribution Date:
--------------------------------
(a) with respect to the Class M-2 Certificates, percentage equivalent
of a fraction, the numerator of which is the sum of the Class M-2
Principal Balance, the Class M-3 Principal Balance, the Class B-1
Principal Balance, the Class B-2 Principal Balance and the Class B-
3 Principal Balance and the denominator of which is the Aggregate
Certificate Principal Balance, all as calculated immediately prior
to such Distribution Date;
(b) with respect to the Class M-3 Certificates, the percentage
equivalent of a fraction, the numerator of which is the sum of the
Class M-3 Principal Balance, the Class B-1 Principal Balance, the
Class B-2 Principal Balance and the Class B-3 Principal Balance and
the denominator of which is the Aggregate Certificate Principal
Balance, all as calculated immediately prior to such Distribution
Date;
(c) with respect to the Class B-1 Certificates, the percentage
equivalent of a fraction, the numerator of which is the sum of the
Class B-1 Principal Balance, the Class B-2 Principal Balance and
the Class B-3 Principal Balance and the denominator of which is the
Aggregate Certificate Principal Balance, all as calculated
immediately prior to such Distribution Date;
(d) with respect to the Class B-2 Certificates, the percentage
equivalent of a fraction, the numerator of which is the sum of the
Class B-2 Principal Balance and the Class B-3 Principal Balance and
the denominator of which is the Aggregate Certificate Principal
Balance, all as calculated immediately prior to such Distribution
Date; and
(e) with respect to the Class B-3 Certificates, the percentage
equivalent of a fraction, the numerator of which is the Class B-3
Principal Balance and the denominator of which is the Class B-3
Principal Balance calculated immediately prior to such Distribution
Date.
"Scheduled Interest Collection" means, with respect to any Mortgage Loan
-----------------------------
and Collection Period, the portion of the Monthly Mortgage Payment due on the
Due Date occurring in such Collection Period which relates to interest, as
calculated in accordance with the terms of the related Note.
"Scheduled Principal Collection" means, with respect to any Mortgage
------------------------------
Loan and Collection Period, the portion of the Monthly Mortgage Payment due
on the Due Date occurring in such Collection Period which relates to
principal, as calculated in accordance with the terms of the related Note.
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<PAGE>
"Scheduled Principal Distribution Amount" means, with respect to any
---------------------------------------
Distribution Date, the lesser of (x) the aggregate of all Scheduled Principal
Collections included in the related Servicer Remittance Amount and (y) the
amount remaining on deposit in the Certificate Account after the payment of
the amounts described in clauses (i) and (ii) under "Flow of Funds" above.
"Senior Formula Interest Distribution Amount" means, with respect to any
-------------------------------------------
Distribution Date, the sum of the Class A-1 Formula Interest Distribution
Amount, the Class A-2-A Formula Interest Distribution Amount, the Class A-2-B
Formula Interest Distribution Amount, the Class A-2-C Formula Interest
Distribution Amount, the Class A-IO Formula Interest Distribution Amount and
the Class F-IO Formula Interest Distribution Amount.
"Senior Interest Distribution Amount" means, with respect to any
-----------------------------------
Distribution Date, the lesser of (x) the Available Funds as of such
Distribution Date and (y) the Senior Formula Interest Distribution Amount.
"Senior Percentage" means, with respect to any Distribution Date, the
-----------------
percentage equivalent of a fraction, the numerator of which is the Senior
Principal Balance immediately prior to such Distribution Date and the
denominator of which is the Aggregate Certificate Principal Balance
immediately prior to such Distribution Date.
"Senior Principal Balance" means, as of any date, the sum of the Class
------------------------
A-1 Principal Balance, the Class A-2 Principal Balance and the Class PO
Principal Balance as of such date.
"Senior Scheduled Principal Distribution Amount" means, with respect to
----------------------------------------------
any Distribution Date, the excess of (x) the Available Funds over (y) the sum
of (i) the Senior Interest Distribution Amount and (ii) the Class PO
Principal Distribution Amount.
"Senior Unscheduled Principal Distribution Amount" means, with respect
------------------------------------------------
to any Distribution Date, the amount of Available Funds remaining after
application of the Senior Scheduled Principal Distribution Amount.
"Servicer Remittance Amount" means, with respect to any Servicer
--------------------------
Remittance Date, the sum of:
(i) all Scheduled Interest Collections due during the related
Collection Period and on deposit in the Collection Account at
the opening of business on the related Servicer Remittance
Date, together, without duplication, with the interest portion
of any Delinquency Advances and Prepayment Interest relating
thereto;
(ii) all Scheduled Principal Collections due during the related
Collection Period and on deposit in the Collection Account at
the opening of business on the related Servicer Remittance
Date, together, without duplication, with the principal
portion of any Delinquency Advances relating thereto;
(iii) all Unscheduled Interest Collections on deposit in the
Collection Account at the opening of business on the related
Servicer Remittance Date; and
(iv) all Unscheduled Principal Collections on deposit in the
Collection Account at the opening of business on the related
Servicer Remittance Date.
"Shifted Percentage" means, (a) with respect to any Distribution Date
------------------
occurring prior to the January 2002 Distribution Date, 100%,; (b) with
respect to any Distribution Date occurring on or after the January 2002
Distribution Date and prior to the January 2003 Distribution Date, 70%; (c)
with respect to any Distribution Date occurring on or after the January 2003
Distribution Date and prior to the January 2004
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<PAGE>
Distribution Date, 60%; (d) with respect to any Distribution Date occurring
on or after the January 2004 Distribution Date and prior to the January 2005
Distribution Date, 40%; (e) with respect to any Distribution Date occurring
on or after the January 2005 Distribution Date and prior to the January 2006
Distribution Date, 20%; (f) with respect to any Distribution Date on or after
the January 2006 Distribution Date, 0%. Notwithstanding the foregoing, the
Shifted Percentage shall not, at the commencement of any such period, be
reduced, but shall remain at its prior level, if the Cumulative Loss
Percentage, calculated as of the Distribution Date on which such period
commences, exceeds the Trigger Percentage for such Distribution Date.
Notwithstanding the foregoing:
(I) if the Senior Percentage on any Distribution Date exceeds 78%,
the Shifted Percentage shall be 100% for that Distribution Date; and
(II) no reduction of the Shifted Percentage below the level in
effect for the most recent prior period specified above shall be
effective on any Distribution Date unless, as of the last day of the
month preceding such Distribution Date, either:
(A) (i) the aggregate Principal Balances of Mortgage Loans
delinquent 60 days or more (including for this purpose any Mortgaged
Loans in foreclosure and Mortgage Loans with respect to which the
related Mortgaged Property has been acquired by the Trust) does not
exceed 50% of the Aggregate Subordinate Certificate Principal Balance as
of such date and (ii) cumulative Realized Losses do not exceed (a) 30%
of the Aggregate Subordinate Certificate Principal Balance as of the
date of issuance of the Certificates (the "Original Subordinate
Balance") if such Distribution Date occurs between and including January
2002 and December 2002, (b) 35% of the Original Subordinate Principal if
such Distribution Date occurs between and including January 2003 and
December 2003, (c) 40% of the Original Subordinate Balance if such
Distribution Date occurs between and including January 2004 and December
2004, (d) 45% of the Original Subordinate Balance if such Distribution
Date occurs between and including January 2005 and December 2005, and
(e) 50% of the Original Subordinate Balance if such Distribution Date
occurs during or after January 2006; or
(B) (i) the aggregate Principal Balances of Mortgage Loans
delinquent 60 days or more (including for this purpose any Mortgaged
Loans in foreclosure and Mortgage Loans with respect to which the
related Mortgaged Property has been acquired by the Trust), averaged
over the last three months, as a percentage of the aggregate Principal
Balance of all Mortgage Loans averaged over the last three months, does
not exceed 4%, and (ii) cumulative Realized Losses do not exceed (a) 10%
of the Original Subordinate Balance if such Distribution Date occurs
between and including January 2002 and December 2002, (b) 15% of the
Original Subordinate Balance if such Distribution Date occurs between
and including January 2003 and December 2003, (c) 20% of the Original
Subordinate Balance if such Distribution Date occurs between and
including January 2004 and December 2004, (d) 25% of the Original
Subordinate Balance if such Distribution Date occurs between and
including January 2005 and December 2005, and (e) 30% of the Original
Subordinate Balance if such Distribution Date occurs during or after
January 2006.
(III) while the Class A-1 Certificate is still outstanding, the
Shifted Percentage may not be below 70%.
"Shifted Unscheduled Principal Distribution Amount" means, with respect
-------------------------------------------------
to any Distribution Date, the product of (x) the Shifted Percentage, and (y)
a fraction, the numerator of which is the Aggregate Subordinate Certificate
----------------------
Principal Balance and the denominator of which is the Aggregate Fixed Rate
------------------------
Certificate Principal Balance and (z) the Adjusted Fixed Unscheduled
Principal.
"Subordinate Formula Interest Distribution Amount" means, with respect
------------------------------------------------
to any Distribution Date, the sum of the Class M-1 Formula Interest
Distribution Amount, the Class M-2 Formula Interest
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<PAGE>
Distribution Amount, the Class M-3 Formula Interest Distribution Amount, the
Class B-1 Formula Interest Distribution Amount, the Class B-2 Formula
Interest Distribution Amount and the Class B-3 Formula Interest Distribution
Amount.
"Subordinate Interest Distribution Amount" means, with respect to any
----------------------------------------
Distribution Date, the lesser of (x) the Subordinate Formula Interest
Distribution Amount and (y) the excess of (i) the Available Funds as of such
Distribution Date over (ii) the sum of the amounts described in clauses (i)
----
through (iv) under "Flow of Funds" above.
"Subordinate Percentage" means, with respect to any Distribution Date,
----------------------
100% minus the Senior Percentage.
-----
"Subordinate Scheduled Principal Distribution Amount" means, with
---------------------------------------------------
respect to any Distribution Date, the excess of (x) the Scheduled Principal
Distribution Amount with respect to such Distribution Date over (y) amounts
described in clause (iii) under "Flow of Funds" above on such Distribution
Date.
"Subordinate Unscheduled Principal Distribution Amount" means, with
-----------------------------------------------------
respect to any Distribution Date, the excess of (x) the Unscheduled Principal
Distribution Amount over (y) amounts described in clause (iv) of "Flow of
Funds" on such Distribution Date.
"Trigger Percentage" means (a) with respect to the January 2002
------------------
Distribution Date, 30%; (b) with respect to the January 2003 Distribution
Date, 35%; (c) with respect to the January 2004 Distribution Date, 40%; (d)
with respect to the January 2005 Distribution Date, 45%; (e) with respect to
the January 2006 Distribution Date, 50%.
"Unscheduled Collection" means, with respect to any Mortgage Loan, each
----------------------
of the following: the amount of any related Prepayment, the amount of any
related Net Liquidation Proceeds, the amount of any related Net Insurance
Proceeds, the amount of any related Repurchase Price or any related amount
resulting from the early termination of the Trust, in each case to the extent
deposited into the Collection Account with respect to such Mortgage Loan.
"Unscheduled Interest Collection" means, with respect to any Mortgage
-------------------------------
Loan, the portion, if any, of any Unscheduled Collection relating to such
Mortgage Loan which is applied on account of accrued interest thereon,
pursuant to the terms of the related Note.
"Unscheduled Principal Collection" means, with respect to any Mortgage
--------------------------------
Loan, the portion, if any, of any Unscheduled Collection relating to such
Mortgage Loan which is applied on account of the Principal Balance thereof,
pursuant to the terms of the related Note.
"Unscheduled Principal Distribution Amount" means, with respect to any
-----------------------------------------
Distribution Date, the lesser of (x) the aggregate of all Unscheduled
Principal Collections included in the related Servicer Remittance Amount and
(y) the amount remaining on deposit in the Certificate Account after the
payment of the amounts described in clauses (i), (ii) and (iii) under "Flow
of Funds" above.
S-113
<PAGE>
FURTHER PROVISIONS OF THE PRINCIPAL TRANSACTION DOCUMENTS
ASSIGNMENT OF THE MORTGAGE LOANS; REPRESENTATIONS AND WARRANTIES
On the Closing Date, the Depositor will sell, transfer, convey and
assign the Mortgage Loans to the Trustee, without recourse, together with (i)
all rights to any payments received in respect of any of the Mortgage Loans
after the Cut-Off Date. The Mortgage Loans will be described on schedules
attached to the Pooling and Servicing Agreement (the "Loan Schedules").
In connection with the sale of the Mortgage Loans on the Closing Date,
the Seller will be required to deliver to the Trustee the promissory notes
evidencing the Mortgage Loans, the related mortgages or deeds of trust or
other documents evidencing a lien on the Mortgaged Property and certain other
documents relating to the Mortgage Loans, except that, with respect to
certain of the Mortgage Loans as to which certain of the foregoing documents
have been previously identified as missing from the related loan files (as
described under "Special Considerations--Loan Documentation Exceptions"), the
Seller is not required to deliver such identified documents unless such
documents come into its possession. The Trustee will agree, for the benefit
of the related Class A Certificateholders, to review each such file within 60
days after the Closing Date to ascertain whether all required documents (or
certified copies of documents) have been executed and received.
In addition to the foregoing, the Servicer, at the expense of the
related Wilshire Seller, is required to submit for recording, within 180 days
of the Closing Date (or, if original recording information is unavailable,
within such later period as is permitted by the Pooling and Servicing
Agreement) assignments of the Mortgages to the Trustee in the appropriate
jurisdictions.
The related Wilshire Seller, will make certain representations and
warranties to the Seller as to the accuracy in all material respects of
certain information furnished to the Trustee with respect to the Loans
transferred by such related Wilshire Seller. In addition, the related
Wilshire Seller will make certain other representations and warranties to the
Seller regarding the characteristics of the Mortgage Loans transferred by
such related Wilshire Seller.
Under an agreement (the "Loan Purchase Agreement") between the Wilshire
Sellers and the Seller for the sale of the Mortgage Loans from the Wilshire
Sellers to the Seller, each Wilshire Seller will agree that in the event of a
breach of any representation or warranty made by such Wilshire Seller which
materially and adversely affects the value of, or the interests of the Class
A Certificateholders in, any Mortgage Loan transferred by such Wilshire
Seller or the interests of the Certificate Insurer therein (any such Mortgage
Loan being a "Defective Loan"), the related Wilshire Seller will repurchase
the Defective Loan at a price equal to the then outstanding principal balance
of such Mortgage Loan and accrued and unpaid interest thereon, together with
any outstanding Advances (the "Repurchase Price").
Under the agreement pursuant to which the Depositor acquires the loans
from the Seller, the Seller will assign all of its right, title and interest
in such representations and warranties (including the Wilshire Sellers'
repurchase obligations) to the Depositor, which, in the Pooling and Servicing
Agreement, will further assign such rights to the Trustee. None of the
Depositor, the Seller and the Trustee will make any representations or
warranties with respect to the Mortgage Loans and neither will have any
obligations to repurchase, or make substitutions for Defective Loans.
SERVICING OF THE MORTGAGE LOANS
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
required to service and administer the Mortgage Loans assigned to the Trust
as more fully set forth below.
S-114
<PAGE>
Unless otherwise specified herein or in the Pooling and Servicing
Agreement with respect to specific obligations of the Servicer, the Servicer
shall service and administer the Mortgage Loans in accordance with the
servicing, collection and investor reporting systems and procedures set forth
in the Servicer's current servicing guide (the "Servicing Standards").
The duties of the Servicer include, without limitation, collecting and
posting of all payments, responding to inquiries by Obligors or by federal,
state or local government authorities with respect to the Mortgage Loans,
investigating delinquencies, reporting tax information to Obligors in
accordance with its customary practices and all applicable law, accounting
for collections and furnishing monthly and annual statements to the Back-Up
Servicer and the Trustee with respect to distributions and making Delinquency
Advances, Servicing Advances and payments relating to Prepayment Interest
Shortfalls to the extent described herein.
The Servicer (i) may execute and deliver any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and
all other comparable instruments, with respect to the Mortgage Loans and with
respect to the related Mortgaged Property, (ii) may consent to any
modification of the terms of any Note not expressly prohibited hereby if the
effect of any such modification (x) will not materially and adversely affect
the security afforded by the related Mortgaged Property or reduce the amount
of, or slow (other than as permitted by the Pooling and Servicing Agreement)
the timing of receipt of, any payments required thereunder and (iii) may
institute foreclosure proceedings or obtain a deed-in-lieu of foreclosure so
as to convert the ownership of such Mortgaged Property, and to hold or cause
to be held title to such Mortgaged Property, in the name of the Servicer on
behalf of the Trust.
The Pooling and Servicing Agreement permits the Servicer to modify and
extend the maturity of a Balloon Loan which matures and which is not
otherwise paid in full at such maturity date by the related Obligor; provided
that the rescheduled final maturity date of such Mortgage Loan is not one
year beyond the original maturity date, the related Coupon Rate is not
decreased and the Obligor does not receive any additional proceeds. Such
modified and extended Balloon Loans will be permitted to remain in the Trust.
The Servicer may perform any of its servicing responsibilities with
respect to all or certain of the Mortgage Loans through a Sub-Servicer as it
may from time to time designate, but no such designation of a Sub-Servicer
shall serve to release the Servicer from any of its obligations under the
Pooling and Servicing Agreement.
COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS. The Servicer shall, as
required by the Servicing Standards, make all reasonable efforts to collect
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with the Pooling and
Servicing Agreement, follow such collection procedures with respect to the
Mortgage Loans as it follows with respect to comparable mortgage loans in its
own servicing portfolio; provided, that the Servicer shall always at least
--------
follow collection procedures that are consistent with or better than the
Servicing Standards. Consistent with the foregoing, the Servicer may in its
discretion, generally (i) waive any assumption fees, late payment charges,
charges for checks returned for insufficient funds, prepayment fees, if any,
or other fees which may be collected in the ordinary course of servicing the
Mortgage Loans, (ii) if an Obligor is in default or if default is reasonably
foreseeable because of an Obligor's financial condition, arrange with the
Obligor a schedule for the payment of delinquent payments due on the related
Mortgage Loan; provided, however, the Servicer may not reschedule the payment
-------- -------
of delinquent payments more than three times in any twelve consecutive months
with respect to any Obligor or (iii) modify payments of monthly principal and
interest on any Mortgage Loan becoming subject to the terms of the Soldiers,
and Sailors' Civil Relief Act of 1940, as amended, in accordance with the
Servicer's general policies relating to comparable loans subject to such Act.
The Servicer is required to establish and maintain a Lock-Box Account in
the name of the Trustee and for the benefit of the Trusts (such account, the
"Lock-Box Account") into which all Collections (other
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<PAGE>
than Delinquency Advances and amounts relating to Prepayment Interest) are to
be deposited by the close of business on the next business day following the
business day on which such Collections are received.
The Servicer shall instruct, or cause any Sub-Servicer to instruct, all
Obligors to make payments only to the Lock-Box, unless, due to special
collection circumstances (by way of illustration, a delinquent Obligor who is
willing to send payment by Federal Express courier, "mailgram" or other
manner not in a form eligible for receipt directly by the Lock-Box Account)
such payment must be made to the Servicer, in which event such amounts shall
be deposited by the Servicer in the Lock-Box Account. The Servicer shall
instruct the Lock-Box Bank to remit all amounts received for deposit in the
Lock-Box Account to the Collection Account on the next business day following
receipt of such amounts.
Not later than 12:00 noon Pacific time on the tenth calendar day of each
month (or the immediately succeeding business day if such calendar day falls
on a Saturday or a Sunday or a holiday), the Servicer shall deliver or cause
to be delivered to the Back-Up Servicer a monthly servicing report (the
"Servicing Report") on computer readable magnetic tape or diskette. This
report shall also contain (i) a summary report of Mortgage Loan payment
activity for such month, (ii) exception payment reports for Mortgage Loans
with respect to which scheduled payments due in such month were not made and
(iii) a trial balance in the form of a computer tape. Not later than 12:00
noon Pacific time on the fifteenth calendar day of each month (or the
immediately succeeding business day if such calendar day falls on a Saturday
or a Sunday or a holiday) (each, a "Determination Date"), the Servicer shall
deliver or cause to be delivered to the Trustee such Servicing Report on
computer readable magnetic tape or diskette.
DELINQUENCY ADVANCES, PREPAYMENT INTEREST SHORTFALL AND SERVICING
ADVANCES. If, at or prior to the end of each Due Period, any portion of any
monthly payment due on any Mortgage Loan during such Due Period has not been
received and transferred to the related Collection Account, the Servicer
shall make an advance to the related Collection Account (a "Delinquency
Advance") in an amount equal to the amount of the delinquent portion of such
monthly payment not later than the business day prior to the related
Distribution Date provided, however, that the Servicer will not be required
-------- -------
to make any such Delinquency Advance if it determines in reasonable good
faith that such Delinquency Advance would not be recoverable from collections
with respect to such Mortgage Loan. The Back-Up Servicer, as successor
servicer, will be obligated to make Delinquency Advances unless it determines
reasonably and in good faith that such Delinquency Advances would not be
recoverable. For purposes of the Pooling and Servicing Agreement, the
delinquent portion of a monthly payment shall be deemed to include an amount
that would have been due on a Mortgage Loan in respect of which the related
Mortgaged Property has been repossessed or foreclosed upon and which has not
yet become a Liquidated Loan.
The Servicer will advance all "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations with respect to the
Mortgage Loans, including, but not limited to, the cost of (i) preservation
expenses on the Mortgaged Property, (ii) any enforcement or judicial
proceedings, including foreclosures, and any reasonable legal expenses in
connection with the assertion by an Obligor of any claim or defense that the
Obligor may have had against the originator in connection with the sale,
financing or construction of such Obligor's home and which the Obligor
asserts against the Servicer and (iii) the management and liquidation of
"REO" property, but shall only pay such costs and expenses to the extent the
Servicer reasonably believes such costs and expenses will be recovered from
the related Mortgage Loan and will increase Net Liquidation Proceeds on the
related Mortgage Loan. Each such expenditure, exclusive of overhead, will
constitute a "Servicing Advance."
If, on any Distribution Date, and as a result of full or partial
prepayments received with respect to the Mortgage Loans held in such Trust
during the related Due Period, the amount of interest due on such Mortgage
Loans is decreased such that the interest collections with respect to the
Trust, less the Servicing Fee and the Trustee's Fee, is insufficient to fund
the full amount of the interest accrued on the Certificates (other than the
Class A-IO and Class F-IO Certificates) and due on such Distribution Date,
the Servicer will be required to remit to the related Collection Account the
lesser of (x) the amount of such insufficiency due
S-116
<PAGE>
to such prepayments and (y) the aggregate Servicing Fee due to the Servicer
on such Distribution Date. The Servicer will be required to remit such
amount (each such amount, "Prepayment Interest") not later than the close of
business on the third business day prior to such Distribution Date. The
excess of any such insufficiency over the amount of such aggregate Servicing
Fee is the "Prepayment Interest Shortfall" for such Distribution Date and
Trust.
The Servicer may recover the amount of a Delinquency Advance or a
Servicing Advance (either, an "Advance") from the Collection Account out of
collections on the Mortgage Loan whose delinquency gave rise to such Advance
subsequent to the related Due Period, from Liquidation Proceeds and/or
Insurance Proceeds recovered on account of such Mortgage Loan to the extent
of the amount of such Advance prior to, or after, the deposit of such
Liquidation Proceeds and/or Insurance Proceeds in the Collection Account, or,
if such recoveries with respect to the related Mortgage Loan are insufficient
for such reimbursement, from the Collection Account generally following the
final liquidation of such Mortgage Loan.
MAINTENANCE OF INSURANCE. The Servicer shall cause to be maintained
with respect to each Mortgage Loan a hazard insurance policy with a generally
acceptable carrier that provides for fire and extended coverage, and which
provides for a recovery by the Servicer on behalf of the Trustee and its
assignees of insurance proceeds relating to such Mortgage Loan, in an amount
not less than the least of (i) the outstanding principal balance of the
Mortgage Loan, (ii) the minimum amount required to compensate for damage or
loss on a replacement cost basis and (iii) the full insurable value of the
improvements which are a part of the related Mortgaged Property, but in any
case not less than the amount necessary to avoid the application of any co-
insurance clause.
If the Mortgage Loan at the time of origination relates to Mortgaged
Property located in an area identified in the Federal Register by the Federal
Emergency Management Agency as having special flood hazards and if such loan
has been specifically identified as being in such an area in the Schedule of
Mortgage Loans or other writing delivered to the Servicer by the Prior
Sellers, the Servicer shall cause to be maintained with respect thereto a
flood insurance policy in a form meeting the requirements of the current
guidelines of the Federal Insurance Administration with a generally
acceptable carrier in an amount that provides for coverage, and which
provides for a recovery by the Servicer on behalf of the Trust of insurance
proceeds relating to such Mortgage Loan, in an amount not less than the least
of (i) the outstanding principal balance of the Mortgage Loan, (ii) the
minimum amount required to fully compensate for damage or loss to the
improvements which are a part of the related Mortgaged Property on a
replacement cost basis and (iii) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973, but in each case
in an amount not less than such amount as is necessary to avoid the
application of any co-insurance clause contained in the related hazard
insurance policy.
In the event that the Servicer shall obtain and maintain a blanket
policy insuring against fire, flood and hazards of extended coverage on all
of the Mortgage Loans, then, to the extent such policy names the Servicer as
loss payee and provides coverage in an amount equal to the aggregate
Principal Balance of the Mortgage Loans without co-insurance, the Servicer
shall be deemed conclusively to have satisfied its obligations with respect
to fire, flood and hazard insurance coverage. Such blanket policy may
contain a deductible clause, in which case the Servicer shall, in the event
that there shall have been a loss which would have been covered by such
policy, deposit in the Collection Account from the Servicer's own funds the
difference, if any, between the amount that would have been payable under a
policy described in the preceding paragraph and the amount paid under such
blanket policy.
DUE-ON-SALE CLAUSES; ASSUMPTION AND SUBSTITUTION AGREEMENTS. When any
Mortgaged Property has been or is about to be conveyed by the Obligor
(whether by absolute conveyance or by contract of sale, and whether or not
the Obligor remains liable), the Servicer shall, to the extent it has
knowledge of such conveyance or prospective conveyance, exercise the Trust's
rights to accelerate the maturity of the related Mortgage Loan under any
"due-on-sale" clause contained in the related Mortgage or Note; provided,
--------
that
S-117
<PAGE>
the Servicer shall not exercise any such right if the "due-on-sale" clause,
in the reasonable belief of the Servicer, is not enforceable under applicable
law or if the Servicer is prohibited by law from doing so.
The Servicer may also allow for an assumption agreement in the case of a
defaulted Mortgage Loan, or a Mortgage Loan as to which a default is
imminent, under the same standards as set forth above in the first paragraph
under "Collection of Certain Mortgage Loan Payments", and subject to certain
limitations on the aggregate amount of Mortgage Loans subject to such
assumptions, as set forth in the Pooling and Servicing Agreement.
REALIZATION UPON DEFAULTED MORTGAGE LOANS. The Servicer shall,
consistent with the Servicing Standards, foreclose upon or otherwise
comparably effect the ownership in the name of the Servicer on behalf of the
Trust of Mortgaged Property relating to defaulted Mortgage Loans as to which
no satisfactory arrangements can be made for collection of delinquent
payments. In connection with such foreclosure or other conversion, the
Servicer shall exercise such rights and powers vested in it hereunder, and
use the same degree of care and skill in their exercise or use, as prudent
mortgage lenders would exercise or use under the circumstances in the conduct
of their own affairs, including, but not limited to, advancing funds for the
payment of taxes, and insurance premiums. The foregoing is subject to the
proviso that the Servicer shall not advance its own funds unless it shall
reasonably believe in good faith that doing so will increase Net Liquidation
Proceeds on the Mortgage Loans. Notwithstanding the foregoing, with respect
to any Mortgage Loan as to which the Servicer has received notice of, or has
actual knowledge of, the presence of any toxic or hazardous substance on the
related Mortgaged Property (a "Potentially Hazardous Property"), the Servicer
shall not, on behalf of the Trust either (i) obtain title to such Mortgaged
Property as a result of or in lieu of foreclosure or otherwise, or (ii)
otherwise acquire possession of, or take any other action with respect to,
such Mortgaged Property, if, as a result of any such action, the Trust would
be considered to hold title to, be a "mortgagee-in-possession" of, or to be
an "owner" or "operator" of, such Mortgaged Property within the meaning of
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA") from time to time, or any comparable law. The
Servicer shall not be required to make Advances with respect to a Mortgage
Loan relating to a Potentially Hazardous Property. In the event the Servicer
requires any professional guidance with respect to CERCLA, the Servicer may,
at the expense of the Servicer, obtain an opinion of counsel experienced in
CERCLA matters, and shall be fully protected in relying on any such opinion
of counsel.
The Servicer shall determine with respect to each defaulted Mortgage
Loan when it has recovered, whether through trustee's sale, foreclosure sale
or otherwise, all amounts (other than from deficiency judgments) it expects
to recover from or on account of such defaulted Mortgage Loan, whereupon such
Mortgage Loan shall become a "Liquidated Loan".
SERVICING COMPENSATION. As compensation for its activities the Servicer
shall be entitled to the Servicing Fee and certain ancillary servicing income
such as late charges, insufficient funds charges, modification and assumption
fees, penalties, etc., from amounts available therefor in the Collection
Account. The Servicer is also entitled to receive, monthly, the net
investment earnings on amounts on deposit in the Collection Account, and is
responsible for any losses on such investments without any right of
reimbursement with respect to such losses.
The right to receive the Servicing Fee may not be transferred in whole
or in part except in connection with the transfer of all of the Servicer's
responsibilities and obligations under the Pooling and Servicing Agreement.
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<PAGE>
REMOVAL OF SERVICER; RESIGNATION OF SERVICER
The Trustee, at the direction of the Required Certificateholders, may
remove the Servicer upon the occurrence and continuation beyond the
applicable cure period of any of the following events:
(i) any failure by the Servicer (i) to deposit to the Collection
Account all collections received by the Servicer directly within two
Business Days following the Business Day on which such amounts are
deposited by the Servicer to its general account and are determined by
the Servicer to relate to the Mortgage Loans (unless not required by the
terms of the Pooling and Servicing Agreement) or (ii) to deposit to the
Collection Account Delinquency Advances and Prepayment Interest as
required by the Pooling and Servicing Agreement by the third Business
Day prior to the related Distribution Date; or
(ii) failure on the part of the Servicer to observe or perform any
term, covenant or agreement in the Pooling and Servicing Agreement
(other than those covered by clause (i) above), which materially
adversely affects the rights of the holders of the Certificateholders
and which continues unremedied for 30 days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given to the Servicer by the Trustee or Certificateholders who
hold Certificates evidencing in aggregate greater than 25% of the
outstanding Certificate Principal Balance; or
(iii) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings regarding the
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings regarding the Servicer and certain actions by the
Servicer indicating its insolvency or inability to pay its obligations;
or
(iv) the Servicer shall fail to deliver a report expressly required by
the Pooling and Servicing Agreement, and the continuance of such failure
for a period of three Business Days after the date upon which written
notice of such failure shall have been given to the Servicer by the
Trustee (except that such three Business Day period shall be deemed not
to run as to any portion of such report during such time as the
Servicer's failure to provide such information is for cause or inability
beyond its control and Servicer provides the Trustee with an officer's
certificate of the Servicer to such effect); or
(v) the failure of the Mortgage Loans to meet certain delinquency and
loss requirements.
The Servicer may not assign its obligations under the Pooling and
Servicing Agreement nor resign from the obligations and duties thereby
imposed on it except, or upon the determination that the Servicer's duties
thereunder are no longer permissible under applicable law and such incapacity
cannot be cured by the Servicer. No such resignation shall become effective
until a successor has assumed the Servicer's responsibilities and obligations
in accordance with the Pooling and Servicing Agreement.
Upon removal or resignation of the Servicer, the Back-Up Servicer will
be required to serve as successor servicer. If the Back-Up Servicer is
prevented by law from acting as successor servicer, the Trustee may solicit
bids for a successor servicer, and pending the appointment of a successor
servicer as a result of soliciting such bids, the Trustee will be required to
serve as successor servicer. If the Trustee is unable to obtain a qualifying
bid, the Trustee will be required to appoint, or petition a court of
competent jurisdiction to appoint, an eligible successor. Any such successor
servicer shall assume all of the related responsibilities, duties or
liabilities of the Servicer on the date on which it becomes the Servicer, but
shall not assume any of the liabilities incurred prior to such date.
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CERTAIN COVENANTS OF THE TRUSTEE
Performance of Obligations. The Pooling and Servicing Agreement will
provide that the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by the Pooling and Servicing Agreement at the
request or direction of any of the Certificateholders, unless such
Certificateholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be incurred
by it in compliance with such request or direction.
The Trustee may execute any of the trusts or powers granted by the
Pooling and Servicing Agreement or perform any duties thereunder either
directly or by or through agents or attorneys, and the Trustee will not be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed and supervised with due care by it thereunder.
Pursuant to the Pooling and Servicing Agreement, the Trustee will not be
liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any Person
or within its rights or powers under the Pooling and Servicing Agreement.
Reporting Requirements. On each Distribution Date the Trustee, based
upon information provided to it by the Servicer, will be required to report
in writing to each Offered Certificateholder (which shall be DTC as long as
the Offered Certificates are in book-entry form):
(i) the amount of the distribution with respect to each Class of
the Certificates;
(ii) the amount of such distributions allocable to principal,
separately identifying the aggregate amount of any prepayments or other
unscheduled recoveries of principal included therein;
(iii) the amount of such distributions allocable to interest;
(iv) the Certificate Principal Balance (or Notional Balance) for
the related Class of Certificates as of such Distribution Date together
with the principal amount of the related Class of Offered Certificates
(based on a Certificate in the original principal amount of $1,000) then
outstanding, in each case after giving effect to any payment of
principal on such Distribution Date;
(v) the amount of any Delinquency Advances for such Distribution
Date, and the amount of any unreimbursed Delinquency Advances or
unreimbursed Servicing Advances remaining after such Distribution Date;
(vi) the Pass-Through Rate for each Class of Certificates for the
next Distribution Date;
(vii) information furnished by the Trustee pursuant to Section
6049(d)(7)(C) of the Code and the regulations promulgated thereunder to
assist the Class A Certificateholders in computing their market
discount.
Items (i) through (iii) above shall, with respect to each Class of
Offered Certificates be presented on the basis of an Offered Certificate
having an original $1,000 denomination and on an aggregate basis. Each
calendar year following any year during which the Offered Certificates are
outstanding, the Trustee shall furnish a report to each Offered
Certificateholder of record at any time during such calendar year as to the
aggregate of amounts reported pursuant to items (i), (ii) and (iii) above
with respect to the related Offered Certificates for such calendar year.
In addition, on each Distribution Date the Trustee, based upon
information provided to it by the Servicer, will distribute to each Offered
Certificateholder (which shall be DTC as long as the Offered
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Certificates are in book-entry form), the following information as of the
close of business on the last business day of the prior calendar month:
(i) the total number of Mortgage Loans in the Trust and the
aggregate principal balances thereof, together with the number and
aggregate principal balances of Mortgage Loans in the Trust (a) 31-60
days delinquent, (b) 61-90 days delinquent and (c) 91 or more days
delinquent;
(ii) the number and aggregate principal balance of all Mortgage
Loans in the Trust in foreclosure proceedings (and whether any such
Mortgage Loans are also included in any of the statistics described in
the foregoing clause (i));
(iii) the number and aggregate principal balance of all Mortgage
Loans in the Trust relating to "REO" properties (and whether any such
Mortgage Loans are also included in any of the statistics described in
the foregoing clause (i)); and
(iv) the book value of any "REO" property in the Trust.
GOVERNING LAW
The Pooling and Servicing Agreement and each Certificate will be
construed in accordance with and governed by the laws of the State of New
York applicable to agreements made and to be performed therein.
LIABILITY OF THE TRUSTEE
The Trustee will be indemnified by the Servicer and will be liable under
the Pooling and Servicing Agreement only to the extent of the obligations
specifically imposed upon and undertaken by the Trustee therein. Neither the
Trustee nor any of the directors, officers, employees or agents of the
Trustee will be under any liability on any Certificate or otherwise to the
Collection Account, the Depositor, DTC, the Servicer or any Certificateholder
for any action taken or for refraining from the taking of any action in good
faith under the Pooling and Servicing Agreement, or for errors in judgment;
provided, however, that such provision shall not protect the Trustee or any
such person against any liability which would otherwise be imposed by reason
of negligent action, negligent failure to act or willful misconduct in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder.
AMENDMENTS
The Trustee, the Depositor, the Servicer, the Back-Up Servicer and the
Seller may at any time and from time to time, without the consent of the
related Offered Certificateholders, amend the Pooling and Servicing
Agreement, for the purposes of (i) curing any ambiguity, or correcting or
supplementing any provision of the Pooling and Servicing Agreement which may
be inconsistent with any other provision of the Pooling and Servicing
Agreement, (ii) complying with the requirements of the Code or (iii) making
any other provisions with respect to matters or questions arising under the
Pooling and Servicing Agreement, which shall not be inconsistent with the
provisions of the Pooling and Servicing Agreement; provided, however, that
such action shall not, as evidenced by an opinion of counsel delivered to the
Trustee, adversely affect the interests of any Certificateholder in any
material manner.
The Pooling and Servicing Agreement may also be amended by the Trustee,
the Depositor, the Servicer, the Back-Up Servicer and the Seller at any time
and from time to time, with the prior written approval of not less than 66
2/3% of the percentage interest represented by the Senior Certificates then
outstanding, for the purpose of adding any provisions or changing in any
manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or of modifying in any manner the rights of the Certificateholders
thereunder; provided, however, that no such amendment shall (a) reduce in any
manner
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the amount of, or delay the timing of, payments received on the Mortgage
Loans which are required to be distributed to any Certificateholder without
the consent of the related Certificateholder; or (b) change the aforesaid
percentages of percentage interest which are required to consent to any such
amendments, without the consent of the Holders of all Certificates then
outstanding.
The Loan Purchase Agreements contain substantially similar restrictions
on amendments.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following tax discussion, when read in conjunction with the
discussion of "Certain Federal Income Tax Consequences" in the Prospectus,
describes the current federal income tax treatment of investors in the
Offered Certificates. These two tax discussions do not purport to deal with
all federal tax consequences applicable to all categories of investors, some
of which may be subject to special rules. Investors should consult their own
tax advisors in determining the federal, state, local and any other tax
consequences to them of the purchase, ownership and disposition of the
Offered Certificates.
REMIC ELECTIONS
One or more elections will be made to treat certain assets of the Trust
Fund as a REMIC. Dewey Ballantine, special tax counsel to the Depositor,
will advise that, in its opinion, for federal income tax purposes, assuming
(i) the REMIC elections are made and (ii) compliance with the Pooling and
Servicing Agreement, the Trust Fund will be treated as a REMIC, each class of
Senior Certificates and Subordinated Certificates will be treated as "regular
interests" in a REMIC, and the Class R Certificates will be treated as
"residual interests" in a REMIC. Regular interests in a REMIC are treated as
debt instruments issued by the REMIC on the date on which those interests are
created, and not as ownership interests in the REMIC or its assets. Holders
of Offered Certificates that otherwise report income under a cash method of
accounting will be required to report income with respect to such Offered
Certificates under an accrual method.
As a REMIC, the Trust Fund will not be subject to federal income tax
except with respect to (i) income from prohibited transactions; (ii) "net
income from foreclosure property"; and (iii) certain contributions to the
Trust Fund after the Closing Date. See "Certain Federal Income Tax
Consequences--Prohibited Transactions and Other Possible REMIC Taxes" in the
Prospectus.
SPECIAL TAX ATTRIBUTES
As a consequence of the qualification of the Trust Fund as a REMIC, the
Offered Certificates generally will be treated as "regular or residual
interests in a REMIC" for domestic building and loan association, "real
estate assets" for real estate investment trusts, and as "qualified
mortgages" for other REMICs. The Small Business Job Protection Act of 1996
repeals the bad debt reserve method of accounting for mutual savings banks
and domestic building and loan associations for tax years beginning after
December 31, 1995. As a result, section 593(d) of the Code is no longer
applicable to treat the Offered Certificates as "qualifying real property
loans." See "Certain Federal Income Tax Consequences -- Characteristics of
Investments in the REMIC Certificates" in the Prospectus.
TAXATION OF BENEFICIAL OWNERS OF THE OFFERED CERTIFICATES
Certain Classes of Offered Certificates may be issued with original
issue discount ("OID") for federal income tax purposes, which generally will
result in recognition of some taxable income in advance of the receipt of the
cash attributable to such income. The Prepayment Assumption that will be
issued in determining the rate of accrual of original issue discount will be
235% PSA in the case of the Pool I Classes, 12% CPR in the case of the Pool
II Classes, and 25% CPR in the case of the Pool III and Pool IV
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Classes. See "Certain Federal Income Tax Consequences -- Taxation of Owners
of REMIC Regular Certificates -- Original Issue Discount" in the Prospectus.
No representation is made as to whether the Mortgage Loans will prepay at
these rates or any other rate. See "Maturity, Prepayment and Yield
Considerations" herein. In addition, certain Classes of Offered Certificates
may be treated as having been used at a premium for federal income tax
purposes. See "Certain Federal Income Tax Consequences --Taxation of Owners
of REMIC Regular Certificates -- Premium" in the Prospectus.
ERISA CONSIDERATIONS
The Depositor, the Servicer, the Seller, the Trustee or certain of their
affiliates may be considered to be parties in interest or fiduciaries with
respect to certain Benefit Plans (as defined below). Therefore, the
acquisition or holding of a an Offered Certificate by a Benefit Plan and the
activities of the Trustee or of the Servicer may result in prohibited
transactions under ERISA and the Code. Accordingly, by acceptance of an
Offered Certificate, each Certificateholder will be deemed to have
represented and warranted that the Certificateholder is not acquiring (or
considered to be acquiring) the Certificate with the assets of (a) an
employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) subject to Title I of
ERISA, (b) a plan described in Section 4975(e)(1) of the Internal Revenue
Code of 1986, as amended, or (c) any entity whose underlying assets include
plan assets by reason of a plan's investment in such entity (each, a "Benefit
Plan").
RATINGS
It is a condition to the original issuance of the Certificates that they
receive the following ratings from Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Service, L.P. ("Fitch") and Duff & Phelps Credit
Rating Co. ("DCR"), and, collectively with Moody's and Fitch, the "Rating
Agencies").
Class Moody's Rating Fitch Rating DCR Rating
------- -------------- ------------ ----------
A-1 Aaa AAA AAA
PO Aaa AAA AAA
F-IO Aaa AAA AAA
A-IO Aaa AAA AAA
A-2-A Aaa AAA AAA
A-2-B Aaa AAA AAA
A-2-C Aaa AAA AAA
M-1 Aa2 AA AA
M-2 A2 A A
M-3 Baa2
The ratings assigned to this issue do not constitute a recommendation to
purchase or sell these securities. Rather, they are indications of the
likelihood of the payment of principal and/or interest as set forth in the
transaction disclosure. The ratings do not address the effect on the
certificates' yield attributable to prepayments or recoveries on the
underlying mortgage loans. The rating of the Class A-IO and Class F-IO
Certificates do not address whether investors will recoup their initial
investment due to prepayments.
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The rating of the Class PO Certificates does not assess the likelihood of
return to investors except to the extent of the Class PO Principal Balance.
The ratings assigned by DCR to mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all
distributions to which they are entitled under the transaction structure.
Such ratings reflect its analysis of the riskiness of the mortgage loans and
its analysis of the structure of the transaction as set forth in the
operative documents. DCR's ratings do not address the effect on the
Certificates' yield attributable to prepayments or recoveries on the
underlying mortgage loans.
The ratings of Moody's on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
such certificateholders are entitled. Moody's rating opinions address the
structural, legal and issuer aspects associated with the certificates,
including the nature of the underlying mortgage loans and the credit quality
of the credit support provider, if any. Moody's ratings on mortgage pass-
through certificates do not represent any assessment of the likelihood or
rate of principal prepayments.
The ratings of the Rating Agencies do not address the possibility that,
as a result of principal prepayments, Certificateholders may receive a lower
than anticipated yield.
The ratings assigned to the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A rating is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by
any rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Offered
Certificates or, if it does, what rating would be assigned by such other
rating agency. The rating assigned by such other rating agency to the
Offered Certificates could be lower than the respective ratings assigned by
the Rating Agencies.
The ratings assigned to the Class A-2-A, Class A-2-B and Class A-2-C
Certificates relate, with respect to interest, only to the payment of such
interest at the lesser of the related Formula Rate and the related Net Funds
Cap Rate (i.e., at the related Pass-Through Rate) and do not address the
----
likelihood that such Certificates will receive interest based solely on the
applicable Formula Rate.
Ratings of the Class F-IO and Class A-IO Certificates. Ratings which
are assigned to securities such as the Class F-IO Certificates generally
value the ability of the issuer (i.e. the Trust) to make payments, as
required by such securities. The amounts distributable on the Class F-IO and
Class A-IO Certificates consist only of interest. In general, the ratings of
such Certificates address only credit risk and not prepayment risk. See
"Ratings" and "Summary of Terms-Nature of Class F-IO and Class A-IO
Certificates" herein.
LEGAL INVESTMENT CONSIDERATIONS
The Class A, Class F-IO, Class A-IO, Class PO and Class M-1 Certificates
will constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"). The Class M-2, Class M-3,
Class B-1, Class B-2 and Class B-3 will not constitute "mortgage related
securities" for purposes of SMMEA. Accordingly, many institutions with legal
authority to invest in comparably rated securities may not legally be
authorized to invest in the Class M-2, Class M-3, Class B-1, Class B-2 or
Class B-3 Certificates.
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UNDERWRITING
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase all of the Offered
Certificates offered hereby if any Offered Certificates are purchased.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined, in each case, at the time of
sale. The 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. 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 compensation. 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 commissions received by
them and any profit on the resale of the Offered Certificates purchased by
them may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933.
The Servicer and the Depositor will each indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933, or contribute to payments the Underwriter may be required to make in
respect thereof.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of
the Certificates will be passed upon for the Seller and the Servicer by
Proskauer, Rose, Goetz & Mendelsohn, LLP, New York, New York and for the
Depositor and the Underwriter by Dewey Ballantine, New York, New York.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
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<S> <C>
0% SPA 71
175% SPA 71
A-2-C Pool IV Fraction.......................................... 93
A2A Pool III Fraction........................................... 93
A2B Pool III Fraction........................................... 93
Accrual Period.................................................. 8, 84
Adjusted Arm WAC................................................ 93
Adjusted Fixed Rate Gross WAC................................... 94
Adjusted Fixed Unscheduled Principal............................ 94
Adjusted Gross Coupon Rate...................................... 11, 80
Adjusted LIBOR WAC.............................................. 94
Adjusted Net Coupon Rate........................................ 11, 94
Adjusted Pool II Gross WAC...................................... 94
Adjusted Pool III Gross WAC..................................... 94
Advance 117
Advance Payment................................................. 94
Aggregate Certificate Principal Balance......................... 94
Aggregate Class A-2 Principal Balance........................... 95
Aggregate Fixed Rate Certificate Principal Balance.............. 95
Aggregate PO Arrearage Amount................................... 11
Aggregate Realized Loss Amount.................................. 95
Aggregate Subordinate Certificate Principal Balance............. 95
ARM Collateral Deficit.......................................... 95
ARM Loans 95
ARM Pool Principal Balance...................................... 95
Arm Supporting Fixed Amount..................................... 95
ARM Supporting Floating Amount.................................. 95
Arrearage Loans................................................. 11
Available Funds................................................. 95
Balloon Loans................................................... 29
Bank Affiliates................................................. 78
Beneficial Owner................................................ 79
Benefit Plan 123
Book-Entry Certificates......................................... 86
Business Day.................................................... 8, 84
CERCLA 118
Certificateholders.............................................. 7, 8, 84
Certificates 1, 4
Civil Relief Act................................................ 19
Civil Relief Act Interest Shortfall............................. 32
Civil Relief Act Interest Shortfalls............................ 19
Class 4
Class A Certificateholders...................................... 31
Class A Certificates............................................ 4
Class A-1 Certificates.......................................... 4
Class A-1 Formula Interest Current Amount....................... 95
Class A-1 Formula Interest Distribution Amount.................. 95
Class A-1 Interest Distribution Amount.......................... 95
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
Class A-1 Interest Shortfall Amount............................. 95
Class A-1 Pass-Through Rate..................................... 95
Class A-1 Principal Balance..................................... 96
Class A-1 Scheduled Principal Distribution Amount............... 96
Class A-1 Unscheduled Principal Distribution Amount............. 96
Class A-2 Certificates.......................................... 4
Class A-2 Principal Balance..................................... 96
Class A-2-A Formula Interest Current Amount..................... 96
Class A-2-A Formula Interest Distribution Amount................ 96
Class A-2-A Interest Distribution Amount........................ 97
Class A-2-A Interest Shortfall Amount........................... 97
Class A-2-A Pass-Through Rate................................... 97
Class A-2-A Principal Balance................................... 97
Class A-2-A Scheduled Principal Distribution Amount............. 97
Class A-2-A Shifted Unscheduled Principal Distribution Amount... 97
Class A-2-A Unscheduled Principal Distribution Amount........... 97
Class A-2-B Formula Interest Current Amount..................... 97
Class A-2-B Formula Interest Distribution Amount................ 98
Class A-2-B Interest Distribution Amount........................ 98
Class A-2-B Interest Shortfall Amount........................... 98
Class A-2-B Pass-Through Rate................................... 98
Class A-2-B Principal Balance................................... 98
Class A-2-B Scheduled Principal Distribution Amount............. 98
Class A-2-B Shifted Unscheduled Principal Distribution Amount... 98
Class A-2-B Unscheduled Principal Distribution Amount........... 98
Class A-2-C Formula Interest Current Amount..................... 99
Class A-2-C Formula Interest Distribution Amount................ 99
Class A-2-C Interest Distribution Amount........................ 99
Class A-2-C Interest Shortfall Amount........................... 99
Class A-2-C Pass-Through Rate................................... 99
Class A-2-C Principal Balance................................... 99
Class A-2-C Scheduled Principal Distribution Amount............. 99
Class A-2-C Shifted Unscheduled Principal Distribution Amount... 99
Class A-2-C Unscheduled Principal Distribution Amount........... 99
Class A-3 Certificates.......................................... 4
Class A-4 Certificates.......................................... 4
Class A-IO Formula Interest Current Amount...................... 100
Class A-IO Formula Interest Distribution Amount................. 100
Class A-IO Interest Distribution Amount......................... 100
Class A-IO Interest Shortfall Amount............................ 100
Class A-IO Pass-Through Rate.................................... 100
Class B Certificates............................................ 4
Class B-1 Formula Interest Current Amount....................... 100
Class B-1 Formula Interest Distribution Amount.................. 100
Class B-1 Interest Distribution Amount.......................... 100
Class B-1 Interest Shortfall Amount............................. 100
Class B-1 Pass-Through Rate..................................... 100
Class B-1 Percentage............................................ 100
Class B-1 Principal Balance..................................... 101
Class B-1 Scheduled Principal Distribution Amount............... 101
Class B-2 Formula Interest Current Amount....................... 101
</TABLE>
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<TABLE>
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<S> <C>
Class B-2 Formula Interest Distribution Amount.................. 101
Class B-2 Interest Distribution Amount.......................... 101
Class B-2 Interest Shortfall Amount............................. 101
Class B-2 Pass-Through Rate..................................... 101
Class B-2 Percentage............................................ 101
Class B-2 Principal Balance..................................... 101
Class B-2 Scheduled Principal Distribution Amount............... 101
Class B-3 Formula Interest Current Amount....................... 102
Class B-3 Formula Interest Distribution Amount.................. 102
Class B-3 Interest Distribution Amount.......................... 102
Class B-3 Interest Shortfall Amount............................. 102
Class B-3 Pass-Through Rate..................................... 102
Class B-3 Percentage............................................ 102
Class B-3 Principal Balance..................................... 102
Class B-3 Scheduled Principal Distribution Amount............... 102
Class C Certificates............................................ 4
Class C-1 Certificates.......................................... 4
Class F-IO Formula Interest Current Amount...................... 103
Class F-IO Formula Interest Distribution Amount................. 103
Class F-IO Interest Distribution Amount......................... 103
Class F-IO Interest Shortfall Amount............................ 103
Class F-IO Pass-Through Rate.................................... 103
Class M-1 Formula Interest Current Amount....................... 103
Class M-1 Formula Interest Distribution Amount.................. 103
Class M-1 Interest Distribution Amount.......................... 103
Class M-1 Interest Shortfall Amount............................. 103
Class M-1 Pass-Through Rate..................................... 103
Class M-1 Percentage............................................ 103
Class M-1 Principal Balance..................................... 103
Class M-1 Scheduled Principal Distribution Amount............... 104
Class M-1 Unscheduled Principal Distribution Amount............. 101, 102, 104, 105
Class M-2 Formula Interest Current Amount....................... 104
Class M-2 Formula Interest Distribution Amount.................. 104
Class M-2 Interest Distribution Amount.......................... 104
Class M-2 Interest Shortfall Amount............................. 104
Class M-2 Pass-Through Rate..................................... 104
Class M-2 Percentage............................................ 104
Class M-2 Principal Balance..................................... 104
Class M-2 Scheduled Principal Distribution Amount............... 104
Class M-3 Formula Interest Current Amount....................... 105
Class M-3 Formula Interest Distribution Amount.................. 105
Class M-3 Interest Distribution Amount.......................... 105
Class M-3 Interest Shortfall Amount............................. 105
Class M-3 Pass-Through Rate..................................... 105
Class M-3 Percentage............................................ 105
Class M-3 Principal Balance..................................... 105
Class M-3 Scheduled Principal Distribution Amount............... 105
Class PO Distribution Amount.................................... 105
Class PO Principal Amount....................................... 105
Class R Amount.................................................. 106
Class R Certificates............................................ 4
</TABLE>
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<S> <C>
Closing Date.................................................... 7
CMT Loan 109
COFI Loan 109
COFI Pool Principal Balance..................................... 109
Collateral Amount Available For Cross-Support................... 106
Commission 2
Cross-Support Scheduled Principal Distribution Amount........... 106
Cross-Support Unscheduled Principal Distribution Amount......... 106
Cross-Support WAC............................................... 106
Defective Loan.................................................. 114
Deficient Valuation............................................. 106
Definitive Certificate.......................................... 86
Delinquency Advance............................................. 23, 116
Depositor 1, 4, 19
Determination Date.............................................. 116
Discount Loan................................................... 106
Discount Percentage............................................. 106
DTC 6
Eligible Subordinate Balance.................................... 106
Eligible Subordinate Class...................................... 106
ERISA 123
Extra CMT Collateral Amount..................................... 107
Extra CMT Scheduled Principal Distribution Amount............... 107
Extra CMT Unscheduled Principal Distribution Amount............. 107
Extra COFI Collateral Amount.................................... 106
Extra COFI Scheduled Principal Distribution Amount.............. 106
Extra Other Adjustable Loan Collateral Amount................... 107
Extra Other Adjustable Loans Scheduled Principal Distribution... 107
Extra Other Adjustable Loans Unscheduled Principal Distributio.. 107
Extra Pool II Unscheduled Principal Distribution Amount......... 107
Final Scheduled Distribution Date............................... 9, 84
Financial Intermediary.......................................... 86
Fixed Supporting Fixed Amount................................... 107
Fixed Supporting Floating Amount................................ 107
Fixed Supporting Floating Scheduled Principal Distribution Amo.. 108
Fixed Supporting Floating Unscheduled Principal Distribution A.. 108
Gross Coupon Rate............................................... 11, 108
Initial Certificate Principal Balance........................... 4
Liquidated Loan................................................. 118
Loan Purchase Agreements........................................ 114
Loan Schedules.................................................. 114
Lock-box Account................................................ 23, 115
Monthly Mortgage Payment........................................ 108
Moody's 26, 123
Mortgage Loans.................................................. 1
Net Coupon Rate................................................. 11
Net Liquidation Proceeds........................................ 29
Non-Recoverable Advance......................................... 108
Offered Certificates............................................ 6
Pass-Through Rate............................................... 4
Percentage Interest............................................. 7
</TABLE>
S-129
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<TABLE>
<CAPTION>
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<S> <C>
PO Percentage................................................... 109
Pool I Classes.................................................. 108
Pool I Gross WAC................................................ 108
Pool I Loan 108
Pool I Net WAC.................................................. 108
Pool I Scheduled Principal Collections.......................... 108
Pool II Classes................................................. 108
Pool II Collateral Deficit...................................... 108
Pool II Gross WAC............................................... 109
Pool II Net WAC................................................. 109
Pool III Classes................................................ 109
Pool III Collateral Deficit..................................... 109
Pool III Gross WAC.............................................. 109
Pool III Net WAC................................................ 109
Pool III Pool Balance........................................... 109
Pool IV Classes................................................. 109
Pool IV Collateral Deficit...................................... 109
Pool IV Gross WAC............................................... 109
Pool IV Loan.................................................... 109
Pool IV Net WAC................................................. 109
Pool IV Principal Balance....................................... 109
Pool Negative Amortization Amount............................... 13, 82
Pooling and Servicing Agreement................................. 1, 4
Potentially Hazardous Property.................................. 118
Prepayment 110
Prepayment Interest............................................. 19, 117
Prepayment Interest Shortfall................................... 19, 117
Principal Balance............................................... 11, 12
Prior Sellers 28
Prospectus 2
Realized Loss................................................... 110
Record Date 8, 84
Related Original Subordination Percentage....................... 110
Related Subordination Percentage................................ 110
Remaining Shifted Unscheduled Principal Distribution Amount..... 112
REMIC 25
Remittance Date................................................. 8, 84
Repurchase Price................................................ 24, 114
Residual Certificates........................................... 4
Residual interest............................................... 25
Rules 86
Scheduled Interest Collection................................... 110
Scheduled Principal Collection.................................. 110
Scheduled Principal Distribution Amount......................... 111
Securities Issued............................................... 4, 12
Seller 1, 7, 77
Senior Certificates............................................. 4
Senior Formula Interest Distribution Amount..................... 111
Senior Interest Distribution Amount............................. 111
Senior Percentage............................................... 111
Senior Principal Balance........................................ 111
</TABLE>
S-130
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<TABLE>
<CAPTION>
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<S> <C>
Senior Scheduled Principal Distribution Amount.................. 111
Senior Unscheduled Principal Distribution Amount................ 111
Servicer 4
Servicer Remittance Amount...................................... 111
Servicing Advance............................................... 116
Servicing Fee................................................... 24
Servicing Report................................................ 116
Servicing Standards............................................. 115
Shifted Percentage.............................................. 111
SMMEA 27, 124
Subordinate Certificates........................................ 4
Subordinate Formula Interest Distribution Amount................ 112
Subordinate Interest Distribution Amount........................ 113
Subordinate Percentage.......................................... 113
Subordinate Scheduled Principal Distribution Amount............. 113
Subordinate Unscheduled Principal Distribution Amount........... 113
Trigger Percentage.............................................. 113
Trust Fund 1, 7
Trustee 4
Trustee's Fee 24
Underwriter 1
Unscheduled Collection.......................................... 113
Unscheduled Interest Collection................................. 113
Unscheduled Principal Collection................................ 113
Unscheduled Principal Distribution Amount....................... 113
WFSG 78
Wilshire 1
Wilshire Group.................................................. 78
Wilshire Sellers................................................ 28
WSC 78
</TABLE>
S-131
<PAGE>
P R O S P E C T U S
CS First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage and Manufactured Housing Contract
Pass-Through Certificates
(Issuable in Series)
-----------
The Conduit Mortgage and Manufactured Housing Contract Pass-Through
Certificates (the "Certificates") offered hereby and by the related
Prospectus Supplements will be offered from time to time in series (each, a
"Series") in one or more separate classes (each, a "Class"), which may be
divided into one or more subclasses (each, a "Subclass"), that represent
interests in specified percentages of principal and interest (a "Percentage
Interest") with respect to the related Mortgage Pool or the Contract Pool
(each, as defined below), or that have been assigned a Stated Principal
Balance and an Interest Rate (as such terms are defined herein), as more
fully set forth herein, and will evidence the undivided interest,
beneficial interest or notional amount specified in the related
Prospectus Supplement in one of a number of trusts, each to be created
by CS First Boston Mortgage Securities Corp. (the "Depositor") from time
to time. The trust property of each trust (the "Trust Fund") will
consist of a pool containing one- to four-family residential mortgage
loans, mortgage loans secured by multifamily residential rental
properties consisting of five or more dwelling units or apartment
buildings owned by cooperative housing corporations, loans made to
finance the purchase of certain rights relating to cooperatively
owned properties secured by a pledge of shares of a cooperative
corporation and an assignment of a proprietary lease or occupancy
agreement on a cooperative dwelling, mortgage participation
certificates evidencing participation interests in such loans that
are acceptable to the nationally recognized statistical rating
agency or agencies rating the related Series of Certificates
(collectively, the "Rating Agency") for a rating in one of the
four highest rating categories of such Rating Agency (such loans
and participation certificates being referred to collectively
hereinafter as the "Mortgage Loans"), or certain conventional
mortgage pass-through certificates (the "Mortgage
Certificates") and related property (the "Mortgage Pool") or a
pool of manufactured housing conditional sales contracts and
installment loan agreements (the "Contracts") or participation
certificates representing participation interests in such
Contracts and related property (the "Contract Pool") conveyed
to such trust by the Depositor. The Mortgage Loans may be
conventional mortgage loans, conventional cooperative loans,
mortgage loans insured by the Federal Housing
Administration (the "FHA"), or mortgage loans partially
guaranteed by the Veterans Administration (the "VA"), or
any combination of the foregoing, bearing fixed or
variable rates of interest. The Contracts may be
conventional contracts, contracts insured by the FHA or
partially guaranteed by the VA, or any combination of
the foregoing, bearing fixed or variable rates of
interest, as specified in the related Prospectus
Supplement. If so specified in the related Prospectus
Supplement, the rights of the holders of the
Certificates of one or more Classes or Subclasses of a
Series to receive distributions with respect to the
related Mortgage Pool or Contract Pool may be
subordinated to such rights of the holders of the
Certificates of one or more Classes or Subclasses of
such Series to the extent described herein and in
such Prospectus Supplement. As provided in the
applicable Prospectus Supplement, the timing of
payments, whether of principal or of interest, to
any one or more of such Classes or Subclasses may
be on a sequential or a pro rata basis. The
Prospectus Supplement with respect to each Series
will also set forth specific information relating
to the Trust Fund with respect to the Series in
respect of which the Prospectus is being
delivered, together with specific information
regarding the Certificates of such Series.
The Certificates do not represent an obligation of or interest
in the Depositor or any affiliate thereof. Neither the
Certificates, the Mortgage Loans, the Contracts nor the
Mortgage Certificates are insured or guaranteed by any
governmental agency or instrumentality, except to the
extent provided herein.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER ERISA
CONSIDERATIONS HEREIN AND IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
See "Risk Factors" beginning on page 16 herein for a discussion of certain
factors that potential investors should consider in determining whether to
invest in the Certificates of a Series in respect of which this Prospectus is
being delivered.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, which may include
CS First Boston Corporation, an affiliate of the Depositor, as more
fully described under "Plan of Distribution" and in the related
Prospectus Supplement. Certain offerings of the
Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions
exempt from the registration requirements of the
Securities Act of 1933. Such offerings are not
being made pursuant to the Registration
Statement of which this Prospectus forms a
part.
There will have been no public market for the Certificates of any Series prior
to the offering thereof. No assurance can be given that such a market will
develop as a result of such offering or, if it does develop, that it will
continue.
The Depositor, as specified in the applicable Prospectus Supplement, may
elect to treat the Trust Fund with respect to certain Series of
Certificates as one or more Real Estate Mortgage Investment
Conduits (each, a "REMIC"). See "Certain Federal Income Tax
Consequences."
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Certificates of such Series may be
subject to early termination and may receive Special
Distributions (as defined herein) in reduction of
Stated Principal Balance (as defined herein) under
the circumstances described herein and in
such Prospectus Supplement.
This Prospectus may not be used to consummate sales of the Certificates
offered hereby unless accompanied by a Prospectus Supplement.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CS First Boston
The date of this Prospectus is November 21, 1996.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement with respect to each Series of Certificates will,
among other things, set forth with respect to such Series of Certificates: (i)
the identity of each Class or Subclass within such Series; (ii) the undivided
interest, Percentage Interest, Stated Principal Balance or notional amount of
each Class or Subclass of Certificates; (iii) the Pass-Through Rate, Interest
Rate or Annual Rate borne by each Class or Subclass within such Series; (iv)
certain information concerning the Mortgage Loans, the Mortgage Certificates,
the Contracts, if any, and the other assets comprising the Trust Fund for such
Series; (v) the final Distribution Date of each Class or Subclass of
Certificates within such Series; (vi) the identity of each Class or Subclass
of Compound Interest Certificates, if any, within such Series; (vii) the
method used to calculate the amount to be distributed with respect to each
Class or Subclass of Certificates; (viii) the order of application of
distributions to each of the Classes or Subclasses within such Series, whether
sequential, pro rata, or otherwise; (ix) the Distribution Dates with respect
to such Series; (x) information with respect to the terms of the Residual
Certificates or Subordinated Certificates offered hereby, if any are offered;
(xi) information with respect to the method of credit support, if any, with
respect to such Series; and (xii) additional information with respect to the
plan of distribution of such Series of Certificates.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of
the information set forth in the Registration Statement of which this
Prospectus and the related Prospectus Supplement is a part. For further
information, reference is made to such Registration Statement and the exhibits
thereto which the Depositor has filed with the Securities and Exchange
Commission (the "Commission"), under the Securities Act of 1933, as amended.
Statements contained in this Prospectus and any Prospectus Supplement as to
the contents of any contract or other document referred to are summaries and
in each instance reference is made to the copy of the contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement may be obtained from the Commission, upon payment of
the prescribed charges, or may be examined free of charge at the Commission's
offices. Reports and other information filed with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of such information can be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth STreet,
N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
Copies of the Pooling and Servicing Agreement pursuant to which a Series of
Certificates is issued will be provided to each person to whom a Prospectus and
the related Prospectus Supplement are delivered, upon written or oral request
directed to: Treasurer, CS First Boston Mortgage Securities Corp., Park Avenue
Plaza, 55 East 52nd Street, New York, New York 10055, (212) 909-2000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering of Certificates offered hereby. The Depositor will
provide or cause to be provided without charge to each person to whom this
Prospectus is delivered in connection with the offering of one or more Classes
of Certificates, upon request, a copy of any or all such documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such Classes of such Certificates, other than
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed to: CS First Boston Mortgage Securities Corp., Park Avenue Plaza,
55 East 52nd Street, New York, New York 10055, telephone number (212) 909-
2000.
IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OF REGULATIONS, THIS
PROSPECTUS AND THE ATTACHED PROSPECTUS SUPPLEMENT WILL ALSO BE SUED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.
2
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, and by reference to the
information with respect to each Series of Certificates contained in the
related Prospectus Supplement. Certain capitalized terms used and not otherwise
defined herein shall have the meanings given elsewhere in this Prospectus.
SECURITIES OFFERED........ Conduit Mortgage and Manufactured Housing Contract
Pass-Through Certificates (the "Certificates"),
issuable in series (each, a "Series"). The
Certificates may be issued in one or more classes
(each, a "Class") and such Classes may be divided
into one or more subclasses (each, a "Subclass").
One or more of such Classes or Subclasses of a
Series may be subordinated to one or more Classes
or Subclasses of such Series, as specified in the
related Prospectus Supplement (any such Class or
Subclass to which another Class or Subclass is
subordinated being hereinafter referred to as a
"Senior Class" or a "Senior Subclass,"
respectively, and any such subordinated Class or
Subclass being hereinafter referred to as a
"Subordinated Class" or "Subordinated Subclass,"
respectively). One or more of such Classes or
Subclasses of Certificates of a Series (the
"Residual Certificates") may evidence a residual
interest in the related Trust Fund (as defined
below). If so specified in the related Prospectus
Supplement, one or more Classes or Subclasses of
Certificates within a Series (the "Multi-Class
Certificates") may be assigned a principal balance
(a "Stated Principal Balance" or a "Certificate
Principal Balance") based on the cash flow from
the Mortgage Loans (as hereinafter defined),
Mortgage Certificates (as hereinafter defined),
the Contracts (as hereinafter defined) and/or the
other assets in the Trust Fund if specified as
such in the related Prospectus Supplement and a
stated annual interest rate, determined in the
manner set forth in such Prospectus Supplement,
which may be fixed or variable (an "Interest
Rate"). If so specified in the related Prospectus
Supplement, one or more such Classes or Subclasses
may receive unequal amounts of the distributions
of principal and interest on the Mortgage Loans,
the Contracts and the Mortgage Certificates
included in the related Trust Fund, as specified
in such Prospectus Supplement (any such Class or
Subclass receiving the higher proportion of
principal distributions being referred to
hereinafter as a "Principal Weighted Class" or
"Principal Weighted Subclass," respectively, and
any such Class or Subclass receiving the higher
proportion of interest distributions being
referred to hereinafter as an "Interest Weighted
Class" or an "Interest Weighted Subclass,"
respectively). If so specified in the related
Prospectus Supplement, the allocation of the
principal and interest distributions may involve
as much as 100% of each distribution of principal
or interest being allocated to one or more Classes
or Subclasses and 0% to another. If so specified
in the related Prospectus Supplement, one or more
Classes or Subclasses may receive disproportionate
amounts of certain distributions of
3
<PAGE>
principal, which proportions may change over time
subject to certain conditions. Payments may be
applied to any one or more Class or Subclass on a
sequential or pro rata basis, or otherwise, as
specified in the related Prospectus Supplement.
Each Certificate will represent the undivided
interest, beneficial interest or percentage
interest specified in the related Prospectus
Supplement in one of a number of trusts to be
created by the Depositor from time to time. The
trust property of each trust (the "Trust Fund")
will consist of (a) one or more mortgage pools
(each, a "Mortgage Pool") containing (i)
conventional one- to four-family residential,
mortgage loans, (ii) loans (the "Cooperative
Loans") made to finance the purchase of certain
rights relating to cooperatively owned properties
secured by the pledge of shares issued by a
cooperative corporation (the "Cooperative") and
the assignment of a proprietary lease or occupancy
agreement providing the exclusive right to occupy
a particular dwelling unit (a "Cooperative
Dwelling" and, together with one- to four-family
residential properties, "Single Family Property"),
(iii) mortgage loans secured by multifamily
residential rental properties consisting of five
or more dwelling units or apartment buildings
owned by cooperative housing corporations
("Multifamily Property"), purchased by the
Depositor either directly or through one or more
affiliates from an affiliate or from unaffiliated
sellers, (iv) mortgage participation certificates
evidencing participation interests in such loans
that are acceptable to the nationally recognized
rating agency or agencies identified in the
related Prospectus Supplement (collectively, the
"Rating Agency") rating the Certificates of such
Series for a rating in one of the four highest
rating categories of such Rating Agency (such
loans and mortgage participation certificates
being referred to collectively hereinafter as the
"Mortgage Loans"), or (v) certain conventional
mortgage pass-through certificates (the "Mortgage
Certificates") issued by one or more trusts
established by one or more private entities or (b)
one or more contract pools (each, a "Contract
Pool") containing manufactured housing conditional
sales contracts and installment loan agreements
(the "Contracts") or participation certificates
representing participation interests in such
Contracts (such Contracts, together with the
Mortgage Loans and the Mortgage Certificates,
being referred to collectively hereinafter as the
"Trust Assets") purchased by the Depositor either
directly or through one or more affiliates or
Unaffiliated Sellers, and related property
conveyed to such trust by the Depositor.
Unless otherwise specified in the related
Prospectus Supplement, each Series of Certificates
will be offered in fully registered form only, in
one or more Classes, which may be divided into one
or more Subclasses evidencing the right to receive
a share of principal payments and the percentages
of interest payments on the underlying Mortgage
Loans, Mortgage Certificates or Contracts at the
Pass-Through Rate for the related Mortgage Pool or
Contract Pool. If so specified in the related
Prospectus Supplement, Multi-Class
4
<PAGE>
Certificates of a Series may be issued with the
Stated Principal Balances and the Interest Rates
therein specified. At the time of issuance, each
Certificate offered by means of this Prospectus
and the related Prospectus Supplements will be
rated in one of the four highest rating categories
by at least one Rating Agency. The minimum
undivided interest, percentage interest or
beneficial interest in a Mortgage Pool or Contract
Pool, the minimum notional amount to be evidenced
by a Certificate of a Class or Subclass, or the
minimum denomination in which a Certificate of a
Class or Subclass is to be issued will be set
forth in the related Prospectus Supplement.
DEPOSITOR................. CS First Boston Mortgage Securities Corp., a
Delaware corporation.
MASTER SERVICER........... The entity, if any, named as Master Servicer in the
applicable Prospectus Supplement, which may be an
affiliate of the Depositor. See "Description of
the Certificates."
INTEREST.................. Interest will be distributed on the days specified
in the Prospectus Supplement with respect to a
Series, or if any such day is not a business day,
the next succeeding business day (the
"Distribution Date"), at the rate, or pursuant to
the method of determining such rate, specified in
the related Prospectus Supplement for each Class
or Subclass within such Series, commencing on the
day specified in such Prospectus Supplement, in
the manner specified in such Prospectus
Supplement. See "Yield Considerations" and
"Description of the Certificates--Payments on
Mortgage Loans" and "--Payments on Contracts."
PRINCIPAL (INCLUDING
PREPAYMENTS).............. Unless otherwise specified in the related
Prospectus Supplement, principal on each Trust
Asset underlying a Series of Certificates will be
distributed on each Distribution Date, commencing
on the date specified in the related Prospectus
Supplement in the priority and manner specified in
such Prospectus Supplement. If so specified in the
Prospectus Supplement with respect to a Series
that includes Multi-Class Certificates,
distributions on such Multi-Class Certificates may
be made in reduction of the Stated Principal
Balance, in an amount equal to the Stated
Principal Distribution Amount. Unless otherwise
specified in the related Prospectus Supplement,
the Stated Principal Distribution Amount will
equal the amount by which the Stated Principal
Balance of such Class of Multi-Class Certificates
(before taking into account the amount of interest
accrued and added to the Stated Principal Balance
of any Class or of Compound Interest Certificates)
exceeds the Asset Value (as defined herein) of the
Trust Assets and other property in the related
Trust Fund as of the Business Day prior to the
related Distribution Date. See "Maturity and
Prepayment Considerations" and "Description of the
Certificates--Payments on Mortgage Loans" and "--
Payments on Contracts." If so specified in the
Prospectus Supplement relating to a Series, the
Multi-Class Certificates of such Series which have
other than monthly
5
<PAGE>
Distribution Dates may receive special
distributions in reduction of Stated Principal
Balance ("Special Distributions") in any month,
other than a month in which a Distribution Date
occurs, if, as a result of principal prepayments
on the Trust Assets included in the related Trust
Fund and/or low reinvestment yields, the Trustee
determines, based on assumptions specified in the
related Pooling and Servicing Agreement, that the
amount of cash anticipated to be on deposit in the
Certificate Account for such Series on the next
Distribution Date may be less than the sum of the
interest distributions and the amount of
distributions in reduction of Stated Principal
Balance to be made on such Distribution Date.
Unless otherwise specified in the related
Prospectus Supplement, Special Distributions will
be made on such Certificates in the same priority
and manner as distributions in reduction of Stated
Principal Balance would be made on the next
Distribution Date for such Certificates. See
"Description of the Certificates--Special
Distributions."
THE MORTGAGE POOLS........ If so specified in the related Prospectus
Supplement, the Certificates of a Series will
represent the interest specified in such
Prospectus Supplement in the Mortgage Pool or
Pools included in the Trust Fund for such Series.
Unless otherwise specified in the applicable
Prospectus Supplement, the original principal
amount of each Mortgage Loan in a Mortgage Pool
will not be more than 95% (such ratio, the "Loan-
to-Value Ratio") of the value of the property
securing such Mortgage Loan (the "Mortgaged
Property"), based upon an appraisal of the
Mortgaged Property considered acceptable to the
originator of such Mortgage Loan or the sales
price, whichever is less (the "Original Value").
Unless otherwise specified in the applicable
Prospectus Supplement, Mortgage Loans secured by
Single Family Property having an original
principal amount exceeding 80% of the Original
Value will be covered by a policy of private
mortgage insurance until the outstanding principal
amount is reduced to the percentage of the
Original Value set forth in the related Prospectus
Supplement as a result of principal payments by
the borrower (the "Mortgagor").
Unless otherwise specified in the applicable
Prospectus Supplement, the principal balance at
origination of each Mortgage Loan that is secured
by Single Family Property will not exceed
$500,000. Mortgage Loans in a Mortgage Pool will
all have original maturities of 10 to 40 years,
unless otherwise specified in the applicable
Prospectus Supplement. Mortgage Pools may be
formed from time to time in varying sizes.
FIXED PASS-THROUGH RATE
MORTGAGE POOLS............ Unless otherwise specified in the related
Prospectus Supplement, with respect to each
Mortgage Pool included in the Trust Fund with
respect to a Series bearing a fixed Pass-Through
Rate, the Depositor will be obligated to deliver
Mortgage Loans that (i) have interest rates (the
"Mortgage Rates") at least 3/8 of 1% over the
interest rate (the "Pass-Through Rate") for such
Series, (ii) conform to the
6
<PAGE>
eligibility requirements for such Series set forth
in the related Prospectus Supplement, and (iii)
have an aggregate principal balance equal to the
amount specified in such Prospectus Supplement,
subject to a permitted variance of up to 10%.
VARIABLE PASS-THROUGH
RATE MORTGAGE POOLS....... If so specified in the related Prospectus
Supplement, the Depositor may establish one or
more Mortgage Pools, each of which will have a
variable as opposed to a fixed Pass-Through Rate.
Unless otherwise provided in the applicable
Prospectus Supplement, the variable Pass-Through
Rate will equal the weighted average of the
Mortgage Rates of all of the Mortgage Loans in the
Mortgage Pool minus the fixed percentage servicing
fee for each Mortgage Loan set forth in the
related Prospectus Supplement or in a Current
Report on Form 8-K. A Mortgage Pool with a
variable Pass-Through Rate may be composed of
Mortgage Loans that have fluctuating Mortgage
Rates. The characteristics of a variable Pass-
Through Rate and its effect on the yield to
Certificateholders as well as the servicing
compensation payable to the related Servicer and
the Master Servicer and the amounts, if any, with
respect to such Mortgage Loans payable to the
Depositor or to the person or entity specified in
the related Prospectus Supplement will be more
fully described in such Prospectus Supplement.
MORTGAGE CERTIFICATES..... If so specified in the related Prospectus
Supplement, the Trust Fund for a Series of
Certificates may include Mortgage Certificates
issued by one or more trusts established by one or
more private entities, with the respective
aggregate principal balances and the
characteristics described in such Prospectus
Supplement. Each Mortgage Certificate included in
a Trust Fund will evidence an interest of the type
specified in the related Prospectus Supplement in
a pool of mortgage loans of the type described in
such Prospectus Supplement, secured principally by
mortgages on one- to four-family residences,
mortgages on multi-family residential rental
properties or apartment buildings owned by
cooperative housing corporations or by pledges of
shares of cooperative corporations and assignments
of proprietary leases or occupancy agreements on
cooperative dwellings, unless otherwise specified
in such Prospectus Supplement.
THE CONTRACT POOLS........ If so specified in the related Prospectus
Supplement, the Certificates of a Series will
represent the interest specified in such
Prospectus Supplement in the Contract Pool or
Pools included in the Trust Fund for such Series.
Unless otherwise specified in the applicable
Prospectus Supplement, the Contracts will be fixed
rate Contracts. Such Contracts, as specified in
the related Prospectus Supplement, will consist of
manufactured housing conditional sales contracts
and installment loan agreements and will be
conventional Contracts or Contracts insured by the
FHA or partially guaranteed by the VA. Each
Contract may be secured by a new or used unit of
manufactured housing (a "Manufactured Home").
7
<PAGE>
The related Prospectus Supplement will specify the
range of terms to maturity of the Contracts at
origination and the maximum Loan-to-Value Ratio at
origination (the "Contract Loan-to-Value Ratio").
Because manufactured homes, unlike site-built
homes, generally depreciate in value, the Loan-to-
Value Ratios of some of the Contracts may be
higher at the Cut-off Date than at origination and
may increase over time. Unless otherwise specified
in the related Prospectus Supplement, Contracts
that are conventional Contracts will not be
covered by primary mortgage insurance policies or
primary credit insurance policies. Each
Manufactured Home which secures a Contract will be
covered by a standard hazard insurance policy
(which may be a blanket policy) to the extent
described herein or in the related Prospectus
Supplement insuring against hazard losses due to
various causes, including fire, lightning and
windstorm. A Manufactured Home located in a
federally designated flood area will be required
to be covered by flood insurance. Contract Pools
may be formed from time to time in varying sizes.
None of the Contracts will have been originated by
the Depositor or any of its affiliates.
YIELD CONSIDERATIONS...... If so specified in the applicable Prospectus
Supplement, an assumed rate of prepayment will be
used to calculate the expected yield to maturity
on each Class of the Certificates of a Series. The
yield on any Class of Certificates, the purchase
price of which is greater than the aggregate
amount of the Principal Distributions to be made
to such Class (a "Premium Certificate"), is likely
to be adversely affected by a higher than
anticipated level of principal prepayments on the
Trust Assets included in the related Trust Fund.
This effect on yield will intensify with any
increase in the amount by which the purchase price
of such Certificate exceeds the aggregate amount
of such Principal Distributions. If the
differential is particularly wide and a high level
of prepayments occurs, it is possible for Holders
of Premium Certificates not only to suffer a lower
than anticipated yield but, in extreme cases, to
fail to recoup fully their initial investment.
Conversely, a lower than anticipated level of
principal prepayments (which can be anticipated to
increase the expected yield to Holders of
Certificates that are Premium Certificates) will
likely result in a lower than anticipated yield to
Holders of Certificates of a Class the purchase
price of which is less than the aggregate amount
of the Principal Distributions to be made to such
Class (a "Discount Certificate"). The Prospectus
Supplement for each Series of Certificates that
includes an Interest Weighted or a Principal
Weighted Class will set forth certain yield
calculations on each such Class based upon a range
of specified prepayment assumptions on the Trust
Assets included in the related Trust Fund.
The yield to Certificateholders will also be
adversely affected because interest will accrue on
the Mortgage Loans, the Contracts or the mortgage
loans underlying the Mortgage Certificates
included in a Trust Fund, from the first day of
the month preceding the month in
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which a Distribution Date occurs, but the
distribution of such interest will be made no
earlier than the 25th day of the succeeding month
unless otherwise provided in the applicable
Prospectus Supplement. The adverse effect on yield
of this delay will intensify with any increase in
the period of time by which the Distribution Date
for a Series of Certificates succeeds the date on
which distributions on the Mortgage Loans, the
Contracts, or the Mortgage Certificates are
received by the Master Servicer or the Trustee.
See "Yield Considerations."
CREDIT SUPPORT............
Neither the Certificates nor the Trust Assets are
insured or guaranteed by any governmental agency,
except to the extent of any FHA insurance or VA
guarantee. Credit support will be provided on the
Mortgage Pools or Contract Pools by one or more
irrevocable letters of credit (the "Letter of
Credit"), a policy of mortgage pool insurance (the
"Pool Insurance Policy"), a bond or similar form
of insurance coverage against certain losses in
the event of the bankruptcy of a Mortgagor (the
"Mortgagor Bankruptcy Bond") or any combination of
the foregoing as specified in the applicable
Prospectus Supplement. In lieu or in addition to
the foregoing credit support arrangements if so
specified in the related Prospectus Supplement,
the Certificates of a Series may be issued in one
or more Classes or Subclasses. Payments on the
Certificates of one or more Classes or Subclasses
(the "Senior Certificates") may be supported by a
prior right to receive distributions attributable
or otherwise payable to another Class or Subclass
(the "Subordinated Certificates") to the extent
specified in the related Prospectus Supplement
(the "Subordinated Amount"). In addition, if so
specified in the related Prospectus Supplement,
one or more Classes or Subclasses of Subordinated
Certificates may be subordinated to another Class
or Subclass of Subordinated Certificates and may
be entitled to receive disproportionate amounts of
distributions of principal. If so specified in the
related Prospectus Supplement, a reserve (the
"Reserve Fund") and certain other accounts or
funds may be established to support payments on
the Certificates. A Prospectus Supplement with
respect to a Series may also provide for
additional or alternative forms of credit support,
including a guarantee or surety bond, acceptable
to the Rating Agency ("Alternative Credit
Support").
A. LETTER OF CREDIT....... If so specified in the applicable Prospectus
Supplement, the issuer of one or more Letters of
Credit (the "L/C Bank") will deliver to the
Trustee the Letters of Credit for the Mortgage
Pool or Contract Pool. Unless otherwise specified
in the related Prospectus Supplement, to the
extent described herein, the L/C Bank will honor
the Trustee's demands with respect to such Letter
of Credit, to the extent of the amount available
thereunder, to make payments to the Certificate
Account on each Distribution Date in an amount
equal to the amount sufficient to repurchase each
Liquidating Loan that has not been purchased by
the related Servicer or the Master Servicer
pursuant to the terms of the applicable Servicing
Agreement or Pooling and
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Servicing Agreement referred to herein. Unless
otherwise provided in the related Prospectus
Supplement, the term "Liquidating Loan" means: (a)
each Mortgage Loan with respect to which
foreclosure proceedings have been commenced (and
the Mortgagor's right of reinstatement has
expired), (b) each Mortgage Loan with respect to
which the Servicer or the Master Servicer has
agreed to accept a deed to the property in lieu of
foreclosure, (c) each Cooperative Loan as to which
the shares of the related Cooperative and the
related proprietary lease or occupancy agreement
have been sold or offered for sale or (d) each
Contract with respect to which repossession
proceedings have been commenced. The liability of
the L/C Bank under the Letter of Credit will be
reduced by the amount of unreimbursed payments
thereunder. In the event that at any time there
remains no amount available under the Letter of
Credit for a specific Mortgage Pool or Contract
Pool, and coverage under another form of credit
support, if any, is exhausted, any losses will be
borne by the holder of Certificates of the Series
evidencing interests in such Mortgage Pool or
Contract Pool, as specified in the related
Prospectus Supplement.
Unless otherwise specified in the related
Prospectus Supplement, the maximum liability of
the L/C Bank under the Letter of Credit for a
Mortgage Pool or Contract Pool will be an amount
equal to a percentage (not greater than 10% of the
initial aggregate principal balance of the
Mortgage Loans in such Mortgage Pool or Contracts
in such Contract Pool) (the "L/C Percentage"), set
forth in the Prospectus Supplement, relating to
such Mortgage Pool or Contract Pool. The maximum
amount available at any time to be paid under the
Letter of Credit will be determined in accordance
with the provisions of the applicable Pooling and
Servicing Agreement referred to herein. The
duration of coverage and the amount and frequency
of any reduction in coverage provided by the
Letter of Credit with respect to a Series of
Certificates will be in compliance with
requirements established by the Rating Agency
rating such Series and will be set forth in the
related Prospectus Supplement. If so specified in
the related Prospectus Supplement, the Letter of
Credit with respect to a Series of Certificates
may, in addition to or in lieu of the foregoing,
provide coverage with respect to the unpaid
principal or notional amount of the Certificates
of a Class or Classes within such Series. See
"Credit Support--Letter of Credit."
B. POOL INSURANCE......... If so specified in the applicable Prospectus
Supplement, the Master Servicer will obtain a Pool
Insurance Policy to cover any loss (subject to the
limitations described below) by reason of default
by the Mortgagors on the related Mortgage Loans to
the extent not covered by any policy of primary
mortgage insurance (a "Primary Mortgage Insurance
Policy"). The amount of coverage provided by the
Pool Insurance Policy for a Mortgage Pool will be
specified in the related Prospectus Supplement. A
Pool Insurance Policy for a Mortgage Pool,
however, will not be a blanket policy against
loss,
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<PAGE>
because claims thereunder may only be made for
particular defaulted Mortgage Loans and only upon
satisfaction of certain conditions precedent. See
"Description of Insurance--Pool Insurance
Policies."
The Master Servicer, if any, or the Depositor or
the applicable Servicer will be required to use
its best reasonable efforts to maintain the Pool
Insurance Policy for each such Mortgage Pool and
to present claims thereunder to the issuer of such
Pool Insurance Policy (the "Pool Insurer") on
behalf of the Trustee and the Certificateholders.
See "Description of the Certificates--Presentation
of Claims."
C. MORTGAGOR BANKRUPTCY
BOND...................... If so specified in the related Prospectus
Supplement, the Master Servicer, if any, or the
Depositor or the applicable Servicer will obtain
and use its best reasonable efforts to maintain a
Mortgagor Bankruptcy Bond for such Series covering
certain losses resulting from action that may be
taken by a bankruptcy court in connection with the
bankruptcy of a Mortgagor. The level of coverage
provided by such Mortgagor Bankruptcy Bond will be
specified in the applicable Prospectus Supplement.
See "Description of Insurance--Mortgagor
Bankruptcy Bond."
D. SUBORDINATED If so specified in the related Prospectus
CERTIFICATES.............. Supplement, the rights of holders of the
Certificates of one or more Subordinated Classes
or Subclasses of a Series to receive distributions
with respect to the Mortgage Loans in the Mortgage
Pool or Contracts in the Contract Pool for such
Series, or with respect to a Subordinated Pool (as
defined herein), will be subordinated to the
rights of the holders of the Certificates of one
or more Classes or Subclasses of such Series to
receive such distributions to the extent described
in the related Prospectus Supplement, and limited
to the Subordinated Amount set forth in the
related Prospectus Supplement. This subordination
will be intended to enhance the likelihood of
regular receipt by holders of the Senior
Certificates of the full amount of scheduled
payments of principal and interest due them and to
reduce the likelihood that the holders of such
Senior Certificates will experience losses. See
"Credit Support--Subordinated Certificates."
E. SHIFTING INTEREST...... If so specified in the applicable Prospectus
Supplement, the protection afforded to holders of
Senior Certificates of a Series by the
subordination of certain rights of holders of
Subordinated Certificates of such Series to
distributions on the related Mortgage Loans or
Contracts may be effected by the preferential
right of the holders of the Senior Certificates to
receive, prior to any distribution being made in
respect of the holders of the related Subordinated
Certificates, current distributions on the related
Mortgage Loans or Contracts of principal and
interest due them on each Distribution Date out of
funds available for distribution on such date in
the related Certificate Account and by the
distribution to the holders of the Senior
Certificates on each Distribution Date of a
greater than pro rata percentage of certain
principal prepayments or other recoveries of
principal specified in the related Prospectus
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<PAGE>
Supplement on a Mortgage Loan or Contract that are
received in advance of their scheduled Due Dates
and are not accompanied by an amount as to
interest representing scheduled interest due on
any date or dates in any month or months
subsequent to the month of prepayment (the
"Principal Prepayments"). The allocation of a
greater than pro rata share of such amounts to the
Senior Certificates will have the effect of
accelerating the amortization of the Senior
Certificates while increasing the respective
interest in the Trust Fund evidenced by the
Subordinated Certificates. Increasing the
respective interest of the Subordinated
Certificates relative to that of the Senior
Certificates is intended to preserve the
availability of the benefits of the subordination
provided by the Subordinated Certificates. See
"Description of the Certificates--Distributions of
Principal and Interest" and "--Distributions on
Certificates" and "Credit Support--Shifting
Interest."
F. RESERVE FUND...........
If so specified in the related Prospectus
Supplement, a Reserve Fund may be established for
such Series. Unless otherwise specified in such
Prospectus Supplement, such Reserve Fund will not
be included in the corpus of the Trust Fund for
such Series. If so specified in the related
Prospectus Supplement, such Reserve Fund may be
created by the deposit, in escrow, by the
Depositor, of a separate pool of mortgage loans,
cooperative loans or manufactured housing
conditional sales contracts and installment loan
agreements (the "Subordinated Pool"), with the
aggregate principal balance specified in the
related Prospectus Supplement, or by the deposit
of cash in the amount specified in the related
Prospectus Supplement (the "Initial Deposit"). The
Reserve Fund will be funded by the retention of
specified distributions on the Trust Assets of the
related Mortgage Pool or Contract Pool, and/or on
the mortgage loans, cooperative loans or
manufactured housing conditional sales contracts
and installment loan agreements in the
Subordinated Pool, until the Reserve Fund (without
taking into account the amount of any Initial
Deposit) reaches an amount (the "Required
Reserve") set forth in the related Prospectus
Supplement. Thereafter, specified distributions on
the Trust Assets of the related Mortgage Pool or
Contract Pool, and/or on the mortgage loans,
cooperative loans or manufactured housing
conditional sales contracts and installment loan
agreements in the Subordinated Pool, will be
retained to the extent necessary to maintain such
Reserve Fund (without taking into account the
amount of the Initial Deposit, if any) at the
related Required Reserve. In no event will the
Required Reserve for any Series ever be required
to exceed the lesser of the Subordinated Amount
for such Series or the outstanding aggregate
principal amount of Certificates of the
Subordinated Classes or Subclasses of such Series
specified in the related Prospectus Supplement. If
so specified in the related Prospectus Supplement,
the Reserve Fund with respect to such Series may
be funded at a lesser amount or in another manner
acceptable to the Rating Agency rating such
Series. See "Credit Support--Subordinated
Certificates" and "--Reserve Fund."
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<PAGE>
G. OTHER FUNDS............ Assets consisting of cash, certificates of deposit
or letters of credit, or any combination thereof,
in the aggregate amount specified in the related
Prospectus Supplement, will be deposited by the
Depositor in one or more accounts to be
established with respect to a Series of
Certificates by the Depositor with the Trustee on
the related Delivery Date if such assets are
required to make timely distributions in respect
of principal of, and interest on, the Certificates
of such Series, are otherwise required as a
condition to the rating of such Certificates in
the rating category specified in the Prospectus
Supplement, or are required in order to provide
for certain contingencies or in order to make
certain distributions regarding Certificates which
represent interests in GPM Loans (a "GPM Fund") or
Buy-Down Loans (a "Buy-Down Fund"). Following each
Distribution Date, amounts may be withdrawn from
any such fund and used and/or distributed in
accordance with the Pooling and Servicing
Agreement under the conditions and to the extent
specified in the related Prospectus Supplement.
H. SWAP AGREEMENT.........
If so specified in the Prospectus Supplement
relating to a Series of Certificates, the Trust
will enter into or obtain an assignment of a swap
agreement or similar agreement pursuant to which
the Trust will have the right to receive certain
payments of interest (or other payments) as set
forth or determined as described therein. See
"Credit Support--Swap Agreement."
HAZARD INSURANCE AND
SPECIAL HAZARD INSURANCE Unless otherwise specified in the applicable
POLICIES.................. Prospectus Supplement, all of the Mortgage Loans
(except for the Cooperative Loans) and the
Contracts will be covered by standard hazard
insurance policies insuring against losses due to
various causes, including fire, lightning and
windstorm. In addition, the Depositor will, if so
specified in the applicable Prospectus Supplement,
obtain an insurance policy (the "Special Hazard
Insurance Policy") covering losses that result
from certain other physical risks that are not
otherwise insured against (including earthquakes
and mudflows). The Special Hazard Insurance Policy
will be limited in scope and will cover losses in
an amount specified in the applicable Prospectus
Supplement. Any hazard losses not covered by
either standard hazard policies or the Special
Hazard Insurance Policy will not be insured
against and to the extent that the amount
available under any other method of credit support
available for such Series is exhausted, will be
borne by Certificateholders of such Series. The
hazard insurance policies and the Special Hazard
Insurance Policy will be subject to the
limitations described under "Description of
Insurance--Standard Hazard Insurance Policies on
Mortgage Loans," "--Standard Hazard Insurance
Policies on the Manufactured Homes" and "--Special
Hazard Insurance Policies."
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<PAGE>
SUBSTITUTION OF TRUST If so specified in the Prospectus Supplement
ASSETS.................... relating to a Series of Certificates, within the
period following the date of issuance of such
Certificates specified in such Prospectus
Supplement, the Depositor or one or more Servicers
will deliver to the Trustee with respect to such
Series Trust Assets in substitution for any one or
more of the Trust Assets included in the Trust
Fund relating to such Series which do not conform
in one or more material respects to the
representations and warranties in the related
Pooling and Servicing Agreement. See "Description
of the Certificates--Assignment of Mortgage
Loans," "--Assignment of Contracts" and "--
Assignment of Mortgage Certificates."
ADVANCES.................. The Servicers of the Mortgage Loans and Contracts
(and the Master Servicer, if any, with respect to
each Mortgage Loan and Contract that it services
directly, and otherwise to the extent the related
Servicer does not do so) will be obligated to
advance delinquent installments of principal and
interest on the Mortgage Loans and Contracts (the
"Advances") under certain circumstances. See
"Description of the Certificates--Advances."
OPTIONAL TERMINATION...... If so specified in the Prospectus Supplement with
respect to a Series, the Depositor or such other
persons as may be specified in a Prospectus
Supplement may purchase the Trust Assets in the
related Trust Fund and any property acquired in
respect thereof at the time, in the manner and at
the price specified in such Prospectus Supplement.
In the event that the Depositor elects to treat
the related Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC") under the Internal
Revenue Code of 1986, as amended (the "Code"), any
such repurchase will be effected only in
compliance with the requirements of Section
860F(a)(4) of the Code, so as to constitute a
"qualified liquidation" thereunder. The exercise
of the right of repurchase will effect early
retirement of the Certificates of that Series. See
"Maturity and Prepayment Considerations" and
"Description of the Certificates--Termination."
ERISA LIMITATIONS......... A fiduciary of any employee benefit plan subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the
Code should carefully review with its own legal
advisers whether the purchase or holding of
Certificates could give rise to a transaction
prohibited or otherwise impermissible under ERISA
or Section 4975 of the Code. See "ERISA
Considerations."
TAX STATUS................ See "Certain Federal Income Tax Consequences."
LEGAL INVESTMENT.......... If so specified in the related Prospectus
Supplement relating to a Series of Certificates, a
Class or Subclass of such certificates will
constitute a "mortgage related security" under the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") if and for so long as it is rated in one
of the two highest rating categories by at least
one nationally recognized statistical rating
organization. Such
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<PAGE>
Classes or Subclasses, if any, will be legal
investments for certain types of institutional
investors to the extent provided in SMMEA,
subject, in any case, to any other regulations
which may govern investments by such institutional
investors. See "Legal Investment."
USE OF PROCEEDS...........
The Depositor will use the net proceeds from the
sale of each Series for one or more of the
following purposes: (i) to purchase the related
Trust Assets, (ii) to repay indebtedness which has
been incurred to obtain funds to acquire such
Trust Assets, (iii) to establish any reserve funds
described in the related Prospectus Supplement and
(iv) to pay costs of structuring, guaranteeing and
issuing such Certificates. If so specified in the
related Prospectus Supplement, the purchase of the
Trust Assets for a Series may be effected by an
exchange of Certificates by the Depositor with the
seller of such Trust Assets. See "Use of
Proceeds."
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and in
the applicable Prospectus Supplement to be prepared and delivered in connection
with the offering of any Series of Certificates, prospective investors should
carefully consider the following risk factors before investing in any Class or
Classes of Certificates of any such Series.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any Series will develop or, if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for the
life of the Certificates of any Series. The Prospectus Supplement for any
Series of Certificates may indicate that an underwriter specified therein
intends to establish a secondary market in such Certificates; however, no
underwriter will be obligated to do so. The Certificates will not be listed on
any securities exchange.
LIMITED OBLIGATIONS
Except for any related insurance policies or credit support described in
the applicable Prospectus Supplement, the Trust Assets included in the related
Trust Fund will be the sole source of payments on the Certificates of a Series.
The Certificates of any Series will not represent an interest in or obligation
of the Depositor, the Master Servicer, any Servicer, any Unaffiliated Seller,
the Trustee or any of their affiliates, except for the limited obligations of
the Depositor, the Master Servicer or any Unaffiliated Seller with respect to
certain breaches of representations and warranties and the Master Servicer's
obligations as Master Servicer. Neither the Certificates of any Series nor the
related Trust Assets will be guaranteed or insured by any governmental agency or
instrumentality (except to the limited extent described in the related
Prospectus Supplement that certain Trust Assets may be insured or guaranteed, in
whole or in part, by the FHA or VA), the Depositor, the Master Servicer, any
Servicer, any Unaffiliated Seller, the Trustee, any of their affiliates or any
other person. Consequently, in the event that payments on the Trust Assets are
insufficient or otherwise unavailable to make all payments required on the
Certificates, there will be no recourse to the Depositor, the Master Servicer,
any Servicer, any Unaffiliated Seller, the Trustee or, except as specified in
the applicable Prospectus Supplement, any other entity.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT SUPPORT
With respect to each Series of Certificates, credit support may be provided
in limited amounts to cover certain types of losses on the underlying Trust
Assets. Credit support may be provided in one or more of the forms referred to
herein, including, but not limited to: a Letter of Credit; a Pool Insurance
Policy; a Mortgagor Bankruptcy Bond; subordination of other Classes of
Certificates of the same Series; a Reserve Fund; and any combination thereof.
See "Credit Support" herein. Regardless of the form of credit support, if any,
provided, the amount of coverage will be limited in amount and in most cases
will be subject to periodic reduction in accordance with a schedule or formula.
Furthermore, such credit support may provide only very limited coverage as to
certain types of losses, and may provide no coverage as to certain other types
of losses. All or a portion of the credit support, if any, for any Series of
Certificates will generally be permitted to be reduced, terminated or
substituted for, if each applicable Rating Agency indicates that the then
current rating thereof will not be adversely affected. See "Credit Support".
RISKS OF THE TRUST ASSETS
An investment in securities such as the Certificates of any Series which
generally represent interests in mortgage loans or manufactured housing
conditional sales contracts and installment loan agreements ("contracts"), as
the case may be, may be affected by, among other things, a decline in real
estate values and changes in the mortgagor's or obligor's financial condition.
No assurance can be given that the values of the Mortgaged Properties securing
the Mortgage Loans, the values of the mortgaged properties securing the mortgage
loans underlying the Mortgage Certificates or the values of the Manufactured
Homes securing the Contracts, as the case may be, underlying any Series of
Certificates have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans, mortgage loans or Contracts. If the
residential real estate market should experience an overall decline in property
values such that the outstanding balances of the Mortgage Loans and the mortgage
loans underlying the Mortgage Certificates comprising a particular Trust Fund,
and any secondary financing on the related Mortgaged Properties and mortgaged
properties, become equal to or greater than the value of the related Mortgaged
Properties or mortgaged properties, as applicable, the actual rates of
delinquencies, foreclosures and losses could be higher than those now generally
experienced in the mortgage lending industry and those experienced in the
related Originator's portfolio. In addition, adverse economic conditions
generally, in particular geographic areas or industries, or affecting particular
segments of the borrowing community (such as Mortgagors or Obligors relying on
commission income and self-employed Mortgagors or Obligors) and other factors,
may affect the timely payment by Mortgagors, Obligors or mortgagors of scheduled
payments of principal and interest on the Mortgage Loans, Contracts or Mortgage
Certificates, as the case may be, and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. See
"Yield Considerations" and "Maturity and Prepayment Considerations" herein. To
the extent that such losses are not covered by the applicable credit support,
holders of Certificates of the Series evidencing interests in the related Trust
Fund will bear all risk of loss resulting from default by Mortgagors. Obligors
or mortgagors and will have to look primarily to the value of the Mortgaged
Properties, mortgaged properties or Manufactured Homes for recovery of the
outstanding principal and unpaid interest on the defaulted Mortgage Loans or
Contracts. In addition to the foregoing, certain geographic regions on the
United States from time to time will experience weaker regional economic
conditions and housing markets and, consequently, will experience higher rates
of loss and delinquency on mortgage loans or contracts generally. The Mortgage
Loans, Contracts or mortgage loans underlying the Mortgage Certificates
underlying certain Series of Certificates may be concentrated in these regions,
and such concentration may present risk considerations in addition to those
generally present for similar mortgage-backed or contract-backed securities
without such concentration. See "The Trust Fund - The Mortgage Pools; -
Underwriting Standards; - The Contract Pools; and -Underwriting Policies".
PREPAYMENT AND YIELD CONSIDERATIONS
The rate and timing of principal payments on the Certificates of each
Series will depend, among other things, on the rate and timing of principal
payments (including prepayments, defaults and liquidations) on the related
Mortgage Loans, Mortgage Certificates or Contracts. As is the case with
mortgage-backed securities generally, each Series of Certificates are subject to
substantial inherent cash-flow uncertainties because the Mortgage Loans and
Contracts may be prepaid at any time. Generally, when prevailing interest rates
increase, prepayment rates on mortgage loans tend to decrease, resulting in a
slower return of principal to investors at a time when reinvestment at such
higher prevailing rates would be desirable. Conversely, when prevailing
interest rates decline, prepayment rates on mortgage loans tend to increase,
resulting in a faster return of principal to investors at a time when
reinvestment at comparable yields may not be possible.
The yield to maturity on each Class of Certificates of each Series will
depend, among other things, on the rate and timing of principal payments
(including prepayments, defaults and liquidations) on the Mortgage Loans,
Mortgage Certificates or Contracts, as applicable, and the allocation thereof to
reduce the Certificate Principal Balance of such Class. The yield to maturity
on each Class of Certificates will also depend on the Pass-Through Rate and the
purchase price for such Certificates. The yield to investors on any Class of
Certificates will be adversely affected by any allocation thereto of interest
shortfalls on the Mortgage Loans or Contracts, as applicable, which are expected
to result from the distribution of interest only to the date of prepayment
(rather than a full month's interest) in connection with prepayments in full and
in part (including for this purpose Insurance Proceeds and Liquidation Proceeds)
to the extent not covered by amounts otherwise payable to the Master Servicer as
servicing compensation.
In general, if a Class of Certificates is purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at the
time of purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if a Class of Certificates 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.
SUBORDINATION
To the extent specified in the applicable Prospectus Supplement,
distributions of interest and principal on one or more Classes of Certificates
of a Series may be subordinated in priority of payment to interest and principal
due on one or more other Classes of Certificates of such Series.
LIMITATION ON EXERCISE OF RIGHTS DUE TO BOOK-ENTRY REGISTRATION
If so specified in the applicable Prospectus Supplement, one or more
Classes of Certificates of a Series initially will be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), or any other nominee
of The Depository Trust Company ("DTC") set forth in the applicable Prospectus
Supplement, and will not be registered in the names of the holders of the
Certificates of such Series or their nominees. Because of this, unless and
until Certificates in fully registered, certificated form ("Definitive
Certificates") for such Series are issued, holders of such Certificates will not
be recognized by the applicable Trustee as "Certificateholders" (as such terms
are used herein or in the related Pooling and Servicing Agreement or the related
Deposit Trust Agreement, as applicable). Hence, until Definitive Certificates
are issued, holders of such Certificates will be able to exercise the rights of
Certificateholders only indirectly through DTC and its participating
organizations.
THE TRUST FUND
Ownership of the Mortgage or Contract Pool or Pools included in the Trust
Fund (hereinafter defined) for a Series of Certificates may be evidenced by
one or more Classes of Certificates, which may consist of one or more
Subclasses, as specified in the Prospectus Supplement for such Series. Each
Certificate will evidence the undivided interest, beneficial interest or
notional amount specified in the related Prospectus Supplement in one or more
Mortgage Pools containing one or more Mortgage Loans or Contract Pools
containing Contracts, having an aggregate principal balance of not less than
approximately $50,000,000 as of the first day of the month of its creation
(the "Cut-off Date"), unless otherwise specified in the applicable Prospectus
Supplement. If so specified in the related Prospectus Supplement, each Class
or Subclass of the Certificates of a Series will evidence the percentage
interest specified in such Prospectus Supplement in the payments of principal
and interest on the Mortgage Loans in the related Mortgage Pool or Pools or on
the Contracts in the related Contract Pool or Pools (a "Percentage Interest").
To the extent specified in the related Prospectus Supplement, each Mortgage
Pool or Contract Pool with respect to a Series will be covered by a Letter of
Credit, a Pool Insurance Policy, a Special Hazard Insurance Policy, a
Mortgagor Bankruptcy Bond, by the subordination of the rights of the holders
of the Subordinated Certificates of a Series to the rights of the holders of
the Senior Certificates, which, if so specified in the related Prospectus
Supplement, may include Certificates of a Subordinated Class or Subclass and
the establishment of a Reserve, by the right of one or more Classes or
Subclasses of Certificates to receive a disproportionate amount of certain
distributions of principal or another form or forms of Alternative Credit
Support acceptable to the Rating Agency rating the Certificates of such Series
or by any combination of the foregoing. See "Description of Insurance" and
"Credit Support."
THE MORTGAGE POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include (a) one or more Mortgage Pools
containing (i) conventional one- to four-family residential, first and/or
second mortgage loans, (ii) Cooperative Loans made to finance the purchase of
certain rights relating to cooperatively owned properties secured by the
pledge of shares issued by a Cooperative and the assignment of a proprietary
lease or occupancy agreement providing the exclusive right to occupy a
particular Cooperative Dwelling, (iii) mortgage loans secured by Multifamily
Property, (iv) mortgage participation certificates evidencing participation
interests in such loans that are acceptable to the nationally recognized
Rating Agency rating the Certificates of such Series for a rating in one of
the four highest rating categories of such Rating Agency, or (v) certain
conventional Mortgage Certificates issued by one or more trusts established by
one or more private entities or (b) one or more Contract Pools containing
manufactured housing conditional sales contracts and installment loan
agreements or participation certificates representing participation interests
in such Contracts purchased by the Depositor either directly or through one or
more affiliates or Unaffiliated Sellers, and related property conveyed to such
trust by the Depositor.
A Mortgage Pool may include Mortgage Loans insured by the FHA ("FHA Loans")
and/or Mortgage Loans partially guaranteed by the Veterans Administration (the
"VA" and such mortgage loans are referred to as "VA Loans"). All Mortgage
Loans will be evidenced by promissory notes (the "Mortgage Notes") secured by
first mortgages or first or second deeds of trust or other similar security
instruments creating a first lien, as applicable, on the Mortgaged Properties
(as defined below). Single Family Property and Multifamily Property will
consist of single family detached homes, attached homes (single family units
having a common wall), individual units located in condominiums, multifamily
residential rental properties, apartment buildings owned by cooperative
housing corporations and such other type of homes or units as are set forth in
the related Prospectus Supplement. Each such detached or attached home or
multifamily property will be constructed on land owned in fee simple by the
Mortgagor or on land leased by the Mortgagor for a term at least two years
greater than the term of the applicable Mortgage Loan. Attached homes may
consist of duplexes, triplexes and fourplexes (multifamily structures where
each Mortgagor owns the land upon which the unit is built with the remaining
adjacent land owned in common). Multifamily Property may include mixed
commercial and residential buildings. The Mortgaged Properties may include
investment properties and vacation and second
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homes. Mortgage Loans secured by Multifamily Property may also be secured by
an assignment of leases and rents and operating or other cash flow guarantees
relating to the Mortgaged Properties to the extent specified in the related
Prospectus Supplement.
Unless otherwise specified below or in the applicable Prospectus Supplement,
each Mortgage Loan in a Mortgage Pool will (i) have an individual principal
balance at origination of not less than $25,000 nor more than $500,000, (ii)
have monthly payments due on the first day of each month (the "Due Date"),
(iii) be secured by Mortgaged Properties or relate to Cooperative Loans
located in any of the 50 states or the District of Columbia, and (iv) consist
of fully-amortizing Mortgage Loans, each with a 10 to 40 year term at
origination, a fixed or variable rate of interest and level or variable
monthly payments over the term of the Mortgage Loan. Unless otherwise
specified in the related Prospectus Supplement, the Loan-to-Value Ratio (as
hereinafter described) of such Mortgage Loans at origination will not exceed
95% on any Mortgage Loan with an original principal balance of $150,000 or
less, 90% on any Mortgage Loan with an original principal balance in excess of
$150,000 through $200,000, 85% on any Mortgage Loan with an original principal
balance in excess of $200,000 through $300,000 and 80% on any Mortgage Loan
with an original principal balance exceeding $300,000. If so specified in the
related Prospectus Supplement, a Mortgage Pool may also include fully
amortizing, adjustable rate Mortgage Loans ("ARM Loans") with (unless
otherwise specified in the applicable Prospectus Supplement) a 30-year term at
origination and a mortgage interest rate adjusted periodically (with
corresponding adjustments in the amount of monthly payments) to equal the sum
(which may be rounded) of a fixed margin and an index described in such
Prospectus Supplement, subject to any applicable restrictions on such
adjustments. The Mortgage Pools may also include other types of Mortgage Loans
to the extent set forth in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, no
Mortgage Loan will have a Loan-to-Value Ratio at origination in excess of 95%,
regardless of its original principal balance. The Loan-to-Value Ratio is the
ratio, expressed as a percentage, of the principal amount of the Mortgage Loan
at the date of determination to the lesser of (a) the appraised value
determined in an appraisal obtained by the originator and (b) the sales price
for such property (the "Original Value"). Unless otherwise specified in the
related Prospectus Supplement, with respect to a Mortgage Loan secured by a
mortgage on a vacation or second home or an investment property (other than
Multifamily Property), no income derived from the property will be considered
for underwriting purposes, the Loan-to-Value Ratio (taking into account any
secondary financing) of such Mortgage Loan may not exceed 80% and the original
principal balance of the Mortgage Loan may not exceed $250,000.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates. Any such Mortgage Loan
may provide that on the day on which the Mortgage Rate adjusts, the amount of
the monthly payments on the Mortgage Loan will be adjusted to provide for the
payment of the remaining principal amount of the Mortgage Loan with level
monthly payments of principal and interest at the new Mortgage Rate to the
maturity date of the Mortgage Loan. Alternatively, the Mortgage Loan may
provide that the Mortgage Rate adjusts more frequently than the monthly
payment. As a result, a greater or lesser portion of the monthly payment will
be applied to the payment of principal on the Mortgage Loan, thus increasing
or decreasing the rate at which the Mortgage Loan is repaid. See "Yield
Considerations." In the event that an adjustment to the Mortgage Rate causes
the amount of interest accrued in any month to exceed the amount of the
monthly payment on such Mortgage Loan, the excess (the "Deferred Interest")
will be added to the principal balance of the Mortgage Loan (unless otherwise
paid by the Mortgagor), and will bear interest at the Mortgage Rate in effect
from time to time. The amount by which the Mortgage Rate or monthly payment
may increase or decrease and the aggregate amount of Deferred Interest on any
Mortgage Loan may be subject to certain limitations, as described in the
related Prospectus Supplement.
If so specified in the Prospectus Supplement for the related Series, the
Mortgage Rate on certain ARM Loans will be convertible from an adjustable rate
to a fixed rate, at the option of the Mortgagor under certain circumstances.
Unless otherwise specified in the related Prospectus Supplement, the Pooling
and Servicing Agreement will provide that the Unaffiliated Seller from which
such convertible ARM Loans were acquired will
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be obligated to repurchase from the Trust Fund any such ARM Loan as to which
the conversion option has been exercised (a "Converted Mortgage Loan"), at a
purchase price set forth in the related Prospectus Supplement. The amount of
such purchase price will be required to be deposited in the Certificate
Account and will be distributed to the Certificateholders on the Distribution
Date in the month following the month of the exercise of the conversion
option. The obligation of the Unaffiliated Seller to repurchase Converted
Mortgage Loans may or may not be supported by cash, letters of credit, third
party guarantees or other similar arrangements.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans pursuant to which the monthly payments made by the
Mortgagor during the early years of the Mortgage Loan will be less than the
scheduled monthly payments on the Mortgage Loan ("Buy-Down Loans"). The
resulting difference in payment shall be compensated for from an amount
contributed by the Depositor, the seller of the related Mortgaged Property,
the Servicer or another source and placed in a custodial account (the "Buy-
Down Fund") by the Servicer, or if so specified in the related Prospectus
Supplement, with the Trustee. In lieu of a cash deposit, if so specified in
the related Prospectus Supplement, a letter of credit or guaranteed investment
contract may be delivered to the Trustee to fund the Buy-Down Fund. See
"Description of the Certificates--Payments on Mortgage Loans." Buy-Down Loans
included in a Mortgage Pool will provide for a reduction in monthly interest
payments by the Mortgagor for a period of up to the first four years of the
term of such Mortgage Loans.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans pursuant to which the monthly payments by the Mortgagor
during the early years of the related Mortgage Note are less than the amount
of interest that would otherwise be payable thereon, with the interest not so
paid added to the outstanding principal balance of such Mortgage Loan ("GPM
Loans"). If so specified in the related Prospectus Supplement, the resulting
difference in payment shall be compensated for from an amount contributed by
the Depositor or another source and delivered to the Trustee (the "GPM Fund").
In lieu of cash deposit, the Depositor may deliver to the Trustee a letter of
credit, guaranteed investment contract or another instrument acceptable to the
Rating Agency rating the related Series to fund the GPM Fund.
FHA Loans will be insured by the Federal Housing Administration (the "FHA")
as authorized under the National Housing Act, as amended, and the United
States Housing Act of 1937, as amended. Such FHA loans will be insured under
various FHA programs including the standard FHA 203-b programs to finance the
acquisition of one- to four-family housing units, the FHA 245 graduated
payment mortgage program and the FHA 221 and 223 programs to finance certain
multifamily residential rental properties. FHA Loans generally require a
minimum down payment of approximately 5% of the original principal amount of
the FHA Loan. No FHA Loan may have an interest rate or original principal
amount exceeding the applicable FHA limits at the time of origination of such
FHA Loan.
VA Loans will be partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended (the "Servicemen's Readjustment Act").
The Servicemen's Readjustment Act permits a veteran (or in certain instances
the spouse of a veteran) to obtain a mortgage loan guarantee by the VA
covering mortgage financing of the purchase of a one- to four-family dwelling
unit at interest rates permitted by the VA. The program has no mortgage loan
limits, requires no down payment from the purchasers and permits the guarantee
of mortgage loans of up to 30 years' duration. However, no VA Loan will have
an original principal amount greater than five times the partial VA guarantee
for such VA Loan. The maximum guarantee that may be issued by VA under this
program is 50% of the principal amount of the Mortgage Loan if the principal
amount of the Mortgage Loan is $45,000 or less, the lesser of $36,000 and 40%
of the principal amount of the Mortgage Loan if the principal amount of the
Mortgage Loan is greater than $45,000 but less than or equal to $144,000, and
the lesser of $46,000 and 25% of the principal amount of the Mortgage Loan if
the principal amount of the Mortgage Loan is greater than $144,000.
The Prospectus Supplement (or, if such information is not available in
advance of the date of such Prospectus Supplement, a Current Report on Form 8-
K to be filed with the Commission) for each Series of
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Certificates the Trust Fund with respect to which contains Mortgage Loans will
contain information as to the type of Mortgage Loans that will comprise the
related Mortgage Pool or Pools and information as to (i) the aggregate
principal balance of the Mortgage Loans as of the applicable Cut-off Date,
(ii) the type of Mortgaged Properties securing the Mortgage Loans, (iii) the
original terms to maturity of the Mortgage Loans, (iv) the largest in
principal balance of the Mortgage Loans, (v) the earliest origination date and
latest maturity date of the Mortgage Loans, (vi) the aggregate principal
balance of Mortgage Loans having Loan-to-Value Ratios at origination exceeding
80%, (vii) the interest rate or range of interest rates borne by the Mortgage
Loans, (viii) the average outstanding principal balance of the Mortgage Loans,
(ix) the geographical distribution of the Mortgage Loans, (x) the number and
aggregate principal balance of Buy-Down Loans or GPM Loans, if applicable,
(xi) with respect to ARM Loans, the adjustment dates, the highest, lowest and
weighted average margin, and the maximum Mortgage Rate variation at the time
of any periodic adjustment and over the life of such ARM Loans, and (xii) with
respect to Mortgage Loans secured by Multifamily Property or such other
Mortgage Loans as are specified in the Prospectus Supplement, whether the
Mortgage Loan provides for an interest only period and whether the principal
amount of such Mortgage Loan is amortized on the basis of a period of time
that extends beyond the maturity date of the Mortgage Loan.
No assurance can be given that values of the Mortgaged Properties in a
Mortgage Pool have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and any secondary financing on the Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual Rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced
in the mortgage lending industry. In addition, the value of property securing
Cooperative Loans and the delinquency rate with respect to Cooperative Loans
could be adversely affected if the current favorable tax treatment of
cooperative stockholders were to become less favorable. See "Certain Legal
Aspects of the Mortgage Loans and Contracts--The Mortgage Loans." To the
extent that such losses are not covered by the methods of credit support or
the insurance policies described herein or by Alternative Credit Support, they
will be borne by holders of the Certificates of the Series evidencing
interests in the Mortgage Pool.
Multifamily lending is generally viewed as exposing the lender to a greater
risk of loss than one- to four-family residential lending. Multifamily lending
typically involve larger loans to single borrowers or groups of related
borrowers than residential one- to four-family mortgage loans. Furthermore,
the repayment of loans secured by income producing properties is typically
dependent upon the successful operation of the related real estate project. If
the cash flow from the project is reduced (for example, if leases are not
obtained or renewed), the borrower's ability to repay the loan may be
impaired. Multifamily real estate can be affected significantly by supply and
demand in the market for the type of property securing the loan and,
therefore, may be subject to adverse economic conditions. Market values may
vary as a result of economic events or governmental regulations outside the
control of the borrower or lender, such as rent control laws, which impact the
future cash flow of the property. Corresponding to the greater lending risk is
a generally higher interest rate applicable to multifamily mortgage lending.
The Depositor will cause the Mortgage Loans constituting each Mortgage Pool
to be assigned to the Trustee named in the applicable Prospectus Supplement,
for the benefit of the holders of the Certificates of such Series (the
"Certificateholders"). The Master Servicer, if any, named in the related
Prospectus Supplement will service the Mortgage Loans, either by itself or
through other mortgage servicing institutions, if any (each, a "Servicer"),
pursuant to a Pooling and Servicing Agreement, as described herein, among the
Master Servicer, if any, the Depositor and the Trustee (the "Pooling and
Servicing Agreement") and will receive a fee for such services. See "--
Mortgage Loan Program" and "Description of the Certificates." With respect to
those Mortgage Loans serviced by a Servicer, such Servicer will be required to
service the related Mortgage Loans in accordance with the Seller's Warranty
and Servicing Agreement between the Servicer and the Depositor (a "Servicing
Agreement") and will receive the fee for such services specified in such
Servicing Agreement; however, any
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Master Servicer will remain liable for its servicing obligations under the
Pooling and Servicing Agreement as if the Master Servicer alone were servicing
such Mortgage Loans.
The Depositor will make certain representations and warranties regarding the
Mortgage Loans, but its assignment of the Mortgage Loans to the Trustee will
be without recourse. See "Description of the Certificates-- Assignment of
Mortgage Loans." The Master Servicer's obligations with respect to the
Mortgage Loans will consist principally of its contractual servicing
obligations under the Pooling and Servicing Agreement (including its
obligation to enforce certain purchase and other obligations of Servicers
and/or Unaffiliated Sellers, as more fully described herein under "--Mortgage
Loan Program--Representations by Unaffiliated Sellers; Repurchases" and
"Description of the Certificates--Assignment of Mortgage Loans" and "--
Servicing by Unaffiliated Sellers") and its obligations to make Advances in
the event of delinquencies in payments on or with respect to the Mortgage
Loans or in connection with prepayments and liquidations of such Mortgage
Loans, in amounts described herein under "Description of the Certificates--
Advances." Unless otherwise specified in the related Prospectus Supplement,
such Advances with respect to delinquencies will be limited to amounts that
the Master Servicer believes ultimately would be reimbursable under any
applicable Letter of Credit, Pool Insurance Policy, Special Hazard Insurance
Policy, Mortgagor Bankruptcy Bond or other policy of insurance, from amounts
in the Reserve Fund, under any Alternative Credit Support or out of the
proceeds of liquidation of the Mortgage Loans, cash in the Certificate Account
or otherwise. See "Description of the Certificates--Advances," "Credit
Support" and "Description of Insurance."
Unless otherwise specified in the applicable Prospectus Supplement, each
Mortgage Pool included in the related Trust Fund will be composed of Mortgage
Loans evidencing interests in Mortgage Loans That bear interest at annual
rates that will exceed by at least 3/8 of 1% the fixed or variable Pass-
Through Rate established for the Mortgage Pool. To the extent and in the
manner specified in the related Prospectus Supplement, Certificateholders of a
Series will be entitled to receive distributions based on the payments of
principal on the underlying Mortgage Loans, plus interest on the principal
balance thereof at the Pass-Through Rate. The difference between a Mortgage
Rate and the related Pass-Through Rate (less any servicing compensation
payable to the Servicers of such Mortgage Loans and the amount, if any,
payable to the Depositor or the person or entity specified in the applicable
Prospectus Supplement) may be retained by the Master Servicer as servicing
compensation to it. See "Description of the Certificates--Servicing
Compensation and Payment of Expenses."
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor either directly
or through affiliates, from one or more affiliates or from sellers
unaffiliated with the Depositor ("Unaffiliated Sellers"). Mortgage Loans
acquired by the Depositor will have been originated in accordance with the
underwriting criteria specified below under "Underwriting Standards" or as
otherwise described in a related Prospectus Supplement.
Underwriting Standards
Except in the case of certain Mortgage Loans originated by Unaffiliated
Sellers in accordance with their own underwriting criteria ("Closed Loans") or
such other standards as may be described in the applicable Prospectus
Supplement, all prospective Mortgage Loans will be subject to the underwriting
standards adopted by the Depositor. See "Closed Loan Program" below for a
description of underwriting standards applicable to Closed Loans. Unaffiliated
Sellers will represent and warrant that Mortgage Loans originated by them and
purchased by the Depositor have been originated in accordance with the
applicable underwriting standards established by the Depositor or such other
standards as may be described in the applicable Prospectus Supplement. The
following discussion describes the underwriting standards of the Depositor
with respect to any Mortgage Loan that it purchases.
The mortgage credit approval process for one- to four-family residential
loans follows a standard procedure that generally complies with FHLMC and FNMA
regulations and guidelines (except that certain Mortgage Loans may have higher
loan amount and qualifying ratios) and applicable federal and state laws and
regulations. The
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credit approval process for Cooperative Loans follows a procedure that
generally complies with applicable FNMA regulations and guidelines (except for
the loan amounts and qualifying ratios) and applicable federal and state laws
and regulations. The originator of a Mortgage Loan (the "Originator")
generally will review a detailed credit application by the prospective
mortgagor designed to provide pertinent credit information, including a
current balance sheet describing assets and liabilities and a statement of
income and expenses, as well as an authorization to apply for a credit report
that summarizes the prospective mortgagor's credit history with local
merchants and lenders and any record of bankruptcy. In addition, an employment
verification is obtained from the prospective mortgagor's employer wherein the
employer reports the length of employment with that organization, the current
salary, and gives an indication as to whether it is expected that the
prospective mortgagor will continue such employment in the future. If the
prospective mortgagor is self-employed, he or she is required to submit copies
of signed tax returns. The prospective mortgagor may also be required to
authorize verification of deposits at financial institutions. In certain
circumstances, other credit considerations may cause the Originator or
Depositor not to require some of the above documents, statements or proofs in
connection with the origination or purchase of certain Mortgage Loans.
An appraisal generally will be required to be made on each residence to be
financed. Such appraisal generally will be made by an appraiser who meets FNMA
requirements as an appraiser of one- to four-family residential properties.
The appraiser is required to inspect the property and verify that it is in
good condition and that, if new, construction has been completed. The
appraisal generally will be based on the appraiser's judgment of value, giving
appropriate weight to both the market value of comparable homes and the cost
of replacing the residence. These underwriting standards also require a search
of the public records relating to a mortgaged property for liens and judgments
against such mortgaged property.
Based on the data provided, certain verifications and the appraisal, a
determination is made by the Originator as to whether the prospective
mortgagor has sufficient monthly income available to meet the prospective
mortgagor's monthly obligations on the proposed loan and other expenses
related to the residence (such as property taxes, hazard and primary mortgage
insurance and, if applicable, maintenance) and other financial obligations and
monthly living expenses. Each Originator's lending guidelines for conventional
mortgage loans generally will specify that mortgage payments plus taxes and
insurance and all monthly payments extending beyond one year (including those
mentioned above and other fixed obligations, such as car payments) would equal
no more than specified percentages of the prospective mortgagor's gross
income. These guidelines will be applied only to the payments to be made
during the first year of the loan. For FHA and VA Loans, the Originator's
lending guidelines will follow HUD and VA guidelines, respectively. Other
credit considerations may cause an Originator to depart from these guidelines.
For example, when two individuals co-sign the loan documents, the incomes and
expenses of both individuals may be included in the computation.
The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a deficiency
judgment against the Mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. The Depositor's underwriting standards
applicable to all states (including anti-deficiency states) require that the
value of the property being financed, as indicated by the appraisal, currently
supports and is anticipated to support in the future the outstanding loan
balance.
Certain of the types of Mortgage Loans that may be included in the Mortgage
Pools or Subsidiary Trust Funds may involve additional uncertainties not
present in traditional types of loans. For example, Buy-Down Loans and GPM
Loans provide for escalating or variable payments by the Mortgagor. These
types of Mortgage Loans are underwritten on the basis of a judgment that the
Mortgagor will have the ability to make larger monthly payments in subsequent
years. In some instances the Mortgagor's income may not be sufficient to
enable it to continue to make scheduled loan payments as such payments
increase.
To the extent specified in the related Prospectus Supplement, the Depositor
may purchase Mortgage Loans for inclusion in a Trust Fund that are
underwritten under standards and procedures which vary from and are less
stringent than those described herein. For instance, Mortgage Loans may be
underwritten under a "limited
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documentation" program if so specified in the related Prospectus Supplement.
With respect to such Mortgage Loans, minimal investigation into the borrowers'
credit history and income profile is undertaken by the originator and such
Mortgage Loans may be underwritten primarily on the basis of an appraisal of
the Mortgaged Property or Cooperative Dwelling and the Loan-to-Value Ratio at
origination. Thus, if the Loan-to-Value Ratio is less than a percentage
specified in the related Prospectus Supplement, the originator may forego
certain aspects of the review relating to monthly income, and traditional
ratios of monthly or total expenses to gross income may not be considered.
The underwriting standards for Mortgage Loans secured by Multifamily
Property will be described in the related Prospectus Supplement.
Qualifications of Unaffiliated Sellers
Unless otherwise specified in the applicable Prospectus Supplement with
respect to an Unaffiliated Seller of Closed Loans secured by residential
properties, each Unaffiliated Seller must be an institution experienced in
originating conventional mortgage loans and/or FHA Loans or VA Loans in
accordance with accepted practices and prudent guidelines, and must maintain
satisfactory facilities to originate those loans. In addition, except as
otherwise specified, the Depositor requires adequate financial stability and
adequate servicing experience, where appropriate, as well as satisfaction of
certain other criteria.
Representations by Unaffiliated Sellers; Repurchases
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller (or the Master Servicer, if the Unaffiliated Seller is
also the Master Servicer under the Pooling and Servicing Agreement) will have
made representations and warranties in respect of the Mortgage Loans sold by
such Unaffiliated Seller to the Depositor. Such representations and warranties
will generally include, among other things: (i) with respect to each Mortgaged
Property, that title insurance (or in the case of Mortgaged Properties located
in areas where such policies are generally not available, an attorney's
certificate of title) and any required hazard and primary mortgage insurance
was effective at the origination of each Mortgage Loan, and that each policy
(or certificate of title) remained in effect on the date of purchase of the
Mortgage Loan from the Unaffiliated Seller; (ii) that the Unaffiliated Seller
had good and marketable title to each such Mortgage Loan; (iii) with respect
to each Mortgaged Property, that each mortgage constituted a valid first lien
on the Mortgaged Property (subject only to permissible title insurance
exceptions); (iv) that there were no delinquent tax or assessment liens
against the Mortgaged Property; and (v) that each Mortgage Loan was current as
to all required payments (unless otherwise specified in the related Prospectus
Supplement). With respect to a Cooperative Loan, the Unaffiliated Seller will
represent and warrant that (a) the security interest created by the
cooperative security agreements constituted a valid first lien on the
collateral securing the Cooperative Loan (subject to the right of the related
Cooperative to cancel shares and terminate the proprietary lease for unpaid
assessments and to the lien of the related Cooperative for unpaid assessments
representing the Mortgagor's pro rata share of the Cooperative's payments for
its mortgage, current and future real property taxes, maintenance charges and
other assessments to which like collateral is commonly subject) and (b) the
related cooperative apartment was free from damage and was in good repair.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate.
A substantial period of time may have elapsed between such date and the date
of initial issuance of the Series of Certificates evidencing an interest in
such Mortgage Loan. Since the representations and warranties of an
Unaffiliated Seller do not address events that may occur following the sale of
a Mortgage Loan by an Unaffiliated Seller, the repurchase obligation described
below will not arise if, during the period commencing on the date of sale of a
Mortgage Loan by the Unaffiliated Seller to or on behalf of the Depositor, the
relevant event occurs that would have given rise to such an obligation had the
event occurred prior to sale of the affected Mortgage Loan. However, the
Depositor will not include any Mortgage Loan in the Trust Fund for any Series
of Certificates if anything has come to the Depositor's attention that would
cause it to believe that the
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representations and warranties of an Unaffiliated Seller will not be accurate
and complete in all material respects in respect of such Mortgage Loan as of
the related Cut-off Date.
The only representations and warranties to be made for the benefit of
holders of Certificates of a Series in respect of any Mortgage Loan relating
to the period commencing on the date of sale of such Mortgage Loan to the
Depositor or its affiliates will be certain limited representations of the
Depositor and of the Master Servicer described below under "Description of the
Certificates--Assignment of Mortgage Loans." If the Master Servicer is also an
Unaffiliated Seller of Mortgage Loans with respect to a particular Series,
such representations will be in addition to the representations and warranties
made in its capacity as an Unaffiliated Seller.
Upon the discovery of the breach of any representation or warranty made by
an Unaffiliated Seller in respect of a Mortgage Loan that materially and
adversely affects the interests of the Certificateholders of the related
Series, such Unaffiliated Seller or the Servicer of such Mortgage Loan will be
obligated to repurchase such Mortgage Loan at a purchase price equal to 100%
of the unpaid principal balance thereof at the date of repurchase or, in the
case of a Series of Certificates as to which the Depositor has elected to
treat the related Trust Fund as a REMIC, as defined in the Code, at such other
price as may be necessary to avoid a tax on a prohibited transaction, as
described in Section 860F(a) of the Code, in each case together with accrued
interest at the Pass-Through Rate for the related Mortgage Pool, to the first
day of the month following such repurchase and the amount of any unreimbursed
Advances made by the Master Servicer or the Servicer, as applicable, in
respect of such Mortgage Loan. The Master Servicer will be required to enforce
this obligation for the benefit of the Trustee and the Certificateholders,
following the practices it would employ in its good faith business judgment
were it the owner of such Mortgage Loan. Unless otherwise specified in the
applicable Prospectus Supplement, and subject to the ability of the Depositor,
the Unaffiliated Seller or the Servicer to substitute for certain Mortgage
Loans as described below, this repurchase obligation constitutes the sole
remedy available to the Certificateholders of such Series for a breach of
representation or warranty by an Unaffiliated Seller.
The obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller or a Servicer defaults on its obligation to do so is
subject to limitations, and no assurance can be given that Unaffiliated
Sellers will carry out their respective repurchase obligations with respect to
Mortgage Loans. However, to the extent that a breach of the representations
and warranties of an Unaffiliated Seller may also constitute a breach of the
representations and warranties made by the Depositor or by the Master Servicer
with respect to the insurability of the Mortgage Loans, the Depositor may have
a repurchase obligation, and the Master Servicer may have the limited purchase
obligation, in each case as described below under "Description of the
Certificates--Assignment of Mortgage Loans."
Closed Loan Program
The Depositor may also acquire Closed Loans that have been originated by
Unaffiliated Sellers in accordance with underwriting standards acceptable to
the Depositor. Unless otherwise specified in the applicable Prospectus
Supplement, Closed Loans for which 11 or fewer monthly payments have been
received will be further subject to the Depositor's customary underwriting
standards. Unless otherwise specified in the applicable Prospectus Supplement,
Closed Loans for which 12 to 60 monthly payments have been received will be
subject to a review of payment history and will conform to the Depositor's
guidelines for the related mortgage program. In the event one or two payments
were over 30 days delinquent, a letter explaining the delinquencies will be
required of the Mortgagor. Unless otherwise specified in the applicable
Prospectus Supplement, the Depositor will not purchase for inclusion in a
Mortgage Pool a Closed Loan for which (i) more than two monthly payments were
over 30 days delinquent, (ii) one payment was over 60 days delinquent, or
(iii) more than 60 monthly payments were received.
MORTGAGE CERTIFICATES
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include certain conventional mortgage pass-
through certificates (the "Mortgage Certificates") issued by one or
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more trusts established by one or more private entities and evidencing, unless
otherwise specified in such Prospectus Supplement, the entire interest in a
pool of mortgage loans. A description of the mortgage loans underlying the
Mortgage Certificates, the related pooling and servicing arrangements and the
insurance arrangements in respect of such mortgage loans will be set forth in
the applicable Prospectus Supplement or in the Current Report on Form 8-K
referred to below. Such Prospectus Supplement (or, if such information is not
available in advance of the date of such Prospectus Supplement, a Current
Report on Form 8-K to be filed by the Depositor with the Commission within 15
days of the issuance of the Certificates of such Series) will also set forth
information with respect to the entity or entities forming the related
mortgage pool, the issuer of any credit support with respect to such Mortgage
Certificates, the aggregate outstanding principal balance and the pass-through
rate borne by each Mortgage Certificate included in the Trust Fund, together
with certain additional information with respect to such Mortgage
Certificates. The inclusion of Mortgage Certificates in a Trust Fund with
respect to a Series of Certificates is conditioned upon their characteristics
being in form and substance satisfactory to the Rating Agency rating the
related Series of Certificates. Mortgage Certificates, together with the
Mortgage Loans and Contracts, are referred to herein as the "Trust Assets."
THE CONTRACT POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include a Contract Pool evidencing interests in
manufactured housing conditional sales contracts and installment loan
agreements (the "Contracts") originated by a manufactured housing dealer in
the ordinary course of business and purchased by the Depositor. The Contracts
may be conventional manufactured housing contracts or contracts insured by the
FHA or partially guaranteed by the VA. Each Contract will be secured by a
Manufactured Home, as defined below. Unless otherwise specified in the related
Prospectus Supplement, the Contracts will be fully amortizing and will bear
interest at a fixed annual percentage rate ("APR").
The Manufactured Homes securing the Contracts consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to
the required utilities, and includes the plumbing, heating, air conditioning,
and electrical systems contained therein; except that such term shall include
any structure which meets all the requirements of [this] paragraph except the
size requirements and with respect to which the manufacturer voluntarily files
a certification required by the Secretary of Housing and Urban Development and
complies with the standards established under [this] chapter."
The Depositor will cause the Contracts constituting each Contract Pool to be
assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the related Certificateholder. The Master Servicer specified in the
related Prospectus Supplement will service the Contracts, either by itself or
through other Servicers, pursuant to the Pooling and Servicing Agreement. See
"Description of the Certificates--Servicing by Unaffiliated Sellers." With
respect to those Contracts serviced by the Master Servicer through a Servicer,
the Master Servicer will remain liable for its servicing obligations under the
Agreement as if the Master Servicer alone were servicing such Contracts. The
Contract documents, if so specified in the related Prospectus Supplement, may
be held for the benefit of the Trustee by a Custodian (the "Custodian")
appointed pursuant to a Custodial Agreement (the "Custodial Agreement") among
the Depositor, the Trustee and the Custodian.
Unless otherwise specified in the related Prospectus Supplement, each
Contract Pool will be composed of Contracts bearing interest at the annual
fixed APRs specified in the Prospectus Supplement. Each registered holder of a
Certificate will be entitled to receive periodic distributions, which will be
monthly unless otherwise specified in the related Prospectus Supplement, of
all or a portion of principal on the underlying Contracts or interest on the
principal balance thereof at the Pass-Through Rate, or both. Unless otherwise
stated in the related Prospectus Supplement, the difference between the APR on
a Contract and the related Pass-Through Rate (less
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sub-servicing compensation), will be retained by the Master Servicer as
servicing compensation to it. See "Description of the Certificates--Payments
on Contracts."
The related Prospectus Supplement (or, if such information is not available
in advance of the date of such Prospectus Supplement, a Current Report on Form
8-K to be filed with the Commission) will specify, for the Contracts contained
in the related Contract Pool, among other things: (a) the dates of origination
of the Contracts; (b) the weighted average APR on the Contracts; (c) the range
of outstanding principal balances as of the Cut-off Date; (d) the average
outstanding principal balance of the Contracts as of the Cut-off Date; (e) the
weighted average term to maturity as of the Cut-off Date; and (f) the range of
original maturities of the Contracts.
With respect to the Contracts included in the Contract Pool, the Depositor,
the Master Servicer or such other party, as specified in the related
Prospectus Supplement, will make or cause to be made representations and
warranties as to the types and geographical distribution of such Contracts and
as to the accuracy in all material respects of certain information furnished
to the Trustee in respect of each such Contract. In addition, the Master
Servicer or the Unaffiliated Seller of the Contracts will represent and
warrant that, as of the Cut-off Date, unless otherwise specified in the
Prospectus Supplement no Contract was more than 30 days delinquent as to
payment of principal and interest. Upon a breach of any representation that
materially and adversely affects the interest of the Certificateholder in a
Contract, the Master Servicer, the Unaffiliated Seller or such other party, as
appropriate, will be obligated either to cure the breach in all material
respects or to purchase the Contract or, if so specified in the related
Prospectus Supplement, to substitute another Contract as described below. This
repurchase or substitution obligation constitutes the sole remedy available to
the Certificateholders or the Trustee for a breach of representation by the
Master Servicer, the Unaffiliated Seller or such other party.
If so specified in the related Prospectus Supplement, in addition to making
certain representations and warranties regarding its authority to enter into,
and its ability to perform its obligations under, the Agreement, the Master
Servicer will make certain representations and warranties, except to the
extent that another party specified in the Prospectus Supplement makes any
such representations, to the Trustee with respect to the enforceability of
coverage under any applicable insurance policy or hazard insurance policy. See
"Description of Insurance" for information regarding the extent of coverage
under certain of such insurance policies. Upon a breach of the insurability
representation that materially and adversely affects the interests of the
Certificateholders in a Contract, the Master Servicer, the Unaffiliated Seller
or such other party, as appropriate, will be obligated either to cure the
breach in all material respects or, unless otherwise specified in the related
Prospectus Supplement, to purchase such Contract at a price equal to the
principal balance thereof as of the date of purchase plus accrued interest at
the related Pass-Through-Rate to the first day of the month following the
month of purchase. The Master Servicer, if required by the rating agency or
agencies rating the Certificates, will procure a surety bond, guaranty, letter
of credit or other instrument (the "Performance Bond") acceptable to such
rating agency to support this purchase obligation. See "Credit Support--
Performance Bond." The purchase obligation constitutes the sole remedy
available to the Certificateholders or the Trustee for a breach of the Master
Servicer's or seller's insurability representation.
Unless otherwise provided in the related Prospectus Supplement, if the
Depositor discovers or receives notice of any breach of its representations
and warranties relating to a Contract within two years or such other period as
may be specified in the related Prospectus Supplement of the date of the
initial issuance of the Certificates, the Depositor may remove such Contract
from the Trust Fund ("Deleted Contract"), rather than repurchase the Contract
as provided above, and substitute in its place another Contract ("Substitute
Contract"). Any Substitute Contract, on the date of substitution, will (i)
have an outstanding principal balance, after deduction of all scheduled
payments due in the month of substitution, not in excess of the outstanding
principal balance of the Deleted Contract (the amount of any shortfall to be
distributed to Certificateholders in the month of substitution), (ii) have an
APR not less than (and not more than 1% greater than) the APR of the Deleted
Contract, (iii) have a Pass-Through Rate equal to the Pass-Through Rate of the
Deleted Contract, (iv) have a remaining term to maturity not greater than (and
not more than one year less than) that of the Deleted Contract and (v) comply
with all the representations and warranties set forth in the Pooling and
Servicing Agreement as
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of the date of substitution. This repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for any such breach.
Underwriting Policies
Conventional Contracts will comply with the underwriting policies of the
Originator or Unaffiliated Seller of the Contracts described in the related
Prospectus Supplement. Except as described below or in the related Prospectus
Supplement, the Depositor believes that these policies were consistent with
those utilized by mortgage lenders or manufactured home lenders generally
during the period of origination.
With respect to a Contract made in connection with the Obligor's purchase of
a Manufactured Home, the "appraised value" is the amount determined by a
professional appraiser. The appraiser must personally inspect the Manufactured
Home and prepare a report which includes market data based on recent sales of
comparable Manufactured Homes and, when deemed applicable, a replacement cost
analysis based on the current cost of a similar Manufactured Home. Unless
otherwise specified in the related Prospectus Supplement, the Contract Loan-
to-Value Ratio is equal to the original principal amount of the Contract
divided by the lesser of the "appraised value" or the sales price for the
Manufactured Home.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on December 31,
1985, as a wholly-owned subsidiary of First Boston Securities Corporation, the
name of which was subsequently changed to CS First Boston Securities
Corporation ("FBSC"). FBSC is a wholly-owned subsidiary of CS First Boston,
Inc. CS First Boston Corporation, which may act as an underwriter in offerings
made hereby, as described in "Plan of Distribution" below, is also a wholly-
owned subsidiary of CS First Boston, Inc. The principal executive offices of
the Depositor are located at 55 East 52nd Street, New York, N.Y. 10055. Its
telephone number is (212) 909-3512.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will ensure or guarantee distributions on
the Certificates of any Series.
Trust Assets will be acquired by the Depositor directly or through one or
more affiliates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the related Prospectus
Supplement to purchase the Trust Assets, to repay indebtedness which has been
incurred to obtain funds to acquire the Trust Assets, to establish the Reserve
Funds, if any, for the Series and to pay costs of structuring and issuing the
Certificates. If so specified in the related Prospectus Supplement,
Certificates may be exchanged by the Depositor for Trust Assets. Unless
otherwise specified in the related Prospectus Supplement, the Trust Assets for
each Series of Certificates will be acquired by the Depositor either directly,
or through one or more affiliates which will have acquired such Trust Assets
from time to time either in the open market or in privately negotiated
transactions.
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YIELD CONSIDERATIONS
Each monthly payment on a Mortgage Loan is calculated as one-twelfth of the
applicable Mortgage Rate multiplied by the unpaid principal balance of such
Mortgage Loan. Unless otherwise specified in the related Prospectus
Supplement, the amount of such interest payment distributed monthly to
Certificateholders with respect to each Mortgage Loan will be similarly
calculated based on the applicable Pass-Through Rate for the related Mortgage
Pool. The Pass-Through Rate for a Mortgage Pool will be either fixed or
variable, as specified in the related Prospectus Supplement.
Each monthly accrual of interest on a Contract is calculated as one-twelfth
of the product of the APR and the principal balance outstanding on the
scheduled payment date for such Contract in the preceding month. Unless
otherwise specified in the related Prospectus Supplement, the Pass-Through
Rate with respect to each Contract will be calculated on a Contract-by-
Contract basis and the Servicing Fee applicable to each Contract from the
applicable APR.
With respect to a Mortgage Pool or a Contract Pool bearing a fixed Pass-
Through Rate, each Mortgage Loan or Contract will have a Mortgage Rate or APR
that exceeds the Pass-Through Rate by at least 3/8 of 1% unless otherwise
specified in the related Prospectus Supplement. The difference between a
Mortgage Rate or APR and the related fixed Pass-Through Rate for the Mortgage
Pool or Contract Pool (less any servicing compensation payable to the related
Servicers and the amounts, if any, payable to the Depositor or the person or
entity specified in the related Prospectus Supplement) will be retained by the
Master Servicer as servicing compensation to it. See "Description of the
Certificates--Servicing Compensation and Payment of Expenses." Although
Mortgage Rates and APRs in a fixed Pass-Through Rate Mortgage Pool or Contract
Pool, respectively, may vary, unless otherwise specified in the related
Prospectus Supplement, disproportionate principal prepayments among Mortgage
Loans bearing different Mortgage Rates or APRs will not affect the return to
Certificateholders since, as set forth above, the Pass-Through Rate may not
exceed any Mortgage Rate or APR.
With respect to Mortgage Pools having a variable Pass-Through Rate, the
Pass-Through Rate will equal the weighted average of the Mortgage Rates on all
the Mortgage Loans in the Mortgage Pool, minus the servicing compensation
payable to the Master Servicer and the Servicer of such Mortgage Loans and the
amounts, if any, retained by the Depositor or an Unaffiliated Seller or paid
to the person or entity specified in the related Prospectus Supplement. The
servicing fee and such other amounts will be fixed as to each Mortgage Loan at
a rate per annum, and may vary among Mortgage Loans. Because the Mortgage
Rates in such a Mortgage Pool will differ and the aggregate servicing
compensation and such other amounts to be retained or distributed with respect
to each Mortgage Loan will be fixed, it is likely that the weighted average of
the Mortgage Rates, and the corresponding variable Pass-Through Rate, will
change as the Mortgage Loans amortize and as a result of prepayments.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates that adjust more
frequently than the monthly payment with respect to such Mortgage Loans. As a
result, the portion of each monthly payment allocated to principal may vary
from month to month. Negative amortization with respect to a Mortgage Loan
will occur if an adjustment to the Mortgage Rate causes the amount of interest
accrued in any month, calculated at the new Mortgage Rate for such period, to
exceed the amount of the monthly payment or if the allowable increase in any
monthly payment is limited to an amount that is less than the amount of
interest accrued in any month. The amount of any resulting Deferred Interest
will be added to the principal balance of the Mortgage Loan and will bear
interest at the Mortgage Rate in effect from time to time. To the extent that,
as a result of the addition of any Deferred Interest, the Mortgage Loan
negatively amortizes over its term, the weighted average life of the
certificates of the related Series will be greater than would otherwise be the
case. As a result, the yield on any such Mortgage Loan at any time may be less
than the yields on similar adjustable rate mortgage loans, and the rate of
prepayment may be lower or higher than would otherwise be anticipated.
Generally, when a full prepayment is made on a Mortgage Loan or Contract,
the Mortgagor or the borrower under a Contract (the "Obligor"), is charged
interest for the number of days actually elapsed from the due date of the
preceding monthly payment up to the date of such prepayment, at a daily
interest rate determined by
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dividing the Mortgage Rate or APR by 365. Full prepayments will reduce the
amount of interest paid by the Mortgagor or the Obligor because interest on
the principal amount of any Mortgage Loan or Contract so prepaid will be paid
only to the date of prepayment instead of for a full month; however, unless
otherwise provided in the applicable Prospectus Supplement, the Master
Servicer with respect to a Series will be required to advance from its own
funds the portion of any interest at the related Pass-Through Rate that is not
so received. Partial prepayments generally are applied on the first day of the
month following receipt, with no resulting reduction in interest payable for
the period in which the partial prepayment is made. Unless otherwise specified
in the related Prospectus Supplement, full and partial prepayments, together
with interest on such full and partial prepayments at the Pass-Through Rate
for the related Mortgage Pool or Contract Pool to the last day of the month in
which such prepayments occur, will be deposited in the Certificate Account and
will be available for distribution to Certificateholders on the next
succeeding Distribution Date in the manner specified in the related Prospectus
Supplement. See "Maturity and Prepayment Considerations."
Generally, the effective yield to holders of Certificates having a monthly
Distribution Date will be lower than the yield otherwise produced by the Pass-
Through Rate with respect to a Mortgage Pool or Contract Pool or the pass-
through rate borne by a Mortgage Certificate because, while interest will
accrue on each Mortgage Loan or Contract, or mortgage loan underlying a
Mortgage Certificate, to the first day of the month, the distribution of such
interest to holders of such Certificates will be made no earlier than the 25th
day of the month following the month of the accrual (unless otherwise provided
in the applicable Prospectus Supplement). The adverse effect on yield will
intensify with any increase in the period of time by which the Distribution
Date with respect to a Series of Certificates succeeds such 25th day. With
respect to the Multi-Class Certificates of a Series having other than monthly
Distribution Dates, the yield to holders of such Certificates will also be
adversely affected by any increase in the period of time from the date to
which interest accrues on such Certificate to the Distribution Date on which
such interest is distributed.
In the event that the Certificates of a Series are divided into two or more
Classes or Subclasses and that a Class or Subclass is an Interest Weighted
Class, in the event that such Series includes a Class of Residual
Certificates, or as otherwise may be appropriate, the Prospectus Supplement
for such Series will indicate the manner in which the yield to
Certificateholders will be affected by different rates of prepayments on the
Mortgage Loans, on the Contracts or on the mortgage loans underlying the
Mortgage Certificates. In general, the yield on Certificates that are offered
at a premium to their principal or notional amount ("Premium Certificates") is
likely to be adversely affected by a higher than anticipated level of
principal prepayments on the Mortgage Loans, on the Contracts or on the
mortgage loans underlying the Mortgage Certificates. This relationship will
become more sensitive as the amount by which the Percentage Interest of such
Class in each Interest Distribution is greater than the corresponding
Percentage Interest of such Class in each Principal Distribution. If the
differential is particularly wide (e.g., the Interest Distribution is
allocated primarily or exclusively to one Class or Subclass and the Principal
Distribution primarily or exclusively to another) and a high level of
prepayments occurs, there is a possibility that Certificateholders of Premium
Certificates will not only suffer a lower than anticipated yield but, in
extreme cases, will fail to recoup fully their initial investment. Conversely,
a lower than anticipated level of principal prepayments (which can be
anticipated to increase the expected yield to holders of Certificates that are
Premium Certificates) will likely result in a lower than anticipated yield to
holders of Certificates that are offered at a discount to their principal
amount ("Discount Certificates"). If so specified in the applicable Prospectus
Supplement, a disproportionately large amount of Principal Prepayments may be
distributed to the holders of the Senior Certificates at the times and under
the circumstances described therein.
In the event that the Certificates of a Series include one or more Classes
or Subclasses of Multi-Class Certificates, the Prospectus Supplement for such
Series will set forth information, measured relative to a prepayment standard
or model specified in such Prospectus Supplement, with respect to the
projected weighted average life of each such Class or Subclass and the
percentage of the initial Stated Principal Balance of each such Subclass that
would be outstanding on special Distribution Dates for such Series based on
the assumptions stated in such Prospectus Supplement, including assumptions
that prepayments on the Mortgage Loans or Contracts or on the mortgage loans
underlying the Mortgage Certificates in the related Trust Fund are made at
rates corresponding to the various percentages of such prepayment standard or
model.
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MATURITY AND PREPAYMENT CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, the
scheduled maturities of all of the Mortgage Loans (or the mortgage loans
underlying the Mortgage Certificates) at origination will not be less than
approximately 10 years or exceed 40 years and all the Contracts will have
maturities at origination of not more than 20 years, but such Mortgage Loans
(or such underlying mortgage loans) or Contracts may be prepaid in full or in
part at any time. Unless otherwise specified in the applicable Prospectus
Supplement, no such Mortgage Loan (or mortgage loan) or Contract will provide
for a prepayment penalty and each will contain (except in the case of FHA and
VA Loans) due-on-sale clauses permitting the mortgagee or obligee to
accelerate the maturity thereof upon conveyance of the Mortgaged Property,
Cooperative Dwelling or Manufactured Home.
The FHA has compiled statistics relating to one- to four-family, level
payment mortgage loans insured by the FHA under the National Housing Act of
1934, as amended, at various interest rates, all of which permit assumption by
the new buyer if the home is sold. Such statistics indicate that while some of
such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities. The
Actuarial Division of HUD has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentages of the
original number of FHA Loans in pools of level payment mortgage loans of
varying maturities that will remain outstanding on each anniversary of the
original date of such mortgage loans (assuming they all have the same
origination date) ("FHA Experience"). Published information with respect to
conventional residential mortgage loans indicates that such mortgage loans
have historically been prepaid at higher rates than government insured loans
because, unlike government insured mortgage loans, conventional mortgage loans
may contain due-on-sale clauses that allow the holder thereof to demand
payment in full of the remaining principal balance of such mortgage loans upon
sales or certain transfers of the mortgaged property. There are no similar
statistics with respect to the prepayment rates of cooperative loans or loans
secured by multifamily properties.
It is customary in the residential mortgage industry in quoting yields (a)
on a pool of 30-year fixed-rate, level payment mortgages, to compute the yield
as if the pool were a single loan that is amortized according to a 30-year
schedule and is then prepaid in full at the end of the twelfth year and (b) on
a pool of 15-year fixed-rate, level payment mortgages, to compute the yield as
if the pool were a single loan that is amortized according to a 15-year
schedule and then is prepaid in full at the end of the seventh year.
Prepayments on residential mortgage loans are also commonly measured
relative to a prepayment standard or model. If so specified in the Prospectus
Supplement relating to a Series of Certificates, the model used in a
Prospectus Supplement will be the Standard Prepayment Assumption ("SPA"). SPA
represents an assumed rate of prepayment relative to the then outstanding
principal balance of a pool of mortgages. A prepayment assumption of 100% of
SPA assumes prepayment rates of 0.2% per annum of the then outstanding
principal balance of such mortgages in the first month of the life of the
mortgages and an additional 0.2% per annum in each month thereafter until the
thirtieth month and in each month thereafter during the life of the mortgages,
100% of SPA assumes a constant prepayment rate of 6% per annum each month.
Information regarding FHA Experience, other published information, SPA or
any other rate of assumed prepayment, as applicable, will be set forth in the
Prospectus Supplement with respect to a Series of Certificates. There is,
however, no assurance that prepayment of the Mortgage Loans underlying a
Series of Certificates will conform to FHA Experience, mortgage industry
custom, any level of SPA, or any other rate specified in the related
Prospectus Supplement. A number of factors, including homeowner mobility,
economic conditions, enforceability of due-on-sale clauses, mortgage market
interest rates, mortgage recording taxes and the availability of mortgage
funds, may affect prepayment experience on residential mortgage loans.
The terms of the Pooling and Servicing Agreement will require the Servicer
or the Master Servicer to enforce any due-on-sale clause to the extent it has
knowledge of the conveyance or the proposed conveyance of the underlying
Mortgaged Property or Cooperative Dwelling; provided, however, that any
enforcement action that would impair or threaten to impair any recovery under
any related Insurance Policy will not be required or
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permitted. See "Description of the Certificates--Enforcement of "Due-On-Sale"
Clauses; Realization Upon Defaulted Mortgage Loans" and "Certain Legal Aspects
of the Mortgage Loans And Contracts--The Mortgage Loans--"Due-On-Sale"
Clauses" for a description of certain provisions of each Pooling and Servicing
Agreement and certain legal developments that may affect the prepayment
experience on the Mortgage Loans.
At the request of the Mortgagor, the Servicer may refinance the Mortgage
Loans in any Mortgage Pool by accepting prepayments thereon and making new
loans secured by a mortgage on the same property. Upon such refinancing, the
new loans will not be included in the Mortgage Pool and the related Servicer
will be required to repurchase the affected Mortgage Loan. A Mortgagor may be
legally entitled to require the Servicer to allow such a refinancing. Any such
repurchase will have the same effect as a prepayment in full of the related
Mortgage Loan.
There are no uniform statistics compiled for prepayments of contracts
relating to Manufactured Homes. Prepayments on the Contracts may be influenced
by a variety of economic, geographic, social and other facts, including
repossessions, aging, seasonality and interest rate fluctuations. Other
factors affecting prepayment of mortgage loans or Contracts include changes in
housing needs, job transfers, unemployment and servicing decisions. An
investment in Certificates evidencing interests in Contracts may be affected
by, among other things, a downturn in regional or local economic conditions.
These regional or local economic conditions are often volatile, and
historically have affected the delinquency, loan loss and repossession
experience of the Contracts. To the extent that losses on the Contracts are
not covered by the Subordination Amount, if any, Letters of Credit, applicable
Insurance Policies, if any, or by any Alternative Credit Support, holders of
the Certificates of a Series evidencing interests in such Contracts will bear
all risk of loss resulting from default by Obligors and will have to look
primarily to the value of the Manufactured Homes, which generally depreciate
in value, for recovery of the outstanding principal and unpaid interest of the
defaulted Contracts. See "The Trust Fund--The Contract Pools."
While most Contracts will contain "due-on-sale" provisions permitting the
holder of the Contract to accelerate the maturity of the Contract upon
conveyance by the borrower, the Master Servicer may permit proposed
assumptions of Contracts where the proposed buyer meets the underwriting
standards described above. Such assumption would have the effect of extending
the average life of the Contract. FHA Mortgage Loans and Contracts and VA
Mortgage Loans and Contracts are not permitted to contain "due on sale"
clauses, and are freely assumable.
Mortgage Loans made with respect to Multifamily Properties may have
provisions that prevent prepayment for a number of years and may provide for
payments of interest only during a certain period followed by amortization of
principal on the basis of a schedule extending beyond the maturity of the
related Mortgage Loan. Prepayments of Mortgage Loans secured by Multifamily
Property may be affected by these and other factors, including changes in
interest rates and the relative tax benefits associated with ownership of
Multifamily Property.
If set forth in the applicable Prospectus Supplement, the Depositor or other
specified entity will have the option to repurchase the Trust Assets included
in the related Trust Fund under the conditions stated in such Prospectus
Supplement. For any Series of Certificates for which the Depositor has elected
to treat the Trust as a REMIC pursuant to the provisions or the Internal
Revenue Code of 1986, as amended (the "Code"), any such repurchase will be
effected in compliance with the requirements of Section 860F(a)(4) of the Code
so as to constitute a "qualifying liquidation" thereunder. In addition, the
Depositor will be obligated, under certain circumstances, to repurchase
certain of the Trust Assets. The Master Servicer and Unaffiliated Sellers will
also have certain repurchase obligations, as more fully described herein. In
addition, the mortgage loans underlying the Mortgage Certificates may be
subject to repurchase under circumstances similar to those described
above. Such repurchases will have the same effect as prepayments in full. See
"The Trust Fund--Mortgage Loan Program--Representations by Unaffiliated
Sellers; Repurchases," "Description of the Certificates--Assignment of
Mortgage Loans," "--Assignment of Mortgage Certificates," "--Assignment of
Contracts" and "--Termination."
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DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an agreement
consisting of either (a) a Pooling and Servicing Agreement or (b) a Reference
Agreement (the "Reference Agreement") and the Standard Terms and Provisions of
Pooling and Servicing Agreement (such Standard Terms, the "Standard Terms"),
either the Standard Terms together with the Reference Agreement or the Pooling
and Servicing Agreement referred to as the "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer, if any, and the Trustee named in the
applicable Prospectus Supplement or a deposit trust agreement between the
Depositor and the Trustee (the "Deposit Trust Agreement," together with the
Pooling and Servicing Agreement, the "Agreement"). Forms of the Pooling and
Servicing Agreement and the Deposit Trust Agreement have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
following summaries describe certain provisions common to each Pooling and
Servicing Agreement and Deposit Trust Agreement. The summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Pooling and Servicing Agreement or
Deposit Trust Agreement for the applicable Series and the related Prospectus
Supplement. Wherever defined terms of the Pooling and Servicing Agreement or
Deposit Trust Agreement are referred to, such defined terms are thereby
incorporated herein by reference.
GENERAL
Unless otherwise specified in the Prospectus Supplement with respect to a
Series, each Certificate offered hereby and by means of the related Prospectus
Supplement will be issued in fully registered form and will represent the
undivided interest or beneficial interest attributable to such Class or
Subclass in the Trust Fund. The Trust Fund with respect to a Series will
consist of: (i) such Mortgage Loans, Contracts, and Mortgage Certificates and
distributions thereon as from time to time are subject to the applicable
Agreement; (ii) such assets as from time to time are identified as deposited
in the Certificate Account referred to below; (iii) property acquired by
foreclosure of Mortgage Loans or deed in lieu of foreclosure, or Manufactured
Homes acquired by repossession; (iv) the Letter of Credit, if any, with
respect to such Series; (v) the Pool Insurance Policy, if any, with respect to
such Series (described below under "Description of Insurance"); (vi) the
Special Hazard Insurance Policy, if any, with respect to such Series
(described below under "Description of Insurance"); (vii) the Mortgagor
Bankruptcy Bond and proceeds thereof, if any, with respect to such Series (as
described below under "Description of Insurance"); (viii) the Performance Bond
and proceeds thereof, if any, with respect to such Series; (ix) the Primary
Mortgage Insurance Policies, if any, with respect to such Series (as described
below under "Description of Insurance"); (x) the Depositor's rights under the
Warranty and Servicing Agreement with respect to the Mortgage Loans or
Contracts, if any, with respect to such Series; and (xi) the GPM and Buy-Down
Funds, if any, with respect to such Series; or, in lieu of some or all of the
foregoing, such Alternative Credit Support as shall be described in the
applicable Prospectus Supplement. Upon the original issuance of a Series of
Certificates, Certificates representing the minimum undivided interest or
beneficial ownership interest in the related Trust Fund or the minimum
notional amount allocable to each Class will evidence the undivided interest,
beneficial ownership interest or percentage ownership interest specified in
the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, one or more Servicers
or the Depositor may directly perform some or all of the duties of a Master
Servicer with respect to a Series.
If so specified in the Prospectus Supplement for a Series with respect to
which the Depositor has elected to treat the Trust Fund as a REMIC under the
Code, ownership of the Trust Fund for such Series may be evidenced by Multi-
Class Certificates and Residual Certificates. Distributions of principal and
interest with respect to Multi-Class Certificates may be made on a sequential
or concurrent basis, as specified in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, one or more of such Classes or
Subclasses may be Compound Interest Certificates.
The Residual Certificates, if any, included in a Series will be designated
by the Depositor as the "residual interest" in the related REMIC for purposes
of Section 860G(a)(2) of the Code, and will represent the right to receive
distributions as specified in the Prospectus Supplement for such Series. All
other Classes of Certificates
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of such Series will constitute "regular interests" in the related REMIC, as
defined in the Code. If so specified in the related Prospectus Supplement,
such Residual Certificates may be offered hereby and by means of such
Prospectus Supplement. See "Certain Federal Income Tax Consequences."
If so specified in the Prospectus Supplement for a Series which includes
Multi-Class Certificates, each Trust Asset in the related Trust Fund will be
assigned an initial "Asset Value." Unless otherwise specified in the related
Prospectus Supplement, the Asset Value of each Trust Asset in the related
Trust Fund will be the Stated Principal Balance of each Class or Classes of
Certificates of such Series that, based upon certain assumptions, can be
supported by distributions on such Trust Assets allocable to such Class or
Subclass, together with reinvestment income thereon, to the extent specified
in the related Prospectus Supplement, and amounts available to be withdrawn
from any Buy-Down, GPM Fund or Reserve Fund for such Series. The method of
determining the Asset Value of the Trust Assets in the Trust Fund for such a
Series that includes Multi-Class Certificates will be specified in the related
Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series,
ownership of the Trust Fund for such Series may be evidenced by one or more
Classes or Subclasses of Certificates that are Senior Certificates and
Subordinated Certificates, each representing the undivided interests in the
Trust Fund specified in such Prospectus Supplement. If so specified in the
related Prospectus Supplement, one or more Classes or Subclasses or
Subordinated Certificates of a Series may be subordinated to the right of the
holders of Certificates of one or more Classes or Subclasses within such
Series to receive distributions with respect to the Mortgage Loans or
Contracts in the related Trust Fund, in the manner and to the extent specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the holders of each Subclass of Senior Certificates will be
entitled to the Percentage Interests in the principal and/or interest payments
on the underlying Mortgage Loans or Contracts specified in such Prospectus
Supplement. If so specified in the related Prospectus Supplement, the
Subordinated Certificates of a Series will evidence the right to receive
distributions with respect to a specific pool of Mortgage Loans or Contracts,
which right will be subordinated to the right of the holders of the Senior
Certificates of such Series to receive distributions with respect to such
specific pool of Mortgage Loans or Contracts, as more fully set forth in such
Prospectus Supplement. If so specified in the related Prospectus Supplement,
the holders of the Senior Certificates may have the right to receive a greater
than pro rata percentage of Principal Prepayments in the manner and under the
circumstances described in the Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Depositor may sell
certain Classes or Subclasses of the Certificates of a Series, including one
or more Classes or Subclasses of Subordinated or Residual Certificates, in
privately negotiated transactions exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"). Such Certificates
will be transferable only pursuant to an effective registration statement or
an applicable exemption under the Securities Act and pursuant to any
applicable state law. Alternatively, if so specified in the related Prospectus
Supplement, the Depositor may offer one or more Classes or Subclasses of the
Subordinated or Residual Certificates of a Series by means of this Prospectus
and such Prospectus Supplement.
The Certificates of a Series offered hereby and by means of the related
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set forth in the related
Prospectus Supplement, unless such Prospectus Supplement provides otherwise.
No service charge will be made for any transfer or exchange of Certificates,
but the Trustee may require payment of a sum sufficient to cover any tax or
other governmental charge in connection with such transfer or exchange.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Beginning on the date specified in the related Prospectus Supplement,
distributions of principal and interest on the Certificates of a Series will
be made by the Master Servicer or Trustee, if so specified in the Prospectus
Supplement, on each Distribution Date to persons in whose name the
Certificates are registered at the close of business on the day specified in
such Prospectus Supplement (the "Record Date"). Such distributions of interest
will be made periodically at the intervals, in the manner and at the per annum
rate specified in the related
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Prospectus Supplement, which rate may be fixed or variable. Interest on the
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months, unless otherwise specified in the related Prospectus
Supplement. Distributions of principal on the Certificates will be made in the
priority and manner and in the amounts specified in the related Prospectus
Supplement.
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, distributions of interest and principal to a Certificateholder
will be equal to the product of the undivided interest evidenced by such
Certificate and the payments of principal and interest (adjusted to the
related Pass-Through Rate) on or with respect to the Mortgage Loans or
Contracts (including any Advances thereof) or the Mortgage Certificates
included in the Trust Fund with respect to such Series.
If so specified in the related Prospectus Supplement, distributions on a
Class or Subclass of Certificates of a Series may be based on the Percentage
Interest evidenced by a Certificate of such Class or Subclass in the
distributions (including any Advances thereof) of principal (the "Principal
Distribution") and interest (adjusted to the Pass-Through Rate for the related
Mortgage Pool or Contract Pool) (the "Interest Distribution") on or with
respect to the Mortgage Loans, the Contracts or the Mortgage Certificates in
the related Trust Fund. Unless otherwise specified in the related Prospectus
Supplement, on each Distribution Date, the Trustee will distribute to each
holder of a Certificate of such Class or Subclass an amount equal to the
product of the Percentage Interest evidenced by such Certificate and the
interest of such Class or Subclass in the Principal Distribution and the
Interest Distribution. A Certificate of such a Class or Subclass may represent
a right to receive a percentage of both the Principal Distribution and the
Interest Distribution or a percentage of either the Principal Distribution or
the Interest Distribution, as specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, the holders of the
Senior Certificates may have the right to receive a percentage of Principal
Prepayments that is greater than the percentage of regularly scheduled payment
of principal such holder is entitled to receive. Such percentages may vary
from time to time, subject to the terms and conditions specified in the
Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, distributions of
interest on each such Class or Subclass will be made on the Distribution
Dates, and at the Interest Rates, specified in such Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to such a
Series of Certificates, distributions of interest on each Class or Subclass of
Compound Interest Certificates of such Series will be made on each
Distribution Date after the Stated Principal Balance of all Certificates of
such Series having a Final Scheduled Distribution Date prior to that of such
Class or Subclass of Compound Interest Certificates has been reduced to zero.
Prior to such time, interest on such Class or Subclass of Compound Interest
Certificates will be added to the Stated Principal Balance thereof on each
Distribution Date for such Series.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, distributions in
reduction of the Stated Principal Balance of such Certificates will be made as
described herein. Distributions in reduction of the Stated Principal Balance
of such Certificates will be made on each Distribution Date for such Series to
the holders of the Certificates of the Class or Subclass then entitled to
receive such distributions until the aggregate amount of such distributions
have reduced the Stated Principal Balance of such Certificates to zero.
Allocation of distributions in reduction of Stated Principal Balance will be
made to each Class or Subclass of such Certificates in the order specified in
the related Prospectus Supplement, which, if so specified in such Prospectus
Supplement, may be concurrently. Unless otherwise specified in the related
Prospectus Supplement, distributions in reduction of the Stated Principal
Balance of each Certificate of a Class or Subclass then entitled to receive
such distributions will be made pro rata among the Certificates of such Class
or Subclass.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, the maximum amount
which will be distributed in reduction of Stated Principal Balance to holders
of Certificates of a Class or Subclass then entitled thereto on any
Distribution Date will equal, to the
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extent funds are available in the Certificate Account, the sum of (i) the
amount of the interest, if any, that has accrued but is not yet payable on the
Compound Interest Certificates of such Series since the prior Distribution
Date (or since the date specified in the related Prospectus Supplement in the
case of the first Distribution Date) (the "Accrual Distribution Amount"); (ii)
the Stated Principal Distribution Amount; and (iii) to the extent specified in
the related Prospectus Supplement, the applicable percentage of the Excess
Cash Flow specified in such Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, the "Stated Principal
Distribution Amount" with respect to a Distribution Date will equal the sum of
the Accrual Distribution Amount, if any, and the amount, if any, by which the
then outstanding Stated Principal Balance of the Multi-Class Certificates of
such Series (before taking into account the amount of interest accrued on any
Class of Compound Interest Certificates of such Series to be added to the
Stated Principal Balance thereof on such Distribution Date) exceeds the Asset
Value of the Trust Assets in the Trust Fund underlying such Series as of the
end of a period (a "Due Period") specified in the related Prospectus
Supplement. For purposes of determining the Stated Principal Distribution
Amount with respect to a Distribution Date, the Asset Value of the Trust
Assets will be reduced to take into account the interest evidenced by such
Classes or Subclasses of Certificates in the principal distributions on or
with respect of such Trust Assets received by the Trustee during the preceding
Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, Excess Cash Flow
represents the excess of (i) the interest evidenced by such Multi-Class
Certificates in the distributions received on the Mortgage Loans or Contracts
underlying such Series in the Due Period preceding a Distribution Date for
such Series (and, in the case of the first Due Period, the amount deposited in
the Certificate Account on the closing day for the sale of such Certificates),
together with income from the reinvestment thereof, and, to the extent
specified in such Prospectus Supplement, the amount of cash withdrawn from any
Reserve, GPM or Buy-Down Fund for such Series in the Due Period preceding such
Distribution Date, over (ii) the sum of all interest accrued, whether or not
then distributable, on the Multi-Class Certificates since the preceding
Distribution Date (or since the date specified in the related Prospectus
Supplement in the case of the first Distribution Date), the Stated Principal
Distribution Amount for the then current Distribution Date and, if applicable,
any payments made on any Certificates of such Class or Subclass pursuant to
any special distributions in reduction of Stated Principal Balance during such
Due Period.
The Stated Principal Balance of a Multi-Class Certificate of a Series at any
time represents the maximum specified dollar amount (exclusive of interest at
the related Interest Rate) to which the holder thereof is entitled from the
cash flow on the Trust Assets in the Trust Fund for such Series, and will
decline to the extent distributions in reduction of Stated Principal Balance
are received by such holder. The Initial Stated Principal Balance of each
Class or Subclass within a Series that has been assigned a Stated Principal
Balance will be specified in the related Prospectus Supplement.
Distributions (other than the final distribution in retirement of the
Certificates) will be made by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register, except that, with
respect to any holder of a Certificate meeting the requirements specified in
the applicable Prospectus Supplement, distributions shall be made by wire
transfer in immediately available funds, provided that the Trustee shall have
been furnished with appropriate wiring instructions not less than two Business
Days prior to the related Distribution Date. The final distribution in
retirement of Certificates will be made only upon presentation and surrender
of the Certificates at the office or agency designated by the Master Servicer
for such purpose, as specified in the final distribution notice to
Certificateholders.
ASSIGNMENT OF MORTGAGE CERTIFICATES
Pursuant to the applicable Agreement for a Series of Certificates that
includes Mortgage Certificates in the related Trust Fund, the Depositor will
cause such Mortgage Certificates to be transferred to the Trustee together
with all principal and interest distributed on such Mortgage Certificates
after the Cut-off Date. Each Mortgage
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Certificate included in a Trust Fund will be identified in a schedule
appearing as an exhibit to the applicable Agreement. Such schedule will
include information as to the principal balance of each Mortgage Certificate
as of the date of issuance of the Certificates and its coupon rate, maturity
and original principal balance. In addition, such steps will be taken by the
Depositor as are necessary to cause the Trustee to become the registered owner
of each Mortgage Certificate which is included in a Trust Fund and to provide
for all distributions on each such Mortgage Certificate to be made directly to
the Trustee.
In connection with such assignment, the Depositor will make certain
representations and warranties in the Agreement as to, among other things, its
ownership of the Mortgage Certificates. In the event that these
representations and warranties are breached, and such breach or breaches
adversely affect the interests of the Certificateholders in the Mortgage
Certificates, the Depositor will be required to repurchase the affected
Mortgage Certificates at a price equal to the principal balance thereof as of
the date of purchase together with accrued and unpaid interest thereon at the
related pass-through rate to the distribution date for such Mortgage
Certificates or, in the case of a Series in which an election has been made to
treat the related Trust Fund as a REMIC, at the lesser of the price set forth
above, or the adjusted tax basis, as defined in the Code, of such Mortgage
Certificates. The Mortgage Certificates with respect to a Series may also be
subject to repurchase, in whole but not in part, under the circumstances and
in the manner described in the related Prospectus Supplement. Any amounts
received in respect of such repurchases will be distributed to
Certificateholders on the immediately succeeding Distribution Date.
If so specified in the related Prospectus Supplement, within the specified
period following the date of issuance of a Series of Certificates, the
Depositor may, in lieu of the repurchase obligation set forth above, and in
certain other circumstances, deliver to the Trustee Mortgage Certificates
("Substitute Mortgage Certificates") in substitution for any one or more of
the Mortgage Certificates ("Deleted Mortgage Certificates") initially included
in the Trust Fund. The required characteristics or any such Substitute
Mortgage Certificates and any additional restrictions relating to the
substitution of Mortgage Certificates will be set forth in the related
Prospectus Supplement.
ASSIGNMENT OF MORTGAGE LOANS
The Depositor will cause the Mortgage Loans constituting a Mortgage Pool to
be assigned to the Trustee, together with all principal and interest received
on or with respect to such Mortgage Loans after the Cut-off Date, but not
including principal and interest due on or before the Cut-off Date. The
Trustee will, concurrently with such assignment, deliver the Certificates to
the Depositor in exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule will include information as to the adjusted
principal balance of each Mortgage Loan as of the Cut-off Date, as well as
information respecting the Mortgage Rate, the currently scheduled monthly
payment of principal and interest, the maturity of the Mortgage Note and the
Loan-to-Value Ratio at origination.
In addition, the Depositor will, as to each Mortgage Loan that is not a
Cooperative Loan, deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) the Mortgage Note endorsed to the order of
the Trustee, the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will deliver a copy of such Mortgage together with its
certificate that the original of such Mortgage was delivered to such recording
office) and an assignment of the Mortgage in recordable form. Assignments of
the Mortgage Loans to the Trustee will be recorded in the appropriate public
office for real property records, except in states where, in the opinion of
counsel acceptable to the Trustee, such recording is not required to protect
the Trustee's interest in the Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the Depositor or the
Originator of such Mortgage Loan.
The Depositor will cause to be delivered to the Trustee, its agent, or a
custodian, with respect to any Cooperative Loan, the related original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing statement and the relevant stock certificate
and related blank stock
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powers. The Master Servicer will file in the appropriate office a financing
statement evidencing the Trustee's security interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will, generally
within 60 days after receipt thereof, review and hold such documents in trust
for the benefit of the Certificateholders. Unless otherwise specified in the
applicable Prospectus Supplement, if any such document is found to be
defective in any material respect, the Trustee will promptly notify the Master
Servicer and the Depositor, and the Master Servicer will notify the related
Servicer. If the Servicer cannot cure the defect within 60 days after notice
is given to the Master Servicer, the Servicer will be obligated either to
substitute for the related Mortgage Loan a Replacement Mortgage Loan or Loans,
or to purchase within 90 days of such notice the related Mortgage Loan from
the Trustee at a price equal to the principal balance thereof as of the date
of purchase or, in the case of a Series as to which an election has been made
to treat the related Trust Fund as a REMIC, at such other price as may be
necessary to avoid a tax on a prohibited transaction, as described in Section
860F(a) of the Code, in each case together with accrued interest at the
applicable Pass-Through Rate to the first day of the month following such
repurchase, plus the amount of any unreimbursed Advances made by the Master
Servicer or the Servicer, as applicable, in respect of such Mortgage Loan. The
Master Servicer is obligated to enforce the repurchase obligation of the
Servicer, to the extent described above under "The Trust Fund--Mortgage Loan
Program--Representations by Unaffiliated Sellers; Repurchases." Unless
otherwise specified in the applicable Prospectus Supplement, this purchase
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for a material defect in a constituent document.
Unless otherwise specified in the applicable Prospectus Supplement, with
respect to the Mortgage Loans in a Mortgage Pool, the Depositor will make
representations and warranties as to the types and geographical distribution
of such Mortgage Loans and as to the accuracy in all material respects of
certain information furnished to the Trustee in respect of each such Mortgage
Loan. In addition, unless otherwise specified in the related Prospectus
Supplement, the Depositor will represent and warrant that, as of the Cut-off
Date for the related Series of Certificates, no Mortgage Loan is more than 30
days delinquent as to payment of principal and interest. Upon a breach of any
representation or warranty by the Depositor that materially and adversely
affects the interest of the Certificateholders, the Depositor will be
obligated either to cure the breach in all material respects or to purchase
the Mortgage Loan at the purchase price set forth above. Unless otherwise
specified in the applicable Prospectus Supplement and subject to the ability
of the Depositor, if so specified in the applicable Prospectus Supplement, to
substitute for certain Mortgage Loans as described below, this repurchase
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for a breach of representation or warranty by the Depositor.
Within the period specified in the related Prospectus Supplement, following
the date of issuance of a Series of Certificates, the Depositor, the Master
Servicer or the related Servicer, as the case may be, may deliver to the
Trustee Mortgage Loans ("Substitute Mortgage Loans") in substitution for any
one or more of the Mortgage Loans ("Deleted Mortgage Loans") initially
included in the Trust Fund but which do not conform in one or more respects to
the description thereof contained in the related Prospectus Supplement, or as
to which a breach of a representation or warranty is discovered, which breach
materially and adversely affects the interests of the Certificateholders. The
required characteristics of any such Substitute Mortgage Loan and any
additional restrictions relating to the substitution of Mortgage Loans will
generally be as described under "The Trust Fund--The Contract Pools" with
respect to the substitution of Contracts.
In addition to making certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under the
Pooling and Servicing Agreement relating to a Series of Certificates, the
Master Servicer may make certain representations and warranties to the Trustee
in such Pooling and Servicing Agreement with respect to the enforceability of
coverage under any applicable Primary Insurance Policy, Pool Insurance Policy,
Special Hazard Insurance Policy or Mortgagor Bankruptcy Bond. See "Description
of Insurance" for information regarding the extent of coverage under certain
of the aforementioned insurance policies. Upon a breach of any such
representation or warranty that materially and adversely affects the interests
of the Certificateholders of such Series in a Mortgage Loan, the Master
Servicer will be obligated
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either to cure the breach in all material respects or to purchase such
Mortgage Loan at the price calculated as set forth above.
To the extent described in the related Prospectus Supplement, the Master
Servicer will procure a surety bond, corporate guaranty or another similar
form of insurance coverage acceptable to the Rating Agency rating the related
Series of Certificates to support, among other things, this purchase
obligation. Unless otherwise stated in the applicable Prospectus Supplement,
the aforementioned purchase obligation constitutes the sole remedy available
to the Certificateholders or the Trustee for a breach of the Master Servicer's
insurability representation. The Master Servicer's obligation to purchase
Mortgage Loans upon such a breach is subject to limitations.
The Trustee will be authorized, with the consent of the Depositor and the
Master Servicer, to appoint a custodian pursuant to a custodial agreement to
maintain possession of documents relating to the Mortgage Loans as the agent
of the Trustee.
Pursuant to each Pooling and Servicing Agreement, the Master Servicer,
either directly or through Servicers, will service and administer the Mortgage
Loans assigned to the Trustee as more fully set forth below.
ASSIGNMENT OF CONTRACTS
The Depositor will cause the Contracts constituting the Contract Pool to be
assigned to the Trustee, together with principal and interest due on or with
respect to the Contracts after the Cut-off Date, but not including principal
and interest due on or before the Cut-off Date. If the Depositor is unable to
obtain a perfected security interest in a Contract prior to transfer and
assignment to the Trustee, the Unaffiliated Seller will be obligated to
repurchase such Contract. The Trustee, concurrently with such assignment, will
authenticate and deliver the Certificates. Each Contract will be identified in
a schedule appearing as an exhibit to the Agreement (the "Contract Schedule").
Unless otherwise specified in the related Prospectus Supplement, the Contract
Schedule will specify, with respect to each Contract, among other things: the
original principal amount and the adjusted principal balance as of the close
of business on the Cut-off Date; the APR; the current scheduled monthly level
payment of principal and interest; and the maturity of the Contract.
In addition, the Depositor, as to each Contract, will deliver or cause to be
delivered to the Trustee, or, as specified in the related Prospectus
Supplement, the Custodian, the original Contract and copies of documents and
instruments related to each Contract and the security interest in the
Manufactured Home securing each Contract. In order to give notice of the
right, title and interest of the Certificateholders to the Contracts, the
Depositor will cause a UCC-1 financing statement to be executed by the
Depositor identifying the Trustee as the secured party and identifying all
Contracts as collateral. Unless otherwise specified in the related Prospectus
Supplement, the Contracts will not be stamped or otherwise marked to reflect
their assignment from the Depositor to the Trust Fund. Therefore, if a
subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the interest of the Certificateholders in
the Contracts could be defeated. See "Certain Legal Aspects of Mortgage Loans
and Contracts--The Contracts."
The Trustee (or the Custodian) will review and hold such documents in trust
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, if any such document is found to be defective
in any material respect, the Unaffiliated Seller must cure such defect within
60 days, or within such other period specified in the related Prospectus
Supplement the Unaffiliated Seller, not later than 90 days or within such
other period specified in the related Prospectus Supplement, after the
Trustee's notice to the Unaffiliated Seller of the defect. If the defect is
not cured, the Unaffiliated Seller will repurchase the related Contract or any
property acquired in respect thereof from the Trustee at a price equal to the
remaining unpaid principal balance of such Contract (or, in the case of a
repossessed Manufactured Home, the unpaid principal balance of such Contract
immediately prior to the repossession) or, in the case of a Series as to which
an election has been made to treat the related Trust Fund as a REMIC, at such
other price as may be necessary to avoid a tax on a prohibited transaction, as
described in Section 860F(a) of the Code, in each case together with accrued
but unpaid interest to the first day of the month following repurchase at the
related Pass-Through Rate, plus any
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unreimbursed Advances respecting such Contract. Unless otherwise specified in
the related Prospectus Supplement, the repurchase obligation constitutes the
sole remedy available to the Certificateholders or the Trustee for a material
defect in a Contract document.
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller of Contracts will have represented, among other things,
that (i) immediately prior to the transfer and assignment of the Contracts,
the Unaffiliated Seller had good title to, and was the sole owner of each
Contract and there had been no other sale or assignment thereof, (ii) as of
the date of such transfer, the Contracts are subject to no offsets, defenses
or counterclaims, (iii) each Contract at the time it was made complied in all
material respects with applicable state and federal laws, including usury,
equal credit opportunity and disclosure laws, (iv) as of the date of such
transfer, each Contract is a valid first lien on the related Manufactured Home
and such Manufactured Home is free of material damage and is in good repair,
(v) as of the date of such transfer, no Contract is more than 30 days
delinquent in payment and there are no delinquent tax or assessment liens
against the related Manufactured Home and (vi) with respect to each Contract,
the Manufactured Home securing the Contract is covered by a Standard Hazard
Insurance Policy in the amount required in the Pooling and Servicing Agreement
and that all premiums now due on such insurance have been paid in full.
All of the representations and warranties of a seller in respect of a
Contract will have been made as of the date on which such seller sold the
Contract to the Depositor or its affiliate; the date such representations and
warranties were made may be a date prior to the date of initial issuance of
the related series of Certificates. A substantial period of time may have
elapsed between the date as of which the representations and warranties were
made and the later date of initial issuance of the related Series of
Certificates. Since the representations and warranties referred to in the
preceding paragraph are the only representations and warranties that will be
made by a seller, the seller's repurchase obligation described below will not
arise if, during the period commencing on the date of sale of a Contract by
the seller to the Depositor or its affiliate, the relevant event occurs that
would have given rise to such an obligation had the event occurred prior to
sale of the affected Contract. Nothing, however, has come to the Depositor's
attention that would cause it to believe that the representations and
warranties referred to in the preceding paragraph will not be accurate and
complete in all material respects in respect of Contracts as of the date of
initial issuance of the related series of Certificates.
The only representations and warranties to be made for the benefit of
Certificateholders in respect of any Contract relating to the period
commencing on the date of sale of such Contract to the Depositor or its
affiliate will be certain limited representations of the Depositor and of the
Master Servicer described above under "The Trust Fund--The Contract Pools."
If an Unaffiliated Seller cannot cure a breach of any representation or
warranty made by it in respect of a Contract that materially and adversely
affects the interest of the Certificateholders in such Contract within 90 days
(or such other period specified in the related Prospectus Supplement) after
notice from the Master Servicer, such Unaffiliated Seller will be obligated to
repurchase such Contract at a price equal to, unless otherwise specified in
the related Prospectus Supplement, the principal balance thereof as of the
date of the repurchase or, in the case of a Series as to which an election has
been made to treat the related Trust Fund as a REMIC, at such other price as
may be necessary to avoid a tax on a prohibited transaction, as described in
Section 860F(a) of the Code, in each case together with accrued and unpaid
interest to the first day of the month following repurchase at the related
Pass-Through Rate, plus the amount of any unreimbursed Advances in respect of
such Contract (the "Purchase Price"). The Master Servicer will be required
under the applicable Pooling and Servicing Agreement to enforce this
obligation for the benefit of the Trustee and the Certificateholders,
following the practices it would employ in its good faith business judgment
were it the owner of such Contract. Except as otherwise set forth in the
related Prospectus Supplement, this repurchase obligation will constitute the
sole remedy available to Certificateholders or the Trustee for a breach of
representation by an Unaffiliated Seller.
Neither the Depositor nor the Master Servicer will be obligated to purchase
a Contract if an Unaffiliated Seller defaults on its obligation to do so, and
no assurance can be given that sellers will carry out their respective
repurchase obligations with respect to Contracts. However, to the extent that
a breach of the representations and
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warranties of an Unaffiliated Seller may also constitute a breach of a
representation made by the Depositor or the Master Servicer, the Depositor or
the Master Servicer may have a purchase obligation as described above under
"The Trust Fund--The Contract Pools."
SERVICING BY UNAFFILIATED SELLERS
Each Unaffiliated Seller of a Mortgage Loan or a Contract may have the
option to act as the Servicer (or Master Servicer) for such Mortgage Loan or
Contract pursuant to a Servicing Agreement. A representative form of Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following description does not purport to be
complete and is qualified in its entirety by reference to the form of
Servicing Agreement and by the discretion of the Master Servicer or Depositor
to modify the Servicing Agreement and to enter into different Servicing
Agreements. The Pooling and Servicing Agreement provides that, if for any
reason the Master Servicer for such Series of Certificates is no longer the
Master Servicer of the related Mortgage Loans or Contracts, the Trustee or any
successor master servicer must recognize the Servicer's rights and obligations
under such Servicing Agreement.
A Servicer may delegate its servicing obligations to third-party servicers,
but continue to act as Servicer under the related Servicing Agreement. The
Servicer will be required to perform the customary functions of a servicer,
including collection of payments from Mortgagors and Obligors and remittance
of such collections to the Master Servicer, maintenance of primary mortgage,
hazard insurance, FHA insurance and VA guarantees and filing and settlement of
claims thereunder, subject in certain cases to (a) the right of the Master
Servicer to approve in advance any such settlement; (b) maintenance of escrow
accounts of Mortgagors and Obligors for payment of taxes, insurance, and other
items required to be paid by the Mortgagor pursuant to terms of the related
Mortgage Loan or the Obligor pursuant to the related Contract; (c) processing
of assumptions or substitutions; (d) attempting to cure delinquencies; (e)
supervising foreclosures or repossessions; (f) inspection and management of
Mortgaged Properties, Cooperative Dwellings or Manufactured Homes under
certain circumstances; and (g) maintaining accounting records relating to the
Mortgage Loans and Contracts. A Servicer will also be obligated to make
Advances in respect of delinquent installments of principal and interest on
Mortgage Loans and Contracts (as described more fully below under "--Payments
on Mortgage Loans" and "--Payments on Contracts"), and in respect of certain
taxes and insurance premiums not paid on a timely basis by Mortgagors and
Obligors.
As compensation for its servicing duties, a Servicer will be entitled to
amounts from payments with respect to the Mortgage Loans and Contracts
serviced by it. The Servicer will also be entitled to collect and retain, as
part of its servicing compensation, certain fees and late charges provided in
the Mortgage Note or related instruments. The Servicer will be reimbursed by
the Master Servicer for certain expenditures that it makes, generally to the
same extent that the Master Servicer would be reimbursed under the applicable
Pooling and Servicing Agreement.
Each Servicer will be required to agree to indemnify the Master Servicer for
any liability or obligation sustained by the Master Servicer in connection
with any act or failure to act by the Servicer in its servicing capacity.
Each Servicer will be required to service each Mortgage Loan or Contract
pursuant to the terms of the Servicing Agreement for the entire term of such
Mortgage Loan or Contract, unless the Servicing Agreement is earlier
terminated by the Master Servicer or unless servicing is released to the
Master Servicer. Unless otherwise set forth in the Prospectus Supplement, the
Master Servicer may terminate a Servicing Agreement upon 30 days' written
notice to the Servicer, without cause, upon payment of an amount equal to the
fair market value of the right to service the Mortgage Loans or Contracts
serviced by any such Servicer under such Servicing Agreement, or if such fair
market value cannot be determined, a specified percentage of the aggregate
outstanding principal balance of all such Mortgage Loans or Contracts, or
immediately upon the giving of notice upon certain stated events, including
the violation of such Servicing Agreement by the Servicer.
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The Master Servicer may agree with a Servicer to amend a Servicing
Agreement. The Master Servicer may also, at any time and from time to time,
release servicing to third-party servicers, but continue to act as Master
Servicer under the related Pooling and Servicing Agreement. Upon termination
of a Servicing Agreement, the Master Servicer may act as servicer of the
related Mortgage Loans or Contracts or enter into one or more new Servicing
Agreements. If the Master Servicer acts as servicer, it will not assume
liability for the representations and warranties of the Servicer that it
replaces. If the Master Servicer enters into a new Servicing Agreement, each
new Servicer must be an Unaffiliated Seller or meet the standards for becoming
an Unaffiliated Seller or have such servicing experience that is otherwise
satisfactory to the Master Servicer. The Master Servicer will make reasonable
efforts to have the new Servicer assume liability for the representations and
warranties of the terminated Servicer, but no assurance can be given that such
an assumption will occur. In the event of such an assumption, the Master
Servicer may, in the exercise of its business judgment, release the terminated
Servicer from liability in respect of such representations and warranties. Any
amendments to a Servicing Agreement or new Servicing Agreements may contain
provisions different from those described above that are in effect in the
original Servicing Agreements. However, the Pooling and Servicing Agreement
with respect to a Series will provide that any such amendment or new agreement
may not be inconsistent with or violate such Pooling and Servicing Agreement.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, unless otherwise specified in the Prospectus
Supplement with respect to a Series of Certificates, establish and maintain a
separate account or accounts in the name of the Trustee (the "Certificate
Account"), which must be maintained with a depository institution and in a
manner acceptable to the Rating Agency rating the Certificates of a Series.
If so specified in the applicable Prospectus Supplement, the Master
Servicer, in lieu of establishing a Certificate Account, may establish a
separate account or accounts in the name of the Trustee (the "Custodial
Account") meeting the requirements set forth herein for the Certificate
Account. In such a case, amounts in such Custodial Account, after making the
required deposits and withdrawals specified below, shall be remitted to the
Certificate Account maintained by the Trustee for distribution to
Certificateholders in the manner set forth herein and in such Prospectus
Supplement.
In those cases where a Servicer is servicing a Mortgage Loan pursuant to a
Servicing Agreement, the Servicer will establish and maintain an account (the
"Servicing Account") that will comply with either the standards set forth
above or, subject to the conditions set forth in the Servicing Agreement, be
maintained with a depository, meeting the requirements of the Rating Agency
rating the Certificates of the related Series, and that is otherwise
acceptable to the Master Servicer. The Servicer will be required to deposit
into the Servicing Account on a daily basis all amounts enumerated in the
following paragraph in respect of the Mortgage Loans received by the Servicer,
less its servicing compensation. On the date specified in the Servicing
Agreement, the Servicer shall remit to the Master Servicer all funds held in
the Servicing Account with respect to each Mortgage Loan. The Servicer will
also be required to advance any monthly installment of principal and interest
that was not timely received, less its servicing fee, provided that, unless
otherwise specified in the related Prospectus Supplement, such requirement
shall only apply to the extent such Servicer determines in good faith any such
advance will be recoverable out of Insurance Proceeds, proceeds of the
liquidation of the related Mortgage Loans or otherwise.
The Certificate Account may be maintained with a depository institution that
is an affiliate of the Master Servicer. The Master Servicer will deposit in
the Certificate Account for each Series of Certificates on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (other than payments due on or before the Cut-off Date) in the
manner set forth in the related Prospectus Supplement:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans, net of any portion of such payments
that represent unreimbursed or unrecoverable Advances made by the related
Servicer;
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(ii) all payments on account of interest on the Mortgage Loans, net of
any portion thereof retained by the Servicer, if any, as its servicing fee;
(iii) all proceeds of (A) any Special Hazard Insurance Policy, Primary
Mortgage Insurance Policy, FHA Insurance, VA Guarantee, Mortgagor
Bankruptcy Bond or Pool Insurance Policy with respect to such Series of
Certificates and any title, hazard or other insurance policy covering any
of the Mortgage Loans included in the related Mortgage Pool (to the extent
such proceeds are not applied to the restoration of the related property or
released to the Mortgagor in accordance with customary servicing
procedures) (collectively, "Insurance Proceeds") or any Alternative Credit
Support established in lieu of any such insurance and described in the
applicable Prospectus Supplement; and (B) all other cash amounts received
and retained in connection with the liquidation of defaulted Mortgage
Loans, by foreclosure or otherwise, other than Insurance Proceeds, payments
under the Letter of Credit or proceeds of any Alternative Credit Support,
if any, with respect to such Series ("Liquidation Proceeds"), net of
expenses of liquidation, unpaid servicing compensation with respect to such
Mortgage Loans and unreimbursed or unrecoverable Advances made by the
Servicers of the related Mortgage Loans;
(iv) all payments under the Letter of Credit, if any, with respect to
such Series;
(v) all amounts required to be deposited therein from the Reserve Fund,
if any, for such Series;
(vi) any Advances made by a Servicer or the Master Servicer (as described
herein under "--Advances");
(vii) any Buy-Down Funds (and, if applicable, investment earnings
thereon) required to be deposited in the Certificate Account, as described
below; and
(viii) all proceeds of any Mortgage Loan repurchased by the Master
Servicer, the Depositor, any Servicer or any Unaffiliated Seller (as
described under "The Trust Fund--Mortgage Loan Program--Representations by
Unaffiliated Sellers; Repurchases" or "--Assignment of Mortgage Loans"
above or repurchased by the Depositor as described under "--Termination"
below).
With respect to each Buy-Down Loan, if so specified in the related
Prospectus Supplement, the Master Servicer or the related Servicer will
deposit the Buy-Down Funds with respect thereto in a custodial account
complying with the requirements set forth above for the Certificate Account,
which, unless otherwise specified in the related Prospectus Supplement, may be
an interest-bearing account. The amount of such required deposits, together
with investment earnings thereon at the rate specified in the applicable
Prospectus Supplement, will provide sufficient funds to support the full
monthly payments due on such Buy-Down Loan on a level debt service basis.
Neither the Master Servicer nor the Depositor will be obligated to add to the
Buy-Down Fund should investment earnings prove insufficient to maintain the
scheduled level of payments on the Buy-Down Loans. To the extent that any such
insufficiency is not recoverable from the Mortgagor under the terms of the
related Mortgage Note, distributions to Certificateholders will be affected.
With respect to each Buy-Down Loan, the Master Servicer will withdraw from the
Buy-Down Fund and deposit in the Certificate Account on or before each
Distribution Date the amount, if any, for each Buy-Down Loan that, when added
to the amount due on that date from the Mortgagor on such Buy-Down Loan,
equals the full monthly payment that would be due on the Buy-Down Loan if it
were not subject to the buy-down plan.
If the Mortgagor on a Buy-Down Loan prepays such loan in its entirety, or
defaults on such loan and the Mortgaged Property is sold in liquidation
thereof, during the period when the Mortgagor is not obligated, on account of
the buy-down plan, to pay the full monthly payment otherwise due on such loan,
the related Servicer will withdraw from the Buy-Down Fund and deposit in the
Certificate Account the amounts remaining in the Buy-Down Fund with respect to
such Buy-Down Loan. In the event of a default with respect to which a claim,
including accrued interest supplemented by amounts in the Buy-Down Fund with
respect to the related Buy-Down Loan, has been made, the Master Servicer or
the related Servicer will pay an amount equal to the remaining amounts in the
Buy-Down Fund with respect to the related Buy-Down Loan, to the extent the
claim includes accrued interest supplemented by amounts in the Buy-Down Fund,
to the related Pool Insurer or the insurer under the related Primary Insurance
Policy (the "Primary Insurer") if the Mortgaged Property is
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transferred to the Pool Insurer or the Primary Insurer, as the case may be,
which pays 100% of the related claim (including accrued interest and expenses)
in respect of such default, to the L/C Bank in consideration of such payment
under the related Letter of Credit, or to the guarantor or other person which
pays the same pursuant to Alternative Credit Support described in the
applicable Prospectus Supplement. In the case of any such prepaid or defaulted
Buy-Down Loan the amounts in the Buy-Down Fund in respect of which were
supplemented by investment earnings, the Master Servicer will withdraw from
the Buy-Down Fund and remit to the Depositor or the Mortgagor, depending on
the terms of the related buy-down plan, any investment earnings remaining in
the related Buy-Down Fund.
If so specified in the Prospectus Supplement with respect to a Series, in
lieu of, or in addition to the foregoing, the Depositor may deliver cash, a
letter of credit or a guaranteed investment contract to the Trustee to fund
the Buy-Down Fund for such Series, which shall be drawn upon by the Trustee in
the manner and at the times specified in such Prospectus Supplement.
PAYMENTS ON CONTRACTS
A Certificate Account meeting the requirements set forth under "Description
of the Certificates--Payments on Mortgage Loans" will be established in the
name of the Trustee.
There will be deposited in the Certificate Account on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (including scheduled payments of principal and interest due after
the Cut-off Date but received by the Master Servicer on or before the Cut-off
Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts,
adjusted to the Pass-Through Rate;
(iii) all Liquidation Proceeds received with respect to Contracts or
property acquired in respect thereof by foreclosure or otherwise;
(iv) all Insurance Proceeds received with respect to any Contract, other
than proceeds to be applied to the restoration or repair of the
Manufactured Home or released to the Obligor;
(v) any Advances made as described under "--Advances" and certain other
amounts required under the Pooling and Servicing Agreement to be deposited
in the Certificate Account;
(vi) all amounts received from Credit Support provided with respect to a
Series of Certificates;
(vii) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Master Servicer, the Depositor or otherwise as
described above or under "--Termination" below; and
(viii) all amounts, if any, required to be transferred to the Certificate
Account from the Reserve Fund.
COLLECTION OF PAYMENTS ON MORTGAGE CERTIFICATES
The Mortgage Certificates included in the Trust Fund with respect to a
Series of Certificates will be registered in the name of the Trustee so that
all distributions thereon will be made directly to the Trustee. The Pooling
and Servicing Agreement will require the Trustee, if it has not received a
distribution with respect to any Mortgage Certificate by the second business
day after the date on which such distribution was due and payable pursuant to
the terms of such Mortgage Certificate, to request the issuer or guarantor, if
any, of such Mortgage Certificate to make such payment as promptly as possible
and legally permitted and to take such legal action against such issuer or
guarantor as the Trustee deems appropriate under the circumstances, including
the prosecution of any claims in connection therewith. The reasonable legal
fees and expenses incurred by the Trustee in connection with the prosecution
of any such legal action will be reimbursable to the Trustee out of the
proceeds of any such action and will be retained by the Trustee prior to the
deposit of any remaining proceeds in the Certificate Account pending
distribution thereof to Certificateholders of the affected Series. In the
event that the Trustee has reason to believe that the proceeds of any such
legal action may be insufficient to reimburse it for its projected legal fees
and expenses, the Trustee will notify such Certificateholders that it is not
obligated
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to pursue any such available remedies unless adequate indemnity for its legal
fees and expenses is provided by such Certificateholders.
DISTRIBUTIONS ON CERTIFICATES
On each Distribution Date with respect to a Series of Certificates as to
which credit support is provided by means other than the creation of a
Subordinated Class or Subclasses and the establishment of a Reserve Fund, the
Master Servicer will withdraw from the applicable Certificate Account funds on
deposit therein and distribute, or, if so specified in the applicable
Prospectus Supplement, will withdraw from the Custodial Account funds on
deposit therein and remit to the Trustee, who will distribute, such funds to
Certificateholders of record on the applicable Record Date. Such distributions
shall occur in the manner described herein under "Description of the
Certificates--Distributions of Principal and Interest" and in the related
Prospectus Supplement. If so specified in the applicable Prospectus
Supplement, the Master Servicer will withdraw from the applicable Certificate
Account funds on deposit therein and distribute them to the Trustee. Such
funds shall consist of the aggregate of all previously undistributed payments
on account of principal (including principal prepayments, if any) and interest
received after the Cut-off Date and on or prior to the 20th day (or if such
day is not a business day, the next preceding business day) of the month of
such distribution or such other day as may be specified in the related
Prospectus Supplement (in either case the "Determination Date"), except:
(i) all payments that were due on or before the Cut-off Date;
(ii) all principal prepayments received during the month of distribution
and all payments of interest representing interest for the month of
distribution or any portion thereof;
(iii) all payments which represent early receipt (other than prepayments)
of scheduled payments of principal and interest due on a date or dates
subsequent to the first day of the month of distribution;
(iv) amounts received on particular Mortgage Loans or Contracts as late
payments of principal or interest and respecting which the Master Servicer
has made an unreimbursed Advance;
(v) amounts representing reimbursement for other Advances which the
Master Servicer has determined to be otherwise nonrecoverable and amounts
representing reimbursement for certain losses and expenses incurred or
Advances made by the Master Servicer and discussed below; and
(vi) that portion of each collection of interest on a particular Mortgage
Loan in such Mortgage Pool or on a particular Contract in such Contract
Pool that represents (A) servicing compensation to the Master Servicer, (B)
amounts payable to the entity or entities specified in the applicable
Prospectus Supplement or permitted withdrawals from the Certificate Account
out of payments under the Letter of Credit, if any, with respect to the
Series, (C) related Insurance Proceeds or Liquidation Proceeds, (D) amounts
in the Reserve Fund, if any, with respect to the Series or (E) proceeds of
any Alternative Credit Support, each deposited in the Certificate Account
to the extent described under "Description of the Certificates--Maintenance
of Insurance Policies," "--Presentation of Claims," "--Enforcement of Due-
on-Sale Clauses; Realization Upon Defaulted Mortgage Loans" and "--
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Contracts"
or in the applicable Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement, no later
than the Business Day immediately preceding the Distribution Date for a Series
of Certificates, the Master Servicer will furnish a statement to the Trustee
setting forth the amount to be distributed on the next succeeding Distribution
Date on account of principal and interest on the Mortgage Loans or Contracts,
stated separately or the information enabling the Trustee to determine the
amount of distribution to be made on the Certificates and a statement setting
forth certain information with respect to the Mortgage Loans or Contracts.
If so specified in the applicable Prospectus Supplement, the Trustee will
establish and maintain the Certificate Account for the benefit of the holders
of the Certificates of the related Series in which the Trustee shall deposit,
as soon as practicable after receipt, each distribution made to the Trustee by
the Master Servicer, as set forth above, with respect to the Mortgage Loans or
Contracts, any distribution received by the Trustee
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with respect to the Mortgage Certificates, if any, included in the Trust Fund
and deposits from any Reserve Fund or GPM Fund. If so specified in the
applicable Prospectus Supplement, prior to making any distributions to
Certificateholders, any portion of the distribution on the Mortgage
Certificates that represents servicing compensation, if any, payable to the
Trustee shall be deducted and paid to the Trustee.
Funds on deposit in the Certificate Account may be invested in Eligible
Investments maturing in general not later than the Business Day preceding the
next Distribution Date. Unless otherwise provided in the Prospectus
Supplement, all income and gain realized from any such investment will be for
the benefit of the Master Servicer. The Master Servicer will be required to
deposit the amount of any losses incurred with respect to such investments out
of its own funds, when realized. The Certificate Account established pursuant
to the Deposit Trust Agreement shall be a non-interest bearing account or
accounts.
The timing and method of distribution of funds in the Certificate Account to
Classes or Subclasses of Certificates having differing terms, whether
subordinated or not, to the extent not described herein, shall be set forth in
the related Prospectus Supplement.
SPECIAL DISTRIBUTIONS
To the extent specified in the Prospectus Supplement relating to a Series of
Certificates, one or more Classes of Multi-Class Certificates that do not
provide for monthly Distribution Dates may receive Special Distributions in
reduction of Stated Principal Balance ("Special Distributions") in any month,
other than a month in which a Distribution Date occurs, if, as a result of
principal prepayments on the Trust Assets in the related Trust Fund and/or low
reinvestment yields, the Trustee determines, based on assumptions specified in
the related Pooling and Servicing Agreement, that the amount of cash
anticipated to be on deposit in the Certificate Account on the next
Distribution Date for such Series and available to be distributed to the
holders of the Certificates of such Classes or Subclasses may be less than the
sum of (i) the interest scheduled to be distributed to holders of the
Certificates of such Classes or Subclasses and (ii) the amount to be
distributed in reduction of Stated Principal Balance or such Certificates on
such Distribution Date. Any such Special Distributions will be made in the
same priority and manner as distributions in reduction of Stated Principal
Balance would be made on the next Distribution Date.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in the related Prospectus Supplement
for each Series, the Master Servicer or the Trustee will include with each
distribution to Certificateholders of record of such Series, or within a
reasonable time thereafter, a statement generally setting forth, among other
things, the following information, if applicable (per each Certificate, as to
(i) through (iii) or (iv) through (vi) below, as applicable):
(i) to each holder of a Certificate, other than a Multi-Class Certificate
or Residual Certificate, the amount of such distribution allocable to
principal of the Trust Assets, separately identifying the aggregate amount
of any Principal Prepayments included therein, and the portion, if any,
advanced by a Servicer or the Master Servicer;
(ii) to each holder of a Certificate, other than a Multi-Class
Certificate or Residual Certificate, the amount of such distribution
allocable to interest on the related Trust Assets and the portion, if any,
advanced by a Servicer or the Master Servicer;
(iii) to each holder of a Certificate, the amount of servicing
compensation with respect to the related Trust Assets and such other
customary information as the Master Servicer deems necessary or desirable
to enable Certificateholders to prepare their tax returns;
(iv) to each holder of a Multi-Class Certificate on which an interest
distribution and a distribution in reduction of Stated Principal Balance
are then being made, the amount of such interest distribution and
distribution in reduction of Stated Principal Balance, and the Stated
Principal Balance of each Class after giving effect to the distribution in
reduction of Stated Principal Balance made on such Distribution Date or on
any Special Distribution Date occurring subsequent to the last report;
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(v) to each holder of a Multi-Class Certificate on which a distribution
of interest only is then being made, the aggregate Stated Principal Balance
of Certificates outstanding of each Class or Subclass after giving effect
to the distribution in reduction of Stated Principal Balance made on such
Distribution Date and on any Special Distribution Date occurring subsequent
to the last such report and after including in the aggregate Stated
Principal Balance the Stated Principal Balance of the Compound Interest
Certificates, if any, outstanding and the amount of any accrued interest
added to the Compound Value of such Compound Interest Certificates on such
Distribution Date;
(vi) to each holder of a Compound Interest Certificate (but only if such
holder shall not have received a distribution of interest on such
Distribution Date equal to the entire amount of interest accrued on such
Certificate with respect to such Distribution Date):
(a) the information contained in the report delivered pursuant to
clause (v) above;
(b) the interest accrued on such Class or Subclass of Compound
Interest Certificates with respect to such Distribution Date and added
to the Compound Value of such Compound Interest Certificate; and
(c) the Stated Principal Balance of such Class or Subclass of
Compound Interest Certificates after giving effect to the addition
thereto of all interest accrued thereon;
(vii) in the case of a series of Certificates with a variable Pass-
Through Rate, the weighted average Pass-Through Rate applicable to the
distribution in question;
(viii) the amount or the remaining obligations of an L/C Bank with
respect to a Letter of Credit, after giving effect to the declining amount
available and any payments thereunder and other amounts charged thereto on
the applicable Distribution Date, expressed as a percentage of the amount
reported pursuant to (x) below, and the amount of coverage remaining under
the Pool Insurance Policy, Special Hazard Insurance Policy, Mortgagor
Bankruptcy Bond, or Reserve Fund as applicable, in each case, as of the
applicable Determination Date, after giving effect to any amounts with
respect thereto distributed to Certificateholders on the Distribution Date;
(ix) in the case of a Series of Certificates benefiting from the
Alternative Credit Support described in the related Prospectus Supplement,
the amount of coverage under such Alternative Credit Support as of the
close of business on the applicable Determination Date, after giving effect
to any amounts with respect thereto distributed to Certificateholders on
the Distribution Date;
(x) the aggregate scheduled principal balance of the Trust Assets as of a
date not earlier than such Distribution Date after giving effect to
payments of principal distributed to Certificateholders on the Distribution
Date;
(xi) the book value of any collateral acquired by the Mortgage Pool or
Contract Pool through foreclosure, repossession or otherwise; and
(xii) the number and aggregate principal amount of Mortgage Loans or
Contracts one month and two months delinquent.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer, or the Trustee, if specified in the
applicable Prospectus Supplement, will cause to be furnished to each
Certificateholder of record at any time during such calendar year a report as
to the aggregate of amounts reported pursuant to (i) through (iii) or (iv)
through (vi) above and such other information as in the judgment of the Master
Servicer or the Trustee, as the case may be, is needed for the
Certificateholder to prepare its tax return, as applicable, for such calendar
year or, in the event such person was a Certificateholder of record during a
portion of such calendar year, for the applicable portion of such year.
ADVANCES
Unless otherwise stated in the related Prospectus Supplement, each Servicer
and the Master Servicer (with respect to Mortgage Loans or Contracts serviced
by it and with respect to Advances required to be made by the
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Servicers that were not so made) will be obligated to advance funds in an
amount equal to the aggregate scheduled installments of payments of principal
and interest (adjusted to the applicable Pass-Through Rate) that were due on
the Due Date with respect to a Mortgage Loan or Contract and that were
delinquent (including any payments that have been deferred by the Servicer or
the Master Servicer) as of the close of business on the date specified in the
Pooling and Servicing Agreement, to be remitted no later than the close of
business on the business day immediately preceding the Distribution Date,
subject to (unless otherwise provided in the applicable Prospectus Supplement)
their respective determinations that such advances are reimbursable under any
Letter of Credit, Pool Insurance Policy, Primary Mortgage Insurance Policy,
Mortgagor Bankruptcy Bond, from the proceeds of Alternative Credit Support,
from cash in the Reserve Fund, the Servicing or Certificate Accounts or
otherwise. In making such advances, the Servicers and Master Servicer will
endeavor to maintain a regular flow of scheduled interest and principal
payments to the Certificateholders, rather than to guarantee or insure against
losses. Any such Advances are reimbursable to the Servicer or Master Servicer
out of related recoveries on the Mortgage Loans respecting which such amounts
were advanced. In addition, such Advances are reimbursable from cash in the
Reserve Fund, the Servicing or Certificate Accounts to the extent that the
Servicer or the Master Servicer, as the case may be, shall determine that any
such Advances previously made are not ultimately recoverable. The Servicers
and the Master Servicer generally will also be obligated to make advances in
respect of certain taxes and insurance premiums not paid by Mortgagors or
Obligors on a timely basis and, to the extent deemed recoverable, foreclosure
costs, including reasonable attorney's fees. Funds so advanced are
reimbursable out of recoveries on the related Mortgage Loans. This right of
reimbursement for any Advance will be prior to the rights of the
Certificateholders to receive any amounts recovered with respect to such
Mortgage Loans or Contracts. Unless otherwise provided in the applicable
Prospectus Supplement, the Servicers and the Master Servicer will also be
required to advance an amount necessary to provide a full month's interest
(adjusted to the applicable Pass-Through Rate) in connection with full or
partial prepayments, liquidations, defaults and repurchases of the Mortgage
Loans or Contracts. Any such Advances will not be reimbursable to the
Servicers or the Master Servicer.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through the Servicers, as the case may be,
will make reasonable efforts to collect all payments called for under the
Mortgage Loans or Contracts and will, consistent with the applicable Pooling
and Servicing Agreement and any applicable Letter of Credit, Pool Insurance
Policy, Special Hazard Insurance Policy, Primary Mortgage Insurance Policy,
Mortgagor Bankruptcy Bond, or Alternative Credit Support, follow such
collection procedures as it follows with respect to mortgage loans or
contracts serviced by it that are comparable to the Mortgage Loans or
Contracts, except when, in the case of FHA or VA Loans, applicable regulations
require otherwise. Consistent with the above, the Master Servicer may, in its
discretion, waive any late payment charge or any prepayment charge or penalty
interest in connection with the prepayment of a Mortgage Loan or Contract or
extend the due dates for payments due on a Mortgage Note or Contract for a
period of not greater than 270 days, provided that the insurance coverage for
such Mortgage Loan or Contract or the coverage provided by any Letter of
Credit or any Alternative Credit Support, will not be adversely affected.
Under the Pooling and Servicing Agreement, the Master Servicer, either
directly or through Servicers, to the extent permitted by law, may establish
and maintain an escrow account (the "Escrow Account") in which Mortgages or
Obligors will be required to deposit amounts sufficient to pay taxes,
assessments, mortgage and hazard insurance premiums and other comparable
items. This obligation may be satisfied by the provision of insurance coverage
against loss occasioned by the failure to escrow insurance premiums rather
than causing such escrows to be made. Withdrawals from the Escrow Account may
be made to effect timely payment of taxes, assessments, mortgage and hazard
insurance, to refund to Mortgagors or Obligors amounts determined to be
overages, to pay interest to Mortgagors or Obligors on balances in the Escrow
Account, if required, and to clear and terminate such account. The Master
Servicer will be responsible for the administration of each Escrow Account and
will be obliged to make advances to such accounts when a deficiency exists
therein. Alternatively, in lieu of establishing an Escrow Account, the
Servicer may procure a performance bond or other form of insurance coverage,
in an amount acceptable to the Rating Agency rating the related Series of
Certificates, covering loss occasioned by the failure to escrow such amounts.
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MAINTENANCE OF INSURANCE POLICIES
To the extent that the applicable Prospectus Supplement does not expressly
provide for a method of credit support described below under "Credit Support"
or for Alternative Credit Support in lieu of some or all of the insurance
coverage set forth below, the following paragraphs on insurance shall apply.
STANDARD HAZARD INSURANCE
To the extent specified in a related Prospectus Supplement, the terms of
each Servicing Agreement will require the Servicer to cause to be maintained
for each Mortgage Loan or Contract that it services (and the Master Servicer
will be required to maintain for each Mortgage Loan or Contract serviced by it
directly) a policy of standard hazard insurance (a "Standard Hazard Insurance
Policy") covering the Mortgaged Property underlying such Mortgage Loan or
Manufactured Home underlying such Contract in an amount at least equal to the
maximum insurable value or the improvements securing such Mortgage Loan or
Contract or the principal balance of such Mortgage Loan or Contract, whichever
is less. Each Servicer or the Master Servicer, as the case may be, shall also
maintain on property acquired upon foreclosure, or deed in lieu of
foreclosure, of any Mortgage Loan or Contract, a Standard Hazard Insurance
Policy in an amount that is at least equal to the maximum insurable value of
the improvements that are a part of the Mortgaged Property or Manufactured
Home. Any amounts collected by the Servicer or the Master Servicer under any
such policies (other than amounts to be applied to the restoration or repair
of the Mortgaged Property or Manufactured Home or released to the borrower in
accordance with normal servicing procedures) shall be deposited in the related
Servicing Account for deposit in the Certificate Account or, in the case of
the Master Servicer, shall be deposited directly into the Certificate Account.
Any cost incurred in maintaining any such insurance shall not, for the purpose
of calculating monthly distributions to Certificateholders, be added to the
amount owing under the Mortgage Loan or Contract, notwithstanding that the
terms of the Mortgage Loan or Contract may so permit. Such cost shall be
recoverable by the Servicer only by withdrawal of funds from the Servicing
Account or by the Master Servicer only by withdrawal from the Certificate
Account, as described in the Pooling and Servicing Agreement. No earthquake or
other additional insurance is to be required of any borrower or maintained on
property acquired in respect of a Mortgage Loan or Contract, other than
pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. When the Mortgaged
Property or Manufactured Home is located at the time of origination of the
Mortgage Loan or Contract in a federally designated flood area, the related
Servicer (or the Master Servicer, in the case of each Mortgage Loan or
Contract serviced by it directly) will cause flood insurance to be maintained,
to the extent available, in those areas where flood insurance is required
under the National Flood Insurance Act of 1968, as amended.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the
restoration of damaged property, any damage to such borrower's Cooperative
Dwelling or such Cooperative's building could significantly reduce the value
of the collateral securing such Cooperative Loan to the extent not covered by
other credit support.
The Pooling and Servicing Agreement will require the Master Servicer to
perform the aforementioned obligations of the Servicer in the event the
Servicer fails to do so. In the event that the Master Servicer obtains and
maintains a blanket policy insuring against hazard losses on all of the
related Mortgage Loans or Contracts, it will conclusively be deemed to have
satisfied its obligations to cause to be maintained a Standard Hazard
Insurance Policy for each Mortgage Loan or Contract that it services. This
blanket policy may contain a deductible clause, in which case the Master
Servicer will, in the event that there has been a loss that would have been
covered by such policy absent such deductible, deposit in the Certificate
Account the amount not otherwise payable under the blanket policy because of
the application of such deductible clause.
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Since the amount of hazard insurance to be maintained on the improvements
securing the Mortgage Loans or Contracts may decline as the principal balances
owing thereon decrease, and since residential properties have historically
appreciated in value over time, in the event of partial loss, hazard insurance
proceeds may be insufficient to fully restore the damaged Mortgaged Property
or Manufactured Home. See "Description of Insurance--Special Hazard Insurance
Policies" for a description of the limited protection afforded by a Special
Hazard Insurance Policy against losses occasioned by certain hazards that are
otherwise uninsured against as well as against losses caused by the
application of the coinsurance provisions contained in the Standard Hazard
Insurance Policies.
SPECIAL HAZARD INSURANCE
If so specified in the related Prospectus Supplement, the Master Servicer
will be required to exercise its best reasonable efforts to maintain the
Special Hazard Insurance Policy, if any, with respect to a Series of
Certificates in full force and effect, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premium for the Special
Hazard Insurance Policy on a timely basis; provided, however, that the Master
Servicer shall be under no such obligation if coverage under the Pool
Insurance Policy with respect to such Series has been exhausted. In the event
that the Special Hazard Insurance Policy is cancelled or terminated for any
reason (other than the exhaustion of total policy coverage), the Master
Servicer will exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to the Special Hazard Insurance Policy
with a total coverage that is equal to the then existing coverage of the
Special Hazard Insurance Policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated Special Hazard
Insurance Policy, the amount of coverage under the replacement Special Hazard
Insurance Policy may be reduced to a level such that the applicable premium
will not exceed the cost of the Special Hazard Insurance Policy that was
replaced. Certain characteristics of the Special Hazard Insurance Policy are
described under "Description of Insurance--Special Hazard Insurance Policies."
POOL INSURANCE
To the extent specified in a related Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Pool
Insurance Policy with respect to a Series of Certificates in effect throughout
the term of the Pooling and Servicing Agreement, unless coverage thereunder
has been exhausted through payment of claims, and will pay the premiums for
such Pool Insurance Policy on a timely basis. In the event that the Pool
Insurer ceases to be a qualified insurer because it is not qualified to
transact a mortgage guaranty insurance business under the laws of the state of
its principal place of business or any other state which has jurisdiction over
the Pool Insurer in connection with the Pool Insurance Policy, or if the Pool
Insurance Policy is cancelled or terminated for any reason (other than the
exhaustion of total policy coverage), the Master Servicer will exercise its
best reasonable efforts to obtain a replacement policy of pool insurance
comparable to the Pool Insurance Policy and may obtain, under the
circumstances described above with respect to the Special Hazard Insurance
Policy, a replacement policy with reduced coverage. In the event the Pool
Insurer ceases to be a qualified insurer because it is not approved as an
insurer by FHLMC, FNMA or any successors thereto, the Master Servicer will
agree to review, not less often than monthly, the financial condition of the
Pool Insurer with a view towards determining whether recoveries under the Pool
Insurance Policy are jeopardized and, if so, will exercise its best reasonable
efforts to obtain from another qualified insurer a replacement insurance
policy under the above-stated limitations. Certain characteristics of the Pool
Insurance Policy are described under "Description of Insurance--Pool Insurance
Policies."
PRIMARY MORTGAGE INSURANCE
To the extent specified in the related Prospectus Supplement, the Master
Servicer will be required to keep in force and effect for each Mortgage Loan
secured by Single Family Property serviced by it directly, and each Servicer
of a Mortgage Loan secured by Single Family Property will be required to keep
in full force and effect with respect to each such Mortgage Loan serviced by
it, in each case to the extent required by the underwriting standards of the
Depositor, a Primary Mortgage Insurance Policy issued by a qualified insurer
(the "Primary
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Mortgage Insurer") with regard to each Mortgage Loan for which such coverage
is required pursuant to the applicable Servicing Agreement and the Pooling and
Servicing Agreement and to act on behalf of the Trustee (the "Insured") under
each such Primary Mortgage Insurance Policy. Neither the Servicer nor the
Master Servicer will cancel or refuse to renew any such Primary Mortgage
Insurance Policy in effect at the date of the initial issuance of a Series of
Certificates that is required to be kept in force under the Pooling and
Servicing Agreement or applicable Servicing Agreement unless the replacement
Primary Mortgage Insurance Policy for such cancelled or non- renewed policy is
maintained with an insurer whose claims-paying ability is acceptable to the
Rating Agency rating the Certificates. See "Description of Insurance--Primary
Mortgage Insurance Policies."
MORTGAGOR BANKRUPTCY BOND
If so specified in the related Prospectus Supplement, the Master Servicer
will exercise its best reasonable efforts to maintain a Mortgagor Bankruptcy
Bond for a Series of Certificates in full force and effect throughout the term
of the Pooling and Servicing Agreement, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premiums for such
Mortgagor Bankruptcy Bond on a timely basis. At the request of the Depositor,
coverage under a Mortgagor Bankruptcy Bond will be cancelled or reduced by the
Master Servicer to the extent permitted by the Rating Agency rating the
related Series of Certificates, provided that such cancellation or reduction
does not adversely affect the then current rating of such Series. See
"Description of Insurance--Mortgagor Bankruptcy Bond."
PRESENTATION OF CLAIMS
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to HUD, the VA, the Pool Insurer, the
Special Hazard Insurer, the issuer of the Mortgagor Bankruptcy Bond, and each
Primary Mortgage Insurer, as applicable, and take such reasonable steps as are
necessary to permit recovery under such insurance policies or Mortgagor
Bankruptcy Bond, if any, with respect to a Series concerning defaulted
Mortgage Loans or Contracts or Mortgage Loans or Contracts that are the
subject of a bankruptcy proceeding. All collections by the Master Servicer
under any FHA insurance or VA guarantee, any Pool Insurance Policy, any
Primary Mortgage Insurance Policy or any Mortgagor Bankruptcy Bond and, where
the related property has not been restored, any Special Hazard Insurance
Policy, are to be deposited in the Certificate Account, subject to withdrawal
as heretofore described. In those cases in which a Mortgage Loan or Contract
is serviced by a Servicer, the Servicer, on behalf of itself, the Trustee and
the Certificateholders, will present claims to the applicable Primary Mortgage
Insurer and to the FHA and the VA, as applicable, and all collections
thereunder shall be deposited in the Servicing Account, subject to withdrawal,
as set forth above, for deposit in the Certificate Account.
If any property securing a defaulted Mortgage Loan or Contract is damaged
and proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under any Pool
Insurance Policy or any Primary Mortgage Insurance Policy, neither the related
Servicer nor the Master Servicer, as the case may be, will be required to
expend its own funds to restore the damaged property unless it determines,
and, in the case of a determination by a Servicer, the Master Servicer agrees,
(i) that such restoration will increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan or Contract after reimbursement of the
expenses incurred by the Servicer or the Master Servicer, as the case may be,
and (ii) that such expenses will be recoverable through proceeds of the sale
of the Mortgaged Property or proceeds of any related Pool Insurance Policy,
any related Primary Mortgage Insurance Policy or otherwise.
If recovery under a Pool Insurance Policy or any related Primary Mortgage
Insurance Policy is not available because the related Servicer or the Master
Servicer has been unable to make the above determinations or otherwise, the
Servicer or the Master Servicer is nevertheless obligated to follow such
normal practices and procedures as are deemed necessary or advisable to
realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation
of the Mortgaged Property or Manufactured Home are less than the principal
balance of the
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defaulted Mortgage Loan or Contract, respectively, plus interest accrued
thereon at the Pass-Through Rate, and if coverage under any other method of
credit support with respect to such Series is exhausted, the related Trust
Fund will realize a loss in the amount of such difference plus the aggregate
of expenses incurred by the Servicer or the Master Servicer in connection with
such proceedings and which are reimbursable under the related Servicing
Agreement or the Pooling and Servicing Agreement. In the event that any such
proceedings result in a total recovery that is, after reimbursement to the
Servicer or the Master Servicer of its expenses, in excess of the principal
balance of the related Mortgage Loan or Contract, together with accrued and
unpaid interest thereon at the applicable Pass-Through Rates, the Servicer and
the Master Servicer will be entitled to withdraw amounts representing normal
servicing compensation on such Mortgage Loan or Contract from the Servicing
Account or the Certificate Account, as the case may be.
ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION UPON DEFAULTED MORTGAGE LOANS
Each Servicing Agreement and the Pooling and Servicing Agreement with
respect to Certificates representing interests in a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the borrower, such
Servicer or the Master Servicer, as the case may be, will, to the extent it
has knowledge of such conveyance, exercise its rights to accelerate the
maturity of such Mortgage Loan under any "due-on-sale" clause applicable
thereto, if any, unless it reasonably believes that such enforcement is not
exercisable under applicable law or regulations or if such exercise would
result in loss of insurance coverage with respect to such Mortgage Loan. In
either case, where the due-on-sale clause will not be exercised, the Servicer
or the Master Servicer is authorized to take or enter into an assumption and
modification agreement from or with the person to whom such Mortgaged Property
has been or is about to be conveyed, pursuant to which such person becomes
liable under the Mortgage Note and, unless prohibited by applicable state law,
the Mortgagor remains liable thereon, provided that the Mortgage Loan will
continue to be covered by any Pool Insurance Policy and any related Primary
Mortgage Insurance Policy. In the case of an FHA Loan, such an assumption can
occur only with HUD approval of the substitute Mortgagor. Each Servicer and
the Master Servicer will also be authorized, with the prior approval of the
Insurer under any required insurance policies, to enter into a substitution of
liability agreement with such person, pursuant to which the original Mortgagor
is released from liability and such person is substituted as Mortgagor and
becomes liable under the Mortgage Note.
Under the Servicing Agreements and the Pooling and Servicing Agreement, the
Servicer or the Master Servicer, as the case may be, will foreclose upon or
otherwise comparably convert the ownership of properties securing such of the
related Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments.
In connection with such foreclosure or other conversion, the Servicer or the
Master Servicer will follow such practices and procedures as are deemed
necessary or advisable and as shall be normal and usual in its general
mortgage servicing activities and in accordance with FNMA guidelines, except
when, in the case of FHA or VA Loans, applicable regulations require
otherwise. However, neither the Servicer nor the Master Servicer will be
required to expend its own funds in connection with any foreclosure or towards
the restoration of any property unless it determines and, in the case of a
determination by a Servicer, the Master Servicer agrees (i) that such
restoration and/or foreclosure will increase the proceeds of liquidation of
the related Mortgage Loan to Certificateholders after reimbursement to itself
for such expenses and (ii) that such expenses will be recoverable to it either
through Liquidation Proceeds, Insurance Proceeds, payments under the Letter of
Credit, or amounts in the Reserve Fund, if any, with respect to the related
Series, or otherwise.
Any prospective purchaser of a Cooperative Dwelling will generally be
required to obtain the approval of the board of directors of the related
Cooperative before purchasing the shares and acquiring rights under the
proprietary lease or occupancy agreement securing the Cooperative Loan. See
"Certain Legal Aspects of the Mortgage Loans and Contracts--The Mortgage
Loans--Foreclosure" herein. This approval is usually based on the purchaser's
income and net worth and numerous other factors. Although the Cooperative's
approval is unlikely to be unreasonably withheld or delayed, the necessity of
acquiring such approval could limit the number of potential purchasers for
those shares and otherwise limit the Trust Fund's ability to sell and realize
the value of those shares.
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The market value of any Multifamily Property obtained in foreclosure or by
deed in lieu of foreclosure will be based substantially on the operating
income obtained from renting the dwelling units. Since a default on a Mortgage
Loan secured by Multifamily Property is likely to have occurred because
operating income, net of expenses, is insufficient to make debt service
payments on the related Mortgage Loan, it can be anticipated that the market
value of such property will be less than was anticipated when such Mortgage
Loan was originated. To the extent that the equity in the property does not
absorb the loss in market value and such loss is not covered by other credit
support, a loss may be experienced by the related Trust Fund. With respect to
Multifamily Property consisting of an apartment building owned by a
Cooperative, the Cooperative's ability to meet debt service obligations on the
Mortgage Loan, as well as all other operating expenses, will be dependent in
large part on the receipt of maintenance payments from the tenant-
stockholders, as well as any rental income from units or commercial areas the
Cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments of the tenant-stockholders. The
Cooperative's ability to pay the principal amount of the Mortgage Loan at
maturity may depend on its ability to refinance the Mortgage Loan. The
Depositor, the Unaffiliated Seller and the Master Servicer will have no
obligation to provide refinancing for any such Mortgage Loan.
ENFORCEMENT OF "DUE-ON-SALE" CLAUSES; REALIZATION UPON DEFAULTED CONTRACTS
Each Servicing Agreement and Pooling and Servicing Agreement with respect to
Certificates representing interests in a Contract Pool will provide that, when
any Manufactured Home securing a Contract is about to be conveyed by the
Obligor, the Master Servicer, to the extent it has knowledge of such
prospective conveyance and prior to the time of the consummation of such
conveyance, may exercise its rights to accelerate the maturity of such
Contract under the applicable "due-on-sale" clause, if any, unless it is not
exercisable under applicable law. In such case, the Master Servicer is
authorized to take or enter into an assumption agreement from or with the
person to whom such Manufactured Home has been or is about to be conveyed,
pursuant to which such person becomes liable under the Contract and, unless
determined to be materially adverse to the interests of Certificateholders,
with the prior approval of the Pool Insurer, if any, to enter into a
substitution of liability agreement with such person, pursuant to which the
original Obligor is released from liability and such person is substituted as
Obligor and becomes liable under the Contract. Where authorized by the
Contract, the APR may be increased, upon assumption, to the then-prevailing
market rate, but shall not be decreased.
Under the Servicing Agreement or the Pooling and Servicing Agreement, the
Master Servicer will repossess or otherwise comparably convert the ownership
of properties securing such of the related Manufactured Homes as come into and
continue in default and as to which no satisfactory arrangements can be made
for collection of delinquent payments. In connection with such repossession or
other conversion, the Servicer or Master Servicer will follow such practices
and procedures as it shall deem necessary or advisable and as shall be normal
and usual in its general Contract servicing activities. The Servicer or Master
Servicer, however, will not be required to expend its own funds in connection
with any repossession or towards the restoration of any property unless it
determines (i) that such restoration or repossession will increase the
proceeds of liquidation of the related Contract to the Certificateholders
after reimbursement to itself for such expenses and (ii) that such expenses
will be recoverable to it either through liquidation proceeds or through
insurance proceeds.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Under the Pooling and Servicing Agreement for a Series of Certificates, the
Depositor or the person or entity specified in the related Prospectus
Supplement and any Master Servicer will be entitled to receive an amount
described in such Prospectus Supplement. The Master Servicer's primary
compensation generally will be equal to the difference, with respect to each
interest payment on a Mortgage Loan, between the Mortgage Rate and the Pass-
Through Rate for the related Mortgage Pool and with respect to each interest
payment on a Contract, between the APR and the Pass-Through Rate for the
related Contract (less any servicing compensation payable to the Servicer of
the related Mortgage Loan or Contract, if any, as set forth below, and the
amount, if any, payable to the Depositor or to the person or entity specified
in the applicable Prospectus Supplement). As compensation for its servicing
duties, a Servicer will be entitled to receive a monthly servicing fee in the
amount specified in the
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related Servicing Agreement. Such servicing compensation shall be payable by
withdrawal from the related Servicing Account prior to deposit in the
Certificate Account. Each Servicer (with respect to the Mortgage Loans or
Contracts serviced by it) and the Master Servicer will be entitled to
servicing compensation out of Insurance Proceeds, Liquidation Proceeds, or
Letter of Credit payments. Additional servicing compensation in the form of
prepayment charges, assumption fees, late payment charges or otherwise shall
be retained by the Servicers and the Master Servicer to the extent not
required to be deposited in the Certificate Account.
The Servicers and the Master Servicer, unless otherwise specified in the
related Prospectus Supplement, will pay from their servicing compensation
certain expenses incurred in connection with the servicing of the Mortgage
Loans or Contracts, including, without limitation, payment of the Insurance
Policy premiums and, in the case of the Master Servicer, fees or other amounts
payable for any Alternative Credit Support, payment of the fees and
disbursements of the Trustee (and any custodian selected by the Trustee), the
Certificate Register and independent accountants and payment of expenses
incurred in enforcing the obligations of Servicers and Unaffiliated Sellers.
Certain of these expenses may be reimbursable by the Depositor pursuant to the
terms of the Pooling and Servicing Agreement. In addition, the Master Servicer
will be entitled to reimbursement of expenses incurred in enforcing the
obligations of Servicers and Unaffiliated Sellers under certain limited
circumstances.
As set forth in the preceding section, the Servicers and the Master Servicer
will be entitled to reimbursement for certain expenses incurred by them in
connection with the liquidation of defaulted Mortgage Loans or Contracts. The
related Trust Fund will suffer no loss by reason of such expenses to the
extent claims are fully paid under the Letter of Credit, if any, the related
insurance policies, from amounts in the Reserve Fund or under any applicable
Alternative Credit Support described in a Prospectus Supplement. In the event,
however, that claims are either not made or fully paid under such Letter of
Credit, Insurance Policies or Alternative Credit Support, or if coverage
thereunder has ceased, or if amounts in the Reserve Fund are not sufficient to
fully pay such losses, the related Trust Fund will suffer a loss to the extent
that the proceeds of the liquidation proceedings, after reimbursement of the
expenses of the Servicers or the Master Servicer, as the case may be, are less
than the principal balance of the related Mortgage Loan or Contract. In
addition, the Servicers and the Master Servicer will be entitled to
reimbursement of expenditures incurred by them in connection with the
restoration of a Mortgaged Property, Cooperative Dwelling or Manufactured
Home, such right of reimbursement being prior to the rights of the
Certificateholders to receive any payments under the Letter of Credit, or from
any related Insurance Proceeds, Liquidation Proceeds, amounts in the Reserve
Fund or any proceeds of Alternative Credit Support.
Under the Deposit Trust Agreement, the Trustee will be entitled to deduct,
from distributions of interest with respect to the Mortgage Certificates, a
specified percentage of the unpaid principal balance of each Mortgage
Certificate as servicing compensation. The Trustee shall be required to pay
all expenses, except as expressly provided in the Deposit Trust Agreement,
subject to limited reimbursement as provided therein.
EVIDENCE AS TO COMPLIANCE
The Master Servicer will deliver to the Depositor and the Trustee, on or
before the date specified in the Pooling and Servicing Agreement, an Officer's
Certificate stating that (i) a review of the activities of the Master Servicer
and the Servicers during the preceding calendar year and of its performance
under the Pooling and Servicing Agreement has been made under the supervision
of such officer, and (ii) to the best of such officer's knowledge, based on
such review, the Master Servicer and each Servicer has fulfilled all its
obligations under the Pooling and Servicing Agreement and the applicable
Servicing Agreement throughout such year, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof. Such Officer's Certificate
shall be accompanied by a statement of a firm of independent public
accountants to the effect that, on the basis of an examination of certain
documents and records relating to servicing of the Mortgage Loans or Contract,
conducted in accordance with generally accepted accounting principles in the
mortgage banking industry, the servicing of the Mortgage Loans or Contract was
conducted in compliance with the provisions of the Pooling and Servicing
Agreement and the Servicing Agreements, except for such exceptions as such
firm believes it is required to report.
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CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE DEPOSITOR AND THE TRUSTEE
The Master Servicer under each Pooling and Servicing Agreement will be named
in the applicable Prospectus Supplement. The entity acting as Master Servicer
may be an Unaffiliated Seller and have other normal business relationships
with the Depositor and/or affiliates of the Depositor and may be an affiliate
of the Depositor. In the event there is no Master Servicer under a Pooling and
Servicing Agreement, all servicing of Mortgage Loans or Contracts will be
performed by a Servicer pursuant to a Servicing Agreement.
The Master Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement except upon a determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor servicer has assumed
the Master Servicer's obligations and duties under the Pooling and Servicing
Agreement.
The Trustee under each Pooling and Servicing Agreement or Deposit Trust
Agreement will be named in the applicable Prospectus Supplement. The
commercial bank or trust company serving as Trustee may have normal banking
relationships with the Depositor and/or its affiliates and with the Master
Servicer and/or its affiliates.
The Trustee may resign from its obligations under the Pooling and Servicing
Agreement at any time, in which event a successor trustee will be appointed.
In addition, the Depositor may remove the Trustee if the Trustee ceases to be
eligible to act as Trustee under the Pooling and Servicing Agreement or if the
Trustee becomes insolvent, at which time the Depositor will become obligated
to appoint a successor Trustee. The Trustee may also be removed at any time by
the holders of Certificates evidencing voting rights aggregating not less than
50% of the voting rights evidenced by the Certificates of such Series. Any
resignation and removal of the Trustee, and the appointment of a successor
trustee, will not become effective until acceptance of such appointment by the
successor Trustee.
The Trustee may resign at any time from its obligations and duties under the
Deposit Trust Agreement by executing an instrument in writing resigning as
Trustee, filing the same with the Depositor, mailing a copy of a notice of
resignation to all Certificateholders then of record, and appointing a
qualified successor trustee. No such resignation will become effective until
the successor trustee has assumed the Trustee's obligations and duties under
the Deposit Trust Agreement.
Each Pooling and Servicing Agreement and Deposit Trust Agreement will also
provide that neither the Depositor nor the Master Servicer nor any director,
officer, employee or agent of the Depositor or the Master Servicer or the
Trustee, or any responsible officers of the Trustee will be under any
liability to the Certificateholders, for the taking of any action or for
refraining from the taking of any action in good faith pursuant to the Pooling
and Servicing Agreement, or for errors in judgment; provided, however, that
none of the Depositor, the Master Servicer or the Trustee nor any such person
will be protected against, in the case of the Master Servicer and the
Depositor, any breach of representations or warranties made by them, and in
the case of the Master Servicer, the Depositor and the Trustee, against any
liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties thereunder. Each Pooling and
Servicing Agreement and Deposit Trust Agreement will further provide that the
Depositor, the Master Servicer and the Trustee and any director, officer and
employee or agent of the Depositor, the Master Servicer or the Trustee shall
be entitled to indemnification, by the Trust Fund in the case of the Depositor
and Master Servicer and by the Master Servicer in the case of the Trustee and
will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the applicable Agreement or the
Certificates and in the case of the Trustee, resulting from any error in any
tax or information return prepared by the Master Servicer or from the exercise
of any power of attorney granted pursuant to the Pooling and Servicing
Agreement, other than any loss, liability or expense related to any specific
Mortgage Loan, Contract or Mortgage Certificate (except any such loss,
liability or expense otherwise reimbursable pursuant to the applicable
Agreement) and any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of their duties
thereunder or by reason of reckless disregard of their obligations and duties
thereunder. In addition, each Agreement will provide that neither the
Depositor nor the Master Servicer, as the case may be, will be under any
obligation to appear in,
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prosecute or defend any legal action that is not incidental to its duties
under the Agreement and that in its opinion may involve it in any expense or
liability. The Depositor or the Master Servicer may, however, in their
discretion, undertake any such action deemed by them necessary or desirable
with respect to the applicable Agreement and the rights and duties of the
parties thereto and the interests of the Certificateholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund,
and the Master Servicer or the Depositor, as the case may be, will be entitled
to be reimbursed therefor out of the Certificate Account.
DEFICIENCY EVENT
To the extent a deficiency event is specified in the related Prospectus
Supplement, a deficiency event (a "Deficiency Event") with respect to the
Certificates of each Series may be defined in the Pooling and Servicing
Agreement as being the inability of the Trustee to distribute to holders of
one or more Classes of Certificates of such Series, in accordance with the
terms thereof and the Pooling and Servicing Agreement, any distribution of
principal or interest thereon when and as distributable, in each case because
of the insufficiency for such purpose of the funds then held in the related
Trust Fund.
To the extent a deficiency event is specified in the related Prospectus
Supplement, upon the occurrence of a Deficiency Event, the Trustee is required
to determine whether or not the application on a monthly basis (regardless of
the frequency of regular Distribution Dates) of all future scheduled payments
on the Mortgage Loans, Contracts and Mortgage Certificates included in the
related Trust Fund and other amount receivable with respect to such Trust Fund
towards payments on such Certificates in accordance with the priorities as to
distributions of principal and interest set forth in such Certificates will be
sufficient to make distributions of interest at the applicable Interest Rates
and to distribute in full the principal balance of each such Certificate on or
before the latest Final Distribution Date of any outstanding Certificates of
such Series.
To the extent a deficiency event is specified in the related Prospectus
Supplement, the Trustee will obtain and rely upon an opinion or report of a
firm of independent accountants of recognized national reputation as to the
sufficiency of the amounts receivable with respect to such Trust Fund to make
such distributions on the Certificates, which opinion or report will be
conclusive evidence as to such sufficiency. Pending the making of any such
determination, distributions on the Certificates shall continue to be made in
accordance with their terms.
To the extent a deficiency event is specified in the related Prospectus
Supplement, in the event that the Trustee makes a positive determination, the
Trustee will apply all amounts received in respect of the related Trust Fund
(after payment of fees and expenses of the Trustee and accountants for the
Trust Fund) to distributions on the Certificates of such Series in accordance
with their terms, except that such distributions shall be made monthly and
without regard to the amount of principal that would otherwise be
distributable on any Distribution Date. Under certain circumstances following
such positive determination, the Trustee may resume making distributions on
such Certificates expressly in accordance with their terms.
To the extent a deficiency event is specified in the related Prospectus
Supplement, if the Trustee is unable to make the positive determination
described above, the Trustee will apply all amounts received in respect of the
related Trust Fund (after payment of Trustee and accountants' fees and
expenses) to monthly distributions on the Certificates of such series pro
rata, without regard to the priorities as to distribution of principal set
forth in such Certificates, and such Certificates will, to the extent
permitted by applicable law, accrue interest at the highest Interest Rate
borne by any Certificate of such Series, or in the event any Class of such
Series shall accrue interest at a floating rate, at the weighted average
Interest Rate, calculated on the basis of the maximum interest rate applicable
to the Class having such floating interest rate and on the original principal
amount of the Certificates of that Class. In such event, the holders of a
majority in outstanding principal balance of such Certificates may direct the
Trustee to sell the related Trust Fund, any such direction being irrevocable
and binding upon the holders of all Certificates of such Series and upon the
owners of the residual interests in such Trust Fund. In the absence of such a
direction, the Trustee may not sell all or any portion of such Trust Fund.
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EVENTS OF DEFAULT
Events of Default under each Pooling and Servicing Agreement will consist
of: (i) any failure to make a specified payment which continues unremedied, in
most cases, for five business days after the giving of written notice; (ii)
any failure by the Trustee, the Servicer or the Master Servicer, as
applicable, duly to observe or perform in any material respect any other of
its covenants or agreements in the Pooling and Servicing Agreement which
failure shall continue for 60 days (15 days in the case of a failure to pay
the premium for any insurance policy) or any breach of any representation and
warranty made by the Master Servicer or the Servicer, if applicable, which
continues unremedied for 120 days after the giving of written notice of such
failure or breach; (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings regarding the
Master Servicer or a Servicer, as applicable; and (iv) any lowering,
withdrawal or notice of an intended or potential lowering, of the outstanding
rating of the Certificates by the Rating Agency rating such Certificates
because the existing or prospective financial condition or mortgage loan
servicing capability of the Master Servicer is insufficient to maintain such
rating.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default with respect to a Series of Certificates
remains unremedied, the Depositor, the Trustee or the holders of Certificates
evidencing not less than 25% of the voting rights evidenced by the
Certificates of such Series may terminate all of the rights and obligations of
the Master Servicer under the Pooling and Servicing Agreement and in and to
the Mortgage Loans and Contracts and the proceeds thereof, whereupon (subject
to applicable law regarding the Trustee's ability to make advances) the
Trustee or, if the Depositor so notifies the Trustee and the Master Servicer,
the Depositor or its designee, will succeed to all the responsibilities,
duties and liabilities of the Master Servicer under such Pooling and Servicing
Agreement and will be entitled to similar compensation arrangements. In the
event that the Trustee would be obligated to succeed the Master Servicer but
is unwilling or unable so to act, it may appoint, or petition to a court of
competent jurisdiction for the appointment of, a successor master servicer.
Pending such appointment, the Trustee (unless prohibited by law from so
acting) shall be obligated to act in such capacity. The Trustee and such
successor master servicer may agree upon the servicing compensation to be paid
to such successor, which in no event may be greater than the compensation to
the Master Servicer under the Pooling and Servicing Agreement.
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Depositor, the
Master Servicer and the Trustee, without the consent of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement
any provision therein that may be inconsistent with any other provision
therein, or (iii) to make any other provisions with respect to matters or
questions arising under such Pooling and Servicing Agreement that are not
inconsistent with the provisions thereof, provided that such action will not
adversely affect in any material respect the interests of any
Certificateholder of the related Series. The Pooling and Servicing Agreement
may also be amended by the Depositor, the Master Servicer and the Trustee with
the consent of holders of Certificates evidencing not less than 66 2/3% of the
voting rights evidenced by the Certificates, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of such Pooling and Servicing Agreement or of modifying in any manner the
rights of the Certificateholders; provided, however, that no such amendment
may (i) reduce in any manner the amount of, delay the timing of or change the
manner in which payments received on or with respect to Mortgage Loans and
Contracts are required to be distributed with respect to any Certificate
without the consent of the holder of such Certificate, (ii) adversely affect
in any material respect the interests of the holders of a Class or Subclass of
the Senior Certificates, if any, of a Series in a manner other than that set
forth in (i) above without the consent of the holders of the Senior
Certificates of such Subclass evidencing not less than 66 2/3% of such Class
or Subclass, (iii) adversely affect in any material respect the interests of
the holders of the Subordinated Certificates of a Series in a manner other
than that set forth in (i) above without the consent of the holders of
Subordinated Certificates evidencing not less than 66 2/3% of such Class or
Subclass, or (iv) reduce the aforesaid percentage of the Certificates, the
holders of which are required to consent to such amendment, without the
consent of the holders of the Class affected thereby.
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The Deposit Trust Agreement for a Series may be amended by the Trustee and
the Depositor without Certificateholder consent, to cure any ambiguity, to
correct or supplement any provision therein that may be inconsistent with any
other provision therein, or to make any other provisions with respect to
matters or questions arising thereunder that are not inconsistent with any
other provisions thereof, provided that such action will not, as evidenced by
an opinion of counsel, adversely affect the interests of any
Certificateholders of that Series in any material respect. The Deposit Trust
Agreement for each Series may also be amended by the Trustee and the Depositor
with the consent of the Holders of Certificates evidencing Percentage
Interests aggregating not less than 66 2/3% of each Class of the Certificates
of such Series affected thereby for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Agreement
or modifying in any manner the rights of Certificateholders of that Series;
provided, however, that no such amendment may (i) reduce in any manner the
amount of, or delay the timing of, or change the manner in which payments
received on Mortgage Certificates are required to be distributed in respect of
any Certificate, without the consent of the Holder of such Certificate or (ii)
reduce the aforesaid percentage of Certificates the Holders of which are
required to consent to any such amendment, without the consent of the Holders
of all Certificates of such Series then outstanding.
TERMINATION
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate upon the earlier of (a) the repurchase of all
Mortgage Loans or Contracts and all property acquired by foreclosure of any
such Mortgage Loan or Contract and (b) the later of (i) the maturity or other
liquidation of the last Mortgage Loan or Contract subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage
Loan or Contract and (ii) the payment to the Certificateholders of all amounts
held by the Master Servicer and required to be paid to them pursuant to such
Pooling and Servicing Agreement. The obligations created by the Deposit Trust
Agreement for a Series of Certificates will terminate upon the distribution to
Certificateholders of all amounts required to be distributed to them pursuant
to such Deposit Trust Agreement. In no event, however, will the trust created
by either such Agreement continue beyond the expiration of 21 years from the
death of the last survivor of certain persons identified therein. For each
Series of Certificates, the Master Servicer will give written notice of
termination of the applicable Agreement of each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency specified in the notice of termination.
If so provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Depositor or such other person as may be specified in the
Prospectus Supplement to repurchase from the Trust Fund for such Series all
remaining Mortgage Loans or Contracts subject to the Pooling and Servicing
Agreement at a price specified in such Prospectus Supplement. In the event
that the Depositor elects to treat the related Trust Fund as a REMIC under the
Code, any such repurchase will be effected in compliance with the requirements
of Section 860F(a)(4) of the Code, in order to constitute a "qualifying
liquidation" thereunder. The exercise of any such right will effect early
retirement of the Certificates of that Series, but the right so to repurchase
may be effected only on or after the aggregate principal balance of the
Mortgage Loans or Contracts for such Series at the time of repurchase is less
than a specified percentage of the aggregate principal balance at the Cut-off
Date for the Series, or on or after the date set forth in the related
Prospectus Supplement.
CREDIT SUPPORT
Credit support for a Series of Certificates may be provided by one or more
Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Certificates (which may, if so specified in the related Prospectus Supplement,
be issued in notional amounts) the provision for shifting interest credit
enhancement, the establishment of a Reserve Fund, the method of Alternative
Credit Support specified in the applicable Prospectus Supplement, or any
combination of the foregoing, in addition to, or in lieu of, the insurance
arrangements set forth below under Description of Insurance. The amount and
method of credit support will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
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LETTERS OF CREDIT
The Letters of Credit, if any, with respect to a Series of Certificates will
be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). The maximum obligation of the L/C Bank
under the Letter of Credit will be to honor requests for payment thereunder in
an aggregate fixed dollar amount, net of unreimbursed payments thereunder,
equal to the percentage of the aggregate principal balance on the related Cut-
off Date of the Mortgage Loans or Contracts evidenced by each Series (the "L/C
Percentage") specified in the Prospectus Supplement for such Series. The
duration of coverage and the amount and frequency of any reduction in coverage
provided by the Letter of Credit with respect to a Series of Certificates will
be in compliance with the requirements established by the Rating Agency rating
such Series and will be set forth in the Prospectus Supplement relating to
such Series of Certificates. The amount available under the Letter of Credit
in all cases shall be reduced to the extent of the unreimbursed payments
thereunder. The obligations of the L/C Bank under the Letter of Credit for
each Series of Certificates will expire 30 days after the latest of the
scheduled final maturity dates of the Mortgage Loans or Contracts in the
related Mortgage Pool or Contract Pool or the repurchase of all Mortgage Loans
or Contracts in the Mortgage Pool or Contract Pool in the circumstances
specified above. See "Description of the Certificates--Termination."
Unless otherwise specified in the applicable Prospectus Supplement, under
the Pooling and Servicing Agreement, the Master Servicer will be required not
later than three business days prior to each Distribution Date to determine
whether a payment under the Letter of Credit will be necessary on the
Distribution Date and will, no later than the third business day prior to such
Distribution Date, advise the L/C Bank and the Trustee of its determination,
setting forth the amount of any required payment. On the Distribution Date,
the L/C Bank will be required to honor the Trustee's request for payment
thereunder in an amount equal to the lesser of (A) the remaining amount
available under the Letter of Credit and (B) the outstanding principal
balances of any Liquidating Loans to be assigned on such Distribution Date
(together with accrued and unpaid interest thereon at the related Mortgage
Rate or APR to the related Due Date). The proceeds of such payments under the
Letter of Credit will be deposited into the Certificate Account and will be
distributed to Certificateholders, in the manner specified in the related
Prospectus Supplement, on such Distribution Date, except to the extent of any
unreimbursed Advances, servicing compensation due to the Servicers and the
Master Servicer and other amounts payable to the Depositor or the person or
entity named in the applicable Prospectus Supplement therefrom.
If at any time the L/C Bank makes a payment in the amount of the full
outstanding principal balance and accrued interest on a Liquidating Loan, it
will be entitled to receive an assignment by the Trustee of such Liquidating
Loan, and the L/C Bank will thereafter own such Liquidating Loan free of any
further obligation to the Trustee or the Certificateholders with respect
thereto. Payments made to the Certificate Account by the L/C Bank under the
Letter of Credit with respect to such a Liquidating Loan will be reimbursed to
the L/C Bank only from the proceeds (net of liquidation costs) of such
Liquidating Loan. The amount available under the Letter of Credit will be
increased to the extent it is reimbursed for such payments.
To the extent the proceeds of liquidation of a Liquidating Loan acquired by
the L/C Bank in the manner described in the preceding paragraph exceed the
amount of payments made with respect thereto, the L/C Bank will be entitled to
retain such proceeds as additional compensation for issuance of the Letter of
Credit.
Prospective purchasers of Certificates of a Series with respect to which
credit support is provided by a Letter of Credit must look to the credit of
the L/C Bank, to the extent of its obligations under the Letter of Credit, in
the event of default by Mortgagors or Obligors. If the amount available under
the Letter of Credit is exhausted, or the L/C Bank becomes insolvent, and
amounts in the Reserve Fund, if any, with respect to such Series are
insufficient to pay the entire amount of the loss and still be maintained at
the level specified in the related Prospectus Supplement (the "Required
Reserve"), the Certificateholders (in the priority specified in the related
Prospectus Supplement) will thereafter bear all risks of loss resulting from
default by Mortgagors or Obligors (including losses not covered by insurance
or Alternative Credit Support), and must look primarily to the value of the
properties securing defaulted Mortgage Loans or Contracts for recovery of the
outstanding principal and unpaid interest.
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In the event that a Subordinated Class or Subclass of a Series of
Certificates is issued with a notional amount, the coverage provided by the
Letter of Credit with respect to such Series, and the terms and conditions of
such coverage, will be set forth in the related Prospectus Supplement.
SUBORDINATED CERTIFICATES
To the extent specified in the Prospectus Supplement with respect to a
Series of Certificates, credit support may be provided by the subordination of
the rights of the holders of one or more Classes or Subclasses of Certificates
to receive distributions with respect to the Mortgage Loans in the Mortgage
Pool or Contracts in the Contract Pool underlying such Series, or with respect
to a Subordinated Pool of mortgage loans or manufactured housing conditional
sales contracts and installment loan agreements, to the rights of the Senior
Certificateholders or holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series to receive such distributions, to the
extent of the applicable Subordinated Amount. In such a case, credit support
may also be provided by the establishment of a Reserve Fund, as described
below. The Subordinated Amount, as described below, will be reduced by an
amount equal to Aggregate Losses. Aggregate Losses are defined in the related
Pooling and Servicing Agreement for any given period as the aggregate amount
of delinquencies, losses and other deficiencies in the amounts due to the
holders of the Certificates of one or more classes or Subclasses of such
Series paid or borne by the holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series ("payment deficiencies"), but
excluding any payments of interest on any amounts originally due to the
holders of the Certificates of a Class or Subclass to which the applicable
Class or Subclass of Subordinated Certificates are subordinated on a previous
Distribution Date, but not paid as due, whether by way of withdrawal from the
Reserve Fund (including, prior to the time that the Subordinated Amount is
reduced to zero, any such withdrawal of amounts attributable to the Initial
Deposit, if any), reduction in amounts otherwise distributable to the
Subordinated Certificateholders on any Distribution Date or otherwise, less
the aggregate amount of previous payment deficiencies recovered by the related
Trust Fund during such period in respect of the Mortgage Loans or Contracts
giving rise to such previous payment deficiencies, including, without
limitation, such recoveries resulting from the receipt of delinquent principal
and/or interest payments, Liquidation Proceeds or Insurance Proceeds (net, in
each case, of servicing compensation, foreclosure costs and other servicing
costs, expenses and unreimbursed Advances relating to such Mortgage Loans or
Contracts). The Prospectus Supplement for each Series of Certificates with
respect to which credit support will be provided by one or more Classes or
Subclasses of Subordinated Certificates will set forth the Subordinated Amount
for such Series. If specified in the related Prospectus Supplement, the
Subordinated Amount will decline over time in accordance with a schedule which
will also be set forth in the related Prospectus Supplement.
SHIFTING INTEREST
If specified in the Prospectus Supplement for a Series of Certificates for
which credit enhancement is provided by shifting interest as described herein,
the rights of the holders of the Subordinated Certificates of a Series to
receive distributions with respect to the Mortgage Loans or Contracts in the
related Trust Fund or Subsidiary Trust will be subordinated to such right of
the holders of the Senior Certificates of the same Series to the extent
described in such Prospectus Supplement. This subordination feature is
intended to enhance the likelihood of regular receipt by holders of Senior
Certificates of the full amount of scheduled monthly payments of principal and
interest due them and to provide limited protection to the holders of the
Senior Certificates against losses due to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series by
the shifting interest subordination feature will be effected by distributing
to the holders of the Senior Certificates a disproportionately greater
percentage (the "Senior Prepayment Percentage") of Principal Prepayments. The
initial Senior Prepayment Percentage will be the percentage specified in the
related Prospectus Supplement and will decrease in accordance with the
schedule and subject to the conditions set forth in the Prospectus Supplement.
This disproportionate distribution of Principal Prepayments will have the
effect of accelerating the amortization of the Senior Certificates while
increasing the respective interest of the Subordinated Certificates in the
Mortgage Pool or Contract Pool. Increasing the respective interest of the
Subordinated Certificates relative to that of the Senior
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Certificates is intended to preserve the availability of the benefits of the
subordination provided by the Subordinated Certificates.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Trust will enter into or obtain an assignment of a swap
agreement or other similar agreement pursuant to which the Trust will have the
right to receive certain payments of interest (or other payments) as set forth
or determined as described therein. The Prospectus Supplement relating to a
Series of Certificates having the benefit of an interest rate swap agreement
will describe the material terms of such agreement and the particular risks
associated with the interest rate swap feature, including market and credit
risk, the effect of counterparty defaults and other risks, if any, addressed
by the rating. The Prospectus Supplement relating to such Series of
Certificates also will set forth certain information relating to the corporate
status, ownership and credit quality of the counterparty or counterparties to
such swap agreement.
RESERVE FUND
If so specified in the related Prospectus Supplement, credit support with
respect to a Series of Certificates may be provided by the establishment and
maintenance with the Trustee for such Series of Certificates, in trust, of a
Reserve Fund for such Series. Unless otherwise specified in the applicable
Prospectus Supplement, the Reserve Fund for a Series will not be included in
the Trust Fund for such Series. The Reserve Fund for each Series will be
created by the Depositor and shall be funded by the retention by the Master
Servicer of certain payments on the Mortgage Loans or Contracts, by the
deposit with the Trustee, in escrow, by the Depositor of a Subordinated Pool
of mortgage loans or manufactured housing conditional sales contracts and
installment loan agreements with the aggregate principal balance, as of the
related Cut-off Date, set forth in the related Prospectus Supplement, by any
combination of the foregoing, or in another manner specified in the related
Prospectus Supplement. Following the initial issuance of the Certificates of a
Series and until the balance of the Reserve Fund first equals or exceeds the
Required Reserve, the Master Servicer will retain specified distributions on
the Mortgage Loans or Contracts and/or on the mortgage loans or manufactured
housing conditional sales contracts and installment loan agreements in the
Subordinated Pool otherwise distributable to the holders of Subordinated
Certificates and deposit such amounts in the Reserve Fund. After the amounts
in the Reserve Fund for a Series first equal or exceed the applicable Required
Reserve, the Master Servicer will retain such distributions and deposit so
much of such amounts in the Reserve Fund as may be necessary, after the
application of such distributions to amounts due and unpaid on the
Certificates or on the Certificates of such Series to which the applicable
Class or Subclass of Subordinated Certificates are subordinated and the
reimbursement of unreimbursed Advances and liquidation expenses, to maintain
the Reserve Fund at the Required Reserve. The balance in the Reserve Fund in
excess of the Required Reserve shall be paid to the applicable Class or
Subclass of Subordinated Certificates, or to another specified person or
entity, as set forth in the related Prospectus Supplement, and shall be
unavailable thereafter for future distribution to Certificateholders of either
Class. The Prospectus Supplement for each Series will set forth the amount of
the Required Reserve applicable from time to time. The Required Reserve may
decline over time in accordance with a schedule which will also be set forth
in the related Prospectus Supplement.
Amounts held in the Reserve Fund for a Series from time to time will
continue to be the property of the Subordinated Certificateholders of the
Classes or Subclasses specified in the related Prospectus Supplement until
withdrawn from the Reserve Fund and transferred to the Certificate Account as
described below. If on any Distribution Date the amount in the Certificate
Account available to be applied to distributions on the Senior Certificates of
such Series, after giving effect to any Advances made by the Servicers or the
Master Servicer on such Distribution Date, is less than the amount required to
be distributed to such Senior Certificateholders (the "Required Distribution")
on such Distribution Date, the Master Servicer will withdraw from the Reserve
Fund and deposit into the Certificate Account the lesser of (i) the entire
amount on deposit in the Reserve Fund available for distribution to the Senior
Certificateholders (which amount will not in any event exceed the Required
Reserve) or (ii) the amount necessary to increase the funds in the Certificate
Account eligible for
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distribution to the Senior Certificateholders on such Distribution Date to the
Required Distribution; provided, however, that in no event will any amount
representing investment earnings on amounts held in the Reserve Fund be
transferred into the Certificate Account or otherwise used in any manner for
the benefit of the Senior Certificateholders. If so specified in the
applicable Prospectus Supplement, the balance, if any, in the Reserve Fund in
excess of the Required Reserve shall be released, to the Subordinated
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, whenever the Reserve Fund is less than the Required Reserve,
holders of the Subordinated Certificates of the applicable Class or Subclass
will not receive any distributions with respect to the Mortgage Loans or
Contracts other than amounts attributable to interest on the Mortgage Loans or
Contracts after the initial Required Reserve has been attained and amounts
attributable to any income resulting from investment of the Reserve Fund as
described below. Whether or not the amount of the Reserve Fund exceeds the
Required Reserve on any Distribution Date, the holders of the Subordinated
Certificates of the applicable Class or Subclass are entitled to receive from
the Certificate Account their share of the proceeds of any Mortgage Loan or
Contract, or any property acquired in respect thereof, repurchased by reason
of defective documentation or the breach of a representation or warranty
pursuant to the Pooling and Servicing Agreement. Amounts in the Reserve Fund
shall be applied in the following order:
(i) to the reimbursement of Advances determined by the Master Servicer
and the Servicers to be otherwise unrecoverable, other than Advances of
interest in connection with prepayments in full, repurchases and
liquidations, and the reimbursement of liquidation expenses incurred by the
Servicers and the Master Servicer if sufficient funds for such
reimbursement are not otherwise available in the related Servicing Accounts
and Certificate Account;
(ii) to the payment to the holders of the Senior Certificates of such
Series of amounts distributable to them on the related Distribution Date in
respect of scheduled payments of principal and interest due on the related
Due Date to the extent that sufficient funds in the Certificate Account are
not available therefor; and
(iii) to the payment to the holders of the Senior Certificates of such
Series of the principal balance or purchase price, as applicable, of
Mortgage Loans or Contracts repurchased, liquidated or foreclosed during
the period ending on the day prior to the Due Date to which such
distribution relates and interest thereon at the related Pass-Through Rate,
to the extent that sufficient funds in the Certificate Account are not
available therefor.
Amounts in the Reserve Fund in excess of the Required Reserve, including any
investment income on amounts therein, as set forth below, shall then be
released to the holders of the Subordinated Certificates, or to such other
person as is specified in the applicable Prospectus Supplement, as set forth
above.
Funds in the Reserve Fund for a Series shall be invested as provided in the
related Pooling and Servicing Agreement in certain types of eligible
investments. The earnings on such investments will be withdrawn and paid to
the holders of the applicable Class or Subclass of Subordinated Certificates
in accordance with their respective interests in the Reserve Fund in the
priority specified in the related Prospectus Supplement. Investment income in
the Reserve Fund is not available for distribution to the holders of the
Senior Certificates of such Series or otherwise subject to any claims or
rights of the holders of the applicable Class or Subclass of Senior
Certificates. Eligible investments for monies deposited in the Reserve Fund
will be specified in the Pooling and Servicing Agreement for a Series of
Certificates for which a Reserve Fund is established and in some instances
will be limited to investments acceptable to the Rating Agency rating the
Certificates of such Series from time to time as being consistent with its
outstanding rating of such Certificates. Such eligible investments will be
limited, however, to obligations or securities that mature at various time
periods up to 30 days according to a schedule in the Pooling and Servicing
Agreement based on the current balance of the Reserve Fund at the time of such
investment or the contractual commitment providing for such investment.
The time necessary for the Reserve Fund of a Series to reach and maintain
the applicable Required Reserve at any time after the initial issuance of the
Certificates of such Series and the availability of amounts in the Reserve
Fund for distributions on such Certificates will be affected by the
delinquency, foreclosure and prepayment experience of the Mortgage Loans or
Contracts in the related Trust Fund and/or in the Subordinated Pool and
therefore cannot be accurately predicted.
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PERFORMANCE BOND
If so specified in the related Prospectus Supplement, the Master Servicer
may be required to obtain a Performance Bond that would provide a guarantee of
the performance by the Master Servicer of one or more of its obligations under
the Agreement, including its obligation to advance delinquent installments of
principal and interest on Mortgage Loans or Contracts and its obligation to
repurchase Mortgage Loans or Contracts in the event of a breach by the Master
Servicer of a representation or warranty contained in the Agreement. In the
event that the outstanding credit rating of the obligor of the Performance
Bond is lowered by the Rating Agency, with the result that the outstanding
rating on the Certificates would be reduced by such Rating Agency, the Master
Servicer will be required to secure a substitute Performance Bond issued by an
entity with a rating sufficient to maintain the outstanding rating on the
Certificates or to deposit and maintain with the Trustee cash in the amount
specified in the applicable Prospectus Supplement.
DESCRIPTION OF INSURANCE
To the extent that the applicable Prospectus Supplement does not expressly
provide for a form of credit support specified above or for Alternative Credit
Support in lieu of some or all of the insurance mentioned below, the following
paragraphs on insurance shall apply with respect to the Mortgage Loans
included in the related Trust Fund. Unless otherwise specified in the related
Prospectus Supplement, each Manufactured Home that secures a Contract will be
covered by a standard hazard insurance policy and other insurance policies to
the extent described in the related Prospectus Supplement. Any material
changes in such insurance from the description that follows or the description
of any Alternative Credit Support will be set forth in the applicable
Prospectus Supplement.
PRIMARY MORTGAGE INSURANCE POLICIES
To the extent specified in the related Prospectus Supplement, each Servicing
Agreement will require the Servicer to cause a Primary Mortgage Insurance
Policy to be maintained in full force and effect with respect to each Mortgage
Loan that is secured by a Single Family Property covered by the Servicing
Agreement requiring such insurance and to act on behalf of the Insured with
respect to all actions required to be taken by the Insured under each such
Primary Mortgage Insurance Policy. Any primary mortgage insurance or primary
credit insurance policies relating to the Contracts underlying a Series of
Certificates will be described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the amount
of a claim for benefits under a Primary Mortgage Insurance Policy covering a
Mortgage Loan in the related Mortgage Pool (herein referred to as the "Loss")
will consist of the insured portion of the unpaid principal amount of the
covered Mortgage Loan (as described herein) and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the Insured (other than the proceeds of
hazard insurance) that are derived from or in any way related to such
Mortgaged Property, (ii) hazard insurance proceeds in excess of the amount
required to restore such Mortgaged Property and which have not been applied to
the payment of such Mortgage Loan, (iii) amounts expended but not approved by
the Primary Mortgage Insurer, (iv) claim payments previously made by the
Primary Mortgage Insurer, and (v) unpaid premiums.
Unless otherwise specified in the related Prospectus Supplement, as
conditions precedent to the filing of or payment of a claim under a Primary
Mortgage Insurance Policy covering a Mortgage Loan in the related Mortgage
Pool, the Insured will be required to, in the event of default by the
Mortgagor: (i) advance or discharge (A) all hazard insurance premiums and (B)
as necessary and approved in advance by the Primary Mortgage Insurer, (1) real
estate property taxes, (2) all expenses required to preserve, repair and
prevent waste to the Mortgaged Property so as to maintain such Mortgaged
Property in at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (3)
property sales expenses, (4) any outstanding liens (as defined in such Primary
Mortgage Insurance Policy) on the Mortgaged Property and (5) foreclosure
costs, including court costs and reasonable attorneys' fees; (ii) in the event
of a
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physical loss or damage to the Mortgaged Property, have restored and repaired
the Mortgaged Property to at least as good a condition as existed at the
effective date of such Primary Mortgage Insurance Policy, ordinary wear and
tear excepted; and (iii) tender to the Primary Mortgage Insurer good and
merchantable title to and possession of the mortgaged property.
Unless otherwise specified in the related Prospectus Supplement, other
provisions and conditions of each Primary Mortgage Insurance Policy covering a
Mortgage Loan in the related Mortgage Pool generally will provide that: (a) no
change may be made in the terms of such Mortgage Loan without the consent of
the Primary Mortgage Insurer; (b) written notice must be given to the Primary
Mortgage Insurer within 10 days after the Insured becomes aware that a
Mortgagor is delinquent in the payment of a sum equal to the aggregate of two
scheduled monthly payments due under such Mortgage Loan or that any
proceedings affecting the Mortgagor's interest in the Mortgaged Property
securing such Mortgage Loan have commenced, and thereafter the Insured must
report monthly to the Primary Mortgage Insurer the status of any such Mortgage
Loan until such Mortgage Loan is brought current, such proceedings are
terminated or a claim is filed; (c) the Primary Mortgage Insurer will have the
right to purchase such Mortgage Loan, at any time subsequent to the 10 days'
notice described in (b) above and prior to the commencement of foreclosure
proceedings, at a price equal to the unpaid principal amount of the Mortgage
Loan, plus accrued and unpaid interest thereon and reimbursable amounts
expended by the Insured for the real estate taxes and fire and extended
coverage insurance on the Mortgaged Property for a period not exceeding 12
months, and less the sum of any claim previously paid under the Primary
Mortgage Insurance Policy and any due and unpaid premiums with respect to such
policy; (d) the Insured must commence proceedings at certain times specified
in the Primary Mortgage Insurance Policy and diligently proceed to obtain good
and merchantable title to and possession of the Mortgaged Property; (e) the
Insured must notify the Primary Mortgage Insurer of the price specified in (c)
above at least 15 days prior to the sale of the Mortgaged Property by
foreclosure, and bid such amount unless the Mortgage Insurer specifies a lower
or higher amount; and (f) the Insured may accept a conveyance of the Mortgaged
Property in lieu of foreclosure with written approval of the Mortgage Insurer
provided the ability of the Insured to assign specified rights to the Primary
Mortgage Insurer are not thereby impaired or the specified rights of the
Primary Mortgage Insurer are not thereby adversely affected.
Unless otherwise specified in the related Prospectus Supplement, the Primary
Mortgage Insurer will be required to pay to the Insured either: (1) the
insured percentage of the Loss; or (2) at its option under certain of the
Primary Mortgage Insurance Policies, the sum of the delinquent monthly
payments plus any advances made by the Insured, both to the date of the claim
payment, and thereafter, monthly payments in the amount that would have become
due under the Mortgage Loan if it had not been discharged plus any advances
made by the Insured until the earlier of (A) the date the Mortgage Loan would
have been discharged in full if the default had not occurred or (B) an
approved sale. Any rents or other payments collected or received by the
Insured which are derived from or are in any way related to the Mortgaged
Property will be deducted from any claim payment.
FHA INSURANCE AND VA GUARANTEES
The FHA is responsible for administering various federal programs, including
mortgage insurance, authorized under the National Housing Act, as amended, and
the United States Housing Act of 1937, as amended. Any FHA Insurance or VA
Guarantees relating to Contracts underlying a Series of Certificates will be
described in the related Prospectus Supplement.
The insurance premiums for FHA Loans are collected by HUD approved lenders
or by the Servicers of such FHA Loans and are paid to the FHA. The regulations
governing FHA single-family mortgage insurance programs provide that insurance
benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted FHA Loan to HUD. With respect to a defaulted FHA Loan, the
Servicer of such FHA Loan will be limited in its ability to initiate
foreclosure proceedings. When it is determined, either by the Servicer or HUD,
that default was caused by
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circumstances beyond the Mortgagor's control, the Servicer will be expected to
make an effort to avoid foreclosure by entering, if feasible, into one of a
number of available forms of forbearance plans with the Mortgagor. Such plans
may involve the reduction or suspension of scheduled mortgage payments for a
specified period, with such payments to be made upon or before the maturity
date of the mortgage, or the recasting of payments due under the mortgage up
to or beyond the scheduled maturity date. In addition, when a default caused
by such circumstances is accompanied by certain other criteria, HUD may
provide relief by making payments to the Servicer of such Mortgage Loan in
partial or full satisfaction of amounts due thereunder (which payments are to
be repaid by the Mortgagor to HUD) or by accepting assignment of the Mortgage
Loan from the Servicer. With certain exceptions, at least three full monthly
installments must be due and unpaid under the Mortgage Loan, and HUD must have
rejected any request for relief from the Mortgagor before the Servicer may
initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Servicer of each FHA Loan in a Mortgage Pool will
be obligated to purchase any such debenture issued in satisfaction of a
defaulted FHA Loan serviced by it for an amount equal to the principal amount
of the FHA Loan.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal balance of the defaulted FHA Loan, adjusted to
reimburse the Servicer of such FHA Loan for certain costs and expenses and to
deduct certain amounts received or retained by such Servicer after default.
When entitlement to insurance benefits results from foreclosure (or other
acquisition of possession) and conveyance to HUD, the Servicer is compensated
for no more than two-thirds of its foreclosure costs, and is compensated for
interest accrued and unpaid prior to such date in general only to the extent
it was allowed pursuant to a forbearance plan approved by HUD. When
entitlement to insurance benefits results from assignment of the FHA Loan to
HUD, the insurance payment includes full compensation for interest accrued and
unpaid to the assignment date. The insurance payment itself, upon foreclosure
of an FHA Loan, bears interest from a date 30 days after the mortgagor's first
uncorrected failure to perform any obligation or make any payment due under
the Mortgage Loan and, upon assignment, from the date of assignment, to the
date of payment of the claim, in each case at the same interest rate as the
applicable HUD debenture interest rate as described above.
The maximum guarantee that may be issued by the VA under a VA Loan is 50% of
the principal amount of the VA Loan if the principal amount of the Mortgage
Loan is $45,000 or less, the lesser of $36,000 and 40% if the principal amount
of the VA Loan if the principal amount of such VA Loan is greater than $45,000
but less than or equal to $144,000, and the lesser of $46,000 and 25% of the
principal amount of the Mortgage Loan if the principal amount of the Mortgage
Loan is greater than $144,000. The liability on the guarantee is reduced or
increased pro rata with any reduction or increase in the amount of
indebtedness, but in no event will the amount payable on the guarantee exceed
the amount of the original guarantee. The VA may, at its option and without
regard to the guarantee, make full payment to a mortgage holder of unsatisfied
indebtedness on a Mortgage upon its assignment to the VA.
With respect to a defaulted VA Loan, the Servicer is, absent exceptional
circumstances, authorized to announce its intention to foreclose only when the
default has continued for three months. Generally, a claim for the guarantee
is submitted after liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the VA Loan
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations. Payments under the
guarantee will be equal to the unpaid principal amount of the VA Loan,
interest accrued on the unpaid balance of the VA Loan to the appropriate date
of computation and limited expenses of the mortgagee, but in each case only to
the extent that such amounts have not been recovered through liquidation of
the
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Mortgaged Property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
STANDARD HAZARD INSURANCE POLICIES ON MORTGAGE LOANS
The Standard Hazard Insurance Policies covering the Mortgage Loans in a
Mortgage Pool will provide for coverage at least equal to the applicable state
standard form of fire insurance policy with extended coverage. In general, the
standard form of fire and extended coverage policy will cover physical damage
to, or destruction of, the improvements on the Mortgaged Property caused by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Because the Standard Hazard Insurance Policies relating to such
Mortgage Loans will be underwritten by different insurers and will cover
Mortgaged Properties located in various states, such policies will not contain
identical terms and conditions. The most significant terms thereof, however,
generally will be determined by state law and generally will be similar. Most
such policies typically will not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-
related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list
is merely indicative of certain kinds of uninsured risks and is not intended
to be all-inclusive.
The Standard Hazard Insurance Policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which,
in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of
the dwellings, structures and other improvements on the Mortgaged Property in
order to recover the full amount of any partial loss. If the insured's
coverage falls below this specified percentage, such clause will provide that
the insurer's liability in the event of partial loss will not exceed the
greater of (i) the actual cash value (the replacement cost less physical
depreciation) of the dwellings, structures and other improvements damaged or
destroyed or (ii) such proportion of the loss, without deduction for
depreciation, as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such dwellings, structures and
other improvements.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the
restoration of damaged property, any damage to such borrower's Cooperative
Dwelling or such Cooperative's building could significantly reduce the value
of the collateral securing such Cooperative Loan to the extent not covered by
other credit support.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows and, with respect to Mortgaged Properties
located other than in HUD designated flood areas, floods) or insufficient
hazard insurance proceeds and any hazard losses incurred with respect to
Cooperative Loans could affect distributions to the Certificateholders.
With respect to Mortgage Loans secured by Multifamily Property, certain
additional insurance policies may be required with respect to the Multifamily
Property; for example, general liability insurance for bodily injury and
property damage, steam boiler coverage where a steam boiler or other pressure
vessel is in operation, and rent loss insurance to cover income losses
following damage or destruction of the Mortgaged Property. The related
Prospectus Supplement will specify the required types and amounts of
additional insurance that may be required in connection with Mortgage Loans
secured by Multifamily Property and will describe the general terms of such
insurance and conditions to payment thereunder.
STANDARD HAZARD INSURANCE POLICIES ON THE MANUFACTURED HOMES
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to cause to be maintained with respect to each Contract one or more
Standard Hazard Insurance Policies which provide, at a
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minimum, the same coverage as a standard form file and extended coverage
insurance policy that is customary for manufactured housing, issued by a
company authorized to issue such policies in the state in which the
Manufactured Home is located, and in an amount which is not less than the
maximum insurable value of such Manufactured Home or the principal balance due
from the Obligor on the related Contract, whichever is less; provided,
however, that the amount of coverage provided by each Standard Hazard
Insurance Policy shall be sufficient to avoid the application of any co-
insurance clause contained therein. When a Manufactured Home's location was,
at the time of origination of the related Contract, within a federally
designated flood area, the Master Servicer also shall cause such flood
insurance to be maintained, which coverage shall be at least equal to the
minimum amount specified in the preceding sentence or such lesser amount as
may be available under the federal flood insurance program. Each Standard
Hazard Insurance Policy caused to be maintained by the Master Servicer shall
contain a standard loss payee clause in favor of the Master Servicer and its
successors and assigns. If any Obligor is in default in the payment of
premiums on its Standard Hazard Insurance Policy or Policies, the Master
Servicer shall pay such premiums out of its own funds, and may add separately
such premium to the Obligor's obligation as provided by the Contract, but may
not add such premium to the remaining principal balance of the Contract.
The Master Servicer may maintain, in lieu of causing individual Standard
Hazard Insurance Policies to be maintained with respect to each Manufactured
Home, and shall maintain, to the extent that the related Contract does not
require the Obligor to maintain a Standard Hazard Insurance Policy with
respect to the related Manufactured Home, one or more blanket insurance
policies covering losses on the Obligor's interest in the Contracts resulting
from the absence or insufficiency of individual Standard Hazard Insurance
Policies. Any such blanket policy shall be substantially in the form and in
the amount carried by the Master Servicer as of the date of the Pooling and
Servicing Agreement. The Master Servicer shall pay the premium for such policy
on the basis described therein and shall pay any deductible amount with
respect to claims under such policy relating to the Contracts. If the insurer
thereunder shall cease to be acceptable to the Master Servicer, the Master
Servicer shall exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to such policy.
If the Master Servicer shall have repossessed a Manufactured Home on behalf
of the Trustee, the Master Servicer shall either (i) maintain at its expense
hazard insurance with respect to such Manufactured Home or (ii) indemnify the
Trustee against any damage to such Manufactured Home prior to resale or other
disposition.
POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master Servicer
will obtain a Pool Insurance Policy for a Mortgage Pool underlying
Certificates of such Series. Such Pool Insurance Policy will be issued by the
Pool Insurer named in the applicable Prospectus Supplement. Any Pool Insurance
Policy for a Contract Pool underlying a Series of Certificates will be
described in the related Prospectus Supplement. Each Pool Insurance Policy
will cover any loss (subject to the limitations described below) by reason of
default to the extent the related Mortgage Loan is not covered by any Primary
Mortgage Insurance Policy, FHA insurance or VA guarantee. The amount of the
Pool Insurance Policy, if any, with respect to a Series will be specified in
the related Prospectus Supplement. A Pool Insurance Policy, however, will not
be a blanket policy against loss, because claims thereunder may only be made
for particular defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent described below. Any Pool Insurance Policies relating to
the Contracts will be described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the Pool
Insurance Policy will provide that as a condition precedent to the payment of
any claim the Insured will be required (i) to advance hazard insurance
premiums on the Mortgaged Property securing the defaulted Mortgage Loan; (ii)
to advance, as necessary and approved in advance by the Pool Insurer, (a) real
estate property taxes, (b) all expenses required to preserve and repair the
Mortgaged Property, to protect the Mortgaged Property from waste, so that the
Mortgaged Property is in at least as good a condition as existed on the date
upon which coverage under the Pool Insurance Policy with respect to such
Mortgaged Property first became effective (ordinary wear and tear excepted),
(c) property sales
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expenses, (d) any outstanding liens on the Mortgaged Property and (e)
foreclosure costs including court costs and reasonable attorneys' fees; and
(iii) if there has been physical loss or damage to the Mortgaged Property, to
restore the Mortgaged Property to its condition (reasonable wear and tear
excepted) as of the issue date of the Pool Insurance Policy. It also will be a
condition precedent to the payment of any claim under the Pool Insurance
Policy that the Insured maintain a Primary Mortgage Insurance Policy that is
acceptable to the Pool Insurer on all Mortgage Loans that have Loan-to-Value
Ratios at the time of origination in excess of 80%. FHA insurance and VA
guarantees will be deemed to be an acceptable Primary Mortgage Insurance
Policy under the Pool Insurance Policy. Assuming satisfaction of these
conditions, the Pool Insurer will pay to the Insured the amount of loss,
determined as follows: (i) the amount of the unpaid principal balance of the
Mortgage Loan immediately prior to the Approved Sale (as described below) of
the Mortgaged Property, (ii) the amount of the accumulated unpaid interest on
such Mortgage Loan to the date of claim settlement at the applicable Mortgage
Rate and (iii) advances as described above, less (a) all rents or other
payments (excluding proceeds of fire and extended coverage insurance)
collected or received by the Insured, which are derived from or in any way
related to the Mortgaged Property, (b) amounts paid under applicable fire and
extended coverage policies which are in excess of the cost of restoring and
repairing the Mortgaged Property and which have not been applied to the
payment of the Mortgage Loan, (c) any claims payments previously made by the
Pool Insurer on the Mortgage Loan, (d) due and unpaid premiums payable with
respect to the Pool Insurance Policy and (e) all claim payments received by
the Insured pursuant to any Primary Mortgage Insurance Policy. An "Approved
Sale" is (1) a sale of the Mortgaged Property acquired because of a default by
the Mortgagor to which the Pool Insurer has given prior approval, (2) a
foreclosure or trustee's sale of the Mortgaged Property at a price exceeding
the maximum amount specified by the Pool Insurer, (3) the acquisition of the
Mortgaged Property under the Primary Insurance Policy by the Primary Mortgage
Insurer or (4) the acquisition of the Mortgaged Property by the Pool Insurer.
The Pool Insurer must be provided with good and merchantable title to the
Mortgaged Property as a condition precedent to the payment of any Loss. If any
Mortgaged Property securing a defaulted Mortgage Loan is damaged and the
proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
Mortgaged Property to a condition sufficient to permit recovery under the Pool
Insurance Policy, the Master Servicer or the Servicer of the related Mortgage
Loan will not be required to expend its own funds to restore the damaged
Mortgaged Property unless it is determined (A) that such restoration will
increase the proceeds to the Certificateholders of the related Series on
liquidation of the Mortgage Loan, after reimbursement of the expenses of the
Master Servicer or the Servicer, as the case may be, and (B) that such
expenses will be recoverable by it through payments under the Letter of
Credit, if any, with respect to such Series, Liquidation Proceeds, Insurance
Proceeds, amounts in the Reserve Fund, if any, or payments under any
Alternative Credit Support, if any, with respect to such Series.
No Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies may not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor,
the Unaffiliated Seller, the Originator or other persons involved in the
origination thereof, (ii) the exercise by the Insured of its right to call the
Mortgage Loan, or the term of the Mortgage Loan is shorter than the
amortization period and the defaulted payment is for an amount more than twice
the regular periodic payments of principal and interest for such Mortgage
Loan, or (iii) the exercise by the Insured of a "due-on-sale" clause or other
similar provision in the Mortgage Loan; provided, in either case (ii) or
(iii), such exclusion shall not apply if the Insured offers a renewal or
extension of the Mortgage Loan or a new Mortgage Loan at the market rate in an
amount not less than the then outstanding principal balance with no decrease
in the amortization period. A failure of coverage attributable to one of the
foregoing events might result in a breach of the Master Servicer's
insurability representation described under "Description of the Certificates--
Assignment of Mortgage Loans" above, and in such event, subject to the
limitations described therein, might give rise to an obligation on the part of
the Master Servicer to purchase the defaulted Mortgage Loan if the breach
materially and adversely affects the interests of the Certificateholders of
the related Series and cannot be cured by the Master Servicer. Depending upon
the nature of the event, a breach of representation made by the Depositor or
an Unaffiliated Seller may also have occurred. Such a breach, if it materially
and adversely affects the interests of the Certificateholders of such Series
and cannot be cured, would give rise to a repurchase obligation on the part of
the Unaffiliated Seller as more
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fully described under "The Trust Fund--Mortgage Loan Program--Representations
by Unaffiliated Sellers; Repurchases" and "Description of the Certificates--
Assignment of Mortgage Loans."
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Certificates of the related Series by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed Mortgaged
Properties covered thereby. The amount of claims paid will include certain
expenses incurred by the Master Servicer or by the Servicer of the defaulted
Mortgage Loan as well as accrued interest on delinquent Mortgage Loans to the
date of payment of the claim. Accordingly, if aggregate net claims paid under
a Pool Insurance Policy reach the original policy limit, coverage under the
Pool Insurance Policy will lapse and any further losses will be borne by the
holders of the Certificates of such Series. In addition, unless the Master
Servicer or the related Servicer could determine that an Advance in respect of
a delinquent Mortgage Loan would be recoverable to it from the proceeds of the
liquidation of such Mortgage Loan or otherwise, neither such Servicer nor the
Master Servicer would be obligated to make an Advance respecting any such
delinquency, since the Advance would not be ultimately recoverable to it from
either the Pool Insurance Policy or from any other related source. See
"Description of the Certificates--Advances."
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master Servicer
shall obtain a Special Hazard Insurance Policy for the Mortgage Pool
underlying a Series of Certificates. Any Special Hazard Insurance Policies for
a Contract Pool underlying a Series of Certificates will be described in the
related Prospectus Supplement. The Special Hazard Insurance Policy for the
Mortgage Pool underlying the Certificates of a Series will be issued by the
Special Hazard Insurer named in the applicable Prospectus Supplement. Each
Special Hazard Insurance Policy will, subject to the limitations described
below, protect against loss by reason of damage to Mortgaged Properties caused
by certain hazards (including vandalism and earthquakes and, except where the
Mortgagor is required to obtain flood insurance, floods and mudflows) not
insured against under the standard form of hazard insurance policy for the
respective states in which the Mortgaged Properties are located. See
"Description of the Certificates--Maintenance of Insurance Policies" and "--
Standard Hazard Insurance." The Special Hazard Insurance Policy will not cover
losses occasioned by war, certain governmental actions, nuclear reaction and
certain other perils. Coverage under a Special Hazard Insurance Policy will be
at least equal to the amount set forth in the related Prospectus Supplement.
Subject to the foregoing limitations, each Special Hazard Insurance Policy
will provide that, when there has been damage to the Mortgaged Property
securing a defaulted Mortgage Loan and to the extent such damage is not
covered by the Standard Hazard Insurance Policy, if any, maintained by the
Mortgagor, the Master Servicer or the Servicer, the Special Hazard Insurer
will pay the lesser of (i) the cost of repair or replacement of such Mortgaged
Property or (ii) upon transfer of such Mortgaged Property to the Special
Hazard Insurer, the unpaid balance of such Mortgage Loan at the time of
acquisition of such Mortgaged Property by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim settlement (excluding
late charges and penalty interest) and certain expenses incurred in respect of
such Mortgaged Property. No claim may be validly presented under a Special
Hazard Insurance Policy unless (i) hazard insurance on the Mortgaged Property
has been kept in force and other reimbursable protection, preservation and
foreclosure expenses have been paid (all of which must be approved in advance
as necessary by the insurer) and (ii) the insured has acquired title to the
Mortgaged Property as a result of default by the Mortgagor. If the sum of the
unpaid principal balance plus accrued interest and certain expenses is paid by
the Special Hazard Insurer, the amount of further coverage under the related
Special Hazard Insurance Policy will be reduced by such amount less any net
proceeds from the sale of the Mortgaged Property. Any amount paid as the cost
of repair of the Mortgaged Property will further reduce coverage by such
amount.
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to maintain the Special Hazard Insurance Policy in full force and
effect throughout the term of the Pooling and Servicing Agreement. If a Pool
Insurance Policy is required to be maintained pursuant to the Pooling and
Servicing Agreement, the
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Special Hazard Insurance Policy will be designed to permit full recoveries
under the Pool Insurance Policy in circumstances where such recoveries would
otherwise be unavailable because Mortgaged Property has been damaged by a
cause not insured against by a Standard Hazard Insurance Policy. In such event
the Pooling and Servicing Agreement will provide that, if the related Pool
Insurance Policy shall have terminated or been exhausted through payment of
claims, the Master Servicer will be under no further obligation to maintain
such Special Hazard Insurance Policy.
MORTGAGOR BANKRUPTCY BOND
In the event of a personal bankruptcy of a Mortgagor, a bankruptcy court may
establish the value of the related Mortgaged Property or Cooperative Dwelling
at an amount less than the then outstanding principal balance of the related
Mortgage Loan. The amount of the secured debt could be reduced to such value,
and the holder of such Mortgage Loan thus would become an unsecured creditor
to the extent the outstanding principal balance of such Mortgage Loan exceeds
the value so assigned to the Mortgaged Property or Cooperative Dwelling by the
bankruptcy court. In addition, certain other modifications of the terms of a
Mortgage Loan can result from a bankruptcy proceeding. If so specified in the
related Prospectus Supplement, losses resulting from a bankruptcy proceeding
affecting the Mortgage Loans in a Mortgage Pool with respect to a Series of
Certificates will be covered under a Mortgagor Bankruptcy Bond (or any other
instrument that will not result in a downgrading of the rating of the
Certificates of a Series by the Rating Agency that rated such Series). Any
Mortgagor Bankruptcy Bond will provide for coverage in an amount acceptable to
the Rating Agency rating the Certificates of the related Series, which will be
set forth in the related Prospectus Supplement. Subject to the terms of the
Mortgagor Bankruptcy Bond, the issuer thereof may have the right to purchase
any Mortgage Loan with respect to which a payment or drawing has been made or
may be made for an amount equal to the outstanding principal amount of such
Mortgage Loan plus accrued and unpaid interest thereon. The coverage of the
Mortgagor Bankruptcy Bond with respect to a Series of Certificates may be
reduced as long as any such reduction will not result in a reduction of the
outstanding rating of the Certificates of such Series by the Rating Agency
rating such Series.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing conditional sales contracts and
installment loan agreements which are general in nature. Because such legal
aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Mortgage Loans or Contracts is situated. The summaries
are qualified in their entirety by reference to the applicable federal and
state laws governing the Mortgage Loans and Contracts.
THE MORTGAGE LOANS
General
The Mortgage Loans (other than the Cooperative Loans) comprising or
underlying the Trust Assets for a Series will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the
state in which the underlying property is located. The filing of a mortgage,
deed of trust or deed to secure debt creates a lien or title interest upon the
real property covered by such instrument and represents the security for the
repayment of an obligation that is customarily evidenced by a promissory note.
It is not prior to the lien for real estate taxes and assessments or other
charges imposed under governmental police powers. Priority with respect to
such instruments depends on their terms, the knowledge of the parties to the
mortgage and generally on the order of recording with the applicable state,
county or municipal office. There are two parties to a mortgage: the
mortgagor, who is the borrower and homeowner, and the mortgagee, who is the
lender. In a mortgage state, the mortgagor delivers to the mortgagee a note or
bond evidencing the loan and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust has three parties: the borrower-homeowner
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called the trustor (similar to a mortgagor) a lender called the beneficiary
(similar to a mortgagee) and a third-party grantee called the trustee. Under a
deed of trust, the borrower grants the property, irrevocably until the debt is
paid, in trust, generally with a power of sale, to the trustee to secure
payment of the loan. The trustee's authority under a deed of trust and the
mortgagee's authority under a mortgage are governed by the express provisions
of the deed of trust or mortgage, applicable law and, in some cases, with
respect to the deed of trust, the directions of the beneficiary.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right to
foreclosure is contested, the legal proceedings necessary to resolve the issue
can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Though a deed of trust may also be foreclosed by judicial action,
foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property upon a default by the borrower under the
terms of the note or deed of trust. In some states, the trustee must record a
notice of default and send a copy to the borrower-trustor and to any person
who has recorded a request for a copy of a notice of default and notice of
sale. In addition, the trustee must provide notice in some states to any other
individual having an interest in the real property, including any junior
lienholders. If the loan is not reinstated within any applicable cure period,
a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In
addition, some state laws require that a copy of the notice of sale be posted
on the property and sent to all parties having an interest of record in the
property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. Certain state laws control the amount of foreclosure expenses
and costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of a number of factors, including the difficulty a
potential buyer at the sale would have in determining the exact status of
title and the fact that the physical condition of the property may have
deteriorated during the foreclosure proceedings, it is uncommon for a third
party to purchase the property at the foreclosure sale. Rather, it is common
for the lender to purchase the property from the trustee or receiver for a
credit bid less than or equal to the unpaid principal amount of the note,
accrued and unpaid interest and the expenses of foreclosure. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance and making such repairs at its own
expense as are necessary to render the property suitable for sale. The lender
commonly will obtain the services of a real estate broker and pay the broker a
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal
the lender's investment in the property. Any loss may be reduced by the
receipt of mortgage insurance proceeds.
Cooperative Loans
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also contain Cooperative Loans evidenced
by promissory notes secured by security interests in shares issued by
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private corporations which are entitled to be treated as housing cooperatives
under the Code and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in the
corporations' buildings. The security agreement will create a lien upon, or
grant a title interest in, the property that it covers, the priority of which
will depend on the terms of the particular security agreement as well as the
order of recordation of the agreement in the appropriate recording office.
Such a lien or title interest is not prior to the lien for real estate taxes
and assessments and other charges imposed under governmental police powers.
A corporation that is entitled to be treated as a housing cooperative under
the Code owns all the real property or some interest therein sufficient to
permit it to own the building and all separate dwelling units therein. The
cooperative is directly responsible for property management and, in most
cases, payment of real estate taxes and hazard and liability insurance. If
there is a blanket mortgage or mortgages on the cooperative apartment building
and/or underlying land, as is generally the case, or an underlying lease of
the land, as is the case in some instances, the cooperative, as property
mortgagor, is also responsible for meeting these mortgage or rental
obligations. The interest of the occupancy under proprietary leases or
occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and
to the interest of the holder of a land lease. If the cooperative is unable to
meet the payment obligations (i) arising under a blanket mortgage, the
mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the land lease could terminate it
and all subordinate proprietary leases and occupancy agreements. Also, a
blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one final payment at maturity. The inability of the cooperative
to refinance a mortgage and its consequent inability to make such final
payment could lead to foreclosure by the mortgagee. Similarly, a land lease
has an expiration date and the inability of the cooperative to extend its term
or, in the alternative, to purchase the land could lead to termination of the
cooperative's interest in the property and termination of all proprietary
leases and occupancy agreements. A foreclosure by the holder of a blanket
mortgage could eliminate or significantly diminish the value of any collateral
held by the lender who financed an individual tenant-stockholder of
cooperative shares including, in the case of the Cooperative Loans, the
collateral securing the Cooperative Loans. Similarly, the termination of the
land lease by its holder could eliminate or significantly diminish the value
of any collateral held by the lender who financed an individual tenant-
stockholder of the cooperative shares or, in the case of the Cooperative
Loans, the collateral securing the Cooperative Loans.
Each cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific units. Generally,
a tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured by
a security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement,
and a financing statement covering the proprietary lease or occupancy
agreement and the cooperative shares is filed in the appropriate state and
local offices to perfect the lender's interest in its collateral. Subject to
the limitations discussed below, upon default of the tenant-stockholder, the
lender may sue for judgment on the promissory note, dispose of the collateral
at a public or private sale or otherwise proceed against the collateral or
tenant-stockholder as an individual as provided in the security agreement
covering the assignment of the proprietary lease or occupancy agreement and
the pledge of cooperative shares. See "--Realizing upon Cooperative Loan
Security" below.
Tax Aspects of Cooperative Loans
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed
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a deduction for amounts paid or accrued within his taxable year to the
corporation representing his proportionate share of certain interest expenses
and certain real estate taxes allowable as a deduction under Section 216(a) of
the Code to the corporation under Sections 163 and 164 of the Code. In order
for a corporation to qualify under Section 216(b)(1) of the Code for its
taxable year in which such items are allowable as a deduction to the
corporation, such section requires, among other things, that at least 80% of
the gross income of the corporation be derived from its tenant-stockholder. By
virtue of this requirement the status of a corporation for purposes of Section
216(b)(1) of the Code must be determined on a year-to-year basis.
Consequently, there can be no assurance that cooperatives relating to the
Cooperative Loans will qualify under such section for any particular year. In
the event that such a cooperative fails to qualify for one or more years, the
value of the collateral securing any related Cooperative Loans could be
significantly impaired because no deduction would be allowable to tenant-
stockholders under Section 216(a) of the Code with respect to those years. In
view of the significance of the tax benefits accorded tenant-stockholders of a
corporation that qualifies under Section 216(b)(1) of the Code, the likelihood
that such a failure would be permitted to continue over a period of years
appears remote.
Realizing upon Cooperative Loan Security
The cooperative shares and proprietary lease or occupancy agreement owned by
the tenant- stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease
or occupancy agreement. The proprietary lease or occupancy agreement, even
while pledged, may be cancelled by the cooperative for failure by the tenant-
stockholder to pay rent or other obligations or charges owed by such tenant-
stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy
agreement which are owed to the cooperative are made liens upon the shares to
which the proprietary lease or occupancy agreement relates. In addition, the
proprietary lease or occupancy agreement generally permits the cooperative to
terminate such lease or agreement in the event the borrower defaults in the
performance of covenants thereunder. The lender and the cooperative will
typically enter into a recognition agreement which establishes the rights and
obligations of both parties in the event of a default by the tenant-
stockholder on its obligations under the proprietary lease or occupancy
agreement. A default by the tenant-stockholder under the proprietary lease or
occupancy agreement will usually constitute a default under the security
agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment
subject, however, to the cooperative's right to sums due under such
proprietary lease or occupancy agreement or that have become liens on the
shares relating to the proprietary lease or occupancy agreement. The total
amount owed to the cooperative by the tenant-stockholder, which the lender
generally cannot restrict and does not monitor, could reduce the value of the
collateral below the outstanding principal balance of the cooperative loan and
accrued and unpaid interest thereon.
Recognition agreements also provide that in the event the lender succeeds to
the tenant- shareholder's shares and proprietary lease or occupancy agreement
as the result of realizing upon the collateral for a cooperative loan, the
lender must obtain the approval or consent of the cooperative as required by
the proprietary lease before transferring the cooperative shares or assigning
the proprietary lease. Such approval or consent is usually based on the
prospective purchaser's income and net worth, among other factors, and may
significantly reduce the number of potential purchasers, which could limit the
ability of the lender to sell and realize upon the value of the collateral.
Generally, the lender is not limited in any rights it may have to dispossess
the tenant-shareholders.
The terms of the Cooperative Loans do not require either the Mortgagor or
the Cooperative to obtain title insurance of any type. Consequently, the
existence of any prior liens or other imperfections of title also may
adversely affect the marketability of the Cooperative Dwelling in the event of
foreclosure.
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In New York, lenders generally realize upon the pledged shares and
proprietary lease or occupancy agreement given to secure a cooperative loan by
public sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those
shares. Article 9 of the UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given
the debtor and the method, manner, time, place and terms of the sale.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the cooperative corporation to
receive sums due under the proprietary lease or occupancy agreement. If there
are proceeds remaining, the lender must account to the tenant-stockholder for
the surplus. Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency. See "Anti-
Deficiency Legislation and Other Limitations on Lenders" below.
In the case of foreclosure on a Multifamily Property that was converted from
a rental building to a building owned by a cooperative housing corporation
under a non-eviction plan, some states require that a purchaser at a
foreclosure sale take the property subject to rent control and rent
stabilization laws which apply to certain tenants who elected to remain in the
building but not to purchase shares in the cooperative when the building was
so converted. Any such restrictions could adversely affect the number of
potential purchasers for and the value of such property.
Rights of Redemption
In some states, after a sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to a sale
following judicial foreclosure, and not a sale pursuant to a non-judicial
power of sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase price,
accrued interest and taxes. In some states, the right to redeem is an
equitable right. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The exercise of a
right of redemption would defeat the title of any purchaser from the lender
subsequent to foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the lender to retain the
property and pay the expenses of ownership until the redemption period has
run.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In
some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or a
non-judicial sale under a deed of trust. A deficiency judgment is a personal
judgment against the former borrower equal in most cases to the difference
between the amount due to the lender and the net amount realized upon the
foreclosure sale. Other statutes prohibit a deficiency judgment where the loan
proceeds were used to purchase a dwelling occupied by the borrower.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement,
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when applicable, is that lenders will usually proceed first against the
security rather than bringing a personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
In the case of cooperative loans, lenders generally realize on cooperative
shares and the accompanying proprietary lease or occupancy agreement given to
secure a cooperative loan under Article 9 of the UCC. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a
Chapter 13 proceeding under the federal Bankruptcy Code, when a court
determines that the value of a home is less than the principal balance of the
loan, the court may prevent a lender from foreclosing on the home, and, as
part of the rehabilitation plan, reduce the amount of the secured indebtedness
to the value of the home as it exists at the time of the proceeding, leaving
the lender as a general unsecured creditor for the difference between that
value and the amount of outstanding indebtedness. A bankruptcy court may grant
the debtor a reasonable time to cure a payment default, and in the case of a
mortgage loan not secured by the debtor's principal residence, also may reduce
the monthly payments due under such mortgage loan, change the rate of interest
and alter the mortgage loan repayment schedule. Certain court decisions have
applied such relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These laws include the federal Truth in Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail
to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan secured by Multifamily Property will be a non-recourse loan to
the Mortgagor. As a result, the Mortgagor's obligation to repay the Mortgage
Loan can be enforced only against the Mortgaged Property regardless of whether
the Mortgagor has other assets from which it could repay the loan.
Unless otherwise specified in the related Prospectus Supplement, the
mortgage securing each Mortgage Loan relating to Multifamily Property will
contain an assignment of rents and an assignment of leases, pursuant to which
the borrower assigns its right, title and interest as landlord under each
lease and the income derived therefrom to the Depositor, while retaining a
license to collect the rents so long as there is no default. In the event the
borrower defaults, the license terminates and the Trustee (as the assignee of
such assignment) is entitled to collect the rents. The Trustee may enforce its
right to such rents by seeking the appointment of a receiver to collect the
rents immediately after giving notice to the borrower of the default.
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"Due-on-Sale" Clauses
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of
the maturity of a loan if the borrower transfers its interest in the property.
The enforceability of these clauses has been subject of legislation or
litigation in many states, and in some cases the enforceability of these
clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law that prohibits the enforcement of due-
on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limited exceptions. The Garn-St Germain
Act does "encourage" lenders to permit assumption of loans at the original
rate of interest or at some other rate less than the average of the original
rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a due-on-
sale clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also
prohibit the imposition of prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the
average life of the Mortgage Loans and the number of Mortgage Loans which may
be outstanding until maturity.
Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon late charges which a lender may
collect from a borrower for delinquent payments. State and federal statutes or
regulations may also limit a lender's right to collect a prepayment penalty
when the prepayment is caused by the lender's acceleration of the loan
pursuant to a due-on-sale clause. Certain states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Servicing Agreements and the Pooling and Servicing
Agreement, late charges and prepayment fees (to the extent permitted by law
and not waived by the Servicers) will be retained by the Servicers or Master
Servicer as additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and sometimes expensive actions to determine the causes
for the borrower's default and the likelihood that the borrower will be able
to reinstate the loan. In some cases, courts have substituted their judgment
for the lender's judgment and have required lenders to reinstate loans or
recast payment schedules to accommodate borrowers who are suffering from
temporary financial disability. In some cases, courts have limited the right
of lenders to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain or insure the
property or the borrower executing a second mortgage or deed of trust
affecting the property. In other cases, some courts have been faced with the
issue whether federal or state constitutional provisions reflecting due
process concerns for adequate notice require that borrowers under the deeds of
trust receive notices in addition to the statutorily-prescribed minimum
requirements. For the most part, these cases have upheld the notice provisions
as being reasonable or have found that the sale by a trustee under a deed of
trust or under a mortgage having a power of sale does not involve sufficient
state action to afford constitutional protections to the borrower.
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Environmental Considerations
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, a secured party which takes a deed in lieu of
foreclosure or purchases a mortgaged property at a foreclosure sale may become
liable in certain circumstances for the costs of remedial action ("Cleanup
Costs") if hazardous wastes or hazardous substances have been released or
disposed of on the property. Such Cleanup Costs may be substantial. It is
possible that such costs could become a liability of the Trust Fund and reduce
the amounts otherwise distributable to the Certificateholders if a Mortgaged
Property securing a Mortgage Loan became the property of the Trust Fund in
certain circumstances and if such Cleanup Costs were incurred.
Except as otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller will represent, as of the date of delivery of the related
Series of Certificates, that to the best of its knowledge no Mortgaged
Property secured by Multifamily Property is subject to an environmental hazard
that would have to be eliminated under applicable law before the sale of, or
which could otherwise affect the marketability of, such Mortgaged Property or
which would subject the owner or operator of such Mortgaged Property or a
lender secured by such Mortgaged Property to liability under law, and that
there are no liens which relate to the existence of any clean-up of a
hazardous substance (and to the best of its knowledge no circumstances are
existing that under law would give rise to any such lien) affecting the
Mortgaged Property which are or may be liens prior to or on a parity with the
lien of the related mortgage. The Agreement will further provide that the
Master Servicer, acting on behalf of the Trust Fund, may not acquire title to
a Mortgaged Property or take over its operation unless the Master Servicer has
received a report from a qualified independent person selected by the Master
Servicer setting forth whether such Mortgaged Property is subject to or
presents any toxic wastes or environmental hazards and an estimate of the cost
of curing or cleaning up such hazard.
THE CONTRACTS
General
As a result of the Depositor's assignment of the Contract to the Trustee,
the Certificateholders will succeed collectively to all of the rights
(including the right to receive payment on the Contracts) and will assume
certain obligations of the Depositor. Each Contract evidences both (a) the
obligation of the Obligor to repay the loan evidenced thereby and (b) the
grant of a security interest in the Manufactured Home to secure repayment of
such loan. Certain aspects of both features of the Contracts are described
more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code in effect in the states in which the Manufactured Homes
initially were registered. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to perfection of a security interest in chattel
paper. Under the Pooling and Servicing Agreement, the Master Servicer or the
Depositor, as the case may be, will transfer physical possession of the
Contracts to the Trustee or its custodian. In addition, the Master Servicer
will make an appropriate filing of a UCC-1 financing statement in the
appropriate states to give notice of the Trustee's ownership of the Contracts.
Unless otherwise specified in the related Prospectus Supplement, the Contracts
will not be stamped or marked otherwise to reflect their assignment from the
Depositor to the Trustee. Therefore, if a subsequent purchaser were able to
take physical possession of the Contracts without notice of such assignment,
the Trustee's interest in the Contracts could be defeated.
Security Interests in the Manufactured Homes
The law governing perfection of a security interest in a Manufactured Home
varies from state to state. Security interests in manufactured homes may be
perfected either by notation of the secured party's lien on the certificate of
title or by delivery of the required documents and payment of a fee to the
state motor vehicle authority, depending on state law. In some nontitle
states, perfection pursuant to the provisions of the UCC is required. The
lender or Master Servicer may effect such notation or delivery of the required
documents and fees, and obtain possession of the certificate of title, as
appropriate under the laws of the state in which any
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manufactured home securing a manufactured housing conditional sales contract
is registered. In the event the Master Servicer or the lender fails, due to
clerical errors, to effect such notation or delivery, or files the security
interest under the wrong law (for example, under a motor vehicle title statute
rather than under the UCC, in a few states), the Certificateholders may not
have a first priority security interest in the Manufactured Home securing a
Contract. As manufactured homes have become larger and often have been
attached their sites without any apparent intention to move them, courts in
many states have held that manufactured homes, under certain circumstances,
may become subject to real estate title and recording laws. As a result, a
security interest in a manufactured home could be rendered subordinate to the
interests of other parties claiming an interest in the home under applicable
state real estate law. In order to perfect a security interest in a
manufactured home under real estate laws, the holder of the security interest
must file either a "fixture filing" under the provisions of the UCC or a real
estate mortgage under the real estate laws of the state where the manufactured
home is located. These filings must be made in the real estate records office
of the county where the manufactured home is located. Substantially all of the
Contracts will contain provisions prohibiting the borrower from permanently
attaching the Manufactured Home to its site. So long as the Obligor does not
violate this agreement, a security interest in the Manufactured Home will be
governed by the certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the seller's security
interest in the Manufactured Home. If, however, a Manufactured Home is
permanently attached to its site, other parties could obtain an interest in
the Manufactured Home which is prior to the security interest originally
retained by the Unaffiliated Seller and transferred to the Depositor. With
respect to a Series of Certificates and as described in the related Prospectus
Supplement, the Master Servicer may be required to perfect a security interest
in the Manufactured Home under applicable real estate laws. If such real
estate filings are not required and if any of the foregoing events were to
occur, the only recourse of the Certificateholders would be against the
Unaffiliated Seller pursuant to its repurchase obligation for breach of
warranties. Based on the representations of the Unaffiliated Seller, the
Depositor, however, believes that it has obtained a perfected first priority
security interest by proper notation or delivery of the required documents and
fees with respect to substantially all of the Manufactured Homes securing the
Contracts.
The Depositor will assign its security interests in the Manufactured Homes
to the Trustee on behalf of the Certificateholders. Unless otherwise specified
in the related Prospectus Supplement, neither the Depositor nor the Trustee
will amend the certificates of title to identify the Trustee as the new
secured party. Accordingly, the Depositor or such other entity as may be
specified in the Prospectus Supplement will continue to be named as the
secured party on the certificates of title relating to the Manufactured Homes.
In most states, such assignment is an effective conveyance of such security
interest without amendment of any lien noted on the related certificate of
title and the new secured party succeeds to the assignor's rights as the
secured party. However, in some states there exists a risk that, in the
absence of an amendment to the certificate of title, such assignment of the
security interest might not be held effective against creditors of the
assignor.
In the absence of fraud, forgery or permanent affixation of the Manufactured
Home to its site by the Manufactured Home owner, or administrative error by
state recording officials, the notation of the lien of the Depositor on the
certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the security interest assigned to the Depositor and the
Certificateholders is not perfected, such security interest would be
subordinate to, among others, subsequent purchasers for value of Manufactured
Homes and holders of perfected security interests. There also exists a risk in
not identifying the Certificateholders as the new secured party on the
certificate of title that, through fraud or negligence, the security interest
of the Certificateholders could be released.
In the event that the owner of a Manufactured Home moves it to a state other
than the state in which such Manufactured Home initially is registered, under
the laws of most states the perfected security interest in the Manufactured
Home would continue for four months after such relocation and thereafter only
if and after the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to
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another state and not re-register the Manufactured Home in such state, and if
steps are not taken to re-perfect the Trustee's security interest in such
state, the security interest in the Manufactured Home would cease to be
perfected. A majority of states generally require surrender of a certificate
of title to re-register a Manufactured Home; accordingly, the Trustee, or the
Master Servicer as custodian for the Trustee, must surrender possession if it
holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states which provide for notation of lien,
the Trustee would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the
Trustee would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states which do not require a
certificate of title for registration of a Manufactured Home, re-registration
could defeat perfection. In the ordinary course of servicing manufactured
housing conditional sales contracts and installment loan agreements, the
Master Servicer takes steps to effect such re-perfection upon receipt of
notice of re-registration or information from the Obligor as to relocation.
Similarly, when an Obligor under a manufactured housing conditional sales
contract or installment loan agreement sells a Manufactured Home, the Trustee,
or the Master Servicer as custodian for the Trustee, must surrender possession
of the certificate of title or will receive notice as a result of its lien
noted thereon and accordingly will have an opportunity to require satisfaction
of the related manufactured housing conditional sales contract or installment
loan agreement before release of the lien. Under the Pooling and Servicing
Agreement, the Master Servicer, on behalf of the Depositor, is obligated to
take such steps, at the Master Servicer's expense, as are necessary to
maintain perfection of security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a Manufactured
Home take priority even over a perfected security interest. The Depositor will
represent in the Pooling and Servicing Agreement that it has no knowledge of
any such liens with respect to any Manufactured Home securing payment on any
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Trustee or Certificateholders in the
event such a lien arises and such lien would not give rise to a repurchase
obligation on the part of the party specified in the Pooling and Servicing
Agreement.
Enforcement of Security Interests in Manufactured Homes
The Master Servicer on behalf of the Trustee, to the extent required by the
related Pooling and Servicing Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default by
repossession and resale of the Manufactured Homes securing such Defaulted
Contracts. Except in Louisiana, so long as the Manufactured Home has not
become subject to the real estate law, a creditor can repossess a Manufactured
Home securing a Contract by voluntary surrender, by "self-help" repossession
that is "peaceful" (i.e., without breach of the peace) or, in the absence of
voluntary surrender and the ability to repossess without breach of the peace,
by judicial process. The holder of a Contract must give the debtor a number of
days notice, which varies from 10 to 30 days depending on the state, prior to
commencement of any repossession. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including requiring prior
notice to the debtor and commercial reasonableness in effecting such a sale.
The law in most states also requires that the debtor be given notice of any
sale prior to resale of the unit so that the debtor may redeem at or before
such resale. In the event of such repossession and resale of a Manufactured
Home, the Trustee would be entitled to be paid out of the sale proceeds before
such proceeds could be applied to the payment of the claims of unsecured
creditors or the holders of subsequently perfected security interests or,
thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and
resale of the Manufactured Home securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
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Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods. Liability under this rule is limited to
amounts paid under a Contract; however, the Obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
against such Obligor. Numerous other federal and state consumer protection
laws impose requirements applicable to the origination and lending pursuant to
the Contracts, including the Truth in Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act,
the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and
the Uniform Consumer Credit Code. In the case of some of these laws, the
failure to comply with their provisions may affect the enforceability of the
related Contract.
Transfers of Manufactured Homes, Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Depositor or the Master Servicer
and permit the acceleration of the maturity of the Contracts by the Depositor
or the Master Servicer upon any such sale or transfer that is not consented
to. Unless otherwise specified in the related Prospectus Supplement, the
Depositor or the Master Servicer expects that it will permit most transfers of
Manufactured Homes and not accelerate the maturity of the related Contracts.
In certain cases, the transfer may be made by a delinquent Obligor in order to
avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Depositor
desires to accelerate the maturity of the related Contract, the Depositor's
ability to do so will depend on the enforceability under state law of the
"due-on-sale" clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of "due-on-sale"
clauses applicable to the Manufactured Homes. In some states the Depositor or
the Master Servicer may be prohibited from enforcing a "due-on-sale" clause in
respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan that is
secured by a first lien on certain kinds of manufactured housing. The
Contracts would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and deferral fees
and requiring a 30-day notice period prior to instituting any action leading
to repossession of or foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision that expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on loans covered
by Title V. In any state in which application of Title V was expressly
rejected or a provision limiting discount points or other charges has been
adopted, no Contract which imposes finance charges or provides for discount
points or charges in excess of permitted levels has been included in the Trust
Assets or Fund. The Depositor, or the party specified in the related Pooling
and Servicing Agreement will represent that all of the Contracts comply with
applicable usury laws.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
I. GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Certificates. Brown & Wood LLP, San Francisco, California, Cadwalader,
Wickersham & Taft, New York, New York, Dewey Ballantine, New York, New York,
Orrick, Herrington & Sutcliffe LLP or Sidley & Austin, New York, New York,
counsel to the Depositor, is delivering its opinion regarding certain federal
income tax matters discussed below. The opinion addresses only those issues
specifically identified below as being covered by such opinion; however, such
opinion also states that the additional discussion set forth below accurately
sets forth Brown & Wood LLP's, Cadwalader, Wickersham & Taft's, Dewey
Ballantine's, Orrick, Herrington & Sutcliffe LLP's or Sidley & Austin's advice
with respect to material federal income tax issues. As used hereinafter in
"Certain Federal Income Tax Consequences," "Mortgage Loans" shall include
Mortgage Certificates and Contracts and "Mortgage Pool" shall include "Contract
Pool." The following discussion does not purport to discuss all federal income
tax consequences that may be applicable to particular categories of investors,
some of which may be subject to special rules. Further, the authorities on which
this discussion are based are subject to change or differing interpretation,
which change or differing interpretation could apply retroactively. This
discussion does not address the state or local tax consequences of the purchase,
ownership and disposition of such Certificates. Investors should consult their
own tax advisers in determining the federal, state, local, or other tax
consequences to them of the purchase, ownership and disposition of the
Certificates offered hereunder.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Mortgage Pool
("REMIC Mortgage Pool") which the Master Servicer elects to have treated as a
real estate mortgage investment conduit ("REMIC") under Code Sections 860A
through 860G ("REMIC Provisions") and (ii) certificates ("Trust Certificates")
representing certain interests in a Trust Fund which the Master Servicer
does not elect to have treated as a REMIC. REMIC Certificates and Trust
Certificates will be referred to collectively as "Certificates."
Under the REMIC Provisions, REMICs may issue one or more classes of "regular"
interests and must issue one and only one class of "residual" interests. A REMIC
Certificate representing a regular interest in a REMIC Mortgage Pool will be
referred to as a "REMIC Regular Certificate" and a REMIC Certificate
representing a residual interest in a REMIC Mortgage Pool will be referred to as
a "REMIC Residual Certificate."
A Trust Certificate representing an undivided equitable ownership interest
in the principal of the Mortgage Loans constituting the related Trust Fund,
together with interest thereon at a remittance rate (which may be less than,
greater than, or equal to the pass-through rate), will be referred to as a
"Trust Fractional Certificate" and a Trust Certificate representing an
equitable ownership of all or a portion of the interest paid on each Mortgage
Loan constituting the related Trust Fund (net of normal servicing fees)
will be referred to as a "Trust Interest Certificate."
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Code Sections 1271 through 1273 and 1275
and in Treasury regulations issued under the original issue discount
provisions of the Code (the "OID Regulations"), and the Treasury regulations
issued under the provisions of the Code relating to REMICs (the "REMIC
Regulations").
II. REMIC TRUST FUNDS
A. Classification of REMIC Trust Funds
With respect to each series of REMIC Certificates relating to a REMIC Mortgage
Pool, Brown & Wood LLP, San Francisco, California, Cadwalader, Wickersham &
Taft, New York, New York, Dewey Ballantine, New York, New York, Orrick,
Herrington & Sutcliffe LLP or Sidley & Austin, New York, New York, will deliver
their opinion generally to the effect that, assuming that (i) a REMIC election
is made timely in the required form, (ii) there is ongoing compliance with all
provisions of the related Pooling and Servicing Agreement, (iii) certain
representations set forth in the Pooling and Servicing Agreement are true and
(iv) there is continued compliance with applicable provisions of the Code, as it
may be amended from time to time, and applicable Treasury regulations issued
thereunder, such REMIC Mortgage Pool will qualify as a REMIC and the classes of
interests offered will be considered to be "regular interests" or "residual
interests" in that REMIC Mortgage Pool within the meaning of the REMIC
Provisions.
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Holders of REMIC Certificates ("REMIC Certificateholders") should be aware
that, if an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for REMIC status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In such event, an entity electing to be treated
as a REMIC may be taxable as a separate corporation under Treasury
regulations, and the REMIC Certificates issued by such entity may not be
accorded the status described below under the heading "Characterization of
Investments in REMIC Certificates." In the case of an inadvertent termination
of REMIC status, the Code provides the Treasury Department with authority to
issue regulations providing relief. Any such relief, however, may be
accompanied by sanctions, such as the imposition of a corporate tax on all or
a portion of the REMIC's income for the period of time in which the
requirements for REMIC status are not satisfied.
Among the ongoing requirements in order to qualify for REMIC treatment is
that substantially all of the assets of the Trust Fund (as of the close of the
third calendar month beginning after the creation of the REMIC and continually
thereafter) must consist of only "qualified mortgages" and "permitted
investments". In order to be a "qualified mortgage" or to support treatment of a
certificate of participation therein as a "qualified mortgage", an obligation
must be principally secured by an interest in real property. The REMIC
Regulations treat an obligation secured by manufactured housing qualifying as
a single family residence under Code Section 25(e)(10) as an obligation
secured by real property, without regard to the treatment of the obligation or
the property under state law. Under Code Section 25(e)(10), a single family
residence includes any manufactured home that has a minimum of 400 square feet
of living space and a minimum width in excess of 102 inches and that is of a
kind customarily used at a fixed location.
B. Characterization of Investments in REMIC Certificates
In general, REMIC Certificates are not treated for federal income tax purposes
as ownership interests in the assets of a REMIC Mortgage Pool. However, (i)
REMIC Certificates held by a domestic building and loan association will
constitute a "regular or residual . . . interest in a REMIC" within the meaning
of Code Section 7701(a)(19)(C)(xi) in the same proportion that the assets of the
REMIC Mortgage Pool underlying such Certificates ("Assets") would be treated as
"loans secured by an interest in real property" within the meaning of Code
Section 7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C)(i) through (x); and (ii) REMIC Certificates held by a real estate
investment trust will constitute "real estate assets" within the meaning of Code
Section 856(c)(5)(A), and any amount includible in gross income on the REMIC
Certificates will be considered "interest on obligations secured by mortgages on
real property or on interests in real property" within the meaning of Code
Section 856(c)(3)(B) in the same proportion that, for both purposes, the Assets
and income of the REMIC would be treated as "interests in real property" as
defined in Code Section 856(c)(6)(C) (or, as provided in the Committee Report,
as "real estate assets" as defined in Code Section 856(c)(6)(B)) and as
"interest on obligations secured by mortgages on real property or on interests
in real property", respectively. See, in this regard, "Characterization of
Investments in Trust Certificates--Buydown Mortgage Loans," below. Moreover, if
95% or more of the Assets qualify for any of the foregoing treatments, the REMIC
Certificates (and income thereon) will qualify for the corresponding status in
their entirety. Investors should be aware that the investment of amounts in any
Reserve Fund or GPM Fund in non-qualifying assets would, and holding property
acquired by foreclosure pending sale might, reduce the amount of the REMIC
Certificates that would qualify for the foregoing treatment. The REMIC
Regulations provide that payments on Mortgage Loans held pending distribution
are considered part of the Mortgage Loans for purposes of Code Section
856(c)(5)(A); it is unclear whether such collected payments would be so
treated for purposes of Code Section 7701(a)(19)(C)(v), but there appears to be
no reason why analogous treatment should not be given to such collected payments
under that provision. The determination as to the percentage of the REMIC's
assets (or income) that will constitute assets (or income) described in the
foregoing sections of the Code will be made with respect to each calendar
quarter based on the average adjusted basis (or average amount of income) of
each category of the assets held (or income accrued) by the REMIC during such
calendar quarter. The REMIC will report those determinations to
Certificateholders in the manner and at the times required by applicable
Treasury regulations. The Prospectus Supplement or the related Current Report on
Form 8-K for each Series of REMIC Certificates will describe the
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Assets as of the Cut-off Date. REMIC Certificates held by certain financial
institutions will constitute an "evidence of indebtedness" within the meaning of
Code Section 582(c)(1); in addition, regular interests in any other REMIC
acquired by a REMIC in accordance with the requirements of Code Section
860G(a)(3)(A)(i) and (ii) or Section 860G(a)(4)(B) will be treated as "qualified
mortgages" within the meaning of Code Section 860D(a)(4).
For purposes of characterizing an investment in REMIC Certificates, a Contract
secured by a Manufactured Home qualifying as a "single family residence" under
Code Section 25(e)(10) will constitute (i) a "real estate asset" within the
meaning of Code Section 856 and (ii) an asset described in Code Section
7701(a)(19)(C). With respect to the Contracts included in a Trust Fund that
makes an election to be treated as a REMIC, each Unaffiliated Seller will
represent and warrant that each of the Manufactured Homes securing such
contracts meets the definition of a "single family residence".
C. Tiered REMIC Structures
For certain series of Certificates, two or more separate elections may be made
to treat designated portions of the related Trust Fund as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such series
of Certificates, Cadwalader, Wickersham & Taft, Brown & Wood or Sidley & Austin,
counsel to the Depositor, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the related Pooling and Servicing
Agreement, the Tiered REMICs will each qualify as a REMIC and the REMIC
Certificates issued by the Tiered REMICs will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in the
related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Code Section 856(c)(5)(A), and assets
described in Code Section 7701(a)(19)(C), and whether the income on such
Certificates is interest described in Code Section 856(c)(3)(B), the Tiered
REMICs will be treated as one REMIC.
D. Taxation of Owners of REMIC Regular Certificates
Except as otherwise stated in this discussion, the REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC Mortgage Pool and not as ownership interests
in the REMIC Mortgage Pool or its Assets. In general, interest, original issue
discount and market discount paid or accrued on a REMIC Regular Certificate
will be treated as ordinary income to the holder of such REMIC Regular
Certificate. Distributions in reduction of the stated redemption price at
maturity of the REMIC Regular Certificate will be treated as a return of
capital to the extent of such holder's basis in such REMIC Regular
Certificate. Holders of REMIC Regular Certificates that otherwise report
income under a cash method of accounting will be required to report income
with respect to REMIC Regular Certificates under an accrual method.
1. Original Issue Discount
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Code Section 1273(a). Any holders of REMIC
Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with a constant yield method that takes into account the compounding
of interest, in advance of the receipt of the cash attributable to such income.
The Master Servicer will report annually (or more frequently if required) to the
Internal Revenue Service ("IRS") and to Certificateholders such information with
respect to the original issue discount accruing on the REMIC Regular
Certificates as may be required under Code Section 6049 and the regulations
thereunder. See "Reporting and Other Administrative Matters of REMICs"
below.
Rules governing original issue discount are set forth in Code Sections 1271
through 1273 and 1275 and in the OID Regulations. Code Section 1272(a)(6)
provides special original issue discount rules
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applicable to REMIC Regular Certificates.
Code Section 1272(a)(6) requires that a mortgage prepayment assumption
("Prepayment Assumption") be used in computing the accrual of original issue
discount on REMIC Regular Certificates, and for certain other federal income
tax purposes. The Prepayment Assumption is to be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The Committee Report indicates that the regulations will provide
that the Prepayment Assumption, if any, used with respect to a particular
transaction must be the same as that used by the parties in pricing the
transaction. The Master Servicer will use a Prepayment Assumption in reporting
original issue discount that is consistent with this standard. However,
neither the Depositor nor the Master Servicer makes any representation that
the Mortgage Loans will in fact prepay at the rate reflected in the Prepayment
Assumption or at any other rate. Each investor must make its own decision as
to the appropriate prepayment assumption to be used in deciding whether or not
to purchase any of the REMIC Regular Certificates. The Prospectus Supplement
with respect to a Series of REMIC Certificates will disclose the Prepayment
Assumption to be used in reporting original issue discount, if any, and for
certain other federal income tax purposes.
The total amount of original issue discount on a REMIC Regular Certificate
is the excess of the "stated redemption price at maturity" of the REMIC
Regular Certificate over its "issue price." Except as discussed in the
following two paragraphs, in general, the issue price of a particular class of
REMIC Regular Certificates offered hereunder will be the price at which a
substantial amount of REMIC Regular Certificates of that class are first sold
to the public (excluding bond houses and brokers), and the stated redemption
price at maturity of a REMIC Regular Certificate will be its Stated Principal
Balance.
If a REMIC Regular Certificate is sold with accrued interest that relates to a
period prior to the issue date of such REMIC Regular Certificate, the amount
paid for the accrued interest will be treated instead as increasing the issue
price of the REMIC Regular Certificate. In addition, that portion of the first
interest payment in excess of interest accrued from the date of initial issuance
of the Certificates (the "Closing Date") to the first Distribution Date will be
treated for federal income tax reporting purposes as includible in the stated
redemption price at maturity of the REMIC Regular Certificates, and as
excludible from income when received as a payment of interest on the first
Distribution Date (except to the extent of any accrued market discount as of
that date). The OID Regulations suggest, however, that some or all of this pre-
issuance accrued interest "may" be treated as a separate asset (and hence not
includible in a REMIC Regular Certificate's issue price or stated redemption
price at maturity), whose cost is recovered entirely out of interest paid on the
first Distribution Date.
The stated redemption price at maturity of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
"qualified stated interest." Under the OID Regulations, "qualified stated
interest" is interest that is unconditionally payable at least annually during
the entire term of the Certificate at either (i) a single fixed rate that
appropriately takes into account the length of the interval between payments
or (ii) a current value of a single "qualified floating rate" or "objective
rate" (each, a "Single Variable Rate"). A "current value" is the value of a
variable rate on any day that is no earlier than three months prior to the
first day on which that value is in effect and no later than one year
following that day. A "qualified floating rate" is a rate whose variations can
reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds in the currency in which the Certificate is denominated.
Such a rate remains qualified even though it is multiplied by a fixed, positive
multiple greater than 0.65 but not exceeding 1.35, increased or decreased by a
fixed rate, or both. Certain combinations of rates constitute a single qualified
floating rate, including (i) interest stated at a fixed rate for an initial
period of less than one year followed by a qualified floating rate if the value
of the floating rate at the Closing Date is intended to approximate the fixed
rate, and (ii) two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Certificate. A combination of such rates is conclusively presumed to be a single
floating rate if the values of all rates on the Closing Date are within 0.25
percentage points of each other. A variable rate that is subject to an interest
rate cap, floor, governor or similar restriction on rate adjustment may be a
qualified floating rate only if such
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restriction is fixed throughout the term of the instrument, or is not reasonably
expected as of the Closing Date to cause the yield on the debt instrument to
differ significantly from the expected yield absent the restriction. Final
regulations issued on June 11, 1996 define an "objective rate" as a rate
determined using a single fixed formula and based on objective financial
information or economic information. However, an objective rate does not include
a rate based on information that is in the control of the issuer or that is
unique to the circumstances of a related party. A combination of interest stated
at a fixed rate for an initial period of less than one year followed by an
objective rate is treated as a single objective rate if the value of the
objective rate at the Closing Date is intended to approximate the fixed rate;
such a combination of rates is conclusively presumed to be a single objective
rate if the objective rate on the Closing Date does not differ from the fixed
rate by more than 0.25 percentage points. The qualified stated interest payable
with respect to certain variable rate debt instruments not bearing stated
interest at a Single Variable Rate is discussed below under "Variable Rate
Certificates." Under the foregoing rules, some of the payments of interest on a
Certificate bearing a fixed rate of interest for an initial period followed by a
qualified floating rate of interest in subsequent periods could be treated as
included in the stated redemption price at maturity if the initial fixed rate
were to differ sufficiently from the rate that would have been set using the
formula applicable to subsequent periods. See "Variable Rate Certificates."
REMIC Regular Certificates offered hereby other than such Certificates providing
for variable rates of interest are not anticipated to have stated interest other
than "qualified stated interest," but if any such REMIC Regular Certificates are
so offered, appropriate disclosures will be made in the Prospectus Supplement.
Some or all of the payments on REMIC Regular Certificates providing for the
accretion of interest will be included in the stated redemption price at
maturity of such Certificates.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
original issue discount on a REMIC Regular Certificate will be considered to
be zero if such original issue discount is less than 0.25% of the stated
redemption price at maturity of the REMIC Regular Certificate multiplied by
the weighted average life of the REMIC Regular Certificate. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the amount of each payment under
the instrument (other than a payment of qualified stated interest) by a
fraction, whose numerator is the number of complete years from the issue date
until such payment is made and whose denominator is the stated redemption price
at maturity of such REMIC Regular Certificate. The IRS may take the position
that this rule should be applied taking into account the Prepayment Assumption
and the effect of any anticipated investment income. Under the OID Regulations,
REMIC Regular Certificates bearing only qualified stated interest except for any
"teaser" rate, interest holiday or similar provision are treated as subject to
the de minimis rule if the greater of the foregone interest or any excess of the
Certificates' stated principal amount over their issue price is less than such
de minimis amount.
The OID Regulations generally treat de minimis original issue discount as
includible in income as each principal payment is made, based on the product of
the total amount of such de minimis original issue discount and a fraction,
whose numerator is the amount of such principal payment and whose denominator is
the outstanding principal balance of the REMIC Regular Certificate. The OID
Regulations also permit a Certificateholder to elect to accrue de minimis
original issue discount (together with stated interest, market discount and
original issue discount) into income currently based on a constant yield method.
See "Taxation of Owners of REMIC Regular Certificates--Market Discount and
Premium."
Each holder of a REMIC Regular Certificate must include in gross income the
sum of the "daily portions" of original issue discount on its REMIC Regular
Certificate for each day during its taxable year on which it held such REMIC
Regular Certificate. For this purpose, in the case of an original holder of a
REMIC Regular
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Certificate, the daily portions of original issue discount will be determined as
follows. A calculation will first be made of the portion of the original issue
discount that accrued during each accrual period, that is generally each period
that ends on a date that corresponds to a Distribution Date on the REMIC Regular
Certificate and begins on the first day following the immediately preceding
accrual period (or in the case of the first such period, begins on the Closing
Date). For any accrual period such portion will equal the excess, if any, of (i)
the sum of (A) the present value of all of the distributions remaining to be
made on the REMIC Regular Certificate, if any, as of the end of the accrual
period and (B) distributions made on such REMIC Regular Certificate during the
accrual period of amounts included in the stated redemption price at maturity,
over (ii) the adjusted issue price of such REMIC Regular Certificate at the
beginning of the accrual period. The present value of the remaining payments
referred to in the preceding sentence will be calculated based on (i) the yield
to maturity of the REMIC Regular Certificate, calculated as of the settlement
date, giving effect to the Prepayment Assumption, (ii) events (including actual
prepayments) that have occurred prior to the end of the accrual period and (iii)
the Prepayment Assumption. The adjusted issue price of a REMIC Regular
Certificate at the beginning of any accrual period will equal the issue price of
such Certificate, increased by the aggregate amount of original issue discount
with respect to such REMIC Regular Certificate that accrued in prior accrual
periods, and reduced by the amount of any distributions made on such REMIC
Regular Certificate in prior accrual periods of amounts included in the stated
redemption price at maturity. The original issue discount accruing during any
accrual period will then be allocated ratably to each day during the period to
determine the daily portion of original issue discount for each day. With
respect to an accrual period between the settlement date and the first
Distribution Date on the REMIC Regular Certificate that is shorter than a full
accrual period, the OID Regulations permit the daily portions of original issue
discount to be determined according to any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost (not including payment for accrued qualified
stated interest) less than its remaining stated redemption price at maturity
will also be required to include in gross income, for each day on which it holds
such REMIC Regular Certificate, the daily portions of original issue discount
with respect to such REMIC Regular Certificate, but reduced, if such cost
exceeds the "adjusted issue price", by an amount equal to the product of (i)
such daily portions and (ii) a constant fraction, whose numerator is such excess
and whose denominator is the sum of the daily portions of original issue
discount on such REMIC Regular Certificate for all days on or after the day of
purchase. The adjusted issued price of a REMIC Regular Certificate on any given
day is equal to the sum of the adjusted issue price (or, in the case of the
first accrual period, the issue price) of the REMIC Regular Certificate at the
beginning of the accrual period during which such day occurs and the daily
portions of original issue discount for all days during such accrual period
prior to such day, reduced by the aggregate amount of distributions made during
such accrual period prior to such day other than distributions of qualified
stated interest.
Variable Rate Certificates. REMIC Regular Certificates bearing interest at
one or more variable rates are subject to certain special rules. The qualified
stated interest payable with respect to certain variable rate debt instruments
not bearing interest at a Single Variable Rate generally is determined under
the OID Regulations by converting such instruments into fixed rate debt
instruments. Instruments qualifying for such treatment generally include those
providing for stated interest at (i) more than one qualified floating rate,
or (ii) a single fixed rate and (a) one or more qualified floating rates or
(b) a single "qualified inverse floating rate" (each, a "Multiple Variable
Rate"). A qualified inverse floating rate is an objective rate equal to a
fixed rate reduced by a qualified floating rate, the variations in which can
reasonably be expected to inversely reflect contemporaneous variations in the
cost of newly borrowed funds (disregarding permissible rate caps, floors,
governors and similar restrictions such as are described above).
Purchasers of REMIC Regular Certificates bearing a variable rate of interest
should be aware that there is uncertainty concerning the application of Code
Section 1272(a)(6) and the OID Regulations to such Certificates. In the absence
of other authority, the Master Servicer intends to be guided by the provisions
of the OID Regulations governing variable rate debt instruments in adapting the
provisions of Code Section 1272(a)(6) to such Certificates for the purpose of
preparing reports furnished to Certificateholders. The effect of
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the application of such provisions generally will be to cause
Certificateholders holding Certificates bearing interest at a Single Variable
Rate to take into account for each period an amount corresponding
approximately to the sum of (i) the qualified stated interest accruing on the
outstanding face amount of the REMIC Regular Certificate as the stated
interest rate for that Certificate varies from time to time and (ii) the
amount of original issue discount that would have been attributable to that
period on the basis of a constant yield to maturity for a bond issued at the
same time and issue price as the REMIC Regular Certificate, having the same
face amount and schedule of payments of principal as such Certificate, subject
to the same Prepayment Assumption, and bearing interest at a fixed rate equal
to the value of the applicable qualified floating rate or qualified inverse
floating rate in the case of a Certificate providing for either such rate, or
equal to the fixed rate that reflects the reasonably expected yield on the
Certificate in the case of a Certificate providing for an objective rate other
than an inverse floating rate, in each case as of the issue date.
Certificateholders holding REMIC Regular Certificates bearing interest at a
Multiple Variable Rate generally will take into account interest and original
issue discount under a similar methodology, except that the amounts of
qualified stated interest and original issue discount attributable to such a
Certificate first will be determined for an "equivalent" debt instrument
bearing fixed rates, the assumed fixed rates for which are (a) for each
qualified floating rate, the value of each such rate as of the Closing Date
(with appropriate adjustment for any differences in intervals between interest
adjustment dates), (b) for a qualified inverse floating rate, the value of the
rate as of the Closing Date, and (c) for any other objective rate, the fixed
rate that reflects the yield that is reasonably expected for the Certificate.
If the interest paid or accrued with respect to a Multiple Variable Rate
Certificate during an accrual period differs from the assumed fixed interest
rate, such difference will be an adjustment (to interest or original issue
discount, as applicable) to the Certificateholder's taxable income for the
taxable period or periods to which such difference relates.
In the case of a Certificate that provides for stated interest at a fixed
rate in one or more accrual periods and either one or more qualified floating
rates or a qualified inverse floating rate in other accrual periods, the fixed
rate is first converted into an assumed variable rate. The assumed variable
rate will be a qualified floating rate or a qualified inverse floating rate
according to the type of actual variable rates provided by the Certificate,
and must be such that the fair market value of the REMIC Regular Certificate
as of issuance is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for the assumed variable
rate in lieu of the fixed rate. The REMIC Regular Certificate is then subject
to the determination of the amount and accrual of original issue discount as
described above, by reference to the hypothetical variable rate instrument.
Purchasers of variable rate REMIC Regular Certificates further should be
aware that the provisions of the OID Regulations applicable to variable rate
debt instruments have been limited and may not apply to some REMIC Regular
Certificates having variable rates. If such a Certificate is not governed by the
provisions of the OID Regulations applicable to variable rate debt instruments,
it may be subject to provisions of Treasury regulations, issued in final form on
June 11, 1996, applicable to instruments having contingent payments (the "1996
Contingent Debt Regulations"). The application of those provisions to
instruments such as variable rate REMIC Regular Certificates is subject to
differing interpretations. Prospective purchasers of variable rate REMIC Regular
Certificates are advised to consult their tax advisers concerning the tax
treatment of such Certificates.
2. Market Discount and Premium
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, at a purchase price less than the REMIC Regular Certificate's
stated redemption price at maturity, or, in the case of a REMIC Regular
Certificate issued with original issue discount, the REMIC Regular
Certificate's adjusted issue price (as defined under "Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount"), will recognize market
discount upon receipt of each payment of principal. In particular, such a holder
will generally be required to allocate each payment of principal on a REMIC
Regular Certificate first to accrued market discount, and to recognize ordinary
income to the extent such principal payment does not exceed the aggregate
amount of accrued market discount on such REMIC Regular Certificate not
previously included in income. Such market discount must be included in income
in addition to any original issue discount includible in income with respect to
such REMIC Regular Certificate.
A Certificateholder may elect to include market discount in income currently
as it accrues, rather than including it on a deferred basis in accordance with
the foregoing. If made, such election will apply to all market
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discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount), reduced by any
premium, in income as interest, based on a constant yield method. If such an
election were made for a REMIC Regular Certificate with market discount, the
Certificateholder is deemed to have made an election to currently include market
discount in income with respect to all other debt instruments having market
discount that such Certificateholder acquires during the year of the election or
thereafter. Similarly, a Certificateholder that makes this election for a
Certificate that is acquired at a premium is deemed to have made an election to
amortize bond premium, as described below, with respect to all debt instruments
having amortizable bond premium that such Certificateholder owns or acquires.
The election to accrue interest, discount and premium on a constant yield method
with respect to a Certificate is irrevocable without the consent of the IRS.
Under a statutory de minimis exception, market discount with respect to a
REMIC Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if such market discount is less than 0.25% of the
stated redemption price at maturity of such REMIC Regular Certificate
multiplied by the number of complete years to maturity remaining after the
date of its purchase. In interpreting a similar de minimis rule with respect
to original issue discount on obligations payable in installments, the OID
Regulations refer to the weighted average maturity of obligations, and it is
likely that the same rule will be applied in determining whether market
discount is de minimis. It appears that de minimis market discount on a REMIC
Regular Certificate would be treated in a manner similar to original issue
discount of a de minimis amount. See "Taxation of Holders of REMIC Regular
Certificates--Original Issue Discount." Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included using the method described above. However, Treasury
regulations implementing the market discount de minimis exception have not
been issued in proposed, temporary or final form, and the precise treatment of
de minimis market discount on obligations payable in more than one installment
therefore remains uncertain.
The 1986 Act grants authority to the Treasury Department to issue
regulations providing for the method for accruing market discount of more than
a de minimis amount on debt instruments, the principal of which is payable in
more than one installment. Until such time as regulations are issued by the
Treasury Department, certain rules described in the Committee Report might
apply. Under those rules, the holder of a bond purchased with more than de
minimis market discount may elect to accrue such market discount either on the
basis of a constant yield method or on the basis of the appropriate
proportionate method described below. Under the proportionate method for
obligations issued with original issue discount, the amount of market discount
that accrues during a period is equal to the product of (i) the total remaining
market discount, multiplied by (ii) a fraction, the numerator of which is the
original issue discount accruing during the period and the denominator of which
is the total remaining original issue discount at the beginning of the period.
Under the proportionate method for obligations issued without original issue
discount, the amount of market discount that accrues during a period is equal to
the product of (i) the total remaining market discount, multiplied by (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the period. The Prepayment
Assumption, if any, used in calculating the accrual of original issue discount
is to be used in calculating the accrual of market discount under any of the
above methods. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
Further, a purchaser generally will be required to treat a portion of any
gain on sale or exchange of a REMIC Regular Certificate as ordinary income to
the extent of the market discount accrued to the date of disposition under one
of the foregoing methods, less any accrued market discount previously reported
as ordinary income. Such purchaser also may be required to defer a portion of
its interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such REMIC Regular Certificate. Any
such deferred interest expense is, in general, allowed as a deduction not
later than the year in which the related market discount income is recognized.
If such holder elects to include market discount in income currently as it
accrues
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on all market discount instruments acquired by such holder in that taxable
year or thereafter, the interest deferral rule described above will not apply.
A REMIC Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated
redemption price at maturity will be considered to be purchased at a premium.
The holder of such a REMIC Regular Certificate may elect to amortize such
premium under the constant yield method. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the
Certificateholder as having made the election to amortize premium generally,
as described above. The Committee Report indicates a Congressional intent that
the same rules that will apply to accrual of market discount on installment
obligations will also apply in amortizing bond premium under Code Section 171
on installment obligations such as the REMIC Regular Certificates.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations (the "Proposed Premium Regulations") on the amoritization of bond
premium. The Proposed Premium Regulations describe the constant yield method
under which such premium is amoritized and provide that the resulting offset to
interest income can be taken into account only as a Certificateholder takes the
corresponding interest income into account under such holder's regular
accounting method. In the case of instruments that may be called or repaid prior
to maturity, the Proposed Premuim Regulations provide that the premium is
calculated by assuming that the issuer will exercise or not exercise its
redemption rights in the manner that maximizes the Certificateholder's yield and
the Certificatholder will exercise or not exercise its option in a manner that
maximizes the Certificateholder's Yield. The Proposed Premium Regulations are
proposed to be effective for debt instruments acquired on or after the date 60
days after the date final regulations are published in the Federal Register.
However, if a Certificateholder elects to amoritize bond premium for the taxable
year containing such effective date, the Proposed Premuim Regulations will apply
to all the Certificateholder's debt instruments held on or after the first day
of that taxable year. It cannot be predicted at this time whether the Proposed
Premuim Regulations will become effective or what, if any, modifictions will be
made to them prior to their becomming effective.
3. Treatment of Subordinated Certificates
As described above under "Credit Support--Subordinated Certificates," certain
Series of Certificates may contain one or more Classes or Subclasses of
Subordinated Certificates. Holders of Subordinated Certificates will be required
to report income with respect to such Certificates on the accrual method without
giving effect to delays and reductions in distributions attributable to defaults
or delinquencies on any Mortgage Loans, except possibly, in the case of income
that constitutes qualified stated interest, to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a Certificateholder of a Subordinated Certificate in any
period could significantly exceed the amount of cash distributed to such
Certificateholder in that period.
Although not entirely clear, it appears that a corporate holder or a holder
who holds a Regular Certificate in the course of a trade or business generally
should be allowed to deduct as an ordinary loss any loss sustained on account
of partial or complete worthlessness of a Subordinated Certificate. Although
similarly unclear, a noncorporate holder who does not hold such Regular
Certificate in the course of a trade or business generally should be allowed
to deduct as a short-term capital loss any loss sustained on account of complete
worthlessness of a Subordinated Certificate. Special rules are applicable to
banks and thrift institutions, including rules regarding reserves for bad debts.
Holders of Subordinated Certificates should consult their own tax advisers
regarding the appropriate timing, character and amount of any loss sustained
with respect to Subordinated Certificates.
E. Taxation of Owners of REMIC Residual Certificates
1. General
An owner of a REMIC Residual Certificate ("Residual Owner") generally will
be required to report its daily portion of the taxable income or, subject to
the limitation described below in "Taxation of Owners of REMIC Residual
Certificates--Basis Rules and Distributions," the net loss of the REMIC
Mortgage Pool for each day during a calendar quarter that the Residual Owner
owned such REMIC Residual Certificate. For this purpose, the daily portion will
be determined by allocating to each day in the calendar quarter, using a 30
days per month/90 days per quarter/360 days per year counting convention, its
ratable portion of the taxable income or net loss of the REMIC Mortgage Pool for
such quarter, and by allocating the daily portions among the Residual Owners (on
such day) in accordance with their percentage of ownership interests on such
day. Any amount included in the gross income of, or allowed as a loss to, any
Residual Owner by virtue of the rule referred to in this paragraph will be
treated as ordinary income or loss. Purchasers of REMIC Residual Certificates
should be aware that taxable income from such Certificates may exceed cash
distributions with respect thereto in any taxable year. For example, if the
Mortgage Loans are acquired by a REMIC at a discount, then the holder of a
residual interest may recognize income without
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corresponding cash distributions. This result could occur because a payment
produces recognition by the REMIC of discount on the Mortgage Loan while all or
a portion of such payment could be used in whole or in part to make principal
payments on REMIC Regular Certificates issued without substantial discount.
Taxable income may also be greater in earlier years as a result of the fact that
interest expense deductions, expressed as a percentage of the outstanding
principal amount of the REMIC Regular Certificates, will increase over time as
the lower yielding sequences of Certificates are paid, whereas interest income
with respect to any given Mortgage Loan will remain constant over time as a
percentage of the outstanding principal amount of that loan.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such Certificate will be taken into account
in determining the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisers concerning the treatment of such payments for
income tax purposes.
2. Taxable Income or Net Loss of the REMIC Trust Fund
The taxable income or net loss of the REMIC Mortgage Pool will reflect a
netting of income from the Mortgage Loans, any cancellation of indebtedness
income due to the allocation of Realized Losses to REMIC Regular Certificates,
and the deductions and losses allowed to the REMIC Mortgage Pool. Such taxable
income or net loss for a given calendar quarter will be determined in the same
manner as for an individual having the calendar year as his taxable year and
using the accrual method of accounting, with certain modifications. The first
modification is that a deduction will be allowed for accruals of interest
(including original issue discount) on the REMIC Regular Certificates. Second,
market discount equal to the excess of any Mortgage Loan's adjusted issue
price (as determined under "Taxation of Owners of REMIC Regular Certificates--
Market Discount and Premium") over its fair market value at the time of its
transfer to the REMIC Mortgage Pool generally will be included in income as it
accrues, based on a constant yield method and on the Prepayment Assumption. For
this purpose, the Master Servicer intends to treat the fair market value of the
Mortgage Loans as being equal to the aggregate issue prices of the REMIC Regular
Certificates and REMIC Residual Certificates; if one or more classes of REMIC
Regular Certificates or REMIC Residual Certificates are retained by the
Depositor, the Master Servicer will estimate the value of such retained
interests in order to determine the fair market value of the Mortgage Loans for
this purpose. Third, no item of income, gain, loss or deduction allocable to a
prohibited transaction (see "Prohibited Transactions and Other Possible REMIC
Taxes", below) will be taken into account. Fourth, the REMIC Mortgage Pool
generally may not deduct any item that would not be allowed in calculating the
taxable income of a partnership by virtue of Code Section 703(a)(2). Fifth, the
REMIC Regulations provide that the limitation on miscellaneous itemized
deductions imposed on individuals by Code Section 67 will not be applied at the
Mortgage Pool level to the servicing fees paid to the Master Servicer or sub-
servicers if any. (See, however, "Pass-Through of Servicing Fees", below.) If
the deductions allowed to the REMIC Mortgage Pool exceed its gross income for a
calendar quarter, such excess will be the net loss for the REMIC Mortgage Pool
for that calendar quarter.
3. Basis Rules and Distributions
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not be
included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC
Residual Certificate. Such distribution will reduce the adjusted basis of such
interest, but not below zero. To the extent a distribution exceeds the
adjusted basis of the REMIC Residual Certificate, it will be treated as gain
from the sale of the REMIC Residual Certificate. (See "Sales of REMIC
Certificates," below.) The adjusted basis of a REMIC Residual Certificate is
equal to the amount paid for such REMIC Residual Certificate, increased by
amounts included in the income of the Residual Owner (see "Taxation of Owners
of REMIC Residual Certificates--Daily Portions" above), and decreased by
distributions and by net losses taken into account with respect to such
interest.
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A Residual Owner is not allowed to take into account any net loss for any
calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Certificate.
The effect of these basis and distribution rules is that a Residual Owner
may not amortize its basis in a REMIC Residual Certificate, but may only
recover its basis through distributions, through the deduction of any net
losses of the REMIC Mortgage Pool or upon the sale of its REMIC Residual
Certificate. See "Sales of REMIC Certificates," below. The Residual Owner
does, however, receive reduced taxable income over the life of the REMIC
because the REMIC's basis in the underlying REMIC Mortgage Pool includes the
fair market value of the REMIC Regular Certificates and REMIC Residual
Certificates.
4. Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual Certificate are
subject to certain special tax rules. With respect to a Residual Owner, the
excess inclusion for any calendar quarter is defined as the excess (if any) of
the daily portions of taxable income over the sum of the "daily accruals" for
each day during such quarter that such REMIC Residual Certificate was held by
such Residual Owner. The daily accruals are determined by allocating to each
day during a calendar quarter its ratable portion of the product of the
"adjusted issue price" of the REMIC Residual Certificate at the beginning of
the calendar quarter and 120 percent of the long-term "applicable federal
rate" (generally, an average of current yields on Treasury securities of
comparable maturity, and hereafter the "AFR") in effect at the time of
issuance of the REMIC Residual Certificate. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of any
calendar quarter is the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters and decreased
by any distributions made with respect to such REMIC Residual Certificate
before the beginning of such quarter. The issue price of a REMIC Residual
Certificate is the initial offering price to the public (excluding bond houses
and brokers) at which a substantial amount of the REMIC Residual Certificates
were sold.
For Residual Owners, an excess inclusion cannot be offset by deductions,
losses or loss carryovers from other activities. However, net operating loss
carryovers are determined without regard to excess inclusion income. For
Residual Owners that are subject to tax on unrelated business taxable income (as
defined in Code Section 511), an excess inclusion is treated as unrelated
business taxable income. For Residual Owners that are nonresident alien
individuals or foreign corporations generally subject to United States 30%
withholding tax, even if interest paid to such Residual Owners is generally
eligible for exemptions from such tax, an excess inclusion will be subject to
such tax and no tax treaty rate reduction or exemption may be claimed with
respect thereto. See "Foreign Investors in REMIC Certificates." The SBJPA of
1996 has eliminated the special rule permitting Section 593 institutions
("thrift institutions") to use net operating losses and other allowable
deductions to offset their excess inclusion income from REMIC Residual
Certificates that have "significant value" within the meaning of the REMIC
Regulations, effective for taxable years beginning after December 31, 1995,
except with respect to Residual Certificates continuously held by thrift
institutions since November 1, 1995.
In addition. the SBJPA of 1996 provides three rules for determining the effect
of excess inclusions on the alternative minimum taxable income of a Residual
Owner. First, alternative minimum taxable income for a Residual Owner is
determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Owner's
alternative minimum taxable income for a taxable year cannot be less than the
excess inclusions for the year. Third, the amount of any alternative minimum
tax net operating loss deduction must be computed without regard to any excess
inclusions. These rules are effective for taxable years beginning after
December 31, 1986, unless a Residual Owner elects to have such rules apply only
to taxable years beginning after August 20, 1996.
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In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder.
5. Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the
purported transferor will continue to remain liable for any taxes due with
respect to the income on such "noneconomic" REMIC Residual Certificate. The
REMIC Regulations provide that a REMIC Residual Certificate is noneconomic
unless, at the time of its transfer and based on the Prepayment Assumption and
any required or permitted clean up calls or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the AFR) on the REMIC Residual
Certificate equals at least the product of the present value of the anticipated
excess inclusions and the highest tax rate applicable to corporations for the
year of the transfer, and (2) the transferor reasonably expects that the
transferee will receive distributions with respect to the REMIC Residual
Certificate at or after the time the taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. Accordingly,
all transfers of REMIC Residual Certificates that may constitute noneconomic
residual interests will be subject to certain restrictions under the terms of
the related Pooling and Servicing Agreement that are intended to reduce the
possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee.
Prior to purchasing a REMIC Residual Certificate, prospective purchasers should
consider the possibility that a purported transfer of such REMIC Residual
Certificate by such a purchaser to another purchaser at some future date may be
disregarded in accordance with the above-described rules, which would result in
the retention of tax liability by such purchaser. The applicable Prospectus
Supplement will disclose whether offered REMIC Residual Certificates may be
considered "noneconomic" residual interests under the REMIC Regulations;
provided, however, that any disclosure that a REMIC Residual Certificate will or
will not be considered "noneconomic" will be based upon certain assumptions, and
the Depositor will make no representation that a REMIC Residual Certificate will
not be considered "noneconomic" for purposes of the above-described rules or
that a REMIC Residual Owner will receive distributions calculated pursuant to
such assumptions. See "Foreign Investors in REMIC Certificates" below for
additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
6. Tax-Exempt Investors
Tax-exempt organizations (including employee benefit plans) that are subject
to tax on unrelated business taxable income (as defined in Code Section 511)
will be subject to tax on any excess inclusions attributed to them as owners
of Residual Certificates. Excess inclusion income associated with a Residual
Certificate may significantly exceed cash distributions with respect thereto.
See "Excess Inclusions".
Generally, tax-exempt organizations that are not subject to federal income
taxation on "unrelated business taxable income" pursuant to Code Section 511
are treated as "disqualified organizations" under provisions of the "Technical
and Miscellaneous Revenue Act of 1988" (the "1988 Act"). Under provisions of the
Pooling and Servicing Agreement, such organizations generally are prohibited
from owning Residual Certificates. See "Sales of REMIC Certificates".
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7. Real Estate Investment Trusts
If the applicable Prospectus Supplement so provides, a Mortgage Pool may
hold Mortgage Loans bearing interest based wholly or partially on Mortgagor
profits, Mortgaged Property appreciation, or similar contingencies. Such
interest, if earned directly by a real estate investment trust ("REIT"), would
be subject to the limitations of Code Sections 856(f) and 856(j). Treasury
Regulations treat a REIT holding a REMIC Residual Certificate for a principal
purpose of avoiding such Code provisions as receiving directly the income of
the REMIC Mortgage Pool, hence potentially jeopardizing its qualification for
taxation as a REIT and exposing such income to taxation as a prohibited
transaction at a 100 percent rate.
8. Mark-to-Market Rules
Code Section 475 generally requires that securities dealers include
securities in inventory at their fair market value, recognizing gain or loss
as if the securities were sold at the end of each tax year. Prospective
purchasers of the REMIC Residual Certificates should be aware that on January
3, 1995, the Internal Revenue Service released proposed regulations (the
"Proposed Mark to Market Regulations") under Code Section 475 relating to the
requirement that a securities dealer mark to market securities held for sale
to customers. This mark-to-market requirement applies to all securities of a
dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The Proposed Mark to Market Regulations
provide that, for purposes of this mark-to-market requirement, a REMIC
Residual Certificate is not treated as a security and thus may not be marked
to market. The Proposed Mark to Market Regulations would apply to all REMIC
Residual Certificates acquired on or after January 4, 1995.
F. Sales of REMIC Certificates
If a REMIC Certificate is sold, the seller will recognize gain or loss equal
to the difference between the amount realized on the sale and its adjusted
basis in the REMIC Certificate. The adjusted basis of a REMIC Regular
Certificate generally will equal the cost of such REMIC Regular Certificate to
the seller, increased by any original issue discount or market discount
included in the seller's gross income with respect to such REMIC Regular
Certificate and reduced by premium amortization deductions and distributions
previously received by the seller of amounts included in the stated redemption
price at maturity of such REMIC Regular Certificate. The adjusted basis of a
REMIC Residual Certificate will be determined as described under "Taxation of
Owners of REMIC Residual Certificates--Basis Rules and Distributions." Gain
from the disposition of a REMIC Regular Certificate that might otherwise be
treated as a capital gain will be treated as ordinary income to the extent
that such gain does not exceed the excess, if any, of (i) the amount that
would have been includible in such holder's income had income accrued at a
rate equal to 110% of the AFR as of the date of purchase over (ii) the amount
actually includible in such holder's income. Except as otherwise provided
under "Taxation of Owners of REMIC Regular Certificates--Market Discount and
Premium" and under Code Section 582(c), any additional gain or any loss on the
sale or exchange of a REMIC Certificate will be capital gain or loss, provided
such REMIC Certificate is held as a capital asset (generally, property held
for investment) within the meaning of Code Section 1221. The Code currently
provides for a top marginal tax rate of 39.6% for individuals while
maintaining a maximum marginal rate for the long-term capital gains of
individuals at 28%. There is no such rate differential for corporations. In
addition, the distinction between a capital gain or loss and ordinary income
or loss remains relevant for other purposes, including limitations on the use
of capital losses to offset ordinary income.
All or a portion of any gain from the sale of a REMIC Certificate that might
otherwise be capital gain may be treated as ordinary income (i) if such
Certificate is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
holder's net investment in the conversion transaction at 120% of the
appropriate applicable Federal rate under Code Section 1274(d) in effect at
the time the taxpayer entered into the transaction reduced by any amount treated
as ordinary income with respect to any prior disposition or other termination of
a position that was held as part of such transaction, or (ii) in the case of a
noncorporate taxpayer that has made an election under Code Section 163(d)(4) to
have net capital gains taxed as investment income at ordinary income rates.
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If a Residual Owner sells a REMIC Residual Certificate at a loss, the loss
will not be recognized if, within six months before or after the sale of the
REMIC Residual Certificate, such Residual Owner purchases another residual in
any REMIC or any interest in a taxable mortgage pool (as defined in Code
Section 7701(i)) comparable to a residual interest in a REMIC. Such disallowed
loss will be allowed upon the sale of the other residual interest (or
comparable interest) if the rule referred to in the preceding sentence does
not apply to that sale. While the Committee Report states that this rule may
be modified by Treasury regulations, the REMIC Regulations do not address this
issue and it is not clear whether any such modification will in fact be
implemented or, if implemented, what its precise nature or effective date
would be.
The 1988 Act makes transfers of a REMIC Residual Certificate to certain
"disqualified organizations" subject to an additional tax on the transferor in
an amount equal to the maximum corporate tax rate applied to the present value
(using a discount rate equal to the AFR) of the total anticipated excess
inclusions with respect to such residual interest for the periods after the
transfer. For this purpose, "disqualified organizations" includes the United
States, any state or political subdivision of a state, any foreign government or
international organization or any agency or instrumentality of any of the
foregoing; any tax-exempt entity (other than a Code Section 521 cooperative)
which is not subject to the tax on unrelated business income; and any rural
electrical or telephone cooperative. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred and
must be based on events that have occurred up to the time of such transfer, the
Prepayment Assumption, and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. The tax
generally is imposed on the transferor of the REMIC Residual Certificate, except
that it is imposed on an agent for a disqualified organization if the transfer
occurs through such agent. The Pooling and Servicing Agreement requires, as a
prerequisite to any transfer of a Residual Certificate, the delivery to the
Trustee of an affidavit of the transferee to the effect that it is not a
disqualified organization and contains other provisions designed to render any
attempted transfer of a Residual Certificate to a disqualified organization
void.
In addition, if a "pass-through entity" includes in income excess inclusions
with respect to a REMIC Residual Certificate, and a disqualified organization
is the record holder of an interest in such entity at any time during any
taxable year of such entity, then a tax will be imposed
on such entity equal to the product of (i) the amount of excess inclusions on
the REMIC Residual Certificate for such taxable year that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
the record holder of an interest in such entity furnishes to such entity (i)
such holder's social security number and a statement under penalties of perjury
that such social security number is that of the record holder or (ii) a
statement under penalties of perjury that such record holder is not a
disqualified organization. For these purposes, a "pass-through entity" means any
regulated investment company, real estate investment trust, trust, partnership
or certain other entities described in Code Section 860E(e)(6). In
addition, a person holding an interest in a pass-through entity as a nominee for
another person shall, with respect to such interest, be treated as a pass-
through entity.
G. Pass-Through of Servicing Fees
The general rule is that Residual Owners take into account taxable income or
net loss of the related REMIC Mortgage Pool. Under that rule, servicing
compensation of the Master Servicer and the subservicers (if any) will be
allocated to the holders of the REMIC Residual Certificates, and therefore will
not affect the income or deductions of holders of REMIC Regular Certificates.
However, in the case of a "single-class REMIC", such expenses and an equivalent
amount of additional gross income will be allocated among all holders of REMIC
Regular Certificates and REMIC Residual Certificates for purposes of the
limitations on the
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deductibility of certain miscellaneous itemized deductions by individuals
contained in Code Sections 56(b)(1) and 67. Generally, any holder of a REMIC
Residual Certificate and any holder of a REMIC Residual Certificate issued by a
"single-class REMIC" who is an individual, estate or trust (including such a
person that holds an interest in a pass-through entity holding such a REMIC
Certificate) will be able to deduct such expenses in determining regular taxable
income only to the extent that such expenses together with certain other
miscellaneous itemized deductions of such individual, estate or trust exceed 2%
of adjusted gross income; such a holder may not deduct such expenses to any
extent in determining liability for alternative minimum tax. Accordingly, REMIC
Residual Certificates, and REMIC Regular Certificates receiving an allocation of
servicing compensation, may not be appropriate investments for individuals,
estates or trusts, and such persons should carefully consult with their own tax
advisers regarding the advisability of an investment in such Certificates.
A "single-class REMIC" is a REMIC that either (i) would be treated as an
investment trust under the provisions of Treasury Regulation Section 301.7701-
4(c) in the absence of a REMIC election, or (ii) is substantially similar to
such an investment trust and is structured with the principal purpose of
avoiding the allocation of investment expenses to holders of REMIC Regular
Certificates. The Depositor intends (subject to certain exceptions which, if
applicable, will be stated in the applicable Prospectus Supplement) to treat
each REMIC Mortgage Pool as other than a "single-class REMIC," consequently
allocating servicing compensation expenses and related income amounts entirely
to REMIC Residual Certificates and in no part to REMIC Regular Certificates.
H. Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMIC Mortgage Pools equal to 100 percent of the
net income derived from "prohibited transactions". In general, a prohibited
transaction means the disposition of a Mortgage Loan other than pursuant to
certain specified exceptions, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the REMIC Certificates. The Code also imposes a 100 percent
tax on the value of any contribution of assets to the REMIC after the "startup
day" (the day on which the regular and residual interests are issued),
other than pursuant to specified exceptions, and subjects "net income from
foreclosure property" to tax at the highest corporate rate. It is not
anticipated that a REMIC Mortgage Pool will engage in any such transactions or
receive any such income.
I. Termination of a REMIC Trust Fund
In general, no special tax consequences will apply to a holder of a REMIC
Regular Certificate upon the termination of the REMIC Mortgage Pool by virtue
of the final payment or liquidation of the last Mortgage Loan remaining in the
REMIC Mortgage Pool. If a Residual Owner's adjusted basis in its REMIC
Residual Certificate at the time such termination occurs exceeds the amount of
cash distributed to such Residual Owner in liquidation of its interest, then,
although the matter is not entirely free from doubt, it appears that the
Residual Owner would be entitled to a loss (which could be a capital loss)
equal to the amount of such excess.
J. Reporting and Other Administrative Matters of REMICs
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. Certain holders of REMIC
Regular Certificates who are generally exempt from information reporting on
debt instruments, such as corporations, banks, registered securities or
commodities brokers, real estate investment trusts, registered investment
companies, common trust funds, charitable remainder annuity trusts and
unitrusts, will be provided interest and original issue discount income
information and the information set forth in the following paragraph upon
request in accordance with the requirements of the Treasury regulations. The
information must be provided by the later of 30 days after the end of the
quarter for which the information was requested, or two weeks after the
receipt of the request. The REMIC Mortgage Pool must also comply with rules
requiring the face of a REMIC Certificate issued at more than a de minimis
discount to disclose the amount of
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original issue discount and the issue date and requiring such information to
be reported to the Treasury Department.
The REMIC Regular Certificate information reports must include a statement
of the "adjusted issue price" of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports must include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC
Mortgage Pool may not have, it appears that this provision will only require
information pertaining to the appropriate proportionate method of accruing
market discount.
The responsibility for complying with the foregoing reporting rules will be
borne by the Master Servicer.
For purposes of the administrative provisions of the Code, REMIC Pools will
be treated as partnerships and the holders of Residual Certificates will be
treated as partners. The Master Servicer will file federal income tax
information returns on behalf of the related REMIC Pool, and will be
designated as agent for and will act on behalf of the "tax matters person"
with respect to the REMIC Pool in all respects.
As agent for the tax matters person, the Master Servicer will, subject to
certain notice requirements and various restrictions and limitations,
generally have the authority to act on behalf of the REMIC and the Residual
Owners in connection with the administrative and judicial review of items of
income, deduction, gain or loss of the REMIC Mortgage Pool, as well as the
REMIC Mortgage Pool's classification. Residual Owners will generally be
required to report such REMIC Mortgage Pool items consistently with their
treatment on the REMIC Mortgage Pool's federal income tax information return
and may in some circumstances be bound by a settlement agreement between the
Master Servicer, as agent for the tax matters person, and the IRS concerning
any such REMIC Mortgage Pool item. Adjustments made to the REMIC Mortgage Pool
tax return may require a Residual Owner to make corresponding adjustments on
its return, and an audit of the REMIC Mortgage Pool's tax return, or the
adjustments resulting from such an audit, could result in an audit of a
Residual Owner's return.
K. Backup Withholding with Respect to REMIC Certificates
Payments of interest and principal on REMIC Regular Certificates, as well as
payment of proceeds from the sale of REMIC Certificates, may be subject to the
"backup withholding tax" under Code Section 3406 at a rate of 31 percent if
recipients of such payments fail to furnish to the payor certain information,
including their taxpayer identification numbers, or otherwise fail to establish
an exemption from such tax. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of payments that is required to supply information but
that does not do so in the manner required.
L. Foreign Investors in REMIC Certificates
1. REMIC Regular Certificates
Except as qualified below, payments made on a REMIC Regular Certificate to a
REMIC Regular Certificateholder that is not a U.S. Person, as hereinafter
defined (a "non-U.S. Person"), or to a person acting on behalf of such a
Certificateholder, generally will be exempt from U.S. federal income and
withholding taxes, provided that (a) the holder of the Certificate is not
subject to U.S. tax as a result of a connection to the United States other
than ownership of such Certificate, (b) the holder of such Certificate signs a
statement under penalties of perjury that certifies that such holder is a Non-
U.S. Person, and provides the name and address of such holder, and (c) the
last U.S. Person in the chain of payment to the holder receives such statement
from such holder or a financial institution holding on its behalf and does not
have actual knowledge that such statement is false. If the holder does not
qualify for exemption, distributions of interest, including distributions in
respect
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of accrued original issue discount, to such holder may be subject to a
withholding tax rate of 30 percent, subject to reduction under an applicable
tax treaty.
"U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity treated as a corporation or partnership
for United States federal income tax purposes, created or organized in or under
the laws of the United States or any political subdivision thereof, or an estate
or trust that is subject to U.S. federal income tax regardless of the source of
its income.
Holders of REMIC Regular Certificates should be aware that the IRS may take
the position that exemption from U.S. withholding taxes does not apply to such a
holder that also directly or indirectly owns 10 percent or more of the REMIC
Residual Certificates. Further, the foregoing rules will not apply to exempt a
"United States shareholder" (as such term is defined in Code Section 951) of a
controlled foreign corporation from taxation on such United States shareholder's
allocable portion of the interest or original issue discount income earned by
such controlled foreign corporation.
2. REMIC Residual Certificates
Amounts paid to a Residual Owner that is not a "U.S. Person" (as defined
above) (a "non-U.S. Person") generally will be treated as interest for purposes
of applying the withholding tax on non-U.S. Persons with respect to income on
its REMIC Residual Certificate. However, it is unclear whether distributions on
REMIC Residual Certificates will be eligible for the general exemption from
withholding tax that applies to REMIC Regular Certificates as described above.
Treasury Regulations provide that, for purposes of the portfolio interest
exception, payments to the foreign owner of a REMIC Residual Certificate are to
be considered paid on the obligations held by the REMIC, rather than on the
Certificate itself. Such payments will thus only qualify for the portfolio
interest exception if the underlying obligations held by the REMIC would so
qualify. Such withholding tax generally is imposed at a rate of 30 percent but
is subject to reduction under any tax treaty applicable to the Residual Owner.
However, there is no exemption from withholding tax nor may the rate of such tax
be reduced, under a tax treaty or otherwise, with respect to any distribution of
income that is an excess inclusion. Although no regulations have been proposed
or adopted addressing withholding on residual interests held by non-U.S.
Persons, the provisions of the REMIC Regulations, described below, relating to
the transfer of residual interests to non-U.S. Persons can be read as implying
that withholding with respect to excess inclusion income is to be determined by
reference to the amount of the accrued excess inclusion income rather than to
the amount of cash distributions. If the IRS were successfully to assert such a
position, cash distributions on Residual Certificates held by non-U.S. Persons
could be subject to withholding at rates as high as 100 percent, depending on
the relationship of accrued excess inclusion income to cash distributions with
respect to such Residual Certificates. See "Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions."
Certain restrictions relating to transfers of REMIC Residual Certificates to
and by investors who are non-U.S. Persons are also imposed by the REMIC
Regulations. First, transfers of REMIC Residual Certificates to a non-U.S.
Person that have "tax avoidance potential" are disregarded for all federal
income tax purposes. If such transfer is disregarded, the purported transferor
of such a REMIC Residual Certificate to a non-U.S. Person continues to
remain liable for any taxes due with respect to the income on such REMIC
Residual Certificate. A transfer of a REMIC Residual Certificate has tax
avoidance potential unless, at the time of the transfer, the transferor
reasonably expects (1) that the REMIC will distribute to the transferee Residual
Certificateholder amounts that will equal at least 30 percent of each excess
inclusion, and (2) that such amounts will be distributed at or after the time at
which the excess inclusion accrues and not later than the close of the calendar
year following the calendar year of accrual. This rule does not apply to
transfers if the income from the REMIC Residual Certificate is taxed in the
hands of the transferee as income effectively connected with the conduct of a
U.S. trade or business. Second, if a non-U.S. Person transfers a REMIC Residual
Certificate to a U.S. Person (or to a non-U.S. Person in whose hands income from
the REMIC Residual Certificate would be effectively connected), and the transfer
has the effect of allowing the transferor to avoid tax on accrued excess
inclusions, that transfer is disregarded for all federal income tax purposes and
the purported non-U.S. Person transferor continues to be treated as the owner of
the REMIC Residual Certificate. Thus, the REMIC's liability to withhold 30
percent of the accrued excess inclusions is not terminated even though the REMIC
Residual Certificate is no longer held by a non-U.S. Person.
Holders of REMIC Regular Certificates and REMIC Residual Certificates should
be aware that proposed Treasury Regulations (the "1996 Proposed Regulations")
were issued on April 15, 1996 which, if adopted in final form, could affect the
United States taxation of foreign investors in REMIC Certificates. The 1996
Proposed Regulations are generally proposed to be effective for payments after
December 31, 1997, regardless of the issue date of the REMIC Certificate with
respect to which such payments are made, subject to certain transition rules.
One of the effects of the 1996 Proposed Regulations would be to provide certain
presumptions with respect to withholding for holders not provideng the required
certifications to qualify for the withholding exemption described above. In
addition, the 1996 Proposed Regulations would replace a number of current tax
certification forms with a single, restated form and standardize the period of
time for which withholding agents could rely on such certifications. The 1996
Proposed Regulations would also provide rules to determine whether, for purposes
of United States federal withholding tax, interest paid to a non-U.S. Person
that is an entity should be treated as paid to the entity or those holding an
interest in that entity.
The discussion under this heading is not intended to be a complete discussion
of the provisions of the 1996 Proposed Reguations, and prospective investors are
urged to consult their tax advisers with respect to the effect the 1996 Proposed
Regulations may have.
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M. State and Local Taxation
Many states do not automatically conform to changes in the federal income
tax laws. Consequently, a REMIC Mortgage Pool that would not qualify as a
fixed investment trust for federal income tax purposes may be characterized as
a corporation, a partnership, or some other entity for purposes of state
income tax law. Such characterization could result in entity level income or
franchise taxation of the REMIC Mortgage Pool formed in, owning mortgages or
property in, or having servicing activity performed in a state without
conforming REMIC provisions in its income or franchise tax law. Further, REMIC
Regular Certificateholders resident in non-conforming states may have their
ownership of REMIC Regular Certificates characterized as an interest other
than debt of the REMIC such as stock or a partnership interest. Investors are
advised to consult their tax advisers concerning the state and local income
tax consequences of their purchase and ownership of REMIC Regular
Certificates.
III. NON-REMIC TRUST FUNDS
A. Classification of Trust Funds
With respect to each series of Trust Certificates for which they are
identified as counsel to the Depositor in the applicable Prospectus
Supplement, Brown & Wood LLP, Cadwalader, Wickersham & Taft, Dewey Ballantine,
Orrick, Herrington & Sutcliffe LLP, or Sidley & Austin will deliver their
opinion to the effect that the arrangements pursuant to which such Trust Fund
will be administered and such Trust Certificates will be issued will not be
classified as an association taxable as a corporation and that each such Trust
Fund will be classified as a trust whose taxation will be governed by the
provisions of subpart E, Part I of subchapter J of the Code.
B. Characterization of Investments in Trust Certificates
1. Trust Fractional Certificates
In the case of Trust Fractional Certificates, counsel to the Depositor will
deliver an opinion that, in general (and subject to the discussion below of
Contracts and under "Buydown Mortgage Loans"), (i) Trust Fractional Certificates
held by a thrift institution taxed as a "domestic building and loan association"
will represent "loans . . . secured by an interest in real property" within the
meaning of Code Section 7701 (a)(19)(C)(v); (ii) Trust Fractional Certificates
held by a real estate investment trust will represent "real estate assets"
within the meaning of Code Section 856(c)(5)(A) and interest on Trust Fractional
Certificates will be considered "interest on obligations secured by mortgages on
real property or on interests in real property" within the meaning of Code
Section 856(c)(5)(B); and (iii) Trust Fractional Certificates acquired by a
REMIC in accordance with the requirements of Code Section 860G(a)(3)(A)(i) and
(ii) or Section 860G(a)(4)(B) will be treated as "qualified mortgages" within
the meaning of Code Section 860D(a)(4). In the case of a Trust Fractional
Certificate evidencing interests in Contracts, such Certificates will qualify
for the treatment described in (i) through (iii) of the preceding sentence only
to the extent of the fraction of such Certificate corresponding to the fraction
of the Contract Pool that consists of Contracts that would receive such
treatment if held directly by the Trust Fractional Certificateholder.
2. Trust Interest Certificates
With respect to each Series of Certificates for which they are identified as
counsel to the Depositor in the applicable Prospectus Supplement, Brown & Wood
LLP, Cadwalader, Wickersham & Taft, Dewey Ballantine, Orrick, Herrington &
Sutcliffe LLP, or Sidley & Austin will advise the Depositor that in their
opinion, based on the legislative history, a REMIC that acquires a Trust
Interest Certificate in accordance with the requirements of Code Section
860G(a)(3)(A)(i) and (ii) or Section 860G(a)(4)(B) will be treated as owning a
"Qualified Mortgage" within the meaning of Code Section 860(G)(a)(3).
Although there appears to be no policy reason not to accord to Trust Interest
Certificates the treatment described above for Trust Fractional Certificates,
there is no authority addressing such characterization for
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instruments similar to Trust Interest Certificates. Consequently, it is
unclear to what extent, if any, (1) a Trust Interest Certificate owned by a
"domestic building and loan association" within the meaning of Code Section
7701(a)(19) will be considered to represent "loans . . . secured by an
interest in real property" within the meaning of Code Section
7701(a)(19)(C)(v); or (2) a real estate investment trust which owns a Trust
Interest Certificate will be considered to own "real estate assets" within the
meaning of Code Section 856(c)(5)(A), and interest income thereon will be
considered "interest on obligations secured by mortgages on real property"
within the meaning of Code Section 856(c)(3)(B). Prospective purchasers to which
such characterization of an investment in Trust Interest Certificates is
material should consult their own tax advisers regarding whether the Trust
Interest Certificates, and the income therefrom, will be so characterized.
3. Buydown Mortgage Loans
It is contemplated that the assets of certain Trust Funds may include
Buydown Mortgage Loans. The characterization of an investment in Buydown
Mortgage Loans will depend upon the precise terms of the related Buydown
Agreement. There are no directly applicable precedents with respect to the
federal income tax treatment or the characterization of investments in Buydown
Mortgage Loans. Accordingly, holders of Trust Certificates should consult
their own tax advisers with respect to characterization of investments in
Trust Funds that include Buydown Mortgage Loans.
Although the matter is not entirely free from doubt, the portion of a Trust
Certificate representing an interest in Buydown Mortgage Loans may be
considered to represent an investment in "loans . . . secured by an interest
in real property" within the meaning of Code Section 7701(a)(19)(C)(v) and
"qualifying real property loans" within the meaning of Code Section 593(d) to
the extent the outstanding principal balance of the Buydown Mortgage Loans
exceeds the amount held from time to time in the Buydown Fund. It is also
possible that the entire interest in Buydown Mortgage Loans may be so
considered, because the fair market value of the real property securing each
Buydown Mortgage Loan will exceed the amount of such loan at the time it is
made. Purchasers and their tax advisers are advised to review Section 1.593-
11(d)(2) of the Treasury Regulations, which suggests that this latter
treatment may be available, and to compare Revenue Ruling 81-203, 1981-2 C.B.
137, which may be read to imply that apportionment is generally required
whenever more than a minimal amount of assets other than real property may be
available to satisfy purchasers' claims.
For similar reasons, the portion of such Trust Certificate representing an
interest in Buydown Mortgage Loans may be considered to represent "real estate
assets" within the meaning of Code Section 856(c)(5)(A). Purchasers and their
tax advisers are advised to review Section 1.856-5(c)(1)(i) of the Treasury
Regulations, which specifies that if a mortgage loan is secured by both real
property and by other property and the value of the real property alone equals
or exceeds the amount of the loan, then all interest income will be treated as
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B).
C. Taxation of Owners of Trust Fractional Certificates
Each holder of a Trust Fractional Certificate (a "Trust Fractional
Certificateholder") will be treated as the owner of an undivided percentage
interest in the principal of, and possibly a different undivided percentage
interest in the interest portion of, each of the Trust Funds included in a
Mortgage Pool. Accordingly, each Trust Fractional Certificateholder must
report on its federal income tax return its allocable share of income from its
interests, as described below, at the same time and in the same manner as if it
had held directly interests in the Mortgage Loans and received directly its
share of the payments on such Mortgage Loans. Because those interests represent
interests in "stripped bonds" or "stripped coupons" within the meaning of Code
Section 1286, such interests would be considered to be newly issued debt
instruments, and thus to have no market discount or premium, and the amount of
original issue discount may differ from the amount of original issue discount on
the Mortgage Loans and the amount includible in income on account of a Trust
Fractional Certificate may differ significantly from the amount payable thereon
from payments of interest on the Mortgage Loans. Each Trust Fractional
Certificateholder may report and deduct its allocable share of the servicing and
related fees and expenses paid to or retained by the Company at the same
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time, to the same extent, and in the same manner as such items would have been
reported and deducted had it held directly interests in the Mortgage Loans and
paid directly its share of the servicing and related fees and expenses. A
holder of a Trust Fractional Certificate who is an individual, estate or trust
will be allowed a deduction for servicing fees in determining its regular tax
liability only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income,
and will be allowed no deduction for such fees in determining its liability for
alternative minimum tax. Amounts received by Trust Fractional Certificateholders
in lieu of amounts due with respect to any Mortgage Loan but not received by the
Depositor from the Mortgagor will be treated for federal income tax purposes as
having the same character as the payments which they replace.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Stripped Mortgage Loans
should read the material under the headings "Application of Stripped Bond
Rules," "Market Discount and Premium" and "Allocation of Purchase Price" for a
discussion of particular rules applicable to their Certificates. A "Stripped
Mortgage Loan" means a Mortgage Loan having a Retained Yield (as that term is
defined below) or a Mortgage Loan included in a Trust Fund having either Trust
Interest Certificates or more than one class of Trust Fractional Certificates or
identified in the Prospectus Supplement as related to a Class of Trust
Certificates identified as representing interests in Stripped Mortgage Loans.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Unstripped Mortgage Loans
should read the material under the headings "Treatment of Unstripped
Certificates", "Market Discount and Premium", and "Allocation of Purchase
Price" for a discussion of particular rules applicable to their Certificates.
However, the IRS has indicated that under some circumstances it will view a
portion of servicing and related fees and expenses paid to or retained by the
Master Servicer or sub-servicers as an interest in the Mortgage Loans,
essentially equivalent to that portion of interest payable with respect to
each Mortgage Loan that is retained by the Depositor ("Retained Yield"). If
such a view were sustained with respect to a particular Trust Fund, such
purchasers would be subject to the rules set forth under "Application of
Stripped Bond Rules" rather than those under "Treatment of Unstripped
Certificates". The Depositor does not expect any Servicing Fee or Master
Servicing Fee to constitute a retained interest in the Mortgage Loans;
nevertheless, any such expectation generally will be a matter of uncertainty,
and prospective purchasers are advised to consult their own tax advisers with
respect to the existence of a retained interest and any effects on investment in
Trust Fractional Certificates.
1. Application of Stripped Bond Rules
Each Trust Fund will consist of an interest in each of the Mortgage Loans
relating thereto, exclusive of the Depositor's Retained Yield, if any. With
respect to each Series of Certificates for which they are identified as counsel
to the Depositor in the applicable Prospectus Supplement, Brown & Wood LLP,
Cadwalader, Wickersham & Taft, Dewey Ballantine, Orrick, Herrington & Sutcliffe,
LLP, or Sidley & Austin will advise the Depositor that, in their opinion, any
Retained Yield will be treated for federal income tax purposes as an ownership
interest retained by the Depositor in a portion of each interest payment on the
underlying Mortgage Loans. The sale of the Trust Certificates associated with
any Trust Fund for which there is a class of Trust Interest Certificates or two
or more Classes of Trust Fractional Certificates bearing different interest
rates or of Trust Certificates identified in the Prospectus Supplement as
representing interests in Stripped Mortgage Loans (subject to certain exceptions
which, if applicable, will be stated in the applicable Prospectus Supplement)
will be treated for federal income tax purposes as having effected a separation
in ownership between the principal of each Mortgage Loan and some or all of the
interest payable thereon. As a consequence, each Stripped Mortgage Loan will
become subject to the "stripped bond" rules of the Code (the "Stripped Bond
Rules"). The effect of applying those rules will generally be to require each
Trust Fractional Certificateholder to accrue and report income attributable to
its share of the principal and interest on each of the Stripped Mortgage Loans
as original issue discount on the basis of the yield to maturity of such
Stripped Mortgage Loans, as determined in accordance with the provisions of the
Code dealing with original issue discount. For a description of the general
method of calculating original issue discount, see "REMIC Trust Funds--Taxation
of Owners of REMIC Regular Certificates--Original Issue
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Discount". The yield to maturity of a Trust Fractional Certificateholder's
interest in the Stripped Mortgage Loans will be calculated taking account of
the price at which the holder purchased the Certificate and the holder's share
of the payments of principal and interest to be made thereon. Although the
provisions of the Code and the OID Regulations do not directly address the
treatment of instruments similar to Trust Fractional Certificates, in
reporting to Trust Fractional Certificateholders the Trustee intends to treat
such Certificates as a single obligation with payments corresponding to the
aggregate of the payments allocable thereto from each of the Mortgage Loans, and
to determine the amount of original issue discount on such certificates
accordingly. See "Aggregate Reporting".
Under Treasury regulations, original issue discount so determined with
respect to a particular Stripped Mortgage Loan may be considered to be zero
under the de minimis rule described above, in which case it is treated as
market discount. See "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount". Those regulations also provide that
original issue discount so determined with respect to a particular Stripped
Mortgage Loan will be treated as market discount if the rate of interest on
the Stripped Mortgage Loan, including a reasonable Servicing Fee, is no more
than one percentage point less than the unstripped rate of interest. See "--
Market Discount and Premium". The Trustee intends to apply the foregoing de
minimis and market discount rules on an aggregate poolwide basis, although it
is possible that investors may be required to apply them on a loan by loan
basis. The loan by loan information required for such application of those rules
may not be available. See "Aggregate Reporting".
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Subsequent purchasers of the Certificates may be required to include "original
issue discount" in an amount computed using the price at which such subsequent
purchaser purchased the Certificates. Further, such purchasers may be required
to determine if the above described de minimis and market discount rules apply
at the time a Trust Fractional Certificate is acquired, based on the
characteristics of the Mortgage Loans at that time.
Variable Rate Certificates. Purchasers of Trust Fractional Certificates
bearing a variable rate of interest should be aware that there is considerable
uncertainty concerning the application of the OID Regulations to Mortgage Loans
bearing a variable rate of interest. Although such regulations are subject to a
different interpretation, as discussed below, in the absence of other contrary
authority in preparing reports furnished to Certificateholders the Trustee
intends to treat Stripped Mortgage Loans bearing a variable rate of interest
(other than those treated as having market discount pursuant to the regulations
described above) as subject to the provisions therein governing variable rate
debt instruments. The effect of the application of such provisions generally
will be to cause Certificateholders holding Trust Fractional Certificates
bearing interest at a Single Variable Rate or at a Multiple Variable Rate (as
defined above under "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount") to accrue original issue discount and
interest as though the value of each variable rate were a fixed rate, which is
(a) for each qualified floating rate, the value of each such rate as of the
Closing Date (with appropriate adjustment for any differences in intervals
between interest adjustment dates), (b) for a qualified inverse floating rate,
the value of the rate as of Closing Date, and (c) for any other objective rate,
the fixed rate that reflects the yield that is reasonably expected for the Trust
Fractional Certificate. If the interest paid or accrued with respect to such
Variable Rate Trust Fractional Certificate during an accrual period differs from
the assumed fixed interest rate, such difference will be an adjustment (to
interest or original issue discount, as applicable) to the Certificateholder's
taxable income for the taxable period or periods to which such difference
relates.
Prospective purchasers of Trust Fractional Certificates bearing a variable
rate of interest should be aware that the provisions in the OID Regulations
applicable to variable rate debt instruments
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may not apply to certain adjustable and variable rate mortgage loans, possibly
including the Mortgage Loans, or to Stripped Certificates representing interests
in such Mortgage Loans. If variable rate Trust Fractional Certificates are not
governed by the provisions of the OID Regulations applicable to variable rate
debt instruments, such Certificates may be subject to the provisions of the 1996
Contingent Debt Regulations. The application of those provisions to instruments
such as the Trust Fractional Certificates is subject to differing
interpretations. Prospective purchasers of variable rate Trust Fractional
Certificates are advised to consult their tax advisers concerning the tax
treatment of such Certificates.
Aggregate Reporting. The Trustee intends in reporting information relating to
original issue discount to Certificateholders to provide such information on an
aggregate poolwide basis. Applicable law is unclear, however, and it is possible
that investors may be required to compute original issue discount on a mortgage
loan by mortgage loan basis (or on the basis of the rights to individual
payments) taking account of an allocation of their basis in the Certificates
among the interests in the various mortgage loans represented by such
Certificates according to their respective fair market values. Investors should
be aware that it may not be possible to reconstruct after the fact sufficient
mortgage by mortgage information should a computation on that basis be required
by the IRS.
Because the treatment of the Certificates under the OID Regulations is both
complicated and uncertain, Certificateholders should consult their tax
advisers to determine the proper method of reporting amounts received or
accrued on Certificates.
2. Treatment of Unstripped Certificates
Mortgage Loans in a Trust Fund for which there is neither any Class of Trust
Interest Certificates, nor more than one Class of Trust Fractional Certificates,
nor any Retained Yield otherwise identified in the Prospectus Supplement as
being unstripped mortgage loans ("Unstripped Mortgage Loans") will be treated as
wholly owned by the Trust Fractional Certificateholders of a Trust Fund. Trust
Fractional Certificateholders using the cash method of accounting must take into
account their pro rata shares of original issue discount as it accrues and
qualified stated interest (as described in "REMIC Trust funds -- Taxation of
Owners of REMIC Regular Certificates -- Original Issue Discount") from
Unstripped Mortgage Loans as and when collected by the Trustee. Trust Fractional
Certificateholders using an accrual method of accounting must take into account
their pro rata shares of qualified stated interest from Unstripped Mortgage
Loans as it accrues or is received by the Trustee, whichever is earlier.
Code Sections 1272 through 1275 provide rules for the current inclusion in
income of original issue discount on obligations issued by natural persons on
or after March 2, 1984. Generally those sections provide that original issue
discount should be included in income on the basis of a constant yield to
maturity. However, the application of the original issue discount rules to
mortgages is unclear in certain respects. The Treasury Department has issued the
OID Regulations relating to original issue discount, which generally address the
treatment of mortgages issued on or after April 4, 1994. The OID Regulations
would provide a new de minimis rule for determining whether certain self-
amortizing installment obligations, such as the Mortgage Loans, are to be
treated as having original issue discount. Such obligations would have original
issue discount if the points charged at origination (or other loan discount)
exceeded the greater of one-sixth of one percent times the number of full years
to final maturity or one-fourth of one percent times weighted average maturity.
The OID Regulations treat certain variable rate mortgage loans as having
original issue discount because of an initial rate of interest that differs from
that determined by the mechanism for setting the interest rate during the
remainder of the loan, or because of the use of an index that does not vary in a
manner approved the OID Regulations. For a description of the general method of
calculating the amount of original issue discount see "REMIC Trust Funds--
Taxation of Owners of REMIC Regular Certificates--Original Issue Discount" and
"Application of Stripped Bond Rules--Variable Rate Certificates".
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A subsequent purchaser of a Trust Fractional Certificate that purchases such
Certificate at a cost (not including payment for accrued qualified stated
interest) less than its allocable portion of the aggregate of the remaining
stated redemption prices at maturity of the Unstripped Mortgage Loans will
also be required to include in gross income, for each day on which it holds
such Trust Fractional Certificate, its allocable share of the daily portion of
original issue discount with respect to each Unstripped Mortgage Loan, but
reduced, if the cost of such subsequent purchaser's interest in such
Unstripped Mortgage Loan exceeds its "adjusted issue price," by an amount
equal to the product of (i) such daily portion and (ii) a constant fraction,
whose numerator is such excess and whose denominator is the sum of the daily
portions of original issue discount allocable to such subsequent purchaser's
interest for all days on or after the day of purchase. The adjusted issue
price of an Unstripped Mortgage Loan on any given day is equal to the sum of
the adjusted issue price (or, in the case of the first accrual period, the
issue price) of such Unstripped Mortgage Loan at the beginning of the accrual
period during which such day occurs and the daily portions of original issue
discount for all days during such accrual period prior to such day, reduced by
the aggregate amount of payments made during such accrual period prior to such
day other than payments of qualified stated interest.
3. Market Discount and Premium
In general, if the Stripped Bond Rules do not apply to a Trust Fractional
Certificate, a purchaser of a Trust Fractional Certificate will be treated as
acquiring market discount bonds to the extent that the share of such
purchaser's purchase price allocable to any Unstripped Mortgage Loan is less
than its allocable share of the "adjusted issue price" of such Mortgage Loan.
See "Treatment of Unstripped Certificates" and "Application of Stripped Bond
Rules". Thus, with respect to such Mortgage Loans, a holder will be required,
under Code Section 1276, to include as ordinary income the previously
unrecognized accrued market discount in an amount not exceeding each principal
payment on any such Mortgage Loans at the time each principal payment is
received or due, in accordance with the purchaser's method of accounting, or
upon a sale or other disposition of the Certificate. In general, the amount of
market discount that has accrued is determined on a ratable basis. A Trust
Fractional Certificateholder may, however, elect to determine the amount of
accrued market discount on a constant yield to maturity basis. This election is
made on a bond-by-bond basis and is irrevocable. In addition, the description of
the market discount rules in "Taxation of Owners of REMIC Regular Certificates--
Market Discount and Premium" with respect to (i) conversion to ordinary income
of a portion of any gain recognized on sale or exchange of a market discount
bond, (ii) deferral of interest expense deductions, (iii) the de minimis
exception from the market discount rules and (iv) the elections to include in
income either market discount or all interest, discount and premium as they
accrue, is also generally applicable to Trust Fractional Certificates. Treasury
regulations implementing the market discount rules, including the 1986 Act
amendments thereto, have not yet been issued and investors therefore should
consult their own tax advisers regarding the application of these rules.
If a Trust Fractional Certificate is purchased at a premium, under existing
law such premium must be allocated to each of the Mortgage Loans (on the basis
of its relative fair market value). The portion of any premium allocated to
Unstripped Mortgage Loans originated after September 27, 1985 can be amortized
and deducted under the provisions of the Code relating to amortizable bond
premium. The portion of such premium allocated to Unstripped Mortgage Loans
originated on or before September 27, 1985 may only be deducted upon the sale or
final distribution in respect of any such Mortgage Loan, as the special rules of
the Code that permit the amortization of such premium apply in the case of debt
instruments other than corporate and governmental obligations, only to
obligations issued after that date. Upon such a sale or final distribution in
respect of such a Mortgage Loan, the premium, if any, allocable thereto would be
recognized as a short-term or long-term capital loss by a Certificateholder
holding the interests in Mortgage Loans represented by such Certificate as
capital assets, depending on how long the Certificate had been held.
The application of the Stripped Bond Rules to Stripped Mortgage Loans will
generally cause any premium allocable to Stripped Mortgage Loans to be
amortized automatically by adjusting the rate of accrual of interest
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and discount to take account of the allocable portion of the actual purchase
price of the Certificate. In that event, no additional deduction for the
amortization of premium would be allowed. It is possible that the IRS may take
the position that the application of the Stripped Bond Rules to the Stripped
Mortgage Loans should be adjusted so as not to take account of any premium
allocable to a Stripped Mortgage Loan originated on or before September 27,
1985. Any such premium would then be subject to the provisions of the Code
relating to the amortization of bond premium, including the limitations
described in the preceding paragraph on the amortization of premium allocable
to Mortgage Loans originated on or before September 27, 1985.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations (the "Proposed Premium Regulations") on the amortization of bond
premium. The Proposed Premium Regulations describe the constant yield method
under which such premium is amortized and provide that the resulting offset to
interest income can be taken into account only as a Certificateholder takes the
corresponding interest income into account under such holder's regular
accounting method. In the case of instruments that may be called or repaid prior
to maturity, the Proposed Premium Regulations provide that the premium is
calculated by assuming that the issuer will exercise or not exercise its
redemption rights in the manner that maximizes the Certificateholder's yield and
the Certificateholder will exercise or not exercise its option in a manner that
maximizes the Certificateholder's Yield. The Proposed Premium Regulations are
proposed to be effective for debt instruments acquired on or after the date 60
days after the date final regulations are published in the Federal Register.
However, if a Certificateholder elects to amortize bond premium for the taxable
year containing such effective date, the Proposed Premium Regulations would
apply to all the Certificateholder's debt instruments held on or after the first
day of that taxable year. It cannot be predicted at this time whether the
Proposed Premium Regulations will become effective or what, if any,
modifications will be made to them prior to their becoming effective.
4. Allocation of Purchase Price
As noted above, a purchaser of a Trust Fractional Certificate relating to
Unstripped Mortgage Loans will be required to allocate the purchase price
thereof to the undivided interest it acquires in each of the Mortgage Loans, in
proportion to the respective fair market values of the portions of such Mortgage
Loans included in the Trust Fund at the time the Certificate is purchased. The
Depositor believes that it may be reasonable to make such allocation in
proportion to the respective principal balances of the Mortgage Loans, where the
interests in the Mortgage Loans represented by a Trust Fractional Certificate
have a common remittance rate and other common characteristics, and otherwise so
as to produce a common yield for each interest in a Mortgage Loan, provided the
Mortgage Loans are not so diverse as to evoke differing prepayment expectations.
However, if there is any significant variation in interest rates among the
Mortgage Loans, a disproportionate allocation of the purchase price taking
account of prepayment expectations may be required.
D. Taxation of Owners of Trust Interest Certificates
With respect to each Series of Certificates for which they are identified as
counsel to the Depositor in the applicable Prospectus Supplement, Brown & Wood,
LLP, Cadwalader, Wickersham & Taft, Dewey Ballantine, Orrick, Herrington &
Sutcliffe, LLP, or Sidley & Austin will advise the Depositor that, in their
opinion, each holder of a Trust Interest Certificate (a "Trust Interest
Certificateholder") will be treated as the owner of an undivided interest in the
interest portion ("Interest Coupon") of each of the Mortgage Loans. Accordingly,
and subject to the discussion under "Application of Stripped Bond Rules" below,
each Trust Interest Certificateholder is treated as owning its allocable share
of the entire Interest Coupon from the Mortgage Loans, will report income as
described below, and may deduct its allocable share of the servicing and related
fees and expenses paid to or retained by the Depositor at the same time and in
the same manner as such items would have been reported under the Trust Interest
Certificateholder's tax accounting method had it held directly an interest in
the Interest Coupon from the Mortgage Loans, received directly its share of the
amounts received with respect to the Mortgage Loans and paid directly its share
of the servicing and related fees and expenses. An individual, estate or trust
holder of a Trust Interest Certificate will be allowed a deduction for servicing
fees in determining its regular tax liability only to the extent that the
aggregate of such holder's miscellaneous itemized deductions exceeds two percent
of such holder's adjusted gross income, and will be allowed no deduction for
such fees in determining its liability for alternative minimum tax. Amounts, if
any, received by Trust Interest Certificateholders in lieu of amounts due with
respect to any Mortgage Loan but not received by the Master Servicer from the
Mortgagor will be treated for federal income tax purposes as having the same
character as the payment which they replace.
1. Application of Stripped Bond Rules
A Trust Interest Certificate will consist of an undivided interest in the
Interest Coupon of each of the Mortgage Loans. With respect to each Series of
Certificates for which they are identified as counsel to the Depositor in the
applicable Prospectus Supplement, Brown & Wood LLP, Cadwalader, Wickersham &
Taft, Dewey Ballantine, Orrick, Herrington & Sutcliffe, LLP, or Sidley & Austin
will advise the Depositor that, in their opinion a Trust Interest Certificate
will be treated for federal income tax purposes as comprised of an ownership
interest in a portion of the Interest Coupon of each of the Mortgage Loans (a
"Stripped Interest") separated by the Depositor from the right to receive
principal payments and the remainder, if any, of each interest payment on the
underlying Mortgage Loan. As a consequence, the Trust Interest Certificates will
become subject to the Stripped Bond Rules. Each Trust Interest Certificateholder
will be required to apply the Stripped Bond Rules
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to its interest in the Interest Coupon under the method prescribed by the
Code, taking account of the price at which the holder purchased the Trust
Interest Certificate and the Trust Interest Certificateholder's share of the
scheduled payment to be made thereon. The Stripped Bond Rules generally
require a holder of Stripped Coupons to accrue and report
income from such Stripped Coupons daily on the basis of the yield to
maturity of such stripped bonds or coupons, as determined in accordance with
the provisions of the Code dealing with original issue discount. For a
discussion of the general method of calculating original issue discount, see
"REMIC Trust Funds--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount". The provisions of the Code and the OID Regulations do not
directly address the treatment of instruments similar to Trust Interest
Certificates. In reporting to Trust Interest Certificateholders such
Certificates will be treated as a single obligation with payment corresponding
to the aggregate of the payment allocable thereto from each of the Mortgage
Loans. See "Aggregate Reporting".
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Alternatively, Trust Interest Certificateholders may be required by the IRS to
treat each scheduled payment on each Stripped Interest (or their interests in
all scheduled payments from each of the Stripped Interests) as a separate
obligation for purposes of allocating purchase price and computing original
issue discount.
The tax treatment of the Trust Interest Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the Trustee intends to treat each Trust Interest Certificate
as a single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect to
a Trust Interest Certificate must be included in ordinary gross income for
federal income tax purposes as it accrues in accordance with a constant yield
method that takes into account the compounding of interest and such accrual of
income may be in advance of the receipt of any cash attributable to such income.
In general, the rules for accruing original issue discount set forth above in
"REMIC Trust Funds - Taxation of Owners of REMIC Regular Certificates - Original
Issue Discount" apply; however there is no authority permitting Trust Interest
Certificateholders to take into account the Prepayment Assumption in computing
original issue discount accruals. See "Prepayments" below. For purposes of
applying the original issue discount provisions of the Code, the issue price
used in reporting original issue discount with respect to a Trust Interest
Certificate will be the purchase price paid by each holder thereof and the
stated redemption price at maturity may include the aggregate amount of all
payments to be made with respect to the Trust Interest Certificate whether or
not denominated as interest. The amount of original issue discount with respect
to a Trust Interest Certificate may be treated as zero under the original issue
discount de minimis rules described above.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information on
an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount
either on a mortgage loan by mortgage loan basis or on a payment by payment
basis taking account of an allocation of their basis in the Certificates among
the interests in the various mortgage loans represented by such Certificates
according to their respective fair market values. The effect of an aggregate
computation for the inclusion of original issue discount in income may be to
defer the recognition of losses due to early prepayments relative to a
computation on a mortgage by mortgage basis. Investors should be aware that it
may not be possible to reconstruct after the fact sufficient mortgage by
mortgage information should a computation on that basis be required by the
IRS.
Because the treatment of the Trust Interest Certificates under current law and
the potential application of the 1996 Contingent Debt Regulations are both
complicated and uncertain, Trust Interest Certificateholders should consult
their tax advisers to determine the proper method of reporting amounts received
or accrued on Trust Interest Certificates.
E. Prepayments
The Tax Reform Act of 1986 (the "1986 Act") contains a provision requiring
original issue discount on certain obligations issued after December 31, 1986 to
be calculated taking into account a prepayment assumption and requiring such
discount to be taken into income on the basis of a constant yield to assumed
maturity taking account of actual prepayments. The proper treatment of
interests, such as the Trust Fractional Certificates and the Trust Interest
Certificates, in debt instruments that are subject to prepayment is unclear.
Legislation that has been proposed but not yet enacted would extend the rules
contained in the 1986 Act to any pool of debt instruments the payments on which
may be accelerated by reason of prepayments. Trust Fractional Certificateholders
and Trust Interest Certificateholders should consult their tax advisers as to
the proper reporting of income from Trust Fractional Certificates and Trust
Interest Certificates, as the case may be, in the light of the possibility of
prepayment and, with respect to the Trust Interest Certificates, as to the
possible application of the 1996 Contingent Debt Regulations.
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F. Sales of Trust Certificates
If a Certificate is sold, gain or loss will be recognized by the holder
thereof in an amount equal to the difference between the amount realized on
the sale and the Certificateholder's adjusted tax basis in the Certificate.
Such tax basis will equal the Certificateholder's cost for the Certificate,
increased by any original issue or market discount with respect to the
interest in the Mortgage Loans represented by such Certificate previously
included in income, and decreased by any deduction previously allowed for
premium and by the amount of payments, other than payments of qualified stated
interest, previously received with respect to such Certificate. The portion of
any such gain attributable to accrued market discount not previously included
in income will be ordinary income, as will gain attributable to a Certificate
which is part of a "conversion transaction" or which the holder elects to
treat as ordinary. See "REMIC Trust Funds--Sales of REMIC Certificates" above.
Any remaining gain or any loss will be capital gain or loss if the Certificate
was held as a capital asset except to the extent that code Section 582(c)
applies to such gain or loss.
G. Trust Reporting
The Master Servicer will furnish to each holder of a Trust Fractional
Certificate with each distribution a statement setting forth the amount of
such distribution allocable to principal on the underlying Mortgage Loans and
to interest thereon at the Pass-Through Rate. In addition, the Master Servicer
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Trust Certificate who was such a holder at any time during
such year, information regarding the amount of servicing compensation received
by the Master Servicer and sub-servicer (if any) and such other customary
factual information as the Master Servicer deems necessary or desirable to
enable holders of Trust Certificates to prepare their tax returns.
H. Back-up Withholding
In general, the rules described in "REMIC Trust Funds--Back-up Withholding"
will also apply to Trust Certificates.
I. Foreign Certificateholders
Payments in respect of interest or original issue discount (including amounts
attributable to servicing fees) on the Mortgage Loans to a Certificateholder who
is not a citizen or resident of the United States, a corporation or other
entity organized in or under the laws of the United States or of any State
thereof, or a United States estate or trust, will not generally be subject to
30% United States withholding tax, provided that such Certificateholder (i) does
not own, directly or indirectly, 10% or more of, and is not a controlled foreign
corporation (within the meaning of Code Section 957) related to, each of
the issuers of the Mortgages and (ii) provides required certification as to its
non-United States status under penalty of perjury and then will be free of such
tax only to the extent that the underlying Mortgages were issued after July 18,
1984. This withholding tax may be reduced or eliminated by an applicable tax
treaty. Notwithstanding the foregoing, if any such payments are effectively
connected with a United States trade or business conducted by the
Certificateholder, they will be subject to regular United States income tax and,
in the case of a corporation, to a possible branch profits tax, but will
ordinarily be exempt from United States withholding tax provided that applicable
documentation requirements are met.
Holders of Trust Certificates should be aware that proposed Treasury
Regulations were issued on April 15, 1996 which, if adopted in final form, could
affect the United States taxation of foreign investors in Trust Certificates.
For further discussion of those proposed regulations, see "REMIC TRUST FUNDS -
Foreign Investors in REMIC Certificates" above.
J. State and Local Taxation
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition
of the Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisers with respect to the various state tax
consequences of an investment in the Certificates.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA
("ERISA Plans") and on those persons who are ERISA fiduciaries with respect to
the assets of such ERISA Plans. In accordance with the general fiduciary
standards of ERISA, an ERISA Plan fiduciary should consider whether an
investment in the Certificates is permitted by the documents and instruments
governing the Plan, consistent with the Plan's overall investment policy and
appropriate in view of the composition of its investment portfolio.
Employee benefit plans which are governmental plans and certain church plans
(if no election has been made under Section 410(d) of the Code) are not
subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the Certificates subject to the provisions of applicable federal
and state law and, in the case of any such plan which is qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of
the Code, the restrictions imposed under Section 503 of the Code.
In addition to imposing general fiduciary standards, ERISA and section 4975
of the Code prohibit a broad range of transactions involving assets of ERISA
Plans and other plans subject to Section 4975 of the Code (together with ERISA
Plans, "Plans") and certain persons ("Parties in Interest") who have certain
specified relationships to the Plans and taxes and/or imposes other penalities
on any such transaction under ERISA and/or Section 4975 of the Code, unless an
exemption applies. If the assets of a Trust Fund are treated for ERISA
purposes as the assets of the Plans that purchase or hold Certificates of the
applicable Series, an investment in Certificates of that Series by or with
"plan assets" of a Plan might constitute or give rise to a prohibited
transaction under ERISA or Section 4975 of the Code, unless a statutory or
administrative exemption applies. Violation of the prohibited transaction
rules could result in the imposition of excise taxes and/or other penalties
under ERISA and/or Section 4975 of the Code.
FINAL PLAN ASSETS REGULATION
The United States Department of Labor ("DOL") has issued a final regulation
(the "Final Regulation") under which assets of an entity in which a Plan makes
an equity investment will be treated as assets of the investing Plan in
certain circumstances. Unless the Final Regulation provides an exemption from
this "plan asset" treatment, and if such an exemption is not otherwise
available under ERISA, an undivided portion of the assets of a Trust Fund will
be treated, for purposes of applying the fiduciary standards and prohibited
transaction rules of ERISA and Section 4975 of the Code, as an asset of each
Plan which becomes a Certificateholder of the applicable Series.
The Final Regulation provides an exemption from "plan asset" treatment for
securities issued by an entity if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25% of the value
of each class of equity interests in the entity, excluding interests held by a
person who has discretionary authority or control with respect to the assets
of the entity (or any affiliate of such a person), are held by "benefit plan
investors" (e.g., Plans, governmental and other benefit plans not subject to
ERISA and entities holding assets deemed to be "plan assets"). Because the
availability of this exemption to any Trust Fund depends upon the identity of
the Certificateholders of the applicable Series at any time, there can be no
assurance that any Series or Class of Certificates will qualify for this
exemption.
PROHIBITED TRANSACTION CLASS EXEMPTIONS
Prohibited Transaction Class Exemption 83-1 (Class Exemption for Certain
Transactions Involving Mortgage Pool Investment Trusts) ("PTCE 83-1") permits,
subject to certain conditions, certain transactions involving the creation,
maintenance and termination of certain residential mortgage pools and the
acquisition and holding of certain residential mortgage pool pass-through
certificates by Plans, regardless of whether (a) the mortgage pool is exempt
from "plan asset" treatment or (b) the transactions would otherwise be
prohibited under ERISA or Section 4975 of the Code. A Series of Certificates
will be an "Exempt Series" if the general
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conditions (described below) of PTCE 83-1 are satisfied, and if the applicable
Series of Certificates evidences ownership interests in Trust Assets which do
not include Mortgage Certificates, Cooperative Loans, Mortgage Loans secured
by cooperative buildings, Mortgage Loans secured by Multifamily Property, or
Contracts (collectively "Nonexempt Assets"). An investment by a Plan in
Certificates of an Exempt Series (1) will be exempt from the prohibitions of
Section 406(a) of ERISA (relating generally to Plan transactions involving
Parties in Interest who are not fiduciaries) if the Plan purchases the
Certificates at no more than fair market value, and (2) will be exempt from
the prohibitions of Sections 406(b) (1) and (2) of ERISA (relating generally
to Plan transactions with fiduciaries) if, in addition, (i) the purchase is
approved by an independent fiduciary, (ii) no sales commission is paid to the
Depositor as Mortgage Pool sponsor, (iii) the Plan does not purchase more than
25% of the Certificates of that Series and (iv) at least 50% of the
Certificates of that Series is purchased by persons independent of the
Depositor, the Trustee and the Insurer, as applicable. It does not appear that
PTCE 83-1 applies to a Series of Certificates with respect to which the Trust
Assets include Nonexempt Assets (a "Nonexempt Series"). See "The Trust Fund--
The Mortgage Pools" and "--The Contract Pools". Accordingly, it appears that
PTCE 83-1 will not exempt Plans that acquire Certificates of a Nonexempt
Series from the prohibited transaction rules of ERISA and Section 4975 of the
Code. The applicable Prospectus Supplement will state whether a Series of
Certificates is an Exempt Series or a Nonexempt Series.
PTCE 83-1 sets forth three general conditions that must be satisfied for any
transaction to be eligible for exemption: (1) the existence of a pool trustee
who is not an affiliate of the pool sponsor; (2) the maintenance of a system
of insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying certificateholders against
reductions in pass-through payment due to property damage or defaults in loan
payments; and (3) a limitation on the amount of the payment retained by the
pool sponsor, together with other benefits inuring to it, to not more than
adequate consideration for selling the mortgage loans and reasonable
compensation for services provided by the pool sponsor to the mortgage pool.
The Trustee for all Series will be unaffiliated with the Depositor, and,
accordingly, the first general condition will be satisfied. With respect to
the second general condition of PTCE 83-1, the credit support method
represented by the issuance of a Subordinated Class or Subclasses of
Certificates and/or the establishment of a Reserve Fund, with respect to any
Exempt Series for which such a method of Credit Support is provided (see
"Credit Support--Subordinated Certificates" and "--Reserve Fund"), is
substantially similar to a system for protecting Certificateholders against
reductions in pass-through payments which has been reviewed and accepted by
the DOL as an alternative to pool insurance or a letter of credit
indemnification system. This may support a Plan fiduciary's conclusion that
the second general condition is satisfied with respect to any such Exempt
Series although, in the absence of a ruling to this effect, there can be no
assurance that these features will be so viewed by the DOL. In addition, the
Depositor intends to use its best efforts to establish, for each Exempt Series
for which credit support is provided by a Letter of Credit (see "Credit
Support--Letters of Credit") and/or the insurance arrangements set forth above
under "Description of Insurance" (an "Insured Series"), a system that will
adequately protect the Mortgage Pools and indemnity Certificateholders of the
applicable Series against pass-through payment reductions resulting from
property damage or defaults in loan payments. With respect to the third
general condition of PTCE 83-1, the Depositor intends to use its best efforts
to establish a compensation system which will produce for the Depositor total
compensation that will not exceed adequate consideration for forming the
Mortgage Pool and selling the Certificates. However, the Depositor does not
guarantee that its systems will be sufficient to meet the second and third
general conditions (described above) with respect to any Exempt Series.
If an Exempt Series of Certificates is subdivided into two or more Classes
or Subclasses which are entitled to disproportionate allocations of the
principal and interest payments on the Mortgage Loans held by the applicable
Trust Fund, the availability of the exemption afforded by PTCE 83-1 may be
adversely affected, as described in the applicable Prospectus Supplement.
Moreover, if the Certificateholders of any Class or Subclass of Certificates
are entitled to pass-through payment of principal (but no or only nominal
interest) or interest (but no or only nominal principal), it appears that PTCE
83-1 will not exempt Plans which acquire Certificates of that Class or
Subclass from the prohibited transaction rules of ERISA and Section 4975 of
the Code.
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If an Exempt Series of Certificates includes a Class of Subordinated
Certificates, PTCE 83-1 will not provide an exemption from the prohibited
transaction rules of ERISA for Plans that acquire such Subordinated
Certificates.
If for any reason PTCE 83-1 does not provide an exemption for a particular
Plan Certificateholder, one of three other prohibited transaction class
exemptions issued by the DOL might apply, i.e., PTCE 91-38 (formerly PTCE 80-
51) (Class Exemption for Certain Transactions Involving Bank Collective
Investment Funds), PTCE 90-1 (formerly PTCE 78-19) (Class Exemption for
Certain Transactions Involving Insurance Company Pooled Separate Accounts) or
PTCE 84-14 (Class Exemption for Plan Asset Transactions Determined by
Independent Qualified Professional Asset Managers). There can be no assurance
that any of these class exemptions will apply with respect to any particular
Plan Certificateholder or, even if it were to apply, that the exemption would
apply to all transactions involving the applicable Trust Fund. Any person who
is a fiduciary by reason of his or her authority to invest "plan assets" of
any Plan (a "Plan investor") and who is considering the use of "plan assets"
of any Plan to purchase of the offered Certificates should consult with its
counsel with respect to the potential applicability of ERISA and the Code to
such investments, and should determine on its own whether PTCE 83-1 or another
exemption would be applicable (and whether all conditions have been satisfied
with respect to any such exemptions), and whether the offered Certificates are
an appropriate investment for a Plan. Moreover, each Plan fiduciary should
determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the offered Certificates is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
UNDERWRITER'S PTE
CS First Boston Corporation ("First Boston") is the recipient of a final
prohibited transaction exemption, 54 Fed. Reg. 42597 (Oct. 17, 1989) (the
"Underwriter's PTE" or "CS First Boston Corporation's PTE" if specified in the
applicable Prospectus Supplement), which may accord protection from violations
under Sections 406 and 407 of ERISA and Section 4975 of the Code for Plans
that acquire Certificates. The Underwriter's PTE applies to certificates (a)
which represent (1) a beneficial ownership interest in the assets of a trust
and entitle the holder to pass-through payments of principal, interest and/or
other payments made with respect to the assets of the trust, or (2) an
interest in a REMIC if the certificates are issued by and are obligations of a
trust; and (b) with respect to which First Boston or any of its affiliates is
either the sole underwriter, the manager or co-manager of the underwriting
syndicate or a selling or placement agent. The corpus of a trust to which the
Underwriter's PTE applies may consist of (i) obligations which bear interest
or are purchased at a discount and which are secured by (A) single-family
residential, multifamily residential or commercial real property (including
obligations secured by leasehold interests on commercial real property) or (B)
shares issued by a cooperative housing association; and (ii) "guaranteed
governmental mortgage pool certificates" (as defined in the Final Regulation).
Plans acquiring Certificates may be eligible for protection under the
Underwriter's PTE if:
(a) assets of the type included as Trust Assets have been included in
other investment pools ("Other Pools");
(b) certificates evidencing interests in Other Pools have been both (1)
rated in one of the three highest generic rating categories by Standard &
Poor's Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or
Fitch Investors Service, Inc., and (2) purchased by investors other than
Plans, for at least one year prior to a Plan's acquisition of Certificates
in reliance upon the Underwriter's PTE;
(c) at the time of such acquisition, the Class of Certificates acquired
by the Plan has received a rating in one of the rating categories referred
to in condition (b) above;
(d) the Trustee is not an affiliate of any member of the Restricted Group
(as defined below);
(e) the applicable Series of Certificates evidences ownership in Trust
Assets which may include non Subordinated Mortgage Certificates (whether or
not interest and principal payable with respect to the Mortgage
Certificates are guaranteed by the GNMA, FHLMC or FNMA) or Contracts;
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(f) the Class of Certificates acquired by the Plan are not subordinated
to other Classes of Certificates of that Series with respect to the right
to receive payment in the event of defaults or delinquencies on the
underlying Trust Assets;
(g) the Plan is an "accredited investor" (as defined in Rule 501(a)(1) of
Regulation D under the Securities Act);
(h) the acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan
as they would be in an arm's length transaction with an unrelated party;
and
(i) the sum of all payments made to and retained by the Underwriter or
members of any underwriting syndicate in connection with the distribution
of the Certificates represents not more than reasonable compensation for
underwriting the Certificates; the sum of all payments made to and retained
by the Seller pursuant to the sale of the Trust Assets to the Trust
represents not more than the fair market value of such Trust Assets; and
the sum of all payments made to and retained by the Master Servicer and all
Servicers represents not more than reasonable compensation for such
Servicers' services under the Pooling and Servicing Agreement and
reimbursement of such Servicers' reasonable expenses in connection
herewith.
In addition, the Underwriter's PTE will not apply to a Plan's investment in
Certificates if the Plan fiduciary responsible for the decision to invest in a
Class of Certificates is a Mortgagor or Obligor with respect to more than 5%
of the fair market value of the obligations constituting the Trust Assets or
an affiliate of such person, unless:
(1) in the case of an acquisition in connection with the initial issuance
of any Series of Certificates, at least 50% of each Class of Certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least 50% of the aggregate interest in the Trust is
acquired by persons independent of the Restricted Group;
(2) the Plan's investment in any Class of Certificates does not exceed
25% of the outstanding Certificates of that Class at the time of
acquisition;
(3) immediately after such acquisition, no more than 25% of the Plan
assets with respect to which the investing fiduciary has discretionary
authority or renders investment advice are invested in certificates
evidencing interest in trusts sponsored or containing assets sold or
serviced by the same entity; and
(4) the Plan is not sponsored by the Depositor, any Underwriter, the
Trustee, any Servicer, any Pool, Special Hazard or Primary Mortgage Insurer
or the obligor under any other credit support mechanism, a Mortgagor or
Obligor with respect to obligations constituting more than 5% of the
aggregate unamortized principal balance of the Trust Assets on the date of
the initial issuance of Certificates, or any of their affiliates (the
"Restricted Group").
Each Series of Certificates generally is expected to satisfy condition (a)
unless otherwise specified in the applicable Prospectus Supplement. If a
Series includes a Class of Subordinated Certificates, that Class will not
satisfy condition (f). Additionally, the Prospectus permits the issuance of
Certificates rated in one of the four highest rating categories, so a
particular Class of a Series may not satisfy condition (c).
Whether the other conditions in the Underwriter's PTE will be satisfied as
to Certificates or any particular Class will depend upon the relevant facts
and circumstances existing at the time the Plan acquires Certificates of that
Class. Any Plan investor who proposes to use "plan assets" of a Plan to
acquire Certificates in reliance upon the Underwriter's PTE should determine
whether the Plan satisfies all of the applicable conditions and consult with
its counsel regarding other factors that may affect the applicability of the
Underwriter's PTE.
GENERAL CONSIDERATIONS
Any member of the Restricted Group, a Mortgagor or Obligor, or any of their
affiliates might be considered or might become a Party in Interest with
respect to a Plan. In that event, the acquisition or holding of Certificates
of the applicable Series or Class by, on behalf of or with "plan assets" of
such Plan might be viewed as giving
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rise to a prohibited transaction under ERISA and Section 4975 of the Code,
unless PTCE 83-1 or another exemption is available. Accordingly, before a Plan
investor makes the investment decision to purchase, to commit to purchase or
to hold Certificates of any Series or Class, the Plan investor should
determine (a) whether the second and third general conditions and the specific
conditions (described briefly above) of PTCE 83-1 have been satisfied; (b)
whether the Underwriter's PTE is applicable; (c) whether any other prohibited
transaction exemption (if required) is available under ERISA and Section 4975
of the Code; or (d) whether an exemption from "plan asset" treatment is
available to the applicable Trust Fund. The Plan investor should also consult
the ERISA discussion, if any, in the applicable Prospectus Supplement for
further information regarding the application of ERISA to any Series or Class
of Certificates.
Subordinated Certificates are not available for purchase by or with "plan
assets" of any Plan, other than a governmental or church plan which is not
subject to ERISA or Section 4975 of the Code (as described above), and any
acquisition of Subordinated Certificates by, on behalf of or with "plan
assets" of any such Plan will be treated as null and void for all purposes.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO PURCHASE
CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH
RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE
OF THE ACQUISITION AND OWNERSHIP OF SUCH CERTIFICATES.
LEGAL INVESTMENT
The applicable Prospectus Supplement for a Series of Certificates will
specify whether a Class or Subclass of such Certificates, as long as it is
rated in one of the two highest rating categories by one or more nationally
recognized statistical rating organizations, will constitute a "mortgage
related security" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Such Class or Subclass, if any, constituting a
"mortgage related security" will be a legal investment for persons, trusts,
corporations, partnerships, associations, business trusts and business
entities (including depository institutions, insurance companies, trustees and
state government employee retirement systems) created pursuant to or existing
under the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued
by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for such
entities.
Pursuant to SMMEA, a number of states enacted legislation, on or prior to
the October 3, 1991 cutoff for such enactments, limiting to varying extents
the ability of certain entities (in particular, insurance companies) to invest
in "mortgage related securities," in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Accordingly,
the investors affected by such legislation will be authorized to invest in
Certificates qualifying as "mortgage related securities" only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe. In this connection,
federal credit unions should review NCUA Letter to Credit Unions No. 96, as
modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage
related securities. The NCUA has adopted rules, codified as 12 C.F.R.
SectionSection 703.5(f)-(k), which prohibit federal credit unions from
investing in certain mortgage related securities (including securities such as
certain Series, Classes or Subclasses of Certificates), except under limited
circumstances.
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All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities"
dated January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of
the Federal Financial Institutions Examination Council.
The Policy Statement which has been adopted by the Board of Governors of the
Federal Reserve System, the Office of the Comptroller of the Currency, the
FDIC and the Office of Thrift Supervision and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain Series,
Classes or Subclasses of the Certificates), except under limited
circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain Series, Classes or Subclasses may be deemed
unsuitable investments, or may otherwise be restricted, under such rules,
policies or guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits,
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," and, with regard to any
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase Certificates under applicable legal
investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Certificates) may adversely
affect the liquidity of the Certificates.
Investors should consult their own legal advisers in determining whether and
to what extent such Certificates constitute legal investments for such
investors.
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of the related
Prospectus Supplements may be sold directly by the Depositor or may be offered
through CS First Boston Corporation, an affiliate of the Depositor, or
underwriting syndicates represented by CS First Boston Corporation (the
"Underwriters"). The Prospectus Supplement with respect to each such Series of
Certificates will set forth the terms of the offering of such Series or
Certificates and each Subclass within such Series, including the name or names
of the Underwriters, the proceeds to the Depositor, and either the initial
public offering price, the discounts and commissions to the Underwriters and
any discounts or concessions allowed or reallowed to certain dealers, or the
method by which the price at which the Underwriters will sell such
Certificates will be determined.
Unless otherwise specified in the Prospectus Supplement, the Underwriters
will be obligated to purchase all of the Certificates of a Series described in
the Prospectus Supplement with respect to such Series if any such Certificates
are purchased. The Certificates may be acquired by the Underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale.
If so indicated in the Prospectus Supplement, the Depositor will authorize
Underwriters or other persons acting as the Depositor's agents to solicit
offers by certain institutions to purchase the Certificates from the
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Depositor pursuant to contracts providing for payment and delivery on a future
date. Institutions with which such contracts may be made include commercial
and savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Depositor. The obligation of any
purchaser under any such contract will be subject to the condition that the
purchase of the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject. The Underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
The Depositor may also sell the Certificates offered hereby and by means of
the related Prospectus Supplements from time to time in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Depositor may effect such transactions by selling Certificates to or through
dealers, and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Depositor and any purchasers of
Certificates for whom they may act as agents.
The place and time of delivery for each Series of Certificates offered
hereby and by means of the related Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
If and to the extent required by applicable law or regulation, this Prospectus
and the attached Prospectus Supplement will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the offered Securities in which the Underwriter
acts as principal. Sales will be made at negotiated prices determined at the
time of sales.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby will
be passed upon for the Depositor and for the Underwriters by Brown & Wood LLP,
San Francisco, California, Cadwalader, Wickersham & Taft, New York, New York,
Dewey Ballantine, New York, New York, Orrick, Herrington & Sutcliffe LLP, or
Sidley & Austin, New York, New York.
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INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Accrual Distribution Amount................................... 34
Advances...................................................... 14
AFR........................................................... 89
Agreement..................................................... 31
Alternative Credit Support.................................... 9
Approved Sale................................................. 66
APR........................................................... 24
ARM Loans..................................................... 17
Asset Value................................................... 32
Assets........................................................ 80
Buy-Down Fund................................................. 13
Buy-Down Loans................................................ 18
Certificate Account........................................... 40
Certificate Principal Balance................................. 3
Certificateholders............................................ 19
Certificates.................................................. 3
Class......................................................... 3
Clean up Costs................................................ 75
Closed Loans.................................................. 20
Closing Date.................................................. 82
Code.......................................................... 14
Committee Report.............................................. 79
Contract Loan-to-Value Ratio.................................. 8
Contract Pool................................................. 4
Contract Schedule............................................. 37
Contracts..................................................... 4
Converted Mortgage Loan....................................... 18
Cooperative................................................... 4
Cooperative Dwelling.......................................... 4
Cooperative Loans............................................. 4
CS First Boston Corporation's PTE............................. 109
Custodial Account............................................. 40
Custodial Agreement........................................... 24
Custodian..................................................... 24
Cut-off Date.................................................. 16
Deferred Interest............................................. 17
Deficiency Event.............................................. 54
Deleted Contract.............................................. 25
Deleted Mortgage Certificates................................. 35
Deleted Mortgage Loans........................................ 36
Depositor..................................................... 1
Deposit Trust Agreement....................................... 31
Determination Date............................................ 43
Discount Certificate.......................................... 8
Distribution Date............................................. 5
DOL........................................................... 107
Due Date...................................................... 17
Due Period.................................................... 34
</TABLE>
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<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Escrow Account................................................ 46
ERISA......................................................... 14
ERISA Plans................................................... 107
Exempt Series................................................. 107
FBSC.......................................................... 26
FHA........................................................... 18
FHA Experience................................................ 29
FHA Loans..................................................... 16
Final Regulation.............................................. 107
First Boston.................................................. 109
Garn-St Germain Act........................................... 74
GPM Fund...................................................... 13
GPM Loans..................................................... 18
Initial Deposit............................................... 12
Initial Issue Price........................................... 105
Insurance Proceeds............................................ 41
Insured....................................................... 49
Insured Series................................................ 108
Interest Coupon............................................... 103
Interest Distribution......................................... 33
Interest Rate................................................. 3
Interest Weighted Class....................................... 3
Interest Weighted Subclass.................................... 3
IRS........................................................... 81
L/C Bank...................................................... 9
L/C Percentage................................................ 10
Letter of Credit.............................................. 9
Liquidating Loan.............................................. 10
Liquidation Proceeds.......................................... 41
Loan-to-Value Ratio........................................... 6
Loss.......................................................... 61
Manufactured Home............................................. 7
Master Servicer............................................... 5
Mortgage Certificates......................................... 4
Mortgage Loans................................................ 4
Mortgage Notes................................................ 16
Mortgage Pool................................................. 4
Mortgage Rates................................................ 6
Mortgaged Property............................................ 6
Mortgagor..................................................... 6
Mortgagor Bankruptcy Bond..................................... 9
Multi-Class Certificates...................................... 3
Multifamily Property.......................................... 4
Multiple Variable Rate........................................ 84
1988 Act...................................................... 89
1986 Act...................................................... 79
Nonexempt Assets.............................................. 108
Nonexempt Series.............................................. 108
non-U.S. Person............................................... 94
</TABLE>
115
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Obligor....................................................... 27
OID Regulations............................................... 79
Original Value................................................ 6
Originator.................................................... 21
Other Pools................................................... 109
Parties in Interest........................................... 107
Pass-Through Rate............................................. 6
Percentage Interest........................................... 16
Performance Bond.............................................. 25
Plans......................................................... 107
Policy Statement.............................................. 112
Pool Insurance Policy......................................... 9
Pool Insurer.................................................. 11
Pooling and Servicing Agreement............................... 19
Premium Certificate........................................... 8
Prepayment Assumption......................................... 82
Primary Insurer............................................... 41
Primary Mortgage Insurance Policy............................. 10
Primary Mortgage Insurer...................................... 48
Principal Distribution........................................ 33
Principal Prepayments......................................... 12
Principal Weighted Class...................................... 3
Principal Weighted Subclass................................... 3
PTCE 83-1..................................................... 107
Purchase Price................................................ 38
Rating Agency................................................. 4
Record Date................................................... 32
Reference Agreement........................................... 31
REIT.......................................................... 91
REMIC......................................................... 79
REMIC Certificateholders...................................... 80
REMIC Certificates............................................ 79
REMIC Mortgage Pool........................................... 79
REMIC Provisions.............................................. 79
REMIC Regulations............................................. 79
REMIC Regular Certificate..................................... 79
REMIC Residual Certificate.................................... 79
Required Distribution......................................... 59
Required Reserve.............................................. 12
Reserve Fund.................................................. 9
Residual Certificates......................................... 3
Residual Owner................................................ 87
Restricted Group.............................................. 110
Retained Yield................................................ 98
Securities Act................................................ 32
Senior Certificates........................................... 9
Senior Class.................................................. 3
Senior Prepayment Percentage.................................. 58
Senior Subclass............................................... 3
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Series........................................................ 3
Servicemen's Readjustment Act................................. 18
Servicer...................................................... 19
Servicing Account............................................. 40
Servicing Agreement........................................... 19
Single-Class REMIC............................................ 93
Single Family Property........................................ 4
Single Variable Rate.......................................... 82
SMMEA......................................................... 14
SPA........................................................... 29
Special Distributions......................................... 6
Special Hazard Insurance Policy............................... 13
Standard Hazard Insurance Policy.............................. 47
Standard Terms................................................ 31
Stated Principal Balance...................................... 3
Stated Principal Distribution Amount.......................... 34
Stripped Bond Rules........................................... 98
Stripped Interest............................................. 103
Stripped Mortgage Loan........................................ 98
Subclass...................................................... 3
Subordinated Amount........................................... 9
Subordinated Certificates..................................... 9
Subordinated Class............................................ 3
Subordinated Pool............................................. 12
Subordinated Subclass......................................... 3
Substitute Contract........................................... 25
Substitute Mortgage Certificates.............................. 35
Substitute Mortgage Loans..................................... 36
Tiered REMICS................................................. 81
Title V....................................................... 78
Trust Assets.................................................. 4
Trust Certificates............................................ 79
Trust Fractional Certificateholder............................ 97
Trust Fractional Certificate.................................. 79
Trust Fund.................................................... 4
Trust Interest Certificate.................................... 79
Trust Interest Certificateholder.............................. 103
Unaffiliated Sellers.......................................... 20
Underwriters.................................................. 112
Underwriter's PTE............................................. 109
UCC........................................................... 72
Unstripped Mortgage Loans..................................... 101
U. S. Person.................................................. 95
VA............................................................ 16
VA Loans...................................................... 16
</TABLE>
117
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
SERVICER OR BY 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 PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT 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, THE SERVICER OR THE
CERTIFICATE INSURER SINCE SUCH DATE.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information..................................................... S-2
Reports to the Certificateholders......................................... S-2
Summary of Prospectus Supplement.......................................... S-4
Risk Factors.............................................................. S-28
The Mortgage Loan Pools................................................... S-32
Prepayment and Yield Considerations....................................... S-68
The Seller................................................................ S-77
The Prior Sellers......................................................... S-77
The Servicer.............................................................. S-78
Use of Proceeds........................................................... S-79
Description of the Certificates........................................... S-79
Flow of Funds............................................................. S-88
Further Provisions of the Principal Transaction Documents................. S-114
Certain Federal Income Tax Consequences................................... S-122
ERISA Considerations...................................................... S-123
Ratings................................................................... S-123
Legal Investment Considerations........................................... S-124
Underwriting.............................................................. S-125
Certain Legal Matters..................................................... S-125
Index of Principal Definitions............................................ S-126
PROSPECTUS
Prospectus Supplement..................................................... 2
Additional Information.................................................... 2
Incorporation of Certain Information by Reference......................... 2
Summary of Terms.......................................................... 3
Risk Factors.............................................................. 16
The Trust Fund............................................................ 16
The Depositor............................................................. 26
Use of Proceeds........................................................... 26
Yield Considerations...................................................... 27
Maturity and Prepayment Considerations.................................... 29
Description of the Certificates........................................... 31
Credit Support............................................................ 56
Description of Insurance.................................................. 61
Certain Legal Aspects of the Mortgage Loans and Contracts................. 68
Certain Federal Income Tax Consequences................................... 79
ERISA Considerations...................................................... 107
Legal Investment.......................................................... 111
Plan of Distribution...................................................... 112
Legal Matters............................................................. 113
Index of Terms............................................................ 114
</TABLE>
---------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED SECURITIES, WHETHER OR NOT PARTICIPATING
IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS PROSPECTUS AND
THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS
WHEN ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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$278,285,932
WILSHIRE FUNDING CORPORATION
MORTGAGE-BACKED CERTIFICATES,
SERIES 1996-3
WILSHIRE SERVICING CORPORATION,
SERVICER
WILSHIRE MORTGAGE
FUNDING COMPANY IV, INC.
UNAFFILIATED SELLER
CS FIRST BOSTON MORTGAGE
SECURITIES CORP.,
DEPOSITOR
PROSPECTUS SUPPLEMENT
CREDIT SUISSE FIRST BOSTON
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