<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 1996
REGISTRATION NO. 33-99612
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CS FIRST BOSTON MORTGAGE SECURITIES CORP.
(DEPOSITOR)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
PARK AVENUE PLAZA
55 EAST 52ND STREET
NEW YORK, NEW YORK 10055
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
----------------
AGENT FOR SERVICE:
----------------
ANDREW D. STONE
CS FIRST BOSTON MORTGAGE SECURITIES CORP.
PARK AVENUE PLAZA
55 EAST 52ND STREET
NEW YORK, NEW YORK 10055
----------------
COPIES TO:
----------------
JAMES D. JOHNSON
SIDLEY & AUSTIN
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM AMOUNT OF
MAXIMUM OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING PRICE OFFERING REGISTRATION
BEING REGISTERED(1) REGISTERED PER UNIT(2) PRICE(2) FEE(3)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Conduit Mortgage and Manufactured
Housing Contract Pass-Through
Certificates.......................... $1,740,000,000 100% $1,740,000,000 $600,000
</TABLE>
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- -------------------------------------------------------------------------------
(1) The securities are also being registered for the purpose of market making.
(2) Estimated solely for the purposes of calculating the registration fee.
(3) Previously paid.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
PURSUANT TO RULE 429 OF THE COMMISSION'S RULES AND REGULATIONS UNDER THE
SECURITIES ACT OF 1933, THE PROSPECTUS AND PROSPECTUS SUPPLEMENT CONTAINED IN
THIS REGISTRATION STATEMENT ALSO RELATES THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM S-11 (REGISTRATION NO. 33-47579).
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<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
LOCATION IN
PROSPECTUS
SUPPLEMENTS LOCATION IN
ITEM AND CAPTION IN FORM LOCATION IN VERSIONS A, B, C, D, PROSPECTUS SUPPLEMENT
S-3 PROSPECTUS F AND G VERSION E
- ------------------------ --------------------- --------------------- ---------------------
<S> <C> <C> <C>
1. Forepart of
Registration
Statement and Outside Forepart of
Front Cover Page of Registration Outside Front Cover Outside Front Cover
Prospectus... Statement and Page Page
Outside Front Cover
Page
2.Inside Front and Inside Front Cover Inside Front Cover
Outside Back Cover Inside Front Cover Page; Outside Back Page; Outside Back
Pages of Prospectus.. Page Cover Page Cover Page
3.Summary Information, Summary of Summary of Terms; Summary of Terms;
Risk Factors and Prospectus; Maturity Yield Considerations Risk Factors
Ratio of Earnings to and Prepayment and (Versions B, C. D
Fixed Charges........ Considerations; and F only); Risk
Yield Considerations Factors (Version B
and G only)
4.Determination of
Offering Price....... * * *
5.Dilution ............ * * *
6.Selling Security * * *
Holders .............
7.Plan of Distribution Plan of Distribution Underwriting Underwriting
..................... (Versions A, B, C
and D); Plan of
Distribution
(Version F only),
Method of
Distribution
(Version G only)
8.Use of Proceeds ..... Use of Proceeds Summary of Terms; Use Summary of Terms; Use
of Proceeds of Proceeds
9.Selected Financial * * *
Data ................
10.Management's
Discussion and
Analysis of Financial
Condition and Results
of
Operation............ * * *
11.General Information The Trust Fund; The
as to Registrant..... Depositor * *
12.Policy with Respect
to Certain Description of the Description of the Description of the
Activities........... Certificates Certificates Certificates
13.Investment Policies The Trust Fund; Description of the Description of the
of Registrant........ Certain Mortgage Pool and Description of the
Legal Aspects of the the Underlying Contract Pool
Mortgage Loans and Properties
Contracts
14. Description of Real The Trust Fund; Summary of Terms; Summary of Terms;
Estate............... Description of the Description of the Description of the
Certificates; Mortgage Pool and Contract Pool;
Description of the Underlying Description of the
Insurance Properties; Certificates
Description of the
Certificates
15.Operating Data ...... * * *
16.Tax Treatment of Certain Federal Summary of Terms; Summary of Terms;
Registrant and Its Income Tax Certain Federal Certain Federal
Security Holders..... Consequences Income Tax Income Tax
Consequences Consequences
(Versions F and G
only)
17.Market Price of and
Dividends of the
Registrant's Common
Equity and Related
Stockholder Matters
..................... * * *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION IN
PROSPECTUS
SUPPLEMENTS LOCATION IN
ITEM AND CAPTION IN FORM LOCATION IN VERSIONS A, B, C, D, PROSPECTUS SUPPLEMENT
S-3 PROSPECTUS F AND G VERSION E
- ------------------------ --------------------- --------------------- ---------------------
<S> <C> <C> <C>
18.Description of the Outside Front Cover Outside Front Cover Outside Front Cover
Registrant's Page; The Trust Page; Description of Page; Description of
Securities........... Fund; Yield the Mortgage Pool the Contract Pool;
Considerations; and the Underlying Description of the
Maturity and Properties; Certificates; Rating
Prepayment Description of the
Considerations; Certificates;
Description of the Certain Federal
Certificates Income Tax
Consequences
(Versions F and G
only); Rating
19.Legal Proceedings ... * * *
20.Security Ownership of
Certain Beneficial
Owners and
Management....... * * *
21.Directors and
Executive Officers... * * *
22.Executive * *
Compensation ........ *
23.Certain Relationships
and Related
Transactions.........
* * *
24.Selection, Management Trust Fund; Description of the Description of the
and Custody of Description of the Mortgage Pool and Certificates
Registrant's Certificates the Description of
Investments.......... the Underlying
Properties;
Description of the
Certificates
25.Policies with Respect
to Certain
Transactions......... * * *
26.Limitations of Description of the Description of the Description of the
Liability ........... Certificates Certificates Certificates
27.Financial Statements
and Information...... * * *
28.Interests of Named
Experts and Counsel.. * * *
29.Disclosure of
Commission Position
on Indemnification
for Securities Act
Liabilities.......... * * *
</TABLE>
- --------
Answer negative or Item inapplicable.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
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P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
CS First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage Pass-Through Certificates, Series
% Pass-Through Rate
Principal and interest payable on the 25th day
of each month, beginning , 19
-----------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF FIRST
BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
The Conduit Mortgage Pass-Through Certificate, Series (the "Certificates")
offered hereby evidence undivided fractional interests in a trust to be created
by First Boston Mortgage Securities Corp. (the "Depositor") on or about ,
199 (the "Trust"). The Trust property will consist of a pool of [conventional]
[fixed-rate] [mortgage loans and] [mortgage participation certificates
evidencing participation interests in such mortgage loans and meeting the
requirements of the nationally recognized rating agency or agencies rating the
Certificates (collectively, the "Rating Agency") for a rating in one of the two
highest rating categories of such Rating Agency] (the "Mortgage Loans") and
certain related property to be conveyed to the Trust by the Depositor (the
"Trust Fund"). The Mortgage Loans will be transferred to the Trust, pursuant to
a Pooling and Servicing Agreement (as defined herein), dated as of , 19 ,
by the Depositor in exchange for the Certificates and are more fully described
in this Prospectus Supplement and in the accompanying Prospectus. The
Certificates offered by this Prospectus Supplement constitute a separate series
of the Certificates being offered by the Depositor from time to time pursuant
to its Prospectus dated , 199 , which accompanies this Prospectus
Supplement and of which this Prospectus Supplement forms a part. The Prospectus
contains important information regarding this offering that is not contained
herein, and prospective investors are urged to read the Prospectus and this
Prospectus Supplement in full.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for the
Certificates [but [is] [are] under no obligation to do so]. There can be no
assurance that a secondary market will develop, or if it does develop, that it
will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Certain Federal Income Tax Consequences"
in the Prospectus.]
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the factors set forth under Risk Factors
on page S-6 of this Prospectus Supplement.
Prospective investors should condisider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- ---------------------------------------------------------
<S> <C> <C> <C>
Per Certificate % % %
- ---------------------------------------------------------
Total $ $ $
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
(1)Plus accrued interest, if any, at the applicable rate from , 19 .
(2)Before deduction of expenses payable by the Depositor estimated at $ .
-----------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [their] [its] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be ready for delivery on or about
, 19 .
CS First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
This Prospectus Supplement does not contain complete information about the
Certificates offered hereby. Additional information is contained in the
Prospectus, and purchasers are urged to read both this Prospectus Supplement
and the Prospectus in full. Sales of the Certificates may not be consummated
unless the purchaser has received both this Prospectus Supplement and the
Prospectus.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS 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 SALE.]
Until , 19 , all dealers effecting transactions in the Certificates,
whether or not participating in this distribution, may be required to deliver
a Prospectus Supplement and a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will file reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information filed
by the Trust can be inspected and copied at the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C., and at the Commission's
regional offices at 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).
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ Conduit Mortgage Pass-Through Certificates, Series
, % Pass-Through Rate (the "Certificates").
AMOUNT.................... $ (Approximate: subject to a permitted
variance of up to 5%).
DEPOSITOR................. First Boston Mortgage Securities Corp. (the
"Depositor").
MASTER SERVICER...........
DENOMINATIONS............. The minimum denomination of a Certificate (a
"Single Certificate") will initially represent
approximately $ aggregate principal amount
of Mortgage Loans.
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
INTEREST.................. Passed through monthly at the rate of % per annum
(the "Pass-Through Rate"), on the day of each
month (each, a "Distribution Date") commencing
, 19 .
PRINCIPAL (INCLUDING Passed through monthly on the Distribution Date,
PREPAYMENTS).............. commencing , 19 .
MORTGAGE POOL............. The Mortgage Pool will consist of [fixed rate],
fully-amortizing, [level-payment] mortgage loans
[and mortgage participation certificates
evidencing participation interests in such
mortgage loans that meet the requirements of the
nationally recognized rating agency or agencies
rating the Certificates (collectively the "Rating
Agency") for a rating in one of the two highest
rating categories of such Rating Agency] secured
by mortgages on one- to four-family residential
properties [located in the states of , and
(the "Mortgage Loans").] All Mortgage Loans
will have original maturities of at least [15 but
no more than 30] years. See "Description of the
Mortgage Pool and the Underlying Properties"
herein.
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
[LETTER OF CREDIT......... The maximum liability of [ ] under an
irrevocable standby letter of credit for the
Mortgage Pool (the "Letter of Credit"), net of
unreimbursed payments thereunder, will be no more
than [10%] of the initial aggregate principal
balance of the Mortgage Pool (the "Letter of
Credit Percentage"). The maximum amount available
to be paid under the Letter of Credit will be
determined in accordance with the Pooling and
Servicing Agreement referred to herein. The
duration of coverage and the amount of frequency
of any reduction in coverage will be in compliance
with the requirements established by the Rating
Agency, in order to obtain a rating in one of the
two highest rating categories of such Rating
Agency. The amount available under the Letter of
Credit shall be reduced by the amount of
unreimbursed payments thereunder. See "Description
of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
S-3
<PAGE>
[POOL INSURANCE POLICY.... [Neither the Certificates nor the Mortgage Loans
will be insured or guaranteed by any governmental
agency.] Subject to the limitations described
herein, a pool insurance policy for certain of the
Mortgage Loans (the "Pool Insurance Policy") will
cover losses due to default on such Mortgage Loans
in an initial amount of not less than [5%] of the
aggregate principal balance as of the Cut-off Date
of all Mortgage Loans that are not covered as to
their entire outstanding principal balance by
primary policies of mortgage guaranty insurance.
The Pool Insurance Policy will be subject to the
limitations described under "Description of
Insurance--the Pool Insurance Policy" in the
Prospectus.]
HAZARD INSURANCE (AND
SPECIAL HAZARD INSURANCE All of the Mortgage Loans will be covered by
POLICY.................... standard hazard insurance policies insuring
against losses due to various causes, including
fire, lightning and windstorm. [An insurance
policy (the "Special Hazard Insurance Policy")
will cover losses with respect to the Mortgage
Loans that result from certain other physical
risks that are not otherwise insured against
(including earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited in scope
and will cover losses in an initial amount equal
to the greater of % of the aggregate principal
balance of the Mortgage Loans or times the unpaid
principal balance of the largest Mortgage Loan.]
Any hazard losses not covered by [either] standard
hazard insurance policies [or the Special Hazard
Insurance Policy] will not be insured against and
[, to the extent that the amount available under
the Letter of Credit or any alternative method of
credit support is exhausted,] will be borne by
holders of the Certificates (the
"Certificateholders"). The hazard insurance
policies [and the Special Hazard Insurance Policy]
will be subject to the limitations described under
"Description of Insurance--Hazard Insurance" [and
"--Special Hazard Insurance Policies"] in the
Prospectus.
[MORTGAGOR BANKRUPTCY The Depositor will obtain a bond or similar form of
BOND...................... insurance coverage (the "Mortgagor Bankruptcy
Bond"), providing coverage against losses that
result from proceedings with respect to obligors
under the Mortgage Loans (the "Mortgagors") under
the federal Bankruptcy Code. See "Description of
the Certificates--Mortgagor Bankruptcy Bond"
herein and "Description of Insurance--The
Mortgagor Bankruptcy Bond" in the Prospectus.]
[OPTIONAL TERMINATION..... The Depositor may, at its option, repurchase from
the Trust all Mortgage Loans remaining outstanding
at such time as the aggregate unpaid principal
balance of such Mortgage Loans is less than [10%]
of the aggregate principal balance of the Mortgage
Loans on the Cut-off Date. The repurchase price
will equal the aggregate unpaid principal balance
of such Mortgage Loans together with accrued
interest thereon at the Pass-Through Rate through
the last day of the month during which such
repurchase occurs, plus the appraised value of any
property acquired in respect thereof. [Any such
repurchase
S-4
<PAGE>
will be effected in compliance with the
requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986 (the "Code") so as
to constitute a "qualifying liquidation"
thereunder.]. See "Description of the
Certificates--Termination; Repurchase of
Certificates in the Prospectus."]
ADVANCES..................
The Servicers of the Mortgage Loans (and the Master
Servicer, with respect to each Mortgage Loan that
it services directly and otherwise, to the extent
the related Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans under
certain circumstances. See "Description of the
Certificates--Advances" in the Prospectus.
TRUSTEE................... . See
"Description of the Certificates--Trustee" herein.
CERTIFICATE RATING........ It is a condition of issuance that the Certificates
be rated in one of the two highest rating
categories of the Rating Agency.
ERISA CONSIDERATIONS......
See "ERISA Considerations" in the Prospectus [and
herein].
LEGAL INVESTMENT.......... The Certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the "Enhancement
Act"), and, as such, are legal investments for
certain entities to the extent provided in the
Enhancement Act. See "Legal Investment" in the
Prospectus.
TAX ASPECTS............... [Because an amount not treated as servicing
compensation will be paid to , the "stripped-bond"
rules of the Internal Revenue Code of 1986 should
apply.]
The Depositor [intends] [does not intend] to make
an election to treat the Trust as a Real Estate
Mortgage Investment Conduit (a "REMIC"), pursuant
to the Internal Revenue Code of 1986. See "Certain
Federal Income Tax Consequences--General";
["-- REMIC Trust Funds"] ["--Non-REMIC Trust
Funds"] in the Prospectus. Purchasers of
Certificates should see "Certain Federal Income Tax
Consequences ["--REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates"]
["--Non-REMIC Trust Funds"--Taxation of Owners of
Trust Fractional Certificates" and "--Taxation of
Owners of Trust Fractional Certificates
["--Application of Stripped Bond Rules"]
[--Treatment of Unstripped Certificates"]] in the
Prospectus for discussions of certain tax
considerations particular to the Certificates.*
- --------
* If the Prospectus Supplement for a Series of Certificates provides that
[Sidley & Austin][Cadwalader, Wickersham & Taft] will pass upon the material
federal income tax consequences of the Certificates for the Depositor, then
such Prospectus Supplement will contain tax disclosure substantially similar
to the disclosure set forth in Version E under "Summary of Terms--Tax Aspects"
and "Certain Federal Income Tax Consequences."
S-5
<PAGE>
[RISK FACTORS]
[Description of Risk Factors to be added as appropriate]
DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING PROPERTIES
The Mortgage Pool will consist of Mortgage Loans evidenced by mortgage notes
with aggregate unpaid principal balances outstanding as of the Cut-off Date,
after deducting payments of principal due on such date, of approximately
$ . This amount is subject to a permitted upward and downward variance of
up to %. The Mortgage Pool will consist of -year, [fixed-rate], fully-
amortizing, [level-payment] Mortgage Loans, as more fully described in the
Prospectus.
The weighted average interest rate (individually, a "Mortgage Rate") of the
Mortgage Loans as of the Cut-off Date will be at least % but no more than
%. All Mortgage Loans will have Mortgage Rates of at least % but no more
than %. The weighted average maturity of the Mortgage Loans, as of the Cut-
off Date, will be at least years but no more than years. All Mortgage
Loans will have original maturities of at least but no more than
years. None of the Mortgage Loans will have been originated prior to or after
, 19 . None of the Mortgage Loans will have a scheduled maturity later
than .
The Mortgage Loans will have the following characteristics as of the Cut-off
Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated before
, 19 , and no more than % of the Mortgage Loans will have been
originated before , 19 . See "Certain Federal Income Tax
Consequences--Mortgage Pools," "--Taxation of Owners of Trust Fractional
Certificates" and "--Market Discount and Premium" in the Prospectus for
information regarding such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value ratios
at origination in excess of 80%, and no Mortgage Loan will have had a loan-
to-value ratio at origination in excess of 95%.
All the Mortgage Loans with loan-to-value ratios at origination in excess
of 80% will be covered by a policy of private mortgage insurance until the
outstanding principal balance is reduced to 75% of the Original Value.
At least % of the Mortgage Loans will be secured by Mortgages on
single-family dwellings.
No more than % of the Mortgage Loans will be secured by Mortgages on
condominiums and row houses.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided, and no
more than % of the outstanding principal balance of any such Mortgage
Loan will be represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be GPM Loans.
At least % of the Mortgage Loans will be secured by an owner-occupied
Mortgaged Property. Such determination will have been made on the basis of
a representation by the Mortgagor at the time of origination of the
Mortgage Loan that such Mortgagor then intended to occupy the underlying
property or, in the absence of such a representation, various factors
indicating that the underlying property is owner-occupied.
S-6
<PAGE>
No more than [5%] of the Mortgage Loans will be secured by Mortgages on
properties located in any one zip code or project.
The Mortgage Loans will be secured by Mortgages on properties located in
the states of .
Specific information with respect to the Mortgage Loans will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in
a Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of the
Certificates.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms"), as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, , as master servicer (the
"Master Servicer"), and , as trustee (the
"Trustee"), a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement forms a part. Reference is made
to the accompanying Prospectus for important additional information regarding
the terms and conditions of the Pooling and Servicing Agreement and the
Certificates. Each of the Certificates at the time of issuance will qualify as
a "mortgage related security" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office specified in the notice to
Certificateholders of such final distribution.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained by the Trustee at the office or agency of the Master
Servicer maintained for that purpose in New York, New York. Certificates
surrendered to the Trustee for registration of transfer or exchange must be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee. No service charge will be made for any registration of transfer or
exchange of Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required. Such office or agency is currently
located at .
TRUSTEE
The Trustee for the Certificates will be
, a bank organized and existing under the laws of the
with its principal office located at ,
.
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation in
. The Master Servicer is a FNMA/FHLMC approved seller-servicer based in
. As of , the Master Servicer serviced, for other investors and
for its own account, approximately mortgage loans
S-7
<PAGE>
with an aggregate principal balance in excess of $ . The Master Servicer
conducts operations through FHA approved branch offices in .
The Master Servicer originated approximately $ in mortgage loans in
19 . The Master Servicer's consolidated stockholders' equity as of was
approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances," in an amount acceptable to the nationally recognized
statistical rating organization or organizations rating the Certificates
(collectively, the "Rating Agency").
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Mortgage Loan, equal to
the excess of each interest payment on a Mortgage Loan over the Pass-Through
Rate, less [(a)] any servicing compensation payable to the Servicer of such
Mortgage Loan under the terms of the agreement with the Master Servicer
pursuant to which such Mortgage Loan is serviced (the "Servicing Agreement")
(including such compensation paid to the Master Servicer as the direct
servicer of a Mortgage Loan for which there is no Servicer) [.] [, and (b) the
amount payable to the Depositor, as described below.] [Pursuant to the Pooling
and Servicing Agreement, on each Distribution Date, the Master Servicer will
remit to [the Depositor] in respect of each interest payment on a Mortgage
Loan an amount equal to % of the outstanding principal balance of such
Mortgage Loan before giving effect to any payments due on the preceding Due
Date.] The Master Servicer will be permitted to withdraw from the Certificate
Account, in respect of each interest payment on a Mortgage Loan, an amount
equal to % of the outstanding principal balance of such Mortgage Loan,
before giving effect to any payments due on the preceding Due Date. See
"Description of the Certificates--Servicing and Other Compensation and Payment
of Expenses" in the Prospectus for information regarding other possible
compensation to the Master Servicer and the Servicers. The Servicers and the
Master Servicer will pay all expenses incurred in connection with their
responsibilities under the Servicing Agreements and the Pooling and Servicing
Agreement (subject to limited reimbursement as described in the Prospectus),
including, without limitation, the various items of expense enumerated in the
Prospectus.
Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation might be
characterized as an ownership interest in the interest payments on the
Mortgage Loans ("Retained Yield") for federal income tax purposes, by reason
of the extent to which either the weighted average Mortgage Rate, or the
stated interest rates on the Mortgage Loans exceeds the Pass-Through Rate, and
the tax consequences to them of such a characterization. In this regard, there
are no authoritative guidelines for federal income tax purposes as to either
the maximum amount of servicing compensation that may be considered reasonable
in the context of this or similar transactions or whether the reasonableness
of servicing compensation should be determined on a weighted average or loan-
by-loan basis. [The Depositor intends to treat % of such servicing
compensation and % of the amount payable to it described above as Retained
Yield for federal income tax purposes in reports to the Certificateholders and
to the Internal Revenue Service.] See "Certain Federal Income Tax
Consequences--Mortgage Pools" and "--Taxation of Owners of Trust Fractional
Certificates" in the Prospectus for information regarding the characterization
of servicing compensation [and the amounts payable to the Depositor].
S-8
<PAGE>
[TERMINATION; REPURCHASE OF MORTGAGE LOANS
The Pooling and Servicing Agreement provides that the Depositor may purchase
from the Trust all Mortgage Loans remaining in the Mortgage Pool and thereby
effect early retirement of the Certificates, provided that the aggregate
unpaid balances of the Mortgage Loans at the time of such repurchase is less
than [10%] of the aggregate principal balance of the Mortgage Loans on the
Cut-off Date. The purchase price for any such optional repurchases shall be
equal to the outstanding principal balance of such Mortgage Loans, together
with accrued interest at the Pass-Through Rate to the first day of the month
following such repurchase plus the appraised value of any acquired property
with respect to the Mortgage Loans. [Any such repurchase will be effected in
compliance with the requirements of Section 86OF(a)(iv) of the Code in order
to constitute a "qualifying liquidation" thereunder.] In no event will the
Trust continue beyond the expiration of 21 years from the death of the last
survivor of the persons named in the Pooling and Servicing Agreement.]
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
[10%] of the aggregate principal balance of the Mortgage Loans on the Cut-off
Date. The duration of coverage and the amount and frequency of any reduction
in coverage will be in compliance with the requirements established by the
Rating Agency rating the Certificates, in order to obtain a rating in one of
the two highest rating categories of the Rating Agency. The precise amount of
coverage under the Letter of Credit and the duration and frequency of
reduction of such coverage will be set forth in the Current Report on Form 8-K
referred to above. See "Description of the Certificates--Credit Support--The
Letter of Credit" in the Prospectus.]
[THE POOL INSURANCE POLICY
Subject to the limitations described under "Description of Insurance--Pool
Insurance Policy" in the Prospectus, the Pool Insurance Policy will cover
losses by reason of default on the Mortgage Loans that are not covered as to
their entire outstanding principal balances by primary mortgage insurance, in
an amount equal to % of the aggregate principal balance of such Mortgage
Loans on the Cut-off Date.
The Pool Insurance Policy will be issued by , a corporation (the
"Pool Insurer"), which is engaged principally in the business of insuring
mortgage loans on residential properties against default in payment by the
Mortgagor. At , 19 , the Pool Insurer had insurance in force in the form
of primary policies covering approximately $ billion of residential
mortgages. At such date, the Pool Insurer had total assets of approximately
$ million, capital and surplus aggregating $ million and statutory
contingency reserves of $ million, resulting in total policyholders'
reserves of $ million.
The information set forth above has been provided by the Pool Insurer. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
[THE SPECIAL HAZARD INSURANCE POLICY
The Special Hazard Insurance Policy will cover certain risks not otherwise
insured against under hazard insurance policies, subject to the limitations
described in the Prospectus, and will be issued by , a corporation
(the "Special Hazard Insurer"). Claims under such policy will be limited to
% of the aggregate principal balance of the Mortgage Loans or times the
principal balance of the Mortgage Loan with the highest outstanding principal
balance at the Cut-off Date, whichever is greater. At , 19 , the Special
Hazard Insurer had total assets of approximately $ million and total
policyholders' surplus of $ million. The claims-paying ability of the
Special Hazard Insurer is presently rated by the Rating Agency. In accordance
with standard rating agency practice, the Rating Agency may, at any time,
revise or withdraw such rating.
S-9
<PAGE>
The information set forth above has been provided by the Special Hazard
Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
[MORTGAGOR BANKRUPTCY BOND
The Depositor will obtain a bond or similar form of insurance coverage (the
"Mortgage Bankruptcy Bond") for proceedings with respect to Mortgagors under
the federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled payments
of principal and interest on a Mortgage Loan or a reduction by such court of
the principal amount of a Mortgage Loan and will cover certain unpaid interest
on the amount of such a principal reduction from the date of the filing of a
bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy Bond
will be $ plus the greater of (i) % of the aggregate principal balances
of the Mortgage Loans secured by second residences and investor-owned
residences or (ii) times the largest principal balance of any such
Mortgage Loan. The coverage provided by the Mortgagor Bankruptcy Bond will be
reduced by payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by , a
corporation. At December 31, 19 , had admitted assets of approximately
$ and total policyholders' surplus of approximately $ .
The information set forth above concerning has been provided by it.
The Depositor makes no representation as to the accuracy or completeness of
such information.]
CERTIFICATE RATING
It is a condition to the issuance of the Certificates that they be rated in
one of the two highest categories of the Rating Agency prior to issuance.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase from the Depositor [all] [the
following respective principal amounts] of the Certificates:
[UNDERWRITER
<TABLE>
<S> <C>
CS First Boston Corporation.................................. $
-----------
Total.................................................... $ ]
===========
</TABLE>
S-10
<PAGE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Certificates to the public initially at
the public offering prices set forth on the cover page of this Prospectus
Supplement, and [through the Representative,] to certain dealers at such
prices less the following concessions and that the Underwriter[s] and such
dealers may allow the following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
-------------------- --------------------
<S> <C> <C>
% %
</TABLE>
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by [Sidley & Austin][Cadwalader, Wickersham & Taft], New
York, New York. The material federal income tax consequences of the Certificates
will be passed upon for the Depositor by [Sidley & Austin][Cadwalader,
Wickersham & Taft].
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates
of the Depositor, which will have acquired such Mortgage Loans from time to
time in privately negotiated transactions.
S-11
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED ,
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
CS First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage Pass-Through Certificates, Class A, Series
Principal and interest payable on the 25th day
of each month, beginning , 19
-----------
Class A-1 % of principal payments on the Mortgage Loans; % of interest
payments at an % pass-through rate on the Mortgage Loans (the "Pass-Through
Rate") (Interest at an % annual rate on unpaid Class A-1 principal amount)
Class A-2 No principal payments on the Mortgage Loans; % of interest
payments at an % Pass-Through Rate on the Mortgage Loans (Interest at an %
annual rate on unpaid Class A-2 notional amount)
The Conduit Mortgage Pass-Through Certificates (the "Certificates") will be
composed of two classes (each, a "Class"), entitled Conduit Mortgage Pass-
Through Certificates, Class A (the "Class A Certificates"), and Conduit
Mortgage Pass-Through Certificates, Class B (the "Class B Certificates"). The
Class A Certificates offered hereby will be divided into two subclasses (each,
a "Subclass") entitled Class A-1 (the "Class A-1 Certificates") and Class A-2
(the "Class A-2 Certificates") and will evidence undivided percentage ownership
interests in a trust (the "Trust") composed of [conventional] [fixed-rate]
[one- to four-family residential mortgage loans,] [mortgage loans secured by
multifamily residential rental properties consisting of five or more dwelling
units or apartment buildings owned by cooperative housing corporations,] [loans
made to finance the purchase of certain rights relating to cooperatively owned
properties secured by a pledge of shares of a cooperative corporation and an
assignment of a proprietary lease or occupancy agreement on a cooperative
dwelling ("Cooperative Loans"),] [and mortgage participation certificates
evidencing participation interests in such loans and meeting the requirements
of the nationally recognized rating agency or agencies rating the certificates
(collectively, the "Rating Agency") for a rating in one of the two highest
rating categories of such Rating Agency] (the "Mortgage Loans") and certain
related property to be conveyed to the Trust by the Depositor (the "Trust
Fund"). The Mortgage Loans will be transferred to the Trust, pursuant to a
Pooling and Servicing Agreement (as defined herein) dated as of , 199 , by
First Boston Mortgage Securities Corp. ( the "Depositor") in exchange for the
Certificates and are more fully described in this Prospectus Supplement and in
the accompanying Prospectus.
The Class A-1 Certificates evidence ownership of % of each principal
payment on the Mortgage Loans and % of each interest payment on the Mortgage
Loans (representing interest at a rate of % per annum on the unpaid principal
amount of the Class A-1 Certificates). The Class A-2 Certificates evidence
ownership of % of each interest payment at the Pass-Through Rate on the
Mortgage Loans (representing interest at a rate of % per annum on the unpaid
notional amount of the Class A-2 Certificates). The rights of the Class B
Certificateholders to receive distributions with respect to the Mortgage Loans
will be subordinated to the rights of the Class A Certificateholders to the
extent described herein and in the Prospectus.
[The Depositor intends to offer the Class B Certificates to sophisticated
institutional investors from time to time in transactions not requiring
registration under the Securities Act of 1933. The rights of the Class B
Certificateholders to receive distributions with respect to the Mortgage Loans
will be subordinated to the rights of the Class A Certificateholders to the
extent described herein and in the Prospectus.]
The Certificates do not represent an obligation of or interest in CS First
Boston Mortgage Securities Corp. or any affiliate thereof. Neither the
Certificates nor the underlying mortgage loans are insured or guaranteed by any
governmental agency or instrumentality.
The Mortgage Loans may be prepaid at any time without penalty. [A lower rate
of principal prepayments than anticipated would negatively affect the total
return to investors in Class A-1 Certificates, which are being offered at a
discount to their principal amount.] Yields on the Class A-2 Certificates will
be extremely sensitive to the prepayment experience on the Mortgage Loans, and
prospective investors in such Certificates should fully consider the associated
risks, including the risk that such investors, in circumstances of higher than
anticipated prepayment, could fail to fully recoup their initial investment.
See "The Mortgage Pool," "Yield Considerations" and "Maturity and Prepayment
Considerations" in this Prospectus Supplement.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for the
Class A Certificates [but [is] [are] under no obligation to do so]. There can
be no assurance that a secondary market will develop or, if it does develop,
that it will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Certain Federal Income Tax Consequences"
in the Prospectus.]
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER RISK
FACTORS ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER ERISA
CONSIDERATIONS HEREIN AND IN THE ACCOMPANYING PROSPECTUS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Certificate % % %
- ----------------------------------------------------------------------
Per Class A-2 Certificate % % %
- ----------------------------------------------------------------------
Total $ $ $
- ----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deducting expenses payable by the Depositor estimated at $ .
-----------
The Class A Certificates are offered by the [several] Underwriter[s] when, as
and if issued and accepted by the Underwriter[s] and subject to [its] [their]
right to reject orders in whole or in part. It is expected that the Class A
Certificates, in definitive fully registered form, will be ready for delivery
on or about , 19 .
CS First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES
OFFERED HEREBY MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATIONS, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS 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 SALE.]
----------------
UNTIL , 19 , ALL DEALERS AFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
ADDITIONAL INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street,, Suite 1400, 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).
S-2
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Capitalized terms used in this Prospectus Supplement and not
otherwise defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ Conduit Mortgage Pass-Through Certificates, Class
A, Series (the "Class A Certificates").
$ Original Principal Amount Class A-1
Certificates (approximate).
No Original Principal Amount A-2 Certificates.
The Class A-1 Certificates represent undivided
percentage interests in approximately % of each
principal payment on the Mortgage Loans (the
"Principal Distribution") and undivided percentage
interests in approximately % of each interest
payment at the Pass- Through Rate on the Mortgage
Loans (the "Interest Distribution") (representing
interest at a rate of % per annum on the unpaid
principal amount of the Class A-1 Certificates).
The individual percentage interest (the
"Percentage Interest") of any Class A-1
Certificate will be equal to the percentage
obtained by dividing the original principal amount
of such Class A-1 Certificate by the aggregate
original principal amount of all Class A-1
Certificates ($ ).
The Class A-2 Certificates represent Percentage
Interests in approximately % of the Interest
Distribution (representing interest at a rate of
% per annum on the unpaid notional amount of the
Class A-2 Certificates). The Class A Certificates
will not receive distributions of principal with
respect to the Mortgage Loans. The Percentage
Interest of any Class A-2 Certificate will be
equal to the percentage obtained by dividing the
original notional amount of such Class A-2
Certificate by the aggregate original notional
amount of all Class A-2 Certificates
(approximately $ ). The notional amount of
the Class A-2 Certificates is equal to the
aggregate unpaid principal amount of the Class A
Certificates, but is used solely for purposes of
determining interest payments and certain other
rights of holders of the Class A-2 Certificates
and does not represent any interest in such
principal payments.
The Class A Certificates represent in the aggregate
an approximate % undivided interest in the Trust
Fund. The remaining approximate % undivided
interest in the Trust Fund is evidenced by the
Class B Certificates, which are subordinated in
certain respects to the Class A Certificates, as
more fully described herein and in the Prospectus.
[The Class B Certificates are not being offered
hereby, and may be retained by the Depositor or
sold by the Depositor at any time to one or more
sophisticated institutional investors in privately
negotiated transactions not requiring registration
under the Securities Act of 1933.]
S-3
<PAGE>
DEPOSITOR................. CS First Boston Mortgage Securities Corp. (the
"Depositor").
MASTER SERVICER...........
CUT-OFF DATE..............
, 19 .
DELIVERY DATE............. On or about , 19 .
DENOMINATIONS............. The minimum denomination of a Class A-1 Certificate
will represent approximately $ aggregate
principal balance of the Mortgage Loans on the
Cut-off Date. The minimum denomination of a Class
A-2 Certificate will represent approximately
$ notional amount.
INTEREST.................. Passed through monthly, on the day of each
month (each, a "Distribution Date") commencing
, 19 . The Pass-Through Rate on the
Mortgage Loans is % per annum. See "Description
of the Certificates" in the Prospectus.
PRINCIPAL (INCLUDING
PREPAYMENTS)............. Passed through monthly on the Distribution Date,
commencing on , 19 . See "Description of the
Certificates" in the Prospectus.
MORTGAGE POOL............. The Mortgage Pool will consist of [fixed rate,]
[fully-amortizing,] [level-payment] mortgage loans
secured by Mortgages on [one- to four-family
residential properties, loans (the "Cooperative
Loans") made to finance the purchase of certain
rights relating to cooperatively owned properties
secured by a pledge of shares of a cooperative
corporation (the "Cooperative") and an assignment
of a proprietary lease or occupancy agreement on a
cooperative dwelling (a "Cooperative Dwelling"
and, together with one- to four-family residential
properties, "Single Family Property"), or mortgage
loans secured by multifamily residential rental
properties consisting of five or more dwelling
units or apartment buildings owned by cooperative
housing corporations ("Multifamily Property")]
[located in the states of , and ] [and
mortgage participation certificates evidencing
participation interests in such loans that meet
the requirements of the nationally recognized
rated agency or agencies rating the certificates
(collectively, the "Rating Agency") for a rating
in one of the two highest rating categories of
such Rating Agency] (the "Mortgage Loans"). All
Mortgage Loans will have original maturities of at
least but not more than years. See "Description
of the Mortgage Pool and the Underlying
Properties" herein.*
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in manufactured housing conditional sales
contracts and installment loan agreements ("Contracts"), the disclosure to be
set forth will be substantially similar to the disclosure set forth in
Version E under "Summary of Terms--Contract Pool."
S-4
<PAGE>
CLASS B CERTIFICATES...... The rights of the Class B Certificateholders to
receive distributions with respect to the Mortgage
Loans are subordinated to the rights of the Class
A Certificateholders to receive such distributions
to the extent of the Subordinated Amount described
below. This subordination is intended to enhance
the likelihood of regular receipt by Class A
Certificateholders of the full amount of scheduled
payments of principal and interest and to decrease
the likelihood that the Class A Certificateholders
will experience losses. The extent of such
subordination (the "Subordinated Amount") will be
determined as follows: on the Cut-off Date and on
each anniversary of the Cut-off Date until ,
the Subordinated Amount will equal [ ]% of the
original aggregate principal balance of the
Mortgage Loans less the amount of "Aggregate
Losses" (as defined in the Prospectus) since the
Cut-off Date through the last day of the month
preceding such anniversary date; from the th
anniversary of the Cut-off Date, the Subordinated
Amount will gradually decline in accordance with a
schedule set forth in the Pooling and Servicing
Agreement.
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
RESERVE FUND..............
The protection afforded to the Class A
Certificateholders from the subordination feature
described above will be effected both by the
preferential right of the Class A
Certificateholders to receive current
distributions with respect to the Mortgage Loans
(to the extent of the Subordinated Amount) and by
the establishment of a reserve (the "Reserve
Fund"). The Reserve Fund is not included in the
Trust Fund. The Reserve Fund will be created by
the Depositor and shall be funded by the retention
of all of the scheduled distributions of principal
otherwise distributable to the Class B
Certificateholders on each Distribution Date until
the Reserve Fund reaches an amount (the "Required
Reserve") that will equal [; thereafter, the
Reserve Fund must be maintained at the following
levels: ]. See "Description of the
Certificates--Subordinated Certificates" and "--
Reserve Fund" in the Prospectus.
[OPTIONAL TERMINATION..... The Depositor may, at its opinion, repurchase from
the Trust all Mortgage Loans remaining outstanding
[at such time as the aggregate unpaid principal
balance of such Mortgage Loans is less than 10% of
the aggregate principal balance of the Mortgage
Loans on the Cut-off Date]. The repurchase price
will equal [the aggregate unpaid principal balance
of such Mortgage Loans, together with accrued
interest thereon at the Pass-Through Rate through
the last day of the month during which such
repurchase occurs plus the appraised value of any
property with respect thereof]. [Any such
termination will be effected in compliance with
the requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986, so as to constitute
a "qualifying liquidation" thereunder.] See
"Description of the Certificates--Termination;
Repurchase of Certificates" in the Prospectus.]
S-5
<PAGE>
ADVANCES.................. The Servicers of the Mortgage Loans (and the Master
Servicer, with respect to each Mortgage Loan that
it services directly and otherwise, to the extent
the related Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans under
certain circumstances. See "Description of
Certificates-- Advances" in the Prospectus.
TRUSTEE...................
. See "Description of the Certificates--
Trustee" herein.
CERTIFICATE RATING........ It is a condition of issuance of the Class A
Certificates that they be rated in one of the two
highest rating categories of the Rating Agency
prior to issuance. See "Rating" herein.
LEGAL INVESTMENT.......... The Class A Certificates constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act"), and, as such, are legal
investments for certain entities to the extent
provided in the Enhancement Act. See "Legal
Investment" in the Prospectus.
ERISA CONSIDERATIONS...... See "ERISA Considerations" in the Prospectus [and
herein].
TAX ASPECTS............... See "Certain Federal Income Tax Consequences--
General"; ["--REMIC Trust Funds"] ["--Non-REMIC
Trust Funds"] in the prospectus. Purchasers
of Class A-1 Certificates should see "Certain
Federal Income Tax Consequences ["--REMIC Trust
Funds--Taxation of Owners of REMIC Regular
Certificates"] ["--Non-REMIC Trust Funds--Taxation
of Owners of Trust Fractional Certificates" and
"-- Taxation of Owners of Trust Fractional
Certificates ["--Application of Stripped Bond
Rules"]] in the Prospectus for discussions of
certain tax considerations particular to the Class
A-1 Certificates. Purchasers of Class A-2
Certificates should see "Certain Federal Income Tax
Consequences ["--REMIC Trust Funds--Taxation of
Owners of REMIC Residual Certificates"]["--Non
REMIC Trust Funds--Taxation of Owners of Trust
Interest Certificates"] in the Prospectus for
discussions of certain tax considerations
particular to the Class A-2 Certificate.*
- --------
* If the Prospectus Supplement for a Series of Certificates provides that
[Sidley & Austin] [Cadwalader, Wickersham & Taft] will pass upon the material
federal income tax consequences of the Certificates for the Depositor, then
such Prospectus Supplement will contain tax disclosure substantially similar
to the disclosure set forth in Version E under "Summary of Terms--Tax Aspects"
and "Certain Federal Income Tax Consequences."
S-6
<PAGE>
[RISK FACTOR]
[Description of Risk Factors to be added as appropriate)
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING PROPERTIES*
The Mortgage Pool will consist of Mortgage Loans evidenced by notes with
aggregate unpaid principal balances outstanding as of the Cut-off Date, after
deducting payments of principal due on such date, of approximately $ . The
amount is subject to a permitted upward and downward variance of up to %.
The Mortgage Pool will consist of -year, [fixed-] rate, fully-amortizing,
[level-payment] Mortgage Loans, as more fully described in the Prospectus.
The weighted average interest rate of the Mortgage Loans as of the Cut-off
Date will be at least % but no more than %. All Mortgage Loans will have
interest rates of at least % but no more than %. The weighted average
maturity of the Mortgage Loans, as of the Cut-off Date, will be at least
years but no more than years. All Mortgage Loans will have original
maturities of at least but no more than years. None of the Mortgage
Loans will have been originated prior to or after 19 . None of
the Mortgage Loans will have a scheduled maturity later than .
The Mortgage Loans will have the following characteristics as of the Cut-off
Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated before
, 19 . See "Certain Federal Income Tax Consequences--Mortgage
Pools." "--Taxation of Owners of Trust Fractional Certificates" and "--
Market Discount and Premium" in the Prospectus for information regarding
such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value ratios
at origination in excess of 80%, and no Mortgage Loan will have had a loan-
to-value ratio at origination in excess of [95%].
All of the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of private mortgage insurance
until the outstanding principal balance is reduced to 75% of the Original
Value.
[ % of the Mortgage Loans will be secured by Mortgages on single-family
dwellings] [ % of the Mortgage Loans will be secured by Multifamily
Property][ % of the Mortgage Loans will be secured by a pledge of shares
of a Cooperative and an assignment of a proprietary lease or occupancy
agreement on a Cooperative Dwelling.]
No more than % of the Mortgage Loans will be secured by Mortgages on
condominiums and row houses.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided and no
more than % of the principal balance of any such Mortgage Loan will be
represented by Buy-Down Funds.
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Description of the Contract Pool."
S-7
<PAGE>
No more than %, by aggregate principal balance, of the Mortgage Loans
will be GPM Loans.
At least % of the Mortgage Loans will be secured by an owner-occupied
Mortgaged Property. Such determination will have been made on the basis of
a representation by the Mortgagor at the time of origination of the
Mortgage Loan that he then intended to occupy the underlying property or,
in the absence of such a representation, various factors indicating that
such underlying property is owner-occupied.
No more than [ ]% of the Mortgage Loans will be secured by Mortgages on
properties located in any one zip code or project.
The Mortgage Loans will be secured by Mortgages on properties located in the
states of .
Specific information with respect to the Mortgage Loans will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in
a Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of the
Certificates.
YIELD CONSIDERATIONS
PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS
The rate of principal payments on the Class A Certificate, the aggregate
amount of each interest payment on the Class A-1 Certificates and Class A-2
Certificates and the yield to maturity of the Class A-1 and Class A-2
Certificates will correspond directly to the rate of payments of principal on
the Mortgage Loans (including, for this purpose, scheduled amortization,
payments resulting from liquidation due to default, casualty, condemnation and
the like and repurchases by the Servicers under the circumstances described
herein and in the Prospectus). The rate of principal payments on pools of
mortgages or loans are influenced by a variety of economic, geographic, social
and other factors. In general, however, if prevailing interest rates fall
significantly below the interest rates on the Mortgage Loans, the Mortgage
Loans are likely to be subject to higher prepayment rates than if prevailing
rates remain at or above the interest rates on the Mortgage Loans. The rate of
payment of principal may also be affected by any repurchase of the Mortgage
Loans by the Servicers. See "Termination; Repurchase of Mortgage Loans" herein
and "Description of the Certificates--Assignment of Mortgage Loans" in the
Prospectus. In any such event, the repurchase price would be passed through to
Certificateholders as a prepayment of principal. See "Maturity and Prepayment
Considerations" in the Prospectus.
[[All] [ %] of the Mortgage Loans contain "due-on-sale" provisions.
Consequently, acceleration of mortgage payments as a result of transfers of
the related mortgaged property will affect the level of prepayments on the
Mortgage Loans. In addition, Mortgagors may prepay the Mortgage Loans at any
time without penalty.]
[As the Class A-1 Certificates are being offered at discounts from their
original principal amounts, if the purchaser of a Class A-1 Certificate
calculates is anticipated yield to maturity based on an assumed rate of
payment of principal that is faster than that actually received on the
Mortgage Loans, its actual yield to maturity will be lower than that so
calculated.] Conversely, since the Class A-2 Certificates are being offered
without any original principal amount, if the purchaser of a Class A-2
Certificate calculates its anticipated yield to maturity based on an assumed
rate of payment of principal that is slower than that actually received on the
Mortgage Loans, its actual yield to maturity will be lower than that so
calculated. In either case, the converse would be true.
S-8
<PAGE>
The timing of changes in the rate of prepayments of the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal on the Mortgage
Loans the greater the effect on an investor's yield to maturity. As a result,
the effect on an investor's yield of principal payments occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Certificates may not be offset by a
subsequent like reduction (or increase) in the rate of principal payments.
[BECAUSE THE CLASS A-1 CERTIFICATES ARE BEING OFFERED AT A DISCOUNT FROM
THEIR ORIGINAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY ON SUCH CERTIFICATES
WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS.]
BECAUSE THE CLASS A-2 CERTIFICATES ARE BEING OFFERED WITHOUT ANY PRINCIPAL
AMOUNT, THE YIELD TO MATURITY ON THE CLASS A-2 CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS AND MAY FLUCTUATE
SIGNIFICANTLY FROM TIME TO TIME. PROSPECTIVE INVESTORS IN THE CLASS A-2
CERTIFICATES SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK
THAT IF THE RATE OF PAYMENT IS RAPID SUCH INVESTORS MAY NOT FULLY RECOUP THEIR
INITIAL INVESTMENT.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of new
mortgage loans. SPA assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgage loans in the first month of
life of the mortgage loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, SPA assumes a
constant prepayment rate of 6% per annum. SPA does not purport to be either a
historical description of the prepayment experience of any pool of mortgage
loans, or of the Mortgage Loans in the Mortgage Pool.
The following table illustrates, in general, the effect of prepayment rates
on the timing and amount of distributions on the Class A Certificates and
their resulting weighted average lives. The table does not purport to
represent the anticipated rate of prepayment on the Mortgage Loans or the
resulting anticipated rate of distributions on the Class A Certificates.
The table sets for the projected annual aggregate distributions that would
be made on the Class A-1 and Class A-2 Certificates, and their resulting
weighted average lives, based on various assumed percentages of SPA. The
column headed "0%" assumes that no Mortgage Loans are prepaid before maturity.
The columns headed " %", " %" and " %" assume that prepayments are made at
the specified percentages of SPA. It has been assumed in preparing the table
that (i) all of the Mortgage Loans have identical payment provisions, (ii) the
original term to maturity of each Mortgage Loan was [ ] years, (iii) all
Mortgage Loans are prepaid at the indicated percentage of SPA for the life of
the Certificates, (iv) the weighted average remaining term to maturity of the
Mortgage Loan is years, (v) the interest rate on each Mortgage Loan is
0. % in excess of the Pass-Through Rate, and (vi) the Mortgage Loans are not
repurchased at the option of the Depositor.
S-9
<PAGE>
PROJECTED ANNUAL AGGREGATE DISTRIBUTIONS ON THE CLASS A CERTIFICATES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES
------------------------------- -------------------------------
YEAR ENDING 0% SPA % SPA % SPA % SPA 0% SPA % SPA % SPA % SPA
----------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $ $ $
------- ------- ------- ------- ------- ------- ------- -------
Total distributions..... $ $ $ $ $ $ $ $
Weighted average life
(years)(1).............
</TABLE>
- --------
(1) The weighted average life of the Class A-2 Certificates, which is assumed
to be equal to the weighted average life of the Class A-1 Certificates, is
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results
and (iii) dividing the sum by the total principal distributions on the
Certificates.
The characteristics of the Mortgage Loans will not correspond exactly to
those assumed in preparing the statistics above. The annual cash flows on the
Class A Certificates will therefore differ from those set forth above even if
all the Mortgage Loans prepay monthly at the related assumed percentage of
SPA. In addition, it is not likely that any Mortgage Loan will prepay at a
constant rate until maturity or that all of the Mortgage Loans will prepay at
the same rate and the timing of changes in the rate of prepayments may
significantly affect the total cash flow received by a holder of a Class A
Certificate.
The Depositor makes no representation that the Mortgage Loans will prepay in
the manner or at any of the rates assumed in the table set forth above. Each
prospective investor must make its own decision as to the appropriate
prepayment assumption to be used in deciding whether or not to purchase the
Class A Certificates.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depository, , as master servicer (the
"Master Servicer"), and , as trustee (the "Trustee"), a form of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part. Reference is made to the accompanying
Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Certificates. The
Percentage Interest evidenced by each Class A-1 Certificate will be determined
by dividing the original principal amount of such Class A-1 Certificate by the
aggregate original principal amount of all Class A-1 Certificates. The
Percentage Interest evidenced by each Class A-2 Certificate will be determined
by dividing the original notional amount of such Class A-2 Certificate by the
aggregate original notional amount of all Class A-2 Certificates. The Class A
Certificates will be issued only in fully registered form in denominations of
$ and integral multiples thereof.
The Master Servicer will allocate each month's distributions of principal
and interest on the Mortgage Loans at the Pass-Through Rate as follows: % of
the monthly Principal Distribution and % of the Interest Distribution will
be allocated to the Holders of the Class A-1 Certificates (such sum being the
"Class
S-10
<PAGE>
A-1 Distribution Amount"); % of the Interest Distribution will be allocated
to the Holders of the Class A-2 Certificates (such sum being the "Class A-2
Distribution Amount"). Holders of Class A-2 Certificates will not receive
distributions of principal with respect to the Mortgage Loans. On each
Distribution Date, the Master Servicer will distribute to each Holder of a
Class A Certificate an amount equal to the Certificateholder's Percentage
Interest evidenced by the Class A Certificate in the Class A-1 or the Class A-
2 Distribution Amount, as the case may be. The remaining distribution will be
made to the Holders of the Class B Certificates, as more fully set forth
below. Such distributions will be made to Certificateholders of record on the
Record Date for such Distribution Date.
On each Distribution Date, the Master Servicer will distribute to the Class
A Certificateholders, in the manner set forth above, an amount (the "Required
Distribution") equal to the sum of:
(i) the aggregate undivided interest evidenced by all Class A
Certificates (such aggregate undivided interest being the sum of the
aggregate interests evidenced by the Class A Certificates in the Principal
Distribution and the Interest Distribution) (the "Senior Interest") in: (a)
until such time as the Subordinated Amount is reduced to zero, all
scheduled payments of principal and interest (including any advances
thereof), adjusted to the applicable Pass-Through Rate, which payments
became due on the due date to which such Distribution Date relates (the
"Due Date"), whether or not such payments are actually received; and (b)
after the Subordinated Amount is reduced to zero, all payments of principal
and interest, adjusted to the applicable Pass-Through Rate due on such Due
Date or due, but not previously received, since the time the Subordinated
Amount was reduced to zero, but only to the extent such payments are
actually received or advanced prior to the Determination Date;
(ii) the Senior Interest in all principal prepayments received during the
month prior to the month of distribution and, interest at the Pass-Through
Rate to the end of the month in which such principal prepayments occur;
(iii) the Senior Interest in the sum of (a) the outstanding principal
balance of each Mortgage Loan or property acquired in respect thereof that
was repurchased pursuant to the Pooling and Servicing Agreement or
liquidated or foreclosed during the monthly period ending on the day prior
to the Due Date to which such distribution relates, calculated as of the
date each such Mortgage Loan was repurchased, liquidated or foreclosed, and
(b) accrued but unpaid interest on such principal balance, adjusted to the
Pass-Through Rate, to the first day of the month following the month of
such repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders to the extent that there are sufficient eligible funds
available for distribution to such Class A Certificateholders on a
Distribution Date. Funds eligible for such purpose with respect to each
Distribution Date shall be as set forth in the Prospectus under "Payments on
Mortgage Loans."
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited
therein from the Reserve Fund and any Advances by the Servicers or the Master
Servicer) are not sufficient to make the full distribution of the Required
Distribution on any Distribution Date, the Master Servicer shall distribute on
such Distribution Date to the Class A Certificateholders the amount of funds
eligible for distribution to such Class A Certificateholders. If, on any
Distribution Date, prior to the time the Subordinated Amount has been reduced
to zero, the Class A Certificateholders do not receive the Required
Distribution, the Holders of the Class B Certificates will not receive any
distributions on such Distribution Date. Any amounts in the Certificate
Account after the Required Distribution is made to the Class A
Certificateholders will be paid to the holders of the Class B Certificates.
Holders of the Class B Certificates will not be required to refund any amounts
that have previously been properly distributed to them directly from the
Certificate Account, regardless of whether there are sufficient funds on such
Distribution Date to make a full distribution to the Class A
Certificateholders. The subordination of distributions allocable to Holders of
the Class B Certificates is limited to the Subordinated Amount, which will
decrease over time as more fully set forth in the Pooling and Servicing
Agreement, and such subordination will apply on any Distribution Date only to
then current distributions allocable to the Class B Certificateholders.
S-11
<PAGE>
Distributions to Holders of Class A and Class B Certificates will be made on
a pro rata basis, in accordance with the aggregate Percentage Interests of
each Class held by each Certificateholder of the related Class.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder, provided, however, that the final distribution in
retirement of the Class A Certificates will be made only upon presentation and
surrender of the Class A Certificates at the office or agency specified in the
notice of Certificateholders of such final distribution.
The Class A Certificates will be transferable and exchangeable on a
Certificate Register to be maintained at the office or agency of the Master
Servicer maintained for the purpose in New York, New York. Class A
Certificates surrendered to the Trustee for registration of transfer or
exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Class A Certificates, but payment of a
sum sufficient to cover any tax or other governmental charge may be required.
Such office or agency is currently located at .
TRUSTEE
The Trustee for the Certificates will be , a bank organized and
existing under the laws of the with its
principal office located at .
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operations in
. The Master Servicer is a FNMA/FHLMC approved seller-servicer based in
. As of , the Master Servicer serviced, for other investors and
for its own account, approximately mortgage loans with an aggregate principal
balance in excess of $ . The Master Servicer conducts operations through
FHA approved branch offices in . The Master Servicer originated
approximately $ in mortgage loans in 19 . The Master Servicer's
consolidated stockholder's equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
The Master Servicer will obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond")
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances" in an amount and form acceptable to the nationally
recognized statistical rating organization or organizations rating the Class A
Certificates (collectively, the "Rating Agency").
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Mortgage Loan, equal to
the excess of each interest payment on a Mortgage Loan over the Pass-Through
Rate, less [(a)] any servicing compensation payable to the Servicer of such
Mortgage Loan under the terms of the agreement with the Master Servicer
pursuant to which such Mortgage Loan is serviced (the "Servicing Agreement")
(including such compensation paid to the Master Servicer as the direct
servicer of a Mortgage Loan for which there is no Servicer)[.] [, and (b) the
amount payable to the Depositor, as directed below.] [Pursuant to the Pooling
and Servicing Agreement, on each Distribution Date, the Master Servicer will
remit to [the Depositor] in respect of each interest payment on a Mortgage
Loan an amount equal to % of the
S-12
<PAGE>
outstanding principal balance of such Mortgage Loan, before giving effect to
any payments due on the preceding Due Date.] The Master Servicer will be
permitted to withdraw from the Certificate Account, in respect of each
interest payment on a Mortgage Loan, an amount equal to % of the outstanding
principal balance of such Mortgage Loan, before giving effect to any payments
due on the preceding Due Date. See "Description of the Certificates--Servicing
and Other Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Master Service and
the Servicers. The Servicers and the Master Servicer will pay all expenses
incurred in connection with their responsibilities under the Servicing
Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus.
Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation and amounts payable
to Depositor might be characterized as an ownership interest in the interest
payments on the Mortgage Loans ("Retained Yield") for federal income tax
purposes, by reason of the extent to which either the weighted average
Mortgage Rate, or the stated interest rates on the Mortgage Loans exceeds the
Pass-Through Rate, and the tax consequences to them of such a
characterization. In this regard, there are no authoritative guidelines for
federal income tax purposes as to either the maximum amount of servicing
compensation that may be considered reasonable in the context of this or
similar transactions or whether the reasonableness of servicing compensation
should be determined on a weighted averaged or loan-by-loan basis. [The
Depositor intends to treat % of such servicing compensation and % of the
amount payable to it described above as Retained Yield for federal income tax
purposes in reports to the Certificateholders and to the Internal Revenue
Service.] See "Certain Federal Income Tax Consequences--Mortgage Pools" and
"--Taxation of Owners of Trust Fractional Certificates" in the Prospectus for
information regarding the characterization of servicing compensation [and the
amounts payable to the Depositor].
[TERMINATION; REPURCHASE OF MORTGAGE LOANS
The Pooling and Servicing Agreement provides that the Depositor may purchase
from the Trust all Mortgage Loans remaining in the Mortgage Pool and thereby
effect early retirement of the Certificates, provided that [the aggregate
unpaid balances of the Mortgage Loans at the time of such repurchase is less
than [10]% of the aggregate principal balance of the Mortgage Loans on the
Cut-off Date]. The purchase price for any such repurchase [will be the
outstanding principal balance of such Mortgage Loans together with accrued and
unpaid interest at the Pass-Through Rate to the last day of the month of such
repurchase, plus the appraiser value of any property acquired in respect
thereof.] [Any such repurchase will be effected in compliance with the
requirements of Section 860F(a)(iv) of the Code in order to constitute a
"qualifying liquidation" thereunder.] In no event will the Trust continue
beyond the expiration of 21 years from the death of the last survivor of the
persons named in the Pooling and Servicing Agreement.]
RATING
It is a condition to the issuance of the Class A Certificates that they be
rated " " by the Rating Agency. Such rating addresses the likelihood that
the holders of the Class A Certificates will receive payments required under
the Pooling and Servicing Agreement. In assigning such a rating, to mortgage
pass-through certificates, the Rating Agency takes into consideration the
credit quality of mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on such mortgage pool is adequate to make required
payments on such certificates. Such rating does not, however, represent an
assessment of the likelihood that principal prepayments will be made by
mortgagors or the degree to which such payments might differ from that
originally anticipated. As a result, holders of the Class A Certificates might
suffer a lower than anticipated yield, and holders of the Class A-2
Certificates might fail, in circumstances of extreme prepayment, to recoup
their original investment.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
S-13
<PAGE>
[ERISA CONSIDERATIONS]*
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA Considerations--
Prohibited Transaction Class Exemption" in the Prospectus), a Class A
Certificate of an Exempt Series must entitle its holder to pass-through
payments of both principal and interest on the Mortgage Loans. Because holders
of Class A-2 Certificates are only entitled to pass-through payments of
interest (but not principal). PTCE 83-1 will not exempt Plans which acquire
the Class A-2 Certificates from the prohibited transaction rules of ERISA. Any
Plan fiduciary who proposes to cause a Plan to purchase Class A Certificates
should consult with its counsel with respect to the potential consequences
under ERISA and the Code of the Plan's acquisition and ownership of Class A
Certificates. However, the other PTCE's or the Underwriter's PTE may be
applicable. See "ERISA Considerations--Prohibited Transaction Class Exemption"
in the Prospectus.
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
[UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
------------ ------------ ------------ -----------
<S> <C> <C> <C>
CS First Boston Corporation........ $ $ $
Total.......................... $ $ $ ]
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Class A Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Class A Certificates to the public
initially at the public offering prices set forth on the cover page of this
Prospectus Supplement [, and through the Representative,] to certain dealers
at such prices less the following concessions and that the Underwriter[s] and
such dealers may allow the following discounts on sales to certain other
dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
-------------------- --------------------
<S> <C> <C>
Class A-1....................... % %
Class A-2....................... % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
[If and to the extent required by applicable law or regulations, this
Prospectus Supplement and the attached Prospectus 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 sale.]
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"ERISA Considerations" or in the Prospectus under "ERISA Considerations."
S-14
<PAGE>
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by [Sidley & Austin] [Cadwalader, Wickersham & Taft], New
York, New York. The material federal income tax consequences of the Class A
Certificates will be passed upon for the Depositor by [Sidley & Austin]
[Cadwalader, Wickersham & Taft].*
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates
of the Depositor, which will have acquired such Mortgage Loans from time to
time in the open market or in privately negotiated transactions.
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Legal Matters."
S-15
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] The First Boston Corporation, an affiliate of the
Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
[UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
- -------------------------------- ---------------- ---------------- ------------
<S> <C> <C> <C>
The First Boston Corporation ... $ $ $
Total ....................... $ $ $ ]
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Class A Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Class A Certificates to the public
initially at the public offering prices set forth on the cover page of this
Prospectus Supplement [, and through the Representative,] to certain dealers
at such prices less the following concessions and that the Underwriter[s] and
such dealers may allow the following discounts on sales to certain other
dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
-------------------- --------------------
<S> <C> <C>
Class A-1 .... % %
Class A-2 .... % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor
and for the Underwriter[s] by Cadwalader, Wickersham & Taft, New York,
New York. The material federal income tax consequences of the
Class A Certificates will be passed upon for the Depositor by
Cadwalader, Wickersham & Taft.*
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired
in privately negotiated transactions by the Depositor from one or more
affiliates of the Depositor, which will have acquired such Mortgage Loans
from time to time in the open market or in privately negotiated transactions.
- ------------
* If the Series of Certificates offered pursuant to this Version B
Prospectus Supplement evidences interests in Contracts, the
disclosure to be set forth will be substantially similar to the
disclosure set forth in Version E under "Legal Matters."
S-16
VERSION B
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
CS First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage Pass-Through Certificates, [Class A], Series
$[Variable Rate] [ %] Class A-1 Certificates $ % Class A-3 Certificates
$[Variable Rate] [ %] Class A-2 Certificates $ % Class A-4 Certificates
-----------
The [Class A] Certificates (the "Certificates") offered hereby evidence
ownership interests in a trust to be created by First Boston Mortgage
Securities Corp. (the "Depositor") on or about , 199 (the "Trust"). The
Trust property will consist of a pool of [conventional] [fixed rate] [mortgage
loans and] [mortgage participation certificates, evidencing participation
interests in such mortgage loans and meeting the requirements of the nationally
recognized rating agency or agencies rating the [Class A] Certificates
(collectively, the "Rating Agency") for a rating in one of the two highest
rating categories of such Rating Agency] (the "Mortgage Loans") and certain
related property to be conveyed to the Trust by the Depositor (the "Trust
Fund"). The Mortgage Loans will be transferred to the Trust, pursuant to a
Pooling and Servicing Agreement (as defined herein), dated as of , 199 , by
the Depositor in exchange for the Certificates and are more fully described in
the Prospectus Supplement and in the accompanying Prospectus.
Interest on the Class A-1, Class A-2 and Class A-3 Certificates, at the rate
of interest set forth above for each such Class, will be distributed [monthly]
on each Distribution Date, commencing , 199 . Distributions of interest on
the Class A-4 Certificates will commence after distributions in reduction of
Stated Principal Balance (as defined herein) of the Class A-3 Certificates have
reduced Stated Principal Balance of such Class to zero. Prior to that time,
interest will accrue on the Class A-4 Certificates and the amount so accrued
will be added to the Stated Principal Balance thereof on each Distribution
Date. Distributions in reduction of Stated Principal Balance of the
Certificates of each Class will be made on a pro rata basis among the
Certificates of such Class, in the order of their respective Final Scheduled
Distribution Dates (as defined herein), so that no distribution in reduction of
Stated Principal Balance of any Certificate will be made until the Stated
Principal Balance of each Class of Certificates having a prior Final Scheduled
Distribution Date has been reduced to zero.
Scheduled distributions on the Mortgage Loans included in the Mortgage Pool,
together with certain other funds, as set forth more fully herein, will be
sufficient to make timely distributions of interest and distributions in
reduction of Stated Principal Balance on the [Class A] Certificates and to
reduce the Stated Principal Balance thereof to zero not later than the Final
Scheduled Distribution Dates set forth herein. However, the actual final
distribution on the [Class A] Certificates could occur significantly earlier
than the Final Scheduled Distribution Dates set forth herein. The [Class A]
Certificates will be subject to Special Distributions under the circumstances
specified herein. [The Depositor intends to offer the Class B Certificates (as
defined herein) to sophisticated institutional investors in transactions not
requiring registration under the Securities Act of 1933. The rights of the
Class B Certificateholders to receive distributions with respect to the
Mortgage Loans will be subordinated to the rights of the Class A
Certificateholders to the extent described herein and in the Prospectus.]
The Underwriter[s] [do[es] not] intend to make a secondary market for the
[Class A] Certificates [but [is] [are] under no obligation to do so]. There can
be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Certain Federal Income Tax Consequences"
in the Prospectus.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF FIRST
BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the factors set forth under Risk Factors
on page S-12 of this Prospectus Supplement.
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Final
Scheduled Proceeds to the
Distribution Price to Underwriting Depositor
Interest Rate Date (1) Public (2) Discount (2)(3)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Class A-1
Certificate (4) % % %
- ---------------------------------------------------------------------------------
Per Class A-2
Certificate (4) % % %
- ---------------------------------------------------------------------------------
Per Class A-3
Certificate % % %
- ---------------------------------------------------------------------------------
Per Class A-4
Certificate % % %
- ---------------------------------------------------------------------------------
Total % % %
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
(1) These dates are calculated assuming, among other things, that there are no
prepayments on the Mortgage Loans in the Mortgage Pool and that the
characteristics of such Mortgage Loans are as described under "Description
of the Trust Fund--The Mortgage Pool" herein.
(2) Plus accrued interest, if any, at the applicable rate from , 199 .
(3) Before deduction of expenses payable by the Depositor estimated at $ .
(4) The Class A-1 Certificates will bear interest at the per annum rate of %
through , 19 , and thereafter at a variable per annum rate of % above
the arithmetic mean of the London interbank offered rates for [ ] month
Eurodollar deposits ("LIBOR"), determined as set forth herein, subject to a
maximum interest rate of %.
(5) The Class A-2 Certificates will bear interest at the per annum rate of %
through , 19 , and thereafter at a variable per annum rate equal to [ % -
( X LIBOR), determined as set forth herein, subject to a minimum interest
rate of %.]
-----------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [its] [their] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be ready for delivery on or about
199 .
CS First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES OFFERED HEREBY MAY NOT
BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER[S] MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS 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 SALE.]
UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at 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).
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ Conduit Mortgage Pass-Through Certificates, [Class
A] Series (the "[Class A] Certificates").
$[Variable] [%] Class A-1 Certificates.
$[Variable] [%] Class A-2 Certificates.
$ % Class A-3 Certificates.
$ % Class A-4 Certificates.
[The Class A-1 and Class A-2 Certificates are
Variable Rate Certificates. The Class A-3 and
Class A-4 Certificates are Fixed Interest Rate
Certificates, as described herein.]
[The Class A-4 Certificates are Compound Interest
Certificates for the purposes of this Prospectus
Supplement.]
[The Class A Certificates represent in the
aggregate an approximate % undivided interest in
the Trust Fund. The remaining approximate %
undivided interest in the Trust Fund is
represented by the Class B Certificates, which are
subordinated in certain respects to the Class A
Certificates, as more fully described herein and
in the Prospectus. [The Class B Certificates are
not being offered hereby, and may be retained by
the Depositor or sold by the Depositor at any time
to one or more sophisticated institutional
investors in privately negotiated transactions not
requiring registration under the Securities Act of
1933.]]
DENOMINATIONS AND RECORD
DATES.................... The [Class A] Certificates will be issued in fully
registered form in minimum denominations of $
and integral multiples of $ in excess of such
amount. [The Record Date for each regular
distribution on the [Class A] Certificates is the
close of business on the [last] day [of the
[second] month] immediately preceding the
applicable Distribution Date.] [The Record Date
for each regular distribution on the Variable Rate
certificates is the close of business on the th
day of the month in which the applicable
Distribution Date occurs. The Record Date for each
regular distribution on the Fixed Rate
Certificates is the close of business on the th
day of the month immediately preceding the month
in which the applicable Distribution Date occurs.]
DEPOSITOR................. CS First Boston Mortgage Securities Corp. (the
"Depositor").
MASTER SERVICER...........
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
INTEREST DISTRIBUTIONS....
[Interest will be distributed on [the th day of
each month] [each , , and ] (each, a
"Distribution Date") on the Stated Principal
S-3
<PAGE>
Balance (as defined herein) of the Certificates at
the applicable rate of interest specified on the
cover page hereof (the "Interest Rate") for the
Class A-1, Class A-2 and Class A-3 Certificates,
commencing , 19 .] [Interest will be
distributed on the Class A-1 Certificates at the
per annum rate of % through , 19 , and
thereafter at a variable per annum rate of %
above LIBOR, determined as set forth herein,
subject to a maximum interest rate of %.
Interest will be distributed on the Class A-2
Certificates at the per annum rate of % through
, 19 , and thereafter at a variable per
annum rate equal to % - ( x LIBOR),
determined as set forth herein, subject to a
minimum interest rate of %. Interest will be
distributed on the Class A-3 and Class A-4
Certificates (the "Fixed Rate Certificates") at
the respective per annum rates specified on the
cover page hereof.] [Interest distributable on the
Certificates will accrue from the [first day of
the month preceding the] prior Distribution Date
(or from , 19 in the case of the First
Distribution Date) through the last day of the
[second] month preceding the then current
Distribution Date.] [Interest will accrue on the
Variable Rate Certificates from the preceding
Distribution Date (or from , 19 in the case of
the first Distribution Date) through the day
preceding each Distribution Date. Interest will
accrue on the Fixed Rate Certificates from the
th day of the month preceding the month in which
the prior Distribution Date occurred (or from ,
19 in the case of the first Distribution Date)
through the th day of the month preceding the
month in which the current Distribution Date
occurs.] Distributions of interest on the Class A-
4 Certificates will commence after distributions
in reduction of Stated Principal Balance of the
Class A-3 Certificates have reduced the Stated
Principal Balance of such Class to zero. Prior to
that time, interest will accrue on the Class A-4
Certificates and the amount so accrued will be
added to the Stated Principal Balance thereof on
each Distribution Date. See "Description of the
Certificates--Distributions of Interest" herein.
[The distribution of interest on the Class A-3
Certificates (and the addition of accrued interest
to the Stated Principal Balance of the Class A-4
Certificates prior to the reduction of the Stated
Principal Balance of the Class A-3 Certificates to
zero) one month after the date to which interest
accrues thereon and the calculation of accrued
interest on such Certificates based on the
assumption that distributions in reduction of
Stated Principal Balance are made one month prior
to the date on which such distributions actually
are made will reduce the effective yield to the
holders of the Class A-3 Certificates from that
which would be the case if interest distributable
on such Certificates on a Distribution Date were
to accrue to such Distribution Date. See
"Description of the [Class A] Certificates--
Distributions of Interest [on the Class A
Certificates]" herein.]
S-4
<PAGE>
DISTRIBUTIONS IN
REDUCTION OF STATED The Stated Principal Balance of a [Class A]
PRINCIPAL BALANCE........ Certificate at any time represents the maximum
specified dollar amount (exclusive of interest at
the related Interest Rate) to which the holder
thereof is entitled from the cash flow on the
Mortgage Loans comprising the Mortgage Pool and
will decline to the extent distributions in
reduction of Stated Principal Balance are received
by such holder. The Initial Stated Principal
Balance of each Class of Certificates is set forth
on the cover of this Prospectus Supplement.
Allocation of distributions in reduction of Stated
Principal Balance will be made to the [Subc]
[C]lasses of the [Class A] Certificates in the
order of their respective Final Scheduled
Distribution Dates, so that no distribution in
reduction of Stated Principal Balance will be made
to any [Subc] [C]lass of [Class A] Certificates
until distributions in reduction of Stated
Principal Balance made to each [Subc] [C]lass of
[Class A] Certificates having a prior Final
Scheduled Distribution Date have reduced the
Stated Principal Balance of such [Subc] [C]lass to
zero.
Distributions in reduction of Stated Principal
Balance on the [Class A] Certificates will be made
on each Distribution Date on which such
distributions are due in an aggregate amount equal
to the sum of (i) the amount of interest accrued
on the Class A-4 Certificates from the [first day
of the month preceding the prior] Distribution
Date (or from , 19 in the case of the first
Distribution Date) through the last day of the
[second] month preceding the then current
Distribution Date but not then distributable (the
"Accrual Distribution Amount"), (ii) the [Class A]
Stated Principal Distribution Amount (as described
below) [and (iii) % of Excess Cash Flow (as
defined herein)]. The [Class A] Stated Principal
Distribution Amount with respect to a Distribution
Date equals the amount, if any, by which the
aggregate Stated Principal Balance of the [Class
A] Certificates (before taking into account the
amount of interest accrued on the Class A-4
Certificates to be added to the Stated Principal
Balance thereof on such Distribution Date) exceeds
the Asset Value, as defined herein, of the
Mortgage Loans comprising the Mortgage Pool as of
the Business Day prior to such Distribution Date.
For purposes of determining the Stated Principal
Distribution Amount, the Asset Value of the
Mortgage Loans comprising the Mortgage Pool will
be reduced by taking into account [the Senior
Interest (as defined herein) in] all distributions
of principal thereof (including prepayments)
received or due to be received by the Trustee or
its nominee during the period (a "Due Period")
ending on the Business Day prior to such
Distribution Date. See "Description of the [Class
A] Certificates--Distributions in Reduction of
Stated Principal Balance" herein.
FINAL SCHEDULED
DISTRIBUTION DATE........ Class A-1 Certificates .
Class A-2 Certificates .
S-5
<PAGE>
Class A-3 Certificates .
Class A-4 Certificates .
The Final Scheduled Distribution Date for each
[Subc][C]lass of [Class A] Certificates is the
latest date on which the Stated Principal Balance
of all the Certificates of such [Subc] [C]lass
will have been reduced to zero, and is calculated
by assuming, among other things, that (i)
scheduled interest and principal payments (with no
prepayments) on the Mortgage Loans comprising the
Mortgage Pool are timely received and (ii) such
amounts are reinvested at an assumed reinvestment
rate of % per annum to , 19 , % per annum
from , 19 to , 19 and % per annum
thereafter (the "Assumed Reinvestment Rate").
Since the rate of distributions in reduction of
Stated Principal Balance of each [Subc] [C]lass of
[Class A] Certificates will depend on the rate of
payment (including prepayments) on the principal
of the Mortgage Loans, the actual final
distribution of any [Subc] [C]lass of [Class A]
Certificates could occur significantly earlier
than its Final Scheduled Distribution Date. The
rate of payments on the Mortgage Loans will depend
on their particular characteristics, as well as on
prevailing interest rates from time to time and
other economic factors, and no assurance can be
given as to the actual payment experience of the
Mortgage Loans. See "Yield Considerations" herein.
[SPECIAL DISTRIBUTIONS....
The [Class A] Certificates may receive special
distributions in reduction of Stated Principal
Balance ("Special Distributions") on the first day
of any month, other than a month in which a
Distribution Date occurs, if, as a result of
principal prepayments on the Mortgage Loans
comprising the Mortgage Pool and/or low
reinvestment yields, the Trustee determines, based
on assumptions specified in the Pooling and
Servicing Agreement, that interest requirements on
any portion of the [Class A] Certificates would
not be met. The amount of any such Special
Distribution would not exceed the amount of
distributions in reduction of Stated Principal
Balance of the [Class A] Certificates that would
otherwise be required to be made on the next
Distribution Date. As a result, a Special
Distribution on the [Class A] Certificates would
not result in a distribution to [Class A]
Certificateholders more than two months earlier
than the Distribution Date on which such
distribution would otherwise have been received.
The [Class A] Certificates will be redeemable in
the same priority and manner as distributions in
reduction of Stated Principal Balance are made on
a Distribution Date. See "Description of the
[Class A] Certificates--Special Distributions"
herein.]
[OPTIONAL TERMINATION..... On any Distribution Date on or after the [later] of
or the date on which the Stated Principal Balance
of the [Class A-3] Certificates has been reduced
to zero, the Depositor will have the right to
repurchase, in whole, but not in part, the
Mortgage Loans comprising the Mortgage Pool.
Additionally, on any Distribution Date on which
the aggregate principal amount of the Mortgage
Loans comprising the Mortgage
S-6
<PAGE>
Pool is less than [10%] of the initial aggregate
principal amount of such Mortgage Loans, the
Depositor will have the right to repurchase, in
whole, but not in part, such Mortgage Loans. Any
such repurchase will be made at a purchase price
equal to [the aggregate principal amount of such
Mortgage Loans plus accrued interest thereon to
the last day of the month of such repurchase,
together with the appraised value of any property
acquired in respect of such Mortgage Loans]. Any
such termination will be effected in compliance
with the requirements of Section 860F(a) (iv) of
the Internal Revenue Code of 1986 (the "Code") so
as to constitute a "qualifying liquidation"
thereunder. The proceeds of any such repurchase
will be treated as a distribution on the Mortgage
Loans for purposes of distributions to the
Certificateholders. In no event will the Trust
continue beyond the expiration of 21 years from
the death of the last survivor of the person named
in the Pooling and Servicing Agreement. See
"Description of the [Class A] Certificates--
Optional Termination" herein.]
TRUST FUND................ The Certificates evidence ownership interest in the
Trust Fund, the assets of which will consist of
the following:
A. MORTGAGE POOL......... The Mortgage Pool will consist of [fixed-rate,]
fully amortizing, [level-payment] mortgage loans
[and mortgage participation certificates
evidencing participation interests in such
mortgage loans that meet the requirements of the
nationally recognized rating agency or agencies
rating the Certificates (collectively, the "Rating
Agency") for a rating in one of the two highest
rating categories of such Rating Agency] secured
by mortgages on one- to four-family residential
properties located in the states of , and
(the "Mortgage Loans"). All Mortgage
Loans will have original maturities of at least
[15] but no more than [40] years. See "Description
of the Trust Fund--The Mortgage Pool" herein.*
B. CERTIFICATE ACCOUNT... There will be deposited in an account (the
"Certificate Account") to be established with the
Trustee all distributions on or with respect to
the Mortgage Loans comprising the Mortgage Pool,
together with reinvestment income thereon [, the
amount of cash initially deposited therein by the
Depositor, and any amounts withdrawn from any
Reserve Fund, GPM Fund or Buy-Down Fund (as
described below)]. Funds on deposit in the
Certificate Account will be available to make
distributions in reduction of Stated Principal
Balance and distributions of interest on the
[Class A] Certificates on each Distribution Date.
See "Description of the Trust Fund--Certificate
Account" herein.
- --------
* If the Series of Certificates offered pursuant to the Version B Prospectus
Supplement evidences interest in manufactured housing conditional sales
contracts and installment loan agreements ("Contracts"), the disclosure to be
set forth will be substantially similar to the disclosure set forth in
Version E under "Summary of Terms--Contract Pool."
S-7
<PAGE>
[C. BUY-DOWN FUND........ The Depositor will deliver to the Trustee cash, a
letter of credit or a guaranteed investment
contract to fund the Buy-Down Fund for the [Class
A] Certificates. The Assumed Reinvestment Rate for
the Buy-Down Fund will be the same as that of the
Certificate Account. The Trustee may withdraw
excess funds in the Buy-Down Fund on any
Distribution Date. See "Description of the Trust
Fund--Buy-Down Fund" herein.]
[D. GPM FUND............. The Depositor will deliver to the Trustee cash, a
letter of credit or a guaranteed investment
contract to fund the GPM Fund for the [Class A]
Certificates. The Assumed Reinvestment Rate for
the GPM Fund will be the same as that of the
Certificate Account. The Trustee may withdraw
excess funds in the GPM on any Distribution Date.
See "Description of the Trust Fund--GPM Fund"
herein.
[E. REINVESTMENT All amounts on deposit in the Certificate Account
AGREEMENT................ [and the GPM and Buy-Down Funds] will be
reinvested with by the Trustee pursuant
to a guaranteed investment contract (the
"Reinvestment Agreement") at a rate of % per
annum. See "Description of the Trust Fund--
Reinvestment Agreement" herein.]
[F. LETTER OF CREDIT..... The maximum liability of [ ] under an irrevocable
standby letter of credit, for the Mortgage Pool
(the "Letter of Credit"), net of unreimbursed
payments thereunder, will be no more than [10%] of
the initial aggregate principal balance of the
Mortgage Pool (the "Letter of Credit Percentage").
The maximum amount available to be paid under the
Letter of Credit will be determined in accordance
with the Pooling and Servicing Agreement referred
to herein. The duration of coverage and the amount
and frequency of any reduction in coverage will be
in compliance with the requirements for a rating
in one of the two highest rating categories of the
Rating Agency. The amount available under the
Letter of Credit shall be reduced by the amount of
unreimbursed payments thereunder. See "Description
of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
[G. [POOL INSURANCE [Neither the Certificates nor the Mortgage Loans
POLICY................... will be insured or guaranteed by any governmental
agency.] Subject to the limitations described
herein, a pool insurance policy for certain of the
Mortgage Loans (the "Pool Insurance Policy"), will
cover losses due to default on such Mortgage Loans
in an initial amount of not less than [5%] of the
aggregate principal balance as of the first day of
the month of the creation of the Trust (the "Cut-
off Date") of all Mortgage Loans that are not
covered as to their entire outstanding principal
balance by primary policies of mortgage guaranty
insurance. See "Description of the Trust Fund--The
Pool Insurance Policy" herein. The Pool Insurance
Policy will be subject to the limitations
described under "Description of Insurance--the
Pool Insurance Policy" in the Prospectus.]
S-8
<PAGE>
[H. HAZARD INSURANCE
[AND SPECIAL HAZARD
INSURANCE POLICY]........
All of the Mortgage Loans will be covered by
standard hazard insurance policies insuring
against losses due to various causes, including
fire, lightning and windstorm. [An insurance
policy (the "Special Hazard Insurance Policy")
will cover losses with respect to the Mortgage
Loans that result from certain other physical
risks that are not otherwise insured against
(including earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited in scope
and will cover losses in an initial amount equal
to the greater of % of the aggregate principal
balance of the Mortgage Loans or times the unpaid
principal balance of the largest Mortgage Loan.]
Any hazard losses not covered by [either] standard
hazard insurance policies [or the Special Hazard
Insurance Policy] will not be insured against and
[, to the extent that the amount available under
the Letter of Credit or any alternative method of
credit support is exhausted,] will be borne by the
Certificateholders. See "Description of the Trust
Fund--The Special Hazard Insurance Policy" herein.
The hazard insurance policies [and the Special
Hazard Insurance Policy] will be subject to the
limitations described under "Description of
Insurance--Hazard Insurance" and "--Special Hazard
Insurance Policies"] in the Prospectus.
[I. MORTGAGOR BANKRUPTCY
BOND.................... The Depositor will obtain a bond or similar form of
insurance coverage (the "Mortgagor Bankruptcy
Bond"), providing coverage against losses that
result from proceedings with respect to obligors
under the Mortgage Loans (the "Mortgagor") under
the federal Bankruptcy Code. See "Description of
the Trust Fund--Mortgagor Bankruptcy Bond" herein
and "Description of Insurance--The Mortgagor
Bankruptcy Bond" in the Prospectus.
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
[CLASS B CERTIFICATES..... The rights of the Class B Certificateholders to
receive distributions with respect to the Mortgage
Loans are subordinated to the right of the Class A
Certificateholders to receive such distributions
to the extent of the Subordinated Amount described
below. This subordination is intended to enhance
the likelihood of regular receipt by Class A
Certificateholders of the full amount of scheduled
distributions of interest and distributions in
reduction of Stated Principal Balance and to
decrease the likelihood that the Class A
Certificateholders will experience losses. The
extent of such subordination (the "Subordinated
Amount") will be determined as follows: on the
Cut-off Date and on each anniversary of the Cut-
off Date until , the Subordinated Amount
will equal % of the original aggregate principal
balance of the Mortgage Loans less the amount of
"Aggregate Losses" (as defined in the Prospectus)
since the Cut-off Date through the last day of the
month preceding such anniversary date; from the
th anniversary of the Cut-off Date onward, the
Subordinated Amount will gradually decline in
accordance with a schedule set forth in the
Pooling and Servicing Agreement.]
S-9
<PAGE>
The protection afforded to the Class A
[RESERVE FUND............. Certificateholders from the subordination feature
described above will be effected both by the
preferential right of the Class A
Certificateholders to receive current
distributions with respect to the Mortgage Loans
(to the extent of the Subordinated Amount) and by
the establishment of a reserve (the "Reserve
Fund"). The Reserve Fund is not included in the
Trust Fund. The Reserve Fund will be created by
the Depositor and shall be funded by the retention
of all of the scheduled distributions of principal
of the Mortgage Loans otherwise distributable to
the Class B Certificateholders on each
Distribution Date until the Reserve Fund reaches
an amount (the "Required Reserve") that will equal
[; thereafter, the Reserve Fund must be
maintained at the following levels: ]. See
"Description of the Certificates--Subordinated
Certificates" and "--Reserve Fund" in the
Prospectus.]
MASTER SERVICING AND
SERVICING AGREEMENTS..... The Depositor will enter into a Master Servicing
Agreement with , which will have entered into
Servicing Agreements with various entities (each a
"Servicer") with respect to the servicing of the
Mortgage Loans. Among other things, the Servicers
and the Master Servicer are obligated under
certain circumstances to make advances with
respect to the Mortgage Loans, to purchase any
Mortgage Loans for which mortgage insurance
coverage is denied on the grounds of fraud or
misrepresentation and to purchase certain Mortgage
Loans with respect to which a breach of a
representation or warranty has occurred. The
Depositor will assign to the Trustee its rights
under the Master Servicing Agreement and the
Servicing Agreements with respect to the
Certificates.
ADVANCES.................. Any Servicer of the Mortgage Loans (and the Master
Servicer, with respect to each Mortgage Loan that
it services directly and otherwise, to the extent
the applicable Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans under
certain circumstances. See "Description of the
Certificates--Advances" in the Prospectus.
SUBSTITUTION OF MORTGAGE
LOANS..................... Within three months following the date of the
issuance of the Certificates, the Depositor may
deliver to the Trustee Mortgage Loans in
substitution for any one or more of the Mortgage
Loans initially included in the Trust Fund but
which do not conform in one or more respects to
the description thereof contained in this
Prospectus Supplement or in the Current Report on
Form 8-K referred to herein. See "The Mortgage
Pool--Substitution of Mortgage Loans" in the
Prospectus.
RESIDUAL CERTIFICATES..... Upon the issuance of the Certificates, [the
Depositor will retain] an interest in the Mortgage
Pool [that] will be represented by a class of
certificates (the "Residual Certificates") that
the Depositor will designate as "residual
interests" under Section 860G(a)(2) of the
Internal Revenue Code of 1986 (the "Code"). The
Residual Certificates will represent the right to
receive distributions
S-10
<PAGE>
equal to % of the Excess Cash Flow, if any, with
respect to each Distribution Date. In addition, at
such time as the Stated Principal Balance of the
Class A-4 Certificates has been reduced to zero
[and all amounts distributable to the Class B
Certificateholders have been paid], the holder or
holders of the Residual Certificates will be the
sole owners of the Mortgage Pool and will have
sole rights with respect to the Mortgage Loans and
the Mortgage Pool. The Residual Certificates are
not being offered hereby. [The Depositor may, but
need not, sell some or all of such Residual
Certificates after the date of issuance of the
Certificates to sophisticated institutional
investors in transactions not requiring
registration under the Securities Act of 1933.]
TRUSTEE................... . See
"Description of the [Class A] Certificates--
Trustee" herein.
LEGAL INVESTMENT.......... The [Class A] Certificates constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act"), and, as such, are legal
investments for certain entities to the extent
provided in the Enhancement Act. See "Legal
Investment" in the Prospectus.
CERTIFICATE RATING........ It is a condition of issuance that the [Class A]
Certificates be rated in one of the two highest
rating categories of the Rating Agency prior to
issuance.
ERISA LIMITATIONS.........
See "ERISA Considerations" in the Prospectus.
TAX ASPECTS............... See "Certain Federal Income Tax Consequences--
General"; "--REMIC Trust Funds" in the prospectus.
Purchasers of Certificates of Classes A-1, A-2, A-
3, A-4, and B should see "Certain Federal Income
Tax Consequences--REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates" in the
prospectus for discussions of certain tax
considerations particular to such Certificates.*
- --------
* If the Prospectus Supplement for a Series of Certificates provides that
[Sidley & Austin][Cadwalader, Wickersham & Taft] will pass upon the material
federal income tax consequences of the Certificates for the Depositor, then
such Prospectus Supplement will contain tax disclosure substantially similar
to the disclosure set forth in Version E under "Summary of Terms--Tax Aspects"
and "Certain Federal Income Tax Consequences."
S-11
<PAGE>
[RISK FACTORS]
[Description of Risk Factors to be added as appropriate]
DESCRIPTION OF THE TRUST FUND
THE MORTGAGE POOL*
The Mortgage Pool will consist of Mortgage Loans evidenced by mortgage notes
with aggregate unpaid principal balances outstanding as of the first day of
the month of the creation of the Trust (the "Cut-off Date"), after deducting
payments of principal due on such date, of approximately $ . This amount is
subject to a permitted upward and downward variance of up to %. [The Mortgage
Pool will consist of -year, [fixed-rate], fully-amortizing, [level-payment]
Mortgage Loans, as more fully described in the Prospectus.]
The weighted average interest rate (individually, a "Mortgage Rate") of the
Mortgage Loans as of the Cut-off Date will be at least % but no more than %.
All Mortgage Loans will have Mortgage Rates of at least % but no more than
%. The weighted average maturity of the Mortgage Loans, as of the Cut-off
Date, will be at least years but no more than years. All Mortgage Loans
will have original maturities of at least but no more than years. None
of the Mortgage Loans will have been originated prior to or after
, 19 . None of the Mortgage Loans will have a scheduled maturity later
than .
The Mortgage Loans will have the following characteristics as of the Cut-off
Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated before
July 18, 1984, and no more than % of the Mortgage Loans will have been
originated before September 27, 1985. See "Certain Federal Income Tax
Consequences--Mortgage Pools," "--Taxation of Owners of Trust Fractional
Certificates," and "--Market Discount and Premium" in the Prospectus for
information regarding such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value ratios
at origination in excess of [80]%, and no Mortgage Loan will have had a
loan-to-value ratio at origination in excess of 95%.
All of the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of primary mortgage insurance
until the outstanding principal balance is reduced to 75% of the Original
Value.
At least % of the Mortgage Loans will be secured by mortgages on one-
family dwellings.
No more than % of the Mortgage Loans will be secured by Mortgages on
condominiums and row houses.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided, and no
more than % of the principal balance of any such Mortgage Loan will be
represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be GPM Loans.
- --------
* If the Series of Certificates offered pursuant to this Version C Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Description of the Contract Pool."
S-12
<PAGE>
At least % of the Mortgage Loans will be secured by a Mortgage on an
owner-occupied Mortgaged Property. Such determination will have been made
on the basis of a representation by the Mortgagor at the time of
origination of the Mortgage Loan that such Mortgagor then intended to
occupy the underlying property or, in the absence of such a representation,
on the basis of various factors indicating that the underlying property is
owner-occupied.
No more than [5%] of the Mortgage Loans will be secured by Mortgages on
properties located in any one zip code or project.
The Mortgage Loans will be secured by Mortgages on properties located in
the states of .
Specific information with respect to the Mortgage Loans will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in
a Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of the
Certificates.
CERTIFICATE ACCOUNT
There will be deposited in an account (the "Certificate Account") to be
established with the Trustee all distributions on or with respect to the
Mortgage Loans comprising the Mortgage Pool, together with reinvestment income
thereon. [Until such time as the Subordinated Amount is reduced to zero,][f]
[F]unds on deposit in the Certificate Account will be available to make
distributions in reduction of Stated Principal Balance and distributions of
interest on the Certificates on each Distribution Date, as more fully set
forth herein. [Any funds remaining in the Certificate Account after making
required distributions to holders of the Class A Certificates will be
distributed [to the holders of the Class B Certificates.] Any amounts
remaining in the Certificate Account [after making required distributions on
the Class B Certificates] will be distributed to the holders of the Residual
Certificates.
[BUY-DOWN FUND
The Depositor will deliver cash, a letter of credit or a guaranteed
investment contract to the Trustee to fund the Buy-Down Fund for the [Class A]
Certificates. [The Senior Interest in] Buy-Down Mortgage Loans not valued
solely on the basis of the scheduled monthly payments required of the
Mortgagor will be valued by taking into account funds available from the Buy-
Down Fund and reinvestment income thereon at the same Assumed Reinvestment
Rate as that of the Certificate Account.
The Trustee may withdraw excess funds from the Buy-Down Fund on any
Distribution Date. Any amounts so withdrawn shall be distributed [first, to
restore the amount in the Reserve Fund to the Required Reserve, and then to
the holders of the Class B Certificates to the extent of any deficiency in
scheduled distributions on such Class B Certificates on such Distribution
Date. Any amounts remaining will be distributed] to the holders of the
Residual Certificates.]
[GPM FUND
To the extent that [the Senior Interest in] a Mortgage Loan providing for
payments during a portion of its term that are less than the actual amounts of
principal and interest payable thereon (a "GPM Loan") is valued on the basis
of its maximum principal balance, rather than on the basis of scheduled
payments by the Mortgagor, the Depositor will deliver cash, a letter of credit
or a guaranteed investment contract to fund the GPM Fund for the [Class A]
Certificates. The Assumed Reinvestment Rate for the GPM Fund is the same as
that of the Certificate Account.
S-13
<PAGE>
The Trustee may withdraw excess funds from the GPM Fund on any Distribution
Date. Any amounts so withdrawn shall be distributed [first, to restore the
amount in the Reserve Fund to the Required Reserve, and then to the holders of
the Class B Certificates to the extent of any deficiency in scheduled
distributions on such Class B Certificates on such Distribution Date. Any
amounts remaining will be distributed] to the holders of the Residual
Certificates.]
[REINVESTMENT AGREEMENT
All amounts on deposit in the Certificate Account [, the Buy-Down Fund and
the GPM Fund] will be reinvested with by the Trustee pursuant to a
guaranteed investment contract (the "Reinvestment Agreement") at a rate of %
per annum.]
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of unreimbursed
payments thereunder, for the Certificates will be no more than % of the
aggregate principal balance of the Mortgage Loans on the Cut-off Date. The
duration of coverage and the amount and frequency of any reduction in coverage
will be in compliance with the requirements established by the Rating Agency
rating the Certificates in order to obtain a rating in one of the two highest
ratings categories of the Rating Agency. The precise amount of coverage under
the Letter of Credit and the duration and frequency of reduction of such
coverage will be set forth in the Current Report on Form 8-K referred to
above. See "Description of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
[THE POOL INSURANCE POLICY
Subject to the limitations described under "Description of Insurance--Pool
Insurance Policy" in the Prospectus, the Pool Insurance Policy will cover
losses by reason of default on the Mortgage Loans that are not covered as to
their entire outstanding principal balances by primary mortgage insurance, in
an amount equal to % of the aggregate principal balance of such Mortgage
Loans on the Cut-off Date.
The Pool Insurance Policy will be issued by , a corporation (the
"Pool Insurer"), which is engaged principally in the business of insuring
mortgage loans on residential properties against default in payment by the
Mortgagor. At , 19 , the Pool Insurer had insurance in force in the form of
primary policies covering approximately $ billion of residential mortgages.
At such date, the Pool Insurer had total assets of approximately $ million,
capital and surplus aggregating $ million and statutory contingency reserves
of $ million, resulting in total policyholders' reserves of $ million. The
claims-paying ability of the Pool Insurer is currently rated by . In
accordance with standard rating agency practice, may, at any time,
revise or withdraw such rating.
The information set forth above has been provided by the Pool Insurer. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
[THE SPECIAL HAZARD INSURANCE POLICY
The Special Hazard Insurance Policy will cover certain risks not otherwise
insured against under hazard insurance policies, subject to the limitations
described in the Prospectus, and will be issued by a corporation (the
"Special Hazard Insurer"). Claims under such policy will be limited to % of
the aggregate principal balance of the Mortgage Loans or twice the principal
balance of the Mortgage Loan with the highest outstanding principal balance at
the Cut-off Date, whichever is greater. At , 19 , the Special Hazard
Insurer had total assets of approximately $ million and total policyholders'
surplus of $ . The claims-paying ability of the Special Hazard Insurer is
presently rated by . In accordance with standard rating agency
practice, may, at any time, revise or withdraw such rating.
The information set forth above has been provided by the Special Hazard
Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
S-14
<PAGE>
[MORTGAGOR BANKRUPTCY BOND
The Depositor will obtain a bond or similar form of insurance coverage (the
"Mortgagor Bankruptcy Bond") for proceedings with respect to Mortgagors under
the federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled
payments of principal and interest on a Mortgage Loan or a reduction by such
court of the principal amount of a Mortgage Loan and will cover certain unpaid
interest on the amount of such a principal reduction from the date of the
filing of a bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy Bond
will be $ plus the greater of (i) % of the aggregate principal balances of
the Mortgage Loans secured by second residences and investor-owned residences
or (ii) times the largest principal balance of any such Mortgage Loan. The
coverage provided by the Mortgagor Bankruptcy Bond will be reduced by
payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by , a corporation. At
December 31, 19 , had admitted assets of approximately $ and total
policyholders' surplus of approximately $ .
The information set forth above concerning has been provided by it. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
YIELD CONSIDERATIONS
Principal payments on mortgage loans may be in the form of scheduled
amortization payments or prepayments (for this purpose, the term "prepayment"
includes prepayments and liquidation due to default or other dispositions of
the loans). Prepayments on the Mortgage Loans comprising the Mortgage Pool
will be passed through to the Trustee, as the assignee of the Mortgage Loans,
and such prepayments will be [available to be] applied to distributions in
reduction of States Principal Balance on the [Class A] Certificates [, as more
fully set forth herein]. Prepayments on mortgage loans are commonly measured
by a prepayment standard or model. The model used in this Prospectus
Supplement, the Standard Prepayment Assumption ("SPA"), represents an assumed
rate of prepayment each month relative to the outstanding principal balance of
a pool of mortgage loans. A prepayment assumption of 100% SPA assumes
prepayment rates of 0.2% per annum of the then outstanding principal balance
of such mortgage loans in the first month of the life of the mortgage loans
and an additional 0.2% per annum in each month thereafter until the 30th
month. Beginning in the 30th month and in each month thereafter during the
life of the mortgage loans. 100% SPA assumes a constant prepayment rate of 6%
per annum each month. As used in the table set forth below " % SPA" assumes
prepayment rates equal to % of 100% SPA; " % SPA" assumes prepayment rates
equal to % of 100% SPA; and " % SPA" assumes prepayment rates equal to % of
100% SPA. SPA does not purport to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool
of mortgage loans.
The rate of principal prepayments on pools of mortgage loans is influenced
by a variety of economic, geographic, social and other factors, including the
level of mortgage interest rates and the rate at which homeowners sell their
homes or default on their mortgages. In general, however, if prevailing
interest rates fall significantly below the interest rates on the Mortgage
Loans comprising the Mortgage Pool, the Certificates are likely to be subject
to higher prepayment rates than if prevailing rates remain at or above the
interest rates on the Mortgage Loans comprising the Mortgage Pool. In
addition, as homeowners move or default on their mortgages, their houses are
generally sold and the mortgages prepaid. As the rate of distributions in
reduction of Stated Principal Balance of each [Subc] [C]lass of [Class A]
Certificates will depend on the rate of payment (including prepayments) of the
Mortgage Loans comprising the Mortgage Pool, the actual final distribution
made on any [Subc] [C]lass of [Class A] Certificates is likely to occur
earlier than its Final Scheduled Distribution Date.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar in reduction of the principal of such
security will be distributed to the investor. The weighted average life of a
[Class A] Certificate is determined by (i) multiplying the amount of each
distribution in reduction of
S-15
<PAGE>
Stated Principal Balance by the number of years from the date of issuance of
the [Class A] Certificate to the related Distribution Date, (ii) summing the
results and (iii) dividing the sum by the total distributions in reduction of
Stated Principal Balance made on the Class A Certificate [, including, in the
case of a Class A-4 Certificate, any interest accrued and added to the Stated
Principal Balance of such Certificate].
The table set forth below has been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Mortgage Pool. The table assumes, among other things, that each Mortgage Loan
comprising the Mortgage Pool has a remaining term to maturity of years,
bears interest at a rate of % per annum and has payments of principal that
are timely received. There may be discrepancies between the characteristics of
the Mortgage Loans actually included in the Mortgage Pool and the
characteristics of the Mortgage Loans expected to be so included. Any such
discrepancy may have an effect on the percentages of Initial Stated Principal
Balance outstanding set forth in the table (and the weighted average lives of
each Class [Subclass] of the [Class A] Certificates. In addition, to the
extent that the Mortgage Loans that actually are included in the Mortgage Pool
have characteristics that differ from those assumed in the following table,
the Stated Principal Balance of any Class [Subclass] of the [Class A]
Certificates will be reduced to zero earlier or later than indicated by the
table.
Variations in actual prepayment experience and the balance of mortgage loans
that prepay may increase or decrease the percentages of initial Stated
Principal Balance and the weighted average lives shown in the following table.
Such variation may occur even if the average prepayment experience of all such
Mortgage Loans equals the indicated levels of SPA.
Based on the foregoing assumptions, [including an assumed interest rate of
% on the Class A-1 Certificates and an assumed interest rate of % on the
Class A-2 Certificates,] the following table indicates the projected weighted
average life of each [Subc] [C]lass of [Class A] Certificates and sets forth
the percentages of the initial Stated Principal Balance of each [Subc] [C]lass
of [Class A] Certificates that would be outstanding after each of the dates
shown at various percentages of SPA.
PERCENTAGE OF INITIAL STATED PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING
PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF
SPA 1 SPA 1 SPA 1 SPA 1
------------------- ------------------- ------------------- -------------------
PAYMENT DATE 0% % % % 0% % % % 0% % % % 0% % % %
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Original Balance
, 1996................
, 1997................
, 1998................
, 1999................
, 2000................
, 2001................
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING
PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF
SPA 1 SPA 1 SPA 1 SPA 1
------------------- ------------------- ------------------- -------------------
PAYMENT DATE 0% % % % 0% % % % 0% % % % 0% % % %
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
, 2002................
, 2003................
, 2004................
, 2005................
, 2006................
, 2007................
, 2008................
, 2009................
, 2010................
, 2011................
, 2012................
, 2013................
, 2014................
, 2015................
, 2016................
Weighted average life
(years)................
</TABLE>
- --------
(1) The table assumes, among other things, [at each level of SPA,] prepayment
of Mortgage Loans comprising the Mortgage Pool at the indicated rate and
Reinvestment Income at the Assumed Reinvestment Rate of % per annum [and
annual estimated administrative fees and expenses of approximately $ .]
DESCRIPTION OF THE [CLASS A] CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, , as master servicer (the
"Master Servicer"), and , as trustee (the "Trustee"), a form of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part. Reference is made to the accompanying
Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Certificates. Each
of the [Class A] Certificates at the time of issuance will qualify as a
"mortgage related security" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
Distribution of principal and interest as set forth above will be made by
the Trustee by check mailed to each Certificateholder entitled thereto at the
address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office or agency specified in the notice
to Certificateholders of such final distribution.
The [Class A] Certificates will be transferable and exchangeable on a
Certificate Register to be maintained by the Trustee at the office or agency
of the Master Servicer maintained for that purpose in New York, New York.
[Class A] Certificates surrendered to the Trustee for registration of transfer
or exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be
S-17
<PAGE>
made for any registration of transfer or exchange of [Class A] Certificates,
but payment of a sum sufficient to cover any tax or other governmental charge
may be required. Such office or agency of the Master Servicer is currently
located at . The Corporate Trust Office of the Trustee is currently
located at .
[DISTRIBUTIONS GENERALLY]
[On each Distribution Date, the Trustee will distribute to the Class A
Certificateholders, in the manner set forth below, an amount (the "Required
Distribution") equal to the sum of:
(i) the aggregate fractional undivided interest evidenced by all Class A
Certificates (the "Senior Interest") in: (a) until such time as the
Subordinated Amount is reduced to zero, all scheduled payments of principal
and interest (including any advances thereof), net of servicing fees and
other compensation payable to the Servicers and the Master Servicer, which
payments became due on the due date to which such Distribution Date relates
(the "Due Date"), whether or not such payments are actually received; and
(b) after the Subordinated Amount is reduced to zero, all payments of
principal and interest, net of servicing fees and other compensation
payable to the Servicers and the Master Servicer, but not previously
received, since the time the Subordinated Amount was reduced to zero, but
only to the extent such payments are actually received or advanced prior to
the Determination Date;
(ii) the Senior Interest in all principal prepayments received during the
month prior to the month of distribution and, interest to the last day of
the month in which such principal prepayments occur, net of servicing fees
and other compensation payable to the Servicers and the Master Servicer;
and
(iii) the Senior Interest in the sum of (a) the outstanding principal
balance of each Mortgage Loan or property acquired in respect thereof that
was repurchased pursuant to the Pooling and Servicing Agreement or
liquidated or foreclosed during the monthly period ending on the day prior
to the Due Date to which such distribution relates, calculated as of the
date of each such Mortgage Loan as repurchased, liquidated or foreclosed,
and (b) accrued but unpaid interest on such principal balance, net of
servicing fees and other compensation payable to the Servicers and the
Master Servicer, to the first day of the month following the month of such
repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders, in the manner set forth below, to the extent that there
are sufficient eligible funds available for distribution to such Class A
Certificateholders on a Distribution Date. Funds eligible for such purpose
with respect to each Distribution Date shall be as set forth in the Prospectus
under "Payments on Mortgage Loans."
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited
therein from the Reserve Funds and any Advances by the Servicers or the Master
Servicer) are not sufficient to make the Required Distribution on any
Distribution Date, the Trustee shall distribute on such Distribution Date to
the Class A Certificateholders the amount of funds eligible for distribution
to such Class A Certificateholders, in the manner set forth below. If, on any
Distribution Date, prior to the time the Subordinated Amount has been reduced
to zero, the Class A Certificateholders do not receive the Required
Distribution, the holders of the Class B Certificates will not receive any
distributions on such Distribution Date. Any amounts in the Certificate
Account after the Required Distribution is made to the Class A
Certificateholders will be distributed [first, to restore the amount in the
Reserve Fund to the Required Reserve, and then to the holders of the Class B
Certificates to the extent of any deficiency in the scheduled distribution to
such Certificateholders. Any excess will then be distributed to the holders of
the Residual Certificates, as set forth more fully below]. Holders of the
Class B Certificates [or the Residual Certificates] will not be required to
refund any amounts that have previously been properly distributed to them
directly from the Certificate Account, regardless of whether there are
sufficient funds on such Distribution Date to make a full distribution to the
Class A Certificateholders. The subordination of distributions allocable to
holders of the Class B Certificates is limited to the Subordinated Amount,
which will decrease over time as more fully set forth in the Pooling and
Servicing
S-18
<PAGE>
Agreement, and such subordination applies on any Distribution Date only to
then current distributions allocable to the Class B Certificateholders.
DISTRIBUTIONS OF INTEREST [ON THE CLASS CERTIFICATES]
The [Certificates of each Class] [Class A-3 Certificates and Class A-4
Certificates] will bear interest at the Interest Rates specified on the cover
page hereof. Interest on the Stated Principal Balance of the Class A-1 and
Class A-2 Certificates will accrue at the rates calculated as set forth
below.] Interest on the Class A-1 Certificates, Class A-2 Certificates and
Class A-3 Certificates will be distributable [monthly] on each Distribution
Date, commencing , 19 . [Interest distributable on the Certificates on a
Distribution Date will accrue from the [first day of the month preceding the]
prior Distribution Date (or from , 19 (the "Accrual Date") in the case of
the first Distribution Date) through the [last] day [of the [second] month]
preceding the then current Distribution Date. [Interest will accrue on the
Variable Rate Certificates from the preceding Distribution Date (or from ,
19 , in the case of the first Distribution Date) through the th day of the
month preceding each Distribution Date. Interest will accrue on the Fixed Rate
Certificates from the th day of the month [preceding the month] in which the
prior Distribution Date occurs (or from , 19 , in the case of the first
Distribution Date) through the th day of the month [preceding the month] in
which the current Distribution Date occurs.] Distributions of interest on the
Class A-4 Certificates will commence after distributions in reduction of
Stated Principal Balance of the Class A-3 Certificates have reduced the Stated
Principal Balance of such Class to zero. Prior to that time, interest will
accrue on the Class A-4 Certificates and the amount so accrued will be added
to the Stated Principal Balance thereof on each Distribution Date. [Interest
accrued on the [Subc] [C]lass of [Class A] Certificates currently receiving
distributions in reduction of Stated Principal Balance (and on the Class A-4
Certificates) during any period described above will be calculated on the
assumption that such distributions are made (and accrued interest added to the
Stated Principal Balance of the Class A-4 Certificates) on the [[first] day of
the month preceding] the next Distribution Date, and not on the Distribution
Date when actually made or added.
[Interest will accrue on the Class A-1 and Class A-2 Certificates through
, 19 at the rates of % and %, respectively. Commencing , 19 ,
interest will accrue on the Variable Rate Certificates at rates determined as
set forth below. For each interest accrual period other than the first
interest accrual period
--Interest will accrue on the Class A-1 Certificates at a per annum rate
of % above LIBOR, subject to a maximum interest rate of %.
--Interest will accrue on the Class A-2 Certificates at a per annum rate
equal to % - ( x LIBOR), subject to a minimum interest rate of %.
The rate at which interest will accrue on the Class A-2 Certificates will
thus vary inversely with changes in LIBOR. Interest will accrue on the Class
A-2 Certificates at the minimum rate of % whenever LIBOR is % or above, and
the maximum rate at which interest will accrue on the Class A-2 Certificates
will be % per annum, which would be the rate in effect if LIBOR were
determined to be %.
The following table illustrates the relationship between LIBOR rates and the
rate at which interest will accrue on the Class A-1 and Class A-2
Certificates.
<TABLE>
<CAPTION>
LIBOR CLASS A-1 CLASS A-2
----- ---------- ----------
<S> <C> <C>
% % %
% % %
% % %
</TABLE>
The [Trustee] will determine LIBOR for a given interest accrual period on
the second business day prior to the Distribution Date on which such interest
accrual period commences (an "Interest Rate Determination Date").
S-19
<PAGE>
For this purpose, a "business day" is any day on which banks in London and New
York City are open for the transaction of international business. Promptly
after each Interest Rate Determination Date, the Trustee will cause the
Interest Rates, the Stated Principal Balances of the Variable Rate
Certificates for the interest accrual period following such Determination
Date, and the amounts of interest payable on the Distribution Date following
such interest accrual period in respect of each $1,000 of such Stated
Principal Balance, to be published in an English language newspaper of general
circulation published each business day in New York City. The Stated Principal
Balances and the Interest Rates on the Variable Rate Certificates applicable
to the then current and the immediately preceding interest accrual periods may
be obtained by telephoning the Trustee at its Corporate Trust Office at.
The determination of the rates at which interest will accrue on the Variable
Rate Certificates after , 19 will be made in accordance with the following
provisions:
(i) On each Interest Rate Determination Date, the Trustee will
determine LIBOR on the basis of quotations [provided by [four]
Reference Banks as of 11:00 A.M. (London time) as such quotations
appear on the Reuters Screen LIBOR Page (as defined in the
International Swap Dealers Association, Inc. Code of Standard Wording,
Assumptions and Provisions for SWAPS, 1986 edition).] LIBOR as
determined by the Trustee is the arithmetic mean of such quotations
(rounded upward, if necessary, to the nearest multiple of of 1%).
(ii) If, on any Interest Rate Determination Date, at least two but
fewer than all of the Reference Banks provide quotations, LIBOR will be
determined in accordance with (i) above on the basis of the offered
quotations of those Reference Banks providing such quotations.
(iii) If, on any Interest Rate Determination Date, only one or none
of the Reference Banks provides such offered quotations, LIBOR will be
the higher of:
(a) LIBOR as determined on the previous Interest Rate
Determination Date; and
(b) the Reserve Interest Rate. The "Reserve Interest Rate" will be
the rate per annum (rounded upward as aforesaid) that the Trustee
determines to be either (x) the arithmetic mean of the offered
quotations that leading banks in New York City selected by the
Trustee (after consultation with the Depositor) are quoting on the
relevant Interest Rate Determination Date for [ ] month United
States dollar deposits to the principal London office of each of the
Reference Banks or those of them (being at least two in number) to
which such offered quotations are, in the opinion of the Trustee,
being so made or (y) in the event that the Trustee can determine no
such arithmetic mean, the arithmetic mean of the offered quotations
that leading banks in New York City selected by the Trustee (after
consultation with the Depositor) are quoting on such Interest Rate
Determination Date to leading European banks for [ ] month United
States dollar deposits; provided, however, that if the banks
selected as aforesaid by the Trustee are not quoting as mentioned
above, LIBOR for the next accrual period will be LIBOR as specified
in (a) above.
The rate at which interest will accrue on the Class A-1 Certificates will in
no event exceed % per annum, and the rate at which interest will accrue on
the Class A-2 Certificates will in no event be less than % per annum.
Each Reference Bank shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, shall not
control, be controlled by, or be under common control with, the Depositor and
shall have an established place of business in London.
[The distribution of interest on the [Class A] Certificates (and the
addition of accrued interest to the Stated Principal Balance of the Class A-4
Certificates prior to the reduction of the Stated Principal Balance of the
Class A-3 Certificates to zero) [30] days after the date to which interest
accrues thereon and the calculation of accrued
S-20
<PAGE>
interest on the Certificates based on the assumption that distributions in
reduction of Stated Principal Balance of the [Class A] Certificates are made
[one month] prior to the actual Distribution Date will reduce the effective
yield to holders of the [Class A] Certificates from that which would otherwise
be the case if interest distributable on the [Class A] Certificates (or added
to the Stated Principal Balance of the Class A-4 Certificates) on a
Distribution Date were to accrue to such Distribution Date.]
[The effective yield to the Class A-3 and Class A-4 Certificateholders will
be less than the yield that would otherwise be produced if interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) on a Distribution Date were to accrue
to such Distribution Date because (i) on the first Distribution Date, [ ]
months' interest is distributable on the Certificates (or to be added to the
Stated Principal Balance of the Class A-4 Certificates) even though [ ]
months will have elapsed from the date on which interest begins to accrue on
the Certificates and (ii) on each succeeding Distribution Date, the interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) is the interest accrued during the
period described above even though this accrual period ends [30] days prior to
such Distribution Date. In addition, during the first month of each interest
accrual period (other than the first such period) for the Class of
Certificates on which distributions in reduction of Stated Principal Balance
are being distributed, interest accrues on a principal balance that is less
than the Stated Principal Balance of such Class of Certificates, because
interest due on such Class on a Distribution Date is calculated on the Stated
Principal Balance of such Class since the preceding Distribution Date.]
DISTRIBUTIONS IN REDUCTION OF STATED PRINCIPAL BALANCE
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made on each Distribution Date on which distributions are
due in an aggregate amount equal to the sum of the Accrual Distribution Amount
and the Stated Principal Distribution Amount. For purposes of determining the
Stated Principal Distribution Amount, the Asset Value of the Mortgage Loans
comprising the Mortgage Pool will be reduced by taking into account [the
Senior Interest in] all distributions of principal thereof (including
prepayments) received or due to be received by the Trustee during the Due
Period prior to such Distribution Date.
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made first to the Class A-1 Certificates until the Stated
Principal Balance of the Class A-1 Certificates has been reduced to zero; next
to the Class A-2 Certificates until the Stated Principal Balance of the Class
A-2 Certificates has been reduced to zero; next to the Class A- 3 Certificates
until the Stated Principal Balance of the Class A-3 Certificates has been
reduced to zero; and then to the Class A-4 Certificates. Distributions in
reduction of Stated Principal Balance on [Certificates of a particular Class]
[Class A Certificates of a particular Subclass] will be made to the holder of
the Certificates of such [Class] [Subclass] either pro rata in the proportion
which the Stated Principal Balance of each Certificate of such [class]
[subclass] bears to the aggregate Stated Principal Balance of all the
Certificates of such [Class] [Subclass] or by random lot. Except as provided
herein, the Final Scheduled Distribution Date of each [Class] [Subclass] of
[Class A] Certificates has been determined based upon [the Senior Interest in]
scheduled payments of principal and interest on the Mortgage Loans comprising
the Mortgage Pool assuming no prepayments. Reinvestment Income at the Assumed
Reinvestment Rate, [and application of % of the Excess Cash Flow, as defined
herein, to the payment of Certificates.] The rate of prepayments on the
Mortgage Loans will depend on the prevailing level of interest rates and other
economic factors, and no assurance can be given as to the actual prepayment
rate of any Mortgage Loan.
The aggregate initial Asset Value of the Mortgage Loans comprising the
Mortgage Pool will be equal to at least 100% of the initial aggregate Stated
Principal Balance of the [Class A] Certificates.
The Asset Value of the Mortgage Loans comprising the Mortgage Pool will be
equal to the lesser of (a) the then present value of the [Senior Interest in
the] stream of remaining regularly scheduled monthly payments of principal and
interest on such Mortgage Loans [(after taking into account the applicable
portion of the Reserve Fund and the Buy-Down Fund)] together with Reinvestment
Income thereon from the assumed date of receipt of
S-21
<PAGE>
such payments to the next succeeding Distribution Date at the Assumed
Reinvestment Rate, discounted at the rate of % per annum with the same
frequency as distributions are made on the Certificates and (b) the product of
the Asset Value Cap calculated from time to time in the manner provided in the
Pooling and Servicing Agreement and the then outstanding principal balance of
such Mortgage Loan.
[ % of the Excess Cash Flow will be applied to the distributions on [Class
A] Certificates on each Distribution Date until such time that, even in the
event of excessive prepayments of the Mortgage Loans, sufficient funds will be
available to make distributions of interest on the [Class A] Certificates on
each succeeding Distribution Date. Thereafter, it will no longer be necessary
to provide for the possibility of a Special Distribution on the [Class A]
Certificates in respect of prepayments on such Mortgage Loans.]
On each Distribution Date, the distributions in reduction of Stated
Principal Balance on the [Class A] Certificates will be equal to the [Class A]
Stated Principal Distribution Amount. The [Class A] Stated Principal
Distribution Amount will be the amount by which (i) the Stated Principal
Balance of the [Class A] Certificates (before taking into account the amount
of interest accrued on the Class A-4 Certificates to be added to the Stated
Principal Balance thereof on the Distribution Date), exceeds (ii) the
aggregate Asset Value of the Mortgage Loans comprising the Mortgage Pool as of
such Distribution Date.
[In addition, % of the Excess Cash Flow from the Mortgage Loans comprising
the Mortgage Pool will be applied to the distributions of the [Class A]
Certificates on each Distribution Date until ]. Excess Cash Flow as of each
Distribution Date will be the amount, if any, by which (i) the [Senior
Interest in the] cash flow received from the Mortgage Loans and deposited in
the Certificate Account for the Certificates [and any amounts deposited in
such Certificate Account from any related Buy-Down Fund and GPM Fund on the
date of issuance of the Certificates], plus any Reinvestment Income thereon,
[together with any amounts otherwise distributable to the Class B
Certificateholders or in the Reserve Fund that are required to be distributed
to holders of the Class A Certificates] exceeds (ii) the sum of (a) the [Class
A] Stated Principal Distribution Amount on such Distribution Date and (b) all
interest accrued, whether or not then payable, on the Stated Principal Balance
of the [Class A] Certificates since the preceding Distribution Date, and (c)
any Special Distributions in reduction of Stated Principal Balance made since
the preceding Distribution Date (or since the date of issuance of the
Certificates in the case of the first Distribution Date). [On any Distribution
Date, Excess Cash Flow not so applied will be [distributed first to restore
the amount in the Reserve Fund to the Required Reserve, and then] to the
holders of the Class B Certificates to the extent of any current deficiency in
scheduled distributions to such Certificateholders on such Distribution Date.]
[Any excess will then be distributed to holders of the Residual Certificates.
Any Excess Cash Flow so distributed will not be available to make subsequent
distributions on the [Class A] Certificates.]
[SPECIAL DISTRIBUTIONS
The [Class A] Certificates may receive special distributions in reduction of
Stated Principal Balance ("Special Distributions") as a consequence of
principal prepayments on the Mortgage Loans comprising the Mortgage Pool
and/or low yields then available for reinvestment. The Trustee will be
required each month to determine, based on assumptions specified in the
Pooling and Servicing Agreement, the amount that will be available in the
Certificate Account for the distribution of interest that will have accrued on
such [Class A] Certificates (the "Available Interest Amount") through the
earlier of the last day of the month of determination or the last day of the
[second] month preceding the next Distribution Date (the earlier of such dates
being referred to as the "Available Interest Accrual Date"). If the Available
Interest Amount as so determined is less than the amount of interest that will
have accrued on such [Class A] Certificates to the Available Interest Accrual
Date, there will be distributed, on the first day of the month succeeding the
month of determination (the "Special Distribution Date"), the portion of the
Stated Principal Balance of the [Class A] Certificates that will cause the
Available Interest Amount to equal the amount of interest that will have
accrued to the Available Interest Accrual Date on the Certificates to be
outstanding immediately after such distribution. The amount of the Special
Distribution on the Certificates distributed on any Special Distribution Date
will not exceed the amount of
S-22
<PAGE>
distributions in reduction of Stated Principal Balance on such Certificates
that would otherwise be required to be made on the next Distribution Date.
The Trustee will notify each registered holder of [Class A] Certificates to
receive a Special Distribution by letter mailed at least five days prior to
the date set for such Special Distribution.]
[OPTIONAL TERMINATION
On any Distribution Date on or after the [later] of or the date on which
the Stated Principal Balance of the [Class A-3] Certificates has been reduced
to zero, the Depositor will have the right to repurchase, in whole, but not in
part, the Mortgage Loans comprising the Mortgage Pool. Additionally, on any
Distribution Date on which the aggregate principal amount of the Mortgage
Loans comprising the Mortgage Pool is less than [10]% of the initial aggregate
principal amount of such Mortgage Loans, the Depositor will have the right to
repurchase, in whole, but not in part, such Mortgage Loans. Any such
repurchase will be made at a purchase price equal to [the outstanding
principal balance of such Mortgage Loans, together with accrual and unpaid
interest thereon, net of servicing fees and other compensation, to the last
day of the month of such repurchase, plus the appraised value of any property
acquired in respect thereof]. Any such termination will be effected in
compliance with the requirements of Section 860F(a)(iv) of the Code so as to
constitute a "qualifying liquidation" thereunder. The proceeds of any such
repurchase will be treated as a distribution on the Mortgage Loans for
purposes of distributions to the Certificateholders. In no event will the
Trust continue beyond the expiration of 21 years from the death of the last
survivor of the persons named in the Pooling and Servicing Agreement.]
TRUSTEE
The Trustee for the Certificates will be
, a bank organized and existing under the laws of the
with its principal office located at ,
.
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation in
, . The Master Servicer may be an affiliate of the Depositor. The Master
Servicer is a FNMA/FHLMC approved seller-servicer based in . As of
, the Master Servicer serviced, for other investors and for its own
account, approximately mortgage loans with an aggregate principal balance in
excess of $ . The Master Servicer conducts operations through FHA approved
branch offices in . The Master Servicer originated approximately $ in
mortgage loans in 19 . The Master Servicer's consolidated stockholder's
equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances", in an amount acceptable to the Rating Agency.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
% of the outstanding principal balance of each Mortgage Loan in the Mortgage
Pool less [(a)] any servicing compensation to the servicer of each such
Mortgage Loan (the "Servicer") (including such compensation paid to the Master
Servicer as the direct Servicer of a Mortgage Loan for which there is no
Servicer) under the terms of an agreement with the Master Servicer pursuant to
which the Servicer services such Mortgage Loan (a "Servicing Agreement") [.]
S-23
<PAGE>
[, and (b) the amount payable to the Depositor, as described below.] [Pursuant
to the Pooling and Servicing Agreement, on each Distribution Date, the Master
Servicer will remit to [the Depositor] in respect of each interest payment on
a Mortgage Loan an amount equal to % of the outstanding principal balance of
such Mortgage Loan, before giving effect to any payments due on the preceding
Due Date.] The Master Servicer will be permitted to withdraw from the
Certificate Account, in respect of each interest payment on a Mortgage Loan,
an amount equal to % of the outstanding principal balance of such Mortgage
Loan, before giving effect to any payments due on the preceding Due Date.
Servicing compensation to the Servicers of the Mortgage Loans shall be payable
by withdrawal from the related Servicing Account (as defined in the
Prospectus) prior to deposit in the Certificate Account. In addition, each
Servicer (with respect to the Mortgage Loans serviced by it) and the Master
Servicer will be entitled to servicing compensation out of insurance proceeds
or liquidation proceeds. Additional servicing compensation in the form of
prepayment charges, assumption fees, late payment charges or otherwise shall
be retained by the Servicers and the Master Servicer to the extent not
required to be deposited in the Certificate Account. The Servicers and the
Master Servicer will pay all expenses incurred in connection with its
responsibilities under the Servicing Agreements and the Pooling and Servicing
Agreement (subject to limited reimbursement as described in the Prospectus),
including, without limitation, the various items of expense enumerated in the
Prospectus.
CERTIFICATE RATING
It is a condition to the issuance of the [Class A] Certificates that they be
rated in one of the two highest categories of the Rating Agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
Rating Agency.
[ERISA CONSIDERATIONS]*
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"ERISA Considerations."
S-24
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters for whom] CS First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase the [entire] [following respective]
Stated Principal Balance of each [Subc] [C]lass of the [Class A] Certificates:
<TABLE>
<CAPTION>
[UNDERWRITERS CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
CS First Boston Corporation............ $ $ $ $
--- --- --- ----
$ $ $ $]
=== === === ====
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase all of the Certificates if
any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer each [Subc] [C]lass of the Certificates to
the public at the public offering prices set forth on the cover page of this
Prospectus Supplement and [through the Representative,] to certain dealers at
such prices less the following concessions and such dealers may allow the
following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
CONCESSION
(PERCENT DISCOUNT
OF (PERCENT OF
PRINCIPAL PRINCIPAL
AMOUNT) AMOUNT)
---------- -----------
<S> <C> <C>
Class A-1 Certificates................................... % %
Class A-2 Certificates................................... % %
Class A-3 Certificates................................... % %
Class A-4 Certificates................................... % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus 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 sale.]
The Depositor has agreed to indemnify the Underwriter[s] against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
LEGAL MATTERS*
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by [Sidley & Austin] [Cadwalader, Wickersham & Taft], New
York, New York. The material federal income tax consequences of the Certificates
will be passed upon for the Depositor by [Sidley & Austin] [Cadwalader,
Wickersham & Taft].
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans
comprising the Mortgage Pool. All of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates
of the Depositor, which will have acquired such Mortgage Loans from time to
time in the open market or in privately negotiated transactions.
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Legal Matters."
S-25
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters for whom] The First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase the [entire] [following respective]
Stated Principal Balance of each [Subc] [C]lass of the [Class A]
Certificates:
<TABLE>
<CAPTION>
[UNDERWRITERS CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
- -------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
The First Boston Corporation ... $ $ $ $
------------- ------------- ------------- -------------
$ $ $ $]
============= ============= ============= =============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase all of the Certificates if
any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer each [Subc] [C]lass of the Certificates to
the public at the public offering prices set forth on the cover page of this
Prospectus Supplement and [through the Representative,] to certain dealers at
such prices less the following concessions and such dealers may allow the
following discounts on sales to certain other dealers:
CONCESSION DISCOUNT
(PERCENT OF (PERCENT OF
PRINCIPAL PRINCIPAL
AMOUNT) AMOUNT)
-------------- --------------
Class A-1 Certificates ... % %
Class A-2 Certificates ... % %
Class A-3 Certificates ... % %
Class A-4 Certificates ... % %
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
S-26
VERSION C
<PAGE>
LEGAL MATTERS*
The legality of the Certificates will be passed upon for the Depositor and
for the Underwriter[s] by Cadwalader, Wickersham & Taft, New York, New York.
The material federal income tax consequences of the Certificates will be passed
upon for the Depositor by Cadwalader, Wickersham & Taft.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans
comprising the Mortgage Pool. All of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more
affiliates of the Depositor, which will have acquired such Mortgage Loans
from time to time in the open market or in privately negotiated transactions.
- ------------
* If the Series of Certificates offered pursuant to this Version B
Prospectus Supplement evidences interests in Contracts, the
disclosure to be set forth will be substantially similar to the
disclosure set forth in Version E under "Legal Matters."
S-27
VERSION C
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
CS First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage Pass-Through Certificates, Series ("SPLITS")
Class -1 SPLITS
$ Original Principal Amount (Approximate)
100% of principal payments of the underlying Certificates
0% of interest payments on the underlying Certificates
Class -2 SPLITS
No Original Principal Amount
0% of principal payments on the underlying Certificates
Interest at % Annual Rate on Class -2 SPLITS notional amount
-----------
The Conduit Mortgage Pass-Through Certificates, Series (the "SPLITS
Certificates"), offered hereby evidence undivided percentage ownership
interests in a trust (the "Trust") composed of Conventional Mortgage Pass-
Through Certificates, each having a pass-through rate of % (the "
Certificates"). The mortgage pool underlying the Certificates consists of
conventional one- to four-family residential mortgage loans originated and
serviced by and certain related property. The Certificates will be
transferred to the Trust, pursuant to a Deposit Trust Agreement dated as of
1, 199 , by First Boston Mortgage Securities Corp. (the "Depositor") in
exchange for the SPLITS Certificates and are more fully described in this
Prospectus Supplement and in the accompanying Prospectus.
The SPLITS Certificates will be issued in two classes, Class -1 (the "Class
-1 Splits") and Class -2 (the "Class -2 SPLITS"). The Class -1 SPLITS
evidence ownership interests in all of the principal payments on the
Certificates. The Class -2 SPLITS evidence ownership interests in all of the
interest payments on the Certificates, net of a servicing fee as described
herein (the "Servicing Fee"). Interest distributions allocable to the Class -2
SPLITS will be passed through monthly at the annual rate of % (the "Annual
Rate") on the then aggregate outstanding notional amount of the Class -2
SPLITS. The notional amount is used solely for purposes of the determination of
interest payments and certain other rights and obligations of Holders of Class
-2 SPLITS and does not represent an interest in principal payments on the
Certificates.
Principal payments and interest at the Annual Rate will be distributed to the
holders of SPLITS Certificates ("Certificateholders" or "Holders") entitled
thereto on the [last] day of the month (or if such day is not a business day,
on the next business day) (the "Distribution Date"), or under the circumstances
described herein, on the Distribution Date in the next month. The first
distribution will be made on , 199 .
The SPLITS Certificates do not represent an obligation of or interest in CS
First Boston Mortgage Securities Corp. or any affiliate thereof or of , any
affiliate thereof or any other governmental agency or instrumentality.
There is currently no secondary market for the SPLITS Certificates and there
is no assurance that one will develop. The Underwriter[s] expect[s] to
establish a market in the SPLITS Certificates, but [is] [are] under no
obligation to do so. There is no assurance that a secondary market will
develop, or, if it does develop, that it will continue.
The yield to maturity on the SPLITS Certificates will depend on the rate of
principal payments (including prepayments) on the Certificates. The
mortgage loans underlying the Certificates are conventional loans and may
be prepaid at any time without penalty. A lower rate of principal than
anticipated would negatively affect the total return to investors in Class -1
SPLITS, which are being offered at a discount to their principal amount. The
yield to maturity on the Class -2 SPLITS will be extremely sensitive to the
rate of principal payments on the Certificates and may fluctuate
significantly from time to time. Investors should fully consider the associated
risks, including the risk that a rapid rate of principal payments could result
in the failure of investors in Class -2 SPLITS to recoup their initial
investment. See "Yield Considerations."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the factors set forth under Risk
Factors on page S-6 of this Prospectus Supplement.
Prospective investors should consider the limitations discussed under
ERISA Considerations herein and in the accompanying Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Depositor (2)
- -----------------------------------------------------------
<S> <C> <C> <C>
Per Class -1 SPLITS % % %
- -----------------------------------------------------------
Per Class -2 SPLITS %(3) % %(3)
- -----------------------------------------------------------
Total $ $ $
- -----------------------------------------------------------
</TABLE>
(1) Calculated as a percent of gross proceeds of the offering of each Class of
SPLITS Certificates.
(2) Before deduction of expenses payable by the Depositor estimated at $[ ].
(3) Plus accrued interest, if any, on the Class -2 SPLITS from 1, 199
(the "Cut-off Date").
-----------
The SPLITS Certificates are offered by the [several] Underwriter[s] when, as
and if issued and accepted by the Underwriter[s] and subject to [its] [their]
rights to reject orders in whole or in part. It is expected that the SPLITS
Certificates, in definitive, fully registered form, will be ready for delivery
on or about , 199 .
CS First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SPLITS CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SPLITS CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS 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 SALE.]
----------------
UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE SPLITS
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust, can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at 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).
S-2
<PAGE>
SUMMARY OF THE TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
and not otherwise defined herein shall have the meanings given in the
Prospectus.
SECURITIES OFFERED........ Conduit Mortgage Pass-Through Certificates, Series
(the "SPLITS Certificates").
$ original principal amount Class -1 SPITS
(approximate). No original Principal Amount -2
SPLITS. The Class -1 SPLITS represent an undivided
percentage ownership interest in 100% of the
monthly principal payments on the underlying
Certificates (the "Mortgage Certificates Principal
Distribution"). The Class -1 SPLITS do not
evidence an ownership interest in the monthly
interest payments on the underlying Certificates.
The Class -2 SPLITS represent an undivided
percentage ownership interest in 100% of the
monthly interest payment on the underlying
Certificates (the "Mortgage Certificate Interest
Certificate Interest Distribution"), net of the
Servicing Fee as described herein (such net rate
of interest on the Class -2 SPLITS then
outstanding notional amount being referred to
herein as the "Annual Rate"). The Annual Rate is
%. The notional amount for the -2 SPLITS is
equal to the unpaid principal balance of the
Certificates, but is used solely for purposes
of determining interest payments and certain other
rights and obligations of holders of Class -2
SPLITS and does not represent any interest in
principal payments.
The SPLITS Certificates will be issued pursuant to
a deposit trust agreement, dated as 1, 19
(the "Deposit Trust Agreement"), between
, as trustee (the
"Trustee") and CS First Boston Mortgage Securities
Corp. (the "Depositor").
DEPOSITOR................. CS First Boston Mortgage Securities Corp.
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
DENOMINATIONS............. The Class -1 SPLITS will be offered in fully
registered form, in minimum denominations of $[
] original principal amount and multiples of $[
] in excess thereof. The Class -2 SPLITS will be
offered in fully registered form, in minimum
denominations of $[ ] original notional amount
and multiples of $[ ] in excess thereof.
PRINCIPAL................. The Class -1 SPLITS will receive all principal
payments on the Certificates (including
prepayments). The Class -2 SPLITS receive no
principal payments on the Certificates.
INTEREST.................. The Class -2 SPLITS will receive all interest
payments on the Certificates, after deduction of
the Servicing Fee, as described herein. The
Class -1 SPLITS will receive no interest payments
on the Certificates.
S-3
<PAGE>
DISTRIBUTION DATES........ Distributions on the Certificates that are
received by the Trustee and become cleared funds
in the hands of the Trustee prior to 1:00 p.m. on
the [last] day of each month following the
distribution date for the Certificates, or,
if such day is not a business day, on the next
business day will be distributed to
Certificateholders on such day (each, a
"Distribution Date"). Distributions on the
Certificates that are received by the Trustee and
become cleared funds in the hands of the Trustee
at or after 1:00 p.m. on any Distribution Date
will be distributed to Certificateholders on the
Distribution Date in the next month. Distributions
will be made only if, and to the extent that,
payments are made on the Certificates and
received by the Trustee. The first Distribution
Date will be , 19 . The Cut-off Date will be
, 19 .
MORTGAGE CERTIFICATES..... % Certificates will aggregate outstanding
principal balances of $[ ] as of the Cut-off
Date. See "The Certificate Pool".
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
SPLITS Certificates, see "Risk Factors" herein and
in the related Prospectus.
YIELD CONSIDERATIONS...... The rate of payment of principal of the Class -1
SPLITS, and the aggregate amount of each
distribution on and the yield to maturity of all
SPLITS Certificates, will depend on the rate of
payment of principal (including prepayments) of
the mortgage loans underlying the
Certificates. The mortgage loans underlying
the Certificates are conventional mortgage
loans and can be prepaid at any time without
penalty. The rate of payment of principal varies
significantly from time to time and between pools
of mortgage loans at any time and will be affected
by a variety of factors.
The yield to maturity on the Class -2 SPLITS, which
are being offered without any original principal
amount, is extremely sensitive to the rate of
payment of principal of the mortgage loans
underlying the Certificates and may fluctuate
significantly from time to time. Investors should
fully consider the associated risks, including the
risk that if the rate of principal payment is
rapid such investors may not recoup their initial
investment. See "Yield Considerations".
OPTIONAL TERMINATION...... The mortgage loans underlying the Certificates
are subject to repurchase at the option of at such
time as the outstanding principal balance of such
mortgage loans is less than 10% of their
outstanding principal balance as of . The
Depositor may, in the event such option is
exercised, or otherwise, at such time as the
outstanding principal balance of the
Certificates is less than 10% of their
aggregate principal balance as of the Cut-off Date
purchase the SPLITS Certificates, in whole, but
not in part, at the purchase price set forth
herein. See "Description of the
Certificates--Optional Termination" herein.
LEGAL INVESTMENT.......... The SPLITS Certificates constitute "mortgage-
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act (the "Enhancement
Act"), and, as such, are legal investments for
certain
S-4
<PAGE>
entities to the extent provided in the Enhancement
Act. See "Legal Investment" in the Prospectus.
TRUSTEE...................
. See
"Description of the Certificates--Trustee" herein.
CERTIFICATE RATING........ It is a condition of issuance of the SPLITS
Certificates that they be rated " " by the
Rating Agency prior to issuance. See "Rating"
herein.
ERISA CONSIDERATIONS...... See "ERISA Considerations" in the Prospectus.
TAX ASPECTS............... See "Certain Federal Income Tax Consequences--
General"; "--Non-REMIC Trust Funds" in the
Prospectus. Purchasers of Class A-1 Certificates
should see "Certain Federal Income Tax
Consequences--Non-REMIC Trust Funds--Taxation of
Owners of Trust Fractional Certificates" and "--
Taxation of Owners of Trust Fractional
Certificates--Application of Stripped Bond Rules"
in the Prospectus for discussions of certain tax
considerations particular to the Class A-1
Certificates. Purchasers of Class A-2 Certificates
should see "Certain Federal Income Tax
Consequences--Non-REMIC Trust Funds-- Taxation of
Owners of Trust Interest Certificates" in the
prospectus for discussions of certain tax
considerations particular to the Class A-2
Certificates.*
- --------
*If the Prospectus Supplement for a Series of Certificates provides that [Sidley
& Austin] [Cadwalader, Wickersham & Taft] will pass upon the material federal
income tax consequences of the Certificates for the Depositor, then such
Prospectus Supplement will contain tax disclosure substantially similar to the
disclosure set forth in Version E under "Summary of Terms--Tax Aspects" and
"Certain Federal Income Tax Consequences."
S-5
<PAGE>
[RISK FACTORS]
[Description of Risk Factors to be added as appropriate]
DESCRIPTION OF THE CERTIFICATES
THE CERTIFICATES
The Certificates are each proportionately based upon and backed by a pool of
conventional oneto four-family residential mortgage loans, originated and
serviced by , and certain related property conveyed to the trust by .
On the Closing Date, the Depositor will deliver to the Trustee Certificates
having an aggregate principal balance of $[ ] (subject to a permitted
variance of up to 5%) and pass-through rates of [ ]%. The mortgage loans
underlying such Certificates are expected to have a weighted average
coupon of approximately % per annum based upon actual information regarding
the coupon rates on the mortgage loans underlying the Certificates that the
Depositor anticipates delivering to the Trustee.
The Certificates are expected to have a weighted average remaining term
to maturity of approximately years based upon actual information regarding
the remaining terms to maturity of the mortgage loans underlying the
Certificates that the Depositor anticipates delivering to the Trustee.
Using such Certificates, the final payment thereon will not be later
than , .
The information presented in this section has been derived from the Current
Report on Form 8-K filed by with respect to the Certificates and
certain other publicly available statistical information regarding the
Certificates and is derived from the expected balances as of the Cut-off
Date of the mortgage loans underlying the Certificates, such balances
being estimated using the method customarily employed by the Depositor.
[Prospective investors should be aware that the Depositor may, in certain
unforeseeable circumstances, deliver to the Trustee Certificates having
characteristics different from those described herein.] Specific information
with respect to the Certificates will be forth in a Current Report on
Form 8-K that will be filed by the Depositor, on behalf of the Trust, with the
Securities and Exchange Commission within 15 days after the issuance of the
SPLITS Certificates. [Set forth additional information with respect to the
Certificates.] [A copy of the Prospectus with respect to the
Certificates will be made available to any registered holder of a SPLITS
Certificate upon written request of such Certificateholder directed to .]
YIELD CONSIDERATIONS
PREPAYMENT EXPERIENCE
Because principal payments on the mortgage loans underlying the Certificates
will be passed through to the holders of the Class -1 SPLITS and will reduce
the notional amount of the Class -2 SPLITS, the rate of payment of principal
of the Class -1 SPLITS and the aggregate amount of distributions on Class -1
SPLITS and Class -2 SPLITS will be directly related to the rate of payment of
principal of the mortgage loans underlying the Certificates. The rate of
principal payments on the underlying mortgage loans will in turn be affected
by the rate of principal prepayments thereon (including, for this purpose,
payments resulting from liquidations of the mortgage loans due to defaults,
casualties, condemnations or other dispositions). The mortgage loans are
conventional and can be prepaid at any time without penalty. Prepayments with
respect to the Certificates may also occur as a result of guaranty
payments and the optional repurchase provision on the Certificates.
Accordingly, the rate of prepayments on the underlying mortgage loans and rate
of payment of principal of the SPLITS Certificates will depend upon future
events and a variety of factors, and no assurance can be given as to either
such rate.
The yield to maturity of any SPLITS Certificates will be affected by the
rate of payment of principal of the Certificates. Specifically, as the
SPLITS Certificates belonging to Class -1 SPLITS are being offered at
significant discounts from their original principal amounts, if the purchaser
of a Class -1 SPLITS
S-6
<PAGE>
Certificates calculates its anticipated yield to maturity based on an assumed
rate of payment of principal that is faster than that actually received on the
Certificates, its actual yield to maturity will be lower than that so
calculated. Conversely, as the SPLITS Certificates belonging to Class -2
SPLITS are being offered without any original principal amount, if the
purchaser of a Class -2 SPLITS Certificate calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is slower than
that actually received on the Certificates, its actual yield to maturity
will be lower than that so calculated.
The timing of changes in the rate of prepayments on the mortgage loans under
the Certificates may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments is consistent with an
investor's expectation. In general, the earlier a prepayment of principal on
the mortgage loans underlying the Certificates the greater the effect on
an investor's yield to maturity. As a result, the effect on an investor's
yield of principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during the period immediately following the
issuance of the SPLITS Certificates may not be offset by a subsequent like
reduction (or increase) in the rate of principal payments.
[BECAUSE THE CLASS -1 SPLITS ARE BEING OFFERED AT A DISCOUNT FROM THEIR
ORIGINAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY THEREON WILL BE SENSITIVE TO
THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS UNDERLYING THE
CERTIFICATES.]
BECAUSE THE CLASS -2 SPLITS ARE BEING OFFERED WITHOUT ANY PRINCIPAL AMOUNT,
THE YIELD TO MATURITY ON THE CLASS -2 SPLITS WILL BE EXTREMELY SENSITIVE TO
PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS UNDERLYING THE CERTIFICATES AND
MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. PROSPECTIVE INVESTORS IN THE
CLASS -2 SPLITS SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK
THAT IF THE RATE OF PAYMENT IS RAPID SUCH INVESTORS MAY NOT FULLY RECOUP THEIR
INITIAL INVESTMENT.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of new
mortgage loans. SPA assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgage loans in the first month of the
life of the mortgage loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, SPA assumes a
constant prepayment rate of 6% per annum. SPA does not purport to be either a
historical description of the prepayment experience of any pool of mortgage
loans, or of the Mortgage Loans in the Mortgage Pool.
The following table illustrates, in general, the effect of prepayment rates
on the timing and amount of distributions on each Class of SPLITS Certificates
and their resulting weighted average lives. The table does not purport to
represent the anticipated rate of prepayment on the mortgage loans underlying
the Certificates or the resulting anticipated rate of distributions of
each Class of the SPLITS Certificates.
The table sets forth the projected annual aggregate distributions that would
be made on the Class -1 and Class -2 SPLITS Certificates, and their resulting
weighted average lives, based on various assumed percentages of SPA. The
column headed "0%" assumes that no mortgage loans underlying the
Certificates are prepaid before maturity. The columns headed " %", " %"
and " %" assume that prepayments are made at the specified percentages of SPA.
It has been assumed in preparing the table that (i) the Certificates consist
of $ principal amount of % Certificates, (ii) the mortgage loans underlying
the Certificates have the characteristics described above in "Description of
the Certificates," (iii) all mortgage loans are prepaid at the indicated
percentage of SPA for the life of the Certificates, (iv) the weighted average
remaining term to maturity of the mortgage loans is years, (v) the interest
rate on each mortgage loan is . % in excess of the pass-through rate on
the related Certificate, and (vi) the Certificates are not repurchased at
the option of or the SPLITS Certificates are not repurchased at the
option of Depositor.
S-7
<PAGE>
PROJECTED ANNUAL AGGREGATE DISTRIBUTIONS ON THE SPLITS CERTIFICATES (THOUSANDS
OF DOLLARS)
<TABLE>
<CAPTION>
CLASS -1 SPLITS CLASS -2 SPLITS
------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDING 0% SPA % SPA % SPA % SPA 0% SPA % SPA % SPA % SPA
- ----------- ------ ----- ----- ----- ------ ----- ----- -----
$ $ $ $ $ $ $ $
------ ----- ----- ----- ------ ----- ----- -----
Total distributions.......... $ $ $ $ $ $ $ $
Weighted average life
(years)(1)...................
</TABLE>
- --------
(1) The weighted average of life of the Class -2 SPLITS which is assumed to be
equal to the weighted average life of the Class -1 SPLITS, is determined
by (i) multiplying the amount of each assumed principal distribution by
the number of years from the date of issuance of the SPLITS Certificates
to the related Distribution Date, (ii) summing the results and (iii)
dividing the sum by the total principal distributions on the SPLITS
Certificates.
The characteristics of the mortgage loans underlying the Certificates, will
not correspond exactly to those assumed in preparing the statistics above. The
total cash flows of the Class -2 SPLITS will therefore differ from those set
forth above even if all of the mortgage loans prepay monthly at the related
assumed prepayment rate. In addition, it is not likely that any mortgage loan
will repay at a constant rate until maturity or that all of the mortgage loans
will prepay at the same rate, and the timing of changes in the rate of
prepayments may significantly affect the total cash flow received by Holder of
a Class -2 SPLITS Certificate.
The Depositor makes no representation that the mortgage loans will prepay in
the manner or at any of the rates assumed in the table set forth above. Each
investor must make his own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase any of the
SPLITS.
The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social,
legal and other factors and has fluctuated considerably in recent years. See
"Yield Considerations" in the Prospectus. In addition, the rate of principal
prepayments on the mortgage loans underlying the Certificates may differ
among pools of mortgage loans at any time because of specific factors relating
to the mortgage loans in the particular pool, including, among other things,
the age of the loans, the interest rates on the loans, the terms to stated and
remaining maturity of the loans, the geographic locations of the properties
securing the loans, the extent of the mortgagors' equity in real property
securing the loans, changes in mortgagors' housing needs, job transfers,
unemployment and servicing decisions.
Generally, however, if prevailing interest rates vary significantly from the
interest rates on the mortgage loans underlying the Certificates, the
Certificates are likely to be subject to higher or lower prepayment rates
than if prevailing rates remain at or near the interest rates on the mortgage
loans underlying the Certificates. In general, if prevailing interest
rates fall significantly below the interest rates on the mortgage loans
underlying the Certificates, the Certificates are likely to be
subject to higher prepayment rates than if prevailing rates remain at or above
the interest rates on the mortgage loans underlying Certificates.
Conversely, if interest rates rise above the interest rates on the mortgage
loans underlying the Certificates, the rate of prepayment would be
expected to decrease.
S-8
<PAGE>
The Depositor believes that the historical payment experience on such
securities is not necessarily indicative of the future payment experience on
the mortgage loans underlying the Certificates. Since the rate of
principal payments (including prepayments) on such mortgage loans will
significantly affect the yield to maturity on the SPLITS Certificates,
prospective investors are urged to consult their investment advisors as to
both the anticipated rate of future principal payments (including prepayments)
on the underlying mortgage loans and the suitability of the SPLITS
Certificates to their investment objectives.
PAYMENT DELAY
The effective yield to Certificateholders will be lower than the yield
otherwise produced by the Annual Rate and purchase price since the monthly
distributions on the Certificates will not be paid to the Holders until
on or after the [last] day of the month next succeeding the month of accrual.
See "Pooling and Servicing Agreement" in the Prospectus. To the extent that a
monthly distribution on a Certificate does not become cleared funds in
the hands of the Trustee prior to 1:00 p.m. on the Distribution Date in the
month such distribution is required to be made by the issuer of such
Certificates, the effective yield to the Certificateholders will be
further reduced since such distribution will not be paid to the Holders until
the Distribution Date in the next succeeding month. See "Description of the
SPLITS Certificates."
DESCRIPTION OF THE SPLITS CERTIFICATES
GENERAL
The SPLITS Certificates will be issued pursuant to a deposit trust
agreement, dated as of , 19 (the "Deposit Trust Agreement"), between
, as trustee (the "Trustee"), and the
Depositor. Pursuant to the Deposit Trust Agreement, the Depositor will
transfer the Certificates to the Trustee in exchange for the SPLITS
Certificates on or about , 19 (the "Delivery Date"). The
Certificates will be registered in the name of the Trustee and payments
on the Certificates will be made directly to the Trustee.
The SPLITS Certificates are to be issued in two classes. Class -1 SPLITS
Certificates (the "Class -1 SPLITS") and Class -2 SPLITS Certificates (the
"Class -2 SPLITS"). The Class -1 SPLITS evidence the Holders' beneficial
ownership of an undivided interest in all of the principal payments of the
Certificates. The Class -2 SPLITS evidence the Holders' beneficial
ownership of an undivided interest in all of the interest payments on the
Certificates after deduction of the Servicing Fee (as defined herein).
Payments of interest on the Class -2 SPLITS will be passed through monthly to
Holders thereof at a % Annual Rate on the outstanding notional amount of such
SPLITS Certificates as of the month preceding the month in which the related
distribution of interest is to be made.
The outstanding principal amount or notional amount, as the case may be, of
each Class of SPLITS Certificates for any month will be equal to the aggregate
outstanding principal balance of the Certificates for that month. The
notional amount is used solely for purposes of the determination of interest
payments and certain other rights and obligations of Holders of Class -2
SPLITS, and Holders of Class -2 SPLITS shall not have any interest in, or be
entitled to any payment with respect to, principal payments on the
Certificates. The aggregate original principal amount of the Class -1
SPLITS and the aggregate original notional amount of the Class -2 SPLITS will
each be $ at the Cut-off Date.
Each Class -1 SPLITS Certificate will evidence a Percentage Interest in the
monthly distributions of principal of the Certificates. Each Class -2
SPLITS Certificate will evidence a Percentage Interest in the monthly
distributions of interest on the Certificates, net of the Servicing Fee.
The Percentage Interest evidenced by each SPLITS Certificate will be
determined by dividing the denomination of such SPLITS Certificate by the
aggregate denominations of all SPLITS Certificates of the same Class. On each
Distribution Date, the Trustee will distribute to each Holder of a SPLITS
Certificate of a Class an amount equal to the product
S-9
<PAGE>
of such Certificateholder's Percentage Interest evidenced by such SPLITS
Certificate and the interest of such Class in the Mortgage Certificate
Principal Distribution or the Mortgage Certificate Interest Distribution, as
applicable.
The SPLITS Certificates will be issued only in fully registered form. The
Class -1 SPLITS will be issued in minimum denominations of $ and multiples
of $ in excess thereof. The Class -2 SPLITS will be issued in minimum
denominations of $ and multiples of $ in excess thereof.
Principal and interest at a % pass-through rate in respect of the
Certificates is required to be paid by the issuer of the Certificates by
check mailed directly to the registered holder thereof on the day of each
month. Payments of principal and interest will be collected by the Trustee and
held in a segregated non-interest-bearing trust account in the name of and for
the benefit of the Trust. Distributions on the Certificates that are
received by the Trustee and become cleared funds in the hands of the Trustee
prior to 1:00 p.m. on the day of the month or, if such a day is not a
business day, on the next business day, will be distributed to
Certificateholders on such day (each, a "Distribution Date"). Distributions on
the Certificates that are received by the Trustee and become cleared
funds in the hands of the Trustee at or after 1:00 p.m. on any Distribution
Date will be distributed to the Certificateholders on the Distribution Date in
the next month. In each case the distribution will be made to the Holders of
record of the SPLITS Certificates on the close of business on the last
business day of the month preceding the month in which such distribution is
made (the "Record Date"). The first Distribution Date will be , 19 .
Distribution of principal and interest as set forth above will be made by the
Trustee by check mailed to each Certificateholder entitled thereto at the
address appearing in the Certificate Register to be maintained with the
Trustee or, at the request of a Certificateholder, by wire transfer to the
account of such Certificateholder; provided, however, that the final
distribution in retirement of a SPLITS Certificate will be made only upon
presentation and surrender of the SPLITS Certificate at the office of the
Trustee specified in the notice to Certificateholders of such final
distribution. Wire transfers will be made at the expense of Certificateholders
requesting such wire transfers by deducting a wire transfer fee from the
related transfer.
The SPLITS Certificates will be transferable and exchangeable on the
Certificate Register at the office or agency of the Trustee maintained for
that purpose in the City of New York. SPLITS Certificates surrendered to the
Trustee for registration of transfer or exchange must be accompanied by a
written instrument of transfer in form satisfactory to the Trustee. No service
charge will be made for any registration of transfer or exchange of SPLITS
Certificates, but payment of a sum sufficient to cover any tax or other
governmental charge may be required. Such office or agency is currently
located at .
TRUSTEE
The Trustee for the Certificates will be
, a bank organized and existing under the laws of
with its principal office located at
.
SERVICING FEE
The Deposit Trust Agreement provides for a servicing fee (the "Servicing
Fee") in an amount equal to % of each interest distribution on the
Certificates. The Servicing Fee will be deducted by the Trustee prior to
making any payment of interest to Holders of the Class -2 SPLITS.
OPTIONAL TERMINATION
The Deposit Trust Agreement provides that the Depositor may purchase SPLITS
Certificates at such time as (i) the mortgage loans underlying the
Certificates are repurchased by , or (ii) the aggregate unpaid
principal balance of the Certificates is less than [10]% of the aggregate
unpaid principal balance of the Certificates as of the Cut-off Date.
S-10
<PAGE>
In such event the Class -1 SPLITS will be repurchased at % of their
outstanding principal amount and the Class -2 SPLITS will be repurchased at %
of their outstanding notional amount, in each case, as of the date of such
repurchase. In no event will the Trust continue beyond the expiration of 21
years from the death of the last survivor of the persons named in the Deposit
Trust Agreement.
RATING
It is a condition to the issuance of the SPLITS Certificates that they be
rated " " by the Rating Agency. Such rating addresses the likelihood that
the holders of the SPLITS Certificates will receive payments required under
the Deposit Trust Agreement. In assigning such a rating to mortgage pass-
through certificates, the Ratng Agency takes into consideration the credit
quality of the mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on such mortgage pool is adequate to make required
payments on such certificates. Such rating does not, however, represent an
assessment of the likelihood that principal prepayments will be made by
mortgagors or the degree to which such payments might differ from that
originally anticipated. As a result, holders of the SPLITS Certificates might
suffer a lower than anticipated yield, and holders of the Class -2 SPLITS
might fail, in circumstances of extreme prepayment, to recoup their original
investment.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
S-11
<PAGE>
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA--Prohibited
Transaction Class Exemption" in the Prospectus), a certificate of an Exempt
Series must entitle its holder to pass-through payments of both principal and
interest on the Mortgage Loans. Because holders of Class -1 or Class -2
Certificates are only entitled to pass-through payments of principal (but not
interest) or interest (but not principal), PTCE 83-1 will not exempt Plans
that acquire the Class -1 or Class -2 Certificates from the prohibited
transaction rules of ERISA. Any Plan fiduciary who proposes to cause a Plan
to purchase Class -1 or Class -2 Certificates should consult with its
counsel with respect to the potential consequences under ERISA and the Code
of the Plan's acquisition and ownership of such Certificates. However, one of
the other PTCE's or the Underwriter's PTE may be applicable. See "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus.
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Classs SPLITS:
CLASS -1 CLASS -2
[UNDERWRITER SPLITS SPLITS TOTAL
- -------------------------------- ------------ ------------ ---------
CS First Boston Corporation ... $ $ $
Total ......................... $ $ $ ]
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the SPLITS Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] prospose[s] to offer each Class of the SPLITS Certificates to
the public initially at the public offering prices set forth on the cover
page of this Prospectus Supplement [, and through the Representative,] to
certain dealers at such prices less the following concessions and that the
Underwriter[s] and such dealers may allow the following discounts on sales to
certain other dealers:
CONCESSION DISCOUNT
(PERCENT OF (PERCENT OF
GROSS GROSS
PROCEEDS) PROCEEDS)
------------- -------------
Class -1 SPLITS ... % %
Class -2 SPLITS ... % %
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
S-12
VERSION D
<PAGE>
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus 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 sale.]
All of the Certificates will be acquired in a privately negotiated
transaction by the Depositor from CS First Boston Corporation on terms
substantially similar to those that the Depositor would obtain in an arm's
length transaction. CS First Boston Corporation will have acquired such
Certificates in a privately negotiated transaction.
LEGAL MATTERS
The legality of the SPLITS Certificates will be passed upon for the Depositor
and for the Underwriter[s] by [Sidley & Austin] [Cadwalader, Wickersham & Taft],
New York, New York, and the material federal income tax consequences of the
SPLITS Certificates will be passed upon for the Depositor by [Sidley & Austin]
[Cadwalader, Wickersham & Taft] .
USE OF PROCEEDS
The Depositor will apply substantially all of the net proceeds of the
offering of the SPLITS Certificates towards the simultaneous purchase of the
Certificates underlying the SPLITS Certificates.
S-13
VERSION D
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
CS First Boston Mortgage Securities Corp.
Depositor
Conduit Manufactured Housing Contract Pass-Through Certificates, Series %
Pass-Through Rate
Principal and interest payable on the th day of each month, beginning ,
19
-----------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF CS FIRST
BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. [NEITHER THE
CERTIFICATES NOR THE UNDERLYING CONTRACTS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.]
-----------
The Conduit Manufactured Housing Contract Pass-Through Certificates, Series,
% Pass-Through Rate (the "Certificates") offered hereby evidence undivided
fractional interests in a trust to be created by First Boston Mortgage
Securities Corp. (the "Depositor") on or about , 199 (the "Trust"). The
Trust property will consist of a pool of [conventional] [FHA Insured] [VA-
guaranteed] [fixed-rate] [variable-rate] manufactured housing conditional sales
contracts and installment loan agreements (the "Contracts") and certain related
property to be conveyed to the Trust by the Depositor (the "Trust Fund"). The
Contracts will be transferred to the Trust, pursuant to a Pooling and Servicing
Agreement (as defined herein), dated as of , 199 , by the Depositor in
exchange for the Certificates and are more fully described in this Prospectus
Supplement and in the accompanying Prospectus. The Certificates offered by this
Prospectus Supplement constitute a separate series of the Certificates being
offered by the Depositor from time to time pursuant to its Prospectus dated
, 199 , which accompanies this Prospectus Supplement and of which this
Prospectus Supplement forms a part. The Prospectus contains important
information regarding this offering that is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for the
Certificates [but [is] [are] under no obligation to do so]. There can be no
assurance that a secondary market will develop, or if it does develop, that it
will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Certain Federal Income Tax Consequences"
in the Prospectus.]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the factors set forth under Risk Factors
on Page S-7 of this Prospectus Supplement.
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- ---------------------------------------------------------
<S> <C> <C> <C>
Per Certificate % % %
- ---------------------------------------------------------
Total $ $ $
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deduction of expenses payable by the Depositor estimated at $ .
-----------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [their] [its] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be ready for delivery on or about ,
199 .
CS First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
UNTIL , 19 , ALL DEALERS AFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS 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 SALE.]
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at 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).
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ Conduit Manufactured Housing Contract Pass-Through
Certificates, Series , % Pass-Through Rate (the
"Certificates").
PRINCIPAL AMOUNT.......... $ (approximate: subject to a permitted variance
of up to %).
DEPOSITOR................. CS First Boston Mortgage Securities Corp. (the
"Depositor").
MASTER SERVICER...........
DENOMINATIONS............. The minimum denomination of a Certificate (a
"Single Certificate") will initially represent
approximately $ aggregate principal amount of
Contracts (as hereinafter defined).
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
INTEREST.................. Passed through monthly at the rate of % per annum
(the "Pass-Through Rate"), on the day of each
month (each, a "Distribution Date") commencing
, 19 to those persons in whose name the
Certificates are registered as of [the last
Business Day of the month preceding the
Distribution Date] (the "Record Date"). [The Pass-
Through Rate for each Contract will equal the
annual percentage rate (the "APR") then borne by
such Contract less a fee for the servicing of the
Contract (the "Servicing Fee") [, less a fee for
the Limited Guarantee (the "Limited Guarantee
Fee")] [and less the excess interest (the "Excess
Interest")], as described herein under
"Description of the Certificates--Servicing
Compensation, [Limited Guarantee Fee] and Payment
of Expenses."
PRINCIPAL (INCLUDING
PREPAYMENTS).............. Passed through monthly on the Distribution Date,
commencing , 19 .
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
CONTRACT POOL............. [Conventional] [FHA-insured] [VA-guaranteed] [fixed
rate] [variable rate] manufactured housing
conditional sales contracts and installment loan
agreements (collectively, the "Contracts") secured
by manufactured homes (as described herein) (the
"Manufactured Homes") [located in the states of
, and ]. The Contracts have been
originated [or acquired] by . See
"Description of the Contract Pool" herein.
[LIMITED GUARANTEE........ Subject to the limitations described below, the
Limited Guarantee will cover the difference
between the amount available for distribution to
the Certificateholders [including Advances] on any
[monthly] Distribution Date and the amount due the
Certificateholders on such Distribution Date to
the extent such shortfall is attributable to
delinquent payments by borrowers on the Contracts
(each, an "Obligor") and losses on Defaulted
Contracts (as hereinafter
S-3
<PAGE>
defined). The first $ of the Guarantee Amount,
as defined below, will consist of the general
guarantee obligation of . The obligation of
will be backed by the Standby Letter of
Credit issued by and confirmed by , (as
described below). The balance of the Guarantee
Amount consists of the Direct Letter of Credit
issued by and confirmed by , described
below (the Standby Letter of Credit and the Direct
Letter of Credit sometimes collectively are
referred to herein as the "Letters of Credit").
The amount of the Limited Guarantee (the
"Guarantee Amount") on the first Distribution Date
will be $ . Thereafter, the Guarantee Amount
available on any Distribution Date, . See "The
Limited Guarantee."]
The Standby Letter of Credit (the "Standby Letter
of Credit") is an irrevocable obligation
supporting the obligation of under the
Limited Guarantee. If does not make a payment
required of it under the Limited Guarantee, the
Trustee immediately will draw such amount under
the Standby Letter of Credit. If for any reason
does not honor a draw under the Standby
Letter of Credit, is obligated to honor the
Standby Letter of Credit.
The Direct Letter of Credit (the "Direct Letter of
Credit") will be an irrevocable direct pay letter
of credit and will be issued by and confirmed
by .
[The initial Letters of Credit will expire no
earlier than .] The Master Servicer will be
required to replace or renew the Letters of Credit
prior to their expiration until the Trust Fund is
terminated. In the event the Master Servicer does
not renew or replace a Letter of Credit, prior to
its expiration, the Trustee will draw under such
Letter of Credit an amount equal to the required
coverage of that Letter of Credit on such date and
will transfer such funds to a separate trust fund
(the "Limited Guarantee Fund"). Thereafter the
Trustee will draw upon such funds on each
Distribution Date if and to the extent draws would
have been required under the corresponding Letter
of Credit. The Letters of Credit will not be
available to support any obligations of the
Depositor, the Master Servicer or the Unaffiliated
Seller. See "The Limited Guarantee."]
[LETTER OF CREDIT......... The maximum liability of [ ] under an
irrevocable standby letter of credit for the
Contract Pool (the "Letter of Credit"), net of
unreimbursed payments thereunder, will be no more
than [ %] of the initial aggregate principal
balance of the Contract Pool (the "Letter of
Credit Percentage"). The maximum amount available
to be paid under the Letter of Credit will be
determined in accordance with the Pooling and
Servicing Agreement referred to herein. The
duration of coverage and the amount and frequency
of any reduction in coverage will be in compliance
with the requirements established by the Rating
Agency, in order to obtain a rating in one of the
two highest rating categories of such Rating
Agency. The amount available under the Letter of
Credit shall be reduced by the amount of
unreimbursed payments thereunder. See "Credit
Support--Letters of Credit" in the Prospectus.]
S-4
<PAGE>
HAZARD INSURANCE.......... All of the Contracts will be covered by standard
hazard insurance policies with respect to each
Manufactured Home in an amount at least equal to
[the lesser of its maximum insurable value or the
remaining principal balance on the related
Contract]. The standard hazard insurance policies,
at a minimum, will provide for fire, lightning,
windstorm and extended coverage on terms and
conditions customary in manufactured housing
hazard insurance policies. See "Description of the
Certificates--Hazard Insurance Policies" herein.
[OPTIONAL TERMINATION..... The [Depositor] may, at its option, repurchase from
the Trust all Contracts remaining outstanding at
such time as the aggregate unpaid principal
balance of such Contracts is less than [10%] of
the aggregate principal balance of the Contracts
on the Cut-off Date. The repurchase price will
equal the aggregate unpaid principal balance of
such Contracts together with accrued interest
thereon at the Pass-Through Rate through the last
day of the month during which such repurchase
occurs, plus the appraised value of any property
acquired in respect thereof. [Any such repurchase
will be effected in compliance with the
requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986 (the "Code") so as
to constitute a "qualifying liquidation"
thereunder.] See "Description of the
Certificates--Termination; Repurchase of
Certificates" herein.
ADVANCES.................. The Servicers of the Contracts (and the Master
Servicer, with respect to each Contract that it
services directly and otherwise, to the extent the
related Servicer does not do so) will be obligated
to advance delinquent installments of principal
and interest on the Contracts under certain
circumstances. See "Description of the
Certificates--Advances" in the Prospectus.
SECURITY INTERESTS AND
OTHER ASPECTS OF THE In connection with the transfer of the Contracts
CONTRACTS................. from the Depositor to the Trustee, the Depositor
has assigned the security interests in the
Manufactured Homes securing the Contracts to the
Trustee. The [Master Servicer] shall take such
steps as are necessary to perfect and maintain
perfection of such security interest in each
Manufactured Home and, to the extent such interest
is perfected, the Trustee will have a prior claim
over subsequent purchasers of the Manufactured
Home and holders of subsequently perfected
security interests. Under most state laws
Manufactured Homes constitute personal property,
and perfection of a security interest in the
Manufactured Home is obtained, depending on
applicable state law, either by noting the
security interest on the certificate of title for
the Manufactured Home or by filing a financing
statement under the Uniform Commercial Code. [The
certificates of title or Uniform Commercial Code
financing statements will not be amended to
identify the Trustee as the new secured party
because of the administrative burden and expense.]
In the absence of such an endorsement, the Trustee
may not have a perfected security interest in
Manufactured Homes registered in certain states.
In addition, if the Manufactured Home were
relocated to another state without
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reperfection of the security interest, or if the
Manufactured Home were to become attached to its
site and a determination were made that the
security interest was subject to real estate title
and recording laws, or as a result of fraud or
negligence, the Trustee could lose its prior
preferred security interest in a Manufactured
Home. Federal and state consumer protection laws
impose requirements upon creditors in connection
with extensions of credit and collections on
installment sales contracts, and certain of these
laws make an assignee of such a contract, such as
the Trustee, liable to the obligor thereon for any
violation by the lender. The [Master Servicer] has
agreed to repurchase any Contract as to which it
has failed to perfect a security interest in the
Manufactured Home securing such Contract, or as to
which a breach of federal or state laws exists if
such breach materially adversely affects the
Trustee's interest in the Contract, unless such
failure or breach has been cured within [90] days
from notice of such breach. See "Special
Considerations" herein and "Certain Legal Aspects
of the Mortgage Loans and Contracts--The
Contracts" in the Prospectus.
TRUSTEE...................
[ ]
CERTIFICATE RATING........ It is a condition of issuance that the Certificates
be rated in one of the two highest rating
categories of a nationally recognized statistical
rating agency (the "Rating Agency").
ERISA CONSIDERATIONS...... See "ERISA Considerations" [in the Prospectus] and
herein.
LEGAL INVESTMENT.......... The Certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the "Enhancement
Act"), and, as such, are legal investments for
certain entities to the extent provided in the
Enhancement Act. See "Legal Investment" in the
Prospectus.
TAX ASPECTS...............
The Depositor [intends] [does not intend] to make
an election to treat the Trust Fund as a Real
Estate Mortgage Investment Conduit (a "REMIC"),
pursuant to the Internal Revenue Code of 1986. See
["Certain Federal Income Tax Consequences--
General"; ["--REMIC Trust Funds"] ["--Contract
Pools"] in the Prospectus, ["Certain Federal
Income Tax Consequences" herein.
[The extent to which the Contracts, and therefore
the Class [ ] Certificates, will be treated as
"qualifying real property loans" for mutual
savings banks or domestic building and loan
associations, "loans . . . secured by an interest
in real property" for domestic building and loan
associations, and "real estate assets" for real
estate investment trusts depends on certain facts
and circumstances not within the knowledge of the
Depositor. See "Certain Federal Income Tax
Consequences" herein.]
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RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
1. General. An investment in the Certificates may be affected by, among
other things, a downturn in regional or local economic conditions. These
regional or local economic conditions are often volatile, and historically
have affected the delinquency, loan loss and repossession experience of the
Contracts. To the extent that losses on the Contracts are not covered by
[the Limited Guarantee] [the Letter of Credit] [or] applicable insurance
policies, if any, Certificateholders will bear all risk of loss resulting
from default by Obligors and must rely on the value of the Manufactured
Homes for recovery of the outstanding principal and unpaid interest of the
defaulted Contracts. See "The Trust Fund--The Contracts" in the Prospectus.
2. Limited Obligations. The Certificates will not represent an interest
in or obligation of the Depositor. The Certificates will not be insured or
guaranteed by [any government agency or instrumentality,] The First Boston
Corporation or any of its affiliates, including the Depositor, any Servicer
or the Master Servicer.
3. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Certificates or, if it does develop, that it will
provide the holders of the Certificates with liquidity of investment or
that it will remain for the term of the Certificates.
[4. [Limited Guarantee] [Letter of Credit]. The Certificates will be
secured in part by the [Limited Guarantee] [Letter of Credit]. The
[Guarantee Amount] [Letter of Credit Percentage] will be an amount
initially equal to and will decline hereafter [by the amount of
unreimbursed payments thereunder]. The [Limited Guarantee] [Letter of
Credit] will cover delinquent payments by Obligors and losses on defaulted
Contracts. Delinquency on the Contracts may be affected by local, regional
and economic considerations. If delinquency levels are high and the
[Guarantee Amount] [Letter of Credit Percentage] is reduced to zero, the
Certificateholders will bear all losses on the Contracts. See ["The Limited
Guarantee"] ["Letter of Credit"].
5. Prepayment Considerations. The prepayment experience on the Contracts
may affect the average life of the Certificates. Prepayments on the
Contracts may be influenced by a variety of economic, geographic, social
and other factors, including repossessions, aging, seasonality and interest
rates of the Contracts. Other factors affecting prepayment of Contracts
include changes in housing needs, job transfers, unemployment and servicing
decisions. See "Maturity and Prepayment Considerations" in the Prospectus.
6. Security Interests and Other Aspects of the Contracts. Each Contract
is secured by a security interest in a Manufactured Home. Perfection of
security interests in the Manufactured Homes and enforcement of rights to
realize upon the value of the Manufactured Homes as collateral for the
Contracts are subject to a number of federal and state laws, including the
Uniform Commercial Code as adopted in each state (except Louisiana) and
each state's certificate of title statutes, but generally not its real
estate laws. The steps necessary to perfect the security interest in a
Manufactured Home will vary from state to state. In addition, numerous
federal and state consumer protection laws impose requirements on lending
under conditional sales contracts and installment loan agreements such as
the Contracts, and the failure by the lender or seller of goods to comply
with such requirements could give rise to liabilities of assignees for
amounts due under such agreements and claims by such assignees may be
subject to set-off as a result of such lender's or seller's noncompliance.
These laws would apply to the Trustee as assignee of the Contracts.
Pursuant to the Pooling and Servicing Agreement, the seller will warrant
that each Contract complies with all requirements of law and will make
certain warranties relating to the validity, subsistence, perfection and
priority of the security interest in each Manufactured Home securing a
Contract. If the [Limited Guarantee or] [Letter of Credit Percentage]
insurance policies are exhausted and recovery of amounts due on the
Contracts is dependent on repossession and resale of Manufactured Homes
securing Contracts that are in
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<PAGE>
default, certain other factors may limit the ability of the
Certificateholders to realize upon the Manufactured Homes or may limit the
amount realized to less than the amount due. See "Certain Legal Aspects of
the Mortgage Loans and Contracts--The Contracts" in the Prospectus.
[7. Louisiana Law. Any Contract secured by a Manufactured Home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the
UCC. Louisiana laws provide similar mechanisms for perfection and
enforcement of security interests in manufactured housing used as
collateral for an installment sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been affixed
permanently to real estate nevertheless will remain subject to the motor
vehicle registration laws unless the obligor and any holder of a security
interest in the property execute and file in the real estate records for
the parish in which the property is located a document converting the unit
into real property. A manufactured home that is converted into real
property, but then is removed from its site, can be converted back to
personal property governed by the motor vehicle registration laws if the
obligor executes and files various documents in the appropriate real estate
records and all mortgagees under real estate mortgages on the property and
the land to which it was affixed file releases with the motor vehicle
commissions.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary
consent of the obligor, executory process (repossession proceedings which
must be initiated through the courts but which involve minimal court
supervision) or a civil suit for possession. In connection with a voluntary
surrender, the obligor must be given a full release from liability for all
amounts due under the contract. In executory process repossessions, a
sheriff's sale (without court supervision) is permitted, unless the owner
brings suit to enjoin the sale, and the lender is prohibited from seeking a
deficiency judgment against the obligor unless the lender obtained an
appraisal of the manufactured home prior to the sale and the property was
sold for at least two-thirds of its appraised value.]
DESCRIPTION OF THE CONTRACT POOL
The contract pool (the "Contract Pool") will consist of [conventional] [FHA-
insured] [VA-guaranteed] fixed rate manufactured housing conditional sales
contracts and installment loan agreements (collectively, the "Contracts")
having an [approximate] aggregate principal balance as of the Cut-off Date of
$ , secured by manufactured homes (the "Manufactured Homes"). The
Manufactured Homes will consist of manufactured homes within the meaning of 42
United States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which
is built on a permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air-conditioning, and electrical systems
contained therein; except that such term shall include any structure which
meets all the requirements of this paragraph except the size requirements and
with respect to which the manufacturer voluntarily files a certification
required by the Secretary of Housing and Urban Development and complies with
the standards established under this chapter."
The weighted average annualized percentage rate (individually, an "APR") of
the Contracts as of the Cut-off Date will be at least % but no more than %.
All Contracts will have APRs of at least % but no more than %. The weighted
average maturity of the Contracts, as of the Cut-off Date, will be at least
years but no more than years. All Contracts will have original maturities
of at least years but no more than years. None of the Contracts will
have been originated prior to or after , 19 . None of the Contracts will
have a scheduled maturity later than .
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<PAGE>
The Contracts will have the following characteristics as of the Cut-off Date
(expressed as a percentage of the outstanding aggregate principal balances of
the Contracts having such characteristics relative to the outstanding
aggregate principal balances of all Contracts):
Approximately % of the Contracts are secured by Manufactured Homes which
were new at the time the related Contract was originated and approximately
% of the Contracts are secured by Manufactured Homes which were used at
the time the related Contract was originated.
At least % of the Contracts will be Contracts each having outstanding
principal balances of less than $ .
No more than % of the Contracts will be Contracts each having
outstanding principal balances of more than $ .
No more than % of the Contracts will have had loan-to-value ratios at
origination (based on the retail sales prices of the unit or % of the
manufacturer's invoice price, if less, plus taxes, license fees and
insurance premiums in the case of a new Manufactured Home, or based on the
lesser of the total delivered sales price or the appraised value of the
unit, including taxes, fees and insurance, in the case of a used
Manufactured Home) in excess of %, and the Contracts have a weighted
average loan to value ratio as of the Cut-off Date of %.
The Contracts will be secured by Manufactured Homes located in the states
of . No more than [5]% of the Contracts will be secured by
Manufactured Homes located in any one five digit zip code or project.
[At the date of issuance of the Certificates, no Contract in the Contract
Pool was more than 30 days delinquent.]
[Description of the underwriting policies for conventional Contracts to
be provided.]
Specific information with respect to the Contracts will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Contracts
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Contracts: years of origination, types
of dwellings on the underlying properties, the sizes of Contracts and
distribution of Contracts by APR, and will be set forth in a Current Report on
Form 8-K that will be filed with the Securities and Exchange Commission by the
Depositor within 15 days after the issuance of the Certificates.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, to be dated as of the Cut-off Date (the "Pooling and Servicing
Agreement") among the Depositor, , as master servicer (the "Master
Servicer"), and , as trustee (the "Trustee"), a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement forms a part. Reference is made to the accompanying Prospectus for
important additional information regarding the terms and conditions of the
Pooling and Servicing Agreement and the Certificates. Each of the Certificates
at the time of issuance will qualify as a "mortgage related security" within
the meaning of the Secondary Mortgage Market Enhancement Act of 1984.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder, provided, however, that the final distribution in
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<PAGE>
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office specified in the notice to
Certificateholders of such final distribution.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained by the Trustee at the office or agency of the Master
Servicer maintained for that purpose in New York, New York. Certificates
surrendered to the Trustee for registration of transfer or exchange must be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee. No service charge will be made for any registration of transfer or
exchange of Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required. Such office or agency is currently
located at , .
CONVEYANCE OF CONTRACTS
On the date of issuance of the Certificates, the Depositor will transfer,
assign, set over and otherwise convey to the Trustee all right, title and
interest of the Depositor in the Contracts, including all principal and
interest received on or with respect to the Contracts (other than receipts of
principal and interest due on the Contracts before the Cut-off Date), and all
rights under the hazard insurance policies on the related Manufactured Homes.
The Contracts will be described on a schedule attached to the Pooling and
Servicing Agreement (the "Contract Schedule"). The Contract Schedule will
include the amount of monthly payments due on each Contract as of the date of
issuance of the Certificates, the APR on each Contract and the maturity date
of each Contract. Prior to the conveyance of the Contracts to the Trustee, the
Depositor will cause to be reviewed all the Contract files, including the
certificates of title to, or other evidence of a perfected security interest
in, the Manufactured Homes, confirming the accuracy of the Contract Schedule
delivered to the Trustee.
[The Trustee, itself or through a custodian, will hold, on behalf of the
Certificateholders, the original Contracts and copies of documents and
instruments relating to each Contract and the security interest in the
Manufactured Home relating to each Contract.] In addition, in order to give
notice of the Trustee's right, title and interest in and to the Contracts,
[the Master Servicer, on behalf of] the Depositor, will deliver to the Trustee
a UCC-1 financing statement identifying the Trustee as the secured party and
identifying all the Contracts as collateral. The [Master Servicer] will file
such statement in the appropriate offices in the appropriate states. [The
Contracts will not be stamped or otherwise marked to reflect their assignment
from the Company to the Trustee. If a subsequent purchaser were able to take
physical possession of the Contracts without notice of such assignment, the
Trustee's interest in the Contracts could be defeated.] See "Certain Legal
Aspects of the Mortgage Loans and Contracts--The Contracts" in the Prospectus.
TRUSTEE
The Trustee for the Certificates will be .
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation in .
The Master Servicer is [an FHA approved seller-servicer] based in . As of
, the Master Servicer serviced, for other investors and for its own
account, approximately mortgage loans with an aggregate principal balance
in excess of $ . The Master Servicer conducts operations through FHA
approved branch offices in . The Master Servicer originated approximately
$ in mortgage loans in 19 . The Master Servicer's consolidated
stockholders' equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
[The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its
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<PAGE>
capacity as Master Servicer and guaranteeing the performance, among other
things, of the obligations of the Master Servicer to purchase certain
Contracts and to make advances, as described in the Prospectus under
"Description of the Certificates--Assignment of Contracts" and "--Advances,"
in an amount acceptable to the nationally recognized statistical rating
organization or organizations rating the Certificates (collectively, the
"Rating Agency").
SERVICING COMPENSATION [, LIMITED GUARANTEE FEE] AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Contract, equal to the
excess of each interest payment on a Contract over the Pass-Through Rate, less
[(a)] any servicing compensation payable to the Servicer of such Contract
under the terms of the agreement with the Master Servicer pursuant to which
such Contract is serviced (the "Servicing Agreement") (including such
compensation paid to the Master Servicer as the direct servicer of a Contract
for which there is no Servicer)[.] [, and (b) the amount payable to the
[Depositor,] [Master Servicer], as described below] [.] [, and (c) the Limited
Guarantee Fee.] [Pursuant to the Pooling and Servicing Agreement, on each
Distribution Date, the Master Servicer will remit to [the Depositor] in
respect of each interest payment on a Contract an amount equal to % of the
outstanding principal balance of such Contract before giving effect to any
payments due on the preceding Due Date.] [The Master Servicer will be
permitted to withdraw from the Certificate Account, in respect of each
interest payment on a Contract, an amount equal to % of the outstanding
principal balance of such Contract before giving effect to any payments due on
the preceding Due Date.] See "Description of the Certificates--Servicing and
Other Compensation and Payment of Expenses" in the Prospectus for information
regarding other possible compensation to the Master Servicer and the
Servicers. The Servicers and the Master Servicer will pay all expenses
incurred in connection with their responsibilities under the Servicing
Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus.
[Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation might be
characterized as an ownership interest in the interest payments on the
Contracts ("Retained Yield") for federal income tax purposes, by reason of the
extent to which either the weighted average APR, or the stated interest rates
on the Contracts exceeds the Pass-Through Rate, and the tax consequences to
them of such a characterization. In this regard, there are no authoritative
guidelines for federal income tax purposes as to either the maximum amount of
servicing compensation that may be considered reasonable in the context of
this or similar transactions or whether the reasonableness of servicing
compensation should be determined on a weighted average or contract by
contract basis. [The Depositor intends to treat % of such servicing
compensation and % of the amount payable to it described above as Retained
Yield for federal income tax purposes in reports to the Certificateholders and
to the Internal Revenue Service.] See "Certain Federal Income Tax
Consequences--[ ] in the Prospectus for information regarding the
characterization of servicing compensation [and the amounts payable to the
Depositor].
[TERMINATION; REPURCHASE OF CONTRACTS
The Pooling and Servicing Agreement provides that the [Depositor] [Master
Servicer] may purchase from the Trust all Contracts remaining in the Contract
Pool and thereby effect early retirement of the Certificates, provided that
the aggregate unpaid balances of the Contracts at the time of such repurchase
is less than [10%] of the aggregate principal balance of the Contracts on the
Cut-off Date. The purchase price for any such optional repurchases shall be
equal to the outstanding principal balance of such Contracts, together with
accrued interest at the Pass-Through Rate to the first day of the month
following such repurchase plus the appraised value of any acquired property
with respect to the Contracts. [Any such repurchase will be effected in
compliance with the requirements of Section 860F(a)(iv) of the Code in order
to constitute a "qualifying liquidation" thereunder.] In no event will the
Trust continue beyond the expiration of 21 years from the death of the last
survivor of the persons named in the Pooling and Servicing Agreement.]
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<PAGE>
INSURANCE
[FHA Insurance and VA Guarantee
% and % of the Contracts, respectively (by aggregate principal balance
as of Cut-Off Date) are subject to FHA insurance and VA guarantees. See
"Description of Insurance" in the Prospectus.]
[Primary Credit Insurance Policies
To be provided.]
[Pool Insurance Policies
To be provided.]
Hazard Insurance Policies
The Master Servicer will cause to be maintained one or more standard hazard
insurance policies with respect to each Manufactured Home in an amount at
least equal to the lesser of its maximum insurable value or the principal
amount due from the Obligor under the related Contract. Such standard hazard
insurance policies, will, at a minimum, provide fire and extended coverage on
terms and conditions customary in manufactured housing hazard insurance
policies. If a Manufactured Home, at the origination of the related Contract,
was located within a federally designated flood area, the Master Servicer also
will cause flood insurance to be maintained in an amount equal to the lesser
of the amounts described above or the maximum amount available for such
Manufactured Home under the federal flood insurance program.
All amounts collected by the Master Servicer under a standard hazard
insurance policy will be applied either to the restoration or repair of the
Manufactured Home or against the unpaid principal balance of the related
Contract upon foreclosure and repossession of the Manufactured Home, after
reimbursing the Master Servicer for amounts previously advanced by it for such
purposes. The Master Servicer may satisfy its obligation to cause the
maintenance of standard hazard and flood insurance policies by maintaining a
blanket policy insuring against hazard and flood losses on all the
Manufactured Homes. Such blanket policy may contain a deductible clause, in
which case the Master Servicer will be required to deposit in the Certificate
Account any amount deducted in connection with insurance claims on repossessed
Manufactured Homes.
[THE LIMITED GUARANTEE
General
If amounts available in the Certificate Account [(following any Advances by
the Master Servicer)] for distribution to the Certificateholders is less than
the amount due to them as a result of defaulted Contracts and delinquent
payments of principal of and interest on the Contracts, the Limited Guarantee
will be available, to the extent of the Guarantee Amount, to fund such
shortfall. The Guarantee Amount on the first Distribution Date will equal
$ . Thereafter, the Guarantee Amount on any Distribution Date will equal
[$ less amounts previously paid with respect to the Limited Guarantee].
$ of the initial Guarantee Amount will be covered by the general payment
obligation of , which obligation will be supported by the Standby Letter
of Credit (described below). The balance of the initial Guarantee Amount will
be covered by the Direct Letter of Credit.
Amounts required to be paid under the Limited Guarantee will be paid first
by under its general payment obligation (or pursuant to the Standby
Letter of Credit) and after such obligation is exhausted, from the Direct
Letter of Credit. If the Guarantee Amount is reduced to zero, the
Certificateholders will bear all losses on the Contracts. As a result,
Certificateholders may be subject to delays in payments of monthly principal
and interest as a result of delinquent payments by Obligors. In the event of a
repossession and resale by the Master
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<PAGE>
Servicer (as Servicer on behalf of the Trustee) of a Manufactured Home
securing a Contract in default, the Trust Fund may not recover the entire
amount of principal and interest due on such Contract. See "The Trust Fund--
The Contracts" and "Certain Legal Aspects of the Mortgage Loans and Contracts"
in the Prospectus.]
Standby Letter of Credit
The Standby Letter of Credit will be an irrevocable standby letter of credit
supporting the payment and repurchase obligations of . The Standby Letter
of Credit will be obtained initially from , and will terminate on .
will confirm the Standby Letter of Credit issued by , meaning that if
for any reason does not honor a draw upon a Standby Letter of Credit,
will be obligated to honor such draw. The amount of the Standby Letter of
Credit on the Closing Date shall be $ . On each subsequent Distribution
Date, the requisite amount of the renewed Standby Letter of Credit or
replacement Standby Letter of Credit shall be the amount of 's obligation
under the Limited Guarantee on the immediately preceding Distribution Date.
Direct Letter of Credit
The Direct Letter of Credit will be an irrevocable direct pay letter of
credit obtained initially from and will be confirmed by . The Direct
Letter of Credit will terminate on . The initial requisite amount of the
Direct Letter of Credit shall be $ and subsequently, the requisite amount
shall be .
Maintenance of Letters of Credit
The Letters of Credit will provide that, if the institution issuing such
Letter of Credit (the "L/C Bank") does not intend to renew such Letter of
Credit, it must give notice thereof to the Master Servicer and the Trustee at
least 45 days prior to the expiration of such Letter of Credit. The Master
Servicer must then obtain a replacement Letter of Credit. If, immediately
prior to the expiration of the Letter of Credit, the Master Servicer has not
obtained a replacement Letter of Credit issued or confirmed by a L/C Bank
which is a qualified bank (an institution whose unsecured long-term debt (or,
in the case of the principal bank in a bank holding company system, the
unsecured long-term debt of such bank or the bank holding company) has a
rating satisfactory to the Rating Agency for the maintenance of the " "
rating of the Certificates, the Trustee shall draw under such expiring Letter
of Credit an amount equal to the 's obligation under the Limited
Guarantee, in the case of the Standby Letter of Credit, or the difference
between the Guarantee Amount and the 's obligation under the Limited
Guarantee, in the case of the Direct Letter of Credit. The amounts so drawn
will be deposited in a separate trust fund (the "Limited Guarantee Fund") and
will be available on each Distribution Date if and to the extent that draws
would have been required under the Standby Letter of Credit or the Direct
Letter of Credit, as the case may be. The funds in the Limited Guarantee Fund
remain the property of the issuer of such Letter of Credit, subject to the
right of the Master Servicer to make withdrawals. Upon termination of the
Pooling and Servicing Agreement, any funds remaining in the Limited Guarantee
Fund will be paid to the issuer of such Letter of Credit. In addition, any
recoveries of delinquent payments previously advanced pursuant to the draws
under a Letter of Credit, and any recoveries in defaulted Contracts whose
repurchase price was deposited in the Certificate Account pursuant to a draw
on a Letter of Credit, will be repaid to the L/C Bank if the Letter of Credit
will be reinstated by such amount, or else will be deposited in the Limited
Guarantee Fund. In the event of insolvency of the L/C Bank, the amount
available to the Trust Fund under the Letter of Credit or from the Limited
Guarantee Fund, as the case may be, may be reduced.
In the event that the L/C Bank that issued or confirmed the Letter of Credit
ceases to be a qualified bank, the Master Servicer will use its best efforts
to obtain a substitute Letter of Credit issued or confirmed by a qualified
bank. If a substitute Letter of Credit issued or confirmed by a qualified bank
has not been obtained in 30 days, the Trustee will draw down the requisite
amount under such Letter of Credit and deposit such funds in the Limited
Guarantee Fund.]
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<PAGE>
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
[ %] of the aggregate principal balance of the Contracts on the Cut-off Date.
The duration of coverage and the amount and frequency of any reduction in
coverage will be in compliance with the requirements established by the Rating
Agency rating the Certificates, in order to obtain a rating in one of the two
highest rating categories of the Rating Agency. The precise amount of coverage
under the Letter of Credit and the duration and frequency of reduction of such
coverage will be set forth in the Current Report on Form 8-K referred to
above. See "Description of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
It is a condition to the issuance of the Certificates that they be rated in
one of the two highest categories of the Rating Agency prior to issuance.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
[ERISA CONSIDERATIONS
The acquisition of a Certificate by an employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (a
"Plan") could result in prohibited transactions or other violations of the
fiduciary responsibility provisions of ERISA and section 4975 of the Internal
Revenue Code of 1986 (the "Code") if by virtue of such acquisition, assets
held by the Trust were deemed to be assets of the Plan. [The United States
Department of Labor ("DOL") published final regulations concerning whether or
not the assets of a Plan will be deemed to include any of the underlying
assets of an entity, for purposes of the fiduciary responsibility provisions
of ERISA, when a Plan acquires an equity interest in such entity. The final
regulations state that the assets of a Plan which acquires an equity interest
will not include any of the underlying assets of the entity if the class of
equity interests in question are (1) held by 100 or more investors independent
of the issuer and of each other, (2) freely transferable, and (3) sold as part
of an offering pursuant to an effective registration statement under the
Securities Act of 1933, and then timely registered under section 12(b) or
12(g) of the Securities Exchange Act of 1934. It is expected that the
Certificates will meet the criteria of the regulations: The Underwriter[s]
expect[s] (although no assurances can be given) that the Certificates will be
held by at least 100 independent investors at the conclusion of the offering
made by this Prospectus; there are no restrictions imposed on the transfer of
the Certificates; and the seller intends to cause the registration
requirements to be satisfied.] In addition, even if the Plan's assets are
deemed to include the Contracts, certain exemptions from the prohibited
transaction rules could be applicable, depending in part upon the type and
circumstances of the Plan fiduciary making the decision to acquire a
Certificate. Included among these exemptions are DOL Prohibited Transaction
Exemptions 84-14 (Class Exemption for Plan Asset Transaction Determined by
Independent Qualified Professional Asset Managers), 80-51 (Class Exemption for
Certain Transactions Involving Bank Collective Investment Funds) and 78-19
(Class Exemption for Certain Transactions Involving Insurance Company Pooled
Separate Accounts).
Employee benefit plans which are governmental plans (as defined in section
3(32) of ERISA), and certain church plans (as defined in section 3(33) of
ERISA), are not subject to ERISA requirements.
Any Plan fiduciary considering the purchase of Certificates should consult
its tax and/or legal advisors regarding these and other issues and their
potential consequences.]
S-14
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase from the Depositor [all] [the
following respective principal amounts] of the Certificates:
[UNDERWRITER
- -------------------
CS First Boston ................................. $
--------
Total ............................................ $ ]
========
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Certificates to the public initially
at the public offering prices set forth on the cover page of this Prospectus
Supplement, and [through the Representative,] to certain dealers at such
prices less the following concessions and that the Underwriter[s] and such
dealers may allow the following discounts on sales to certain other dealers:
CONCESSION (PERCENT OF DISCOUNT (PERCENT OF
PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
------------------------ ------------------------
% %
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus 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 sale.]
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by [Sidley & Austin] [Cadwalader, Wickersham & Taft], New
York, New York. The material federal income tax consequences of the Certificates
will be passed upon for the Depositor by [Sidley & Austin] [Cadwalader,
Wickersham & Taft].
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Contracts underlying
the Certificates. Certain of the Contracts will be acquired in privately
negotiated transactions by the Depositor from one or more affiliates of the
Depositor, which will have acquired such Contracts from time to time in
privately negotiated transactions.
S-15
VERSION E
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
CS First Boston Mortgage Securities Corp.
Depositor
Conduit Mortgage Pass-Through Certificates, Series , [Class A]
Adjustable Pass-Through Rate
[ Master Servicer ]
-----------
The Conduit Mortgage Pass-Through Certificates, Series will be comprised
of Class A Certificates and [one] [two] subclass[es] [(not offered hereby)] of
Class B Certificates (collectively, the "Certificates"). The Certificates, will
represent interests in the Master Trust Fund which will hold an interest in a
pool (the "Mortgage Pool") of adjustable rate, [conventional] mortgage loans
secured by [first mortgages or deeds of trust] [liens] on [one-to-four-unit
residential properties] [cooperative loans evidenced by promissory notes
secured by a lien on shares in cooperative housing corporations and on the
related proprietary leases] (the "Mortgage Loans") [originated] [acquired] by
("Master Servicer"), and certain other property held in trust for the benefit
of the Certificateholders. [ ] will act as Master Servicer.
The Class A Certificates will evidence an initial interest of approximately
% in the Mortgage Loans. The remaining interest in the Mortgage Loans will be
evidenced by the Class B Certificates, which are subordinate to the
Certificates to the extent described herein and in the Prospectus. See
"Description of the Certificates--Distributions" and "--Subordination of the
Class B Certificates; Shifting Interest Credit Enhancement" herein and "Credit
Support--Subordinated Certificates" in the Prospectus.
Principal and interest on the Certificates are distributable on the [25th]
day of each month commencing (each, a "Distribution Date"). After an
initial period, the Mortgage Rate on each Mortgage Loan will adjust [semi-
annually] to a rate equal to the Index (as defined below) plus the fixed
percentage applicable to such Mortgage Loan (the "Gross Margin"), subject to
the interest rate limitations applicable to the Mortgage Loans and the other
provisions set forth herein. The Class A Certificateholders will be entitled to
receive interest on the Class A Principal Balance (as defined herein) at the
Pass-Through Rate. The Pass-Through Rate will equal the weighted average of the
Subsidiary Pass-Through Rates. The initial Pass-Through Rate is approximately
%. The Subsidiary Pass-Through Rate with respect to each Mortgage Loan prior
to its first Adjustment Date (as defined herein) will equal the Mortgage Rate
less . On and after its first Adjustment Date, the Subsidiary Pass-Through
Rate with respect to each Mortgage Loan will equal the [description of index,
e.g. monthly weighted average cost of funds for member institutions of the 11th
District of the Federal Home Loan Bank System, as published by the Federal Home
Loan Bank of San Francisco] (the "Index") plus basis points (the "Pass-
Through Margin") but not more than the lesser of the Periodic Mortgage Rate Cap
(as defined herein) less the Servicing Fee Rate, or the Maximum Subsidiary
Pass-Through Rate (as defined herein).
There is currently no secondary market for the Class A Certificates. There
can be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
An election will be made to treat the assets of the Subsidiary Trust Fund (as
defined herein) as a real estate mortgage investment conduit ("REMIC") for
purposes of federal income taxation (the "Subsidiary REMIC"). An election will
also be made to treat the assets represented by the "regular interests" in the
Subsidiary REMIC constituting a separate trust fund (the "Master Trust Fund")
as a separate REMIC (the "Master REMIC"). See "Certain Federal Income Tax
Consequences" herein.
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN CS FIRST
BOSTON MORTGAGE SECURITIES CORP., [MASTER SERVICER] OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the factors set forth under Risk Factors
on Page S-9 of this Prospectus Supplement.
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
[The Certificates will initially be delivered by the Depositor to in
exchange for the Mortgage Loans to be deposited by the Depositor into the
Subsidiary Trust Fund. The Class A Certificates may be sold or pledged by ,
directly or through one or more underwriters, from time to time at varying
prices to be determined at the time of such sale or pledge.] [The
Underwriter[s] propose[s] to offer the Class A Certificates from time to time
for sale in negotiated transactions or otherwise, at prices determined at the
time of sale.] See "Plan of Distribution" herein. Expenses attributable to
issuance of the Class A Certificates, estimated to be approximatley $ will
be paid by [the Master Servicer] [the Depositor]. [The Depositor] will be paid
a fee by of $ in connection with the transaction.
[The Class A Certificates are offered by the [several] Underwriter[s] when,
as and if issued and accepted by the Underwriter[s] and subject to [its]
[their] right to reject orders in whole or in part. It is expected that the
Class A Certificates, in definitive fully registered form, will be ready for
delivery on or about , 199 .]
The Certificates, when, as and if issued by the Depositor, are expected to be
available for delivery in New York, New York on or about , 199 .
CS First Boston
- --------------------------------------------------------------------------------
The Date of this Prospectus Supplement is , 19 .
<PAGE>
The Class A Certificates offered hereby constitute a separate series of
Conduit Mortgage and Manufactured Housing Contract Pass-Through Certificates
being offered by CS First Boston Mortgage Securities Corp. from time to time
pursuant to its Prospectus dated . This Prospectus Supplement does not
contain complete information about the offering of the Class A Certificates.
Additional information is contained in the Prospectus, and purchasers are
urged to read both this Prospectus Supplement and the Prospectus in full. Sale
of the Class A Certificates may not be consummated unless the purchaser has
received both this Prospectus Supplement and the Prospectus.
[Until , no offerings of the Class A Certificates may be made by except
pursuant to this Prospectus Supplement and the Prospectus, as supplemented as
of the date of such offering. After such date, no offerings of the Class A
Certificates will be made pursuant to this Prospectus Supplement and
Prospectus.
[Until , all dealers effecting transactions in the Class A Certificates,
whether or not participating in this distribution, may be required to deliver
a Prospectus Supplement and a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriter and with respect to their unsold allotments or
subscriptions.]
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS 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 SALE.]
----------------
AVAILABLE INFORMATION
The Master Trust Fund will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, the Depositor, on behalf of the Master Fund, will file
periodic reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports will not contain audited financial
information with respect to the Master Trust Fund. Such reports and other
information filed by the Depositor on behalf of the Master Trust Fund can be
inspected and copied at the Public Reference Room of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 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).
S-2
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
and not defined shall have the meanings ascribed thereto in the Prospectus.
SECURITIES OFFERED........ $ Conduit Mortgage Pass-Through Certificates,
Series , [Class A,] Adjustable Pass-Through Rate
(the "Class A Certificates").
DEPOSITOR................. CS First Boston Mortgage Securities Corp.
MASTER SERVICER...........
CUT-OFF DATE..............
DELIVERY DATE............. On or about .
DESCRIPTION OF THE Two Classes of Certificates evidencing fractional
CERTIFICATES.............. interests in a Trust Fund (the "Master Trust
Fund") consisting of the Subsidiary Regular
Interests (as defined herein) which in the
aggregate generally represent an interest in (i)
all amounts distributable with respect to the
Mortgage Loans, (ii) amounts held in the
Certificate Account, (iii) any property which
secured a Mortgage Loan and is acquired by
foreclosure or deed in lieu of foreclosure, and
(iv) certain other related property, as more fully
described herein and in the Prospectus. The Class
A Certificates initially evidence in the aggregate
an interest in the Mortgage Loans (the "Class A
Percentage") of approximately %. The remaining
interest in the Mortgage Loans will be represented
by the Class B Certificates, [which will consist
of two subclasses, Class B-l (the "Class B-l
Certificates") and Class B-2 (the "Class B-2
Certificates") together,] the "Class B
Certificates"). [The Class B-l Certificates will
initially evidence an approximate % interest in
the Mortgage Loans ("the Class B-1 Percentage")
and the Class B-2 Certificates will initially
evidence an approximate % interest in the
Mortgage Loans (the "Class B-2 Percentage")
(together,] [the "Subordinate Percentage"). The
Class B Certificates will be subordinated in
certain respects to the Class A Certificates, as
more fully described herein. The Class A
Percentage, [and] the Class B[-1 Percentage and
the Class B-2 Percentage] will vary, as described
herein.
The Class A Certificates and the Class B
Certificates are collectively referred to herein
as the "Certificates." The Class A Certificates
represent the Senior Certificates and the Class B
Certificates represent the Subordinate
Certificates, both as described in the
accompanying Prospectus. Only the Class A
Certificates are being offered hereby.
THE INDEX................. [Description e.g., the monthly weighted average
cost of funds for member institutions of the 11th
District of the Federal Home Loan Bank System as
published by the Federal Home Loan Bank of San
Francisco. The Index published in
(reflecting the
S-3
<PAGE>
related weighted average cost of funds for
) was %.]
THE MORTGAGE LOANS........ The Mortgage Pool will consist of adjustable rate,
[conventional] mortgage loans [originated]
[acquired] by [the Master Servicer] and secured by
first mortgages or deeds of trust on one- to four-
family residential properties. All Mortgage Loans
will have maturities of at least 15 but no more
than 30 years and are secured by properties
located in . [All Mortgage Loans with a Loan-
to-Value Ratio greater than 80% will have private
mortgage insurance.] See "Description of the
Mortgage Pool and Underlying Mortgage Properties"
herein.
PRINCIPAL (INCLUDING Passed through monthly on the Distribution Date
PREPAYMENTS).............. commencing . On each Distribution Date the
Class A Certificateholders are entitled to receive
as payments of principal, in addition to the Class
A Percentage of all scheduled payments on account
of principal, the Class A Prepayment Percentage of
both principal prepayments in part and principal
prepayments in full received by the Master
Servicer with respect to such Mortgage Loans
during the preceding calendar month ("Principal
Prepayments"). See "Description of the
Certificates--Subordination of the Class B
Certificates; Shifting Interest Credit
Enhancement" herein.
INTEREST.................. Interest accrued on each Mortgage Loan will be
passed through to Certificateholders on the
Distribution Date occurring in the month in which
the Due Date (as defined herein) occurs,
commencing , at the Pass-Through Rate. The
Pass-Through Rate will equal the weighted average
of the Subsidiary Pass-Through Rates. The initial
Pass-Through Rate is equal to approximately % per
annum. Prior to the first Adjustment Date after
the Cut-off Date for a Mortgage Loan, the
Subsidiary Pass-Through Rate with respect to such
Mortgage Loan will equal the Mortgage Rate less
. On and after the first Adjustment Date for a
Mortgage Loan, the Subsidiary Pass-Through Rate
with respect to each Mortgage Loan will equal the
Index applicable to such Mortgage Loan plus
basis points (the "Pass-Through Margin"), subject
to the limitation that the Subsidiary Pass-Through
Rate shall not exceed the lesser of the Periodic
Mortgage Rate Cap less the Servicing Fee Rate or
the Maximum Subsidiary Pass-Through Rate. The
Maximum Subsidiary Pass-Through Rates will range
from % to % per annum. The Maximum Subsidiary
Pass-Through Rate with respect to a particular
Mortgage Loan is equal to the Maximum Mortgage
Rate for such Mortgage Loan minus the Servicing
Fee Rate. The weighted average Maximum Subsidiary
Pass-Through Rate as of the Cut-off Date will be
approximately % per annum. Following an initial
period of months, during which the rate of
interest on each Mortgage Loan (the "Mortgage
Rate") is fixed, the Mortgage Rate on each
Mortgage Loan will be adjusted [monthly] [semi-
annually] [annually] on the adjustment dates (each
such date, an "Adjustment Date") specified in the
related mortgage note (each such note, a
S-4
<PAGE>
"Mortgage Note") to equal the sum of the Index and
a fixed percentage amount (a "Gross Margin") [,
subject to a semi-annual periodic mortgage rate
cap (the "Periodic Mortgage Rate Cap") and a
maximum rate at which interest may accrue (the
"Maximum Mortgage Rate"), as described more fully
herein]. Each Mortgage Loan will have been
originated with an initial Mortgage Rate below the
sum of the applicable Index and Gross Margin for
such Mortgage Loan (the "Initial Mortgage Rate")
and % of the Mortgage Loans as of the Cut-off
Date are expected to be accruing interest at their
Initial Mortgage Rates.] As of the Cut-off Date,
the Mortgage Loans will bear interest at Mortgage
Rates which range from % to % per annum. The
Gross Margins for the Mortgage Loans range as of
the Cut-off Date from to basis points. The
weighted average Gross Margin for the Mortgage
Loans as of the Cut-off Date will be approximately
basis points. [The Periodic Mortgage Rate Cap
for each Mortgage Loan is the Mortgage Rate in
effect immediately prior to any Adjustment Date
plus or minus basis points. The Maximum
Mortgage Rate will range from % to % per annum.]
The weighted average Maximum Mortgage Rate as of
the Cut-off Date will be % per annum. See
"Description of the Mortgage Pool and the
Underlying Mortgaged Properties" herein.
When a Mortgage Loan is prepaid, in whole or in
part, between scheduled payment dates, the
Mortgagor pays interest on the amount prepaid only
to the date of prepayment and not thereafter. This
generally reduces the aggregate amount of interest
which would otherwise be distributed to the Class
A and Class B Certificateholders. To mitigate any
such reduction in yield, [amounts otherwise
payable as the Servicing Fee (as defined herein)
for the period during which any such Principal
Prepayment was made will be reduced by] [to the
extent funds that interest on the Mortgage Loans
exceeds the Subsidiary Pass-Through Rate less the
Servicing Fee Rate for the period during which any
such prepayment is made, the Pooling and Servicing
Agreement provides that] such amount, if any, as
may be necessary to assure that the distributions
made to the Class A and Class B Certificateholders
on the related Distribution Date include an amount
equal to a full month's interest with respect to
each prepaid Mortgage Loan at the applicable
Subsidiary Pass-Through Rate will be paid to the
Master Trust Fund. See "Description of the
Certificates--Distributions" herein.
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
SUBORDINATION OF THE
CLASS B CERTIFICATES;
SHIFTING INTEREST CREDIT
ENHANCEMENT..............
The rights of the Class B Certificateholders to
receive distributions with respect to the Mortgage
Loans are subordinated to such rights of the Class
A Certificateholders to the extent of the
Subordinated Amount described below. This
subordination feature is intended to enhance the
likelihood of regular receipt by the holders of
the Class A Certificates of the full amount of the
scheduled monthly payments of principal and
interest due them with respect to the Mortgage
Loans and to protect the Class A
Certificateholders against losses.
S-5
<PAGE>
As of each Determination Date, the Subordinated
Amount will equal the Class B Principal Balance
(as defined herein) on such date reduced by the
excess of Aggregate Losses (as defined herein)
over cumulative Realized Losses (as defined
herein) borne by the Class B Certificateholders as
of such date, if any. This subordination feature
is intended to enhance the likelihood of regular
receipt by the holders of the Class A Certificates
of the full amount of the scheduled monthly
payments of principal and interest due them with
respect to the Mortgage Loans and to protect the
Class A Certificateholders against losses.
However, in certain circumstances, the
Subordinated Amount could be depleted and payment
deficiencies could result. If, on any Distribution
Date when the Subordinated Amount is greater than
zero, the aggregate amount of payments received
from the Mortgagors on the Mortgage Loans and any
Advances (as defined herein) do not provide
sufficient funds to make full distributions to the
Class A Certificateholders, the amount of the
payment deficiency, plus interest thereon at the
applicable Subsidiary Pass-Through Rate, to the
extent of the Subordinated Amount, will be added
to the amount such Class A Certificateholders are
entitled to receive on the next Distribution Date.
The extent to which the Class A Certificateholders
and the Class B Certificateholders bear Realized
Losses, and, in addition, Special Hazard Realized
Losses, is described herein. See "Description of
the Certificates--Subordination of the Class B
Certificates; Shifting Interest Credit
Enhancement" herein.
The protection afforded to the holders of the Class
A Certificates will be effected (i) by the
preferential right of such holders to receive the
amounts of principal and interest otherwise
distributable to the Class B Certificateholders on
each Distribution Date with respect to the
Mortgage Loans out of available funds on deposit
on such date in the Certificate Account, and (ii)
by distributing to the Class A Certificateholders
a disproportionately greater percentage (the
"Class A Prepayment Percentage") of Principal
Prepayments (as hereinafter defined) and other
payments with respect to the Mortgage Loans. The
Class A Prepayment Percentage will decline from
100% after provided certain criteria
respecting the Mortgage Pool are met. See
"Description of the Certificates--Subordination of
the Class B Certificates; Shifting Interest Credit
Enhancement" herein.
SERVICING FEE............. will act as Master Servicer of the Mortgage
Loans [and will enter into a Servicing Agreement
on the Delivery Date pursuant to which will
subservice the Mortgage Loans]. will receive
a servicing fee (the "Servicing Fee") as
compensation for its services which is calculated
monthly and equals a fixed percentage on the
principal balance of each Mortgage Loan (the
"Servicing Fee Rate"). The Servicing Fee Rate
equals basis points. See "Description of the
Mortgage Pool and Underlying Mortgaged
Properties--Servicing and Sub-Servicing" and
S-6
<PAGE>
"Description of the Certificates--Servicing
Compensation and Payment of Expenses" herein.
ADVANCES.................. The Master Servicer will be obligated to advance
cash (the "Advances") to the Subsidiary Trust Fund
for distribution in an amount equal to delinquent
installments of principal and interest to the
extent that the Master Servicer determines such
Advances will be recoverable from future payments
and collections on the Mortgage Loans or
otherwise. See "Description of the Certificates--
Advances" in the Prospectus.
DENOMINATIONS............. The minimum denomination of a Class A Certificate
(a "Single Certificate") will initially represent
$ of the Cut-off Date Principal Balance,
provided that one Certificate may be issued in
such lesser amount as is required so that the
Class A Certificateholders in the aggregate equal
the Class A Principal Balance (as defined herein).
OPTIONAL TERMINATION...... The holder of the Subsidiary Residual Interest has
the option to purchase all of the Mortgage Loans
in the Subsidiary Trust Fund, and thereby effect
termination of the Subsidiary Trust Fund and the
Master Trust Fund, on any Distribution Date on
which the aggregate principal balance of the
Mortgage Loans remaining in the Subsidiary Trust
Fund is less than % of the Cut-off Date Principal
Balance. Additionally, the holder of the Class B[-
2] Certificate has the option to purchase all the
Subsidiary Regular Interests (as defined herein)
in the Master Trust Fund. Either of the above
purchases would effect early retirement of the
Class A and Class B Certificates. See "Description
of the Certificates--Optional Termination" herein
and "Description of the Certificates--Termination"
in the Prospectus.
TAX ASPECTS............... An election will be made to treat the assets of the
Subsidiary Trust Fund as a REMIC (the "Subsidiary
REMIC") for federal income tax purposes. As
further specified in the Pooling and Servicing
Agreement, Mortgage Loan interest (net of the
Servicing Fee) in excess of the Subsidiary Pass-
Through Rate and certain payments received by the
Trustee in excess of the principal balance of the
Mortgage Loans will comprise the residual interest
in the Subsidiary REMIC (the "Subsidiary Residual
Interest"). The regular interests in the
Subsidiary REMIC in the aggregate will encompass
the rights to all other amounts distributable with
respect to the Mortgage Loans and certain related
property (the "Subsidiary Regular Interests"). An
election will be made to treat the assets of the
Master Trust Fund (which consists of the
Subsidiary Regular Interests) as a REMIC (the
"Master REMIC"). The Class A Certificates [and
Class B-l Certificates] will be regular interests
in the Master REMIC. The Class B[-2] Certificate
will be the residual interest in the Master REMIC.
[The Class A Certificates will be issued with
original issue discount for federal income tax
purposes. The prepayment assumption that will be
used by the Master Servicer in determining the
rate of accrual of
S-7
<PAGE>
original issue discount for federal income tax
purposes is a Standard Prepayment Assumption of
%. No representation is made that the Mortgage
Loans will prepay at that rate or at any other
rate.]
The Class A Certificates will be treated as
"qualifying real property loans" under Section
593(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), "loans secured by interests
in real property" under Section 7701(a)(19)(C) of
the Code and "real estate assets" under Section
856(c) of the Code, generally in the same
proportion that the assets in the Subsidiary REMIC
would be so treated. In addition, interest on the
Class A Certificates will be treated as "interest
on obligations secured by mortgages on real
property" under Section 856(c) of the Code,
generally to the extent that such Class A
Certificates are treated as "real estate assets"
under Section 856(c) of the Code.
For further information regarding the federal
income tax consequences of investing in the Class
A Certificates, see "Certain Federal Income Tax
Consequences" herein and in the Prospectus.*
LEGAL INVESTMENT.......... The Class A Certificates constitute "mortgage-
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act") for so long as they are rated
as described herein, and, as such, are legal
investments for certain entities to the extent
provided in the Enhancement Act. See "Legal
Investment" herein and in the Prospectus.
ERISA CONSIDERATIONS...... See "ERISA Considerations" herein and in the
Prospectus.
TRUSTEE...................
CERTIFICATE RATING........ It is a condition of issuance that the Class A
Certificates be rated at least " " by . See
"Rating" herein.
- --------
* If the Prospectus Supplement for a Series of Certificates provides that
[Sidley & Austin] [Cadwalader, Wickersham & Taft] will pass upon the material
federal income tax consequences of the Certificates for the Depositor, then
such Prospectus Supplement will contain tax disclosure substantially similar
to the disclosure set forth in Version E under "Summary of Terms--Tax Aspects"
and "Certain Federal Income Tax Consequences."
S-8
<PAGE>
[RISK FACTORS]
[Description of Risk Factors to be added as appropriate]
DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES(1)
GENERAL
The Mortgage Pool consists of all of the ownership interest held by the
Subsidiary Trust Fund in Mortgage Loans evidenced by adjustable rate
promissory notes (the "Mortgage Notes") having an aggregate principal balance
at the Cut-off Date of $ . The Mortgage Notes are secured by first trust
deeds or mortgages on properties consisting primarily of detached single
family residential properties with the remaining properties consisting of
units of FNMA or FHLMC eligible condominiums and units in planned unit
developments (the "Mortgaged Properties"). All of the Mortgage Loans were
originated by . All of the Mortgage Loans were originated under one of
two origination programs, one of which is a limited documentation program that
relies primarily upon appraisals and credit reports and the other of which
generally conform to FNMA and FHLMC underwriting guidelines. The Mortgage
Loans have the additional characteristics described below and in the
Prospectus. See "The Mortgage Pools" in the Prospectus.
The Depositor will purchase the Mortgage Loans from and will cause such
Mortgage Loans to be assigned to the Trustee. See "The Trust Fund--Mortgage
Loan Program" in the Prospectus. will act as the master servicer (the
"Master Servicer") for the Mortgage Loans pursuant to the Standard Terms and
Provisions of Pooling and Servicing and Reference Agreement, dated as of
(the "Pooling and Servicing Agreement"), among the Depositor, the Master
Servicer and , as trustee (the "Trustee"). The Mortgage Loans will be
serviced by the Servicer pursuant to a Servicing Agreement with the Master
Servicer, and the Servicer will receive a fee for such services specified in
such Servicing Agreement; provided, however, that the Master Servicer will
remain liable for its servicing obligations under the Pooling and Servicing
Agreement as if the Master Servicer alone were servicing such Mortgage Loans.
See "The Trust Fund--The Mortgage Pools" in the Prospectus and "--Servicing
and Sub-Servicing" herein.
Each Mortgage Loan has a Mortgage Rate subject to [monthly] [semi-annual]
[annual] adjustment on the first day of the month specified in the related
Mortgage Note and on the first day of every month thereafter (each such date,
an "Adjustment Date"), to equal the sum of (i) the Index as most recently
[made available by the Federal Home Loan Bank of San Francisco (the "FHLB")]
on the day days, as specified for the particular Mortgage Note, prior to the
Adjustment Date and (ii) the applicable Gross Margin[; provided, however, that
any increase or decrease on any Adjustment Date will be limited by the
Periodic Mortgage Rate Cap, and in no event will the Mortgage Rate be greater
than the Maximum Mortgage Rate]. The Index applicable on a Rate Adjustment
Date is the Index available days prior to the Adjustment Date. Effective
with the first payment due on a Mortgage Loan after each related Adjustment
Date, the monthly payment will be adjusted to an amount which will fully
amortize the outstanding principal balance of the Mortgage Loan in
substantially equal payments over its remaining term, and pay interest at the
Mortgage Rate as so adjusted. [All] of the Mortgage Loans were
- --------
(1) The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as it was constituted
at the close of business on the Cut-off Date, after deducting the
scheduled principal payments due on or before such date. Prior to the
issuance of the Certificates, Mortgage Loans may be removed from the
Mortgage Pool if, as a result of delinquencies or otherwise, the Depositor
deems such removal necessary or desirable. Other Mortgage Loans may be
included in the Mortgage Pool in lieu of the Mortgage Loans so replaced.
In addition, under certain circumstances the Depositor or the Master
Servicer may substitute Mortgage Loans for those in the Trust Fund. See
"Description of the Certificate--Substitution of Mortgage Loans" herein
and "Description of the Certificates--Assignment of Mortgage Loans" in the
Prospectus. The Depositor believes that the information set forth herein
with respect to the Mortgage Pool is representative of the characteristics
of such Mortgage Pool as it will be constituted at the time the
Certificates are issued, although the range Mortgage Rates and maturities
and certain other characteristics of the Mortgage Loans in the Mortgage
Pool may vary in non-material respects from those set forth herein as a
result of such deletions, repurchases or substitutions.
S-9
<PAGE>
originated with a Mortgage Rate below the sum of the applicable Index and
Gross Margin (the "Initial Mortgage Rate") applicable for an initial period of
months from the date of origination and % of the Mortgage Loans as of the
Cut-off Date will bear interest at their Initial Mortgage Rates. The weighted
average number of months from the Cut-off Date to the first Adjustment Date
for the Mortgage Loans is approximately months. [Due to the application of the
Periodic Mortgage Rate Caps (even assuming no increase in the applicable Index
from the date of origination to the Adjustment Date) or the Maximum Mortgage
Rate, the Mortgage Rate on any Mortgage Loan, as adjusted on any Adjustment
Date, may be less than the sum of the then applicable Index and Gross Margin,
subject to rounding.] If the Index becomes unpublished or is otherwise
unavailable, the Master Servicer will select (or cause to be selected) an
alternative index for Mortgage Loans based upon comparable information in
compliance with applicable federal laws.
The Mortgage Loans were originated in . All of the Mortgage Loans will
have [monthly] payments due on [the first day of each month] (each a "Due
Date"). At origination, of the Mortgage Loans had terms to stated maturity
of 30 years. The latest date on which any Mortgage Loan will mature is. All
Mortgage Loans had Periodic Mortgage Rate Caps equal to basis points. The
Maximum Mortgage Rates range from % to % and the weighted average Maximum
Mortgage Rate is approximately % as of the Cut-off Date.
[Mortgage Loans that are expected to constitute approximately % of the
Initial Principal Balance of the Mortgage Pool as of the Cut-off Date will
have Mortgage Rates that will be convertible from an adjustable to a fixed
Mortgage Rate at the option of the mortgagor upon certain conditions on the
[when convertible] after origination of the related Mortgage Loan. In
determining the fixed rate applicable to a Mortgage Loan eligible for
conversion, the Master Servicer, acting on behalf of the Trustee, will. To the
extent the applicable rate is not available, the Master Servicer will quote a
fixed rate based upon comparable information. In order to be eligible to
convert the applicable Mortgage Rate on such a Mortgage Loan from an
adjustable to a fixed Mortgage Rate, the mortgagor must complete and submit to
the Master Servicer certain conversion documents and a loan modification
agreement, pay the applicable conversion fee and not be in default under the
Mortgage Note or the security documents related to such Mortgage Loan. Upon
conversion, the monthly payments of principal and interest on such Mortgage
Loan will be adjusted to provide for fully amortizing, level monthly payments
until maturity. [Should interest rates decline so that the fixed Mortgage Rate
applicable upon conversion is significantly lower than the prevailing
adjustable Mortgage Rate, due to the application of Interest Rate Caps, or is
significantly lower than the applicable Maximum Mortgage Rate on such Mortgage
Loan, mortgagors may have a significant incentive to effect a conversion.] See
"Description of the Certificates--Purchase of Converted Mortgage Loans"
herein.
The Mortgage Loans have the following characteristics (information provided
as of the Cut-off Date unless otherwise indicated):*
- --------
* The information presented in tabular form may be presented in paragraph
form, or ranges for such information may be provided.
S-10
<PAGE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
PROPERTY TYPES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Single family detached................................. $ . %
Condominium............................................
Planned Unit Developments..............................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
CURRENT LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
CURRENT LOAN AMOUNTS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Up to $100,000......................................... $ . %
$100,001--150,000......................................
150,001--200,000.......................................
200,001--250,000.......................................
250,001--300,000.......................................
300,001--350,000.......................................
350,001--400,000.......................................
400,001--450,000.......................................
Over $450,001..........................................
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The largest current loan amount is $ and the smallest current loan
amount is $ .
(2) The average outstanding principal balance is $ .
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LOAN-TO-VALUE RATIOS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
70.00% or less......................................... $ . %
70.01% to 75.00%.......................................
75.01% to 80.00%.......................................
80.01% to 85.00%.......................................
85.01% to 90.00%....................................... .
---- ----- ------
Total(1)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The weighted average loan-to-value ratios of the Mortgage Loans, based on
the principal amount at origination and the principal amount as of the
Cut-off Date, respectively, and the lesser of the appraised value at
origination and the purchase price paid by the Mortgagor, was % and %,
respectively.
S-11
<PAGE>
CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MORTGAGE RATES(1) LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
. % or less........................................ $ . %
. % or less........................................
. % or less........................................ .
. % or less........................................ .
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) With respect to % of the Mortgage Pool Balance, the Mortgage Rate is the
original Mortgage Rate and does not reflect application of the Index.
(2) The weighted average Mortgage Rate is approximately % per annum.
MORTGAGE LOAN GROSS MARGINS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
GROSS MARGINS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%..................................................... $ . %
.....................................................
.....................................................
.....................................................
.....................................................
---- ----- ------
Total(1)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The weighted average Gross Margin is approximately per annum.
MONTH IN WHICH NEXT ADJUSTMENT DATE FALLS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MONTH(1) LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
..................................................... $ . %
.....................................................
.....................................................
.....................................................
.....................................................
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The adjusted Mortgage Rate will be reflected in payments received by
Certificateholders on the 25th day of the month following the month in
which the Adjustment Date occurs.
(2) The weighted average number of months to the initial Adjustment Date is
months.
S-12
<PAGE>
LIFETIME MORTGAGE RATE CAPS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LIFETIME MORTGAGE RATE CAP LOANS BALANCES BALANCE
- ------------------------------------------------------ ----- --------- --------
<S> <C> <C> <C>
%................................................... $ . %
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
---- ----- ------
Total............................................... $ 100.00%
==== ===== ======
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
YEAR LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
S-13
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
STATES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
[Mortgage Loans for which the loan-to-value ratio at origination was greater
than 80% either (1) will be insured as to payment default for the amount in
excess of 75% of the principal balance by a Primary Mortgage Insurance Policy
until the principal balance of such Mortgage Loan is reduced below 80% of the
lesser of the appraised value at origination or the purchase price of the
Mortgaged Property, or (2) will be covered by a [DESCRIPTION OF ALTERNATIVE].]
Approximately % of the Mortgage Loans were made to refinance the related
Mortgaged Properties and approximately % of the Mortgage Loans have been made
to purchase the related Mortgaged Properties. Approximately % of the Mortgage
Loans will be secured by Mortgaged Properties represented to the originator in
the related loan application to be the primary residence of the mortgagor at
the time of origination. % of the Mortgage Loans are secured by Mortgaged
Properties which were second homes of the mortgagor at the time of origination
based on representations of the Mortgagor. % of the Mortgage Loans were made
to finance the purchase of homes represented by the mortgagor to have been
acquired for investment purposes.
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent in scheduled payments of principal and interest by more than 30
days and no Mortgage Loan will have been, as of the Cut-off Date, more than 30
days delinquent in scheduled payments of principal and interest more than once
in the previous year.
THE INDEX
[DESCRIPTION OF APPLICABLE INDEX, e.g., The Index is currently published by
the FHLB on or about the last working day of each month and is designed to
represent the monthly weighted average cost of funds for savings institutions
in the 11th District of the Federal Home Loan Bank System (Arizona, California
and Nevada) for the month prior to publication. The Index is computed by the
FHLB for each month by dividing the cost of funds (interest paid during the
month by 11th District savings institutions on savings, advances and other
borrowings) by the average of the total amount of those funds outstanding at
the end of the month and the prior month and annualizing and adjusting the
result to reflect the actual number of days in the particular month. If
necessary, before these calculations are made, the component figures are
adjusted by the FHLB to neutralize the effect of events such as member
institutions leaving the 11th District or acquiring institutions outside the
11th District. The Index has been reported each month since August 1981.]
[The Index reflects the interest costs paid on all types of funds held by
11th District member institutions. The Index is weighted to reflect the
relative amount of each type of funds held at the end of the relevant month.
There are three major components of funds of 11th District institutions: (1)
savings deposits, (2) FHLB advances, and (3) all other borrowings, such as
reverse repurchase agreements and mortgage-backed bonds. Unlike most other
interest rate measures, the Index does not necessarily reflect current market
rates, since the component funds represent a variety of maturities whose costs
may react in different ways to changing conditions.]
S-14
<PAGE>
[A number of factors affect the performance of the Index which may cause the
Index to move in a manner different from indices tied to specific interest
rates, such as United States Treasury Bills or LIBOR. Because of the various
maturities of the liabilities upon which the Index is based, the Index may not
necessarily reflect the average prevailing market interest rates on new
liabilities of similar maturities. Additionally, the Index may not necessarily
move in the same direction as market interest rates at all times, since as
longer term deposits or borrowings mature and are renewed at prevailing market
interest rates, the Index is influenced by the differential between the prior
and the new rates on those deposits or borrowings. Moreover, as stated above,
the Index is designed to represent the average cost of funds for 11th District
savings institutions for the month prior to the month in which the Index is
published. In addition, such movement of the Index, as compared to other
indices tied to specific interest rates, may be affected by changes instituted
by the FHLB in the method used to calculate the Index. Information Bulletins
announcing the Index may be obtained by contacting the FHLB.]
[The following table sets forth the Index published in each month (with
respect to the 11th District cost of funds in the prior month) for the four
most recent calendar years and for 19 .
<TABLE>
<CAPTION>
19 19 19 19 19
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January........................................... % % % % %
February..........................................
March.............................................
April.............................................
May...............................................
June..............................................
July..............................................
August............................................
September.........................................
October...........................................
November..........................................
December..........................................
</TABLE>
[MASTER SERVICER]
is a , which was founded in . At had consolidated assets
of $ billion and regulatory capital of $ million. As of , had
executive offices in and savings branches located .
is subject to comprehensive regulation, examination and supervision by
the [FHLBB and the FSLIC,] which regulation is intended primarily for the
benefit of depositors. [Deposits at are insured by the FSLIC up to
$100,000 for each insured account holder, the maximum permitted by law.]
executive offices are located at and its telephone number at that
address is .
Loan Portfolio. [Description.]
Loan Transactions. primary lending is [description.]. has
concentrated its efforts on .
The following table sets forth certain information with respect to loan
originations, loan purchases and sales, and repayment experience during the
periods indicated.
S-15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Loans receivable at beginning of period..........................
Loans originated.................................................
Loans purchased..................................................
Loans obtained in Equitable acquisition..........................
Loans sold.......................................................
Loan repayments..................................................
Other............................................................
---- ---- ----
Net loan activity................................................
---- ---- ----
Loan receivable at end of period.................................
==== ==== ====
</TABLE>
Loan Underwriting. has adopted written, nondiscriminatory underwriting
standards for use in originating and purchasing residential mortgage loans.
has represented to the Depositor that its underwriting standards are in
substantial conformity with standards set up by the FNMA and the FHLMC, which
conformity facilitates sales of such loans in the secondary market. A detailed
loan application is obtained or reviewed to determine the borrower's ability
to repay, and confirmation of the more significant information is obtained
through the use of credit reports, financial statements and verifications. An
appraisal of the property, conducted by an appraiser meeting the
qualifications set forth in FHLBB guidelines, is required to determine the
adequacy of the collateral. also requires that a survey be conducted and
title insurance be obtained, insuring the priority of its mortgage lien, and,
for loans with a loan-to-value ratio of 80% or more, that private mortgage
insurance be obtained if available. All loan applications must be reviewed by
underwriters to ensure that guidelines are met. Such guidelines are approved
by Board of Directors. has represented to the Depositor that each
Mortgage Loan meets the credit, appraisal and underwriting standards
established by and described above.
[Approximately % of the Mortgage Loans were originated under the limited
documentation program of . has represented that each of the Mortgage
Loans originated under a limited documentation program satisfies the standards
established and followed by for originating and acquiring mortgage loans
under its limited documentation program. Under the program, does not
evaluate the borrower's assets-to-liabilities ratio, but did verify the
borrower's income and availability of funds for down payment, and relies
primarily on a credit report on the borrower (which is required to be
favorable) and at least one appraisal as evidence of the value of the property
securing the loan. The limited documentation program was not available
for loans secured by condominiums and was available only for owner-occupied
primary residences. Under such program, loan-to-value ratios were limited to
% for loans under $ and to % for loans under $ , except that for
loans in certain locations and having certain characteristics, lower maximum
loan-to-value ratios were established.
Loan Portfolio Qualify. In accordance with the requirements of the
Competitive Equality Banking Act of 1987 (the "CEBA"), the FHLBB in December
1987 adopted amendments to its classification of assets regulation. Prior to
December 1987, to monitor an insured institution's asset quality the FHLBB
defined certain assets of savings institutions as scheduled items and
established certain operating restrictions based upon ratios relating to such
assets. The regulation as amended eliminates entirely the "scheduled items"
classification, but retains the existing classification categories of
substandard, doubtful and loss, while altering the effects of the respective
classifications with respect to valuation allowance requirements and minimum
regulatory capital requirements. Specific loss reserves are no longer required
for assets classified as doubtful and institutions are required to charge off
or set aside loss reserves for 100% of the amount of any asset, or portion of
an asset, classified as a loss. The amended regulation requires institutions
to classify their own assets and to establish prudent general allowances for
loan losses, subject to examiner review. Greater examiner discretion,
consistent with the asset classification practices of the banking regulatory
agencies, is permitted by the amended regulation.
S-16
<PAGE>
The amended regulation also requires institutions to establish loss reserves
for off-balance-sheet items when loss becomes probable and estimable.
One measure of an institution's asset quality is the level of non-performing
loans in its portfolio. Non-performing loans consist of (i) non-accrual loans,
(ii) loans that are 90 or more days contractually past due as to interest or
principal but that are well-secured and in the process of collection or
renewal in the normal course of business, and (iii) loans that have been
renegotiated to provide a deferral of interest or principal because of a
deterioration in the financial condition of the borrower ("restructured
loans"). generally places conventional mortgage loans on non-accrual
status when more than 90 days past due. Where the underlying collateral is a
"home" (as defined in the Rules and Regulations for the Federal Home Loan Bank
System), the loan is placed on non-accrual status when the amount of interest
receivable plus all loan balances secured by the home exceeds 90% of the
appraised value of the security property, provided there is a reasonable
expectation of interest collection.
The following table sets forth information regarding the non-performing
loans as of the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
19 19 19
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual loans............................................. $ $ $
Accruing loans 90 days or more past due.......................
Restructured loans............................................
</TABLE>
Loan Servicing. The following table sets forth the dollar amounts of
conventional mortgage loans serviced by for itself and other lenders at the
dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
19 19 19
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Conventional mortgage loans.............................
</TABLE>
Loss and Delinquency Experience. The following table sets forth the
delinquency and foreclosure experience of residential conventional mortgage
loans in the mortgage loan portfolio serviced by and other entities at
the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------
19 19 19 19
----------------- ----------------- ----------------- -----------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
OF OF TOTAL OF OF TOTAL OF OF TOTAL OF OF TOTAL
LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS
------ ---------- ------ ---------- ------ ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conventional mortgage
loans delinquent for:
60-89 days.............. $ $ $ $
90 days and over........
In foreclosure..........
Total................. $ $ $ $
</TABLE>
The allowance for loan losses is maintained at an amount management deems
adequate to cover estimated losses. In determining the level to be maintained,
management considers factors such as current economic trends in specific
geographic areas, historical loss experience, borrowers' ability to repay and
repayment performance and estimated collateral values, as well as
considerations such as the availability of indemnifications, mortgage
insurance and seller-provided recourse.
S-17
<PAGE>
The statistics shown above represent the loss experience for the total
conventional mortgage loan portfolio (including residential and commercial
loans) for each of the periods presented, whereas the aggregate loss
experience on the Mortgage Loans will depend on the results obtained over the
life of the Mortgage Pool.
SERVICING [AND SUB-SERVICING]
The Mortgage Loans will be serviced in accordance with procedures as
described generally in the accompanying Prospectus under the heading
"Description of the Certificates--Servicing by Unaffiliated Sellers." [ ,
as Master Servicer, will enter into a Servicing Agreement with (the
"Servicer") pursuant to which the Servicer will sub-service the Mortgage
Loans. acquired the Mortgage Loans from the Servicer. The Servicer has
serviced the Mortgage Loans since their origination. The Servicing Agreement
can be terminated without cause, but in such event or a successor master
servicer would be required to pay a fee to the Servicer or sell the Servicer's
interest in the Servicing Agreement in an auction proceeding upon termination.
may determine to terminate the Servicer and to service the Mortgage Loans
itself or through other sub-servicers who may be affiliates of .]
[The Servicing Agreement provides for servicing compensation equal to a rate
of basis points per annum on the outstanding principal balance of % of the
Mortgage Pool. In addition, the Servicer is entitled to retain certain late
payment fees, assumption fees and conversion fees related to the Mortgage
Loans. The Servicing Agreement does not require the Servicer to make Advances
or to pay any amount from its servicing compensation with respect to interest
on Principal Prepayments on Mortgage Loans.]
Except as described below, when any Mortgaged Property is conveyed by the
Mortgagor, the Master Servicer generally will enforce, and will cause any
Servicer to enforce, any due-on-sale clause contained in the Mortgage Loan, to
the extent permitted under applicable law and governmental regulations.
Acceleration of Mortgage Loans as a result of enforcement of such due-on-sale
provisions in connection with transfers of the related Mortgaged Properties
will affect the level of prepayments on the Mortgage Loans, thereby affecting
the weighted average life of the related Class A Certificates. See "Maturity
and Prepayment Considerations" in the Prospectus.
All of the Mortgage Loans include a rider to the Mortgage providing that
assumption of the remaining unpaid principal balance of the Mortgage Loan will
be permitted if the borrower provides information required to evaluate the
creditworthiness of the proposed transferee and the transferee is determined
to be creditworthy. In connection with such assumption, a reasonable fee may
be charged as a condition to the loan assumption and any such fee collected in
connection with a Mortgage Loan in the Subsidiary Trust Fund will be retained
by [or the Servicer]. The assumption of Mortgage Loans by buyers of the
related Mortgaged Properties may also affect the level of prepayments on the
Mortgage Loans, thereby affecting the weighted average life of the Class A
Certificates.
INSURANCE
A Standard Hazard Insurance Policy will be maintained with respect to each
Mortgage Loan in an amount equal to the maximum insurable value of the
improvements securing such Mortgage Loan or the principal balance of such
Mortgage Loan, whichever is less. See "Description of Insurance--Standard
Hazard Insurance Policies" in the Prospectus. [No Mortgage Pool Insurance
Policy, Special Hazard Insurance Policy or Mortgagor Bankruptcy Insurance will
be maintained with respect to the Mortgage Pool, nor will any Mortgage Loan
included in the Mortgage Pool be subject to FHA Insurance or a VA Guaranty.]
S-18
<PAGE>
YIELD CONSIDERATIONS
The effective yield to holders of the Class A Certificates will depend upon,
among other things, the price at which the Class A Certificates are purchased
and the amount and rate at which principal, including both scheduled and
unscheduled payments thereof, is paid to Class A Certificateholders.
The rate of principal payments on the Class A Certificates, the aggregate
amount of each monthly interest payment on the Class A Certificates and the
yield to maturity of the Class A Certificates will be directly related to the
rate of payments of principal on the Mortgage Loans. Principal payments on the
Mortgage Loans may be in the form of scheduled principal payments or
prepayments (for this purpose, the term "prepayment" includes payments
resulting from optional prepayments by the Mortgagors, refinancings,
liquidation of the Mortgage Loans due to defaults, casualties, condemnations
or the like and repurchases by the Depositor or the Master Servicer, as the
case may be). Any such prepayments will result in distributions to
Certificateholders of amounts which would otherwise be distributed over the
remaining term of the Mortgage Loans. In general, the prepayment rate may be
influenced by a number of economic, geographic, social and other factors,
including general economic conditions and homeowner mobility. Other factors
affecting prepayment of mortgage loans include changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions.
The Mortgage Loans may be prepaid by the Mortgagors at any time without
payment of any prepayment fee or penalty. As described herein under
"Description of the Certificates--Subordination of the Class B Certificates;
Shifting Interest Credit Enhancement," all or a disproportionately large
percentage of principal prepayments on the Mortgage Loans will be distributed
to the holders of the Class A Certificates during at least the first fourteen
years after the Cut-off Date. In general, defaults on Mortgage Loans are
expected to occur with greater frequency in their early years, although little
data is available with respect to the rate of default on adjustable rate
Mortgage loans. Increases in the monthly payments on the Mortgage Loans in
excess of those assumed in underwriting such Mortgage Loans may result in a
default rate higher than that on conventional mortgage loans with fixed
mortgage rates. Prepayments, liquidations and purchases of the Mortgage Loans
will result in distributions to Certificateholders of amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans. Since
the rate of payment of principal on the Mortgage Loans will depend on future
events and a variety of factors (as described more fully herein and in the
Prospectus under "Yield Considerations" and "Maturity and Prepayment
Considerations"), no assurance can be given as to such rate or the rate of
principal prepayments.
[Mortgage Loans that are expected to constitute approximately % of the
initial aggregate principal balance of the Mortgage Loans as of the Cut-off
Date will provide that the mortgagor may, during a specified period of time,
convert the adjustable rate of the related Mortgage Loan to a fixed rate. The
conversion option may be exercised during periods of rising interest rates as
mortgagors attempt to limit their risk of higher rates. If mortgagors were to
exercise their conversion rights in such an interest rate environment, a
purchase of the Mortgage Loan by the Master Servicer would have the same
effect on Certificateholders as a prepayment at a time when prepayments
generally would not be expected. The availability of fixed rate mortgage loans
at competitive interest rates during periods of falling interest rates may
also encourage mortgagors to exercise the conversion option. The convertible
ARM loan is a relatively new type of mortgage loan, so there can be no
certainty as to the rate at which conversions will take place or as to the
rate of prepayments in stable or changing interest rate environments. The
Master Servicer is obligated to purchase Converted Mortgage Loans.
Consequently, the exercise of the conversion option by mortgagors will
generally result in prepayment of principal with respect to the Mortgage
Pool.]
[The rate at which mortgagors exercise their conversion rights and the
resulting purchase of Converted Mortgage Loans by the Master Servicer will
affect the rate of payment of principal, and hence the effective yield on the
Class A Certificates. The purchase price paid will be passed through to the
Certificateholders as principal in the month following the month of such
purchase. The effective yield on the Class A Certificates also will be
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<PAGE>
affected by the failure of the Master Servicer to purchase Converted Mortgage
Loans and the resulting retention of fixed rate Mortgage Loans in the Mortgage
Pool. See "Description of the Certificates--Purchase of Converted Mortgage
Loans" herein.]
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments experienced over time is consistent with an
investor's expectations. In general, the earlier a prepayment of principal on
the Mortgage Loans, the greater will be the effect on the investor's yield to
maturity. As a result, the effect on an investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the
Certificates would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
All of the Mortgage Loans comprising the Mortgage Pool are adjustable rate
mortgage loans. The yield to maturity of the Class A Certificates will be
affected by the Mortgage Rates on the Mortgage Loans as they adjust from time
to time. The Depositor is not aware of any publicly available statistics
relating to the principal prepayment experience of adjustable rate mortgage
loans over an extended period of time, and the Depositor's experience with
respect to adjustable rate mortgage loans is insufficient to draw any
conclusions with respect to the expected prepayment rates on the Mortgage
Loans comprising the Mortgage Pool. The rate of payments (including
prepayments) on adjustable rate mortgage loans has fluctuated in recent years.
As is the case with conventional fixed-rate mortgage loans, adjustable rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment. For example, if prevailing mortgage rates
fell significantly below the then current Mortgage Rates on the Mortgage Loans
or significantly below the Maximum Mortgage Rates on the Mortgage Loans, the
rate of prepayment would be expected to increase due to the availability of
fixed-rate mortgage loans at competitive interest rates, which may encourage
Mortgagors to refinance the Mortgage Loans in order to obtain a lower fixed
interest rate. Conversely, if prevailing mortgage rates rose significantly
above the then current Mortgage Rates on the Mortgage Loans, the rate of
prepayment on the Mortgage Loans would be expected to decrease.
[The Mortgage Rates on the Mortgage Loans will adjust semi-annually
(although not on the same Adjustment Dates) and such semi-annual increases and
decreases in the Mortgage Rates on the Mortgage Loans will be limited by the
Periodic Mortgage Rate Cap and Maximum Mortgage Rates applicable to the
Mortgage Loans. In addition, such Mortgage Rates will be based on the Index
(which may not rise and fall consistently with interest rates on other types
of adjustable rate residential mortgage loans) plus the Gross Margin for the
Mortgage Loans (which may be different from then current margins on
residential mortgage loans). As a result, the Mortgage Rates on the Mortgage
Loans at any time may not equal the prevailing rates for similar adjustable
rate mortgage loans, and the rate of prepayment may be lower or higher than
would otherwise be anticipated. See "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.]
In addition, if on any Distribution Date, after taking into account any
Advances, amounts otherwise distributable to the Subsidiary Residual
Certificateholder and permitted withdrawals from the Certificate Account,
there are not sufficient funds to pay the principal and interest on the Class
A Certificates, the amount of the resulting shortfall, and in the case of
interest shortfalls, interest at the applicable Pass-Through Rate, will be
added to the amount the Class A Certificateholders are entitled to receive on
the next Distribution Date. See "Description of the Certificates--
Distributions" herein. If any shortfalls occur, the weighted average life of
the Class A Certificates will be increased over that which would result had
such shortfalls not occurred.
The after-tax yield to Certificateholders may be affected by lags between
the time interest income accrues to the Certificateholders and the time the
related income is received. See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.
The effective yield to the holders of Class A Certificates will be lower
than the yield otherwise produced by the Pass-Through Rate and purchase price
because monthly interest will not be payable to such holders until the
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25th day (or if such day is not a Business Day, then on the next succeeding
Business Day) of the month following the month in which interest accrues on
the Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates offered hereby will be issued pursuant to the Pooling and
Servicing Agreement, a form of which has been filed as an exhibit to the
Registration Statement. Reference is made to the Prospectus for additional
information regarding the terms and conditions of the Pooling and Servicing
Agreement. The following summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the
provisions of the Pooling and Servicing Agreement. When particular provisions
or terms used in the Pooling and Servicing Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by
reference.
The Class A Certificates will be transferable and exchangeable at the office
of the Trustee located at . No service charge will be made for any
registration of transfer or exchange of the Class A Certificates on the
Certificate Register maintained by the Trustee, but the Trustee may require
the payment of a sum sufficient to cover any related tax or other governmental
charge. There is at present no market for the Class A Certificates and there
can be no assurance that a secondary market will develop or that if it does
develop, it will continue. Fluctuating market interest rates may affect the
market value of the Class A Certificates.
DISTRIBUTIONS
Distributions of principal and interest on the Certificates will be made on
the [25th] day of each month, or, if such day is not a Business Day, the next
succeeding Business Day (each a "Distribution Date"), beginning , to the
persons in whose names the Certificates are registered at the close of
business on the last day of the month preceding the month in which payment is
made (the "Record Date"). Certain calculations with respect to the
Certificates will be made on the [15th] day of each month, or if such day is
not a Business Day, the next succeeding Business Day (the "Determination
Date").
Principal received on each Mortgage Loan will be passed through monthly as
described below on the Distribution Date occurring in the month in which the
Due Date occurs. Principal prepayments received during the period from the
first day of any month to the last day of such month ( a "Prepayment Period")
will be passed through on the Distribution Date occurring in the month
following receipt. When a Mortgage Loan is prepaid, in whole or in part,
between scheduled payment dates. the Mortgagor pays interest on the amount
prepaid only to the date of prepayment and not thereafter. The Master Servicer
is not required to pay any part of its servicing compensation to assure that
distributions made to Certificateholders on the related Distribution Date
include an amount equal to one full month's interest at the applicable
Subsidiary Pass-Through Rate.
Interest received by the Subsidiary Trust Fund on each Mortgage Loan will be
passed through monthly on the Distribution Date occurring in the month in
which the Due Date occurs, at the Subsidiary Pass-Through Rate for such
Mortgage Loan. The Pass-Through Rate will equal the weighted average of the
Subsidiary Pass-Through Rates for the Mortgage Loans. Prior to the first
Adjustment Date with respect to each Mortgage Loan that occurs after the Cut-
off Date, the Subsidiary Pass-Through Rate for such Mortgage Loan will equal
the Initial Mortgage Rate less . Thereafter, the Subsidiary Pass-Through
Rate with respect to each Mortgage Loan will equal the Index applicable to
each Mortgage Loan plus basis points (the "Pass-Through Margin") subject to
the limitation that the Subsidiary Pass-Through Rate shall not exceed the
lesser of the Periodic Mortgage Rate Cap less the Servicing Fee Rate and the
Maximum Subsidiary Pass-Through Rate. The Maximum Subsidiary Pass-Through Rate
with respect to a Mortgage Loan shall equal the Maximum Mortgage Rate for such
Mortgage Loan minus the Servicing Fee Rate. The Master Servicer will receive a
servicing fee (the "Servicing Fee") as compensation for the servicing of each
Mortgage Loan which is calculated monthly and equals a fixed percentage
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<PAGE>
of the principal balance of the Mortgage Loan (the "Servicing Fee Rate").
[Prior to the first Adjustment Date with respect to a Mortgage Loan that
occurs after the Cut-off Date, the Servicing Fee Rate will be basis points
for such Mortgage Loan. Subsequent to the first Adjustment Date with respect
to a Mortgage Loan that occurs after the Cut-off Date, t][T]he Servicing Fee
Rate shall equal basis points. See "Description of the Mortgage Pool and
the Underlying Mortgaged Properties" above and "Servicing Compensation and
Payment of Expenses" below. The amount of interest on each Mortgage Loan
available to be distributed on each Distribution Date may be expected to
change, among other reasons, as the Mortgage Rate and the Subsidiary Pass-
Through Rate vary with the Index and as the Mortgage Rate reaches the Periodic
Mortgage Rate Cap and the Maximum Mortgage Rate (which will not be the same
for all Mortgage Loans).
The Master Servicer will deposit in the Certificate Account the payments and
collections described in "Description of the Certificates--Payments on
Mortgage Loans" in the Prospectus.
On each Distribution Date, the amount required to be distributed to the
Class A Certificateholders will equal the lesser of the Class A Distribution
Amount and the Master Trust Fund Aggregate Distribution.
The "Class A Distribution Amount" means generally, as of any Distribution
Date, an amount equal to the sum of: (a) one month's interest at the Pass-
Through Rate on the Class A Certificate Principal Balance as of such
Distribution Date; (b) the outstanding balance of all previously due and
unpaid Interest Shortfalls (as defined below) owed to the Class A
Certificateholders with accrued interest thereon at the Pass-Through Rate; (c)
the outstanding balance of all previously due and unpaid Principal Shortfalls
(as defined below) owed to the Class A Certificateholders; (d) the Class A
Percentage of each scheduled payment of principal due on the preceding Due
Date on the Mortgage Loans; (e) the Class A Prepayment Percentage of any
Principal Prepayments received during the related Prepayment Period on the
Mortgage Loans; (f) with respect to Mortgage Loans which became Liquidated
Loans during the related Prepayment Period, the Class A Percentage of the
aggregate principal balance of such Mortgage Loans, net of certain related
unreimbursed advances with respect thereto; (g) the Class A Percentage of any
insurance proceeds received during the related Prepayment Period, net of
certain related unreimbursed advances with respect thereto; and (h) with
respect to Mortgage Loans purchased by the Master Servicer pursuant to the
Pooling and Servicing Agreement during the related Prepayment Period, the
Class A Percentage of the aggregate principal Balances of such Mortgage Loans,
net of certain related unreimbursed advances with respect thereto.
At any time when the Subordinated Amount is equal to zero, the amount
calculated under clauses (a) through (h) above shall not include any amount in
respect of Monthly Payments due on Mortgage Loans which were not actually
received (but shall include payments from funds attributable to advances by
the Master Servicer).
The "Master Trust Fund Aggregate Distribution" shall mean, on any
Distribution Date, the sum of all amounts distributed with respect to the
Subsidiary Regular Interests, as described below.
On each Distribution Date the aggregate amount required to be distributed to
the holders of the Subsidiary Regular Interests is equal to the lesser of (x)
the Subsidiary Trust Fund Regular Distribution and (y) the sum of (i) one
month's interest at the Subsidiary Pass-Through Rate on the principal balance
of each Mortgage Loan, (ii) each payment of the principal due on the related
Due Date on each Mortgage Loan, (iii) any delinquent Mortgagor payment of
principal and interest on such Mortgage Loan received prior to the related
Determination Date, after adjustment of the interest portion of such payment
to the related Subsidiary Pass-Through Rate and deduction of unreimbursed
advances by the Master Servicer with respect to the preceding delinquent
payment, (iv) for each Mortgage Loan which was the subject of a Principal
Prepayment during the related Prepayment Period, the amount of such Principal
Prepayment, (v) for each Mortgage Loan which became a Liquidated Loan during
the related Prepayment Period, the principal balance of such Mortgage Loan,
net of certain unreimbursed advances by the Master Servicer, (vi) with respect
to any Mortgage Loan purchased by the Master Servicer pursuant to the
Agreement, the principal balance of such Mortgage Loan net of certain
unreimbursed advances by the Master Servicer, and (vii) amounts representing
insurance proceeds with respect to a Mortgage Loan.
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<PAGE>
The "Subsidiary Trust Fund Regular Distribution" means, generally, as of any
Distribution Date, an amount equal to the amount on deposit in the Certificate
Account as of the close of business on the related Determination Date except:
(a) amounts received on particular Mortgage Loans as late payments or other
recoveries of principal or interest (including Liquidation Proceeds, insurance
proceeds, and condemnation awards) and respecting which the Master Servicer
previously made an unreimbursed Advance of such amounts; (b) amounts
representing reimbursement for certain losses and expenses incurred by the
Master Servicer, as described in the Pooling and Servicing Agreement; (c) all
amounts representing scheduled monthly payments due after the immediately
preceding Due Date; (d) all Principal Prepayments (and interest thereon),
Liquidation Proceeds, insurance proceeds, condemnation awards and repurchase
proceeds received after the related Prepayment Period, including payments of
interest representing interest accrued after the last day of the related Due
Period; (e) all income from Eligible Investments held in the Certificate
Account for the account of the Master Servicer; and (f) certain amounts
distributable to the holder of the Subsidiary Residual Interest pursuant to
the Pooling and Servicing Agreement.
The "Class A Certificate Principal Balance" on any Distribution Date will
equal the portion of the unpaid principal balance of the Mortgage Loans
evidenced by the Class A Certificates as of the Cut-off Date (the "Initial
Class A Certificate Principal Balance") less the sum of payments or recoveries
of, or with respect to, principal of the Mortgage Loans previously distributed
to the Class A Certificateholders and any Realized Losses (as defined below)
including, subject to certain limitations. Special Hazard Realized Losses (as
defined below) previously allocated to the Class A Certificates. The Initial
Class A Certificate Principal Balance is expected to be approximately $ .
See "--Subordination of the Class B Certificates; Shifting Interest Credit
Enhancement" herein.
The "Class B Principal Balance" on any Distribution Date will equal the
Scheduled Principal Balance (as defined below) of the Mortgage Loans minus the
Class A Certificate Principal Balance.
The "Scheduled Principal Balance" of the Mortgage Loans as of the time of
any determination will equal the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, after application of any scheduled principal
payments due on or before the Cut-off Date, whether or not received, reduced
by the principal portion of all scheduled payments of principal and interest
due on or before the date of determination, whether or not received, and by
all Principal Prepayments distributed to Certificateholders on or before the
date of determination, and further reduced by Realized Losses (as defined
below) with respect to the Mortgage Loans that have been allocated to one or
more classes of Certificates on or before the date of determination.
The "Class A Percentage" shall mean, as to any Distribution Date, the lesser
of 100% and the percentage obtained by dividing the Class A Certificate
Principal Balance by the Scheduled Principal Balance. The "Class A Prepayment
Percentage" shall initially be 100% and shall decline thereafter as provided
under "Subordination of the Class B Certificates; Shifting Interest Credit
Enhancement."
"Interest Shortfall" shall mean, as to any Distribution Date, any excess of
the amount computed pursuant to clause (a) of the term "Class A Distribution
Amount" over the amount of interest distributed to the Class A
Certificateholders on such Distribution Date. "Principal Shortfall" shall
mean, as to any Distribution Date the excess of the sum of the amounts
computed pursuant to clauses (a) through (h) of the term "Class A Distribution
Amount" over the amounts distributed to the Class A Certificateholders (the
"Shortfall"), less the Interest Shortfall.
All distributions will be made by or on behalf of the Trustee to the persons
in whose names the Certificates are registered at the close of business on
each Record Date, which will be the last Business Day of the month preceding
the month in which the related Distribution Date occurs. Such distributions
shall be made either (i) by check mailed to the address of each
Certificateholder as it appears in the Certificate Register or (ii) to any
holder of Certificates having an initial principal balance in excess of
$5,000,000, by wire transfer in immediately available funds to the account of
such Certificateholder specified in writing to the Trustee.
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<PAGE>
[On the sixth day of any month or the next succeeding Business Day, the
Master Servicer or the Trustee will provide upon request the Class A
Certificate Principal Balance after giving effect to monthly payments due on
the immediately preceding Due Date.]
SUBORDINATION OF THE CLASS B CERTIFICATES; SHIFTING INTEREST CREDIT
ENHANCEMENT
The rights of the Class B Certificateholders to receive certain
distributions with respect to the Mortgage Loans are subordinate to such
rights of the Class A Certificateholders to the extent of the Subordinated
Amount. As of each Determination Date, the Subordinated Amount will equal the
Class B Principal Balance on such date, reduced by the excess, if any, of
Aggregate Losses over cumulative Realized Losses borne by the Class B
Certificateholders.
Realized Losses shall not be allocated to the Class A Certificates until
after such time as the allocation of such Realized Losses to the Class B
Certificates has reduced the Class B Principal Balance to zero. At such time,
Realized Losses shall be allocated to the Class A Certificates, pro rata among
such Certificates in proportion to their outstanding Class A Certificate
Principal Balances immediately prior to the relevant Distribution Date.
[Notwithstanding the above, Special Hazard Realized Losses shall be allocated
first to the Class B Certificates only until such time as Special Hazard
Realized Losses equal the Special Hazard Subordination Amount, which will be
% of the Cut-off Date Principal Balance. Thereafter, Special Hazard Realized
Losses shall be allocated to the Class A Certificates and the Class B
Certificates, pro rata among such Certificates in proportion to their
outstanding Principal Balances immediately prior to the relevant Distribution
Date.] Any allocation of Realized Losses (or Special Hazard Realized Losses]
to a Class A Certificate or a Class B Certificate on a Distribution Date shall
be made by reducing the Principal Balance thereof by the amount so allocated,
which allocation shall be deemed to have occurred on such Distribution Date.
[Any allocation to the Class B Certificates of a Realized Loss or a Special
Hazard Realized Loss prior to reducing the Special Hazard Subordination Amount
to zero shall have the effect of increasing the Class A Percentage of future
payments of principal on the Mortgage Loans and thereby decreasing the
Subordinate Percentage of such payments of principal.]
"Realized Loss" is defined in the Pooling and Servicing Agreement (i) with
respect to any Liquidated Loan, as the excess of the outstanding principal
balance of such Liquidated Loan over the Liquidation Proceeds, if any,
received in connection with such Liquidated Loan, after application of all
withdrawals permitted to be made by the Master Servicer pursuant to the
Pooling and Servicing Agreement, (ii) with respect to any Mortgage Loan which
has become subject to a valuation by a court of competent jurisdiction of the
Mortgaged Property in an amount less than the then outstanding indebtedness
under the Mortgage Loan, which valuation results from a proceeding under the
United States Bankruptcy Code, as amended from time to time (11 U.S.C.) (a
"Deficient Valuation"), as the excess of the outstanding principal balance of
such Mortgage Loan over the principal amount as reduced in the Deficient
Valuation, or (iii) with respect to any Mortgage Loan purchased by the Master
Servicer or the Depositor pursuant to the Pooling and Servicing Agreement, as
the excess, if any, of 100% of the principal balance of such Mortgage Loan,
together with accrued and unpaid interest at the applicable Subsidiary Pass-
Through Rate to the first day of the month following the month of such
purchase, giving effect to the amount of any unreimbursed Advances made by the
Master Servicer with respect to such Mortgage Loan, over the purchase price
for such Mortgage Loan as the same may be reduced pursuant to an Opinion of
Counsel to prevent such amount from being taxed to the Trust Fund as a
"prohibited transaction", as defined in Section 860F(a)(2) of the Code.
Realized losses may result from, among other things, Special Hazard Realized
Losses. ["Special Hazard Realized Loss" means with respect to any Mortgage
Loan finally liquidated in connection with any physical damage not covered
under a Standard Hazard Insurance Policy or a flood insurance policy, other
than normal wear and tear or other circumstances set forth in the Pooling and
Servicing Agreement an amount equal to the unpaid principal balance of the
Mortgage Loan as of the date of such liquidation, together with interest at
the applicable Mortgage Rate, less the applicable Servicing Fee, from the Due
Date as to which interest was last paid to the Due Date next succeeding such
liquidation, less the proceeds, if any, received in connection with such
liquidation after application of all withdrawals from the Certificate Account
by the Master Servicer permitted pursuant to the Pooling and Servicing
Agreement.]
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<PAGE>
"Liquidated Loan" means a Mortgage Loan which, as of the close of business
on the Business Day next preceding the Due Date, has been liquidated through
deed in lieu of foreclosure, sale in foreclosure, trustee's sale or other
realization as provided by applicable law of real property subject to the
related Mortgage and any security agreements or with respect to which payment
under related private mortgage insurance or hazard insurance and/or from any
public or governmental authority on account of a taking or condemnation of any
such property has been received.
The protection afforded to the Class A Certificateholders will be effected
by the preferential right of the Class A Certificateholders to receive the
amount of principal and interest otherwise available for distribution to the
Class B Certificateholders on each Distribution Date out of available funds on
deposit in the distribution account for the Master Trust Fund and by
distributing to the Class A Certificateholders a disproportionately greater
percentage of Principal Prepayments received by the Master Trust Fund from the
Certificate Account, to the extent described herein (the "Class A Prepayment
Percentage"). This disproportionate distribution will have the effect of
accelerating the amortization of the Class A Certificates while increasing the
respective interest in the Mortgage Loans evidenced by the Class B
Certificates. Increasing the respective interest of the Class B Certificates
relative to that of the Class A Certificates is intended to preserve the
availability of the subordination provided by the Class B Certificates.
The Class A Prepayment Percentage for any Distribution Date occurring before
or in will, except as provided below, equal 100%. The Class A Prepayment
Percentage for any Distribution Date occurring subsequent to will be
determined as follows: (a) for any Distribution Date occurring subsequent to
and before or in , the Class A Prepayment Percentage will equal the
Class A Percentage plus % of the Subordinate Percentage for such Distribution
Date, except that prior to the Distribution Date next succeeding the first
Distribution Date, if any, after . , as of which the Step-down
Criteria are satisfied, the Class A Prepayment Percentage will be 100%; (b)
for any Distribution Date occurring subsequent to and before or in , the
Class A Prepayment Percentage will equal the Class A Percentage plus % of the
Subordinate Percentage for such Distribution Date, except that prior to the
Distribution Date next succeeding the first Distribution Date, if any, after
as of which the Step-down Criteria are satisfied, the Class A Prepayment
Percentage will be the Class A Prepayment Percentage in effect in ; (c)
for any Distribution Date occurring subsequent to and before or in , the
Class A Prepayment Percentage will equal the Class A Percentage plus % of the
Subordinate Percentage for such Distribution Date, except that prior to the
Distribution Date next succeeding the first Distribution Date, if any, after
as of which the Step-down Criteria are satisfied, the Class A Prepayment
Percentage will be the Class A Prepayment Percentage in effect in ; (d)
for any Distribution Date occurring subsequent to and before or in ,
the Class A Prepayment Percentage will equal the Class A Percentage plus % of
the Subordinated Percentage for such Distribution Date, except that prior to
the Distribution Date next succeeding the first Distribution Date, if any,
after as of which the Step-down Criteria are satisfied, the Class A
Prepayment Percentage will be the Class A Prepayment Percentage in effect in
; and (e) for any Distribution Date occurring subsequent to , the
Class A Prepayment Percentage will equal the Class A Percentage as of such
Distribution Date except that prior to the Distribution Date next succeeding
the first Distribution Date, if any, after as of which the Step-down
Criteria are satisfied, the Class A Prepayment Percentage will be the Class A
Prepayment Percentage in effect in . The foregoing is subject to the
following: (i) if on any Distribution Date the distribution of all Principal
Prepayments received in the prior month to the holders of the Class A
Certificates would reduce the outstanding Class A Certificate Principal
Balance below zero, the Class A Prepayment Percentage for such Distribution
Date will be limited to the percentage necessary to reduce the Class A
Principal Certificate Balance to zero and thereafter the Class A Percentage
shall be zero; and (ii) if the Class A Percentage on any Distribution Date is
greater than the initial Class A Percentage, the Class A Prepayment Percentage
for such Distribution Date shall be 100%.
The Step-down Criteria shall be met as of any Distribution Date in the 12
months commencing subsequent to February of the year specified in the table
below provided that as of such Distribution Date (a) no more than one time
during the preceding months have the principal balances of outstanding
Mortgage Loans days or
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more delinquent (including loans in foreclosure and the book value of owned
real estate) exceeded % of the Scheduled Principal Balance at such time, and
(b) cumulative Advances deemed to be nonrecoverable as a percentage of the
principal amount of the Class B Certificates as of the Cut-off Date (the
"Subordinated Amount") do not exceed the amounts in the following table:
<TABLE>
<CAPTION>
CUMULATIVE
NON-RECOVERABLE
ADVANCES AS A
PERCENTAGE OF THE
YEAR SUBORDINATED AMOUNT
--------------------------------------------------------- -------------------
<S> <C>
....................................................... %
.......................................................
.......................................................
.......................................................
or thereafter............................................
</TABLE>
The definition of "Step-down Criteria" may be amended by the Depositor and
the Trustee, with prior written notice of such amendment to the Rating Agency,
in a manner that will not result in the lowering or withdrawal of the then
current rating of the Class A Certificates. Such amendment shall not require
the consent of any Certificateholder.
[PURCHASE OF CONVERTED MORTGAGE LOANS
The Pooling and Servicing Agreement provides that is obligated to
purchase from the Subsidiary Trust Fund any Convened Mortgage Loan in the
month following the month in which the related mortgagor exercises the
conversion option, for a price equal to the lesser of (a) 100% of the unpaid
principal balance of such Mortgage Loan, and (b) the Subsidiary Trust Fund's
adjusted federal income tax basis on the date such Mortgage Loan is to be
purchased, in each case plus accrued interest, if any, at the applicable
Subsidiary Pass-Through Rate in effect immediately prior to such conversion to
the last day of the month in which such Mortgage Loan became a Converted
Mortgage Loan, net of the applicable amounts due to the Master Servicer with
respect to that Mortgage Loan. will be obligated to deposit the amount of
the purchase price in the Certificate Account for distribution on the
Distribution Date in the month following the month of such conversion.
In the event defaults upon its obligation to repurchase any Converted
Mortgage Loan, the Trustee may attempt to sell the Mortgage Loan for the price
which was to be paid by the Master Servicer. A Converted Mortgage Loan will
remain in the Trust as a Mortgage Loan with a fixed Mortgage Rate unless and
until purchased by the Master Servicer or otherwise sold in accordance with
the Pooling and Servicing Agreement. So long as serves as Master
Servicer, the failure of the Master Servicer to repurchase a Converted
Mortgage Loan, after notice, is an Event of Default under the Pooling and
Servicing Agreement. The Trustee and a successor master servicer under the
Pooling and Servicing Agreement will not have any obligation to purchase any
Converted Mortgage Loan.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee payable to the Master Servicer will be payable out of each
interest payment on a Mortgage Loan and will be an adjustable amount equal to
one month's interest (or in the case of any payment of interest which
accompanies a Principal Prepayment made by the Mortgagor, interest for the
number of days covered by such payment of interest) at the applicable
Servicing Fee Rate on the principal balance of such Mortgage Loan. The
Servicing Fee Rate is not the same for each Mortgage Loan. The Servicing Fee
Rate is basis points. The Master Servicer will be permitted to retain or
withdraw from the Certificate Account, in respect of each interest payment
received on a Mortgage Loan, the Servicing Fee with respect to such Mortgage
Loan, calculated on the basis of the same principal amount and period
respecting which the interest payment is computed. In addition, , as
holder of the Subsidiary Residual Interest Certificate, will receive an amount
equal to (i) with respect to each Mortgage Loan, the principal balance of such
Mortgage Loan times the
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<PAGE>
difference, if any, between the Mortgage Rate (net of the Servicing Fee) and
the Subsidiary Pass-Through Rate, [less such amount as may be necessary to
assure that the distributions made to the Subsidiary Regular Certificateholder
on the related Distribution Date include an amount equal to one full month's
interest at the applicable Subsidiary Pass-Through Rate], and (ii) gains, if
any, arising from sale of Mortgaged Property acquired as a result of
foreclosure in respect of a Mortgage Loan or arising from a repurchase
pursuant to an optional termination. See "Certain Federal Income Tax
Consequences" in the Prospectus. See "Description of the Certificates--
Servicing Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Master Servicer.
The Master Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
any amounts payable to the Servicer or any other sub-servicer, the fees and
expenses of the Trustee and the other various items of expense enumerated in
the Prospectus.
[ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH PREPAID MORTGAGE LOANS
When a Mortgage Loan is prepaid, in whole or in part, between schedule
payment dates, the Mortgagor pays interest on the amount prepaid only to the
date of prepayment and not thereafter. As a result, the aggregate amount of
interest which would otherwise be distributed to Certificateholders may be
reduced. To mitigate this reduction in yield, the Pooling and Servicing
Agreement provides that with respect to any such Principal Prepayment, the
Servicing Fee otherwise payable to the Master Servicer will be reduced in such
amount, if any, as may be necessary to assure that the distributions made to
Certificateholders on the related Distribution Date include an amount equal to
one full month's interest at the applicable Subsidiary Pass-Through Rate for
such Mortgage Loan. Thus, so long as there are sufficient funds otherwise
payable from the Servicing Fee on each Distribution Date, Certificateholders
will always receive a full month's interest with respect to any such principal
prepayments. See "Distributions" above.]
THE TRUSTEE
, a banking association, will act as Trustee for the Certificates
pursuant to the Pooling and Servicing Agreement. The Trustee's principal
executive offices are located at , and its telephone number is ( ) .
REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
Under certain circumstances, the Master Servicer may be required to
repurchase one or more Mortgage Loans from the Subsidiary Trust Fund.
Generally, the repurchase obligation arises when the documentation with
respect to a Mortgage Loan is discovered to be materially defective or when a
breach of a representation or warranty is discovered, which breach materially
and adversely affects the interests of Certificateholders. See "Description of
the Certificates--Assignment of Mortgage Loans" in the Prospectus.
In the event of a repurchase of a Mortgage Loan, the repurchase price would
be equal to the sum of the outstanding principal balance of such Mortgage Loan
on the date of repurchase plus interest accrued thereon at the Subsidiary
Pass-Through Rate to the first day of the month following the month in which
such repurchase is effected; provided, however, that if such repurchase at the
price so determined would result in net income to the Subsidiary Trust Fund
that would be subject to tax as income derived from a "prohibited
transaction," as defined in Section 860F(a)(2) of the Code, or would otherwise
subject the Subsidiary Trust Fund to tax, then, notwithstanding the foregoing.
the repurchase price for such Mortgage Loan shall be the maximum amount such
that the repurchase would not result in such tax, as evidenced by an Opinion
of Counsel, in form and substance satisfactory to the Trustee, which shall be
delivered in the event of any such reduction.
Within a period of three months, or in the case of a "defective obligation"
within the meaning of Section 860(G)(a)(4)(B) of the Code, within two years
from the Delivery Date of the Certificates, the Depositor or the
S-27
<PAGE>
Master Servicer may, instead of repurchasing a Mortgage Loan required to be
repurchased pursuant to the Pooling and Servicing Agreement, deliver a
mortgage loan (a "Replacement Mortgage Loan") in substitution for any Mortgage
Loan that would otherwise have been repurchased (a "Deleted Mortgage Loan").
Generally, the repurchase obligation arises when the documentation with
respect to a Mortgage Loan is discovered to be materially defective or when a
breach of a representation or warranty is discovered, which breach materially
and adversely affects the interests of Certificateholders. See "Description of
the Certificates--Assignment of Mortgage Loans" in the Prospectus.
To the extent that the Depositor or the Master Servicer, as the case may be,
elects to deliver a Replacement Mortgage Loan for a Mortgage Loan it would
otherwise be obligated to repurchase, such Replacement Mortgage Loan must, on
the date of such substitution: (a) have an outstanding principal balance,
after deduction of payments due in the month of substitution, not in excess of
the principal balance of the Deleted Mortgage Loan; (b) have a Maximum
Mortgage Rate no lower than (and not more than 1% per annum higher than) the
Maximum Mortgage Rate of the Deleted Mortgage Loan; (c) have the same Index,
Gross Margin, Periodic Mortgage Rate Cap and frequency of Adjustment Dates as
those of the Deleted Mortgage Loan; (d) be accruing interest at a rate no
lower than and have the same Payment Adjustment Date as the Payment Adjustment
Date of the Deleted Mortgage Loan; (e) have a Loan-to-Value Ratio no higher
than that of the Deleted Mortgage Loan; (f) have a term to maturity no greater
than (and not more than one year less than) that of the Deleted Mortgage Loan;
and (g) comply with each representation and warranty with respect to Mortgage
Loans in the Pooling and Servicing Agreement. Upon any such substitution, the
Depositor or the Master Servicer, as the case may be, will deliver the
Mortgage File relating to the Replacement Mortgage Loan to the Trustee and the
Trustee will release the Deleted Mortgage Loan (or any property acquired in
respect thereof) from the Subsidiary Trust Fund.
For any month in which a Replacement Mortgage Loan is substituted for any
Deleted Mortgage Loan, the Master Servicer will determine the amount, if any,
by which the aggregate principal balance of all such Replacement Mortgage
Loans as of the date of substitution is less than the aggregate principal
balance of all such Deleted Mortgage Loans (after application of the scheduled
principal portion of the monthly payments due in such month). The amount of
any such shortage shall be deposited by the Depositor or the Master Servicer,
as the case may be, from its own funds into the Certificate Account in the
month of substitution, without any reimbursement therefor, and will be
distributed to Certificateholders on the Distribution Date in the month
following such substitution. See "Description of the Certificates--
Distributions on Certificates" in the Prospectus.
VOTING RIGHTS
At any time that any Class A Certificates or Class B Certificates are
outstanding, the voting rights of a Class A Certificate or Class B Certificate
are obtained by dividing the then outstanding principal balance of such
Certificate by the aggregate principal balances at such time of all the Class
A Certificates and Class B Certificates.
[OPTIONAL TERMINATION
The Pooling and Servicing Agreement provides that the holder of the
Subsidiary Residual Interest Certificate, at its option, may purchase from the
Subsidiary Trust Fund all Mortgage Loans remaining in the Mortgage Pool and
all property acquired in respect of a Mortgage Loan, provided that the
aggregate unpaid balance of the Mortgage Loans at the time of any such
repurchase is less than % of the Cut-off Date Principal Balance.
Additionally, the holder of the Class B[-2] Certificate, at its option, may
purchase from the Master Trust Fund all Subsidiary Regular Interests remaining
in the Master Trust Fund and all other property in such Trust Fund, provided
that the Subsidiary Regular Interests at the time of any such repurchase
represent interests in less than % of the Cut-off Date Principal Balance of
the Mortgage Loans. The purchase price for any such repurchase will be 100% of
the unpaid principal balance of each Mortgage Loan or Subsidiary Regular
Interest, as the case may be, together with accrued and unpaid interest with
respect to each Mortgage Loan through the last day of the month of such
repurchase. Any property acquired in respect of a Mortgage Loan and remaining
in
S-28
<PAGE>
the applicable Trust Fund at the time such optional termination is effected
will be purchased at its appraised value. Either of the above purchases would
thereby effect early retirement of the Class A Certificates.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
REMIC ELECTION
An election will be made to treat the assets of the Subsidiary Trust Fund as
a REMIC (the "Subsidiary REMIC") for federal income tax purposes. Amounts (i)
with respect to each Mortgage Loan equal to the principal balance of such
Mortgage Loan times the difference, if any, between the Mortgage Rate (net of
the Servicing Fee) and the Subsidiary Pass-Through Rate and (ii) representing
gains, if any, arising from the sale of Mortgaged Property acquired as a
result of foreclosure in respect of a Mortgage Loan or arising from a
repurchase pursuant to an optional termination will comprise the residual
interest in the Subsidiary REMIC. The regular interests in the Subsidiary
REMIC in the aggregate will encompass the rights to all other amounts
distributable with respect to the Mortgage Loans. An election will be made to
treat as a REMIC (the "Master REMIC") the Master Trust Fund comprised of the
regular interests in the Subsidiary REMIC. The Class A [and B-l] Certificates
will represent the regular interests in the Master REMIC. initially will
retain the residual interests in both the Master REMIC and the Subsidiary
REMIC. See "Certain Federal Income Tax Consequences" in the Prospectus. The
Internal Revenue Service has issued permitting REMICs to issue regular interests
bearing variable rates based on (i) certain fixed formulas using an objective
interest index or (ii) a weighted average of the interest rates of the
"qualified mortgages" held by the REMIC.
[ORIGINAL ISSUE DISCOUNT
The Class A Certificates may be issued with original issue discount.
Although no rulings or regulations have been issued by the Internal Revenue
Service clarifying the application of the statutory provisions requiring the
use of a prepayment assumption for the accrual of original issue discount on
REMIC regular interests to variable rate regular interests and the matter is,
therefore, not entirely certain, it appears likely that the rules of the Code
relating to original issue discount would be applied to include in income as
original issue discount any excess of the stated redemption price at maturity
over the issue price of the Class A Certificate as if such Certificate would
bear interest in each period after the first Distribution Date at a rate
determined as if the Index were to remain constant over the life of such
Certificate at its value as of the Closing Date (or possibly as of the date of
pricing of the Certificates). Applying that assumption would effectively
convert such Class A Certificate to a debt instrument having an initial fixed
rate followed by a higher rate in subsequent periods to which the rules
described in the Prospectus under the heading "Certain Federal Income Tax
Consequences--REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" could be applied for purposes of
determining the portion of the excess of the stated redemption price at
maturity of a Class A Certificate over the issue price of such Certificate
that accrues each day. In addition to the daily accrual of the discount
described above, each Class A Certificateholder will be required to accrue,
and include in income daily, the stated interest on each Class A Certificate
to the extent not included in the stated redemption price at maturity. For a
more detailed discussion of the accrual of original issue discount, see
"Certain Federal Income Tax Consequences--REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates" in the Prospectus.]
Absent clarification in the regulations, the Master Servicer intends to
report original issue discount to the Internal Revenue Service and to
Certificateholders in the manner described above, using a prepayment
assumption that is a Standard Prepayment Assumption ("SPA") of %. A
prepayment assumption of 100% of SPA assumes a prepayment rate of 0.2% per
annum of the then outstanding principal balance of such mortgage loans in the
first month of the lives increased by 0.2% per annum each month thereafter
until the thirtieth such month. Beginning in the thirtieth month and in each
month thereafter during the lives of the mortgage loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum. No representation is made that the
Mortgage Loans will prepay at this rate or any other rate.
S-29
<PAGE>
LEGAL INVESTMENT
The Class A Certificates will constitute, for so long as they are rated as
described below, "mortgage-related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the "Enhancement Act"), and, as such,
will be legal investments for certain entities to the extent provided in the
Enhancement Act. Such investments, however, will be subject to general
regulatory considerations governing investment practices under state and
federal law. Institutions whose investment activities are subject to review by
certain regulatory authorities may be, or may become, subject to restrictions,
which may be retroactively imposed by such regulatory authorities, on the
investment by such institutions in certain mortgage-related securities.
Investors should consult their own legal advisors to determine whether, and to
what extent, the Class A Certificates may be purchased by such investors. See
"Legal Investment" in the Prospectus.
RATING
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated at least " " by . (" "). Securities rated " " by
are " ."
[The ratings of Moody's on mortgage pass-through Certificates address the
likelihood of the receipt by certificateholders of all distributions on the
underlying mortgage loans. Moody's rating opinions address the structural,
legal, issuer and tax-related aspects associated with the Certificates,
including the nature of the underlying mortgage loans. Moody's ratings on
pass-through Certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors (including, in the case of the Class A
Certificates, prepayments resulting from the repurchase of Converted Mortgage
Loans) or of the degree to which such payments might differ from that
originally anticipated. Moody's rating of the Class A Certificates will not
represent any assessment of the Master Servicer's ability to repurchase
Converted Mortgage Loans. The rating does not address the possibility that
Certificateholders might suffer a lower than anticipated yield.]
ERISA CONSIDERATIONS*
[A fiduciary of any employee benefit plan and certain other retirement plans
and arrangements (including individual retirement accounts, and annuities,
Keogh plans, and collective investment funds in which such funds, accounts,
annuities or arrangements are invested) that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the Code
should carefully review with legal advisors whether the purchase or holding of
Certificates could give rise to a transaction that is prohibited or not
otherwise permissible either under ERISA or the Code. See "ERISA
Considerations" in the Prospectus.]
PLAN OF DISTRIBUTION
[The Master Servicer has agreed, pursuant to the Purchase Agreement dated
(the "Purchase Agreement"), to pay the Depositor a fee of $ in connection
with the exchange of the Certificates and the residual interest in the
Subsidiary REMIC for the Mortgage Loans. The Depositor will sell the
Certificates and such residual interest to the Master Servicer in exchange for
the Mortgage Loans subject to the terms and conditions set forth in the
Purchase Agreement. Pursuant to the Purchase Agreement, the Depositor or its
affiliates have certain preferential rights in connection with resales of the
Class A Certificates.]
[ may be deemed, by virtue of the exchange, to be an "Underwriter"
within the meaning of the Securities Act of 1933 in connection with reoffers
and sales by of the Class A Certificates. Until , such reoffers and
sales by Master Servicer will be made pursuant to this Prospectus Supplement
and the
- --------
* [Note: If the Series of Certificates offered pursuant to this Version F
Prospectus Supplement evidences interests in Contracts, the disclosure to be
set forth will be substantially similar to the disclosure set forth in
Version E under "ERISA Considerations" or in the Prospectus under "ERISA
Considerations."]
S-30
<PAGE>
Prospectus, as amended and supplemented as of the date of such reoffering.
After such date, this Prospectus Supplement and Prospectus may not be used in
connection with such reoffers and sales. The Depositor has been advised by
that such reoffers and sales may be made by from time to time in
negotiated transactions or otherwise at varying prices determined at the time
of sale, and may be made to or through one or more Underwriters, agents or
dealers, including, without limitation, the Depositor or one of its
affiliates, who may receive compensation in the form of underwriting
discounts, concessions or commissions.]
[The Purchase Agreement provides that will indemnify the Depositor and
its affiliates against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute to payments the Depositor and its
affiliates, as the case may be required to make in respect thereof.]
[The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative.] The [Underwriter[s] named below[
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amounts[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
- ----------------------------------------------- ------------ ------------ -----
<S> <C> <C> <C>
CS First Boston Corporation.................... $ $ $
Total........................................ $ $ $ ]
</TABLE>
[The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Class A Certificates if any are purchased.]
The Underwriter[s] [[has] [have] advised the Depositor that the
Underwriter[s] propose[s] to offer the Class A Certificates from time to time
for sale in one or more negotiated transactions or otherwise at prices to be
determined at the time of sale. The Underwriter[s] may effect such
transactions by selling the Class A Certificates to or through dealers and
such dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter[s] and any purchasers of the
Class A Certificates for whom they may act as agent.
The Underwriter[s] and any dealers that participate with the Underwriter[s]
in the distribution of the Certificates may be deemed to be underwriters, and
any discounts or commissions received by them and any profit on the resale of
Class A Certificates by them may be deemed to be underwriting discounts or
commissions, under the Securities Act of 1933, as amended (the "Act").
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus 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 sale.]
[The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933 or to
contribute to payments the Underwriter[s] may be required to make in respect
thereof.]
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by [Sidley & Austin] [Cadwalader, Wickersham & Taft]. The
material federal income tax consequences of the Class A Certificates will be
passed upon for the Depositor by [Sidley & Austin] [Cadwalader, Wickersham &
Taft].
S-31
<PAGE>
USE OF PROCEEDS
[The Certificates are being initially sold and delivered by the Depositor to
in exchange for the Mortgage Loans to be deposited by the Depositor in
the Subsidiary Trust Fund. Other than its fee in connection with such exchange
the Depositor will receive no other proceeds from the sale of the
Certificates. may subsequently sell the Certificates in one or more
transactions. It is expected that will use the proceeds of such sale for
general corporate purposes. See "Plan of Distribution" herein.
[The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more
affiliates.
S-32
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws
of any State.
SUBJECT TO COMPLETION, DATED , 19
PROSPECTUS SUPPLEMENT
(To Prospectus Dated December __ [VERSION G]
$________________ (APPROXIMATE)
CS FIRST BOSTON MORTGAGE SECURITIES CORP.
Depositor
Adjustable Rate Conduit Mortgage Pass-Through Certificates, Series
Class A-1 Certificates
___________________
The Adjustable Rate Conduit Mortgage Pass-Through Certificates, Series
(the "Certificates") will be comprised of three classes of certificates: Class
A-1, Class IO and Class R. Only the Class A-1 Certificates are offered hereby.
The Certificates evidence 100% of the beneficial ownership interest in a trust
fund (the "Trust Fund") to be created by CS First Boston Mortgage Securities
Corp. (the "Depositor"), the assets of which will consist primarily of (a)
classes (or portions of classes) of mortgage pass-through certificates (the
"Mortgage Certificates"), each of which is part of one of series of mortgage
pass-through certificates initially sold by the Resolution Trust Corporation and
acquired by the Depositor in the secondary market, (b) a Reserve Fund and (c) a
Yield Support Agreement provided by . The Certificates will be
issued pursuant to a Pooling Trust Agreement (the "Pooling Agreement") among the
Depositor, as Certificate Administrator and
, as Trustee. See "Description of the Certificates."
As more fully described herein, commencing with a rate of ______% per annum,
interest will accrue on the Class A-1 Certificates at a per annum rate 0.30% in
excess of the London interbank offered rate for three-month U.S. dollar deposits
("LIBOR"),determined quarterly as set forth herein ("LIBOR"). The amount of
interest accrued on the Class A-1 Certificates will be reduced by the amount of
certain prepayment interest shortfalls and deferred interest as described herein
under "Description of Certificates--Interest." Interest generally will be paid
quarterly, to the extent funds are available therefor as described herein on the
25th day of each February, May, August and November or, any such day is not a
business day on the next succeeding business day, beginning in ;
provided, however, that if all distributions on the Mortgage Certificates due on
such day have not been received prior to 1:00 p.m. (New York time) on such day,
distributions will be made on the next succeeding business day. Each such date
is referred to as a "Distribution Date." See "Summary of Terms--Distribution
Date" and "Description on the Certificates" herein.
Principal payments on the Class A-1 Certificates will be made on each
Distribution Date to the extent funds are available therefor, as described
herein, until the Class A-1 Certificates are paid in full. See "Description of
the Certificates--Distributions of Interest and Principal."
PROSPECTIVE INVESTORS IN THE CERTIFICATES SHOULD CONSIDER THE FACTORS DISCUSSED
UNDER "RISK FACTORS" IN THIS PROSPECTUS SUPPLEMENT ON PAGE S-17.
(COVER CONTINUED ON NEXT PAGE)
THE CLASS A-1 CERTIFICATES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF CS
FIRST BOSTON MORTGAGE SECURITIES CORP., THE TRUSTEE, THE CERTIFICATE
ADMINISTRATOR OR ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES NOR THE
UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY OR BY ANY OTHER PARTY.
____________________
THE CLASS A-1 CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER ERISA
CONSIDERATIONS HEREIN AND IN THE ACCOMPANYING PROSPECTUS.
____________________
The Class A-1 Certificates will be offered by CS First Boston Corporation
("First Boston") from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Class A-1 Certificates are anticipated to be
approximately $_____________, plus accrued interest thereon at the Certificate
Rate from , but before deducting expenses payable by the
Depositor, estimated to be $ ___________.
The Class A-1 Certificates are offered by First Boston when, as and if delivered
to and accepted by First Boston, subject to prior sale, withdrawal or
modification of the offer without notice, the approval of counsel and other
conditions. It is expected that the Class A-1 Certificates will be delivered
only through the same day funds settlement system of the Depository Trust
Company on or about .
CS FIRST BOSTON
________________________________________________________________________________
The date of this Prospectus Supplement is [ ], 19
VERSION G
<PAGE>
On or about the Distribution Date occurring in and on each
succeeding Distribution Date until successful, the Trustee will attempt to sell
the Mortgage Certificates at auction for a price which, together with amounts on
deposit in the Reserve Fund, is at least equal to the then-outstanding Principal
Balance of the Class A-1 Certificates, plus interest accrued and unpaid thereon.
The proceeds of any such sale of the Mortgage Certificates, together with funds
on deposit in the Reserve Fund (to the extent needed), will be used to retire
the Class A-1 Certificates.
Prospective investors should consider:
. The yield on the Class A-1 Certificates will be sensitive to, among
other things, the rate and timing of principal payments on the
Mortgage Certificates (which likely will be different for different
Mortgage Certificates) and the level of LIBOR.
. As described under "Special Consideration--Basis Risk" and "Yield
and Prepayment Considerations--Basis Risk; LIBOR" herein, under some
prepayment and interest rate scenarios, an investor may not receive
all interest accrued on the Class A-1 Certificates with respect to
one or more Distribution Dates on such Distribution Dates, or in
certain cases, prior to the retirement of the Class A-1
Certificates.
The Class A-1 Certificates will be issued only in book-entry form, and the
purchasers thereof will not be entitled to receive definitive certificates
except in the limited circumstances set forth herein. The Class A-1
Certificates will be registered in the name of Cede & Co., as nominee of The
Depository Trust Company, which will be the "holder" or "Certificateholder" of
such Certificates, as such terms are used herein. See "Description of the
Certificates" herein.
The Class A-1 Certificates may not be an appropriate investment for
individual investors. There is currently no secondary market for the Class A-1
Certificates and there can be no assurance that a secondary market will develop
or, if it does develop, that it will provide Certificateholders with liquidity
of investment at any particular time or for the life of the Class A-1
Certificates. First Boston intends to act as a market maker in the Class A-1
Certificates, subject to applicable provisions of federal and state securities
laws and other regulatory requirements, but is under no obligation to do so and
any such market making may be discontinued at any time. There can be no
assurance that any investor will be able to sell a Class A-1 Certificate at a
price which is equal to or greater than the price at which such Certificate was
purchased.
An election will be made to treat the portion of the Trust Fund consisting
of the Mortgage Certificates as a real estate mortgage investment conduit (the
"REMIC") for federal income tax purposes. As described more fully herein and in
the Prospectus, the payments on the Class A-1 Certificates which are derived
from the Mortgage Certificates and the Class IO Certificates will constitute
"regular interests" in the REMIC and the Class R Certificate will constitute the
"residual interest" in the REMIC. See "Summary Information--Federal Income Tax
Status" and "Federal Income Tax Considerations" herein and "Certain Federal
Income Tax Consequences" in the Prospectus.
The Class A-1 Certificates represent one Class of a separate Series of
Certificates which Class is being offered by the Depositor pursuant to the
Prospectus dated accompanying this Prospectus Supplement.
The Prospectus shall not be considered complete without this Prospectus
Supplement and any prospective investor shall not purchase any Certificate
offered hereby unless it shall have received both the Prospectus and this
Prospectus Supplement. The Prospectus contains important information regarding
this offering which is not contained herein, and prospective investors are urged
to read the Prospectus and this Prospectus Supplement in full.
____________________
UNTIL ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A-1
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS 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 SALE.]
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and
in the Prospectus. Capitalized terms used herein and not defined shall have
the meaning given in the Prospectus or the Pooling Agreement, as
applicable. See "Index of Significant Prospectus Supplement Definitions"
herein and "Index of Significant Definitions" in the Prospectus.
Securities Offered $________ (approximate) initial Principal
Balance of Adjustable Rate Conduit Mortgage
Pass-Through Certificates, Series ,
Class A-1, evidencing a class of "regular
interests" in the REMIC.
Other Securities Adjustable Rate Conduit Mortgage Pass-Through
Certificates, Series , Class IO,
evidencing a class of "regular interests" in
the REMIC, and the Class R Certificate,
evidencing the "residual interest" in the
REMIC. The Class IO Certificates and the
Class R Certificate are not offered hereby.
The Class A-1, Class IO and Class R
Certificates are referred to collectively
herein as the "Certificates."
Forms of Certificates;
Denominations The Class A-1 Certificates will be issued as
Book-Entry Certificates, through the
facilities of The Depository Trust Company.
See "Description of the Certificates--Book-
Entry Form" herein. The Class A-1
Certificates will be issued, maintained and
transferred in book-entry form only in minimum
denominations of $1,000 initial principal
balance and integral multiples of $1,000
initial principal balance in excess thereof.
Depositor CS First Boston Mortgage Securities Corp.
Certificate Administrator Certain administrative functions with respect
to the Certificates will be performed by
Trustee
Cut-off Date (after giving effect to
distributions on the Mortgage Certificates on
such date).
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Closing Date On or about .
Final Scheduled
Distribution Date _______, 20__. The Final Scheduled
Distribution Date has been set to coincide
with the Distribution Date succeeding the
latest maturity date of any Mortgage Loan in
any Underlying Mortgage Pool.
The Trust Fund The Class A-1 Certificates evidence interests
in a trust fund (the "Trust Fund"), the assets
of which will consist primarily of (a)
classes (or portions of classes) of mortgage
pass-through certificates (the "Mortgage
Certificates"), each of which is part of one
of series of mortgage pass-through
certificates initially sold by the Resolution
Trust Corporation and which were acquired by
the Depositor in the secondary market, (b) a
Reserve Fund and (c) a Yield Support Agreement
provided by See "--The Reserve
Fund" and "--The Yield Support Agreement"
below. The Trust Fund will be established and
the Certificates will be issued pursuant to a
Pooling Trust Agreement (the "Pooling
Agreement"), dated as of .
See "Description of the Certificates--General"
herein.
Risk Factors For discussion of risk factors that should be
considered with respect to an investment in
the Certificates, see "Risk Factors" herein
and in the related Prospectus.
Distribution Date Distributions on the Certificates will be made
quarterly on the 25th day of each February,
May, August and November, beginning in
February , or, if any such day is not a
business day, the following business day;
provided, however, that if the Trustee has not
received all distributions on the Mortgage
Certificates due on or before such day prior
to 1:00 p.m. New York time on such day,
payments on the Certificates will be made on
the next succeeding business day. Each such
day, a "Distribution Date."
Record Date The "Record Date" for each Distribution Date
will be the close of business on the last
business day of the month preceding the month
in which such Distribution Date occurs.
Distributions on
Certificates Interest Distributions. The amount of
interest payable on the Class A-1 Certificates
on each Distribution
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Date (the "Interest Accrual Amount") will be
equal to the interest accrued at the
applicable rate of interest from the 25th day
of the third month preceding the month in
which such Distribution Date occurs through
the 24th of the month in which such
Distribution Date occurs (each, an "Interest
Accrual Period"). If Interest Available Funds
(as defined herein) with respect to a
Distribution Date are insufficient to pay the
Interest Accrual Amount on such date, any
shortfall in the amount paid on account of
interest on such date will be carried forward
to succeeding Distribution Dates and will bear
interest until paid at the Class A-1 Pass-
Through Rate in effect from time to time.
Payments received on the Mortgage Certificates
on account of interest will be distributed on
each Distribution Date first to pay to the
holders of the Class A-1 Certificates their
respective Interest Accrual Amounts, next to
pay to holders of the Class A-1 Certificates
interest due them with respect to prior
Distribution Dates that remains unpaid
(together with interest on such amounts), and
then to pay current interest and any overdue
interest to the Certificate Administrator for
deposit into the Reserve Fund in respect of
the Class IO Certificates, all as more fully
set forth herein under "Description of the
Certificates--Distributions on the
Certificates." DUE TO THE FACTORS DISCUSSED
UNDER "SPECIAL CONSIDERATIONS -- BASIS RISK,"
INTEREST AVAILABLE FUNDS MAY NOT ALWAYS BE
SUFFICIENT TO PAY THE HOLDERS OF THE CLASS A-1
CERTIFICATES THEIR FULL INTEREST ACCRUAL
AMOUNTS ON EACH DISTRIBUTION DATE.
The Interest Accrual Amount for the Class A-1
Certificates on each Distribution Date will
equal the product of (i) one-fourth of the
Class A-1 Pass-Through Rate for such
Distribution Date and (ii) the outstanding
Principal Balance thereof (subject to
reduction in respect of Deferred Interest and
Nonsupported Interest Shortfalls incurred with
respect to the Mortgage Loans underlying the
Mortgage Certificates). The Interest Accrual
Amount for the Class IO Certificates on each
Distribution Date will equal the product of
(i) one-
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fourth of the Class IO Pass-Through Rate for
such Distribution Date and (ii) the
outstanding Principal Balance of the Class A-1
Certificates, subject to reduction in respect
of Deferred Interest and Nonsupported Interest
Shortfalls.
The "Class A-1 Pass-Through Rate" during the
initial Interest Accrual Period will be __%
per annum. During each succeeding Interest
Accrual Period, the Class A-1 Pass-Through
Rate will be 0.30% in excess of the arithmetic
mean of the London interbank offered rate
quotations for three-month Eurodollar deposits
("LIBOR") on the second business day prior to
the first day of such Interest Accrual Period
(each, a "Reset Date"), determined as
described herein under "Description of the
Certificates -- Determination of LIBOR."
During each Interest Accrual Period the "Class
IO Pass-Through Rate" will be a variable rate
equal to the excess, if any, of (X) the
weighted average of the Weighted Average
Mortgage Certificate Pass-Through Rate, for
each of the Underlying Series Distribution
Dates that occurs in the "collection Period"
related to such Interest Accrual Period
(determined as described herein) (such
weighted average, the "Quarterly Mortgage
Certificate Pass-Through Rate") over (Y) the
Class A-1 Pass-Through Rate for such Interest
Accrual Period. The "Weighted Average
Mortgage Certificate Pass-Through Rate" with
respect to any Underlying Series Distribution
Date will be equal to the weighted average of
the pass-through rates of the Mortgage
Certificates applicable to such Underlying
Series Distribution Date, weighted on the
basis of the outstanding principal balances
thereof prior to distributions on such
Underlying Series Distribution Date. The
Weighted Average Mortgage Certificate Pass-
Through Rate with respect to the Underlying
Series Distribution Date in is
expected to be approximately ____%. The
"Collection Period" with respect to each
Distribution Date is the period commencing on
the day after the previous Distribution Date
(or, in the
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case of the first Collection Period, on
November 26, 1995) and ending on such
Distribution Date.
Interest on the Certificates will be calculated
on the basis of actual days elapsed in a 360-
day year.
Principal Distributions. Distributions in
respect of principal on the Class A-1
Certificates will be made on each Distribution
Date in an amount equal to the sum of all
amounts distributed in respect of principal on
the Mortgage Certificates during the
Collection Period ending on such Distribution
Date.
Reserve Fund On the Closing Date, the Depositor will deposit
or cause to be deposited into an account (the
"Reserve Fund") maintained by the Certificate
Administrator, (a) cash in the amount of $
million, and (b) the Class IO Certificates.
All distributions on the Class IO Certificates
will be made to the Certificate Administrator
for deposit into the Reserve Fund. Amounts on
deposit in the Reserve Fund from time to time
will be available on each Distribution Date to
be paid to holders of the Class A-1
Certificates to the extent that distributions
on account of interest received on the
Mortgage Certificates in the related
Collection Period are insufficient to pay such
holders, Interest Accrual Amount for such date
together with any overdue interest. NO
ASSURANCE CAN BE GIVEN THAT AMOUNTS ON DEPOSIT
IN THE RESERVE FUND FROM TIME TO TIME WILL,
TOGETHER WITH THE BALANCE OF INTEREST
AVAILABLE FUNDS ON ANY DISTRIBUTION DATE, BE
SUFFICIENT TO ALLOW FULL DISTRIBUTIONS IN
RESPECT OF INTEREST ON THE CLASS A-1
CERTIFICATES ON SUCH DISTRIBUTION DATE. The
Reserve Fund will be an asset of the Trust
Fund, but will not be an asset of the REMIC.
See "Description of the Certificates --
Reserve Fund" herein.
The Yield Support
Agreement On the Closing Date, the Trustee, acting on
behalf of the holders of the Class A-1
Certificates, will enter into a yield support
agreement (the "Yield Support Agreement") with
, a __________ corporation (the
"Yield Support Counterparty").
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Pursuant to the terms of the Yield Support
Agreement, in the event that LIBOR on any
Reset Date (determined as described herein
under "Description of Certificates--
Determination of LIBOR") exceeds a rate equal
to LIBOR as set with respect to the first
Distribution Date plus 2.0% (the "Strike
Rate"), the Yield Support Counterparty will be
obligated to pay to the Certificate
Administrator, for the benefit of the holders
of the Class A-1 Certificates, on the
Distribution Date related to the Interest
Accrual Period following such Reset Date, an
amount equal to the product of (x) the
difference between LIBOR at such Reset Date
(determined as described above) and the Strike
Rate and (y) Principal Balance of the Class A-
1 Certificates outstanding prior to
distributions on such Distribution Date.
Amounts paid by the Yield Support Counterparty
on any Distribution Date will be available to
make distributions in respect of interest on
the Class A-1 Certificates and, to the extent
not required for such distributions, will be
paid to the Certificate Administrator for
deposit into the Reserve Fund. NO ASSURANCE
CAN BE GIVEN THAT AMOUNTS PAID BY THE YIELD
SUPPORT COUNTERPARTY ON ANY DISTRIBUTION DATE
WILL, TOGETHER WITH THE BALANCE OF THE
INTEREST AVAILABLE FUNDS FOR SUCH DISTRIBUTION
DATE, BE SUFFICIENT TO ALLOW FULL
DISTRIBUTIONS IN RESPECT OF INTEREST ON THE
CLASS A-1 CERTIFICATES ON SUCH DISTRIBUTION
DATE OR ON ANY FUTURE DISTRIBUTION DATES.
The Yield Support Agreement will terminate upon
the reduction of the Principal Balance of the
Class A-1 Certificates to zero.
The Yield Support Agreement also may be
terminated by the Trustee under the
circumstances described herein under
"Description of the Certificates -- The Yield
Support Agreement -- Termination."
Mandatory Auction Prior to the Distribution Date occurring in
, the Trustee will cause the
Certificate Administrator to hold an auction
(the "Auction") for the sale of the Mortgage
Certificates. If the highest bid, together
with amounts on deposit in the Reserve
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Fund, is at least equal to the then
outstanding Principal Balance of the Class A-1
Certificates, together with interest accrued
and unpaid thereon through such Distribution
Date, the Trustees will sell the Mortgage
Certificates and pay in full the Class A-1
Certificates on . If no
sufficient bid is obtained, the Trustee will
continue to hold the Mortgage Certificates and
the Certificate Administrator will continue to
make required distributions of interest and
principal on the Class A-1 Certificates. The
auction procedure will be repeated with
respect to each succeeding Distribution Date
until a sufficiently high bid is obtained.
Optional Repurchase of
the Mortgage Certificates The beneficial owner of the Class IO
Certificates will have the option to purchase
the Mortgage Certificates from the Trust Fund
on any Distribution Date on which the Mortgage
Certificate Balance is equal to 5% or less of
the original Mortgage Certificate Balance.
See "The Pooling Agreement -- Termination"
herein.
[Expense Fund The Depositor will deposit in an account
established by the Trustee with the
Certificate Administrator (the "Expense Fund")
on the Closing Date cash in an amount
necessary to meet the requirements of each
Rating Agency. Funds on deposit in the
Expense Fund will be used to pay amounts owing
to the Trustee pursuant to the Pooling
Agreement and the fees of the Certificate
Administrator. Funds on deposit in the
Expense Fund will not be available to make
payments on the Certificates.]
Ratings It is a condition of the issuance of the
Certificates that the Class A-1 Certificates
be rated at least "Aaa" by Moody's Investors
Service, Inc. ("Moody's") and "AAA" by
Standard & Poor's ("S&P").
THE RATINGS OF THE RATING AGENCIES DO NOT
ADDRESS THE LIKELIHOOD OF PAYMENT OF INTEREST
ON THE CLASS A-1 CERTIFICATES AT A RATE IN
EXCESS OF THE QUARTERLY MORTGAGE CERTIFICATE
PASS-THROUGH RATE.
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The ratings of Moody's and S&P on mortgage
securities address the likelihood of the
receipt by the holders thereof of all
distributions of principal and interest to
which such holders are entitled (except as set
forth in the preceding paragraph). There is
no assurance that such ratings will continue
for any period of time or that they will not
be revised or withdrawn entirely by such
rating agency if, in its judgment,
circumstances so warrant. A revision or
withdrawal of such ratings may have an adverse
effect on the market price of the Class A-1
Certificates. A security rating is not a
recommendation to buy, sell or hold
securities.
The Depositor has not requested a rating on the
Class A-1 Certificates from any other rating
agency, although data with respect to the
Mortgage Loans and Mortgage Certificates may
have been provided to other agencies solely
for their informational purposes. There can
be no assurance that if a rating is assigned
to the Class A-1 Certificates by any other
rating agency, such rating will be as high as
that assigned by Moody's and S&P. See
"Rating."
Mortgage Certificates The assets of the REMIC will consist
primarily of classes (or a portion of such
classes) of senior mortgage pass-through
certificates (the "Mortgage Certificates"),
each of which is a part of one of separate
series of mortgage pass-through certificates
sold by the Resolution Trust Corporation
("RTC") (each an "Underlying Series"),
identified in the following table.
--------------------------------------------------------------
UNDERLYING SERIES
--------------------------------------------------------------
Series Designation Classes of Mortgage Certificates
------------------------ --------------------------------
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
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--------------------------------------------------------------
Each of the Mortgage Certificates evidences a
senior interest in a mortgage pool (each, an
"Underlying Mortgage Pool") previously formed
by the RTC. Payments on each Class of
Mortgage Certificates will be made on the 25th
day of each month (or if such day is not a
business day, the succeeding business day)
(each, an "Underlying Series Distribution
Date") primarily from amounts received in
respect of the mortgage loans that constitute
the corpus of the related Underlying Mortgage
Pool (in the aggregate, the "Mortgage Loans").
Such amounts, together, with any payments
under the Yield Support Agreement and payments
from the Reserve Fund, are the sole source of
payments on the Class A-1 Certificates. As of
the Underlying Series Distribution Date in
, after giving effect to
distributions and principal balance reductions
on such date, the Mortgage Certificates had
characteristics approximately as set forth
under "The Mortgage Certificates."
The Mortgage Loans The Mortgage Loans are contained in separate
pools of adjustable interest rate,
conventional, residential first mortgage loans
having characteristics approximately as set
forth in the table entitled "Selected Mortgage
Loan Data" under "Description of the Mortgage
Loans." The interest rate on each Mortgage
Loan is subject to adjustment periodically (as
specified in the related mortgage note) to a
rate equal to the sum (subject to rounding) of
(i) a specified index and (ii) an individual
gross margin, subject to certain limitations.
For
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approximately $______ by principal balance
as of the Cut-Off Date of the Mortgage Loans,
the index used is the monthly weighted average
cost of funds for member institutions of the
Eleventh District of the Federal Home Loan
Bank System, as published by the Federal Home
Loan Bank of San Francisco ("COFI"). Such
Mortgage Loans are referred to herein as "COFI
Mortgage Loans." For the remaining Mortgage
Loans, the index generally used is the weekly
average yield on U.S. Treasury securities
adjusted to a constant maturity ("CMT") of one
year or the weekly auction average
(investment) rate on U.S. Treasury Bills with
a six-month maturity ("CBE"), each as
published by the Federal Reserve Board in
Statistical Release H.15 (519), or a
comparable release. Some of the Mortgage
Loans use a CMT yield of two, three or five
years. Such Mortgage Loans using CMT or CBE
are referred to herein as "CMT Mortgage
Loans."
The Mortgage Loans are subject to overall
maximum interest rates. Some of the Mortgage
Loans are also subject to a minimum interest
rate. Some of the Mortgage Loans are subject
to negative amortization.
Some of the Mortgage Loans have mortgage
interest rates that may be converted to fixed
interest rates at the option of the mortgagor.
Upon conversion to a fixed rate, such Mortgage
Loans generally are required to be purchased
by the servicer of the related Underlying
Mortgage Pool. See "Description of the
Mortgage Loans" and "Yield and Prepayment
Considerations."
Optional Repurchase of Mortgage Loans. The
Underlying Mortgage Pool with respect to each
Mortgage Certificate is subject to special
termination a "Special Termination" at such
time as the aggregate outstanding principal
balance of all the mortgage loans underlying
all the mortgage certificates of the related
Underlying Series is equal to or less than 25%
of the initial aggregate principal balance of
such mortgage loans. See "The
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Mortgage Certificates--Special Termination"
herein. In addition, the Mortgage Loan
Servicer with respect to each Underlying
Series has the option to repurchase the
Mortgage Loans from the related Underlying
Mortgage Pool at such time as the aggregate
scheduled principal balance thereof is reduced
to less than 10% of the original aggregate
principal balance thereof. See "The Mortgage
Certificates--Optional Termination" herein.
Any such repurchase will accelerate the rate
at which principal payments are made on the
Class A-1 Certificates.
Certain Prepayment and
Yield Considerations NO INVESTMENT SHOULD BE MADE IN THE CLASS A-1
CERTIFICATES UNLESS AN INVESTOR HAS CONSIDERED
CAREFULLY THE ASSOCIATED RISKS OF INVESTING IN
SUCH CLASS A-1 CERTIFICATES AS DISCUSSED BELOW
AND UNDER "SPECIAL CONSIDERATIONS" AND "YIELD
AND PREPAYMENT CONSIDERATIONS" HEREIN.
Prepayments and Excess Cash. The rate of
principal payments on the Class A-1
Certificates will be affected by the rate of
principal payments on the Mortgage Loans
(including, for this purpose, prepayments,
which may include amounts received by virtue
of condemnation, insurance or foreclosure) and
by the application of Excess Cash to the
principal balance of the Mortgage
Certificates. If a Class A-1 Certificate is
purchased at a discount from its initial
principal amount by a purchaser that
calculates its anticipated yield to maturity
based on an assumed rate of payment of
principal that is faster than that actually
experienced on the Mortgage Loans, the actual
yield to maturity will be lower than that so
calculated. Conversely, if a Certificate is
purchased at a premium by a purchaser that
calculates its anticipated yield to maturity
based on an assumed rate of payment of
principal that is slower than that actually
experienced on the Mortgage Loans, the actual
yield to maturity will be lower than that so
calculated.
Timing of Payments. The timing and amount of
payments, including prepayments, on the
Mortgage
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Loans may significantly affect an investor's
yield. In general, the earlier a prepayment of
principal on the Mortgage Loans, the greater
will be the effect on an investor's yield to
maturity. As a result, the effect on an
investor's yield of principal prepayments
occurring at a rate higher (or lower) than the
rate anticipated by the investor during the
period immediately following the issuance of
the Class A-1 Certificates will not be offset
by a subsequent like reduction (or increase)
in the rate of principal prepayments.
Basis Risk; LIBOR. The interest rate payable to
the Holders of the Class A-1 Certificates is
based on LIBOR. However, the Mortgage Loans
bear interest at adjustable rates based on
various indices. LIBOR and such various
indices may respond to different economic and
market factors, and there is no necessary
correspondence between them. THERE CAN BE NO
ASSURANCE THAT FUNDS AVAILABLE IN THE RESERVE
FUND OR PAYMENTS UNDER THE YIELD SUPPORT
AGREEMENT WILL BE SUFFICIENT TO MAKE UP ANY
AMOUNT BY WHICH THE INTEREST COLLECTED ON THE
MORTGAGE CERTIFICATES IS LESS THAN THE
INTEREST ACCRUAL AMOUNT OF THE CLASS A-1
CERTIFICATES.
Auction Risk. There can be no assurance that
the Trustee will, on or on
any date thereafter, be able to sell the
Mortgage Certificates for a price sufficient
(together with amounts on deposit in the
Reserve Fund) to allow the Class A-1
Certificates to be paid in full. Therefore,
there can be no assurance that the Class A-1
Certificates will be retired on
.
See "Special Considerations" and "Yield and
Prepayment Considerations" herein for a fuller
discussion of the factors affecting the yield
to maturity of the Class A-1 Certificates.
Liquidity The Underwriter may, from time to time, buy and
sell Class A-1 Certificates, but is not
obligated to do so. There is currently no
secondary market for the Class A-1
Certificates, and there can be no assurance
that one will develop. There is no assurance
that any
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such market, if established, will continue.
Each Certificateholder will receive monthly
reports pertaining to the Class A-1
Certificates and the Mortgage Certificates.
There are a limited number of sources which
provide certain information about mortgage-
backed securities in the secondary market;
however, there can be no assurance that any of
these sources will provide information about
the Class A-1 Certificates or the Mortgage
Certificates. Investors should consider the
effect of limited information on the liquidity
of the Class A-1 Certificates.
Federal Income Tax Status [An election will be made to treat the Trust
Fund, and the Trust Fund will qualify, as a
REMIC for federal income tax purposes. The
Class A-1 and Class IO Certificates will
constitute "regular interests" in the REMIC
and generally will be treated as newly
originated debt instruments for federal income
tax purposes. The Class R Certificates will
constitute the sole class of "residual
interests" in the REMIC. [The Class A-1 and
Class IO Certificates will be considered to be
issued with original issue discount in an
amount equal to the excess of all
distributions of principal and interest
expected to be received thereon over their
respective issue prices (including accrued
interest).]
The Prepayment Assumption (as defined in the
Prospectus) that will be used in determining
the rate of accrual of original issue discount
for federal income tax purposes is based on an
18% constant prepayment rate ("CPR"). See
"Yield and Prepayment Considerations" in this
Prospectus Supplement. No representation is
made as to the rate at which the Mortgage
Certificates will prepay.
See "Certain Federal Income Tax Consequences --
Federal Income Tax Consequences for REMIC
Certificates" in the Prospectus.
ERISA Considerations A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code"), or a
governmental plan subject to any
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federal, state or local law ("Similar Law")
which is, to a material extent, similar to the
foregoing provisions of ERISA or the Code
(collectively, a "Plan"), should carefully
review with its legal advisors whether the
purchase or holding of Class A-1 Certificates
could give rise to a transaction prohibited or
not otherwise permissible under ERISA, the
Code or Similar Law. See "ERISA
Considerations" in this Prospectus Supplement
and in the Prospectus.
Legal Investment The Class A-1 Certificates will constitute
"mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA") so long as they are rated in
one of the two highest rating categories by at
least one nationally recognized statistical
rating organization. As such, the Class A-1
Certificates are legal investments for certain
entities to the extent provided in SMMEA.
However, there are regulatory requirements and
considerations applicable to regulated
financial institutions and restrictions on the
ability of such institutions to invest in
certain types of mortgage related securities.
Prospective purchasers of the Class A-1
Certificates should consult their own legal,
tax and accounting advisors in determining the
suitability of and consequences to them of the
purchase, ownership and disposition of the
Class A-1 Certificates. See "Legal
Investment" in this Prospectus Supplement.
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RISK FACTORS
Prospective investors should consider the following factors in
connection with a purchase of the Class A-1 Certificates.
1. Troubled Originators. The Mortgage Loans in each Underlying
Mortgage Pool were originated or purchased by one or more depository
institutions (each a "Depository Institution") for which the Resolution
Trust Corporation ("RTC") was appointed as conservator or receiver or from
which the RTC acquired the Mortgage Loans. Each of such Depository
Institutions was either insolvent and in the process of liquidation or in
serious financial difficulty and being operated under a conservatorship
with a significant likelihood of subsequently being placed in receivership
and liquidated. It is possible that the financial difficulties experienced
by certain Depository Institutions may have adversely affected either or
both of (i) the standards and procedures by which the Mortgage Loans were
originated by such Depository Institutions or, if purchased from another
originator, the standards and procedures by which the Depository
Institutions selected such Mortgage Loans for purchase and reviewed them
prior to purchase and (ii) the manner in which such Mortgage Loans were
serviced prior to assumption of servicing responsibilities by the servicer
of the related Mortgage Certificates. The RTC, usually acting in its
capacity as conservator or receiver of a Depository Institution, made
certain representations and warranties regarding the Mortgage Loans and is
obligated to repurchase or replace or provide indemnification to the
Trustee and the holders of the related Underlying Series with respect to
Mortgage Loans as to which there is a breach of such representations and
warranties. The RTC, acting in its corporate capacity guaranteed the
obligations incurred in connection with such representations and
warranties. There can be no assurance, however, that such remedy will
apply to all problems that may arise with respect to a Mortgage Loan by
reason of the financial difficulties experienced by the related Depository
Institution.
2. Limited Information; Incomplete Mortgage Files. In preparing
the information regarding the Mortgage Certificates and the Mortgage Loans
contained in this Prospectus Supplement, the Depositor has relied upon
information provided by the RTC in the Prospectus Supplements applicable to
each Underlying Series and on information as to each such series
subsequently provided by the various servicers of the Mortgage
Certificates. The Depositor is unable to verify such information and there
can be no assurance of its accuracy or completeness or the accuracy or
completeness of the information presented herein which is derived from
information provided by the RTC and such servicers. Information available
to the RTC and disclosed in the Prospectus Supplement with respect to an
Underlying Mortgage Pool generally was derived solely from the records of
one or more Depository Institutions without independent review. In many
cases, the information available to the RTC concerning the Depository
Institutions did not permit the RTC to determine fully the origination,
credit appraisal and underwriting practices of such institution or the
manner of servicing of the Mortgage Loans. In many Depository Institutions
the mortgage files were incomplete, and did not contain original notes,
appraisal information, or information regarding whether the mortgaged
properties were owner-occupied, whether there had been modifications,
waivers or
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amendments with respect to such Mortgage Loans or whether such Mortgage
Loans otherwise had terms inconsistent with information used by the RTC to
prepare related disclosure (which disclosure has been relied on, in part,
by the Depositor, in preparing this Prospectus Supplement). If there are a
large number of Mortgage Loans in any given Underlying Mortgage Pool which
the RTC is obligated to replace or repurchase, the average life and yield
on the related Mortgage Certificates could be adversely affected.
3. General. An investment in certificates (such as the Class A-
1 Certificates) evidencing interests in mortgage loans may be affected,
among other things, by a decline in real estate values or a decline in
mortgage market rates. Recently such declines in real estate values have
been experienced in several significant market areas within the United
States. If relevant residential real estate markets should experience an
overall decline in property values such that the outstanding balances of
the Mortgage Loans in a particular Underlying Mortgage Pool become equal to
or greater than the value of the related mortgaged properties, the actual
rates of delinquencies, foreclosures and losses could be higher than those
now generally experienced in the mortgage lending industry. To the extent
that such losses are not covered by the classes of certificates which are
subordinate to the Mortgage Certificates from that pool and the cash
available in the related Underlying Reserve Funds, holders of the Class A-1
certificates will bear all risk of loss resulting from default by
mortgagors and will have to depend primarily on the value of the mortgaged
properties for recovery of the outstanding principal and unpaid interest of
the defaulted Mortgage Loans.
4. Limited Obligations. The Certificates will not represent an
interest in or obligation of the Depositor, the Trustee, the Certificate
Administrator, the RTC or any of the Depository Institutions. The
Certificates will not be insured or guaranteed by any government agency or
instrumentality. With respect to the Mortgage Certificates, however, the
RTC, acting in its corporate capacity, has guaranteed the obligation of the
RTC, acting in its capacity as receiver or conservator of the various
Depository Institutions, pursuant to its representations and warranties, to
repurchase Mortgage Loans or to indemnify against loss under certain
circumstances.
5. Basis Risk. The interest rate payable to the holders of the
Class A-1 Certificates is based on LIBOR. However, the underlying Mortgage
Loans bear interest based on various indices (the "Indices") calculated at
various frequencies. LIBOR and the Indices respond to different economic
and market factors, and there is no necessary correspondence between them.
Thus, it is possible, for example, that LIBOR may rise during periods in
which the Indices are stable or are falling or that, even if both LIBOR and
the Indices rise during the same period, LIBOR may rise much more sharply
than the Indices. THERE CAN BE NO ASSURANCE THAT FUNDS AVAILABLE IN THE
RESERVE FUND OR PAYMENTS UNDER THE YIELD SUPPORT AGREEMENT WILL BE
SUFFICIENT TO MAKE UP ANY AMOUNT BY WHICH THE INTEREST COLLECTED ON THE
MORTGAGE CERTIFICATES IS LESS THAN THE INTEREST ACCRUAL AMOUNT OF THE CLASS
A-1 CERTIFICATES.
6. Limited Liquidity. There can be no assurance that a
secondary market will develop for the Class A-1 Certificates or, if it does
develop, that it will provide the
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holders with liquidity of investment or that it will continue for the term
of the Class A-1 Certificates.
7. Prepayment and Yield Considerations. The prepayment
experience on the Mortgage Loans will affect the average life of the Class
A-1 Certificates. Prepayments on the Mortgage Loans may be influenced by a
variety of economic, geographic, social and other factors, including the
difference between the interest rates on the Mortgage Loans and prevailing
mortgage interest rates. Other factors affecting prepayment of Mortgage
Loans include changes in housing needs, job transfers, unemployment and
servicing decisions. See "Yield and Prepayment Considerations-_______".
In addition, the yield on the Class A-1 Certificates will be sensitive to,
among other things, the level of LIBOR.
8. Co-op Loans. Many of the Underlying Mortgage Pools contain
Mortgage Loans made in connection with a purchase or refinancing of
cooperative apartments. Such loans ("Co-op Loans") are not secured by
liens on real estate. The "owner" of a cooperative apartment does not own
the real estate constituting the apartment, but owns shares of stock in a
corporation which holds title to the building in which the apartment is
located, and by virtue of owning such stock is entitled to a proprietary
lease to occupy the specific apartment (the "Lease"). Thus, a Co-op Loan
is a personal loan secured by a lien on the shares and assignment of the
Lease. If the borrower defaults on a Co-op Loan, the lender's remedies are
similar to the remedies which apply to a foreclosure of a mortgage or deed
of trust, in that the lender can foreclose the loan and assume "ownership"
of the apartment.
There are certain risks which arise as a result of the
cooperative form of ownership which differentiate Co-op Loans from other
types of Mortgage Loans. For example, the power of the board of directors
of most cooperative corporations to reject a proposed purchaser of a unit
owner's shares (and prevent the sale of an apartment) for any reason (other
than reasons based upon unlawful discrimination), or for no reason,
significantly reduces the universe of potential purchasers in the event of
a foreclosure. Moreover, cooperative apartment owners run a special risk
in buildings where the "sponsor" (i.e., the owner of the unsold shares in
the corporation) holds a significant number of unsold apartments that the
sponsor may go into default on a loan which is secured by a mortgage on the
building. In such event, the unit owners would be forced by special
assessment to make the payments on the delinquent loan or risk losing their
apartments in a foreclosure proceeding brought by the holder of the
mortgage on the building. Not only would the value attributable to the
right to occupy a particular apartment be adversely affected by the special
assessment, but the foreclosure of a mortgage on the building in which the
apartment is located could result in a total loss of the shareholder's
equity in the building (and a corresponding loss of the lender's security
for its Co-op Loan).
9. Geographic Concentration. [To be provided.]
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DESCRIPTION OF THE CLASS A-1 CERTIFICATES
GENERAL
The Adjustable Rate Conduit Mortgage Pass-Through Certificates Series
will include the following three classes: the Class A-1
Certificates, the Class IO Certificates and the Class R Certificates
(collectively, the "Certificates"). Only the Class A-1 Certificates are
offered hereby.
The Certificates evidence 100% of the beneficial ownership interest in
a trust fund (the "Trust Fund"), the assets of which will consist primarily
of (a) classes (or portions of classes) of mortgage pass-through
certificates (the "Mortgage Certificates"), each of which is part of one of
series of mortgage pass-through certificates initially sold by the
Resolution Trust Corporation and acquired by the Depositor in the secondary
market, (b) a Reserve Fund and (c) a Yield Support Agreement provided by
See "--The Reserve Fund" and "--The Yield Support Agreement"
below. The Trust Fund will be established and the Certificates will be
issued pursuant to a Pooling Trust Agreement (the "Pooling Agreement"),
dated as of among the Depositor, the Certificate
Administrator and the Trustee.
The Class A-1 Certificates will have the initial Principal Balance set
forth on the cover page hereof, subject to an upward or downward variance
of 5%.
The Class A-1 Certificates will be issued as Book-Entry Certificates
through the facilities of The Depository Trust Company. See "--Book-Entry
Form" below. The Class A-1 Certificates will be issued, maintained and
transferred only in minimum denominations of $1,000 initial principal
balance and integral multiples of $1,000 initial principal balance in
excess thereof. The "Record Date" for each distribution on the Class A-1
Certificates is , with respect to the initial Distribution
Date, and with respect to each subsequent Distribution Date, the last
business day of the calendar month immediately preceding the month in which
the applicable Distribution Date occurs. The undivided percentage interest
(the "Percentage Interest") represented by any Class A-1 Certificate will
be equal to the percentage obtained by dividing the initial Principal
Balance of such Class A-1 Certificate by the aggregate initial Principal
Balance of all Class A-1 Certificates.
DISTRIBUTIONS
Distributions on the Certificates will be made quarterly on the 25th
day of each February, May, August and November, beginning in February
or, if any such day is not a business day, the following business day;
provided, however that if the Certificate Administrator has not received
all distributions on the Mortgage Certificates due on or before such day,
prior to 1:00 p.m. New York time on such day, payments on the Certificates
will be made on the next succeeding business day (each such day, a
"Distribution Date"). Distributions to a holder of a Class A-1 Certificate
will be made on each Distribution Date in an amount equal to such holder's
Percentage Interest multiplied by the amount, if any, to be
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distributed to the Class A-1 Certificates. Distributions will be made on
each Distribution Date to holders of record on the related Record Date,
which, unless Definitive Certificates are issued under the circumstances
described below under "-- Book Entry Form", will be Cede & Co. as nominee
for DTC.
Interest Distributions. Distributions in respect of interest on each
Class of Certificates (other than the Class R Certificates) on each
Distribution Date will be made only up to the amount of the Interest
Available Funds for such Distribution Date. The amounts of interest that
will accrue during each Interest Accrual Period on each Class of
Certificates, after adjustment for any Non-Supported Interest Shortfalls
and any Deferred Interest (each as described below), are referred to herein
as the "Interest Accrual Amounts" thereof. The "Interest Accrual Period"
with respect to each Distribution Date is the period commencing on the 25th
day of the third month preceding the month in which such Distribution Date
occurs and ending on the 24th day of the month in which such Distribution
Date occurs.
The "Interest Accrual Amount" for the Class A-1 Certificates on each
Distribution Date will equal the product of (i) one-fourth of the Class A-1
Pass-Through Rate for such Distribution Date and (ii) the outstanding
Principal Balance thereof, subject to reduction in respect of Deferred
Interest and Nonsupported Interest Shortfalls incurred with respect to the
Mortgage Loans underlying the Mortgage Certificates. The Interest Accrual
Amount for the Class IO Certificates on each Distribution Date will equal
the product of (i) one-fourth of the Class IO Pass-Through Rate for such
Distribution Date and (ii) the outstanding Principal Balance of the Class
A-1 Certificates, subject to reduction in respect of Deferred Interest and
Nonsupported Interest Shortfalls. The Class R Certificates are not
entitled to distributions in respect of interest and, therefore, have no
Interest Accrual Amount.
"Interest Available Funds" with respect to any Distribution Date will
be equal to the sum of (a) all payments in respect of interest received by
the Certificate Administrator on the Mortgage Certificates during the
related Collection Period, (b) any payments made by the Yield Support
Counterparty on such Distribution Date under the Yield Support Agreement
and (c) all amounts on deposit in the Reserve Fund (up to the excess of the
Interest Accrual Amount of the Class A-1 Certificates over the amount
described in clauses (a) and (b) above). Interest Available Funds will be
distributed on each Distribution Date first to pay to the holders of the
Class A-1 Certificates their Interest Accrual Amounts, next to pay to
holders of the Class A-1 Certificates interest due them with respect to
prior Distribution Dates that remains unpaid (together with interest
thereon), and then to pay current interest and any overdue interest in
respect of the Class IO Certificates to the Certificate Administrator for
deposit into the Reserve Fund.
If Interest Available Funds with respect to a Distribution Date are
insufficient to pay the Interest Accrual Amount of the Class A-1
Certificates on such date, any shortfall in the amount paid in respect
thereof on such date will be carried forward to succeeding Distribution
Dates and will bear interest until paid at the Class A-1 Pass-Through Rate
in effect from time to time.
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The "Class A-1 Pass-Through Rate" during the initial Interest Accrual
Period will be __% per annum. During each succeeding Interest Accrual
Period, the Class A-1 Pass-Through Rate will be 0.30% in excess of the
arithmetic mean of the London interbank offered rate quotations for three-
month Eurodollar deposits ("LIBOR") on the second business day prior to the
first day of such Interest Accrual Period (each, a "Reset Date") determined
as described below under "-- Determination of LIBOR" below.
During each Interest Accrual Period the "Class IO Pass-Through Rate"
will be a variable rate equal to the excess, if any, of (X) the weighted
average of the Weighted Average Mortgage Certificate Pass-Through Rate for
each of the Underlying Series Distribution Dates that occurs during the
Collection Period related to such Interest Accrual Period (determined as
described herein) (such weighted average, the "Quarterly Mortgage
Certificate Pass-Through Rate") over (Y) the Class A-1 Pass-Through Rate
for such Interest Accrual Period. The "Weighted Average Mortgage
Certificate Pass-Through Rate" with respect to any Underlying Series
Distribution Date will be equal to the weighted average of the pass-through
rates of the Mortgage Certificates applicable to such Underlying Series
Distribution Date, weighted on the basis of the outstanding principal
balances of such classes prior to distributions on such Underlying Series
Distribution Date. The Weighted Average Mortgage Certificate Pass-Through
Rate with respect to the Underlying Series Distribution Date in
is expected to be approximately ____%. The "Collection Period" with
respect to a Distribution Date is the period commencing on the day after
the preceding Distribution Date (or, in the case of the first Collection
Period, on ) and ending on such Distribution Date.
Interest on the Certificates will be calculated on the basis of actual
days elapsed in a 360-day year.
Deferred Interest allocated to the Mortgage Certificates on each
Underlying Series Distribution Date occurring during the Collection Period
related to any Distribution Date (as reported on the remittance reports
relating to such Mortgage Certificates) will be allocated between the Class
A-1 Certificates and the Class IO Certificates on the related Distribution
Date, pro rata, based on the Interest Accrual Amounts of each thereof
(before reduction for such Deferred Interest). See "Description of the
Underlying Mortgage Loans -- __________" and "The Mortgage Certificates --
Distributions on the Mortgage Certificates." The amount of Deferred
Interest allocated in reduction of the Interest Accrual Amount of the Class
A-1 Certificates will be added to the Principal Balance of such Class as of
such Distribution Date.
Prepayment Interest Shortfalls allocated to the Mortgage Certificates
on each Underlying Series Distribution Date occurring during the Collection
Period related to any Distribution Date (as reported on the remittance
reports relating to such Mortgage Certificates) will be allocated between
the Class A-1 Certificates and the Class IO Certificates on the related
Distribution Date, pro rata, based on the Interest Accrual Amounts thereof
(before reduction for such interest shortfall on such Distribution Date).
See "The Mortgage Certificates -- Distributions on the Mortgage
Certificates" herein.
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The "Principal Balance" of the Class A-1 Certificates as of any
Distribution Date will be equal to the Mortgage Certificate Balance as of
the preceding Distribution Date. The "Mortgage Certificate Balance" as of
any Distribution Date will be equal to the sum of the Mortgage Certificate
Balances (after giving effect to all distributions and other principal
balance reductions on the Mortgage Certificates during the Collection
Period ending on such Distribution Date). Neither the Class IO
Certificates nor the Class R Certificates have any Principal Balance and,
therefore, neither is entitled to distributions in respect of principal.
DUE TO THE FACTORS DISCUSSED UNDER "SPECIAL CONSIDERATIONS -- BASIS
RISK," INTEREST AVAILABLE FUNDS MAY NOT ALWAYS BE SUFFICIENT TO PAY THE
HOLDERS OF THE CLASS A-1 CERTIFICATES THEIR FULL INTEREST ACCRUAL AMOUNTS
ON EACH DISTRIBUTION DATE.
Principal Distributions. Distributions in respect of principal on the
Class A-1 Certificates will be made on each Distribution Date in an amount
equal to the sum of all amounts distributed in respect of principal on the
Mortgage Certificates during the Collection Period ending on such
Distribution Date.
RESERVE FUND
The Pooling Agreement will require the Certificate Administrator to
establish a separate trust account, which it will hold for the benefit of
the Trustee on behalf of the holders of the Class A-1 Certificates (the
"Reserve Fund").
On the Closing Date, the Depositor will deposit or cause to be
deposited into the Reserve Fund, cash in the amount of . In
addition, the Depositor will cause the beneficial owners of the Class IO
Certificates to irrevocably pledge the Class IO Certificates to the Reserve
Fund, for the benefit of the beneficial owners of the Class A-1
Certificates. All distributions on the Class IO Certificates will be made
to the Certificate Administrator for deposit into the Reserve Fund.
Amounts on deposit in the Reserve Fund from time to time will be available
on each Distribution Date to be paid to holders of the Class A-1
Certificates to the extent that amounts described in clauses (a) and (b) of
the definition of Interest Available Funds are insufficient to pay such
holders' Interest Accrual Amount for such date together with any overdue
interest. The Reserve Fund will be an asset of the Trust Fund, but will not
be an asset of the REMIC. Amounts in the Reserve Fund will be invested in
"eligible assets," as defined in the Pooling Agreement, at the discretion
of the Certificate Administrator, provided each such investment matures no
later than the succeeding Distribution Date.
The Depositor will not have any obligation to deposit additional
monies in the Reserve Fund after the Closing Date.
NO ASSURANCE CAN BE GIVEN THAT AMOUNTS ON DEPOSIT IN THE RESERVE FUND
FROM TIME TO TIME WILL BE SUFFICIENT TO ALLOW FULL DISTRIBUTIONS IN RESPECT
OF INTEREST ON THE CLASS A-1 CERTIFICATES ON ANY DISTRIBUTION DATE.
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The following table, which was prepared on the basis of the
assumptions set forth below, illustrates the balances that would be
available in the Reserve Fund on the dates indicated under the various
scenarios stated.
[INSERT TABLE]
THE YIELD SUPPORT AGREEMENT
The following is a summary of certain features of the Yield Support
Agreement (as defined below).
General. On the Closing Date, the Trustee, acting on behalf of the
holders of the Class A-1 Certificates, will enter into a yield support
agreement (the "Yield Support Agreement") with , a __________
corporation, (the "Yield Support Counterparty"). The Yield Support
Agreement will be governed by and construed in accordance with the law of
the State of New York and will be documented on a standard form published
by the International Swap and Derivatives Association, Inc., as
supplemented by a schedule and a confirmation.
Payment Terms. Pursuant to the terms of the Yield Support Agreement,
in the event that LIBOR on any Reset Date (determined as described below
under "--Determination of LIBOR") exceeds a rate equal to LIBOR as set with
respect to the first Distribution Date plus 2.0% (the "Strike Rate"), the
Yield Support Counterparty will be obligated to pay to the Certificate
Administrator, for the benefit of the holders of the Class A-1
Certificates, on the Distribution Date related to the Interest Accrual
Period following such Reset Date, an amount equal to the product of (x) the
difference between LIBOR at such Reset Date (determined as described above)
and the Strike Rate and (y) amounts paid by the Yield Support Counterparty
on any Distribution Date will be available to make distributions in respect
of interest on the Class A-1 Certificates and, to the extent not required
for such distributions, will be paid to the Certificate Administrator for
deposit into the Reserve Fund.
NO ASSURANCE CAN BE GIVEN THAT AMOUNTS PAID BY THE YIELD SUPPORT
COUNTERPARTY ON ANY DISTRIBUTION DATE WILL BE SUFFICIENT, TOGETHER WITH THE
BALANCE OF THE INTEREST AVAILABLE FUNDS FOR SUCH DISTRIBUTION DATE, TO
ALLOW FULL DISTRIBUTIONS IN RESPECT OF INTEREST ON THE CLASS A-1
CERTIFICATES ON SUCH DISTRIBUTION DATE OR ON ANY FUTURE DISTRIBUTION DATES.
Termination. Unless earlier terminated as described below, the Yield
Support Agreement will terminate upon the reduction of the Principal
Balance of the Class A-1 Certificates to zero.
Pursuant to the Yield Support Agreement, certain events may occur in
respect of the Yield Support Counterparty that will give the Trustee the
right to terminate the Yield Support Agreement subject to the terms and
provisions thereof. The Trustee will have the right to terminate the Yield
Support Agreement if any of the following events occur:
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(i) the Yield Support Counterparty fails to make any payment due under
the Yield Support Agreement and such nonpayment continues for three
business days after notice from the Trustee;
(ii) the Yield Support Counterparty fails to perform or observe its
obligations under such Yield Support Agreement (other than its obligation
to make any payment due under such Yield Support Agreement) and such
failure continues for a period of 30 days after notice from the Trustee;
(iii) any representation made by the Yield Support Counterparty under
such Yield Support Agreement proves to have been incorrect or misleading in
any material respect as of the time it was made;
(iv) certain events of bankruptcy or insolvency occur with respect to
the Yield Support Counterparty;
(v) the Yield Support Counterparty undertakes certain mergers,
consolidations or transfers of its assets or is dissolved;
(vi) a withholding tax is imposed on payments by the Yield Support
Counterparty under such Yield Support Agreement; or
(vii) a change in law occurs after the Closing Date which makes it
unlawful for the Yield Support Counterparty to perform its obligations in
respect of the Yield Support Agreement.
Breakage Fee. If the Yield Support Agreement is terminated by the
Trustee, the market value of the Yield Support Agreement will be
established by the Trustee on the basis of market quotations of the cost to
the Trust Fund of entering into a replacement yield support agreement, in
accordance with the procedures set forth in the Yield Support Agreement
(such amount, the "Breakage Fee"). The Yield Support Counterparty will be
required to pay the Trustee, for the benefit of the holders of the Class A-
1 Certificates the amount of any Breakage Fee. Upon any such termination
of the Yield Support Agreement, the Trustee will distribute to the holders
of the Class A-1 Certificates, on a pro rata basis, any applicable Breakage
Fee paid by the Yield Support Counterparty.
The Yield Support Counterparty.
As of _______ ___, , the end of its most recent fiscal year, the
Yield Support Counterparty had total assets of approximately $_____
million, total liabilities of approximately $_____ million, and
Shareholders' equity of approximately $_____ million.
[The Yield Support Counterparty's outstanding senior unsecured
indebtedness has been rated [ ] by Moody's, [ ] by S&P, and [ ]
by Fitch Investors Service, L.P. ("Fitch").]
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Copies of the Yield Support Counterparty's annual reports are
available from _________________________ by contacting _____________ at
(612) ___________________.
The above information was provided by the Yield Support Counterparty.
MANDATORY AUCTION
Prior to the Distribution Date occurring in , the Trustee
will cause the Certificate Administrator, to hold an auction (the
"Auction") for the sale of the Mortgage Certificates.
If the highest bid obtained, together with amounts on deposit in the
Reserve Fund, is at least equal to the then outstanding Principal Balance
of the Class A-1 Certificates, together with interest accrued and unpaid
thereon through such Distribution Date, the trustee will sell the Mortgage
Certificates and pay in full the Class A-1 Certificates on
. If no sufficient bid is obtained, the Trustee will continue to hold
the Mortgage Certificates and the Certificate Administrator will continue
to make required distributions of interest and principal on the Class A-1
Certificates. The auction procedure will be repeated with respect to each
succeeding Distribution Date until a sufficiently high bid is obtained.
DETERMINATION OF LIBOR
On each Reset Date, the Certificate Administrator will determine
LIBOR for the succeeding Interest Accrual Period on the basis of the
offered LIBOR quotations of the Reference Banks, as such quotations are
provided to the Certificate Administrator as of 11:00 a.m. (London time) on
such Reset Date. As used in this section with respect to a Reset Date,
"business day" means a day on which banks are open for dealing in foreign
currency and exchange in London and New York City; "Reference Banks" means
four leading banks engaged in transactions in Eurodollar deposits in the
International Eurocurrency market (i) with an established place of business
in London, (ii) whose quotations appear on the Reuters Screen LIBO Page on
the Rate Determination Date in question and (iii) which have been
designated as such by the Certificate Administrator and are able and
willing to provide such quotations to the Certificate Administrator on each
Reset Date; and "Reuters Screen LIBO Page" means the display designated as
page "LIBO" on the Reuters Monitor Money Rates Service (or such other page
as may replace the LIBO page on that service for the purpose of displaying
London interbank offered rate quotations or major banks). If any Reference
Bank should be removed from the Reuters Screen LIBO Page or in any other
way fails to meet the qualifications of a Reference Bank, the Certificate
Administrator may, in its sole discretion, designate an alternative
Reference Bank.
On each Reset Date, LIBOR for the next Interest Accrual Period
will be established by the Certificate Administrator as follows:
(i) If on any Reset Date two or more of the Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual
Period will be the arithmetic
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mean of such offered quotations (rounding such arithmetic mean upwards
if necessary to the nearest whole multiple of 1/16%).
(ii) If on any Reset Date only one or none of the Reference Banks
provides such offered quotations, LIBOR for the next Interest Accrual
Period will be the higher of (x) LIBOR as determined on the previous
Reset Date or (y) the Reserve Interest Rate. The "Reserve Interest
Rate" will be the rate per annum which the Certificate Administrator
determines to be either (A) the arithmetic mean (rounding such
arithmetic mean upwards if necessary to the nearest whole multiple of
1/16%) of the one-month Eurodollar lending rate that New York City
banks selected by the Certificate Administrator are quoting, on the
relevant Reset Date, to the principal London offices of at least two
leading banks in the London interbank market or (B) in the event that
the Certificate Administrator can determine no such arithmetic mean,
the lowest one-month Eurodollar lending rate that the New York City
banks selected by the Certificate Administrator are quoting on such
Reset Date to leading European banks.
(iii) If on any Reset Date the Certificate Administrator is
required but is unable to determine the Reserve Interest Rate in the
manner provided in paragraph (ii) above, LIBOR for the next Interest
Accrual Period will be LIBOR as determined on the Previous Reset Date.
The establishment of LIBOR by the Certificate Administrator and
the Certificate Administrator's subsequent calculation of the rates of
interest applicable to the Class A-1 Certificates for the relevant Interest
Accrual Period (in the absence of manifest error) will be final and
binding. The Class A-1 Pass-Through Rate for any Interest Accrual Period
may be obtained by telephoning the Certificate Administrator at _________.
OPTIONAL REPURCHASE OF THE MORTGAGE CERTIFICATES
The beneficial owner of the Class IO Certificates will have the
option, but not the obligation, to purchase the Mortgage Certificates from
the Trust Fund on any Distribution Date on which the Mortgage Certificate
Balance is equal to 5% or less of the original Mortgage Certificate
Balance.
[EXPENSE FUND
The Depositor will deposit in an account established by the Trustee
with the Certificate Administrator (the "Expense Fund") on the Closing Date
cash in an amount necessary to meet the requirements of each Rating Agency.
Funds on deposit in the Expense Fund will be used to pay amounts owing to
the Trustee pursuant to the Pooling Agreement and the fees of the
Certificate Administrator. Funds on deposit in the Expense Fund will not
be available to make payments on the Certificates.]
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DENOMINATIONS
The Class A-1 Certificates will be issued in minimum denominations of
$1,000 initial principal balance and integral multiples of $1,000 initial
principal balance in excess thereof.
BOOK-ENTRY FORM
The Class A-1 Certificates initially will be represented by one
physical certificate registered in the name of Cede & Co. ("Cede"), as
nominee of DTC, which will be the "holder" or "Certificateholder" of such
Certificates, as such terms are used herein. No person acquiring an
interest in the Class A-1 Certificates (a "Beneficial Owner") will be
entitled to receive a Class A-1 Certificate in certificated form (a
"Definitive Certificate") representing such person's interest in the Class
A-1 Certificates, except as set forth below. Unless and until Definitive
Certificates are issued under the limited circumstances described herein,
all references to actions taken by Certificateholders or holders shall
refer to actions taken by DTC upon instructions from its DTC Participants
(as defined below), and all references herein to distributions, notices,
reports and statements to Certificateholders or holders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Class A-1 Certificates, as the case may be, for
distribution to Beneficial Owners in accordance with DTC procedures.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934,
as amended. DTC was created to hold securities for its participating
organizations ("DTC Participants") and to facilitate the clearance and
settlement of securities transactions among DTC Participants through
electronic book-entries, thereby eliminating the need for physical movement
of certificates. DTC Participants include securities brokers and dealers
(including the Underwriter), banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to
banks, brokers, dealers, trust companies and other institutions that clear
through or maintain a custodial relationship with a DTC Participant, either
directly or indirectly ("Indirect DTC Participants").
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make Class A-1
transfers of Class A-1 Certificates among DTC Participants on whose behalf
it acts with respect to the Class A-1 Certificates and to receive and
transmit distributions of principal of and interest on the Class A-1
Certificates. DTC Participants and Indirect DTC Participants with which
Beneficial Owners have accounts with respect to the Class A-1 Certificates
similarly are required to make Class A-1 transfers and receive and transmit
such payments on behalf of their respective Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell or otherwise transfer ownership
of, or other interests in, Class A-1 Certificates may do so only through
DTC Participants and Indirect DTC Participants. In addition, Beneficial
Owners will receive all distributions of principal and interest from the
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Master Servicer, or a paying agent on behalf of the Master Servicer,
through DTC Participants. DTC will forward such distributions to its DTC
Participants, which thereafter will forward them to Indirect DTC
Participants or Beneficial Owners. Beneficial Owners will not be
recognized by the Trustee, the Trust Administrator, the Master Servicer or
any paying agent as Certificateholders, as such term is used in the Pooling
and Servicing Agreement, and Beneficial Owners will be permitted to
exercise the rights of Certificateholders only indirectly through DTC and
its DTC Participants.
Because DTC can only act on behalf of DTC Participants, who in turn
act on behalf of Indirect DTC Participants and certain banks, the ability
of a Beneficial Owner to pledge Class A-1 Certificates to persons or
entities that do not participate in the DTC system, or to otherwise act
with respect to such Class A-1 Certificates, may be limited due to the lack
of a physical certificate for such Class A-1 Certificates. In addition,
under a Class A-1 format, Beneficial Owners may experience delays in their
receipt of payments, since distributions will be made by the Master
Servicer, or a paying agent on behalf of the Master Servicer, to Cede, as
nominee for DTC.
DTC has advised the Depositor that it will take any action permitted
to be taken by a Certificateholder under the Pooling Agreement only at the
direction of one or more DTC Participants to whose accounts with DTC the
Class A-1 Certificates are credited. Additionally, DTC has advised the
Depositor that it will take such actions with respect to specified voting
interests only at the direction of and on behalf of DTC Participants whose
holdings of Class A-1 Certificates evidence such specified voting
interests. DTC may take conflicting actions with respect to voting
interests to the extent that DTC Participants whose holdings of Class A-1
Certificates evidence such voting interests authorize divergent action.
Neither the Depositor, the Certificate Administrator nor the Trustee
will have any responsibility for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Class A-1
Certificates held by Cede, as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. In the event of the insolvency of DTC, a DTC Participant or an
indirect DTC Participant in whose name Class A-1 Certificates are
registered, the ability of the Beneficial Owners of such Class A-1
Certificates to obtain timely payment and, if the limits of applicable
insurance coverage by the Securities Investor Protection Corporation are
exceeded or if such coverage is otherwise unavailable, ultimate payment, of
amounts distributable with respect to such Class A-1 Certificates may be
impaired.
The Class A-1 Certificates will be converted to Definitive
Certificates and re-issued to Beneficial Owners or their nominees, rather
than to DTC or its nominee, only if (i) the Certificate Administrator is
advised that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the Class A-1 Certificates
and the Certificate Administrator is unable to locate a qualified
successor, (ii) the Certificate Administrator, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence
of a dismissal or resignation of the Certificate Administrator under the
Pooling Agreement, Beneficial Owners representing not less than 51% of the
voting interests
S-29
VERSION G
<PAGE>
of the outstanding Class A-1 Certificates advise the Trustee through DTC,
in writing, that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the Beneficial Owners' best interest.
Upon the occurrence of any event described in the immediately
preceding paragraph, the Certificate Administrator (or, if the Certificate
Administrator has been dismissed, the Trustee) will be required to notify
all Beneficial Owners through DTC Participants of the availability of
Definitive Certificates. Upon surrender by DTC of the physical
certificates representing the Class A-1 Certificates and receipt of
instructions for re-registration, the Certificate Administrator will
reissue the Class A-1 Certificates as Definitive Certificates to Beneficial
Owners.
TERMINATION
The Trust Fund will terminate upon the earlier of (a) the distribution
to holders of the Certificates of all amounts required to be distributed to
them pursuant to the Pooling Agreement and (b) the termination of the
Pooling Agreement.
CERTIFICATE ACCOUNT
All payments and collections in respect of the Mortgage Certificates
will be deposited in an account maintained by the Certificate Administrator
(the "Certificate Account") in the name of the Trustee with a depository
institution (which may be the Certificate Administrator) and in a manner
acceptable to each Rating Agency. See "Description of the Certificates --
Payments on the Mortgage Loans" and " -- Collection of Payments on Mortgage
Certificates" in the Prospectus.
ACTIONS IN RESPECT OF THE MORTGAGE CERTIFICATES
If at any time the Trustee, as the Mortgage Certificateholder, is
requested in such capacity to take any action or to give any consent,
approval or waiver, including without limitation in connection with an
amendment of an Underlying Pooling Agreement or if an event of default
occurs under an Underlying Pooling Agreement with respect to the Mortgage
Loan Servicer or the Mortgage Loan Trustee thereunder, the Pooling
Agreement provides that the Trustee, in its capacity as
certificateholder, may take action in connection with the enforcement of
any rights and remedies available to it in such capacity with respect
thereto, will promptly notify all of the holders of the Certificates and
will act only in accordance with written directions of holders of the
Certificates evidencing in excess of 50% of the Voting Rights.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by
holders of the Certificates evidencing a specified percentage of all
undivided interests in the Trust Fund may be taken by holders of the
Certificates entitled in the aggregate to such percentage of the Voting
Rights. At any time that any Certificates are outstanding, the "Voting
Rights" under
S-30
VERSION G
<PAGE>
the Pooling Agreement will be allocated 1% to the Class R Certificate, 1%
to the Class IO Certificate and the remainder to the Class A-1 Certificate.
CERTIFICATE ADMINISTRATOR
[To be provided.]
TRUSTEE
[To be provided.]
THE MORTGAGE CERTIFICATES
GENERAL
The description of the Mortgage Certificates contained in this
Prospectus Supplement is a general summary of certain characteristics of
the Mortgage Certificates and does not purport to be complete. Such
description is subject to, and is qualified in its entirety by reference
to, the actual terms and provisions of the Prospectuses and Prospectus
Supplements related to each of the Mortgage Certificates (collectively, the
"Underlying Disclosure Documents") and the Pooling and Servicing Agreements
relating to each of the Mortgage Certificates (collectively, the
"Underlying Pooling Agreements"). Copies of the Underlying Disclosure
Documents and the Underlying Pooling Agreements are available from First
Boston by calling ________ at (212) _________. Investors are urged to
obtain copies of such documents and read this Prospectus Supplement in
conjunction therewith.
The assets of the REMIC will consist primarily of classes (or
portions of classes) of senior mortgage pass-through certificates (the
"Mortgage Certificates"), each of which is a part of one of separate
series of mortgage pass-through certificates (each an "Underlying Series").
Each of the Mortgage Certificates was issued pursuant to a separate
Underlying Pooling Agreement, generally dated as of the first day of the
month of initial issuance of the related Underlying Series (as to each, the
"Underlying Series Cut-off Date"), generally among the RTC, the servicer or
master servicer of the related Mortgage Loans (each, a "Mortgage Loan
Servicer") and the trustee of the related Mortgage Certificates (each, a
"Mortgage Loan Trustee").
The Mortgage Certifictes were each issued on the dates set forth in
the following table for each such Mortgage Certificate, each in an offering
registered by the RTC under the Securities Act of 1933, as amended (the
"Securities Act").
S-31
VERSION G
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES DATE OF ISSUANCE
--------------------- ----------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
Each Underlying Series consists of multiple classes of mortgage pass-
through certificates representing interests in separate trusts (each, an
"Underlying Trust Fund"), previously formed by the RTC, each such
Underlying Trust Fund consisting, in part, of multiple mortgage pools.
Each of the Mortgage Certificates evidences a senior interest in a separate
mortgage pool (each, an "Underlying Mortgage Pool"), which is part of one
of the Underlying Trust Funds, consisting primarily of adjustable interest
rate, conventional, one- to four-family, residential first mortgage loans
(the "Mortgage Loans"), sold by the RTC to the related Mortgage Loan
Trustee for the benefit of holders of the certificates of the related
Underlying Series. Except as set forth in the following sentence, the
Underlying Series relating to each class of Mortgage Certificates includes
at least one class of certificates (as to each Underlying Series, the
"Related Subordinated Certificates") which represents an interest in the
same Underlying Mortgage Pool as such class of Mortgage Certificates and
which is subordinated to such class of Mortgage Certificates. With respect
to three Mortgage Certificates, which have an aggregate Mortgage
Certificate Principal Amount as of the Cut-off Date of $__________, the
principal balances of the Related Subordinated Certificates have been
reduced to zero.
S-32
VERSION G
<PAGE>
Each of the Mortgage Certificates has been assigned the ratings set
forth in the following table by the rating agencies identified therein:
RATINGS APPLICABLE TO MORTGAGE CERTIFICATES
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES MOODY'S S&P FITCH
--------------------- ------- ------ -----
<S> <C> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
-----------------------------------------
NR = Not Rated
Certain characteristics of the Mortgage Certificates are described
below. Certain of the information with respect to the Mortgage
Certificates has been derived from the original offering documents relating
to such Mortgage Certificates and from publicly available data and other
data available to the Depositor with respect thereto. IT SHOULD BE NOTED
THAT THERE MAY HAVE BEEN MATERIAL CHANGES IN FACTS AND CIRCUMSTANCES SINCE
THE DATES SUCH DOCUMENTS WERE PREPARED, INCLUDING, BUT NOT LIMITED TO,
CHANGES IN PREPAYMENT SPEEDS AND PREVAILING INTEREST RATES AND OTHER
ECONOMIC FACTORS, WHICH MAY LIMIT THE USEFULNESS OF, AND BE DIRECTLY
CONTRARY TO THE ASSUMPTIONS USED IN PREPARING, THE INFORMATION SET FORTH IN
SUCH DOCUMENTS.
The following table sets forth expected approximate characteristics of
the Mortgage Certificates based on remittance reports received with respect
to the Underlying Series Distribution Dates occurring in .
S-33
VERSION G
<PAGE>
SUMMARY DESCRIPTION OF THE MORTGAGE CERTIFICATES
(BASED ON THE REMITTANCE REPORTS)
<TABLE>
<CAPTION>
Class Current Weighted
Original Original Original % in Current Mortgage Current Current Average
Collateral Class % of Trust Collateral Certificate Class % of Net
Underlying Series Class Balance Balance Deal Fund Balance Balance Balance Deal Index Margin
- ----------------- ----- ---------- -------- -------- ----- ---------- ----------- ------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series [INSERT
Series TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
Totals/Weighted Averages
S-34
VERSION G
<PAGE>
On the Closing Date, the Principal Balance of the Class A-1
Certificates will equal the aggregate principal balance of the Mortgage
Certificates. In the event that any of the actual characteristics as of the
Cut-off Date of the Mortgage Certificates varies materially from those
described herein, revised information regarding the Mortgage Certificates
will be made available to purchasers of the Class A-1 Certificates on or
before the Closing Date.
DISTRIBUTIONS ON THE MORTGAGE CERTIFICATES
The following is a discussion of the characteristics of the Mortgage
Certificates in general. The precise characteristics of specific Mortgage
Certificates may vary from the general descriptions set forth below. There
are substantial variations among the Underlying Pooling Agreements for the
various Underlying Series. The following discussion does not purport to
describe with specificity the terms of any specific Underlying Pooling
Agreement, but is instead a general description of the major economic terms
of the Mortgage Certificates, with certain major variations from the general
descriptions with respect to certain Mortgage Certificates or groups of
Mortgage Certificates noted. Investors are urged to obtain the Underlying
Pooling Agreements and the Underlying Disclosure Documents from First Boston
and read such agreements in conjunction with this Prospectus Supplement.
Distributions of interest and in reduction of principal balance of each
class of Mortgage Certificates are made on the 25th day of each month or, if
such 25th day is not a business day, on the succeeding business day (each,
an "Underlying Series Distribution Date").
In general, for each Underlying Mortgage Pool, the related class of
Mortgage Certificates evidences, in the aggregate, the right to receive all
of the principal payments on the Mortgage Loans in such Underlying Mortgage
Pool, the right to receive the interest payments on such Mortgage Loans at
the applicable Mortgage Certificate Pass-Through Rate and, in some cases as
discussed below, the right to receive Excess Cash attributable to such
Mortgage Loans, in each case until the related Mortgage Certificate
Principal Amounts have been reduced to zero. However, the Series ,
Certificates and the Series Certificates (which
have an aggregate Mortgage Certificate Principal Amount as of the Cut-off
Date of $__________) evidence the right to receive, in addition to payments
in respect of interest and certain payments in respect of Excess Cash, only
their pro rata share (based on the principal balances of such Mortgage
Certificates and the Related Subordinated Certificates) of all of the
principal payments on the Mortgage Loans in the related Underlying Mortgage
Pools until the related Mortgage Certificate Principal Amounts have been
reduced to zero (rather than all such principal payments).
Distributions on each Mortgage Certificate (other than distributions in
respect of Excess Cash) will generally be made from the Mortgage Pool
Available Distribution Amount. For each Underlying Mortgage Pool, the
related "Mortgage Pool Available Distribution Amount" with respect to any
Underlying Series Distribution Date will equal the sum of: (i) all
previously undistributed amounts received before the related Determination
Date with respect to the Mortgage Loans in such Mortgage Pool and (ii) all
Advances made by the Mortgage Loan Servicer or the Mortgage Loan Trustee (or
amounts withdrawn from the related Reserve Fund in respect of
S-35
VERSION G
<PAGE>
delinquent mortgage loan payments), and any other payments required to be
made by the Mortgage Loan Servicer with respect to such Underlying Series
Distribution Date, less (x) the portion of the related Servicing Fee payable
to the Mortgage Loan Servicer and (y) all other amounts which are due or
reimbursable to the Mortgage Loan Servicer with respect to such Mortgage
Loans; provided, however, that the Mortgage Pool Available Distribution
Amount with respect to any Underlying Series Distribution Date shall not
include:
(a) Monthly Payments due on the related Mortgage Loans on a date
subsequent to the related Due Period;
(b) Principal Prepayments received after the related Prepayment
Period (together with any interest payments received with such
prepayments to the extent that they represent the payment of interest
accrued on the Mortgage Loans in the related Mortgage Pool for the
period subsequent to the related Prepayment Period); and
(c) liquidation proceeds, insurance proceeds and proceeds of the
sale of any Mortgage Loans in the related Mortgage Pool received after
the related Prepayment Period.
The due period (the "Due Period") related to each Underlying Series
Distribution Date commences on the second day of the month preceding the
month in which such Underlying Series Distribution Date occurs and ends on
the Due Date in the month of such Underlying Series Distribution Date. The
due date (the "Due Date") for any Mortgage Loan is the date in each month on
which its Monthly Payment is due. Generally, for each Underlying Series
Distribution Date, the prepayment period (the "Prepayment Period") is the
calendar month preceding the month in which such Underlying Series
Distribution Date occurs. With respect to certain Mortgage Loans, however,
the Prepayment Period with respect to each Underlying Series Distribution
Date is the period beginning on the Determination Date in the month
preceding the month in which such Underlying Series Distribution Date occurs
and ending on the day preceding the Determination Date in the month in which
such Underlying Series Distribution Date occurs. The Determination Date for
each Underlying Series is generally the 15th day (or if such day is not a
business day, the preceding business day) of the month in which the related
Underlying Series Distribution Date occurs.
INTEREST DISTRIBUTIONS
The "Mortgage Certificate Interest Distribution Amount" for any class
of Mortgage Certificates on any Underlying Series Distribution Date is
generally the amount of interest accrued during the preceding Mortgage
Certificate Interest Accrual Period for such class at the related Mortgage
Certificate Pass-Through Rate on the Mortgage Certificate Principal Amount
of such class immediately preceding such Underlying Series Distribution
Date, less any allocable Prepayment Interest Shortfall and allocable
Deferred Interest, each as described below. The "Mortgage Certificate
Interest Accrual Period" for any Underlying Series Distribution Date is
generally the preceding calendar month. Interest on the Mortgage
Certificates will be calculated on the basis of a 360-day year assumed to
consist of twelve 30-day months.
S-36
VERSION G
<PAGE>
The Mortgage Certificate Principal Amount with respect to any Mortgage
Certificate and any Underlying Series Distribution Date is equal to the
initial principal amount of such Mortgage Certificate plus (x) any Deferred
Interest allocated to such Mortgage Certificate and less (y) the amount of
any principal distributions previously made on such Mortgage Certificate.
With respect to each Mortgage Certificate Interest Accrual Period, the
Mortgage Certificate Pass-Through Rates will each be a variable rate per
annum equal to the weighted average of the Mortgage Interest Rates on each
of the Mortgage Loans in the related Mortgage Pool as in effect prior to the
Due Date in the Due Period immediately preceding the related Underlying
Series Distribution Date minus the amount set forth for such class in the
succeeding table (each such amount, the "Fee/Excess Rate"). The Fee/Excess
Rate with respect to each Mortgage Certificate generally represents amounts
retained to pay servicing fees, master servicing fees payable to the related
Mortgage Loan Servicer and, in some cases, amounts to be distributed as
Excess Cash.
<TABLE>
<CAPTION>
FEE/EXCESS RATES
---------------------------------------------
Mortgage Certificates Fee/Excess Rates
--------------------- ----------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
If either (x) an adjustment to the Mortgage Interest Rate on any
Interest Adjustment Date without a simultaneous adjustment of the Monthly
Payment or (y) the limitation on adjustments to Monthly Payments due to a
Payment Adjustment Cap or the graduated Monthly Payments of certain GPM
Loans causes the amount of interest accrued on the principal balance of a
Mortgage
S-37
VERSION G
<PAGE>
Loan during any period to exceed the related Monthly Payment, the payment of
such excess interest ("Deferred Interest") may be deferred and the amount
thereof added to the principal balance of such Mortgage Loan. To the extent
any Deferred Interest is added to the principal balance of the Mortgage
Loans in any Mortgage Pool, an allocable portion of such Deferred Interest
will reduce the interest payable to, and will be added to the Mortgage
Certificate Principal Amount of, the related Mortgage Certificates (such
allocable portion based upon the proportion that the interest payable on
such class of Mortgage Certificates bears to the total amount of interest
payable on all classes of certificates related to such Mortgage Pool).
The "Monthly Payment" is, with respect to any Mortgage Loan and any
month, the scheduled Monthly Payment of principal and interest, excluding
any Balloon Payment, on such Mortgage Loan which is either payable by a
borrower in such month under the related note, or in the case of Mortgage
Loans which have been discharged and the related mortgaged property is held
as part of the Underlying Trust Fund ("REO Property"), would otherwise have
been payable under the note relating to such REO Property. A "Balloon
Payment" is the final scheduled payment of principal and interest on a
Balloon Mortgage Loan.
When a borrower makes a full or partial prepayment of a Mortgage Loan
between Due Dates, the borrower pays interest on the amount prepaid only
from the last scheduled Due Date to the date of prepayment. In order to
mitigate any shortfall in interest resulting from such prepayments prior to
a scheduled Due Date, subject to certain limitations in the Underlying
Pooling Agreements, the portion of the servicing fee payable to the Mortgage
Loan Servicer (less a portion thereof reserved for payment of certain fees
and expenses) will be reduced by the amount necessary to provide the
interest payable on the related Mortgage Loans for the entire Prepayment
Period in which the prepayments occurred, adjusted to the Mortgage Interest
Rate less the applicable Servicing Fee. The following chart sets forth the
percentage, as to each Mortgage Certificate, at which the Servicing Fee
available to offset such interest shortfalls is calculated. To the extent
that reductions in the portion of the Servicing Fee payable to the related
Mortgage Loan Servicer are insufficient to offset such interest shortfalls,
the amount of such insufficiency (a "Prepayment Interest Shortfall"), will
be allocated to the classes of Mortgage Certificates in proportion to the
interest accrued thereon. The Servicing Fees payable to any Mortgage Loan
Servicer with respect to any Underlying Series will be available to offset
interest shortfalls relating to mortgage pools other than the Underlying
Mortgage Pools, and to the extent that such shortfalls occur with respect to
more than one mortgage pool relating to any Underlying Series on an
Underlying Series Distribution Date, such Servicing Fee will be allocated to
offset such interest shortfalls pro rata based on the amounts of the
interest shortfalls in each mortgage pool.
PRINCIPAL DISTRIBUTIONS
Distributions in reduction of the Mortgage Certificate Principal
Amounts of the Mortgage Certificates on each Underlying Series Distribution
Date are generally required to be made (subject to the availability of
funds) in an aggregate amount equal to the Pool Principal Distribution
Amount for the related Underlying Mortgage Pool on such Underlying Series
Distribution Date. However, with respect to the and
Certificates (which have an aggregate Mortgage
Certificate Principal Amount as of the
S-38
VERSION G
<PAGE>
Cut-off Date of $_________), distributions in reduction of the Mortgage
Certificate Principal Amounts thereof are required to be made (subject to
the availability of funds) in an amount equal to the pro rata share of each
such class of the related Pool Principal Distribution Amount for the related
Underlying Mortgage Pool on each Underlying Series Distribution Date. The
pro rata share of each such class will be determined by dividing the
principal balance of such class by the sum of the principal balance of such
class and the principal balances of the Related Subordinated Certificates.
With respect to such Mortgage Certificates, if certain levels of realized
losses are experienced in the related Mortgage Pools, the Related
Subordinated Certificates will not be entitled to distributions in respect
of prepayments on the related Mortgage Loans and all such prepayments will
be allocated to the Mortgage Certificates in reduction of their Mortgage
Certificate Principal Amounts.
The "Pool Principal Distribution Amount" for each Underlying Mortgage
Pool on any Underlying Series Distribution Date generally equals the sum of
(i) the principal component of all scheduled Monthly Payments due on each
Mortgage Loan in such Underlying Mortgage Pool in the preceding Due Period
(the "Scheduled Principal Distribution Amount"), (ii) the principal
component of each Balloon Payment received on any Balloon Mortgage Loan in
such Underlying Mortgage Pool during the related Due Period, (iii) the
scheduled principal balance of each Mortgage Loan in such Underlying
Mortgage Pool that either was sold or became a liquidated mortgage loan
during the related Prepayment Period, (iv) all full or partial principal
prepayments received on each Mortgage Loan in such Underlying Mortgage Pool
during the related Prepayment Period and (v) with respect to two of the
Mortgage Certificates, the Excess Cash, if any, related to such Underlying
Mortgage Pool.
CROSSOVER AMOUNTS
On each Underlying Series Distribution Date (other than with respect to
the Underlying Series relating to the Excess Cash Allocation Certificates)
following the retirement of all classes of certificates related to a
mortgage pool that is part of one of the Underlying Trust Funds, all
payments and other recoveries in respect of such mortgage pool ("Crossover
Amounts") will be applied to cover shortfalls in principal and interest on
the remaining certificates relating to the other mortgage pools that are
part of the same Underlying Trust Fund (which may include one or more
classes of Mortgage Certificates) on a pro rata basis in proportion to the
respective amount of such shortfalls.
Any remaining Crossover Amounts after the application thereof to cover
shortfalls will be allocated among the related mortgage pools, pro rata,
based on the aggregate principal balances of all classes of senior
certificates in the related mortgage pools, and applied on each Underlying
Series Distribution Date in reduction of the principal balances of each
class of senior certificates currently entitled to distribution of
principal.
EXCESS CASH
The "Excess Cash" in respect of any Underlying Mortgage Pool for any
Underlying Series Distribution Date is generally the excess, if any, of the
Mortgage Pool Available Distribution Amount (together, in the case of the
Excess Cash Preservation Certificates, with amount
S-39
VERSION G
<PAGE>
withdrawn from the related underlying Reserve Fund in respect of realized
losses) for such Underlying Mortgage Pool over the sum of (1) the Mortgage
Certificate Interest Distribution Amount for the related class of Mortgage
Certificates and the Related Subordinated Certificates, if any, and (2) the
amounts set forth in clauses (i) through (iv) of the definition of Pool
Principal Distribution Amount, as set forth above.
In the case of the two Mortgage Certificates described above under the
definition of Pool Principal Distribution Amount, Excess Cash in respect of
the related Mortgage Pools is distributed on each Underlying Series
Distribution Date to such Mortgage Certificates in reduction of their
Mortgage Certificate Principal Amounts. With respect to the remaining
Mortgage Certificates (the "Excess Cash Allocation Certificates"), Excess
Cash is not allocated exclusively to the related Mortgage Certificates.
Instead, the Underlying Pooling Agreements relating to such Mortgage
Certificates provide that Excess Cash will be distributed to one or more
classes of certificates related to such Underlying Series other than the
Mortgage Certificates (as described in greater detail in the related
Underlying Disclosure Documents) in some cases in respect of interest, in
some cases in respect of losses and other shortfalls and in some cases as
payments in reduction of principal amount in excess of the amount of
principal received in respect of the related mortgage loans, prior to being
distributed in reduction of the Mortgage Certificate Principal Amount of the
related Mortgage Certificates. The amount of Excess Cash distributed in
reduction of the Mortgage Certificate Principal Amount of a Mortgage
Certificate could have a significant effect on the weighted average life of
such Mortgage Certificate.
UNDERLYING SERIES RESERVE FUNDS
To increase the likelihood of full distributions of interest and
principal to holders of the certificates issued in each Underlying Series,
the RTC established with various collateral agents one or more reserve funds
with respect to each Underlying Series. The reserve funds relating to each
Underlying Series that are available to cover realized losses and, in some
cases, other shortfalls (such realized losses and other cover shortfalls,
"Covered Amounts") on the related Underlying Mortgage Pools are each
referred to herein as the "Underlying Series Reserve Fund" with respect to
each Underlying Series. Each Underlying Series Reserve Fund originally
consisted of an initial deposit by the RTC of securities, cash or other
property (the "Initial Deposits") equal in value to the amounts set forth in
the following table under the heading "Original Reserve Fund Balance". The
current values of the securities, cash and other property contained in each
of the Underlying Series Reserve Funds, as reported by the Mortgage Loan
Servicers, is set forth in the following table under the heading "Current
Reserve Fund Balance". Such Underlying Series Reserve Funds were
established pursuant to collateral security agreements (each, a "Collateral
Security Agreement") generally among the RTC, the related Mortgage Loan
Trustee and a collateral agent. The amounts held in each Underlying Series
Reserve Fund are required to be invested, at the direction of the RTC, in
certain permitted investments acceptable to the related rating agencies.
The earnings, if any, resulting from the investment of amounts held in the
Underlying Series Reserve Funds are remitted to the RTC.
S-40
VERSION G
<PAGE>
Amounts on deposit in the related Underlying Series Reserve Funds are
used to offset Covered Amounts relating to each Underlying Mortgage Pool
prior to the allocation of such amounts to the Related Subordinated
Certificates, if any. Each of the Underlying Series Reserve Funds is
available to cover not only Covered Amounts relating to the related
Underlying Mortgage Pools, but also other mortgage pools contained in the
same Underlying Trust Funds. The aggregate outstanding principal balances
of the mortgage loans not contained in the Underlying Mortgage Pools as to
which Covered Amounts will be covered by each of the Underlying Series
Reserve Funds is set forth in the following table under the heading "Balance
of Other Mortgage Loans Covered."
UNDERLYING SERIES RESERVE FUNDS
(BASED ON REMITTANCE REPORTS)
<TABLE>
<CAPTION>
BALANCE OF
ORIGINAL RESERVE CURRENT RESERVE OTHER MORTGAGE
MORTGAGE CERTIFICATES FUND BALANCE FUND BALANCE LOANS COVERED
- --------------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
With respect to two of the Mortgage Certificates (which have an
aggregate Mortgage Certificate Principal Amount as of the Cut-off Date of
$__________), the Mortgage Loan Trustee will effect a transfer of funds in
the related Underlying Series Reserve Fund, to the extent available, on each
Underlying Series Distribution Date to the extent that the Mortgage Pool
Available Distribution Amount for any Mortgage Pool and any allocable
Crossover Amounts are less than the related Mortgage Certificate Interest
Distribution Amount for the related class of Mortgage Certificates and the
amount of interest distributable to the Related Subordinated
S-41
VERSION G
<PAGE>
Certificates and Pool Principal Distribution Amount. With respect to six of
the Mortgage Certificates (which have an aggregate Mortgage Certificate
Principal Amount as of the Cut-Off Date of $ ), the Mortgage Loan Trustee
will be required to effect a transfer of funds in the related Underlying
Series Reserve Fund, to the extent available, on each Underlying Series
Distribution Date in an amount equal to any realized losses sustained with
respect to Mortgage Loans in the related Mortgage Pools in the related
Prepayment Period, only to the extent that any resulting shortfalls in the
related Mortgage Certificate Interest Distribution Amounts and related
Mortgage Certificate Principal Distribution Amounts are not covered out of
distributions in respect of Excess Cash on such Distribution Date. With
respect to the remaining Mortgage Certificates (the "Excess Cash
Preservation Certificates"), the Mortgage Loan Trustee will be required to
effect a transfer of funds in the related Underlying Series Reserve Fund, to
the extent available, on each Underlying Series Distribution Date in an
amount equal to any realized losses sustained with respect to Mortgage Loans
in the related Mortgage Pools in the related Prepayment Period.
<TABLE>
<CAPTION>
SERVICING FEES AVAILABLE
-------------------------------------------
TO OFFSET INTEREST SHORTFALLS
-------------------------------------------
Mortgage Certificates Available Fees
--------------------- --------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
If the funds available in any Underlying Series Reserve Fund on any
Underlying Series Distribution Date are insufficient to pay the full amounts
due with respect to all related classes of Certificates on such Underlying
Series Distribution Date, such funds will be paid to the holders of the
Mortgage Certificates and the senior certificates related to the other
mortgage pools covered by
S-42
VERSION G
<PAGE>
such Underlying Series Reserve Fund in proportion to the respective
shortfalls of each such class that would be caused by the insufficiency of
amounts available absent a transfer of funds from such Underlying Series
Reserve Fund.
None of the Underlying Series Reserve Funds have been allocated on a
pro rata basis among the related mortgage pools. Rather, distributions from
each Underlying Series Reserve Fund, to the extent of funds available
therein, will be made without regard to the order, frequency or magnitude of
the losses and other shortfalls on mortgage loans in each covered mortgage
pool. Disproportionate losses or delinquencies in the mortgage pools
covered by the Underlying Series Reserve Funds that are not Underlying
Mortgage Pools could deplete the coverage provided for the Mortgage
Certificates by such Underlying Series Reserve Funds. Consequently, an
Underlying Series Reserve Fund may be unavailable on an Underlying Series
Distribution Date to offset Covered Amounts with respect to a class of
Mortgage Certificates even though the amount of the losses and other
shortfalls experienced by the related Underlying Mortgage Pool may have been
proportionately less than that experienced by the other covered mortgage
pools.
The terms of each Collateral Security Agreement require the related
collateral agent to release funds in the related Underlying Series Reserve
Funds to the RTC under certain circumstances related to the delinquency and
loss experience of the related mortgage loans if the balance on deposit in
such Underlying Series Reserve Funds exceeds the "Reserve Fund Requirement"
as such term is variously defined in the related Collateral Security
Agreements and described in the related Underlying Disclosure Documents.
Each Collateral Security Agreement provides that, with the approval of
the related rating agencies, and at the option of the RTC, the related
Underlying Series Reserve Fund can be replaced, in whole or in part, with a
form of credit enhancement that is, or is invested in securities or
obligations, which are backed by the full faith and credit of the United
States of America.
SUBORDINATION
After the coverage provided to each of the Mortgage Certificates by the
related Underlying Reserve Funds has been depleted, additional coverage
against losses and other shortfalls on the related Mortgage Loans will be
provided to each class of Mortgage Certificates by the subordination of the
class or classes of Related Subordinated Certificates, if any. In general,
the protection afforded to the Mortgage Certificates by the subordination of
any Related Subordination Certificates will be effected in two ways: (i) by
the preferential right of the Mortgage Certificates to receive distributions
on any Underlying Series Distribution Date after the depletion of the
related Underlying Series Reserve Fund and (ii) by the allocation of losses
on the related Mortgage Loans first to such Related Subordinated
Certificates until the principal balances thereof have been reduced to zero
prior to the allocation of any such losses to the Mortgage Certificates.
The following table indicates the current aggregate principal balance of the
class or classes of Related Subordinated Certificates for each class of
Mortgage Certificates.
S-43
VERSION G
<PAGE>
BALANCES OF RELATED SUBORDINATED CERTIFICATES
(BASED ON REMITTANCE REPORTS)
<TABLE>
<CAPTION>
CURRENT AGGREGATE PRINCIPAL PERCENTAGE OF
BALANCE OF RELATED RELATED UNDERLYING
MORTGAGE CERTIFICATES SUBORDINATED CERTIFICATES MORTGAGE POOL
--------------------- --------------------------- ------------------
<S> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
SPECIAL TERMINATION
With respect to each Underlying Series, subject to the limitations
imposed by the related Underlying Pooling Agreement, by no later than the
tenth business day after the first Underlying Series Distribution Date on
which the aggregate outstanding principal balance of all related classes of
certificates is less than 25% of the initial related aggregate principal
balance of such certificates, the related Mortgage Loan Trustee will solicit
bids for the related mortgage loans (including the Mortgage Loans contained
in the related Underlying Mortgage Pools) and any other property remaining
in the related Trust Fund. The related Mortgage Loan Trustee, however, will
not accept any bid for such mortgage loans and other property unless certain
minimum requirements are met, including that the proceeds distributable as a
result of such sale would be at least equal to 100% of the then outstanding
aggregate principal balance of all related classes of certificates plus
accrued interest thereon through the applicable Interest Accrual Period.
The sale of the mortgage loans and any other property in any Underlying
Trust Fund must be for an amount no less than fair market value. If the
proceeds from a proposed
S-44
VERSION G
<PAGE>
sale of any mortgage loans and any other property remaining in any
Underlying Trust Fund would be insufficient to satisfy the requirements of
the two preceding sentences, the related Mortgage Loan Trustee will continue
to solicit bids as described above from time to time as it deems
appropriate, until a bid satisfying the requirements of the two preceding
sentences is received. The proceeds of such sale will be treated as a
prepayment of the mortgage loans for purposes of distributions to
Certificateholders. Any such sale will effect a termination of the related
Underlying Trust Fund and an early retirement of the related certificates
(including the related Mortgage Certificates). Any resulting distribution on
a class of Mortgage Certificates will increase the amount distributable on
the Class A-1 Certificates in respect of principal and will result in a
shortening in the weighted average life thereof. There can be no assurance
as to the timing of Special Terminations with respect to the Mortgage
Certificates. Such terminations could occur for none, for only some, or for
all of the Mortgage Certificates, and any such terminations could occur
prior to the Distribution Date on the Class A-1
Certificates.
OPTIONAL TERMINATION
With respect to each Underlying Series, any of the related Mortgage
Loan Servicers, any holder of a related residual certificate or the owner of
the assets pledged to any reserve fund (including the related Underlying
Reserve Fund) may effect an early termination of the related trust on any
Underlying Series Distribution Date after the date on which the aggregate
scheduled principal balance of the related mortgage loans is reduced to less
than 10% of the aggregate scheduled principal balance as of the related
Underlying Series Cut-Off Date, by purchasing all such mortgage loans at a
purchase price, payable in cash, equal to 100% of the aggregate unpaid
principal balance of such mortgage loans plus one month's interest thereon
at the applicable mortgage interest rate. The proceeds of such sale will be
treated as a prepayment of the mortgage loans for purposes of distributions
to certificateholders. Any such sale will effect a termination of the
related Underlying Trust Fund and an early retirement of the related
Certificates (including the related Mortgage Certificates). Any resulting
distribution on a class of Mortgage Certificates will increase the amount
distributable on the Class A-1 Certificates in respect of principal and will
result in a shortening in the weighted average life thereof.
ASSIGNMENT OF MORTGAGE LOANS AND WARRANTIES
At the time of issuance of each Underlying Series, the RTC caused the
mortgage loans in the related Underlying Trust Fund to be assigned to the
related Mortgage Loan Trustee, together with all principal and interest due
on or with respect to such mortgage loans, other than principal and interest
due on or before the related Underlying Series Cut-Off Date.
In addition, the RTC delivered to the related Mortgage Loan Trustee, as
to each related mortgage loan (to the extent such documents were available
to the RTC), (i) the related mortgage note, endorsed to the order of, or
assigned to, the related Mortgage Loan Trustee without recourse; (ii) a
mortgage and mortgage assignment meeting the requirements of the related
Underlying Pooling Agreement; (iii) a lender's title insurance policy or
attorney's opinion of title issued as of the date of origination of the
mortgage loan, or an officer's certificate to the effect that
S-45
VERSION G
<PAGE>
such policy or opinion was issued on such date and remains in full force and
effect; (iv) any insurance policies covering the mortgaged property,
including the primary mortgage insurance policy, to the extent required; and
(v) such other documents as may be described in the related Underlying
Pooling Agreement (such documents collectively, the "Mortgage Loan File").
The applicable Mortgage Loan Trustee is required to hold such documents for
each Underlying Series in trust for the benefit of all certificateholders of
such Underlying Series. In a substantial number of cases, some or all of the
documents described above were not delivered by the RTC to the related
Mortgage Loan Trustees as of the closing dates for the related Underlying
Series.
In the related Underlying Pooling Agreement for each Underlying Series,
the RTC represented and warranted, among other things, that: (i) the
information set forth in the schedule of Mortgage Loans appearing as an
exhibit to the related Underlying Pooling Agreement was correct in all
material respects; (ii) immediately prior to the sale and assignment of the
related mortgage loans to the applicable Mortgage Loan Trustee, the RTC had
good title to each mortgage loan; (iii) each mortgage loan, other than any
co-op loan, was covered by a title insurance policy or an attorney's opinion
of title and each such policy was in full force and effect; (iv) to the best
of the RTC's knowledge, each mortgaged property was free of material damage
and in good repair; (v) as of the date of issuance of the related
certificates, each mortgage constituted a valid first lien on the related
mortgaged property (subject only to (a) the lien of current real property
taxes and assessments, (b) covenants, conditions, and restrictions, rights
of way, easements, and other matters of public record as of the date of the
recording of such mortgage, such exceptions appearing of record and either
being acceptable to mortgage lending institutions generally or specifically
referred to in the related title insurance policy and which do not adversely
affect the value of the mortgaged property and (c) other matters to which
like properties are commonly subject that do not materially interfere with
the benefits of the security intended to be provided by the Mortgage); and
(vi) as of the date of initial issuance of the related certificates, there
were no delinquent taxes, assessments or other outstanding charges affecting
the mortgaged properties. In addition, the RTC represented and warranted in
each related Underlying Pooling Agreement, among other things, that, as of
the date of the initial issuance of the related certificates, all Monthly
Payments due on or prior to a date which was not longer, with respect to any
Underlying Series, than [four months] prior to the related Underlying Series
Cut-Off Date had been made. The sole remedy for any breach of the RTC's
representations and warranties contained in each related Underlying Pooling
Agreement or for defects in mortgage loan documents is the obligation of the
RTC to indemnify the related Underlying Trust Fund for losses realized on
mortgage loans as to which such breaches or defects occur if there is a
connection between such losses and such breaches or defects. Subject to
certain exceptions as set forth in the Underlying Disclosure Documents, the
RTC acting in its corporate capacity will guarantee such obligation of the
Seller. The proceeds of any such repurchase or indemnification will be
passed through to related certificateholders as liquidation proceeds.
PAYMENTS ON MORTGAGE LOANS; UNDERLYING SERIES CERTIFICATE ACCOUNT
The Underlying Pooling Agreement for each Underlying Series requires
the related Mortgage Loan Servicer to maintain a custodial account or
accounts (the "Underlying Series Certificate Account") in the name of the
related Mortgage Loan Trustee for the benefit of the
S-46
VERSION G
<PAGE>
related certificateholders. The amount at any time credited to the
Underlying Series Certificate Account is required to be fully insured to the
maximum coverage possible or be invested in Permitted Investments (as
defined in the Underlying Disclosure Documents) that mature, or are subject
to withdrawal or redemption, on or before the business day preceding the
next succeeding Underlying Series Distribution Date. The income from
Permitted Investments of funds in the Underlying Series Certificate Account
is generally paid to the related Mortgage Loan Servicer, and the risk of
loss of funds in the Underlying Series Certificate Account resulting from
such investments will be borne by the related Mortgage Loan Servicer. The
amount of each such loss will be required to be deposited by the related
Mortgage Loan Servicer in the Underlying Series Certificate Account
immediately as realized.
The Mortgage Loan Servicers are required to deposit in the related
Certificate Accounts amounts representing the following collections and
payments (other than in respect of principal of or interest on the related
mortgage loans due on or before the Underlying Series Cut-Off Date): (i)
all installments of principal and interest on the applicable mortgage loans
and any principal and/or interest required to be advanced by the related
Mortgage Loan Servicer that was due on the applicable Due Date net of
servicing fees due the related Mortgage Loan Servicer, Retained Yield, if
any, and certain other amounts specified in the applicable Underlying
Pooling Agreement; (ii) all amounts received in respect of such mortgage
loans representing late payments of principal and interest to the extent
such amounts were not previously advanced by the related Mortgage Loan
Servicer with respect to such mortgage loans, net of servicing fees due the
related Mortgage Loan Servicer; (iii) all principal prepayments (whether
full or partial) on such mortgage loans received; and (iv) any amounts
received by the related Mortgage Loan Servicer as insurance proceeds (to the
extent not applied to the repair or restoration of the Mortgaged Property)
or liquidation proceeds.
COLLECTION AND OTHER SERVICING PROCEDURES
The Mortgage Loan Servicers are required to make reasonable efforts to
collect all payments called for under the mortgage loans and are required,
consistent with the Underlying Pooling Agreements and any applicable
insurance policies, to follow such collection procedures as each deems
necessary or desirable. Consistent with the above, each Mortgage Loan
Servicer may, in its discretion, waive any prepayment, late payment or
assumption charge or penalty interest in connection with prepayment, late
payment or assumption of a mortgage loan or extend the due dates for
payments due on a mortgage note, provided that insurance coverage for such
mortgage loan will not be adversely affected.
ADVANCES
With respect to classes of Mortgage Certificates, the Mortgage Loan
Servicers are required under the related Underlying Pooling Agreement to
advance prior to each Underlying Series Distribution Date, from their own
funds or from funds held in the related Certificate Accounts for
distribution on a future Underlying Series Distribution Date, scheduled
installments of principal and interest due on a mortgage loan on the
preceding Due Date and not collected by such Mortgage Loan Servicer from the
related borrower (any such advance, an
S-47
VERSION G
<PAGE>
"Advance"). Each such Mortgage Loan Servicer will be obligated to make such
an advance to the extent that such Advances are, in its judgment, reasonably
recoverable from future payments and collections on the Mortgage Loan out of
Insurance Proceeds, Liquidation Proceeds or otherwise. Any advance
previously made by such Mortgage Loan Servicer is reimbursable to such
Mortgage Loan Servicer from funds in the Certificate Account to the extent
that such Mortgage Loan Servicer determines that such advance is not
ultimately recoverable from insurance proceeds, liquidation proceeds or
otherwise. With respect to each Mortgage Certificate, the related Mortgage
Loan Trustee will generally be obligated to make any required Advance if the
Mortgage Loan Servicer fails in its obligation to do so, to the extent
provided in the related Underlying Pooling Agreement.
With respect to the remaining classes of Mortgage Certificates,
neither the related Mortgage Loan Servicer nor the related Mortgage Loan
Trustee will be required to make Advances. The amount of any delinquent
Monthly Payments with respect to related Mortgage Loans is instead withdrawn
from the related Underlying Reserve Fund, to the extent funds are available,
in order to make full distributions on the related Mortgage Certificates and
Related Subordinated Certificates, if any.
MORTGAGE LOAN TRUSTEE AND COLLATERAL AGENT
[TO BE PROVIDED]
S-48
VERSION G
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
As of the Cut-Off Date, the Mortgage Certificates represented
approximately $_______ of the beneficial interest in separate Underlying
Mortgage Pools which, in turn, were comprised of mortgage loans having an
aggregate principal balance as of such date of approximately $____. The
Mortgage Loans in each Underlying Mortgage Pool are adjustable rate,
conventional, one-to-four family residential first mortgage loans having
characteristics approximately as set forth in the table below. The related
mortgaged properties include owner-occupied, vacation and investor-owned
properties, condominiums, cooperatives, and units in Planned Unit
Developments. With respect to some of the Mortgage Loans, the type of the
related mortgaged property was unknown as of the date of issuance of the
related Mortgage Certificates. [Attached to this Prospectus Supplement as
Appendix A are copies of the tables prepared and delivered to prospective
investors by the RTC in connection with the issuance of each class of the
Mortgage Certificates. Such information may not have been accurate when
prepared (See "Special Considerations--Troubled Originators" and "--Limited
Information" herein). The Depositor cannot assume the accuracy or
completeness of any information set forth in Appendix A, which is provided
solely for the convenience of investors who may not have ready access to the
RTC disclosure regarding the Mortgage Loans.] The information regarding the
Mortgage Loans set forth herein (including in the tables below) is based on
information contained in the Prospectuses and Prospectus Supplements of the
RTC relating to the offerings of the Mortgage Certificates and on
information provided by the Mortgage Loan Servicers, subsequent to the
issuance of the Mortgage Certificates. IT SHOULD BE NOTICED THAT THERE MAY
HAVE BEEN MATERIAL CHANGES IN FACTS AND CIRCUMSTANCES SINCE THE DATE SUCH
DOCUMENTS AND INFORMATION WERE PREPARED, INCLUDING, BUT NOT LIMITED TO,
CHANGES IN PREPAYMENT SPEEDS AND PREVAILING INTEREST RATES AND OTHER
ECONOMIC FACTORS, WHICH MAY LIMIT THE USEFULNESS OF, AND EVEN BE DIRECTLY
CONTRARY TO THE ASSUMPTIONS USED IN PREPARING SUCH INFORMATION AND
DOCUMENTS. Neither the Depositor nor the Certificate Administrator can
provide any assurances as to the accuracy or completeness of such
information.
SELECTED MORTGAGE LOAN DATA
[INSERT TABLES]
Interest Rate Adjustments. Each Mortgage Loan will bear interest at a
rate (the "Mortgage Interest Rate") which will adjust periodically, in
accordance with the terms of the related mortgage note, to a rate equal to
the then-current Index (as defined herein) plus the applicable fixed
percentage specified in the related mortgage note (the "Gross Margin").
Mortgage Loans for which COFI (as defined herein) is the Index are referred
to herein as "COFI Mortgage Loans." Mortgage Loans for which CMT or CBE
(each as defined herein) is the Index are referred to herein as "CMT
Mortgage Loans." The Mortgage Interest Rate for each Mortgage Loan
generally began to adjust on the first day of the month prior to the first
six-month or one-year anniversary of its first payment date and then
monthly, semi-annually or
S-49
VERSION G
<PAGE>
annually thereafter (each a "Rate Adjustment Date"). The interest rate on
all of the COFI Mortgage Loans adjusts monthly.
Generally, each Mortgage Loan is subject to an overall maximum interest
rate (the "Lifetime Cap"). For the Monthly COFI Mortgage Loans, the
Lifetime Cap ranges from 0% to 125% per annum. For the CMT Mortgage Loans,
the Lifetime Cap ranges from 0% to 125% per annum. Some of the Mortgage
Loans are subject to minimum interest rates. [In addition to the Lifetime
Cap, interest rate adjustments on the [CMT] Mortgage Loans generally limited
are to 1.00% in the case of semi-annual adjustments and 2.00% in the case of
annual adjustments.]
Effective with the first payment due on a Mortgage Loan after the
related Rate Adjustment Date, the monthly principal and interest payment
generally will be adjusted to an amount that will fully amortize the then-
outstanding principal balance of such Mortgage Loan over its remaining term
to stated maturity and that will be sufficient to pay interest at the
adjusted Mortgage Interest Rate. Therefore, any partial prepayments may
reduce the weighted average life of a Mortgage Loan but will not (except for
partial prepayments made in the final year of the original term of such
Mortgage Loan) cause the final payment on such Mortgage Loan to occur prior
to its stated maturity. An increase in the Mortgage Interest Rate on a
Mortgage Loan will result in a larger portion of each higher Monthly Payment
being allocated to interest and a smaller portion being allocated to
principal.
COFI, CMT AND CBE
The "Index" with respect to each COFI Mortgage Loan is the monthly
weighted average cost of funds for member institutions in the Eleventh
District of the Federal Home Loan Bank System, as published by the Federal
Home Loan Bank of San Francisco ("COFI"). The Index with respect to each
CMT Mortgage Loan generally is either (a) the weekly average yield on U.S.
Treasury securities adjusted to a constant maturity ("CMT") of one year or
(b) the weekly auction average (investment) rate on U.S. Treasury Bills with
a six-month maturity ("CBE"), each as published by the Federal Reserve Board
in Statistical Release H.15 (519) or any similar publication or, if not so
published, as reported by any Federal Reserve Bank or by any U.S. Government
department or agency and made available to the servicer as of a date which
is a number of days prior to each Rate Adjustment Date for such Mortgage
Loan. Some of the Mortgage Loans use a CMT index based on a 2, 3 or 5 year
maturity. In general, should the applicable Index not be published or
become otherwise unavailable, the servicer of the Mortgage Loan will select
a comparable alternative index over which it has no control and which is
readily verifiable.
The monthly averages of CMT and CBE in the tables below are not
necessarily indicative of CMT or CBE on any given date in the relevant month
since significant week-to-week fluctuations in any such Index may occur in
any month as well as over longer periods. In addition, such monthly
averages do not purport to be a prediction of the value of CMT or CBE on any
Rate Adjustment Date or for the lives of the Mortgage Loans.
S-50
VERSION G
<PAGE>
COFI. The following table sets forth COFI for each of the last six
calendar years or portions thereof, based on information reported by The
Federal Home Loan Bank of San Francisco ("FHLBSF");
MONTHLY COFI
<TABLE>
<CAPTION>
YEAR
---------------------------------------
Month(1) 19 19 19 19 19 19
-------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
____________________
(1) COFI reflects the weighted average cost of funds of the members of the
Eleventh District for the month indicated. It is usually announced by
the FHLBSF on the last working day of the month following the month in
which the cost of funds was incurred.
The FHLBSF publishes COFI in its monthly Information Bulletin. Any
individual may request regular receipt by mail of Information Bulletins by
writing the Federal Home Loan Bank of San Francisco's Marketing Department,
P.O. Box 7948, San Francisco, California 94120, or by calling (415) 616-
2610. COFI may also be obtained by calling the FHLBSF at (415) 616-2600.
COFI is designed to represent the monthly weighted average cost of
funds for savings institutions in Arizona, California and Nevada that are
member institutions of the Eleventh Federal Home Loan Bank District (the
"Eleventh District"). COFI for a particular month reflects the interest
costs paid on all types of funds held by Eleventh District member
institutions and is calculated by dividing the cost of funds by the average
of the total amount of those funds outstanding at the end of that month and
of the prior month and annualizing and adjusting the result to reflect the
actual number of days in the particular month. If necessary, before these
calculations are made, the component figures are adjusted by the FHLBSF to
neutralize the effect of events such as member institutions leaving the
Eleventh District or acquiring funds held at the end of the relevant month.
The major components of funds of Eleventh District member institutions are:
(i) savings deposits, (ii) time deposits, (iii) FHLBSF advances, (iv)
repurchase agreements and (v) all other borrowings. Because the component
funds represent a variety of maturities whose costs may react in different
ways to changing conditions, COFI does not necessarily reflect any
particular current market rate.
S-51
VERSION G
<PAGE>
A number of factors affect the performance of COFI, which may cause it
to move in a manner different from indices tied to specific interest rates,
such as United States Treasury Bills or LIBOR. Because the liabilities upon
which COFI is based were issued at various times under various market
conditions and with various maturities, COFI may not necessarily reflect the
prevailing market interest rates on new liabilities of similar maturities.
Moreover, as stated above, COFI is designated to represent the average cost
of funds for Eleventh District savings institutions for the month prior to
the month in which it is due to be published. Additionally, COFI may not
necessarily move in the same direction as market interest rates at all
times, since as longer term deposits or borrowings mature and are renewed at
prevailing market interest rates, COFI is influenced by the differential
between the prior and the new rates on those deposits or borrowings. In
addition, movements of COFI, as compared to other indices tied to specific
interest rates, may be affected by changes instituted by the FHLBSF in the
method used to calculate COFI.
CMT AND CBE. The following table sets forth the monthly averages of
CMT and CBE for each of the last six calendar years or portions thereof,
based on information published in the Federal Reserve Board in Statistical
Release H.15 (519):
MONTHLY AVERAGES OF CMT
<TABLE>
<CAPTION>
Year
---------------------------------------
Month 19 19 19 19 19 19
----- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
S-52
VERSION G
<PAGE>
MONTHLY AVERAGES OF CBE
<TABLE>
<CAPTION>
Year
---------------------------------------
Month 19 19 19 19 19 19
----- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
Convertible Mortgage Loans. Under the terms of certain of the Mortgage
Loans, the borrower has the option at certain times and under certain
conditions to convert the Mortgage Interest Rate to a fixed rate from a
variable rate based on the applicable Index (each such loan, a "Convertible
Mortgage Loan"). The option to convert to a fixed Mortgage Interest Rate
may be exercised by the borrower on the date or dates specified in the
related note. The borrower's option to convert to a fixed Mortgage Interest
Rate may have expired with respect to certain of the Convertible Mortgage
Loans. The conversion option typically may not be exercised if the borrower
is in default under the terms of the related note or mortgage. In most
cases, the Convertible Mortgage Loan may be converted to a fixed interest
rate loan with a Mortgage Interest Rate based upon FNMA's or FHLMC's
required net yield for the purchase of 15-year (for Mortgage Loans with
original repayment terms of 15 years or less) or 30-year (for Mortgage Loans
with original repayment terms of greater than 15 years) fixed-rate mortgage
loans, under 30-day or 60-day mandatory delivery commitments. In either
case, the fixed interest rate will be computed by adding a specified margin
to the applicable FNMA quotation or the applicable FHLMC quotation. Upon
conversion, the Monthly Payments of principal and interest generally will be
adjusted to provide for fully amortizing, level Monthly Payments until
maturity.
The Pooling and Servicing Agreements applicable to the Mortgage Loans
provide that the Mortgage Loan Servicers will be obligated to purchase any
Mortgage Loan as to which the borrower exercises the right to convert to a
fixed Mortgage Interest Rate for a price equal to 100% of the unpaid
principal balance of such Mortgage Loan plus unpaid accrued interest at the
applicable Mortgage Interest Rate. The Mortgage Loan Servicer's purchase
obligation is not insured or guaranteed by any person. The proceeds of any
such purchased converted Mortgage Loan will be treated as a prepayment and
will be passed through to the Trustee, as holder of the related Mortgage
Certificates. A converted Mortgage Loan bearing a fixed Mortgage Interest
Rate will remain in the Mortgage Pool until purchased or repaid. Any
failure to purchase a
S-53
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<PAGE>
converted Mortgage Loan would cause the related Underlying Mortgage Pool to
include both fixed rate and adjustable rate Mortgage Loans.
Balloon Mortgage Loans. Certain of the Mortgage Loans are Balloon
Mortgage Loans. A "Balloon Mortgage Loan" is a Mortgage Loan that provided
on the date of origination for amortization on the basis of an amortization
schedule extending beyond its stated maturity with a disproportionate
Monthly Payment due on its stated maturity date equal to the remaining
principal balance of such Mortgage Loan. The ability of a borrower to repay
such a Balloon Mortgage Loan upon the maturity thereof frequently will
depend on the borrower's ability to refinance such Balloon Mortgage Loan,
which in turn will depend on a variety of factors, including the prevailing
level of Mortgage interest rates.
Negative Amortization Mortgage Loans. The Monthly Payment on a
Mortgage Loan is adjusted after an initial period and at periodic intervals
thereafter, all as specified in the related note (each, a "Payment Change
Date"), generally to an amount that would fully amortize the remaining
principal balance of the Mortgage Loan over its remaining amortization term
on a level-debt service basis, at the Mortgage Interest Rate in effect on
the related Payment Change Date. However, with respect to certain of the
Mortgage Loans, increases in the Monthly Payment may be limited by the terms
of the related note (the "Payment Adjustment Cap"), which generally provides
that no Monthly Payment may increase by more than a percentage, specified in
the related note, above the Monthly Payment in effect during the preceding
period. With respect to certain of the Mortgage Loans, application of the
Payment Adjustment Cap will be at the option of the borrower.
In addition, with respect to the COFI Mortgage Loans, as to which
interest rates adjust monthly, because the rate at which interest accrues
changes more frequently than payments adjust and because adjustment of
Monthly Payments on such Mortgage Loans may be subject to the various
limitations described above, the amount of interest accruing on the
remaining principal balance of such a Mortgage Loan at the applicable
Mortgage Interest Rate may exceed the amount of the interest portion of the
Monthly Payment. The resulting shortfall in the interest portion of the
related Monthly Payment will be added to the unpaid principal balance of the
related Mortgage Loan in the month during which any such shortfall occurs as
"Deferred Interest," resulting in negative amortization of the Mortgage
Loan. With respect to such Mortgage Loans negative amortization is
generally limited, however, such that the principal balance of the Mortgage
Loan cannot generally exceed the percentage of its original principal
balance specified in the applicable note. If the calculated Monthly Payment
would result in negative amortization exceeding the limit specified in the
related note, the borrower generally is required to pay as the Monthly
Payment until the next Payment Change Date an amount that would fully
amortize the remaining principal balance of the Mortgage Loan over its
remaining amortization term on a level-debt service basis without regard to
any limitations. As a result of such negative amortization, the final
payment at the end of the term of the related Mortgage Loan may be larger
than previous Monthly Payments under such Mortgage Loan.
S-54
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<PAGE>
Non-Monthly Payment Loans. Certain of the Mortgage Loans may provide
for payments of principal at biweekly, quarterly, semiannual or annual
intervals, rather than at monthly intervals.
Graduated Payment Mortgage Loans. Certain of the Mortgage Loans may
provide for an initial period of Monthly Payments in an amount that would be
insufficient to fully amortize the principal balance of the Mortgage Loan
over its stated term, and that may be insufficient to pay accrued interest,
followed by scheduled increasing Monthly Payments prior to a date specified
in the related note. To the extent the amount of interest accruing on the
principal balance of such a Mortgage Loan at the applicable Mortgage
Interest Rate exceeds the Monthly Payment, such excess will be added to the
unpaid principal balance of the related Mortgage Loan, resulting in negative
amortization.
YIELD AND PREPAYMENT CONSIDERATIONS
Prepayments and Excess Cash. The rate of principal payments on the
Class A-1 Certificates will be affected by the rate of principal payments on
the Mortgage Loans (including, for this purpose, prepayments, which may
include amounts received by virtue of condemnation, insurance or
foreclosure) and by the application of Excess Cash to the principal balance
of the Mortgage Certificates.
Principal prepayments may be influenced by a variety of economic
geographic, demographic, social, tax, legal and other factors. In general,
if prevailing interest rates fall significantly below the interest rates on
the Mortgage Loans, the Mortgage Loans are likely to be subject to higher
prepayments than if prevailing rates remain at or above the interest rates
on such Mortgage Loans. Conversely, if prevailing interest rates rise above
the interest rates on such Mortgage Loans, the rate of prepayments would be
expected to decrease. Other factors affecting prepayment of the Mortgage
Loans include changes in borrowers' housing needs, job transfers,
unemployment, borrowers' net equity in the mortgaged properties and
servicing decisions.
All of the Mortgage Loans are adjustable rate mortgage loans ("ARMs").
The Depositor is not aware of any publicly available statistics that set
forth principal prepayment experience or prepayment forecasts of ARMs over
an extended period of time, the prepayment experience of the Mortgage
Certificates is insufficient to draw any conclusions with respect to the
expected prepayment rates of the Mortgage Loans. The rate of principal
prepayments with respect to ARMs has fluctuated in recent years. As is the
case with conventional fixed rate mortgage loans, ARMs may be subject to a
greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates fall significantly,
ARMs could be subject to higher prepayment rates than if prevailing interest
rates remain constant because the availability of fixed rate mortgage loans
at competitive interest rates may encourage mortgagors to refinance their
ARMs to "lock in" a lower fixed interest rate. No assurances can be given
as to the rate of prepayments on the Mortgage Loans in stable or changing
interest rate environments.
S-55
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<PAGE>
Excess Cash related to each of the Underlying Mortgage Pools will be
allocated in reduction of the Mortgage Underlying Certificate Principal
Balances of the Certificates in various ways. See "Description of the
Mortgage Certificates--Principal Distributions."
If a Class A-1 Certificate is purchased at a discount from its initial
principal amount by a purchaser that calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is faster
than that actually experienced on the Mortgage Loans, the actual yield to
maturity will be lower than that so calculated. Conversely, if a
Certificate is purchased at a premium by a purchaser that calculates its
anticipated yield to maturity based on an assumed rate of payment of
principal that is slower than that actually experienced on the Mortgage
Loans, the actual yield to maturity will be lower than that so calculated.
Timing of Payments. The timing of changes in the rate of prepayments
on the Mortgage Loans and the timing of distribution of Excess Cash may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal of the
Mortgage Loans or a distribution of Excess Cash, the greater the effect on
an investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the
issuance of the Certificates may not be offset by a subsequent like decrease
(or increase) in the rate of principal payments.
Basis Risk; LIBOR. The interest rate payable to the Holders of the
Class A-1 Certificates is based on LIBOR. However, the Mortgage Loans bear
interest at adjustable rates based on various indices. LIBOR and such
various indices may respond to different economic and market factors, and
there is no necessary correspondence between them. Thus, it is possible,
for example, that LIBOR may rise during periods in which the indices of the
Mortgage Loans are stable or are falling, or that even if both LIBOR and
such indices rise during the same period, LIBOR may rise much more rapidly
and sharply than the indices. THERE CAN BE NO ASSURANCE THAT FUNDS
AVAILABLE IN THE RESERVE FUND OR PAYMENTS UNDER THE YIELD SUPPORT AGREEMENT
WILL BE SUFFICIENT TO MAKE UP ANY AMOUNT BY WHICH THE INTEREST COLLECTED ON
THE MORTGAGE CERTIFICATES IS LESS THAN THE INTEREST ACCRUAL AMOUNT OF THE
CLASS A-1 CERTIFICATES.
Mortgage Certificates. The Trust Fund contains Mortgage Certificates
which were issued at different times, are backed by different pools of
Mortgage Loans, have different allocations of principal and interest and
payment priorities among various classes, and may perform differently in
various interest and prepayment rate environments. The performance
characteristics of the Class A-1 Certificates will reflect a combination of
the performance characteristics of the various Mortgage Certificates. As a
result, it will be difficult to predict the likely yield and payment
experience of the Mortgage Certificates.
Special Terminations. Each of the Underlying Mortgage Pools is subject
to termination as described under "Description of the Mortgage Certificates-
-Special Termination." Any such
S-56
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<PAGE>
termination may have the effect of decreasing the weighted average life of
the Class A-1 Certificates.
Auction Risk. There can be no assurances that the Trustee will, on
or on any date thereafter, be able to sell the Mortgage
Certificates for a price sufficient (together with amounts on deposit in the
Reserve Fund) to allow the Class A-1 Certificates to be paid in full.
[Reinvestment Risk. Investors should consider the risk that rapid
rates of prepayments on the Mortgage Loans, and therefore of principal
payments on the Certificates, may coincide with periods of low prevailing
interest rates. During such periods, the effective interest rates on
securities in which an investor may choose to reinvest amounts received as
principal payments on such investor's Certificate may be lower than the
Class A-1 Pass-Through Rate. Conversely, slow rates of prepayments on the
Mortgage Loans, and therefore of principal payments on the Class A-1
Certificates, may coincide with periods of high prevailing interest rates.
During such periods, the amount of principal payments available to an
investor for reinvestment at such high prevailing interest rates may be
relatively low.]
Convertible ARM Loans. As discussed above under "DESCRIPTION OF THE
MORTGAGE LOANS," borrowers under certain of the Mortgage Loans have the
option to convert the Mortgage Loan to a fixed rate loan. As previously
discussed, the related Mortgage Loan Servicers are obligated to purchase any
such Converted Mortgage Loans. Unless and until such a purchase is
effected, a Converted Mortgage Loan will stay in the Underlying Mortgage
Pool and the Mortgage Interest Rate will be fixed rather than based on an
Index. The yield on the Class A-1 Certificates may thus be adversely
affected. In addition, the purchase of a Converted Mortgage Loan may affect
the rate of principal payments on the Class A-1 Certificates and, as a
result, the yield on such Certificates.
WEIGHTED AVERAGE LIVES
The weighted average life of a security refers to the average amount of
time that will elapse from the date of its issuance until each dollar of
principal of such security will be distributed to the investor. The weighted
average life of a Class A-1 Certificate is determined by (a) multiplying the
amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date (or, in the case of the first
distribution, from ) to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate
referred to in clause (a). The weighted average lives of the Class A-1
Certificates will be influenced by, among other factors, the rate at which
principal is paid on the Mortgage Loans.
CPR MODEL
Prepayments on mortgage loans are commonly measured relative to a
prepayment or model. The model used in this Prospectus Supplement, known as
a conditional or a constant prepayment rate ("CPR"), represents a rate of
payment of unscheduled principal on the
S-57
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<PAGE>
Mortgage Loans expressed as an annualized percentage of the outstanding
principal balance of the Mortgage Loans at the beginning of each period. CPR
does not purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage
loans, including the Mortgage Loans.
PRICING ASSUMPTION
The Class A-1 Certificates were structured assuming, a month other
things, a prepayment assumption of 18% CPR and LIBOR at a rate of ____%. The
assumptions as to prepayments and LIBOR to be used for pricing purposes for
the Class A-1 Certificates may vary as determined at the time of sale. The
actual rates of prepayments and the actual levels of LIBOR may vary
considerably from the rates used for any pricing assumption.
WEIGHTED AVERAGE LIFE, FINAL DISTRIBUTION DATE AND PRE-TAX YIELD TABLES
The following tables indicate the weighted average lives (in years),
the final Distribution Dates and the pre-tax yields to maturity (on a
corporate bond equivalent basis) of the Class A-1 Certificates, assuming
various percentages of CPR and various constant levels of LIBOR, among other
things.
For each of the following tables it was assumed that (i) The Mortgage
Certificates in the Trust Fund have the principal balances set forth on Table
__ on p. S-__ [adjusted, etc.]; (ii) each Mortgage Loan underlying a Mortgage
Certificate has a Mortgage Interest Rate as of the Cut Off Date, remaining
term to maturity and loan age equivalent to the weighted average mortgage
interest rate of such Mortgage Loans, the weighted average remaining term to
maturity and the weighted average loan age of such Mortgage Loans as of the
Cut Off Date, as reported in the applicable Remittance Reports prepared by the
servicers; (iii) the Mortgage Loans prepay at the percentages of CPR
indicated; (iv) all amounts due with respect to the Mortgage Loans are applied
to the payment of the Mortgage Certificates on the 25th of the month in
accordance with the applicable Prospectus and Prospectus Supplement of the
RTC; (v) for the first Interest Accrual Period, the Class A-1 Pass-Through
Rate is ____%; (vi) LIBOR with respect to each Interest Accrual Period after
the first is equal to the levels shown; (vii) the Closing Date is
___, 19 ; (viii) each quarterly distribution on the Class A-1 Certificates is
made on the 25th day of the relevant month, commencing on , ;
(ix) each month consists of 30 days; (x) funds on deposit in the Reserve Fund
earn interest at ____; and (xi) the Class A-1 Certificates are purchased at
par.
[INSERT TABLES]
The yields set forth in the above table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class A-1 Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed
purchase price of the Class A-1 Certificates indicated above and converting
such monthly rates to corporate bond equivalent rates. Such calculation does
not take into account variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as payments of
principal of and interest on the Class A-1 Certificates
S-58
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<PAGE>
and consequently does not purport to reflect the return of any investment in
the Class A-1 Certificates when such reinvestment rates are considered.
Listed below are historical values of Three-Month LIBOR since
___________:
<TABLE>
<CAPTION>
3 MONTH LIBOR
MONTHLY AVERAGES
YEAR
MONTH 19 19 19 19 19
-------------------------------------------
<S> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
Historical LIBOR experience is not a predictor of future LIBOR
notes, which are influenced by numerous factors, the impact of
which cannot be predicted. The foregoing rates do not purport to
be a prediction of the value of LIBOR on any Reset Date or for the
lives of the Class A-1 Certificates.
ACTUAL EXPERIENCE WILL VARY FROM ASSUMPTIONS
Discrepancies will exist between the characteristics of the actual
underlying Mortgage Certificates and Mortgage Loans and the characteristics
assumed therefore in preparing the tables contained herein. To the extent
that the Mortgage Certificates and Mortgage Loans have characteristics which
differ from those assumed in preparing the tables, the Class A-1 Certificates
may mature earlier or later than indicated by the tables and the weighted
average lives and pre-tax yields may also differ. In addition, it is unlikely
that the Mortgage Loans will prepay at any constant rate or at the same rate,
or that LIBOR will remain constant at any level. The timing of changes in the
rate of prepayment and level of LIBOR may significantly affect the yield
realized by a holder of the Class A-1 Certificates. Under certain prepayment
and LIBOR scenarios, investors may not receive the full amount of their
investments.
S-59
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<PAGE>
THE MORTGAGE LOAN SERVICERS
The names of the Mortgage Loan Servicers related to each of the
Mortgage Certificates are set forth in the following table:
MORTGAGE LOAN SERVICERS
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES SERVICER
--------------------- ------------------------------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
According to FHLMC and FNMA, each of the Mortgage Loan Servicers (other
than __________) is approved by such organizations to service residential
mortgage loans.
S-60
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[to be provided]
The preceding information with respect to the Mortgage Loan Servicers
was derived by the Depositor from publicly available information which the
Depositor believes to be reliable. However, the Depositor makes no
representations with respect thereto and assumes no responsibility for the
accuracy or completeness thereof.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust Fund as a REMIC for federal
income tax purposes. The Class A-1 and Class IO Certificates will be
designated as regular interests in the REMIC, and the Class R Certificate
will be designated as the residual interest in the REMIC.
The Class A-1 Certificates will be treated as "qualifying real property
loans" for mutual savings banks and domestic building and loan associations,
"regular or residual interests in a
S-61
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<PAGE>
REMIC" for domestic building and loan associations, and "real estate assets"
for real estate investment trusts, to the extent described in the
Prospectus.
The Class A-1 Certificates generally will be treated as newly
originated debt instruments for federal income tax purposes. Beneficial
Owners of the Class A-1 Certificates will be required to report income on
such Certificates in accordance with the accrual method of accounting.
It is anticipated that the Class A-1 Certificates will be issued [at a
premium] [with de minimis original issue discount] for federal income tax
purposes.
The Prepayment Assumption (as defined in the Prospectus) that the
Certificate Administrator intends to use in determining the rate of accrual
of original issue discount will be calculated using 18% CPR. No
representation is made as to the actual rate at which the Mortgage Loans
will prepay.
See "Certain Federal Income Tax Consequences -- General" and " -- REMIC
Trust Funds" in the Prospectus.
ERISA CONSIDERATIONS
The Department of Labor has granted to the Underwriter an
administrative exemption (the "Exemption") from certain of the prohibited
transaction rules of ERISA and certain related excise taxes imposed by the
Code with regard to the initial purchase, the holding and the subsequent
resale by ERISA Plans of certificates in pass-through trusts that meet the
conditions and requirements of the Exemption. The Exemption should apply to
the liquidation, holding, and resale of the Class A-1 Certificates by an
ERISA Plan, provided that specified conditions (certain of which are
described below) are met.
Among the conditions which must be satisfied for the Exemption to apply
to the acquisition by an ERISA Plan of the Class A-1 Certificates are the
following: (1) the acquisition of the Certificates by an ERISA Plan is on
terms (including the price for such Certificates) that are at least as
favorable to the ERISA Plan as they would be in an arm's-length transaction
with an unrelated party; (2) the rights and interests evidenced by the
Certificates acquired by the ERISA Plan are not subordinated to the rights
and interests evidenced by other certificates of the Trust; (3) the
Certificates acquired by the ERISA Plan have received a rating at the time
of such acquisition that is in one of the three highest generic rating
categories from any of S&P, Fitch, Duff & Phelps Credit Rating Co. or
Moody's Investors Service, Inc.; (4) the sum of all payments made to the
Underwriter in connection with the distribution of the Class A-1
Certificates represents not more than reasonable compensation for
underwriting such Certificates; and (5) the sum of all payments made to and
retained by the Certificate Administrator represents not more than
reasonable compensation for the Certificate Administrator's services under
the Pooling Agreement and reimbursement of the Certificate Administrator's
reasonable expenses in connection therewith.
S-62
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<PAGE>
In addition, it is a condition that the ERISA Plan investing in the
Class A-1 Certificates be an "accredited investor" as defined in Rule
501(a)(1) of Regulation D of the Commission under the Securities Act.
The Exemption does not apply to the acquisition and holding of Class A-
1 Certificates by ERISA Plans sponsored by the Issuer, the Underwriter, the
Trustee, the Certificate Administrator, or any affiliate of such parties.
Moreover, the Exception provides relief from certain self-dealing/conflict
of interest prohibited transactions, only if, among other requirements (i)
an ERISA Plan's investment in the Class A-1 Certificates does not exceed 25%
of all of that Class outstanding at the time of the acquisition and (ii)
immediately after the acquisition, no more than 25% of the assets of an
ERISA Plan with respect to which the person who has discretionary authority
or renders advice are invested in certificates representing an interest in a
trust containing assets sold or serviced by the same person.
USE OF PROCEEDS
The proceeds from the sale of the Class A-1 Certificates (net of
expenses incurred in connection with the issuance of the Class A-1
Certificates) will be used by the Depositor to purchase the Mortgage
Certificates.
LEGAL INVESTMENT CONSIDERATIONS
The Class A-1 Certificates constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 (the
"SMMEA") so long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization. As such, the Class A-1 Certificates are legal investments for
certain entities to the extent provided in the SMMEA. However, institutions
subject to the jurisdiction of the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, the
National Credit Union Administration or state banking or insurance
authorities should review applicable rules, supervisory policies and
guidelines of these agencies before purchasing any of the Class A-1
Certificates, as such Certificates may be deemed to be unsuitable
investments under one or more of these rules, policies and guidelines and
certain restrictions may apply to investments in such Certificates. It
should also be noted that certain states recently have enacted, or have
proposed enacting, legislation limiting to varying extent the ability of
certain entities (in particular insurance companies) to invest in mortgage
related securities. The appropriate characterization of the Class A-1
Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase Class A-1
Certificates, may be subject to significant interpretive uncertainties.
Investors should consult with their own legal advisors in determining
whether and to what extent Class A-1 Certificates constitute legal
investments for such investors. See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
First Boston proposes to place the Class A-1 Certificates from time to
time in one or more negotiated transactions, or otherwise, at varying prices
to be determined in each case, at
S-63
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<PAGE>
the time of sale. The Class A-1 Certificates are offered subject to prior
sale and acceptance and to certain other conditions.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus 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 sale.]
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor [Sidley &
Austin,] [Cadwalader, Wickersham & Taft,] New York, New York.
RATINGS
It is a condition to the issuance of the Class A-1 Certificates that
such Certificates be rated at least "Aaa" by Moody's and at least "AAA" by
S&P. There is no assurance that such ratings will continue for any period
of time or that they will not be revised or withdrawn entirely by such
rating agency if, in its judgment, circumstances so warrant. A revision or
withdrawal of such ratings may have an adverse effect on the market price of
the Class A-1 Certificates. A security rating is not a recommendation to
buy, sell or hold securities.
THE RATINGS OF THE RATING AGENCIES DO NOT ADDRESS THE LIKELIHOOD OF
PAYMENT OF INTEREST ON THE CLASS A-1 CERTIFICATES AT A RATE IN EXCESS OF THE
QUARTERLY MORTGAGE CERTIFICATE PASS-THROUGH RATE.
The ratings of Moody's and S&P on mortgage pass-through certificates
address the likelihood of the receipt by holders hereof of all distributions
of principal and interest to which such holders are entitled (except as set
forth in the preceding paragraph).
Moody's and S&P's rating opinions address the structural, legal and
issuer aspects associated with the certificates, including the nature of the
underlying mortgage assets and the credit quality of the credit support
provider, if any. Moody's and S&P's ratings on pass-through certificates do
not represent any assessment of the likelihood that principal prepayments
may differ from those originally anticipated and consequently may adversely
affect the timing of such prepayments could have on an investor's
anticipated yield.
The Depositor has not requested a rating on the Certificates from any
other rating agency, although data with respect to the Mortgage Loans or the
Mortgage Certificates may have been provided to other agencies solely for
their informational purposes. There can be no assurance that if a rating is
assigned to the Class A-1 Certificates by any other rating agency, such
rating will be as high as that assigned by Moody's or S&P.
S-64
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<PAGE>
[INSERT INDEX]
S-65
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<PAGE>
********************************************************************************
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
********************************************************************************
SUBJECT TO COMPLETION, DATED , 19
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 , 19 .
<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.
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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
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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
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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
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<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
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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").
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<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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because claims thereunder may only be made for
particular defaulted Mortgage Loans and only upon
satisfaction of certain conditions precedent. See
"Description of Insurance--Pool Insurance
Policies."
The Master Servicer, if any, or the Depositor or
the applicable Servicer will be required to use
its best reasonable efforts to maintain the Pool
Insurance Policy for each such Mortgage Pool and
to present claims thereunder to the issuer of such
Pool Insurance Policy (the "Pool Insurer") on
behalf of the Trustee and the Certificateholders.
See "Description of the Certificates--Presentation
of Claims."
C. MORTGAGOR BANKRUPTCY
BOND...................... If so specified in the related Prospectus
Supplement, the Master Servicer, if any, or the
Depositor or the applicable Servicer will obtain
and use its best reasonable efforts to maintain a
Mortgagor Bankruptcy Bond for such Series covering
certain losses resulting from action that may be
taken by a bankruptcy court in connection with the
bankruptcy of a Mortgagor. The level of coverage
provided by such Mortgagor Bankruptcy Bond will be
specified in the applicable Prospectus Supplement.
See "Description of Insurance--Mortgagor
Bankruptcy Bond."
D. SUBORDINATED If so specified in the related Prospectus
CERTIFICATES.............. Supplement, the rights of holders of the
Certificates of one or more Subordinated Classes
or Subclasses of a Series to receive distributions
with respect to the Mortgage Loans in the Mortgage
Pool or Contracts in the Contract Pool for such
Series, or with respect to a Subordinated Pool (as
defined herein), will be subordinated to the
rights of the holders of the Certificates of one
or more Classes or Subclasses of such Series to
receive such distributions to the extent described
in the related Prospectus Supplement, and limited
to the Subordinated Amount set forth in the
related Prospectus Supplement. This subordination
will be intended to enhance the likelihood of
regular receipt by holders of the Senior
Certificates of the full amount of scheduled
payments of principal and interest due them and to
reduce the likelihood that the holders of such
Senior Certificates will experience losses. See
"Credit Support--Subordinated Certificates."
E. SHIFTING INTEREST...... If so specified in the applicable Prospectus
Supplement, the protection afforded to holders of
Senior Certificates of a Series by the
subordination of certain rights of holders of
Subordinated Certificates of such Series to
distributions on the related Mortgage Loans or
Contracts may be effected by the preferential
right of the holders of the Senior Certificates to
receive, prior to any distribution being made in
respect of the holders of the related Subordinated
Certificates, current distributions on the related
Mortgage Loans or Contracts of principal and
interest due them on each Distribution Date out of
funds available for distribution on such date in
the related Certificate Account and by the
distribution to the holders of the Senior
Certificates on each Distribution Date of a
greater than pro rata percentage of certain
principal prepayments or other recoveries of
principal specified in the related Prospectus
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Supplement on a Mortgage Loan or Contract that are
received in advance of their scheduled Due Dates
and are not accompanied by an amount as to
interest representing scheduled interest due on
any date or dates in any month or months
subsequent to the month of prepayment (the
"Principal Prepayments"). The allocation of a
greater than pro rata share of such amounts to the
Senior Certificates will have the effect of
accelerating the amortization of the Senior
Certificates while increasing the respective
interest in the Trust Fund evidenced by the
Subordinated Certificates. Increasing the
respective interest of the Subordinated
Certificates relative to that of the Senior
Certificates is intended to preserve the
availability of the benefits of the subordination
provided by the Subordinated Certificates. See
"Description of the Certificates--Distributions of
Principal and Interest" and "--Distributions on
Certificates" and "Credit Support--Shifting
Interest."
F. RESERVE FUND...........
If so specified in the related Prospectus
Supplement, a Reserve Fund may be established for
such Series. Unless otherwise specified in such
Prospectus Supplement, such Reserve Fund will not
be included in the corpus of the Trust Fund for
such Series. If so specified in the related
Prospectus Supplement, such Reserve Fund may be
created by the deposit, in escrow, by the
Depositor, of a separate pool of mortgage loans,
cooperative loans or manufactured housing
conditional sales contracts and installment loan
agreements (the "Subordinated Pool"), with the
aggregate principal balance specified in the
related Prospectus Supplement, or by the deposit
of cash in the amount specified in the related
Prospectus Supplement (the "Initial Deposit"). The
Reserve Fund will be funded by the retention of
specified distributions on the Trust Assets of the
related Mortgage Pool or Contract Pool, and/or on
the mortgage loans, cooperative loans or
manufactured housing conditional sales contracts
and installment loan agreements in the
Subordinated Pool, until the Reserve Fund (without
taking into account the amount of any Initial
Deposit) reaches an amount (the "Required
Reserve") set forth in the related Prospectus
Supplement. Thereafter, specified distributions on
the Trust Assets of the related Mortgage Pool or
Contract Pool, and/or on the mortgage loans,
cooperative loans or manufactured housing
conditional sales contracts and installment loan
agreements in the Subordinated Pool, will be
retained to the extent necessary to maintain such
Reserve Fund (without taking into account the
amount of the Initial Deposit, if any) at the
related Required Reserve. In no event will the
Required Reserve for any Series ever be required
to exceed the lesser of the Subordinated Amount
for such Series or the outstanding aggregate
principal amount of Certificates of the
Subordinated Classes or Subclasses of such Series
specified in the related Prospectus Supplement. If
so specified in the related Prospectus Supplement,
the Reserve Fund with respect to such Series may
be funded at a lesser amount or in another manner
acceptable to the Rating Agency rating such
Series. See "Credit Support--Subordinated
Certificates" and "--Reserve Fund."
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G. OTHER FUNDS............ Assets consisting of cash, certificates of deposit
or letters of credit, or any combination thereof,
in the aggregate amount specified in the related
Prospectus Supplement, will be deposited by the
Depositor in one or more accounts to be
established with respect to a Series of
Certificates by the Depositor with the Trustee on
the related Delivery Date if such assets are
required to make timely distributions in respect
of principal of, and interest on, the Certificates
of such Series, are otherwise required as a
condition to the rating of such Certificates in
the rating category specified in the Prospectus
Supplement, or are required in order to provide
for certain contingencies or in order to make
certain distributions regarding Certificates which
represent interests in GPM Loans (a "GPM Fund") or
Buy-Down Loans (a "Buy-Down Fund"). Following each
Distribution Date, amounts may be withdrawn from
any such fund and used and/or distributed in
accordance with the Pooling and Servicing
Agreement under the conditions and to the extent
specified in the related Prospectus Supplement.
H. SWAP AGREEMENT.........
If so specified in the Prospectus Supplement
relating to a Series of Certificates, the Trust
will enter into or obtain an assignment of a swap
agreement or similar agreement pursuant to which
the Trust will have the right to receive certain
payments of interest (or other payments) as set
forth or determined as described therein. See
"Credit Support--Swap Agreement."
HAZARD INSURANCE AND
SPECIAL HAZARD INSURANCE Unless otherwise specified in the applicable
POLICIES.................. Prospectus Supplement, all of the Mortgage Loans
(except for the Cooperative Loans) and the
Contracts will be covered by standard hazard
insurance policies insuring against losses due to
various causes, including fire, lightning and
windstorm. In addition, the Depositor will, if so
specified in the applicable Prospectus Supplement,
obtain an insurance policy (the "Special Hazard
Insurance Policy") covering losses that result
from certain other physical risks that are not
otherwise insured against (including earthquakes
and mudflows). The Special Hazard Insurance Policy
will be limited in scope and will cover losses in
an amount specified in the applicable Prospectus
Supplement. Any hazard losses not covered by
either standard hazard policies or the Special
Hazard Insurance Policy will not be insured
against and to the extent that the amount
available under any other method of credit support
available for such Series is exhausted, will be
borne by Certificateholders of such Series. The
hazard insurance policies and the Special Hazard
Insurance Policy will be subject to the
limitations described under "Description of
Insurance--Standard Hazard Insurance Policies on
Mortgage Loans," "--Standard Hazard Insurance
Policies on the Manufactured Homes" and "--Special
Hazard Insurance Policies."
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SUBSTITUTION OF TRUST If so specified in the Prospectus Supplement
ASSETS.................... relating to a Series of Certificates, within the
period following the date of issuance of such
Certificates specified in such Prospectus
Supplement, the Depositor or one or more Servicers
will deliver to the Trustee with respect to such
Series Trust Assets in substitution for any one or
more of the Trust Assets included in the Trust
Fund relating to such Series which do not conform
in one or more material respects to the
representations and warranties in the related
Pooling and Servicing Agreement. See "Description
of the Certificates--Assignment of Mortgage
Loans," "--Assignment of Contracts" and "--
Assignment of Mortgage Certificates."
ADVANCES.................. The Servicers of the Mortgage Loans and Contracts
(and the Master Servicer, if any, with respect to
each Mortgage Loan and Contract that it services
directly, and otherwise to the extent the related
Servicer does not do so) will be obligated to
advance delinquent installments of principal and
interest on the Mortgage Loans and Contracts (the
"Advances") under certain circumstances. See
"Description of the Certificates--Advances."
OPTIONAL TERMINATION...... If so specified in the Prospectus Supplement with
respect to a Series, the Depositor or such other
persons as may be specified in a Prospectus
Supplement may purchase the Trust Assets in the
related Trust Fund and any property acquired in
respect thereof at the time, in the manner and at
the price specified in such Prospectus Supplement.
In the event that the Depositor elects to treat
the related Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC") under the Internal
Revenue Code of 1986, as amended (the "Code"), any
such repurchase will be effected only in
compliance with the requirements of Section
860F(a)(4) of the Code, so as to constitute a
"qualified liquidation" thereunder. The exercise
of the right of repurchase will effect early
retirement of the Certificates of that Series. See
"Maturity and Prepayment Considerations" and
"Description of the Certificates--Termination."
ERISA LIMITATIONS......... A fiduciary of any employee benefit plan subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the
Code should carefully review with its own legal
advisers whether the purchase or holding of
Certificates could give rise to a transaction
prohibited or otherwise impermissible under ERISA
or Section 4975 of the Code. See "ERISA
Considerations."
TAX STATUS................ See "Certain Federal Income Tax Consequences."
LEGAL INVESTMENT.......... If so specified in the related Prospectus
Supplement relating to a Series of Certificates, a
Class or Subclass of such certificates will
constitute a "mortgage related security" under the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") if and for so long as it is rated in one
of the two highest rating categories by at least
one nationally recognized statistical rating
organization. Such
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Classes or Subclasses, if any, will be legal
investments for certain types of institutional
investors to the extent provided in SMMEA,
subject, in any case, to any other regulations
which may govern investments by such institutional
investors. See "Legal Investment."
USE OF PROCEEDS...........
The Depositor will use the net proceeds from the
sale of each Series for one or more of the
following purposes: (i) to purchase the related
Trust Assets, (ii) to repay indebtedness which has
been incurred to obtain funds to acquire such
Trust Assets, (iii) to establish any reserve funds
described in the related Prospectus Supplement and
(iv) to pay costs of structuring, guaranteeing and
issuing such Certificates. If so specified in the
related Prospectus Supplement, the purchase of the
Trust Assets for a Series may be effected by an
exchange of Certificates by the Depositor with the
seller of such Trust Assets. See "Use of
Proceeds."
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<PAGE>
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. Sidley & Austin, New York, New York, or Cadwalader, Wickersham &
Taft, 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 Sidley & Austin's or Cadwalader,
Wickersham & Taft'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, Cadwalader, Wickersham & Taft, New York, New York, 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 mutual savings bank or a domestic building and loan
association will constitute "qualifying real property loans" within the meaning
of Code Section 593(d) in the same proportion that the assets of the REMIC
Mortgage Pool underlying such Certificates ("Assets") would be so treated; (ii)
REMIC Certificates held by a domestic building and loan association will
constitute a "regular or residual . . . interest in a REMIC" within the meaning
of Code Section 7701(a)(19)(C)(xi) in the same proportion that the Assets would
be treated as "loans secured by an interest in real property" within the meaning
of Code Section 7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C)(i) through (x); and (iii) REMIC Certificates held by a real
estate investment trust will constitute "real estate assets" within the meaning
of Code Section 856(c)(5)(A), and 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 Sections 593(d)
and 856(c)(5)(A); it is unclear whether such collected payments would be so
treated for purposes of Code Section 7701(a)(19)(C)(v), but there appears to be
no reason why analogous treatment should not be given to such collected payments
under that provision. The determination as to the percentage of the REMIC's
assets (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 "qualifying real property loan"
within the meaning of Code Section 593(d), (ii) a "real estate asset" within the
meaning of Code Section 856, and (iii) an asset described in Code Section
7701(a)(19)(C). 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 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
"qualifying real property loans" under Code Section 593(d), "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, other than thrift institutions described in Code
Section 593, an excess inclusion cannot be offset by deductions, losses or
loss carryovers from other activities. For Residual Owners that are subject to
tax on unrelated business taxable income (as defined in Code Section 511), an
excess inclusion is treated as unrelated business taxable income. For Residual
Owners that are nonresident alien individuals or foreign corporations
generally subject to United States 30% withholding tax, even if interest paid
to such Residual Owners is generally eligible for exemptions from such tax, an
excess inclusion will be subject to such tax and no tax treaty rate reduction
or exemption may be claimed with respect thereto. See "Foreign Investors in
REMIC Certificates."
Provisions enacted by the "Technical and Miscellaneous Revenue Act of 1988"
(the "1988 Act") cause the above described exception for thrift institutions
generally to apply only to those residual interests held and deductions,
losses and loss carryovers incurred directly by such institutions (and not by
other members of an affiliated group of corporations filing a consolidated
income tax return) or certain wholly owned direct subsidiaries of such
institutions formed and operated exclusively in connection with the
organization and operation of one or more REMICs. The REMIC Regulations
further limit this exception to residual interests having "significant value."
In order to have significant value, the REMIC Residual Certificates must have
an aggregate issue price, at issuance, at least equal to two percent of the
aggregate issue prices of all of the related REMIC Regular and Residual
Certificates. In addition, the anticipated weighted average life of the REMIC
Residual Certificates must equal or exceed 20 percent of the anticipated
weighted average life of the REMIC, based on the Prepayment Assumption and on
any required or permitted clean up calls or required liquidation provided for
in the REMIC's organizational documents. Although it has not done so, the
Treasury Department also has authority to issue regulations that, if REMIC
Residual Certificates are found in the aggregate not to have "significant
value," would treat as excess inclusions with respect to any REMIC Residual
Certificate the entire daily portion of taxable income for such REMIC Residual
Certificate. Each Prospectus Supplement pursuant to
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which REMIC Residual Certificates are offered will state whether such REMIC
Residual Certificates will have, or may be regarded as having, significant
value under the REMIC Regulations; provided, however, that any disclosure that
a REMIC Residual Certificate will have "significant value" will be based upon
certain assumptions, and the Depositor will make no representation that a
REMIC Residual Certificate will have "significant value" for purposes of the
above described rules or that a REMIC Residual Owner will receive
distributions of amounts calculated pursuant to those assumptions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder.
5. Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the
purported transferor will continue to remain liable for any taxes due with
respect to the income on such "noneconomic" REMIC Residual Certificate. The
REMIC Regulations provide that a REMIC 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 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, Cadwalader, Wickersham & Taft 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 "mutual savings bank" or
"domestic building and loan association" will represent interests in
"qualifying real property loans" within the meaning of Code Section 593(d);
(ii) Trust Fractional Certificates held by a thrift institution taxed as a
"domestic building and loan association" will represent "loans . . . secured
by an interest in real property" within the meaning of Code Section 7701
(a)(19)(C)(v); (iii) Trust Fractional Certificates held by a real estate
investment trust will represent "real estate assets" within the meaning of
Code Section 856(c)(5)(A) and interest on Trust Fractional Certificates will
be considered "interest on obligations secured by mortgages on real property
or on interests in real property" within the meaning of Code Section
856(c)(5)(B); and (iv) Trust Fractional Certificates acquired by a REMIC in
accordance with the requirements of 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 (iv) of the preceding sentence only
to the extent of the fraction of such Certificate corresponding to the fraction
of the Contract Pool that consists of Contracts that would receive such
treatment if held directly by the Trust Fractional Certificateholder.
2. Trust Interest Certificates
With respect to each Series of Certificates for which they are identified as
counsel to the Depositor in the applicable Prospectus Supplement, Cadwalader,
Wickersham & Taft 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); (2) a Trust Interest Certificate owned by a financial
institution described in Code Section 593(a) will be considered to represent
"qualifying real property loans" within the meaning of Code Section 593(d); or
(3) a real estate investment trust which owns a Trust Interest Certificate
will be considered to own "real estate assets" within the meaning of Code
Section 856(c)(5)(A), and interest income thereon will be considered "interest
on obligations secured by mortgages on real property" within the meaning of
Code Section 856(c)(3)(B). Prospective purchasers to which such
characterization of an investment in Trust Interest Certificates is material
should consult their own tax advisers regarding whether the Trust Interest
Certificates, and the income therefrom, will be so characterized.
3. Buydown Mortgage Loans
It is contemplated that the assets of certain 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, Cadwalader, Wickersham
& Taft 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, Cadwalader,
Wickersham & Taft 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, Cadwalader, Wickersham & Taft 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.
108
<PAGE>
If an Exempt Series of Certificates includes a Class of Subordinated
Certificates, PTCE 83-1 will not provide an exemption from the prohibited
transaction rules of ERISA for Plans that acquire such Subordinated
Certificates.
If for any reason PTCE 83-1 does not provide an exemption for a particular
Plan Certificateholder, one of three other prohibited transaction class
exemptions issued by the DOL might apply, i.e., PTCE 91-38 (formerly PTCE 80-
51) (Class Exemption for Certain Transactions Involving Bank Collective
Investment Funds), PTCE 90-1 (formerly PTCE 78-19) (Class Exemption for
Certain Transactions Involving Insurance Company Pooled Separate Accounts) or
PTCE 84-14 (Class Exemption for Plan Asset Transactions Determined by
Independent Qualified Professional Asset Managers). There can be no assurance
that any of these class exemptions will apply with respect to any particular
Plan Certificateholder or, even if it were to apply, that the exemption would
apply to all transactions involving the applicable Trust Fund. Any person who
is a fiduciary by reason of his or her authority to invest "plan assets" of
any Plan (a "Plan investor") and who is considering the use of "plan assets"
of any Plan to purchase of the offered Certificates should consult with its
counsel with respect to the potential applicability of ERISA and the Code to
such investments, and should determine on its own whether PTCE 83-1 or another
exemption would be applicable (and whether all conditions have been satisfied
with respect to any such exemptions), and whether the offered Certificates are
an appropriate investment for a Plan. Moreover, each Plan fiduciary should
determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the offered Certificates is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
UNDERWRITER'S PTE
CS First Boston Corporation ("First Boston") is the recipient of a final
prohibited transaction exemption, 54 Fed. Reg. 42597 (Oct. 17, 1989) (the
"Underwriter's PTE" or "CS First Boston Corporation's PTE" if specified in the
applicable Prospectus Supplement), which may accord protection from violations
under Sections 406 and 407 of ERISA and Section 4975 of the Code for Plans
that acquire Certificates. The Underwriter's PTE applies to certificates (a)
which represent (1) a beneficial ownership interest in the assets of a trust
and entitle the holder to pass-through payments of principal, interest and/or
other payments made with respect to the assets of the trust, or (2) an
interest in a REMIC if the certificates are issued by and are obligations of a
trust; and (b) with respect to which First Boston or any of its affiliates is
either the sole underwriter, the manager or co-manager of the underwriting
syndicate or a selling or placement agent. The corpus of a trust to which the
Underwriter's PTE applies may consist of (i) obligations which bear interest
or are purchased at a discount and which are secured by (A) single-family
residential, multifamily residential or commercial real property (including
obligations secured by leasehold interests on commercial real property) or (B)
shares issued by a cooperative housing association; and (ii) "guaranteed
governmental mortgage pool certificates" (as defined in the Final Regulation).
Plans acquiring Certificates may be eligible for protection under the
Underwriter's PTE if:
(a) assets of the type included as Trust Assets have been included in
other investment pools ("Other Pools");
(b) certificates evidencing interests in Other Pools have been both (1)
rated in one of the three highest generic rating categories by Standard &
Poor's Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or
Fitch Investors Service, Inc., and (2) purchased by investors other than
Plans, for at least one year prior to a Plan's acquisition of Certificates
in reliance upon the Underwriter's PTE;
(c) at the time of such acquisition, the Class of Certificates acquired
by the Plan has received a rating in one of the rating categories referred
to in condition (b) above;
(d) the Trustee is not an affiliate of any member of the Restricted Group
(as defined below);
(e) the applicable Series of Certificates evidences ownership in Trust
Assets which may include non Subordinated Mortgage Certificates (whether or
not interest and principal payable with respect to the Mortgage
Certificates are guaranteed by the GNMA, FHLMC or FNMA) or Contracts;
109
<PAGE>
(f) the Class of Certificates acquired by the Plan are not subordinated
to other Classes of Certificates of that Series with respect to the right
to receive payment in the event of defaults or delinquencies on the
underlying Trust Assets;
(g) the Plan is an "accredited investor" (as defined in Rule 501(a)(1) of
Regulation D under the Securities Act);
(h) the acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan
as they would be in an arm's length transaction with an unrelated party;
and
(i) the sum of all payments made to and retained by the Underwriter or
members of any underwriting syndicate in connection with the distribution
of the Certificates represents not more than reasonable compensation for
underwriting the Certificates; the sum of all payments made to and retained
by the Seller pursuant to the sale of the Trust Assets to the Trust
represents not more than the fair market value of such Trust Assets; and
the sum of all payments made to and retained by the Master Servicer and all
Servicers represents not more than reasonable compensation for such
Servicers' services under the Pooling and Servicing Agreement and
reimbursement of such Servicers' reasonable expenses in connection
herewith.
In addition, the Underwriter's PTE will not apply to a Plan's investment in
Certificates if the Plan fiduciary responsible for the decision to invest in a
Class of Certificates is a Mortgagor or Obligor with respect to more than 5%
of the fair market value of the obligations constituting the Trust Assets or
an affiliate of such person, unless:
(1) in the case of an acquisition in connection with the initial issuance
of any Series of Certificates, at least 50% of each Class of Certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least 50% of the aggregate interest in the Trust is
acquired by persons independent of the Restricted Group;
(2) the Plan's investment in any Class of Certificates does not exceed
25% of the outstanding Certificates of that Class at the time of
acquisition;
(3) immediately after such acquisition, no more than 25% of the Plan
assets with respect to which the investing fiduciary has discretionary
authority or renders investment advice are invested in certificates
evidencing interest in trusts sponsored or containing assets sold or
serviced by the same entity; and
(4) the Plan is not sponsored by the Depositor, any Underwriter, the
Trustee, any Servicer, any Pool, Special Hazard or Primary Mortgage Insurer
or the obligor under any other credit support mechanism, a Mortgagor or
Obligor with respect to obligations constituting more than 5% of the
aggregate unamortized principal balance of the Trust Assets on the date of
the initial issuance of Certificates, or any of their affiliates (the
"Restricted Group").
Each Series of Certificates generally is expected to satisfy condition (a)
unless otherwise specified in the applicable Prospectus Supplement. If a
Series includes a Class of Subordinated Certificates, that Class will not
satisfy condition (f). Additionally, the Prospectus permits the issuance of
Certificates rated in one of the four highest rating categories, so a
particular Class of a Series may not satisfy condition (c).
Whether the other conditions in the Underwriter's PTE will be satisfied as
to Certificates or any particular Class will depend upon the relevant facts
and circumstances existing at the time the Plan acquires Certificates of that
Class. Any Plan investor who proposes to use "plan assets" of a Plan to
acquire Certificates in reliance upon the Underwriter's PTE should determine
whether the Plan satisfies all of the applicable conditions and consult with
its counsel regarding other factors that may affect the applicability of the
Underwriter's PTE.
GENERAL CONSIDERATIONS
Any member of the Restricted Group, a Mortgagor or Obligor, or any of their
affiliates might be considered or might become a Party in Interest with
respect to a Plan. In that event, the acquisition or holding of Certificates
of the applicable Series or Class by, on behalf of or with "plan assets" of
such Plan might be viewed as giving
110
<PAGE>
rise to a prohibited transaction under ERISA and Section 4975 of the Code,
unless PTCE 83-1 or another exemption is available. Accordingly, before a Plan
investor makes the investment decision to purchase, to commit to purchase or
to hold Certificates of any Series or Class, the Plan investor should
determine (a) whether the second and third general conditions and the specific
conditions (described briefly above) of PTCE 83-1 have been satisfied; (b)
whether the Underwriter's PTE is applicable; (c) whether any other prohibited
transaction exemption (if required) is available under ERISA and Section 4975
of the Code; or (d) whether an exemption from "plan asset" treatment is
available to the applicable Trust Fund. The Plan investor should also consult
the ERISA discussion, if any, in the applicable Prospectus Supplement for
further information regarding the application of ERISA to any Series or Class
of Certificates.
Subordinated Certificates are not available for purchase by or with "plan
assets" of any Plan, other than a governmental or church plan which is not
subject to ERISA or Section 4975 of the Code (as described above), and any
acquisition of Subordinated Certificates by, on behalf of or with "plan
assets" of any such Plan will be treated as null and void for all purposes.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO PURCHASE
CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH
RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE
OF THE ACQUISITION AND OWNERSHIP OF SUCH CERTIFICATES.
LEGAL INVESTMENT
The applicable Prospectus Supplement for a Series of Certificates will
specify whether a Class or Subclass of such Certificates, as long as it is
rated in one of the two highest rating categories by one or more nationally
recognized statistical rating organizations, will constitute a "mortgage
related security" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Such Class or Subclass, if any, constituting a
"mortgage related security" will be a legal investment for persons, trusts,
corporations, partnerships, associations, business trusts and business
entities (including depository institutions, insurance companies, trustees and
state government employee retirement systems) created pursuant to or existing
under the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued
by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for such
entities.
Pursuant to SMMEA, a number of states enacted legislation, on or prior to
the October 3, 1991 cutoff for such enactments, limiting to varying extents
the ability of certain entities (in particular, insurance companies) to invest
in "mortgage related securities," in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Accordingly,
the investors affected by such legislation will be authorized to invest in
Certificates qualifying as "mortgage related securities" only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe. In this connection,
federal credit unions should review NCUA Letter to Credit Unions No. 96, as
modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage
related securities. The NCUA has adopted rules, codified as 12 C.F.R.
SectionSection 703.5(f)-(k), which prohibit federal credit unions from
investing in certain mortgage related securities (including securities such as
certain Series, Classes or Subclasses of Certificates), except under limited
circumstances.
111
<PAGE>
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities"
dated January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of
the Federal Financial Institutions Examination Council.
The Policy Statement which has been adopted by the Board of Governors of the
Federal Reserve System, the Office of the Comptroller of the Currency, the
FDIC and the Office of Thrift Supervision and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain Series,
Classes or Subclasses of the Certificates), except under limited
circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain Series, Classes or Subclasses may be deemed
unsuitable investments, or may otherwise be restricted, under such rules,
policies or guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits,
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," and, with regard to any
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase Certificates under applicable legal
investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Certificates) may adversely
affect the liquidity of the Certificates.
Investors should consult their own legal advisers in determining whether and
to what extent such Certificates constitute legal investments for such
investors.
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of the related
Prospectus Supplements may be sold directly by the Depositor or may be offered
through CS First Boston Corporation, an affiliate of the Depositor, or
underwriting syndicates represented by CS First Boston Corporation (the
"Underwriters"). The Prospectus Supplement with respect to each such Series of
Certificates will set forth the terms of the offering of such Series or
Certificates and each Subclass within such Series, including the name or names
of the Underwriters, the proceeds to the Depositor, and either the initial
public offering price, the discounts and commissions to the Underwriters and
any discounts or concessions allowed or reallowed to certain dealers, or the
method by which the price at which the Underwriters will sell such
Certificates will be determined.
Unless otherwise specified in the Prospectus Supplement, the Underwriters
will be obligated to purchase all of the Certificates of a Series described in
the Prospectus Supplement with respect to such Series if any such Certificates
are purchased. The Certificates may be acquired by the Underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale.
If so indicated in the Prospectus Supplement, the Depositor will authorize
Underwriters or other persons acting as the Depositor's agents to solicit
offers by certain institutions to purchase the Certificates from the
112
<PAGE>
Depositor pursuant to contracts providing for payment and delivery on a future
date. Institutions with which such contracts may be made include commercial
and savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Depositor. The obligation of any
purchaser under any such contract will be subject to the condition that the
purchase of the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject. The Underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
The Depositor may also sell the Certificates offered hereby and by means of
the related Prospectus Supplements from time to time in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Depositor may effect such transactions by selling Certificates to or through
dealers, and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Depositor and any purchasers of
Certificates for whom they may act as agents.
The place and time of delivery for each Series of Certificates offered
hereby and by means of the related Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
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 Sidley & Austin,
New York, New York or Cadwalader, Wickersham & Taft, New York, New York.
113
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
---- -----------------
<S> <C>
Accrual Distribution Amount................................... 34
Advances...................................................... 14
AFR........................................................... 89
Agreement..................................................... 31
Alternative Credit Support.................................... 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>
114
<PAGE>
<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>
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR THE UN-
DERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION.
-----------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Terms........................................................... S-
Risk Factors............................................................... S-
Description of the Certificates............................................ S-
The Mortgage Certificates.................................................. S-
Description of the Mortgage Loans.......................................... S-
Yield and Prepayment Considerations........................................ S-
The Mortgage Loan Servicers................................................ S-
The Resolution Trust Corporation........................................... S-
Certain Federal Income Tax Consequences.................................... S-
ERISA Considerations....................................................... S-
Use of Proceeds............................................................ S-
Legal Investment Considerations............................................ S-
Method of Distribution..................................................... S-
Legal Matters.............................................................. S-
Ratings.................................................................... S-
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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CS First Boston Mortgage
Securities Corp.
Depositor
Conduit Mortgage and Manufactured Housing
Contract Pass-Through Certificates, Series
PROSPECTUS SUPPLEMENT
LOGO
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses except for the
registration and filing fees, are estimated.
<TABLE>
<S> <C>
SEC Registration Fee..........................................$ 600,000 *
Legal Fees and Expenses....................................... 900,000
Accounting Fees and Expenses.................................. 150,000
Trustee's Fees and Expenses (including counsel fees).......... 300,000
Printing and Engraving Fees................................... 350,000
Rating Agency Fees............................................ 850,000
Miscellaneous................................................. 200,000
----------
Total.......................................................$3,350,000
==========
</TABLE>
*Previously paid.
ITEM 31. SALES TO SPECIAL PARTIES.
Not applicable.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article V of the Certificate of Incorporation of the Depositor and Article X
of the By-laws of the Depositor provide for the indemnification of the
officers and directors of the Depositor in certain circumstances. Reference is
made to Exhibit 3.1 of this Registration Statement for the complete text of
the Certificate of Incorporation and reference is made to Exhibit 3.2 of this
Registration Statement for the complete text of the By-laws.
The ultimate parent of the Depositor carries directors' and officers'
liability insurance that covers certain liabilities and expenses of the
Depositor's directors and officers.
For provisions regarding the indemnification of controlling persons,
directors and officers of the Depositor by Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, reference
is made to the proposed forms of Underwriting Agreement filed as Exhibits 1.1
and 1.2 to this Registration Statement.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
II-1
<PAGE>
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements filed as part of the Registration Statement: none.
(b) Exhibits:
<TABLE>
<C> <S>
--Forms of Underwriting Agreement (Mortgage Loans/Mortgage
*1.1 Certificates)
*1.2 --Form of Underwriting Agreement (Contracts)
*3.1 --Certificate of Incorporation of Depositor
--Certificate of Amendment to the Certificate of Incorporation of
*3.1.1 Depositor
*3.2 --By-laws of Depositor
*4.1 --Form of Standard Terms and Provisions of Pooling and Servicing
(Mortgage Loan/Mortgage Certificates)
*4.2 --Forms of Reference Agreement (Mortgage Loans/Mortgage Certificates)
*4.3 --Form of Deposit Trust Agreement between Depositor and Trustee
*4.4 --Form of Master Seller's Warranty and Servicing Agreement
--Form of Standard Terms and Provisions of Pooling and Servicing
*4.5 (Contracts)
*4.6 --Forms of Reference Agreement (Contracts)
*4.7 --Form of Standard Terms and Provisions of Pooling and Servicing and
Reference Agreement (Mortgage Loans)
*4.8 --Form of Pooling and Servicing Agreement (Mortgage Loans)
*5.1 --Opinion of Cadwalader, Wickersham & Taft with respect to certain
matters involving the Certificates
5.2 --Opinion of Sidley & Austin with respect to certain matters involving
the Certificates
*8.1 --Opinion of Cadwalader, Wickersham & Taft as to tax matters
8.2 --Opinion of Sidley & Austin as to tax matters
--Consent of Cadwalader, Wickersham & Taft (included as part of
*23.1 Exhibits 5.1 and 8.1)
23.2 --Consent of Sidley & Austin (included as part of Exhibits 5.2 and 8.2)
--Power of Attorney (included on Page II-6 of the Registration
*24.1 Statement)
*24.2 --Resolutions of the Board of Directors of the Depositor
*28.1 --Form of Performance Bond
*28.2 --Form of Letter of Credit
*28.3 --Form of Primary Mortgage Insurance Policy
*28.4 --Form of Pool Insurance Policy
*28.5 --Form of Special Hazard Insurance Policy
*28.6 --Form of Mortgagor Bankruptcy Bond
</TABLE>
- --------
* As previously filed in connection with Registration Statement on Form S-3
(Registration No. 33-99612) and incorporated herein by reference.
II-2
<PAGE>
ITEM 36. UNDERTAKINGS.
(a) Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of New York, State of New York on the 6th day of
September, 1996.
CS FIRST BOSTON MORTGAGE SECURITIES
CORP.
/s/ William S. Pitofsky
-------------------------------------
William S. Pitofsky
Director
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons
in the capacities and on the date indicated:
SIGNATURES TITLE DATE
* Chairman of the September 6,
- ------------------------------------- Board, Director and 1996
ANDREW D. STONE President
(Principal
Executive Officer)
/s/ William S. Pitofsky Director September 6,
- ------------------------------------- 1996
WILLIAM S. PITOFSKY
* Treasurer (Principal September 6,
- ------------------------------------- Financial Officer) 1996
LINDA HANAUER
* Vice President and September 6,
- ------------------------------------- Controller 1996
THOMAS ZINGALLI (Principal
Accounting Officer)
* /s/ William S. Pitofsky
-------------------------------------
By: William S. Pitofsky
ATTORNEY-IN-FACT
II-6
<PAGE>
As filed with the Securities and Exchange Commission on September 6, 1996
================================================================================
Registration No. 33-99612
MARKED
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
CS FIRST BOSTON MORTGAGE SECURITIES CORP.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PG. NO.
------- ----------- -------
<C> <S> <C>
-- Forms of Underwriting Agreement (Mortgage Loans/Mortgage
*1.1 Certificates)
*1.2 -- Form of Underwriting Agreement (Contracts)
*3.1 -- Certificate of Incorporation of Depositor
-- Certificate of Amendment to the Certificate of
*3.1.1 Incorporation of Depositor
*3.2 -- By-laws of Depositor
*4.1 -- Form of Standard Terms and Provisions of Pooling and
Servicing Mortgage Certificates)
-- Forms of Reference Agreement (Mortgage Loans/Mortgage
*4.2 Certificates)
-- Form of Deposit Trust Agreement between Depositor and
*4.3 Trustee
*4.4 -- Form of Master Seller's Warranty and Servicing Agreement
-- Form of Standard Terms and Provisions of Pooling and
*4.5 Servicing (Contracts)
*4.6 -- Forms of Reference Agreement (Contracts)
*4.7 -- Form of Standard Terms and Provisions of Pooling and
Servicing and
Reference Agreement
*4.8 -- Form of Pooling and Servicing Agreement (Mortgage Loans)
*5.1 -- Opinion of Cadwalader, Wickersham & Taft with respect to
certain matters involving the Certificates
5.2 -- Opinion of Sidley & Austin with respect to certain matters involving
the Certificates
*8.1 --Opinion of Cadwalader, Wickersham & Taft as to tax matters
8.2 --Opinion of Sidley & Austin as to tax matters
--Consent of Cadwalader, Wickersham & Taft (included as part of
*23.1 Exhibits 5.1 and 8.1)
23.2 --Consent of Sidley & Austin (included as part of Exhibits 5.2 and 8.2)
*24.1 Registration Statement)
*24.2 -- Resolutions of the Board of Directors of the Depositor
*28.1 -- Form of Performance Bond
*28.2 -- Form of Letter of Credit
*28.3 -- Form of Primary Mortgage Insurance Policy
*28.4 -- Form of Pool Insurance Policy
*28.5 -- Form of Special Hazard Insurance Policy
*28.6 -- Form of Mortgagor Bankruptcy Bond
</TABLE>
- --------
* As previously filed in connection with Registration Statement on Form S-3
Registration No. 33-99612) and incorporated herein by reference.
<PAGE>
EXHIBIT 5.2
[Sidley & Austin Letterhead]
September 6, 1996
CS First Boston Mortgage Securities Corp.
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Re: CS First Boston Mortgage Securities Corp.
Registration Statement on Form S-3
(Registration No. 33-99612)
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to CS First Boston Mortgage Securities Corp.,
a Delaware corporation (the "Registrant"), in connection with the preparation
and filing with the Securities and Exchange Commission (the "Commission") on
August 23, 1996 of Post-Effective Amendment No. 1 to the Registration Statement
on Form S-3 (File No. 33-99612) and on September 6, 1996 of Post-Effective
Amendment No. 2 ("Post-Effective Amendment No. 2") to such Registration
Statement (as amended by Post-Effective Amendment No. 2, the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of Conduit Mortgage and Manufactured Housing
Contract Pass-Through Certificates (the "Certificates"). The Certificates are
issuable after the date hereof in series (each, a "Series") under separate
pooling and servicing agreements (the "Pooling and Servicing Agreements") among
the Registrant, the Master Servicer named therein and the Trustee named therein.
The Certificates of each Series are to be sold as described in the Registration
Statement, any amendment thereto and the prospectus and prospectus supplement
relating to such Series (the "Prospectus" and "Prospectus Supplement",
respectively).
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we deemed necessary for the purposes of this opinion.
In our examination, we have assumed the following: (a) the genuineness of all
signatures; (b) the authenticity of all documents submitted to us as originals;
(c) the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
documents; and (d) the truth, accuracy and completeness of the information,
representations and warranties contained in the records, documents, instruments
and certificates that we have reviewed. As to any facts material to the
opinions expressed herein, which were not known to us, we have relied upon
certificates, statements and representations of officers and other
representatives of the Registrant and others.
<PAGE>
CS First Boston Mortgage Securities Corp.
September 6, 1996
Page 2
Based on and subject to the foregoing and assuming that the Pooling and
Servicing Agreement with respect to the Certificates of each Series issued after
the date hereof is executed and delivered substantially in the form that we have
examined and that the transactions contemplated to occur under the Registration
Statement and such Pooling and Servicing Agreement with respect to such Series
of Certificates in fact occur in accordance with the terms thereof, we are of
the opinion that when
(i) Post-Effective Amendment No. 2 becomes effective under the Act,
(ii) the issuance and principal terms of such Certificates has been duly
authorized by appropriate corporate action,
(iii) such Pooling and Servicing Agreement has been duly completed,
executed and delivered by the parties thereto substantially in the form filed as
an exhibit to the Registration Statement reflecting the terms established as
described above, and
(iv) such Certificates have been duly executed, authenticated and
delivered in accordance with the terms and conditions of such Pooling and
Servicing Agreement and sold in the manner described in the Registration
Statement, any amendment thereto and the Prospectus and Prospectus Supplement
relating thereto,
such Certificates will be legally issued and will duly evidence all the
beneficial ownership interest in the Trust created by such Pooling and Servicing
Agreement.
We know that we are referred to under the heading "Legal Matters" in
the Prospectus and the Prospectus Supplement forming a part of the Registration
Statement and we hereby consent to such use of our name in the Registration
Statement and to the use of this opinion for filing with the Registration
Statement as Exhibit 5.2 thereto. In giving such consent, we do not consider
that we are "experts" within the meaning of the term as used in the Act or the
rules and regulations of the Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
We are members of the bar of the State of New York and we do not
express any opinion as to any laws other than the law of the State of New York
and the federal law of the United States of America.
Very truly yours,
/s/ Sidley & Austin
<PAGE>
EXHIBIT 8.2
[Sidley & Austin Letterhead]
September 6, 1996
CS First Boston Mortgage Securities Corp.
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Re: CS First Boston Mortgage Securities Corp.
Registration Statement on Form S-3
(Registration No. 33-99612)
----------------------------------
Ladies and Gentlemen:
We have acted as special federal tax counsel to CS First Boston
Mortgage Securities Corp., a Delaware corporation (the "Registrant"), in
connection with the preparation and filing with the Securities and Exchange
Commission (the "Commission") on August 23, 1996 of Post-Effective Amendment No.
1 to the Registration Statement on Form S-3 (File No. 33-99612) and on September
6, 1996 of Post-Effective Amendment No. 2 ("Post-Effective Amendment No. 2") to
such Registration Statement (as amended by Post-Effective Amendment No. 2, the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of Conduit Mortgage and
Manufactured Housing Contract Pass-Through Certificates (the "Certificates").
The Certificates are issuable after the date hereof in series (each, a "Series")
under separate Pooling and Servicing Agreements (the "Pooling and Servicing
Agreements") by and among the Registrant, the Master Servicer named therein and
the Trustee named therein. Capitalized terms used but not otherwise defined
herein are defined in the form of Pooling and Servicing Agreement filed as an
exhibit to the Registration Statement. The Certificates of each Series are to be
sold as described in the Registration Statement, any amendment thereto and the
prospectus and prospectus supplement relating to such Certificates (the
"Prospectus" and the "Prospectus Supplement", respectively).
In that connection, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion. In our examination, we have assumed the following: (a) the genuineness
of all signatures; (b) the authenticity of all documents submitted to us as
originals; (c) the conformity to original documents of all documents submitted
to us as certified or photostatic copies and the authenticity of the originals
of such documents; and (d) the truth, accuracy and completeness of the
information, representations and warranties contained in the records, documents,
instruments and certificates that we have reviewed. As to any facts material to
the opinions expressed herein, which were not known to us, we have relied upon
certificates, statements and representations of officers and other
representatives of the Registrant and others.
Based on and subject to the foregoing, and assuming that such Pooling
and Servicing Agreement is executed and delivered in substantially the form we
have examined and that the transactions contemplated to occur under the
Registration Statement and such Pooling and Servicing Agreement in fact occur in
accordance with the terms thereof, we are of the opinion that the description
set forth under the caption "Certain Federal Income Tax Consequences" in the
Prospectus included as part of the Registration Statement correctly describes
the material aspects of the federal income tax treatment to United States
investors as of the date hereof of an investment in the
<PAGE>
CS First Boston Mortgage Securities Corp.
September 6, 1996
Page 2
Certificates and where expressly indicated therein, to Non-United States Holders
(as defined in the Registration Statement) as of the date hereof of an
investment in the Certificates.
Members of our firm are admitted to the Bar of the State of New York
and we express no opinion as to the laws of any jurisdiction other than the
federal laws of the United States of America.
We know that we are referred to under the heading "Certain Federal
Income Tax Consequences" in the Prospectus forming a part of the Registration
Statement, and we hereby consent to such use of our name in the Registration
Statement and to the use of this opinion for filing with the Registration
Statement as Exhibit 8.2 thereto. In giving such consent, we do not consider
that we are "experts" within the meaning of the term as used in the Act or the
rules and regulations of the Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
Very truly yours,
/s/ Sidley & Austin
