<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
----------------
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
(DEPOSITOR)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
11 MADISON AVENUE
NEW YORK, NEW YORK 10010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
----------------
AGENT FOR SERVICE:
----------------
THOMAS ZINGALLI
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
11 MADISON AVENUE
NEW YORK, NEW YORK 10010
----------------
COPIES TO:
----------------
DALE LUM, ESQ. IRA J. SCHACTER, ESQ.
BROWN & WOOD LLP PATRICK T. QUINN, ESQ.
555 CALIFORNIA STREET CADWALADER, WICKERSHAM & TAFT
SAN FRANCISCO, CALIFORNIA 94104 100 MAIDEN LANE
NEW YORK, NEW YORK 10038
CHRISTOPHER J. DIANGELO, ESQ. KATHARINE I. CROST, ESQ.
DEWEY BALLANTINE ORRICK, HERRINGTON & SUTCLIFFE LLP
1301 AVENUE OF THE AMERICAS 666 FIFTH AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10103
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, other than securities offered only in connection with dividend or interest
revinvestment plans, please check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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
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<S> <C> <C> <C> <C>
Conduit Mortgage and Manufactured
Housing Contract Pass-Through
Certificates.......................... $ 1,000,000 100% $1,000,000 $304
</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.
----------------
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 TO THE REGISTRANT'S REGISTRATION
STATEMENTS ON FORM S-3 (REGISTRATION NO. 333-11623 AND REGISTRATION NO.
333-15833).
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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>
PROSPECTUS
CREDIT SUISSE 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 Credit Suisse 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, loans secured by commercial real estate properties and/or
mixed residential/commercial properties, loans secured by unimproved land,
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
<PAGE>
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 20 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 Credit Suisse 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, as amended. Such offerings are not
being made pursuant to the Registration Statement of which this Prospectus forms
a part.
There will have been no public market for the Certificates of any Series prior
to the offering thereof. No assurance can be given that such a market will
develop as a result of such offering or, if it does develop, that it will
continue.
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
2
<PAGE>
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Credit Suisse First Boston
The date of this Prospectus is August 15, 1997.
3
<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, Credit Suisse First Boston Mortgage Securities Corp., 11
Madison Avenue, New York, New York 10010, (212) 325-2000.
4
<PAGE>
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: Credit Suisse First Boston Mortgage Securities Corp., 11 Madison
Avenue, New York, New York 10010, telephone number (212) 325-2000.
IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OF REGULATIONS, 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 SALE.
5
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, and by reference to the
information with respect to each Series of Certificates contained in the related
Prospectus Supplement. Certain capitalized terms used and not otherwise defined
herein shall have the meanings given elsewhere in this Prospectus.
Securities Offered........ Conduit Mortgage and Manufactured Housing
Contract Pass-Through Certificates (the
"Certificates"), issuable in series (each, a
"Series"). The Certificates may be issued in one or
more classes (each, a "Class") and such Classes may
be divided into one or more subclasses (each, a
"Subclass"). One or more of such Classes or
Subclasses of a Series may be subordinated to one or
more Classes or Subclasses of such Series, as
specified in the related Prospectus Supplement (any
such Class or Subclass to which another Class or
Subclass is subordinated being hereinafter referred
to as a "Senior Class" or a "Senior Subclass,"
respectively, and any such subordinated Class or
Subclass being hereinafter referred to as a
"Subordinated Class" or "Subordinated Subclass,"
respectively). One or more of such Classes or
Subclasses of Certificates of a Series (the
"Residual Certificates") may evidence a residual
interest in the related Trust Fund (as defined
below). If so specified in the related Prospectus
Supplement, one or more Classes or Subclasses of
Certificates within a Series (the "Multi-Class
Certificates") may be assigned a principal balance
(a "Stated Principal Balance" or a "Certificate
Principal Balance") based on the cash flow from the
Mortgage Loans (as hereinafter defined), Mortgage
Certificates (as hereinafter defined), the Contracts
(as hereinafter defined) and/or the other assets in
the Trust Fund if specified as such in the related
Prospectus Supplement and a stated annual interest
rate, determined in the manner set forth in such
Prospectus Supplement, which may be fixed or
variable (an "Interest Rate"). If so specified in
the related Prospectus Supplement, one or more such
Classes or Subclasses may receive unequal amounts of
the distributions of principal and interest on the
Mortgage Loans, the Contracts and the Mortgage
Certificates included in the related Trust Fund, as
specified in such Prospectus Supplement (any such
Class or Subclass receiving the higher proportion of
principal distributions being referred to
hereinafter as a "Principal Weighted Class" or
"Principal Weighted Subclass," respectively, and any
such Class or Subclass receiving the higher
proportion of interest distributions being referred
to hereinafter as an "Interest Weighted Class" or an
"Interest Weighted Subclass," respectively). If so
specified in the related Prospectus Supplement, the
allocation of the principal and interest
distributions may involve as much as 100% of each
distribution of principal or interest being
allocated to one or more Classes or Subclasses and
0% to another. If so specified in the related
Prospectus Supplement, one or more Classes
6
<PAGE>
or Subclasses may receive disproportionate amounts
of certain distributions of principal, which
proportions may change over time subject to certain
conditions. Payments may be applied to any one or
more Class or Subclass on a sequential or pro rata
basis, or otherwise, as specified in the related
Prospectus Supplement.
Each Certificate will represent the undivided
interest, beneficial interest or percentage interest
specified in the related Prospectus Supplement in
one of a number of trusts to be created by the
Depositor from time to time. The trust property of
each trust (the "Trust Fund") will consist of (a)
one or more mortgage pools (each, a "Mortgage Pool")
containing (i) conventional one- to four-family
residential mortgage loans, (ii) loans (the
"Cooperative Loans") made to finance the purchase of
certain rights relating to cooperatively owned
properties secured by the pledge of shares issued by
a cooperative corporation (the "Cooperative") and
the assignment of a proprietary lease or occupancy
agreement providing the exclusive right to occupy a
particular dwelling unit (a "Cooperative Dwelling"
and, together with one- to four-family residential
properties, "Single Family Property"), (iii)
mortgage loans ("Multifamily 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 loans ("Commercial Mortgage
Loans") secured by commercial real estate properties
("Commercial Property"), (v) mortgage loans ("Mixed-
Use Mortgage Loans") secured by mixed
residential/commercial properties ("Mixed-Use
Property"), (vi) loans secured by unimproved land,
(vii) 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 (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.
7
<PAGE>
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 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................. Credit Suisse 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."
Special Servicer.......... The entity, if any, named as Special 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
8
<PAGE>
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 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
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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.
As of the related Cut-off Date, no more than 10% of
the aggregate principal balance of any Mortgage Pool
will consist of Commercial Mortgage Loans.
Some of the Mortgage Loans will fully amortize over
their remaining terms to maturity and others will
provide for balloon payments at maturity. If so
specified in the related Prospectus Supplement, some
of the Mortgage Loans may prohibit prepayments
entirely or for certain periods and/or may require
payment of premiums or yield maintenance penalties
in connection with certain prepayments. The Mortgage
Loans will provide for recourse against only the
Mortgaged Properties or provide for recourse against
the other assets of the Mortgagors thereunder.
Fixed Pass-Through Rate
Mortgage Pools............ Unless otherwise specified in the related
Prospectus Supplement, with respect to each Mortgage
Pool included in the Trust Fund with respect to a
Series bearing a fixed Pass-Through Rate, the
Depositor will be obligated to deliver Mortgage
Loans that (i) have interest rates (the "Mortgage
Rates") at least 3/8 of 1% over the interest rate
(the "Pass-Through Rate") for such Series, (ii)
conform to the eligibility requirements for such
Series set forth in the related Prospectus
Supplement, and (iii) have an aggregate principal
balance equal to the amount specified in such
Prospectus Supplement, subject to a permitted
variance of up to 10%.
Variable Pass-Through Rate
Mortgage Pools............ If so specified in the related Prospectus
Supplement, the Depositor may establish one or more
Mortgage Pools, each of which will have a variable
as opposed to a fixed Pass-Through Rate. Unless
otherwise provided in the applicable Prospectus
Supplement, the variable Pass-Through Rate will
equal the weighted average of the Mortgage Rates of
all of the Mortgage Loans in the Mortgage Pool minus
the fixed
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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, Special Servicer, if any, 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"). 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
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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 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
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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 Servicing Agreement referred to herein.
Unless otherwise provided in
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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
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<PAGE>
Prospectus Supplement. A Pool Insurance Policy for a
Mortgage Pool, however, will not be a blanket policy
against loss, because claims thereunder may only be
made for particular defaulted Mortgage Loans and
only upon satisfaction of certain conditions
precedent. See "Description of Insurance--Pool
Insurance Policies."
The Master Servicer, if any, or the Depositor or the
applicable Servicer will be required to use its best
reasonable efforts to maintain the Pool Insurance
Policy for each such Mortgage Pool and to present
claims thereunder to the issuer of such Pool
Insurance Policy (the "Pool Insurer") on behalf of
the Trustee and the Certificateholders. See
"Description of the Certificates--Presentation of
Claims."
C. Mortgagor Bankruptcy
Bond.................. If so specified in the related Prospectus
Supplement, the Master Servicer, if any, or the
Depositor or the applicable Servicer will obtain and
use its best reasonable efforts to maintain a
Mortgagor Bankruptcy Bond for such Series covering
certain losses resulting from action that may be
taken by a bankruptcy court in connection with the
bankruptcy of a Mortgagor. The level of coverage
provided by such Mortgagor Bankruptcy Bond will be
specified in the applicable Prospectus Supplement.
See "Description of Insurance--Mortgagor Bankruptcy
Bond."
D. Subordinated
Certificates.......... If so specified in the related Prospectus
Supplement, the rights of holders of the
Certificates of one or more Subordinated Classes or
Subclasses of a Series to receive distributions with
respect to the Mortgage Loans in the Mortgage Pool
or Contracts in the Contract Pool for such Series,
or with respect to a Subordinated Pool (as defined
herein), will be subordinated to the rights of the
holders of the Certificates of one or more Classes
or Subclasses of such Series to receive such
distributions to the extent described in the related
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
15
<PAGE>
the Senior Certificates to receive, prior to any
distribution being made in respect of the holders of
the related Subordinated Certificates, current
distributions on the related Mortgage Loans or
Contracts of principal and interest due them on each
Distribution Date out of funds available for
distribution on such date in the related Certificate
Account and by the distribution to the holders of
the Senior Certificates on each Distribution Date of
a greater than pro rata percentage of certain
principal prepayments or other recoveries of
principal specified in the related Prospectus
Supplement on a Mortgage Loan or Contract that are
received in advance of their scheduled Due Dates and
are not accompanied by an amount as to interest
representing scheduled interest due on any date or
dates in any month or months subsequent to the month
of prepayment (the "Principal Prepayments"). The
allocation of a greater than pro rata share of such
amounts to the Senior Certificates will have the
effect of accelerating the amortization of the
Senior Certificates while increasing the respective
interest in the Trust Fund evidenced by the
Subordinated Certificates. Increasing the respective
interest of the Subordinated Certificates relative
to that of the Senior Certificates is intended to
preserve the availability of the benefits of the
subordination provided by the Subordinated
Certificates. See "Description of the Certificates--
Distributions of Principal and Interest" and "--
Distributions on Certificates" and "Credit Support--
Shifting Interest."
F. Reserve Fund.......... If so specified in the related Prospectus
Supplement, a Reserve Fund may be established for
such Series. Unless otherwise specified in such
Prospectus Supplement, such Reserve Fund will not be
included in the corpus of the Trust Fund for such
Series. If so specified in the related Prospectus
Supplement, such Reserve Fund may be created by the
deposit, in escrow, by the Depositor, of a separate
pool of mortgage loans, cooperative loans,
commercial loans, mixed-use 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, commercial loans,
mixed-use 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,
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<PAGE>
cooperative loans, commercial loans, mixed-use loans
or manufactured housing conditional sales contracts
and installment loan agreements in the Subordinated
Pool, will be retained to the extent necessary to
maintain such Reserve Fund (without taking into
account the amount of the Initial Deposit, if any)
at the related Required Reserve. In no event will
the Required Reserve for any Series ever be required
to exceed the lesser of the Subordinated Amount for
such Series or the outstanding aggregate principal
amount of Certificates of the Subordinated Classes
or Subclasses of such Series specified in the
related Prospectus Supplement. If so specified in
the related Prospectus Supplement, the Reserve Fund
with respect to such Series may be funded at a
lesser amount or in another manner acceptable to the
Rating Agency rating such Series. See "Credit
Support--Subordinated Certificates" and "--Reserve
Fund."
G. Other Funds........... Assets consisting of cash, certificates of deposit
or letters of credit, or any combination thereof, in
the aggregate amount specified in the related
Prospectus Supplement, will be deposited by the
Depositor in one or more accounts to be established
with respect to a Series of Certificates by the
Depositor with the Trustee on the related Delivery
Date if such assets are required to make timely
distributions in respect of principal of, and
interest on, the Certificates of such Series, are
otherwise required as a condition to the rating of
such Certificates in the rating category specified
in the Prospectus Supplement, or are required in
order to provide for certain contingencies or in
order to make certain distributions regarding
Certificates which represent interests in GPM Loans
(a "GPM Fund") or Buy-Down Loans (a "Buy-Down
Fund"). Following each Distribution Date, amounts
may be withdrawn from any such fund and used and/or
distributed in accordance with the Pooling and
Servicing Agreement under the conditions and to the
extent specified in the related Prospectus
Supplement.
H. Swap Agreement........ If so specified in the Prospectus Supplement
relating to a Series of Certificates, the Trust will
enter into or obtain an assignment of a swap
agreement or similar agreement pursuant to which the
Trust will have the right to receive certain
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 Policies.. Unless otherwise specified in the applicable
Prospectus Supplement, all of the Mortgage Loans
(except for the Cooperative Loans) and the Contracts
will be covered by standard hazard insurance
policies insuring against losses due to various
causes, including fire, lightning and windstorm. In
addition, the Depositor will, if so specified in the
17
<PAGE>
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. In
addition, the Master Servicer will also require or
maintain flood insurance if the related Mortgaged
Property was located at its time of origination in a
federally designated special flood hazard area. Any
hazard losses not covered by the standard hazard
policies, Special Hazard Insurance Policy or flood
insurance policies 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, Special Hazard Insurance Policy
and flood insurance policies will be subject to the
limitations described under "Description of
Insurance--Standard Hazard Insurance Policies on
Mortgage Loans," "--Standard Hazard Insurance
Policies on the Manufactured Homes" and "--Special
Hazard Insurance Policies."
Substitution of Trust
Assets.................... If so specified in the Prospectus Supplement
relating to a Series of Certificates, within the
period following the date of issuance of such
Certificates specified in such Prospectus
Supplement, the Depositor or one or more Servicers
will deliver to the Trustee with respect to such
Series Trust Assets in substitution for any one or
more of the Trust Assets included in the Trust Fund
relating to such Series which do not conform in one
or more material respects to the representations and
warranties in the related Pooling and Servicing
Agreement. See "Description of the Certificates--
Assignment of Mortgage Loans," "--Assignment of
Contracts" and "--Assignment of Mortgage
Certificates."
Advances.................. The Servicers of the Mortgage Loans and Contracts
(and the Master Servicer, if any, with respect to
each Mortgage Loan and Contract that it services
directly, and otherwise to the extent the related
Servicer does not do so) will be obligated to
advance delinquent installments of principal and
interest on the Mortgage Loans and Contracts (the
"Advances") under certain circumstances. See
"Description of the Certificates--Advances."
Optional Termination...... If so specified in the Prospectus Supplement with
respect to a Series, the Depositor or such other
persons as may be specified in a Prospectus
Supplement may purchase the Trust 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
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<PAGE>
Trust Fund as a Real Estate Mortgage Investment
Conduit (a "REMIC") under the Internal Revenue Code
of 1986 (the "Code"), any such repurchase will be
effected only in compliance with the requirements of
Section 860F(a)(4) of the Code, so as to constitute
a "qualified liquidation" thereunder. The exercise
of the right of repurchase will effect early
retirement of the Certificates of that Series. See
"Maturity and Prepayment Considerations" and
"Description of the Certificates--Termination."
ERISA Limitations......... A fiduciary of any employee benefit plan subject to
the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 4975 of the Code
should carefully review with its own legal advisers
whether the purchase or holding of Certificates
could give rise to a transaction prohibited or
otherwise impermissible under ERISA or Section 4975
of the Code. See "ERISA Considerations."
Tax Status............... See "Certain Federal Income Tax Consequences."
Legal Investment.......... If so specified in the related Prospectus Supplement
relating to a Series of Certificates, a Class or
Subclass of such certificates will constitute a
"mortgage related security" under the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA") if
and for so long as it is rated in one of the two
highest rating categories by at least one nationally
recognized statistical rating organization. Such
Classes or Subclasses, if any, will be legal
investments for certain types of institutional
investors to the extent provided in SMMEA, subject,
in any case, to any other regulations which may
govern investments by such institutional investors.
See "Legal Investment."
Use of Proceeds........... The Depositor will use the net proceeds from the
sale of each Series for one or more of the following
purposes: (i) to purchase the related Trust Assets,
(ii) to repay indebtedness which has been incurred
to obtain funds to acquire such Trust Assets, (iii)
to establish any reserve funds described in the
related Prospectus Supplement and (iv) to pay costs
of structuring, guaranteeing and issuing such
Certificates. If so specified in the related
Prospectus Supplement, the purchase of the Trust
Assets for a Series may be effected by an exchange
of Certificates by the Depositor with the seller of
such Trust Assets. See "Use of Proceeds."
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<PAGE>
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."
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RISKS OF THE TRUST ASSETS
General. 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 or commercial 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. Moreover, a decline in the
value of a Mortgaged Property will increase the risk of loss particularly with
respect to any related junior Mortgage Loan. 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.
Certificateholders 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."
If applicable, certain legal aspects of the Mortgage Loans for a Series of
Certificates may be described in the related Prospectus Supplement.
Commercial, Multifamily and Mixed-Use Mortgage Loans. Mortgage loans
secured by commercial real estate properties, multifamily properties and mixed
residential/commercial properties may have a greater likelihood of delinquency
and foreclosure, and a greater likelihood of loss in the event thereof, than
similar risks associated with mortgage loans secured by single family
residential properties. The ability of a mortgagor to repay a single family
loan typically depends primarily on the mortgagor's household income rather than
on the capacity of the property to produce income, and (other than in geographic
areas where employment is dependent upon a particular employer or industry) the
mortgagor's income tends not to reflect directly the value
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of such property. Accordingly, a decline in the income of a mortgagor on a loan
secured by a single family property may adversely affect the performance of the
loan, but may not affect the liquidation value of such property. In contrast,
the ability of a mortgagor to repay a loan secured by an income-producing
property typically depends primarily on the successful operation of such
property rather than on any independent income or assets of the mortgagor and
thus, in general, the value of the income-producing property also is directly
related to the net operating income derived from such property. As a result, if
the net operating income of the property is reduced (for example, if rental or
occupancy rates decline or real estate tax rates or other operating expenses
increase), the mortgagor's ability to repay the loan may be impaired, and the
liquidation value of the related property also may be adversely affected.
Further, with respect to a particular Trust Fund that includes Commercial
Mortgage Loans, Multifamily Mortgage Loans and/or Mixed-Use Mortgage Loans, the
concentration of default, foreclosure and loss risks in individual Mortgagors or
Mortgage Loans or the related Mortgaged Properties generally will be greater
than for Mortgage Pools that consist solely of Mortgage Loans secured by Single
Family Properties, because such Trust Fund generally will consist of a smaller
number of higher balance loans than would a Mortgage Pool of comparable
aggregate unpaid principal balance comprised solely of Mortgage Loans secured by
Single Family Properties.
If applicable, risks particular to specific types of commercial real estate
properties included in a Trust Fund will be described in the related Prospectus
Supplement.
It is anticipated that a substantial portion of any Mortgage Loans included
in a Trust Fund that are Commercial Mortgage Loans, Multifamily Mortgage Loans
and/or Mixed-Use Mortgage Loans will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable. As to any such Mortgage Loan,
recourse in the event of a Mortgagor's default will be limited to the specific
real property and such other assets, if any, that were pledged to secure the
Mortgage Loan. Even with respect to those Mortgage Loans that provide for
recourse against the Mortgagor and its assets generally, however, there can be
no assurance that enforcement of such recourse provisions will be practicable,
or that the assets of the related Mortgagor will be sufficient to permit a
recovery in respect of a defaulted Mortgage Loan in excess of the liquidation
value of the related Mortgaged Property.
Risks Associated with Leases. The performance of a mortgage loan secured
by an income-producing property that is leased by the mortgagor to tenants, as
well as the liquidation value of such property, may depend on the businesses
operated by such tenants in connection with such property and/or the
creditworthiness of such tenants. The risks associated with such mortgage loan
may be offset to the extent that such property is leased to a relatively greater
number of tenants or such tenants operate more diverse types of businesses.
If so described in the related Prospectus Supplement, each Mortgagor under
a Commercial Mortgage Loan, Multifamily Mortgage Loan or Mixed-Use Mortgage Loan
may be an entity created by the owner or purchaser of the related Mortgaged
Property solely to own or purchase such Mortgaged Property, in part to isolate
the Mortgaged Property from the debts and liabilities of such owner or
purchaser. Unless otherwise specified in the related Prospectus Supplement,
each such Mortgage Loan will represent a nonrecourse obligation of the related
Mortgagor secured by the lien of the related Mortgage and any related Lease
assignments. Whether or not such loans are recourse or nonrecourse obligations,
it is not expected that such Mortgagors will have any significant assets other
than the Mortgaged Properties and the related Leases, which will be pledged to
the Trustee under the related Pooling and Servicing Agreement. Accordingly, the
payment of amounts due on any
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such Mortgage Loans and, consequently, the payment of principal of and interest
on the related Certificates, will depend primarily or solely on rental payments
by the Lessees. Such rental payments will, in turn, depend on continued
occupancy by and/or the creditworthiness of such Lessees, which in either case
may be adversely affected by a general economic downturn or an adverse change in
their financial condition. Moreover, to the extent a Mortgaged Property was
designed for the needs of a specific type of tenant (e.g., a nursing home, hotel
or motel), the value of such Mortgaged Property may be adversely affected in the
event of a default by the Lessee or the early termination of such Lease, because
of difficulty in re-leasing the Mortgaged Property to a suitable substitute
lessee or, if re-leasing to such a substitute is not possible, because of the
cost of altering the property for another, more marketable, use. As a result,
without the benefit of the Lessee's continued rental payments and absent
significant amortization of the related Mortgage Loan, if such Mortgage Loan is
foreclosed on and the Mortgaged Property liquidated following a Lease default,
the net proceeds might be insufficient to cover the outstanding principal and
interest owing on such Mortgage Loan, thereby increasing the risk that holders
of the related Series of Certificates will suffer loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") included in a
Trust Fund as of the related Cut-Off Date may not be fully amortizing over their
terms to maturity and, thus, will require substantial principal payments (i.e.,
balloon payments) at their stated maturity. Mortgage loans with balloon payments
involve a greater degree of risk because the ability of a mortgagor to make a
balloon payment typically will depend upon its ability either to timely
refinance the loan or to timely sell the related mortgaged property. The ability
of a mortgagor to accomplish either of these goals will be affected by a number
of factors, including the level of available mortgage interest rates at the time
of sale or refinancing, the mortgagor's equity in the related mortgaged
property, the financial condition and operating history of the mortgagor and the
related mortgaged property, tax laws, rent control laws (with respect to certain
multifamily properties and mixed-use properties), Medicaid and Medicare
reimbursement rates (with respect to certain nursing homes), renewability of
operating licenses, prevailing general economic conditions and the availability
of credit for single family properties, multifamily properties, commercial
properties and mixed-use properties, as the case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain of
the Mortgage Loans included in a Trust Fund may be secured primarily by junior
mortgages. In the event of liquidation, mortgage loans secured by junior
mortgages are entitled to satisfaction from proceeds that remain from the sale
of the related mortgaged property after all mortgage loans senior to such
mortgage loans have been satisfied. If there are not sufficient funds to satisfy
any such junior Mortgage Loan in a Trust Fund and the related senior mortgage
loans, such Mortgage Loan would suffer a loss and, accordingly, one or more
classes of Certificates would bear such loss. Therefore, any risks of
deficiencies associated with first Mortgage Loans in a Trust Fund will be
relatively greater with respect to junior Mortgage Loans in such Trust Fund.
OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Mortgage Loans, a Master Servicer (or, with respect to
certain Specially Serviced Commercial Mortgage Loans, a Special Servicer) will
be permitted (within prescribed parameters) to extend and modify Mortgage
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Loans that are in default or as to which a payment default is imminent,including
in particular with respect to balloon payments. In addition, a Master Servicer
or a Special Servicer with respect to certain Commercial Mortgage Loans may
receive a workout fee based on receipts from or proceeds of such Mortgage Loans.
While any such entity generally will be required to determine that any such
extension or modification is reasonably likely to produce a greater recovery on
a present value basis than liquidation, there can be no assurance that such
flexibility with respect to extensions or modifications or payment of a workout
fee will increase the present value of receipts from or proceeds of Mortgage
Loans that are in default or as to which a payment default is imminent.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of Mortgage Loans made to individuals. The mortgagor's sophistication and
form of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
ENFORCEABILITY
Mortgage Loans may contain a due-on-sale clause, which in general permits
the lender to accelerate the maturity of the Mortgage Loan if the Mortgagor
sells, transfers or conveys the related Mortgaged Property or its interest in
the Mortgaged Property. Commercial Mortgage Loans may also include a debt-
acceleration clause, which permits the lender to accelerate the debt upon a
monetary or non-monetary default by the Mortgagor. Such clauses are generally
enforceable subject to certain exceptions. The courts of all states will enforce
clauses providing for acceleration in the event of a material payment default.
The equity courts of any state, however, may refuse the foreclosure of a
mortgage or deed of trust when an acceleration of the indebtedness would be
inequitable or unjust or the circumstances would render the acceleration
unconscionable.
If so specified in the related Prospectus Supplement, any Commercial
Mortgage Loans, Multifamily Mortgage Loans and/or Mixed-Use Mortgage Loans in a
Trust Fund will be secured by an assignment of leases and rents pursuant to
which the Mortgagor typically assigns its right, title and interest as landlord
under the Leases on the related Mortgaged Property and the income derived
therefrom to the lender as further security for the related Mortgage Loan, while
retaining a license to collect rents for so long as there is no default. In the
event the Mortgagor defaults, the license terminates and the lender is entitled
to collect rents. Such assignments are typically not perfected as security
interests prior to actual possession of the cash flows. Some state laws may
require that the lender take possession of the Mortgaged Property and obtain a
judicial appointment of a receiver before becoming entitled to collect the
rents. In addition, if bankruptcy or similar proceedings are commenced by or in
respect of the Mortgagor, the lender's ability to collect the rents may be
adversely affected.
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA") a lender may be liable, as an "owner" or
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"operator," for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the mortgagor,
regardless of whether or not the environmental damage or threat was caused by a
prior owner. A lender also risks such liability on foreclosure of the mortgage.
Any such lien arising with respect to a Mortgaged Property would adversely
affect the value of such Mortgaged Property and could make impracticable the
foreclosure on such Mortgaged Property in the event of a default by the related
Mortgagor.
With respect to any Commercial Mortgage Loans or Mixed-Use Mortgage Loans
included in a Trust Fund, the related Pooling and Servicing Agreement will
provide that the Master Servicer (or, if applicable, Special Servicer), acting
on behalf of the Trust Fund, may not acquire title to a Mortgaged Property
securing a Commercial Mortgage Loan or Mixed-Use Mortgage Loan or take over its
operation unless such Master Servicer (or, if applicable, Special Servicer) has
previously determined, based upon a report prepared by a person who regularly
conducts environmental audits, that: (i) the Mortgaged Property is in compliance
with applicable environmental laws or, if not, that taking such actions as are
necessary to bring the Mortgaged Property in compliance therewith is likely to
produce a greater recovery on a present value basis, after taking into account
any risks associated therewith, than not taking such actions and (ii) there are
no circumstances present at the Mortgaged Property relating to the use,
management or disposal of any hazardous substances for which investigation,
testing, monitoring, containment, cleanup or remediation could be required under
any federal, state or local law or regulation, or that, if any hazardous
substances are present for which such action would be required, taking such
actions with respect to the affected Mortgaged Property is reasonably likely to
produce a greater recovery on a present value basis, after taking into account
any risks associated therewith, than not taking such actions. Any additional
restrictions on acquiring title to a Mortgaged Property may be set forth in the
related Prospectus Supplement.
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, the Certificates of each Series 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.
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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 Fund, 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."
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THE MORTGAGE POOLS
General. 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 Loans secured by Commercial Property, (v) Mortgage Loans secured by
Mixed-Use Property, (vi) Mortgage Loans secured by unimproved land, (vii)
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 (viii) 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. The
Mortgage Loans and Contracts will be newly originated or seasoned, and will be
purchased by the Depositor either directly or through one or more affiliates or
Unaffiliated Sellers.
All Mortgage Loans will be evidenced by promissory notes (the "Mortgage
Notes") secured by first or more junior mortgages or first or second deeds of
trust or other similar security instruments creating a first or more junior
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, and Mixed-Use Property will consist of, mixed commercial and
residential buildings. The Mortgaged Properties may include investment
properties and vacation and second homes. Commercial Property will consist of
income-producing commercial real estate. Mortgage Loans secured by Commercial
Property, Multifamily Property and Mixed-Use 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.
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
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to the principal balance of the Mortgage Loan (unless otherwise paid by the
Mortgagor), and will bear interest at the Mortgage Rate in effect from time to
time. The amount by which the Mortgage Rate or monthly payment may increase or
decrease and the aggregate amount of Deferred Interest on any Mortgage Loan may
be subject to certain limitations, as described in the related Prospectus
Supplement.
If so specified in the Prospectus Supplement for the related Series, the
Mortgage Rate on certain ARM Loans will be convertible from an adjustable rate
to a fixed rate, at the option of the Mortgagor under certain circumstances.
Unless otherwise specified in the related Prospectus Supplement, the Pooling and
Servicing Agreement will provide that the Unaffiliated Seller from which such
convertible ARM Loans were acquired will be obligated to repurchase from the
Trust Fund any such ARM Loan as 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.
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"). FHA Loans will be
insured by the Federal Housing Administration (the "FHA") as authorized under
the National Housing Act, as amended, and the United States Housing Act of 1937,
as amended. Such FHA loans will be insured under various FHA programs including
the standard FHA 203-b programs to finance the acquisition of one- to four-
family housing units, the FHA 245 graduated payment mortgage program and the FHA
221 and 223 programs to finance certain multifamily residential rental
properties. FHA Loans generally require a minimum down payment of approximately
5% of the original principal amount of the FHA Loan. No FHA Loan may have an
interest rate or original principal amount exceeding the applicable FHA limits
at the time of origination of such FHA Loan.
VA Loans will be partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended (the "Servicemen's Readjustment Act"). The
Servicemen's Readjustment Act permits a veteran (or in certain instances the
spouse of a veteran) to obtain a mortgage loan guarantee by the VA covering
mortgage financing of the purchase of a one- to four-family dwelling unit at
interest rates permitted by the VA. The program has no mortgage loan limits,
requires no down payment from the purchasers and permits the guarantee of
mortgage loans of up to 30 years' duration. However, no VA Loan will have an
original principal amount greater than five times the partial VA guarantee for
such VA Loan. The maximum guarantee that may be issued by VA under this program
is 50% of the principal amount of the Mortgage Loan if the principal amount of
the Mortgage Loan is $45,000 or less, the lesser of $36,000 and 40% of the
principal amount of the Mortgage Loan if the principal amount of the Mortgage
Loan is greater than $45,000 but less than or equal to $144,000, and the lesser
of $46,000 and 25% of the principal amount of the Mortgage Loan if the principal
amount of the Mortgage Loan is greater than $144,000.
The Prospectus Supplement (or, if such information is not available in
advance of the date of such Prospectus Supplement, a Current Report on Form 8-K
to be filed with the Commission) for each Series of Certificates the Trust Fund
with respect to which contains Mortgage Loans will contain information as to the
type of Mortgage Loans that will comprise the related Mortgage Pool or Pools and
information as to (i) the aggregate principal balance of the Mortgage Loans as
of the applicable Cut-off Date, (ii) the type of Mortgaged
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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, Commercial Property, Mixed-Use Property or such other
Mortgage Loans as are specified in the Prospectus Supplement, the related debt
service coverage ratios, whether the Mortgage Loan provides for an interest only
period and whether the principal amount of such Mortgage Loan is fully
amortizing or is amortized on the basis of a period of time that extends beyond
the maturity date of the Mortgage Loan. If specified in the related Prospectus
Supplement, the Depositor may segregate the Mortgage Loans in a Mortgage Pool
into separate "Mortgage Loan Groups" (as described in the related Prospectus
Supplement) as part of the structure of the payments of principal and interest
on the Certificates of a Series. In such case, the Depositor will disclose the
above-specified information by Mortgage Loan Group.
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.
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"), or a
special servicer, if any (a "Special Servicer"), pursuant to a Pooling and
Servicing Agreement, as described herein, among the Master Servicer, if any, the
Special 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 or Special Servicer, such Servicer or
Special 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") or the Pooling and
Servicing Agreement, as applicable, and will receive the fee for such services
specified in the related agreement; however, any Master Servicer will remain
liable for its servicing obligations under the Pooling and Servicing Agreement
as if the Master Servicer alone were servicing such Mortgage Loans.
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The Depositor will make certain representations and warranties regarding
the Mortgage Loans, but its assignment of the Mortgage Loans to the Trustee will
be without recourse. See "Description of the Certificates--Assignment of
Mortgage Loans." The Master Servicer's obligations with respect to the Mortgage
Loans will consist principally of its contractual servicing obligations under
the Pooling and Servicing Agreement (including its obligation to enforce certain
purchase and other obligations of any Special Servicer, 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."
Single Family Mortgage Loans. Unless otherwise specified below or in the
applicable Prospectus Supplement, each Single Family 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 Single Family 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 Single Family 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
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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 Single Family Mortgage Loans to the extent set forth in the applicable
Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, no
Single Family 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 Single Family Mortgage Loan
secured by a mortgage on a vacation or second home or an investment 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 provided for in the applicable Prospectus Supplement, a Mortgage Pool
may contain Single Family Mortgage Loans pursuant to which the monthly payments
made by the Mortgagor during the early years of such 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 Single Family 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.
Commercial, Multifamily and Mixed-Use Mortgage Loans. The Commercial
Mortgage Loans, Multifamily Mortgage Loans and Mixed-Use Mortgage Loans will
consist of mortgage loans secured by first or junior mortgages, deeds of trust
or similar security instruments on, or installment contracts ("Installment
Contracts") for the sale of, fee simple or leasehold interests in commercial
real estate property, multifamily residential property, cooperatively owned
multifamily properties and/or mixed residential/commercial property, and related
property and interests. Commercial Mortgage Loans will not represent more than
10% of the aggregate principal balance of any Mortgage Pool as of the related
Cut-off Date.
Certain of the Commercial Mortgage Loans, Multifamily Mortgage Loans and
Mixed-Use Mortgage Loans ("Simple Interest Loans") may provide that scheduled
interest and principal payments thereon are applied first
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to interest accrued from the last date to which interest has been paid to the
date such payment is received and the balance thereof is applied to principal,
and other such Mortgage Loans may provide for payment of interest in advance
rather than in arrears.
The Commercial Mortgage Loans, Multifamily Mortgage Loans and Mixed-Use
Mortgage Loans may also be secured by one or more assignments of leases and
rents, management agreements or operating agreements relating to the Mortgaged
Property and in some cases by certain letters of credit, personal guarantees or
both. Pursuant to an assignment of leases and rents, the Mortgagor assigns its
right, title and interest as landlord under each Lease and the income derived
therefrom to the related lender, while retaining a license to collect the rents
for so long as there is no default. If the Mortgagor defaults, the license
terminates and the related lender is entitled to collect the rents from tenants
to be applied to the monetary obligations of the Mortgagor. State law may limit
or restrict the enforcement of the assignment of leases and rents by a lender
until the lender takes possession of the related Mortgaged Property and a
receiver is appointed. See "Certain Legal Aspects of the Mortgage Loans and
Contracts--Leases and Rents."
The Prospectus Supplement relating to each Series will specify the
Originator or Originators relating to the Commercial Mortgage Loans, Multifamily
Mortgage Loans and Mixed-Use Mortgage Loans, which may include, among others,
commercial banks, savings and loan associations, other financial institutions,
insurance companies or real estate developers and, to the extent available, the
underwriting criteria in connection with originating such Mortgage Loans.
Commercial, multifamily and mixed-use real estate lending is generally
viewed as exposing the lender to a greater risk of loss than one- to four-family
residential lending. Commercial, multifamily and mixed-use real estate lending
typically involves 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. Commercial,
multifamily and mixed-use 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 commercial, multifamily and mixed-
use real estate lending.
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
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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.
Single and Multi-Family Mortgage Loans. The mortgage credit approval
process for one- to four-family residential loans follows a standard procedure
that generally complies with FHLMC and FNMA regulations and guidelines (except
that certain Mortgage Loans may have higher loan amount and qualifying ratios)
and applicable federal and state laws and regulations. The credit approval
process for Cooperative Loans follows a procedure that generally complies with
applicable FNMA regulations and guidelines (except for the loan amounts and
qualifying ratios) and applicable federal and state laws and regulations. The
originator of a Mortgage Loan (the "Originator") generally will review a
detailed credit application by the prospective mortgagor 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.
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The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a deficiency
judgment against the Mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. The Depositor's underwriting standards
applicable to all states (including anti-deficiency states) require that the
value of the property being financed, as indicated by the appraisal, currently
supports and is anticipated to support in the future the outstanding loan
balance.
Certain of the types of Mortgage Loans that may be included in the Mortgage
Pools or Subsidiary Trust Funds may involve additional uncertainties not present
in traditional types of loans. For example, Buy-Down Loans and GPM Loans provide
for escalating or variable payments by the Mortgagor. These types of Mortgage
Loans are underwritten on the basis of a judgment that the Mortgagor will have
the ability to make larger monthly payments in subsequent years. In some
instances the Mortgagor's income may not be sufficient to enable it to continue
to make scheduled loan payments as such payments increase.
To the extent specified in the related Prospectus Supplement, the Depositor
may purchase Mortgage Loans for inclusion in a Trust Fund that are underwritten
under standards and procedures which vary from and are less stringent than those
described herein. For instance, Mortgage Loans may be underwritten under a
"limited documentation" program if so specified in the related Prospectus
Supplement. With respect to such Mortgage Loans, minimal investigation into the
borrowers' credit history and income profile is undertaken by the originator and
such Mortgage Loans may be underwritten primarily on the basis of an appraisal
of the Mortgaged Property or Cooperative Dwelling and the 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.
Commercial and Mixed-Use Mortgage Loans. The underwriting procedures and
standards for Commercial Mortgage Loans and Mixed-Use Mortgage Loans included in
a Mortgage Pool will be specified in the related Prospectus Supplement to the
extent such procedures and standards are known or available. Such Mortgage Loans
may be originated in contemplation of the transactions described in this
Prospectus and the related Prospectus Supplement or may have been originated by
third-parties and acquired by the Depositor directly or through its affiliates
in negotiated transactions.
Except as otherwise set forth in the related Prospectus Supplement for a
Series, the Originator of a Commercial Mortgage Loan or Mixed-Use Mortgage Loan
will have applied underwriting procedures intended to evaluate, among other
things, the income derived from the Mortgaged Property, the capabilities of the
management of the project, including a review of management's past performance
record, its management reporting and control procedures (to determine its
ability to recognize and respond to problems) and its accounting procedures to
determine cash management ability, the obligor's credit standing and repayment
ability and the value and adequacy of the Mortgaged Property as collateral. Any
such Mortgage Loan insured by the Federal Housing Administration ("FHA"), a
division of the United States Department of Housing and Urban Development
("HUD"), will have been originated by a mortgage lender that is approved by HUD
as an FHA mortgagee in the ordinary course of its real estate lending activities
and will comply with the underwriting policies of FHA.
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If so specified in the related Prospectus Supplement, the adequacy of a
Commercial Property or Mixed-Use Property as security for repayment will
generally have been determined by an appraisal by an appraiser selected in
accordance with preestablished guidelines established by or acceptable to the
loan Originator for appraisers. If so specified in the related Prospectus
Supplement, the appraiser must have personally inspected the property and
verified that it was in good condition and that construction, if new, has been
completed. Unless otherwise stated in the applicable Prospectus Supplement, the
appraisal will have been based upon a cash flow analysis and/or a market data
analysis of recent sales of comparable properties and, when deemed applicable, a
replacement cost analysis based on the current cost of constructing or
purchasing a similar property.
No assurance can be given that values of any Commercial Properties or
Mixed-Use Properties in a Mortgage Pool have remained or will remain at their
levels on the dates of origination of the related Mortgage Loans. Further, there
is no assurance that appreciation of real estate values generally will limit
loss experiences on commercial properties or mixed-use properties. If the
commercial real estate market should experience an overall decline in property
values such that the outstanding balances of any Commercial Mortgage Loans
and/or Mixed-Use Mortgage Loans and any additional financing on the related
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 on such Mortgage Loans could be higher than those now
generally experienced in the mortgage lending industry. To the extent that such
losses are not covered by the methods of credit support or the insurance
policies described herein or by Alterative Credit Support, they will be borne by
holders of the Certificates of the Series evidencing interests in the Mortgage
Pool. Even where credit support covers all losses resulting from defaults and
foreclosure, the effect of defaults and foreclosures may be to increase
prepayment experience on the related Mortgage Loans, thus shortening weighted
average life and affecting yield to maturity.
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 any of its affiliates (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 or its
affiliates. Such representations and warranties will generally include, among
other things: (i) with respect to each Mortgaged Property, that title insurance
(or in the case of Mortgaged Properties located in areas where such policies are
generally not available, an attorney's 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 (or, if applicable, more junior) lien on the Mortgaged
Property (subject only to permissible title
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insurance exceptions); (iv) that there were no delinquent tax or assessment
liens against the Mortgaged Property; and (v) that each Mortgage Loan was
current as to all required payments (unless otherwise specified in the related
Prospectus Supplement). With respect to a Cooperative Loan, the Unaffiliated
Seller will represent and warrant that (a) the security interest created by the
cooperative security agreements constituted a valid first lien on the collateral
securing the Cooperative Loan (subject to the right of the related Cooperative
to cancel shares and terminate the proprietary lease for unpaid assessments and
to the lien of the related Cooperative for unpaid assessments representing the
Mortgagor's pro rata share of the Cooperative's payments for its mortgage,
current and future real property taxes, maintenance charges and other
assessments to which like collateral is commonly subject) and (b) the related
cooperative apartment was free from damage and was in good repair.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate. A
substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Certificates evidencing an interest in such
Mortgage Loan. Since the representations and warranties of an Unaffiliated
Seller do not address events that may occur following the sale of a Mortgage
Loan by an Unaffiliated Seller, the repurchase obligation described below will
not arise if, during the period commencing on the date of sale of a Mortgage
Loan by the Unaffiliated Seller to or on behalf of the Depositor, the relevant
event occurs that would have given rise to such an obligation had the event
occurred prior to sale of the affected Mortgage Loan. However, the Depositor
will not include any Mortgage Loan in the Trust Fund for any Series of
Certificates if anything has come to the Depositor's attention that would cause
it to believe that the representations and warranties of an Unaffiliated Seller
will not be accurate and complete in all material respects in respect of such
Mortgage Loan as of the related Cut-off Date.
The only representations and warranties to be made for the benefit of
holders of Certificates of a Series in respect of any Mortgage Loan relating to
the period commencing on the date of sale of such 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.
Unless otherwise set forth or specified in the related Prospectus
Supplement, upon the discovery of the breach of any representation or warranty
made by an Unaffiliated Seller in respect of a Mortgage Loan that materially and
adversely affects the interests of the Certificateholders of the related Series,
such Unaffiliated Seller or 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
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Loans as described below, this repurchase obligation constitutes the sole remedy
available to the Certificateholders of such Series for a breach of
representation or warranty by an Unaffiliated Seller.
The obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller or a Servicer defaults on its obligation to do so is subject
to limitations, and no assurance can be given that Unaffiliated Sellers will
carry out their respective repurchase obligations with respect to Mortgage
Loans. However, to the extent that a breach of the representations and
warranties of an Unaffiliated Seller may also constitute a breach of the
representations and warranties made by the Depositor or by the Master Servicer
with respect to the insurability of the Mortgage Loans, the Depositor may have a
repurchase obligation, and the Master Servicer may have the limited purchase
obligation, in each case as described below under "Description of the
Certificates--Assignment of Mortgage Loans."
CLOSED LOAN PROGRAM
The Depositor may also acquire Closed Loans that have been originated by
Unaffiliated Sellers in accordance with underwriting standards acceptable to the
Depositor. Unless otherwise specified in the applicable Prospectus Supplement,
Closed Loans for which 11 or fewer monthly payments have been received will be
further subject to the Depositor's customary underwriting standards. Unless
otherwise specified in the applicable Prospectus Supplement, Closed Loans for
which 12 to 60 monthly payments have been received will be subject to a review
of payment history and will conform to the Depositor's guidelines for the
related mortgage program. In the event one or two payments were over 30 days
delinquent, a letter explaining the delinquencies will be required of the
Mortgagor. Unless otherwise specified in the applicable Prospectus Supplement,
the Depositor will not purchase for inclusion in a Mortgage Pool a Closed Loan
for which (i) more than two monthly payments were over 30 days delinquent, (ii)
one payment was over 60 days delinquent, or (iii) more than 60 monthly payments
were received.
MORTGAGE CERTIFICATES
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include certain conventional mortgage pass-
through certificates (the "Mortgage Certificates") issued by one or more trusts
established by one or more private entities and evidencing, unless otherwise
specified in such Prospectus Supplement, the entire interest in a pool of
mortgage loans. A description of the mortgage loans underlying the Mortgage
Certificates, the related pooling and servicing arrangements and the insurance
arrangements in respect of such mortgage loans will be set forth in the
applicable Prospectus Supplement or in the Current Report on Form 8-K referred
to below. Such Prospectus Supplement (or, if such information is not available
in advance of the date of such Prospectus Supplement, 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."
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THE CONTRACT POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include a Contract Pool evidencing interests in
manufactured housing conditional sales contracts and installment loan agreements
(the "Contracts") originated by a manufactured housing dealer in the ordinary
course of business and purchased by the Depositor. The Contracts may be
conventional manufactured housing contracts or contracts insured by the FHA or
partially guaranteed by the VA. Each Contract will be secured by a Manufactured
Home, as defined below. Unless otherwise specified in the related Prospectus
Supplement, the Contracts will be fully amortizing and will bear interest at a
fixed annual percentage rate ("APR").
The Manufactured Homes securing the Contracts consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air conditioning, and
electrical systems contained therein; except that such term shall include any
structure which meets all the requirements of [this] paragraph except the size
requirements and with respect to which the manufacturer voluntarily files a
certification required by the Secretary of Housing and Urban Development and
complies with the standards established under [this] chapter."
The Depositor will cause the Contracts constituting each Contract Pool to
be assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the related Certificateholder. The Master Servicer specified in the
related Prospectus Supplement will service the Contracts, either by itself or
through other Servicers, pursuant to the Pooling and Servicing Agreement. See
"Description of the Certificates--Servicing by Unaffiliated Sellers." With
respect to those Contracts serviced by the Master Servicer through a Servicer,
the Master Servicer will remain liable for its servicing obligations under the
Agreement as if the Master Servicer alone were servicing such Contracts. The
Contract documents, if so specified in the related Prospectus Supplement, may be
held for the benefit of the Trustee by a Custodian (the "Custodian") appointed
pursuant to a Custodial Agreement (the "Custodial Agreement") among the
Depositor, the Trustee and the Custodian.
Unless otherwise specified in the related Prospectus Supplement, each
Contract Pool will be composed of Contracts bearing interest at the annual fixed
APRs specified in the Prospectus Supplement. Each registered holder of a
Certificate will be entitled to receive periodic distributions, which will be
monthly unless otherwise specified in the related Prospectus Supplement, of all
or a portion of principal on the underlying Contracts or interest on the
principal balance thereof at the Pass-Through Rate, or both. Unless otherwise
stated in the related Prospectus Supplement, the difference between the APR on a
Contract and the related Pass-Through Rate (less sub-servicing compensation),
will be retained by the Master Servicer as servicing compensation to it. See
"Description of the Certificates--Payments on Contracts."
The related Prospectus Supplement (or, if such information is not available
in advance of the date of such Prospectus Supplement, a Current Report on Form
8-K to be filed with the Commission) will specify, for the Contracts contained
in the related Contract Pool, among other things: (a) the dates of origination
of the Contracts; (b) the weighted average APR on the Contracts; (c) the range
of outstanding principal balances as of the Cut-off Date; (d) the average
outstanding principal balance of the Contracts as of the Cut-off Date; (e)
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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
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as of the date of substitution. This repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for any such breach.
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 Credit Suisse First Boston Securities
Corporation ("FBSC"). FBSC is a wholly-owned subsidiary of Credit Suisse First
Boston, Inc. Credit Suisse 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 Credit Suisse First Boston, Inc. The
principal executive offices of the Depositor are located at 11 Madison Avenue,
New York, N.Y. 10010. Its telephone number is (212) 325-2000.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will 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
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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 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
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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.
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, commercial or mixed-use
properties.
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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, unless otherwise
specified in the related Prospectus Supplement, will require the Servicer, the
Special Servicer (if applicable) or the Master Servicer to enforce any due-on-
sale clause to the extent it has knowledge of the conveyance or the proposed
conveyance of the underlying Mortgaged Property or Cooperative Dwelling;
provided, however, that any enforcement action that would impair or threaten to
impair any recovery under any related Insurance Policy will not be required or
permitted. See "Description of the Certificates--Enforcement of "Due-On-Sale"
Clauses; Realization Upon Defaulted Mortgage Loans" and "Certain Legal Aspects
of the Mortgage Loans And Contracts--The Mortgage Loans--"Due-On-Sale" Clauses"
for a description of certain provisions of each Pooling and Servicing Agreement
and certain legal developments that may affect the prepayment experience on the
Mortgage Loans.
At the request of the Mortgagor, the Servicer may refinance the Mortgage
Loans in any Mortgage Pool by accepting prepayments thereon and making new loans
secured by a mortgage on the same property. Upon such refinancing, the new loans
will not be included in the Mortgage Pool and the related Servicer will be
required to repurchase the affected Mortgage Loan. A Mortgagor may be legally
entitled to require the Servicer to allow such a refinancing. Any such
repurchase will have the same effect as a prepayment in full of the related
Mortgage Loan.
There are no uniform statistics compiled for prepayments of contracts
relating to Manufactured Homes. Prepayments on the Contracts may be influenced
by a variety of economic, geographic, social and other facts, including
repossessions, aging, seasonality and interest rate fluctuations. Other factors
affecting prepayment of mortgage loans or Contracts include changes in housing
needs, job transfers, unemployment and servicing decisions. An investment in
Certificates evidencing interests in Contracts may be affected by, among other
things, a downturn in regional or local economic conditions. These regional or
local economic conditions are
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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 Commercial Properties, Multifamily
Properties and Mixed-Use Properties may have provisions that prohibit prepayment
entirely or for certain periods and/or require payment of premium or yield
maintenance penalties, 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 such
Mortgage Loans may be affected by these and other factors, including changes in
interest rates and the relative tax benefits associated with ownership of
Commercial Property, Multifamily Property and Mixed-Use 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."
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
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"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 of such Series will constitute "regular interests"
in the related REMIC, as defined in the Code. If
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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.
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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 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.
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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 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.
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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 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. 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.
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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 (or other periodic) 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. In addition, with respect to any Commercial Mortgage Loans, Multifamily
Mortgage Loans and Mixed-Use Mortgage Loans, the Depositor will deliver or cause
to be delivered to the Trustee (or the custodian hereinafter referred to) the
assignment of leases, rents and profits (if separate from the Mortgage) and an
executed re-assignment of assignment of leases, rents and profits.
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 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, within a
specified number of days after receipt thereof, review and hold such documents
in trust for the benefit of the Certificateholders. Unless otherwise specified
in the related Prospectus Supplement, if any document in the Mortgage Loan File
is found to be defective in any material respect, the Trustee will promptly
notify the Depositor and the Master Servicer. Unless otherwise specified in the
related Prospectus Supplement, if the Master Servicer or other entity cannot
cure such defect within the time period specified in such Prospectus Supplement,
the Master Servicer or such other entity will be obligated to either substitute
the affected Mortgage Loan for a Substitute Mortgage Loan or Loans, or to
repurchase the related Mortgage Loan from the Trustee within the time period
specified in such Prospectus Supplement at a price equal to the principal
balance thereof as of the date of purchase or, in the case of a Series as to
which an election has been made to treat the related Trust Fund as a REMIC, at
such other price as may be necessary to avoid a tax on a prohibited transaction,
as described in Section 860F(a) of the Code, in each case together with accrued
interest at the applicable Pass-Through Rate to the first day of the month
following such repurchase, plus the amount of any unreimbursed Advances made by
the Master Servicer in respect of such Mortgage Loan. The Master Servicer is
obligated to enforce the repurchase obligation of the
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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, the Unaffiliated Seller 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 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
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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, or the Special Servicer (if applicable),
will service and administer the Mortgage Loans assigned to the Trustee as more
fully set forth below. The Special Servicer may also be a party to the Pooling
and Servicing Agreement with respect to a Series of Certificates, in which case
the related Prospectus Supplement shall set forth the duties and
responsibilities of the Special Servicer thereunder.
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
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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 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
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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 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
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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.
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
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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. Any payments or other amounts collected by
a Special Servicer with respect to any Specially Serviced Mortgage Loans will be
deposited by such Special Servicer as set forth in the related Prospectus
Supplement.
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;
(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;
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(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 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.
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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
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the proceeds of any such action and will be retained by the Trustee prior to the
deposit of any remaining proceeds in the Certificate Account pending
distribution thereof to Certificateholders of the affected Series. In the event
that the Trustee has reason to believe that the proceeds of any such legal
action may be insufficient to reimburse it for its projected legal fees and
expenses, the Trustee will notify such Certificateholders that it is not
obligated to pursue any such available remedies unless adequate indemnity for
its legal fees and expenses is provided by such Certificateholders.
DISTRIBUTIONS ON CERTIFICATES
On each Distribution Date with respect to a Series of Certificates as to
which credit support is provided by means other than the creation of a
Subordinated Class or Subclasses and the establishment of a Reserve Fund, the
Master Servicer will withdraw from the applicable Certificate Account funds on
deposit therein and distribute, or, if so specified in the applicable Prospectus
Supplement, will withdraw from the Custodial Account funds on deposit therein
and remit to the Trustee, who will distribute, such funds to Certificateholders
of record on the applicable Record Date. Such distributions shall occur in the
manner described herein under "Description of the Certificates--Distributions of
Principal and Interest" and in the related Prospectus Supplement. If so
specified in the applicable Prospectus Supplement, the Master Servicer will
withdraw from the applicable Certificate Account funds on deposit therein and
distribute them to the Trustee. Such funds shall consist of the aggregate of all
previously undistributed payments on account of principal (including principal
prepayments, if any) and interest received after the Cut-off Date and on or
prior to the 20th day (or if such day is not a business day, the next preceding
business day) of the month of such distribution or such other day as may be
specified in the related Prospectus Supplement (in either case the
"Determination Date"), except:
(i) all payments that were due on or before the Cut-off Date;
(ii) all principal prepayments received during the month of distribution
and all payments of interest representing interest for the month of
distribution or any portion thereof;
(iii) all payments which represent early receipt (other than prepayments)
of scheduled payments of principal and interest due on a date or dates
subsequent to the first day of the month of distribution;
(iv) amounts received on particular Mortgage Loans or Contracts as late
payments of principal or interest and respecting which the Master Servicer
has made an unreimbursed Advance;
(v) amounts representing reimbursement for other Advances which the Master
Servicer has determined to be otherwise nonrecoverable and amounts
representing reimbursement for certain losses and expenses incurred or
Advances made by the Master Servicer and discussed below; and
(vi) that portion of each collection of interest on a particular Mortgage
Loan in such Mortgage Pool or on a particular Contract in such Contract Pool
that represents (A) servicing compensation to the Master Servicer and, if
applicable, the Special 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,"
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"--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 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.
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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;
(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;
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(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 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,
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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, insurance premiums and,
if applicable, Property Protection Expenses not paid by Mortgagors or Obligors
on a timely basis and, to the extent deemed recoverable, foreclosure costs,
including reasonable attorney's fees. "Property Protection Expenses" comprise
certain costs and expenses incurred in connection with defaulted Mortgage Loans,
acquiring title or management of REO Property or the sale of defaulted Mortgage
Loans or REO Properties, as more fully described in the related Prospectus
Supplement. Unless otherwise set forth in the related Prospectus Supplement,
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 will be responsible for servicing the Mortgage Loans
pursuant to the Agreement for the related Series. If so specified in the related
Prospectus Supplement, the Master Servicer may subcontract the servicing of all
or a portion of the Mortgage Loans to one or more Servicers and may subcontract
the servicing of certain Commercial Mortgage Loans, Multifamily Mortgage Loans
and/or Mixed-Use Mortgage Loans that are in default or otherwise require special
servicing (the "Specially Serviced Mortgage Loans") to a special servicer (the
"Special Servicer"), and certain information with respect to the Special
Servicer will be set forth in such Prospectus Supplement. Such Servicers and any
Special Servicer may be an affiliate of the Depositor and may have other
business relationships with Depositor and its affiliates.
The Master Servicer, directly or through the Servicers or a Special
Servicer, 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.
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Under the Pooling and Servicing Agreement, the Master Servicer, either
directly or through Servicers or a Special Servicer, 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. The Special Servicer, if any, will
be required to remit amounts received for such purposes on Mortgage Loans
serviced by it for deposit in the Escrow Account, and will be entitled to direct
the Master Servicer to make withdrawals from the Escrow Account as may be
required for servicing of such Mortgage Loans. Withdrawals from the Escrow
Account may be made to effect timely payment of taxes, assessments, mortgage and
hazard insurance, 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.
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 or the Special Servicer (if
applicable) 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 of the improvements
securing such Mortgage Loan or Contract or the principal balance of such
Mortgage Loan or Contract, whichever is less. Each Servicer, the Special
Servicer (if applicable) 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, the Special Servicer (if applicable) 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 or the Special Servicer
(if applicable) 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
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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 Special Servicer
(if applicable) (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.
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 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.
With respect to Mortgage Loans secured by Commercial Property, Mixed-Use
Property and Multi-Family Property, certain additional insurance policies may be
required, including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance, and the
related Pooling and Servicing Agreement may require the Master Servicer to
maintain public liability insurance with respect to any related REO Properties.
Any cost incurred by the Master Servicer in maintaining any such insurance
policy will be added to the amount owing under the related Mortgage Loan where
the terms of such Mortgage Loan so permit; provided, however, that the addition
of such cost will not be taken into account for purposes of calculating the
distribution to be made to Certificateholders. Such costs may be recovered by
the Master Servicer from the Certificate Account, with interest thereon, as
provided by the Agreement.
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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
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
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(the "Insured") under each such Primary Mortgage Insurance Policy. Neither the
Servicer nor the Master Servicer will cancel or refuse to renew any such Primary
Mortgage Insurance Policy in effect at the date of the initial issuance of a
Series of Certificates that is required to be kept in force under the Pooling
and Servicing Agreement or applicable Servicing Agreement unless the replacement
Primary Mortgage Insurance Policy for such cancelled or non-renewed policy is
maintained with an insurer whose claims-paying ability is acceptable to the
Rating Agency rating the Certificates. See "Description of Insurance--Primary
Mortgage Insurance Policies."
MORTGAGOR BANKRUPTCY BOND
If so specified in the related Prospectus Supplement, the Master Servicer
will exercise its best reasonable efforts to maintain a Mortgagor Bankruptcy
Bond for a Series of Certificates in full force and effect throughout the term
of the Pooling and Servicing Agreement, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premiums for such
Mortgagor Bankruptcy Bond on a timely basis. At the request of the Depositor,
coverage under a Mortgagor Bankruptcy Bond will be cancelled or reduced by the
Master Servicer to the extent permitted by the Rating Agency rating the related
Series of Certificates, provided that such cancellation or reduction does not
adversely affect the then current rating of such Series. See "Description of
Insurance--Mortgagor Bankruptcy Bond."
PRESENTATION OF CLAIMS
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to HUD, the VA, the Pool Insurer, the
Special Hazard Insurer, the issuer of the Mortgagor Bankruptcy Bond, and each
Primary Mortgage Insurer, as applicable, and take such reasonable steps as are
necessary to permit recovery under such insurance policies or Mortgagor
Bankruptcy Bond, if any, with respect to a Series concerning defaulted Mortgage
Loans or Contracts or Mortgage Loans or Contracts that are the subject of a
bankruptcy proceeding. All collections by the Master Servicer under any FHA
insurance or VA guarantee, any Pool Insurance Policy, any Primary Mortgage
Insurance Policy or any Mortgagor Bankruptcy Bond and, where the related
property has not been restored, any Special Hazard Insurance Policy, are to be
deposited in the Certificate Account, subject to withdrawal as heretofore
described. In those cases in which a Mortgage Loan or Contract is serviced by a
Servicer, the Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to the applicable Primary Mortgage
Insurer and to the FHA and the VA, as applicable, and all collections thereunder
shall be deposited in the Servicing Account, subject to withdrawal, as set forth
above, for deposit in the Certificate Account.
If any property securing a defaulted Mortgage Loan or Contract is damaged
and proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under any Pool
Insurance Policy or any Primary Mortgage Insurance Policy, neither the related
Servicer nor the Master Servicer, as the case may be, will be required to expend
its own funds to restore the damaged property unless it determines, and, in the
case of a determination by a Servicer, the Master Servicer agrees, (i) that such
restoration will increase the proceeds to Certificateholders on liquidation of
the Mortgage Loan or Contract after reimbursement of the expenses incurred by
the Servicer or the Master Servicer, as the case may be, and (ii) that such
expenses will be recoverable through proceeds of the sale of the Mortgaged
Property or proceeds of any related Pool Insurance Policy, any related Primary
Mortgage Insurance Policy or otherwise.
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If recovery under a Pool Insurance Policy or any related Primary Mortgage
Insurance Policy is not available because the related Servicer or the Master
Servicer has been unable to make the above determinations or otherwise, the
Servicer or the Master Servicer is nevertheless obligated to follow such normal
practices and procedures as are deemed necessary or advisable to realize upon
the defaulted Mortgage Loan. If the proceeds of any liquidation of the Mortgaged
Property or Manufactured Home are less than the principal balance of the
defaulted Mortgage Loan or Contract, respectively, plus interest accrued thereon
at the Pass-Through Rate, and if coverage under any other method of credit
support with respect to such Series is exhausted, the related Trust Fund will
realize a loss in the amount of such difference plus the aggregate of expenses
incurred by the Servicer or the Master Servicer in connection with such
proceedings and which are reimbursable under the related Servicing Agreement or
the Pooling and Servicing Agreement. In the event that any such proceedings
result in a total recovery that is, after reimbursement to the Servicer or the
Master Servicer of its expenses, in excess of the principal balance of the
related Mortgage Loan or Contract, together with accrued and unpaid interest
thereon at the applicable Pass-Through Rates, the Servicer and the Master
Servicer will be entitled to withdraw amounts representing normal servicing
compensation on such Mortgage Loan or Contract from the Servicing Account or the
Certificate Account, as the case may be.
ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION
UPON DEFAULTED MORTGAGE LOANS
Each Servicing Agreement and the Pooling and Servicing Agreement with
respect to Certificates representing interests in a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the borrower, such
Servicer or the Master Servicer, as the case may be, will, to the extent it has
knowledge of such conveyance, exercise its rights to accelerate the maturity of
such Mortgage Loan under any "due-on-sale" clause applicable thereto, if any,
unless it reasonably believes that such enforcement is not exercisable under
applicable law or regulations, would result in loss of insurance coverage with
respect to such Mortgage Loan or would not be in the best interest of the
related Series of Certificateholders. In any such 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
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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.
The market value of any Commercial Property, Multifamily Property or Mixed-
Use Property obtained in foreclosure or by deed in lieu of foreclosure will be
based substantially on the operating income obtained from renting the commercial
or dwelling units. Since a default on a Mortgage Loan secured by Commercial
Property, Multifamily Property or Mixed-Use 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
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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 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.
If the Master Servicer subcontracts the servicing of Specially Serviced Mortgage
Loans to a Special Servicer, the exact amount and calculation of the fee payable
to the Special Servicer will be set forth in the related Prospectus Supplement
and Pooling and Servicing Agreement.
The Servicers, any Special Servicer 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 any Special Servicer, Servicers and
Unaffiliated Sellers under certain limited circumstances.
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As set forth in the preceding section, the Servicers, any Special Servicer
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, a Special Servicer 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.
CERTAIN MATTERS REGARDING THE MASTER SERVICER,
THE DEPOSITOR, THE TRUSTEE AND THE SPECIAL SERVICER
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.
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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,
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each Agreement will provide that neither the Depositor nor the Master Servicer,
as the case may be, will be under any obligation to appear in, prosecute or
defend any legal action that is not incidental to its duties under the Agreement
and that in its opinion may involve it in any expense or liability. The
Depositor or the Master Servicer may, however, in their discretion, undertake
any such action deemed by them necessary or desirable with respect to the
applicable Agreement and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Trust Fund, and the Master Servicer or
the Depositor, as the case may be, will be entitled to be reimbursed therefor
out of the Certificate Account.
If the Master Servicer subcontracts the servicing of Specially Serviced
Mortgage Loans to a Special Servicer, the standard of care for, and any
indemnification to be provided to, the Special Servicer will be set forth in the
related Prospectus Supplement and Pooling and Servicing Agreement.
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.
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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.
EVENTS OF DEFAULT
Events of Default under each Pooling and Servicing Agreement, unless
otherwise provided in the applicable Prospectus Supplement, 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 and unless otherwise set forth in the related Prospectus
Supplement, 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.
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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.
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
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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.
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
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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.
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.
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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
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will decrease in accordance with the schedule and subject to the conditions set
forth in the Prospectus Supplement. This disproportionate distribution of
Principal Prepayments will have the effect of accelerating the amortization of
the Senior Certificates while increasing the respective interest of the
Subordinated Certificates in the Mortgage Pool or Contract Pool. Increasing the
respective interest of the Subordinated Certificates relative to that of the
Senior Certificates is intended to preserve the availability of the benefits of
the subordination provided by the Subordinated Certificates.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Trust will enter into or obtain an assignment of a swap
agreement or other similar agreement pursuant to which the Trust will have the
right to receive certain payments of interest (or other payments) as set forth
or determined as described therein. The Prospectus Supplement relating to a
Series of Certificates having the benefit of an interest rate swap agreement
will describe the material terms of such agreement and the particular risks
associated with the interest rate swap feature, including market and credit
risk, the effect of counterparty defaults and other risks, if any, addressed by
the rating. The Prospectus Supplement relating to such Series of Certificates
also will set forth certain information relating to the corporate status,
ownership and credit quality of the counterparty or counterparties to such swap
agreement.
RESERVE FUND
If so specified in the related Prospectus Supplement, credit support with
respect to a Series of Certificates may be provided by the establishment and
maintenance with the Trustee for such Series of Certificates, in trust, of a
Reserve Fund for such Series. Unless otherwise specified in the applicable
Prospectus Supplement, the Reserve Fund for a Series will not be included in the
Trust Fund for such Series. The Reserve Fund for each Series will be created by
the Depositor and shall be funded by the retention by the Master Servicer of
certain payments on the Mortgage Loans or Contracts, by the deposit with the
Trustee, in escrow, by the Depositor of a Subordinated Pool of mortgage loans or
manufactured housing conditional sales contracts and installment loan agreements
with the aggregate principal balance, as of the related Cut-off Date, set forth
in the related Prospectus Supplement, by any combination of the foregoing, or in
another manner specified in the related Prospectus Supplement. Following the
initial issuance of the Certificates of a Series and until the balance of the
Reserve Fund first equals or exceeds the Required Reserve, the Master Servicer
will retain specified distributions on the Mortgage Loans or Contracts and/or on
the mortgage loans or manufactured housing conditional sales contracts and
installment loan agreements in the Subordinated Pool otherwise distributable to
the holders of Subordinated Certificates and deposit such amounts in the Reserve
Fund. After the amounts in the Reserve Fund for a Series first equal or exceed
the applicable Required Reserve, the Master Servicer will retain such
distributions and deposit so much of such amounts in the Reserve Fund as may be
necessary, after the application of such distributions to amounts due and unpaid
on the Certificates or on the Certificates of such Series to which the
applicable Class or Subclass of Subordinated Certificates are subordinated and
the reimbursement of unreimbursed Advances and liquidation expenses, to maintain
the Reserve Fund at the Required Reserve. The balance in the Reserve Fund in
excess of the Required Reserve shall be paid to the applicable Class or Subclass
of Subordinated Certificates, or to another specified person or entity, as set
forth in the related Prospectus Supplement, and shall be unavailable thereafter
for future distribution to Certificateholders of either Class. The Prospectus
Supplement for each Series will set forth the amount of the Required Reserve
applicable from time to time. The Required Reserve may decline over time in
accordance with a schedule which will also be set forth in the related
Prospectus Supplement.
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Amounts held in the Reserve Fund for a Series from time to time will
continue to be the property of the Subordinated Certificateholders of the
Classes or Subclasses specified in the related Prospectus Supplement until
withdrawn from the Reserve Fund and transferred to the Certificate Account as
described below. If on any Distribution Date the amount in the Certificate
Account available to be applied to distributions on the Senior Certificates of
such Series, after giving effect to any Advances made by the Servicers or the
Master Servicer on such Distribution Date, is less than the amount required to
be distributed to such Senior Certificateholders (the "Required Distribution")
on such Distribution Date, the Master Servicer will withdraw from the Reserve
Fund and deposit into the Certificate Account the lesser of (i) the entire
amount on deposit in the Reserve Fund available for distribution to the Senior
Certificateholders (which amount will not in any event exceed the Required
Reserve) or (ii) the amount necessary to increase the funds in the Certificate
Account eligible for distribution to the Senior Certificateholders on such
Distribution Date to the Required Distribution; provided, however, that in no
event will any amount representing investment earnings on amounts held in the
Reserve Fund be transferred into the Certificate Account or otherwise used in
any manner for the benefit of the Senior Certificateholders. If so specified in
the applicable Prospectus Supplement, the balance, if any, in the Reserve Fund
in excess of the Required Reserve shall be released, to the Subordinated
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, whenever the Reserve Fund is less than the Required Reserve, holders
of the Subordinated Certificates of the applicable Class or Subclass will not
receive any distributions with respect to the Mortgage Loans or Contracts other
than amounts attributable to interest on the Mortgage Loans or Contracts after
the initial Required Reserve has been attained and amounts attributable to any
income resulting from investment of the Reserve Fund as described below. Whether
or not the amount of the Reserve Fund exceeds the Required Reserve on any
Distribution Date, the holders of the Subordinated Certificates of the
applicable Class or Subclass are entitled to receive from the Certificate
Account their share of the proceeds of any Mortgage Loan or Contract, or any
property acquired in respect thereof, repurchased by reason of defective
documentation or the breach of a representation or warranty pursuant to the
Pooling and Servicing Agreement. Amounts in the Reserve Fund shall be applied in
the following order:
(i) to the reimbursement of Advances determined by the Master Servicer and
the Servicers to be otherwise unrecoverable, other than Advances of interest
in connection with prepayments in full, repurchases and liquidations, and the
reimbursement of liquidation expenses incurred by the Servicers and the
Master Servicer if sufficient funds for such reimbursement are not otherwise
available in the related Servicing Accounts and Certificate Account;
(ii) to the payment to the holders of the Senior Certificates of such
Series of amounts distributable to them on the related Distribution Date in
respect of scheduled payments of principal and interest due on the related
Due Date to the extent that sufficient funds in the Certificate Account are
not available therefor; and
(iii) to the payment to the holders of the Senior Certificates of such
Series of the principal balance or purchase price, as applicable, of Mortgage
Loans or Contracts repurchased, liquidated or foreclosed during the period
ending on the day prior to the Due Date to which such distribution relates
and interest thereon at the related Pass-Through Rate, to the extent that
sufficient funds in the Certificate Account are not available therefor.
Amounts in the Reserve Fund in excess of the Required Reserve, including
any investment income on amounts therein, as set forth below, shall then be
released to the holders of the Subordinated Certificates, or to such other
person as is specified in the applicable Prospectus Supplement, as set forth
above.
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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.
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.
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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 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
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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 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.
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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
Mortgaged Property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
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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 Commercial Property, Mixed-Use
Property and Multifamily Property, certain additional insurance policies may be
required; 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, business interruption insurance 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
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Commercial Property, Mixed-Use Property and Multifamily Property and will
describe the general terms of such insurance and conditions to payment
thereunder.
STANDARD HAZARD INSURANCE POLICIES ON THE MANUFACTURED HOMES
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to cause to be maintained with respect to each Contract one or more
Standard Hazard Insurance Policies which provide, at a minimum, the same
coverage as a standard form file and extended coverage insurance policy that is
customary for manufactured housing, issued by a company authorized to issue such
policies in the state in which the Manufactured Home is located, and in an
amount which is not less than the maximum insurable value of such Manufactured
Home or the principal balance due from the Obligor on the related Contract,
whichever is less; provided, however, that the amount of coverage provided by
each Standard Hazard Insurance Policy shall be sufficient to avoid the
application of any co-insurance clause contained therein. When a Manufactured
Home's location was, at the time of origination of the related Contract, within
a federally designated flood area, the Master Servicer also shall cause such
flood insurance to be maintained, which coverage shall be at least equal to the
minimum amount specified in the preceding sentence or such lesser amount as may
be available under the federal flood insurance program. Each Standard Hazard
Insurance Policy caused to be maintained by the Master Servicer shall contain a
standard loss payee clause in favor of the Master Servicer and its successors
and assigns. If any Obligor is in default in the payment of premiums on its
Standard Hazard Insurance Policy or Policies, the Master Servicer shall pay such
premiums out of its own funds, and may add separately such premium to the
Obligor's obligation as provided by the Contract, but may not add such premium
to the remaining principal balance of the Contract.
The Master Servicer may maintain, in lieu of causing individual Standard
Hazard Insurance Policies to be maintained with respect to each Manufactured
Home, and shall maintain, to the extent that the related Contract does not
require the Obligor to maintain a Standard Hazard Insurance Policy with respect
to the related Manufactured Home, one or more blanket insurance policies
covering losses on the Obligor's interest in the Contracts resulting from the
absence or insufficiency of individual Standard Hazard Insurance Policies. Any
such blanket policy shall be substantially in the form and in the amount carried
by the Master Servicer as of the date of the Pooling and Servicing Agreement.
The Master Servicer shall pay the premium for such policy on the basis described
therein and shall pay any deductible amount with respect to claims under such
policy relating to the Contracts. If the insurer thereunder shall cease to be
acceptable to the Master Servicer, the Master Servicer shall exercise its best
reasonable efforts to obtain from another insurer a replacement policy
comparable to such policy.
If the Master Servicer shall have repossessed a Manufactured Home on behalf
of the Trustee, the Master Servicer shall either (i) maintain at its expense
hazard insurance with respect to such Manufactured Home or (ii) indemnify the
Trustee against any damage to such Manufactured Home prior to resale or other
disposition.
POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master Servicer
will obtain a Pool Insurance Policy for a Mortgage Pool underlying Certificates
of such Series. Such Pool Insurance Policy will be issued by the Pool Insurer
named in the applicable Prospectus Supplement. Any Pool Insurance Policy for a
Contract Pool underlying a Series of Certificates will be described in the
related Prospectus Supplement. Each Pool Insurance Policy will cover any loss
(subject to the limitations described below) by reason of default to the
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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
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
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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 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
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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 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
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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 or more
junior 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 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.
The real property covered by a mortgage is most often the fee estate in
land and improvements. However, a mortgage may encumber other interests in real
property such as a tenant's interest in a lease of land or improvements, or
both, and the leasehold estate created by such lease. A mortgage covering an
interest in real property other than the fee estate requires special provisions
in the instrument creating such interest or in the
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mortgage to protect the mortgagee against termination of such interest before
the mortgage is paid. Certain representations and warranties in the related
Agreement will be made with respect to the Mortgage Loans which are secured by
an interest in a leasehold estate.
INSTALLMENT CONTRACTS
The Commercial Mortgage Loans and Mixed-Use Mortgage Loans included in the
Mortgage Pool for a Series may also consist of Installment Contracts. Under an
Installment Contract the seller (hereinafter referred to in this Section as the
"lender") retains legal title to the property and enters into an agreement with
the purchaser (hereinafter referred to in this Section as the "borrower") for
the payment of the purchase price, plus interest, over the term of such
contract. Only after full performance by the borrower of the contract is the
lender obligated to convey title to the real estate to the purchaser. As with
mortgage or deed of trust financing, during the effective period of the
Installment Contract, the borrower is generally responsible for maintaining the
property in good condition and for paying real estate taxes, assessments and
hazard insurance premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated, and
the borrower's equitable interest in the property is forfeited. The lender in
such a situation does not have to foreclose in order to obtain title to the
property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the borrower and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of forfeiture.
Under such statutes, a judicial or nonjudicial foreclosure may be required, the
lender may be required to give notice of default and the borrower may be granted
some grace period during which the contract may be reinstated upon full payment
of the default amount and the borrower may have a post-foreclosure statutory
redemption right. In other states, courts in equity may permit a borrower with
significant investment in the property under an Installment Contract for the
sale of real estate to share in the proceeds of sale of the property after the
indebtedness is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally speaking, the lender's procedures for obtaining
possession and clear title under an Installment Contract for the sale of real
estate in a given state are simpler and less time-consuming and costly than are
the procedures for foreclosing and obtaining clear title to a mortgaged
property.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be secured by junior mortgages or deeds of trust which are subordinate to senior
mortgages or deeds of trust held by other lenders or institutional investors.
The rights of the Trust Fund (and therefore the Certificateholders), as
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive rents, hazard insurance and condemnation
proceeds and to cause the property securing the Mortgage Loan to be sold upon
default of the mortgagor or trustor, thereby extinguishing the junior
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mortgagee's or junior beneficiary's lien unless the Master Servicer asserts its
subordinate interest in a property in foreclosure litigation or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee or beneficiary may satisfy a defaulted senior loan in full, or may
cure such default and bring the senior loan current, in either event adding the
amounts expended to the balance due on the junior loan. Absent a provision in
the senior mortgage, no notice of default is required to be given to the junior
mortgagee.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under a hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or deed of trust. The laws of
certain states may limit the ability of mortgagees or beneficiaries to apply the
proceeds of hazard insurance and partial condemnation awards to the secured
indebtedness. In such states, the mortgagor or trustor must be allowed to use
the proceeds of hazard insurance to repair the damage unless the security of the
mortgagee or beneficiary has been impaired. Similarly, in certain states, the
mortgagee or beneficiary is entitled to the award for a partial condemnation of
the real property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinate to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary is given
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the right under the mortgage or deed of trust to perform the obligation itself,
at its election, with the mortgagor or trustor agreeing to reimburse the
mortgagee or beneficiary for any sums expended by the mortgagee or beneficiary
on behalf of the trustor. All sums so expended by the mortgagee or beneficiary
become part of the indebtedness secured by the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged property,
including, without limitation, leasing activities (including new leases and
termination or modification of existing leases), alterations and improvements to
buildings forming a part of the mortgaged property and management and leasing
agreements for the mortgaged property. Tenants will often refuse to execute a
lease unless the mortgagee or beneficiary executes a written agreement with the
tenant not to disturb the tenant's possession of its premises in the event of a
foreclosure. A senior mortgagee or beneficiary may refuse to consent to matters
approved by a junior mortgagee or beneficiary with the result that the value of
the security for the junior mortgage or deed of trust is diminished. For
example, a senior mortgagee or beneficiary may decide not to approve a lease or
to refuse to grant to a tenant a non-disturbance agreement. If, as a result, the
lease is not executed, the value of the mortgaged property may be diminished.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action.
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. If the mortgage
covered the tenant's interest in a lease and leasehold estate, the purchaser
will acquire such tenant's interest subject to the tenant's obligations under
the lease to pay rent and perform other covenants contained therein.
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
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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
to the property subject to the lien of the mortgage or deed of trust and the
redemption rights that may exist (see "--Rights of Redemption" below), and the
fact that the physical condition and financial performance 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, paying operating expenses and real estate taxes and
making such repairs at its own expense as are necessary to render the property
suitable for sale. Frequently, the lender employs a third-party management
company to manage and operate the property. The costs of operating and
maintaining commercial and mixed-use property may be significant and may be
greater than the income derived from that property. The costs of management and
operation of those mortgaged properties that are hotels, motels or nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the effect
which foreclosure and a change in ownership may have on the public's and the
industry's (including franchisors') perception of the quality of such
operations. The lender 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.
Under the REMIC provision of the Code and the related Agreement, the Master
Servicer or Special Servicer, if any, may be permitted to hire an independent
contractor to operate any REO Property. The costs of such operation may be
significantly greater than the costs of direct operation by the Master Servicer
or Special Servicer, if any. In the case of a Series in which an election is
made to treat the related Trust Fund as a REMIC, the Master Servicer or the
Special Servicer (as the case may be) shall, on behalf of the Trust Fund,
manage, conserve, protect and operate each REO Property for the
Certificateholders solely for the purpose of its prompt disposition and sale in
a manner which does not cause such REO Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of Section
860D(a) of the Code) or result in the receipt by the REMIC of any "income from
nonpermitted assets" within the meaning of Section 860F(a)(2)(B) of the Code or
any "net income from foreclosure property" under Section 860G(c) of the Code,
which is subject to taxation under the REMIC Provisions.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also contain Cooperative Loans evidenced by
promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under the
Code and in the related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in the corporations'
buildings. The security agreement will create a lien upon, or grant a title
interest in, the property
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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.
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TAX ASPECTS OF COOPERATIVE LOANS
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation representing
his proportionate share of certain interest expenses and certain real estate
taxes allowable as a deduction under Section 216(a) of the Code to the
corporation under Sections 163 and 164 of the Code. In order for a corporation
to qualify under Section 216(b)(1) of the Code for its taxable year in which
such items are allowable as a deduction to the corporation, such section
requires, among other things, that at least 80% of the gross income of the
corporation be derived from its tenant-stockholder. By virtue of this
requirement the status of a corporation for purposes of Section 216(b)(1) of the
Code must be determined on a year-to-year basis. Consequently, there can be no
assurance that cooperatives relating to the Cooperative Loans will qualify under
such section for any particular year. In the event that such a cooperative fails
to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under Section 216(a) of the Code with
respect to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue over
a period of years appears remote.
REALIZING UPON COOPERATIVE LOAN SECURITY
The cooperative shares and proprietary lease or occupancy agreement owned
by the tenant-stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be cancelled by the cooperative for failure by the tenant-
stockholder to pay rent or other obligations or charges owed by such tenant-
stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
which are owed to the cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the cooperative to terminate such
lease or agreement in the event the borrower defaults in the performance of
covenants thereunder. The lender and the cooperative will typically enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the tenant-
stockholder under the proprietary lease or occupancy agreement will usually
constitute a default under the security agreement between the lender and the
tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment subject,
however, to the cooperative's right to sums due under such proprietary lease or
occupancy agreement or that have become liens on the shares relating to the
proprietary lease or occupancy agreement. The total amount owed to the
cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor,
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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.
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 "AntiDeficiency 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
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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.
Borrowers under Installment Contracts generally do not have the benefits of
redemption periods such as exist in the same jurisdiction for mortgage loans.
Where redemption statutes do exist under state laws for Installment Contracts,
the redemption period is usually far shorter than for mortgages.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be nonrecourse loans as to which, in the event of default by a Mortgagor,
recourse may be had only against the specific property pledged to secure the
related Mortgage Loan and not against the Mortgagor's other assets. Even if
recourse is available pursuant to the terms of the Mortgage Loan against the
Mortgagor's assets in addition to the Mortgaged Property, 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, 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
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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, Mixed-Use
Property or Commercial 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.
BANKRUPTCY LAWS
Numerous statutory provisions, including the Bankruptcy Code and state laws
affording relief to debtors, may interfere with and delay the ability of the
secured mortgage lender to obtain payment of the loan, to realize upon
collateral and/or to enforce a deficiency judgment. For example, under the
Bankruptcy Code, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of the
bankruptcy petition, and, often, no interest or principal payments are made
during the course
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of the bankruptcy proceeding. The delay and consequences thereof caused by such
automatic stay can be significant. Also, under the Bankruptcy Code, the filing
of a petition in bankruptcy by or on behalf of a junior lienor, including,
without limitation, any junior mortgagee or beneficiary, may stay the senior
lender from taking action to foreclose on such junior lien. Certain of the
Mortgaged Properties may have a junior "wraparound" mortgage or deed of trust
encumbering such Mortgaged Property. In general terms, a "wraparound" mortgage
is a junior mortgage where the full amount of the mortgage is increased by an
amount equal to the principal balance of the senior mortgage and where the
junior lender agrees to pay the senior mortgage out of the payments received
from the mortgagor under the "wraparound" mortgage. As with other junior
mortgages, the filing of a petition under the Bankruptcy Code by or on behalf of
such a "wrap" mortgagee may stay the senior lender from taking action to
foreclose upon such junior "wrap" mortgage.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage or deed of
trust secured by property of the debtor may be modified under certain
circumstances. The outstanding amount of the loan secured by the real property
may be reduced to the then current value of the property (with a corresponding
partial reduction of the amount of the lender's security interest), thus leaving
the lender a general unsecured creditor for the difference between such value
and the outstanding balance of the loan. Other modifications may include the
reduction in the amount of each monthly payment, which reduction may result from
a reduction in the rate of interest and/or the alteration of the repayment
schedule (with or without affecting the unpaid principal balance of the loan),
and/or an extension (or reduction) of the final maturity date. Some bankruptcy
courts have approved plans, based on the particular facts of the reorganization
case, that effected the curing of a mortgage loan default by paying arrearages
over a number of years. Also, under the Bankruptcy Code, a bankruptcy court may
permit a debtor through its plan to de-accelerate a secured loan and to
reinstate the loan even though the lender accelerated the mortgage loan and
final judgment of foreclosure had been entered in state court (provided no sale
of the property had yet occurred) prior to the filing of the debtor's petition.
This may be done even if the full amount due under the original loan is never
repaid. Other types of significant modifications to the terms of the mortgage
may be acceptable to the bankruptcy court, often depending on the particular
facts and circumstances of the specific case.
A "deficient valuation" with respect to any mortgage loan is the excess of
(a)(i) the then outstanding principal balance of the mortgage loan, plus (ii)
accrued and unpaid interest and expenses reimbursable under the terms of the
related note to the date of the bankruptcy petition (collectively, the
"Outstanding Balance"), over (b) a valuation by a court of competent
jurisdiction of the mortgaged property which reduces the principal balance
receivable on such mortgage loan to an amount less than the Outstanding Balance
of the mortgage loan, which valuation results from a proceeding initiated under
the Bankruptcy Code. As used herein, "Deficient Valuation" means, with respect
to any Mortgage Loan, the deficient valuation described in the preceding
sentence, without giving effect to clause (a)(ii) thereof. If the terms of a
court order in respect of any retroactive Deficient Valuation provide for a
reduction in the indebtedness of a Mortgage Loan and the earlier maturity
thereof, the term Deficient Valuation includes an additional amount equal to the
excess, if any, of (a) the amount of principal that would have been due on such
Mortgage Loan for each month retroactively affected (i.e. each month occurring
after the effective date of such Deficient Valuation but before the distribution
of amounts in respect of such Deficient Valuation to Certificateholders pursuant
to the related Agreement), based on the original payment terms and amortization
schedule of such Mortgage Loan over (b) the amount of principal due on such
Mortgage Loan for each such retroactive month (assuming the effect of such
retroactive application according to such Mortgage Loan's revised amortization
schedule). A "Debt Service Reduction," with respect to any Mortgage Loan, is a
reduction in the scheduled monthly payment, as described in the
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Agreement, for such Mortgage Loan by a court of competent jurisdiction in a
proceeding under the Bankruptcy Code, except such a reduction resulting from a
Deficient Valuation.
Federal bankruptcy law may also interfere with or affect the ability of the
secured mortgage lender to enforce an assignment by a mortgagor of rents and
leases related to the mortgaged property if the related mortgagor is in a
bankruptcy proceeding. Under Section 362 of the Bankruptcy Code, the mortgagee
will be stayed from enforcing the assignment, and the legal proceedings
necessary to resolve the issue can be time-consuming and may result in
significant delays in the receipt of the rents. Rents may also escape an
assignment thereof (i) if the assignment is not fully perfected under state law
prior to commencement of the bankruptcy proceeding, (ii) to the extent such
rents are used by the borrower to maintain the mortgaged property, or for other
court authorized expenses, or (iii) to the extent other collateral may be
substituted for the rents.
To the extent a mortgagor's ability to make payment on a mortgage loan is
dependent on payments under a lease of the related property, such ability may be
impaired by the commencement of a bankruptcy proceeding relating to a lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition.
In addition, federal bankruptcy law generally provides that a trustee or
debtor in possession in a bankruptcy or reorganization case under the Bankruptcy
Code may, subject to approval of the court, (a) assume the lease and retain it
or assign it to a third party or (b) reject the lease. If the lease is assumed,
the trustee or debtor in possession (or assignee, if applicable) must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. Furthermore, there is likely to be a period of time between the date
upon which a lessee files a bankruptcy petition and the date upon which the
lease is assumed or rejected. Although the lessee is obligated to make all lease
payments currently with respect to the post-petition period, there is a risk
that such payments will not be made due to the lessee's poor financial
condition. If the lease is rejected, the lessor will be treated as an unsecured
creditor with respect to its claim for damages for termination of the lease and
the mortgagor must relet the mortgaged property before the flow of lease
payments will recommence. In addition, pursuant to Section 502(b)(6) of the
Bankruptcy Code, a lessor's damages for lease rejection are limited.
In a bankruptcy or similar proceeding action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor under
the related Mortgage Loan to the Trust Fund. Payments on long-term debt may be
protected from recovery as preferences if they are payments in the ordinary
course of business made on debts incurred in the ordinary course of business.
Whether any particular payment would be protected depends upon the facts
specific to a particular transaction.
"DUE-ON-SALE" CLAUSES
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
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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) may be retained by the Servicers, Special Servicer or Master Servicer
as additional servicing compensation.
Some of the Commercial Mortgage Loans, Multifamily Mortgage Loans and
Mixed-Use Mortgage Loans included in the Mortgage Pool for a Series will include
a "debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the Mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
courts of any state, however, may refuse to permit foreclosure of a mortgage or
deed of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the Mortgagor may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
State courts also are known to apply various legal and equitable principles
to avoid enforcement of the forfeiture provisions of Installment Contracts. For
example, a lender's practice of accepting late payments from the borrower may be
deemed a waiver of the forfeiture clause. State courts also may impose equitable
grace periods for payment of arrearages or otherwise permit reinstatement of the
contract following a default. Not infrequently, if a borrower under an
Installment Contract has significant equity in the property, equitable
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principles will be applied to reform or reinstate the contract or to permit the
borrower to share the proceeds upon a foreclosure sale of the property if the
sale price exceeds the debt.
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.
ENVIRONMENTAL CONSIDERATIONS
Real property pledged as security to a lender may be subject to potential
environmental risks. Such environmental risks may give rise to a diminution in
value of property securing any Mortgage Loan or, as more fully described below,
liability for cleanup costs or other remedial actions, which liability could
exceed the value of such property or the principal balance of the related
Mortgage Loan. In certain circumstances, a lender may choose not to foreclose on
contaminated property rather than risk incurring liability for remedial actions.
Under the laws of certain states where the Mortgaged Properties are
located, the owner's failure to perform remedial actions required under
environmental laws may in certain circumstances give rise to a lien on the
Mortgaged Property to ensure the reimbursement of remedial costs incurred by the
state. In several states such lien has priority over the lien of an existing
mortgage against such property. Because the costs of remedial action could be
substantial, the value of a Mortgaged Property as collateral for a Mortgage Loan
could be adversely affected by the existence of an environmental condition
giving rise to a lien.
Under some circumstances, cleanup costs, or the obligation to take remedial
actions, can be imposed on a secured lender such as the Trust Fund with respect
to each Series. Under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"), current ownership or operation of a property provides a
sufficient basis for imposing liability for the costs of addressing prior or
current releases or threatened releases of hazardous substances on that
property. Under such laws, a secured lender who holds indicia of ownership
primarily to protect its interest in a property may, by virtue of holding such
indicia, fall within the literal terms of the definition of "owner or operator";
consequently, such laws often specifically exclude such a secured lender from
the definitions of "owner" or "operator", provided that the lender does not
participate in the management of the facility.
Whether actions taken by a secured creditor would constitute such
participation in the management of a facility or property, so that the lender
loses the protection of the secured creditor exclusion, has been a matter
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of judicial interpretation of the statutory language, and court decisions have
historically been inconsistent. In 1990, the United States Court of Appeals for
the Eleventh Circuit suggested, in United States v. Fleet Factors Corp., that
the mere capacity of the lender to influence a borrower's decisions regarding
disposal of hazardous substances was sufficient participation in the management
of the borrower's business to deny the protection of the secured creditor
exclusion to the lender, regardless of whether the lender actually exercised
such influence. Other judicial decisions did not interpret the secured creditor
exclusion as narrowly as did the Eleventh Circuit.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 (the
"Asset Conservation Act"), which took effect on September 30, 1996. The Asset
Conservation Act provides that in order to be deemed to have participated in the
management of a secured property, a lender must actually participate in the
operational affairs of the property or the borrower. The Asset Conservation Act
also provides that participation in the management of the property does not
include "merely having the capacity to influence, or unexercised right to
control" operations. Rather, a lender will lose the protection of the secured
creditor exclusion only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all operational
functions of the secured property.
It should be noted that the secured creditor exclusion does not govern
liability for cleanup costs under federal laws other than CERCLA. CERCLA's
jurisdiction extends to the investigation and remediation of releases of
"hazardous substances." The definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Under federal law, the operation and
management of underground petroleum storage tanks (excluding heating oil) is
governed by Subtitle I of the Resource Conservation and Recovery Act ("RCRA").
Under the Asset Conservation Act, the protections accorded to lenders under
CERCLA are also accorded to the holders of security interests in underground
storage tanks. However, liability for cleanup of petroleum contamination will
most likely be governed by state law, which may not provide any specific
protection for secured creditors.
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 Commercial Property, Multifamily Property or Mixed-Use 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 Pooling and Servicing
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. With
respect to any Mortgage Pool that contains Commercial Mortgage Loans or Mixed-
Use Mortgage Loans, the related Pooling and Servicing Agreement will provide
that the Master Servicer (of, if applicable, the Special Servicer), acting on
behalf of the Trust Fund, may not acquire title to a Mortgaged Property securing
a Commercial Mortgage Loan or Mixed-Use Mortgage Loan or take over its operation
unless such Master Servicer (or, if applicable, the Special Servicer) has
previously determined, based upon a report prepared by a person who regularly
conducts environmental audits, that: (i)
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the Mortgaged Property is in compliance with applicable environmental laws or,
if not, that taking such actions as are necessary to bring the Mortgaged
Property in compliance therewith is likely to produce a greater recovery on a
present value basis, after taking into account any risks associated therewith,
than not taking such actions and (ii) there are no circumstances present at the
Mortgaged Property relating to the use, management or disposal of any hazardous
substances for which investigation, testing, monitoring, containment, cleanup or
remediation could be required under any federal, state or local law or
regulation, or that, if any hazardous substances are present for which such
action would be required, taking such actions with respect to the affected
Mortgaged Property is reasonably likely to produce a greater recovery on a
present value basis, after taking into account any risks associated therewith,
than not taking such actions. Such requirements effectively preclude enforcement
of the security for the related Mortgage Note until a satisfactory environmental
assessment is obtained or any required remedial action is taken, reducing the
likelihood that a given Trust Fund will become liable for any environmental
conditions affecting a Mortgaged Property, but making it more difficult to
realize on the security for the Mortgage Loan. However, there can be no
assurance that any environmental assessment obtained by the Master Servicer will
detect all possible environmental conditions or that the other requirements of
the Pooling and Servicing Agreement, even if fully observed by the Master
Servicer will in fact insulate a given Trust Fund from liability for
environmental conditions.
If a lender is or becomes liable for clean-up costs, it may bring an action
for contribution against the current owners or operators, the owners or
operators at the time of on-site disposal activity or any other party who
contributed to the environmental hazard, but such persons or entities may be
bankrupt or otherwise judgment-proof. Furthermore, such action against the
Mortgagor may be adversely affected by the limitations on recourse in the loan
documents. Similarly, in some states anti-deficiency legislation and other
statutes requiring the lender to exhaust its security before bringing a personal
action against the borrower-trustor (see "--Anti-Deficiency Legislation" below)
may curtail the lender's ability to recover from its borrower the environmental
clean-up and other related costs and liabilities incurred by the lender.
Shortfalls occurring as the result of imposition of any clean-up costs will be
addressed in the Prospectus Supplement and Agreement for the related Series.
SOLDIERS' AND SAILORS' RELIEF ACT
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not be
charged interest (including fees and charges) above an annual rate of 6% during
the period of such Mortgagor's active duty status, unless a court orders
otherwise upon application of the lender. Any shortfall in interest collections
resulting from the application of the Relief Act, to the extent not covered by
any applicable Enhancements, could result in losses to the Holders of the
Certificates. The Relief Act applies to mortgagors who are members of the Army,
Navy, Air Force, Marines, National Guard, Reserves, Coast Guard and officers of
the U.S. Public Health Service assigned to duty with the military. Because the
Relief Act applies to mortgagors who enter military service (including
reservists who are later called to active duty) after origination of the related
Mortgage Loan, no information can be provided as to the number of Mortgage Loans
that may be affected by the Relief Act. In addition, the Relief Act imposes
limitations which would impair the ability of the Master Servicer to foreclose
on an affected Mortgage Loan during the Mortgagor's period of active duty status
and, under certain circumstances, during an additional three months thereafter.
Thus, in the event that such a Mortgage Loan goes into default, there may be
delays and losses occasioned by the inability to realize upon the Mortgage
Property in a timely fashion.
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ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage loans,
originated by non-federally chartered lenders have historically been subjected
to a variety of restrictions. Such restrictions differed from state to state,
resulting in difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender was in compliance
with applicable law. These difficulties were alleviated substantially as a
result of the enactment of Title VIII of the Garn-St Germain Act ("Title VIII").
Title VIII provides that, notwithstanding any state law to the contrary, state-
chartered banks may originate alternative mortgage instruments in accordance
with regulations promulgated by the Comptroller of the Currency with respect to
origination of alternative mortgage instruments by national banks, state-
chartered credit unions may originate alternative mortgage instruments in
accordance with regulations promulgated by the National Credit Union
Administration (the "NCUA") with respect to origination of alternative mortgage
instruments by federal credit unions, and all other non-federally chartered
housing creditors, including state-chartered savings and loan associations,
state-chartered savings banks and mortgage banking companies, may originate
alternative mortgage instruments in accordance with the regulations promulgated
by the Federal Home Loan Bank Board (now the Office of Thrift Supervision) with
respect to origination of alternative mortgage instruments by federal savings
and loan associations. Title VIII authorized any state to reject applicability
of the provision of Title VIII by adopting, prior to October 15, 1985, a law or
constitutional provision expressly rejecting the applicability of such
provisions. Certain states have taken such action.
LEASES AND RENTS
Some of the Commercial Mortgage Loans, Multifamily Mortgage Loans and
Mixed-Use Mortgage Loans included in the Mortgage Pool for a Series may be
secured by an assignment of leases (each, a "Lease") and rents of one or more
lessees (each, a "Lessee"), either through a separate document of assignment or
as incorporated in the mortgage. Under such assignments, the Mortgagor under the
mortgage loan typically assigns its right, title and interest as landlord under
each Lease and the income derived therefrom to the lender, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the lender's interest in
rents may depend on whether the mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the lender's
interest in rents may result in the loss of a substantial pool of funds which
could otherwise serve as a source of repayment for the loan. In the event the
Mortgagor defaults, the license terminates and the lender may be entitled to
collect rents. Some state laws may require that to perfect its interest in
rents, the lender must take possession of the property and/or obtain judicial
appointment of a receiver before becoming entitled to collect the rents. Lenders
that actually take possession of the property, however, may incur potentially
substantial risks attendant to being a mortgagee in possession. Such risks
include liability for environmental clean-up costs and other risks inherent to
property ownership. In addition, if bankruptcy or similar proceedings are
commenced by or in respect of the borrower, the lender's ability to collect the
rents may be adversely affected. In the event of borrower default, the amount of
rent the lender is able to collect from the tenants can significantly affect the
value of the lender's security interest.
SECONDARY FINANCING; DUE-ON-ENCUMBRANCE PROVISIONS
Some of the Mortgage Loans secured by Commercial Property, Mixed-Use
Property or Multifamily Property included in the Mortgage Pool for a Series may
not restrict secondary financing, thereby permitting the Mortgagor to use the
Mortgaged Property as security for one or more additional loans. Some of the
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Mortgage Loans secured by Commercial Property, Mixed-Use Property or Multifamily
Property may preclude secondary financing (often by permitting the first lender
to accelerate the maturity of its loan if the Mortgagor further encumbers the
Mortgaged Property) or may require the consent of the senior lender to any
junior or substitute financing; however, such provisions may be unenforceable in
certain jurisdictions under certain circumstances. The Pooling and Servicing
Agreement for each Series will provide that if any Mortgage Loan contains a
provision in the nature of a "due-on-encumbrance" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the mortgagee's option)
become due and payable upon the creation of any lien or other encumbrance on the
related Mortgaged Property; or (ii) requires the consent of the related
mortgagee to the creation of any such lien or other encumbrance on the related
Mortgaged Property, then for so long as such Mortgage Loan is included in a
given Trust Fund, the Master Servicer or, if such Mortgage Loan is a Specially
Serviced Mortgage Loan, the Special Servicer, if any, on behalf of such Trust
Fund, shall exercise (or decline to exercise) any right it may have as the
mortgagee of record with respect to such Mortgage Loan (x) to accelerate the
payments thereon, or (y) to withhold its consent to the creation of any such
lien or other encumbrance, in a manner consistent with the servicing standard
set forth in the Agreement.
Where the Mortgagor encumbers the Mortgaged Property with one or more
junior liens, the senior lender is subject to additional risk. First, the
Mortgagor may have difficulty servicing and repaying multiple loans. Second,
acts of the senior lender which prejudice the junior lender or impair the junior
lender's security may create a superior equity in favor of the junior lender.
For example, if the Mortgagor and the senior lender agree to an increase in the
principal amount of or the interest rate payable on the senior loan, the senior
lender may lose its priority to the extent an existing junior lender is
prejudiced or the Mortgagor is additionally burdened. Third, if the Mortgagor
defaults on the senior loan and/or any junior loan or loans, the existence of
junior loans and actions taken by junior lenders can impair the security
available to the senior lender and can interfere with, delay and in certain
circumstances even prevent the taking of action by the senior lender. Fourth,
the bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and
use of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of the
operation, maintenance, control and financing of health care institutions.
Mortgages on Mortgaged Properties which are owned by the Mortgagor under a
condominium form of ownership are subject to the declaration, by-laws and other
rules and regulations of the condominium association. Mortgaged Properties which
are hotels or motels may present additional risk to the lender in that: (i)
hotels and motels are typically operated pursuant to franchise, management and
operating agreements which may be terminable by the operator; and (ii) the
transferability of the hotel's operating, liquor and other licenses to the
entity acquiring the hotel either through purchase or foreclosure is subject to
the vagaries of local law requirements. In addition, Mortgaged Properties
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which are multifamily residential properties or cooperatively owned multifamily
properties may be subject to rent control laws, which could impact the future
cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, owners of public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable Person. In addition to imposing a possible
financial burden on the borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
THE CONTRACTS
GENERAL
As a result of the Depositor's assignment of the Contracts 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
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authority, depending on state law. In some non-title states, perfection pursuant
to the provisions of the UCC is required. The lender or Master Servicer may
effect such notation or delivery of the required documents and fees, and obtain
possession of the certificate of title, as appropriate under the laws of the
state in which any manufactured home securing a manufactured housing conditional
sales contract is registered. In the event the Master Servicer or the lender
fails, due to clerical errors, to effect such notation or delivery, or files the
security interest under the wrong law (for example, under a motor vehicle title
statute rather than under the UCC, in a few states), the Certificateholders may
not have a first priority security interest in the Manufactured Home securing a
Contract. As manufactured homes have become larger and often have been attached
their sites without any apparent intention to move them, courts in many states
have held that manufactured homes, under certain circumstances, may become
subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a manufactured home under
real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the manufactured home is located. These
filings must be made in the real estate records office of the county where the
manufactured home is located. Substantially all of the Contracts will contain
provisions prohibiting the borrower from permanently attaching the Manufactured
Home to its site. So long as the Obligor does not violate this agreement, a
security interest in the Manufactured Home will be governed by the certificate
of title laws or the UCC, and the notation of the security interest on the
certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the seller's security interest in the
Manufactured Home. If, however, a Manufactured Home is permanently attached to
its site, other parties could obtain an interest in the Manufactured Home which
is prior to the security interest originally retained by the Unaffiliated Seller
and transferred to the Depositor. With respect to a Series of Certificates and
as described in the related Prospectus Supplement, the Master Servicer may be
required to perfect a security interest in the Manufactured Home under
applicable real estate laws. If such real estate filings are not required and if
any of the foregoing events were to occur, the only recourse of the
Certificateholders would be against the Unaffiliated Seller pursuant to its
repurchase obligation for breach of warranties. Based on the representations of
the Unaffiliated Seller, the Depositor, however, believes that it has obtained a
perfected first priority security interest by proper notation or delivery of the
required documents and fees with respect to substantially all of the
Manufactured Homes securing the Contracts.
The Depositor will assign its security interests in the Manufactured Homes
to the Trustee on behalf of the Certificateholders. Unless otherwise specified
in the related Prospectus Supplement, neither the Depositor nor the Trustee will
amend the certificates of title to identify the Trustee as the new secured
party. Accordingly, the Depositor or such other entity as may be specified in
the Prospectus Supplement will continue to be named as the secured party on the
certificates of title relating to the Manufactured Homes. In most states, such
assignment is an effective conveyance of such security interest without
amendment of any lien noted on the related certificate of title and the new
secured party succeeds to the assignor's rights as the secured party. However,
in some states there exists a risk that, in the absence of an amendment to the
certificate of title, such assignment of the security interest might not be held
effective against creditors of the assignor.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Depositor on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
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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 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
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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.
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
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conditions, state laws prohibiting enforcement of "due-on-sale" clauses
applicable to the Manufactured Homes. In some states the Depositor or the Master
Servicer may be prohibited from enforcing a "due-on-sale" clause in respect of
certain Manufactured Homes.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan that is secured
by a first lien on certain kinds of manufactured housing. The Contracts would be
covered if they satisfy certain conditions, among other things, governing the
terms of any prepayments, late charges and deferral fees and requiring a 30-day
notice period prior to instituting any action leading to repossession of or
foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision that expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
In any state in which application of Title V was expressly rejected or a
provision limiting discount points or other charges has been adopted, no
Contract which imposes finance charges or provides for discount points or
charges in excess of permitted levels has been included in the Trust Assets or
Fund. The Depositor, or the party specified in the related Pooling and Servicing
Agreement will represent that all of the Contracts comply with applicable usury
laws.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
I. GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Certificates. Brown & Wood LLP, San Francisco, California, Cadwalader,
Wickersham & Taft, New York, New York, Dewey Ballantine, New York, New York or
Orrick, Herrington & Sutcliffe LLP, counsel to the Depositor, is delivering its
opinion regarding certain federal income tax matters discussed below. The
opinion addresses only those issues specifically identified below as being
covered by such opinion; however, such opinion also states that the additional
discussion set forth below accurately sets forth Brown & Wood LLP's, Cadwalader,
Wickersham & Taft's, Dewey Ballantine's or Orrick, Herrington & Sutcliffe LLP'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 summary is based on the Code as well as Treasury regulations
and administrative and judicial rulings and practice. Legislative, judicial and
administrative changes may occur, possibly with retroactive effect, that could
alter or modify the continued validity of the statements and conclusions set
forth herein. This summary does not purport to address all federal income tax
matters that may be relevant to particular holders. For example, it generally
is addressed only to original purchasers of the Certificates that are United
States investors, deals only with Certificates held as capital assets within the
meaning of Section 1221 of the Code, and does not address tax consequences to
holders that may be relevant to investors subject to special rules, such as non-
U.S. investors, banks, insurance companies, tax-exempt organizations, electing
large partnership, dealers in securities or currencies, mutual funds, REITs,
S corporations, estates and trusts, investors that hold the Certificates as part
of a hedge, straddle, integrated or conversion transaction, or holders whose
"functional currency" is not the United States dollar. Further, it does not
address alternative minimum tax consequences or the indirect effects on the
holders of equity interests in an entity that is a beneficial owner of the
Certificates. Further, 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."
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A Trust Certificate representing an undivided equitable ownership interest
in the principal of the Mortgage Loans constituting the related Trust Fund,
together with interest thereon at a remittance rate (which may be less than,
greater than, or equal to the pass-through rate), will be referred to as a
"Trust Fractional Certificate" and a Trust Certificate representing an equitable
ownership of all or a portion of the interest paid on each Mortgage Loan
constituting the related Trust Fund (net of normal servicing fees) will be
referred to as a "Trust Interest Certificate."
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Code Sections 1271 through 1273 and 1275
and in Treasury regulations issued under the original issue discount provisions
of the Code (the "OID Regulations"), and the Treasury regulations issued under
the provisions of the Code relating to REMICs (the "REMIC Regulations").
II. REMIC TRUST FUNDS
A. CLASSIFICATION OF REMIC TRUST FUNDS
With respect to each series of REMIC Certificates relating to a REMIC
Mortgage Pool, Brown & Wood LLP, San Francisco, California, Cadwalader,
Wickersham & Taft, New York, New York, Dewey Ballantine, New York, New York, or
Orrick, Herrington & Sutcliffe LLP, will deliver their opinion generally to the
effect that, assuming that (i) any required 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 (or a portion thereof) will qualify as one or more REMICs and the
classes of interests offered will be considered to be "regular interests" or
"residual interests" within the meaning of the REMIC Provisions.
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
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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. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
In general, 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 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
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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 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
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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 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
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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 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
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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
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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
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
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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 on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
A REMIC Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated redemption
price at maturity will be considered to be purchased at a premium. The holder of
such a REMIC Regular Certificate may elect to amortize such premium under the
constant yield method. The OID Regulations also permit Certificateholders to
elect to include all interest, discount and premium in income based on a
constant yield method, further treating the Certificateholder as having made the
election to amortize premium generally, as described above. The Committee Report
indicates a Congressional intent that the same rules that will apply to accrual
of market discount on installment obligations will also apply in amortizing bond
premium under Code Section 171 on installment obligations such as the REMIC
Regular Certificates.
3. TREATMENT OF SUBORDINATED CERTIFICATES
As described above under "Credit Support--Subordinated Certificates,"
certain Series of Certificates may contain one or more Classes or Subclasses of
Subordinated Certificates. Holders of Subordinated Certificates will be required
to report income with respect to such Certificates on the accrual method without
giving effect to delays and reductions in distributions attributable to defaults
or delinquencies on any Mortgage Loans, except possibly, 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.
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C. 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 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
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as being equal to the aggregate issue prices of the REMIC Regular Certificates
and REMIC Residual Certificates; if one or more classes of REMIC Regular
Certificates or REMIC Residual Certificates are retained by the Depositor, the
Master Servicer will estimate the value of such retained interests in order to
determine the fair market value of the Mortgage Loans for this purpose. Third,
no item of income, gain, loss or deduction allocable to a prohibited transaction
(see "Prohibited Transactions and Other Possible REMIC Taxes", below) will be
taken into account. Fourth, the REMIC Mortgage Pool generally may not deduct any
item that would not be allowed in calculating the taxable income of a
partnership by virtue of Code Section 703(a)(2). Fifth, the REMIC Regulations
provide that the limitation on miscellaneous itemized deductions imposed on
individuals by Code Section 67 will not be applied at the Mortgage Pool level to
the servicing fees paid to the Master Servicer or sub-servicers if any. (See,
however, "Pass-Through of Servicing Fees", below.) If the deductions allowed to
the REMIC Mortgage Pool exceed its gross income for a calendar quarter, such
excess will be the net loss for the REMIC Mortgage Pool for that calendar
quarter.
3. BASIS RULES AND DISTRIBUTIONS
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not be
included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC Residual
Certificate. Such distribution will reduce the adjusted basis of such interest,
but not below zero. To the extent a distribution exceeds the adjusted basis of
the REMIC Residual Certificate, it will be treated as gain from the sale of the
REMIC Residual Certificate. (See "Sales of REMIC Certificates," below.) The
adjusted basis of a REMIC Residual Certificate is equal to the amount paid for
such REMIC Residual Certificate, increased by amounts included in the income of
the Residual Owner (see "Taxation of Owners of REMIC Residual Certificates--
Daily Portions" above), and decreased by distributions and by net losses taken
into account with respect to such interest.
A Residual Owner is not allowed to take into account any net loss for any
calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as 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
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long-term "applicable federal rate" (generally, an average of current yields on
Treasury securities of comparable maturity, and hereafter the "AFR") in effect
at the time of issuance of the REMIC Residual Certificate. For this purpose, the
adjusted issue price of a REMIC Residual Certificate as of the beginning of any
calendar quarter is the issue price of the REMIC Residual Certificate, increased
by the amount of daily accruals for all prior quarters and decreased by any
distributions made with respect to such REMIC Residual Certificate before the
beginning of such quarter. The issue price of a REMIC Residual Certificate is
the initial offering price to the public (excluding bond houses and brokers) at
which a substantial amount of the REMIC Residual Certificates were sold.
For Residual Owners, an excess inclusion cannot be offset by deductions,
losses or loss carryovers from other activities. However, net operating loss
carryovers are determined without regard to excess inclusion income. For
Residual Owners that are subject to tax on unrelated business taxable income (as
defined in Code Section 511), an excess inclusion is treated as unrelated
business taxable income. For Residual Owners that are nonresident alien
individuals or foreign corporations generally subject to United States 30%
withholding tax, even if interest paid to such Residual Owners is generally
eligible for exemptions from such tax, an excess inclusion will be subject to
such tax and no tax treaty rate reduction or exemption may be claimed with
respect thereto. See "Foreign Investors in REMIC Certificates."
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Owner. First, alternative minimum taxable income for a Residual Owner
is determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Owner's
alternative minimum taxable income for a taxable year cannot be less than the
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deduction must be computed without regard to any excess
inclusions.
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. It is expected that the
REMIC Residual Certificates will be noneconomic.
6. TAX-EXEMPT INVESTORS
Tax-exempt organizations (including employee benefit plans) that are
subject to tax on unrelated business taxable income (as defined in Code Section
511) will be subject to tax on any excess inclusions attributed to them as
owners of Residual Certificates. Excess inclusion income associated with a
Residual Certificate may significantly exceed cash distributions with respect
thereto. See "Excess Inclusions."
Generally, tax-exempt organizations that are not subject to federal income
taxation on "unrelated business taxable income" pursuant to Code Section 511 are
treated as "disqualified organizations" under provisions of the "Technical and
Miscellaneous Revenue Act of 1988" (the "1988 Act"). Under provisions of the
Pooling and Servicing Agreement, such organizations generally are prohibited
from owning Residual Certificates. See "Sales of REMIC Certificates."
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D. 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. Capital Losses may not, in general, be offset against ordinary
income.
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.
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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.
E. 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 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 Regular 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.
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F. 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.
G. 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.
H. REPORTING AND OTHER ADMINISTRATIVE MATTERS OF REMICS
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. Certain holders of REMIC Regular
Certificates who are generally exempt from information reporting on debt
instruments, such as corporations, banks, registered securities or commodities
brokers, real estate investment trusts, registered investment companies, common
trust funds, charitable remainder annuity trusts and unitrusts, will be provided
interest and original issue discount income information and the information set
forth in the following paragraph upon request in accordance with the
requirements of the Treasury regulations. The information must be provided by
the later of 30 days after the end of the quarter for which the information was
requested, or two weeks after the receipt of the request. The REMIC Mortgage
Pool must also comply with rules requiring the face of a REMIC Certificate
issued at more than a de minimis discount to disclose the amount of original
issue discount and the issue date and requiring such information to be reported
to the Treasury Department.
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.
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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.
I. 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.
J. 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 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
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or under the laws of the United States or any political subdivision thereof
(unless, in the case of a partnership, regulations provide otherwise), or an
estate or trust defined in Section 7701(a)(30)(D) and (E), respectively.
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
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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 providing 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 Regulations, and prospective
investors are urged to consult their tax advisers with respect to the effect the
1996 Proposed Regulations may have.
K. STATE AND LOCAL TAXATION
Many states do not automatically conform to changes in the federal income
tax laws. Consequently, a REMIC Mortgage Pool that would not qualify as a fixed
investment trust for federal income tax purposes may be characterized as a
corporation, a partnership, or some other entity for purposes of state income
tax law. Such characterization could result in entity level income or franchise
taxation of the REMIC Mortgage Pool formed in, owning mortgages or property in,
or having servicing activity performed in a state without conforming REMIC
provisions in its income or franchise tax law. Further, REMIC Regular
Certificateholders resident in non-conforming states may have their ownership of
REMIC Regular Certificates characterized as an interest other than debt of the
REMIC such as stock or a partnership interest. Investors are advised to consult
their tax advisers concerning the state and local income tax consequences of
their purchase and ownership of REMIC Regular Certificates.
III. NON-REMIC TRUST FUNDS
A. CLASSIFICATION OF TRUST FUNDS
With respect to each series of Trust Certificates for which they are
identified as counsel to the Depositor in the applicable Prospectus Supplement,
Brown & Wood LLP, Cadwalader, Wickersham & Taft, Dewey Ballantine, or Orrick,
Herrington & Sutcliffe LLP, 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.
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B. 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 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
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prospective purchasers are advised to consult their own tax advisers with
respect to the existence of a retained interest and any effects on investment in
Trust Fractional Certificates.
1. APPLICATION OF STRIPPED BOND RULES
Each Trust Fund will consist of an interest in each of the Mortgage Loans
relating thereto, exclusive of the Depositor's Retained Yield, if any. With
respect to each Series of Certificates for which they are identified as counsel
to the Depositor in the applicable Prospectus Supplement, Brown & Wood LLP,
Cadwalader, Wickersham & Taft, Dewey Ballantine, or Orrick, Herrington &
Sutcliffe LLP 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 Discount." See also
"Non-Remic Trust Funds--Prepayments" hereof. 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."
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
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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 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.
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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."
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.
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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 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
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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. Such regulations do not,
however, apply to instruments that are subject to Section 1272(a)(6).
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.
C. TAXATION OF OWNERS OF TRUST INTEREST CERTIFICATES
With respect to each Series of Certificates for which they are identified
as counsel to the Depositor in the applicable Prospectus Supplement, Brown &
Wood, LLP, Cadwalader, Wickersham & Taft, Dewey Ballantine, or Orrick,
Herrington & Sutcliffe LLP 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
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Servicer from the Mortgagor will be treated for federal income tax purposes as
having the same character as the payment which they replace.
1. APPLICATION OF STRIPPED BOND RULES
A Trust Interest Certificate will consist of an undivided interest in the
Interest Coupon of each of the Mortgage Loans. With respect to each Series of
Certificates for which they are identified as counsel to the Depositor in the
applicable Prospectus Supplement, Brown & Wood LLP, Cadwalader, Wickersham &
Taft, Dewey Ballantine, or Orrick, Herrington & Sutcliffe LLP will advise the
Depositor that, in their opinion a Trust Interest Certificate will be treated
for federal income tax purposes as comprised of an ownership interest in a
portion of the Interest Coupon of each of the Mortgage Loans (a "Stripped
Interest") separated by the Depositor from the right to receive principal
payments and the remainder, if any, of each interest payment on the underlying
Mortgage Loan. As a consequence, the Trust Interest Certificates will become
subject to the Stripped Bond Rules. Each Trust Interest Certificateholder will
be required to apply the Stripped Bond Rules to its interest in the Interest
Coupon under the method prescribed by the Code, taking account of the price at
which the holder purchased the Trust Interest Certificate and the Trust Interest
Certificateholder's share of the scheduled payment to be made thereon. The
Stripped Bond Rules generally require a holder of Stripped 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." See also "Prepayments" below. 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."
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. 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.
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Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information on
an aggregate poolwide basis. 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.
D. 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. Although 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 recently enacted has extended (for taxable years beginning after
such enactment) the rules contained in the 1986 Act to any pool of debt
instruments the yield on which may be affected by reason of prepayments.
Accordingly, it appears that Section 1272(a)(6) would apply to such
Certificates. See "Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount." 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.
E. 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. Capital losses may not, in general, be offset against ordinary income.
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F. 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.
G. BACK-UP WITHHOLDING
In general, the rules described in "REMIC Trust Funds--Back-up Withholding"
will also apply to Trust Certificates.
H. 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.
I. 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 penalties 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.
PLAN ASSETS REGULATION
The United States Department of Labor ("DOL") has issued a final regulation
(the "Plan Assets 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 Plan Assets 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 Plan Assets 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.
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PROHIBITED TRANSACTION CLASS EXEMPTIONS
Prohibited Transaction Class Exemption 83-1 (Class Exemption for Certain
Transactions Involving Mortgage Pool Investment Trusts) ("PTCE 83-1") permits,
subject to certain conditions, certain transactions involving the creation,
maintenance and termination of certain residential mortgage pools and the
acquisition and holding of certain residential mortgage pool pass-through
certificates by Plans, regardless of whether (a) the mortgage pool is exempt
from "plan asset" treatment or (b) the transactions would otherwise be
prohibited under ERISA or Section 4975 of the Code. A Series of Certificates
will be an "Exempt Series" if the general conditions (described below) of PTCE
83-1 are satisfied, and if the applicable Series of Certificates evidences
ownership interests in Trust Assets which do not include Mortgage Certificates,
Cooperative Loans, Mortgage Loans secured by cooperative buildings, Mortgage
Loans secured by Multifamily Property, Mortgage Loans secured by unimproved real
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. PTCE 83-1 will not apply 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
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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 or 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), PTCE 83-1 will not exempt Plans
which acquire Certificates of that Class or Subclass from the prohibited
transaction rules of ERISA and Section 4975 of the Code.
If an Exempt Series of Certificates includes a Class of Subordinated
Certificates, PTCE 83-1 will not provide an exemption from the prohibited
transaction rules of ERISA and Section 4975 of the Code 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 five other prohibited transaction class
exemptions issued by the DOL might apply, i.e., PTCE 96-23 (Class Exemption for
Plan Asset Transactions Determined by In-House Asset Managers), PTCE 95-60
(Class Exemption for Certain Transactions Involving Insurance Company General
Accounts), PTCE 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds), PTCE 90-1 (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 available exemptive relief 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 Section 4975 of 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
Credit Suisse First Boston Corporation ("First Boston") is the recipient of
a final prohibited transaction exemption, 54 Fed. Reg. 42597 (Oct. 17, 1989), as
amended by PTE 97-34, 62 Fed. Reg. 39021 (July 21, 1997)(the "Underwriter's PTE"
or "Credit Suisse 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
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<PAGE>
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 such real property) or (B) shares issued by a cooperative housing
association; and (ii) "guaranteed governmental mortgage pool certificates" (as
defined in the Plan Assets 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 Ratings Services, Moody's Investors Service, Inc., Duff & Phelps Inc.
or Fitch Investors Service, L.P., 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;
(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
144
<PAGE>
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 rise to a prohibited transaction under ERISA and
Section 4975 of the Code, unless PTCE 83-1, the Underwriter's PTE 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
145
<PAGE>
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 and adequate
exemptive relief is available; (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 an insurance company general account which
satisfies the conditions set forth in Sections I and II of PTCE 95-60 or 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.
INSURANCE COMPANY GENERAL ACCOUNTS
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the Certificates by an insurance company general
account, the Small Business Job Protection act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by Section 4975 of the Code, for transactions involving an
insurance company general account. Pursuant to Section 401(c) of ERISA, the DOL
is required to issue final regulations (the "401(c) Regulations") no later than
December 31, 1997 which are to provide guidance for the purpose of determining,
in cases where insurance policies or annuity contracts supported by an insurer's
general account are issued to or for the benefit of a Plan on or before December
31, 1998, which general account assets constitute "plan assets." Section 401(c)
of ERISA generally provides that, until the date which is 18 months after the
401(c) Regulations become final, no person shall be subject to liability under
Part 4 of Title I of ERISA and Section 4975 of the Code on the basis of a claim
that the assets of an insurance company general account constitute "plan
assets," unless (i) as otherwise provided by the Secretary of Labor in the
401(c) Regulations to prevent avoidance of the regulations or (ii) an action is
brought by the Secretary of Labor for certain breaches of fiduciary duty which
would also constitute a violation of federal or state criminal law. Any assets
of an insurance company general account which support insurance policies issued
to a Plan after December 31, 1998 or issued to Plans on or before December 31,
1998 for which the insurance company does not comply with the 401(c)
Regulations may be treated as "plan assets." In addition, because Section
401(c) does not relate to insurance company separate accounts, separate account
assets are still treated as "plan assets" of any Plan invested in such separate
account. Insurance companies contemplating the investment of general account
assets in the Certificates should consult with their legal counsel with respect
to the applicability of Sections I and III of PTCE 95-60 and Section 401(c) or
ERISA, including the general account's ability to continue to hold the
Certificates after the date which is 18 months after the date the 401(c)
Regulations become final.
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.
146
<PAGE>
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. Section 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.
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.
147
<PAGE>
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 Credit Suisse First Boston Corporation, an affiliate of the Depositor,
or underwriting syndicates represented by Credit Suisse First Boston Corporation
(the "Underwriters"). The Prospectus Supplement with respect to each such Series
of Certificates will set forth the terms of the offering of such Series or
Certificates and each Subclass within such Series, including the name or names
of the Underwriters, the proceeds to the Depositor, and either the initial
public offering price, the discounts and commissions to the Underwriters and any
discounts or concessions allowed or reallowed to certain dealers, or the method
by which the price at which the Underwriters will sell such Certificates will be
determined.
Unless otherwise specified in the Prospectus Supplement, the Underwriters
will be obligated to purchase all of the Certificates of a Series described in
the Prospectus Supplement with respect to such Series if any such Certificates
are purchased. The Certificates may be acquired by the Underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale.
If so indicated in the Prospectus Supplement, the Depositor will authorize
Underwriters or other persons acting as the Depositor's agents to solicit offers
by certain institutions to purchase the Certificates from the Depositor pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such institutions must be
approved by the Depositor. The obligation of any purchaser under any such
contract will be subject to the
148
<PAGE>
condition that the purchase of the offered Certificates shall not at the time of
delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject. The Underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
The Depositor may also sell the Certificates offered hereby and by means of
the related Prospectus Supplements from time to time in negotiated transactions
or otherwise, at prices determined at the time of sale. The Depositor may effect
such transactions by selling Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Depositor and any purchasers of Certificates
for whom they may act as agents.
The place and time of delivery for each Series of Certificates offered
hereby and by means of the related Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
If and to the extent required by applicable law or regulation, this
Prospectus and the attached Prospectus Supplement will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sales.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriters by Brown & Wood
LLP, San Francisco, California, Cadwalader, Wickersham & Taft, New York, New
York, Dewey Ballantine, New York, New York or Orrick, Herrington & Sutcliffe
LLP.
149
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INDEX OF TERMS
Page on Which
Term is Defined
Term in the Prospectus
- ---- -----------------
1986 Act...................................... 139
1988 Act...................................... 125
1996 Contingent Debt Regulations.............. 120
1996 Proposed Regulations..................... 131
401(c) Regulations............................ 146
Accrual Distribution Amount................... 49
Advances...................................... 18
AFR........................................... 125
Agreement..................................... 46
Alternative Credit Support.................... 13
Appraised value............................... 40
Approved Sale................................. 88
APR........................................... 38
ARM Loans..................................... 30
Asset Conservation Act........................ 105
Balloon Mortgage Loans........................ 23
Borrower...................................... 92
Buy-Down Fund................................. 17, 31
Buy-Down Loans................................ 31
Cede.......................................... 26
CERCLA........................................ 24, 104
Certificate Account........................... 56
Certificate Principal Balance................. 6
Certificateholders............................ 26, 29
Certificates.................................. 1, 6, 114
Class......................................... 1, 6
Closed Loans.................................. 32
Closing Date.................................. 117
Code.......................................... 19, 45, 114
Commercial Mortgage Loans..................... 7
Commercial Property........................... 7
Commission.................................... 4
Contract Loan-to-Value Ratio.................. 11
Contract Pool................................. 1, 7, 114
Contract Schedule............................. 53
Contracts..................................... 1, 7, 21, 38
Converted Mortgage Loan....................... 28
Cooperative................................... 7
Cooperative Dwelling.......................... 7
Cooperative Loans............................. 7
150
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Credit Suisse First Boston Corporation's PTE.. 143
Current value................................. 117
Custodial Account............................. 56
Custodial Agreement........................... 38
Custodian..................................... 38
Cut-off Date.................................. 26
Debt Service Reduction........................ 101
Deferred Interest............................. 27
Deficiency Event.............................. 74
Deficient valuation........................... 101
Definitive Certificates....................... 26
Deleted Contract.............................. 39
Deleted Mortgage Certificates................. 50
Deleted Mortgage Loans........................ 52
Deposit Trust Agreement....................... 45
Depositor..................................... 1
Determination Date............................ 60
Discount Certificate.......................... 12
Discount Certificates......................... 43
Distribution Date............................. 8
DOL........................................... 141
DTC........................................... 26
Due Date...................................... 30
Due Period.................................... 49
ERISA......................................... 19, 141
ERISA Plans................................... 141
Escrow Account................................ 65
FBSC.......................................... 40
FHA........................................... 1, 28, 34
FHA Experience................................ 43
FHA Loans..................................... 28
First Boston.................................. 143
Garn-St Germain Act........................... 102
GPM Fund...................................... 17, 31
GPM Loans..................................... 31
HUD........................................... 34
Initial Deposit............................... 16
Installment Contracts......................... 31
Insurance Proceeds............................ 57
Insured....................................... 68
Insured Series................................ 143
Interest Coupon............................... 137
Interest Distribution......................... 48
Interest Rate................................. 6
Interest Weighted Class....................... 6
Interest Weighted Subclass.................... 6
IRS........................................... 116
L/C Bank...................................... 13, 77
151
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L/C Percentage................................ 14, 77
Lease......................................... 107
Lender........................................ 92
Lessee........................................ 107
Letter of Credit.............................. 13
Liquidating Loan.............................. 14
Liquidation Proceeds.......................... 57
Loan- to-Value Ratio.......................... 9
Loss.......................................... 83
Manufactured Home............................. 11
Mixed-Use Mortgage Loans...................... 7
Mixed-Use Property............................ 7
Mortgage Certificates......................... 1, 37
Mortgage Loan Groups.......................... 29
Mortgage Loans................................ 1, 7, 114
Mortgage Notes................................ 27
Mortgage Pool................................. 1, 7, 114
Mortgage Rates................................ 10
Mortgaged Property............................ 9
Mortgagor..................................... 10
Mortgagor Bankruptcy Bond..................... 13
Multi-Class Certificates...................... 6
Multifamily Mortgage Loans.................... 7
Multifamily Property.......................... 7
Multiple Variable Rate........................ 119
Non-U.S. Person............................... 129, 130
Nonexempt Assets.............................. 142
Nonexempt Series.............................. 142
Obligor....................................... 42
OID Regulations............................... 115
Original Value................................ 9, 31
Originator.................................... 33
Other Pools................................... 144
Outstanding Balance........................... 101
Parties in Interest........................... 141
Pass-Through Rate............................. 10
Payment deficiencies.......................... 79
Percentage Interest........................... 1, 26
Performance Bond.............................. 39
Plan assets................................... 146
Plan Assets Regulation........................ 141
Plan investor................................. 143
Plans......................................... 141
Policy Statement.............................. 147
Pool Insurance Policy......................... 13
Pool Insurer.................................. 15
Pooling and Servicing Agreement............... 29, 45
Premium Certificate........................... 12
152
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Premium Certificates.......................... 42
Prepayment Assumption......................... 116
Primary Insurer............................... 58
Primary Mortgage Insurance Policy............. 14
Primary Mortgage Insurer...................... 67
Principal Distribution........................ 48
Principal Prepayments......................... 16
Principal Weighted Class...................... 6
Principal Weighted Subclass................... 6
Proposed Premium Regulations.................. 136
PTCE 83-1..................................... 142
Purchase Price................................ 55
Qualified floating rate....................... 117
Rating Agency................................. 1, 7
RCRA.......................................... 105
Record Date................................... 48
Reference Agreement........................... 45
REMIC......................................... 2, 19, 114
REMIC Certificateholders...................... 115
REMIC Certificates............................ 114
REMIC Mortgage Pool........................... 114
REMIC Provisions.............................. 114
REMIC Regular Certificate..................... 114
REMIC Regulations............................. 115
REMIC Residual Certificate.................... 114
Required Distribution......................... 81
Required Reserve.............................. 16, 78
Reserve Fund.................................. 13
Residual Certificates......................... 6
Residual Owner................................ 123
Restricted Group.............................. 145
Retained Yield................................ 132
Securities Act................................ 47
Senior Certificates........................... 13
Senior Class.................................. 6
Senior Prepayment Percentage.................. 79
Senior Subclass............................... 6
Series........................................ 1, 6
Servicemen's Readjustment Act................. 28
Servicer...................................... 29
Servicing Account............................. 57
Servicing Agreement........................... 29
Simple Interest Loans......................... 31
Single Family Property........................ 7
Single Variable Rate.......................... 117
Single-class REMIC............................ 127
SMMEA......................................... 19, 147
SPA........................................... 44
153
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Special Distributions......................... 9, 61
Special Hazard Insurance Policy............... 18
Special Servicer.............................. 29, 64
Specially Serviced Mortgage Loans............. 64
Standard Hazard Insurance Policy.............. 65
Standard Terms................................ 45
Startup day................................... 128
Stated Principal Balance...................... 6
Stated Principal Distribution Amount.......... 49
Stripped Bond Rules........................... 133
Stripped Interest............................. 138
Stripped Mortgage Loan........................ 132
Subclass...................................... 1, 6
Subordinated Amount........................... 13
Subordinated Certificates..................... 13
Subordinated Class............................ 6
Subordinated Pool............................. 16
Subordinated Subclass......................... 6
Substitute Contract........................... 39
Substitute Mortgage Certificates.............. 50
Substitute Mortgage Loans..................... 52
Title V....................................... 113
Trust Assets.................................. 7, 37
Trust Certificates............................ 114
Trust Fractional Certificate.................. 115
Trust Fractional Certificateholder............ 132
Trust Fund.................................... 1, 7
Trust Interest Certificate.................... 115
Trust Interest Certificateholder.............. 137
U.S. Person................................... 129
U.S. Persons.................................. 114
UCC........................................... 98
Unaffiliated Sellers.......................... 32
Underwriter's PTE............................. 143
Underwriters.................................. 148
Unstripped Mortgage Loans..................... 135
VA............................................ 1, 28
VA Loans...................................... 28
154
<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)
Credit Suisse 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 Credit Suisse 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] one- to four-family residential mortgage loans
[and mortgage loans secured by commercial real estate properties and/or mixed
residential/commercial properties] [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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 .
Credit Suisse 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................. Credit Suisse First Boston Mortgage Securities Corp.
(the "Depositor").
MASTER SERVICER...........
[SPECIAL 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] [and commercial real estate properties
and/or mixed residential/commercial 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. [As of the Cut-Off Date, the
aggregate principal balance of the Mortgage Loans
secured by commercial real estate properties
represent approximately [__% [less than 10%]] of
the aggregate principal balance of all the Mortgage
Loans in the Mortgage Pool.] 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
[Brown & Wood LLP][Cadwalader, Wickersham & Taft][Dewey Ballantine][Orrick,
Herrington & Sutcliffe LLP] 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 [,other than the Mortgage Loans secured by commercial
properties,] 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 .
[No more than [10%], by aggregate principal balance, of the Mortgage Loans
will be secured by commercial real estate properties (such Mortgage Loans, the
"Commercial Mortgage Loans").] [ % of the Commercial Mortgage Loans are secured
by one or more assignments of leases and rents [,management agreements] [or
operating agreements] relating to the Mortgaged Property [and in some cases by
certain letters of credit, personal guarantees or both.] [ % of the Commercial
Mortgage loans do not provide either for any lockout period in which prepayments
are prohibited or for any prepayment premium, penalty or charge in connection
with the prepayment thereof, or if such provisions were included in the related
Mortgage Notes, they have expired.]
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 [or other structures] 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"), [__________________, as special servicer (the "Special
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").
[THE SPECIAL SERVICER
[Information to be provided by the Special Servicer]
The information set forth in the preceding paragraphs concerning the
Special Servicer has been provided by it. Accordingly, the Depositor makes no
representation as to the accuracy or completeness of such information.]
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.
[The servicing compensation payable to the Special Servicer will be equal to
[description of Special Servicing compensation to be described]. 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 [,the Special Servicer] and the Servicers.
The Servicers [,the Special Servicer] 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] Credit Suisse 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>
Credit Suisse 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 [Brown & Wood LLP, San Francisco, California][Cadwalader,
Wickersham & Taft][Dewey Ballantine][Orrick, Herrington & Stutcliffe LLP],
New York, New York. The material federal income tax consequences of the
Certificates will be passed upon for the Depositor by [Brown & Wood
LLP][Cadwalader, Wickersham & Taft][Dewey Ballantine][Orrick, Herrington &
Sutcliffe LLP].
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)
Credit Suisse 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 Credit
Suisse 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 .
Credit Suisse 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................. Credit Suisse 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 [Brown
& Wood LLP] [Cadwalader, Wickersham & Taft] [Dewey Ballantine] [Orrick,
Herrington & Sutcliffe LLP] 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 its 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] Credit Suisse 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>
Credit Suisse 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 [Brown & Wood LLP, San Francisco, California] [Cadwalader,
Wickersham & Taft] [Dewey Ballantine] [Orrick, Herrington & Sutcliffe LLP], New
York, New York. The material federal income tax consequences of the Class A
Certificates will be passed upon for the Depositor by [Brown & Wood LLP]
[Cadwalader, Wickersham & Taft] [Dewey Ballantine] [Orrick, Herrington &
Sutcliffe LLP].*
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] Credit Suisse 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>
Credit Suisse 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)
Credit Suisse 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 Credit Suisse 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 .
Credit Suisse 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................. Credit Suisse 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 [Brown
& Wood LLP] [Cadwalader, Wickersham & Taft] [Dewey Ballantine] [Orrick,
Herrington & Sutcliffe LLP] 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
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<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] Credit Suisse 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>
Credit Suisse 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 [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 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
"Legal Matters."
S-25
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters for whom] Credit Suisse 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>
Credit Suisse 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 Brown & Wood LLP, San Fransisco, California,
Cadwalader, Wickersham & Taft, New York, New York, Dewey Ballantine, New York,
New York, Orrick, Herrington & Sutcliffe LLP, New York, New York. The material
federal income tax consequences of the Certificates will be passed upon for the
Depositor by [Brown & Wood LLP], [Cadwalader, Wickersham & Taft], [Dewey
Ballantine] and [Orrick, Herrington & Sutcliffe LLP].
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 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 "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)
Credit Suisse 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
Credit Suisse 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 .
Credit Suisse 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 Credit Suisse First Boston Mortgage
Securities Corp. (the "Depositor").
DEPOSITOR................. Credit Suisse 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
[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] Credit Suisse 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 SPLITS:
CLASS -1 CLASS -2
[UNDERWRITER SPLITS SPLITS TOTAL
- -------------------------------- ------------ ------------ ---------
Credit Suisse 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 Credit Suisse First Boston Corporation on
terms substantially similar to those that the Depositor would obtain in an arm's
length transaction. Credit Suisse 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 [Brown & Wood LLP, San Francisco, California]
[Cadwalader, Wickersham & Taft][Dewey Ballantine][Orrick, Herrington & Sutcliffe
LLP], New York, New York, and the material federal income tax consequences of
the SPLITS Certificates will be passed upon for the Depositor by [Brown & Wood
LLP][Cadwalader, Wickersham & Taft][Dewey Ballantine][Orrick, Herrington &
Sutcliffe LLP].
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)
Credit Suisse 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 CREDIT
SUISSE 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 Credit Suisse 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 .
Credit Suisse 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................. Credit Suisse 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
S-5
<PAGE>
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.]
S-6
<PAGE>
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
S-7
<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 .
S-8
<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
S-9
<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
S-10
<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.]
S-11
<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
S-12
<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.]
S-13
<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] Credit Suisse 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
- -------------------
Credit Suisse 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 [Brown & Wood LLP, San Francisco, California][Cadwalader,
Wickersham & Taft][Dewey Ballantine][Orrick, Herrington & Sutcliffe LLP], New
York, New York. The material federal income tax consequences of the Certificates
will be passed upon for the Depositor by [Brown & Wood LLP] [Cadwalader,
Wickersham & Taft][Dewey Ballantine][Orrick, Herrington & Sutcliffe LLP].
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)
Credit Suisse 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 CREDIT
SUISSE 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 .
Credit Suisse 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 Credit Suisse 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................. Credit Suisse 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
[Brown & Wood LLP][Cadwalader, Wickersham & Taft][Dewey Ballantine][Orrick,
Herrington & Sutcliffe LLP] 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
S-19
<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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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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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
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<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] Credit Suisse 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>
Credit Suisse 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 [Brown & Wood LLP][Cadwalader, Wickersham & Taft][Dewey
Ballantine][Orrick, Herrington & Sutcliffe LLP]. The material federal income tax
consequences of the Class A Certificates will be passed upon for the Depositor
by [Brown & Wood LLP][Cadwalader, Wickersham & Taft][Dewey Ballantine][Orrick,
Herrington & Sutcliffe LLP].
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)
CREDIT SUISSE 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 Credit Suisse 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
CREDIT SUISSE 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 Credit Suisse 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 .
CREDIT SUISSE 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.]
S-2
VERSION G
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and
in the Prospectus. Capitalized terms used herein and not defined shall have
the meaning given in the Prospectus 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 Credit Suisse 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).
S-3
VERSION G
<PAGE>
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
S-4
VERSION G
<PAGE>
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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<PAGE>
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
S-15
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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
S-17
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<PAGE>
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
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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
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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
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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
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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
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"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]
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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
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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.
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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.
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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>
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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
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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.
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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.
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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
VERSION G
<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
VERSION G
<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
VERSION G
<PAGE>
[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
VERSION G
<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
Credit Suisse 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
VERSION G
<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
[Cadwalader, Wickersham & Taft,] [Brown & Wood LLP] [Dewey Ballantine] [Orrick,
Herrington & Sutcliffe LLP] 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
VERSION G
<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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Credit Suisse 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 14. 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..........................................$ 304.00
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.......................................................$2,750,304
==========
</TABLE>
* Reflects expenses related to this Registration Statement and expenses related
to Registration Statements No. 333-11623 and 333-15833 whose unissued
securities are being carried forward.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 5 of the Restated 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
Restated 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, as amended,
reference is made to the proposed forms of Underwriting Agreement filed as
Exhibits 1.1 and 1.2 to this Registration Statement.
II-1
<PAGE>
ITEM 16. EXHIBITS
(a) Financial Statements filed as part of the Registration Statement: none
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PG. NO.
------- ----------- -------
<C> <S> <C>
*1.1 -- Forms of Underwriting Agreement (Mortgage Loans/Mortgage
Certificates)
*1.2 -- Form of Underwriting Agreement (Contracts)
**3.1 -- Restated Certificate of Incorporation of Depositor
*3.2 -- By-laws of Depositor
*4.1 -- Form of Standard Terms and Provisions of Pooling and
Servicing Mortgage Certificates)
*4.2 -- Forms of Reference Agreement (Mortgage Loans/Mortgage
Certificates)
*4.3 -- Form of Deposit Trust Agreement between Depositor and
Trustee
*4.4 -- Form of Master Seller's Warranty and Servicing Agreement
*4.5 -- Form of Standard Terms and Provisions of Pooling and
Servicing (Contracts)
*4.6 -- Forms of Reference Agreement (Contracts)
*4.7 -- Form of Standard Terms and Provisions of Pooling and
Servicing and
Reference Agreement
*4.8 -- Form of Pooling and Servicing Agreement (Mortgage Loans)
5.1 --Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
certain matters involving the Certificates
8.1 --Opinion of Orrick, Herrington & Sutcliffe LLP as to tax matters
23.1 --Consent of Orrick, Herrington & Sutcliffe LLP (included as part of
Exhibits 5.1 and 8.1)
24.1 --Power of Attorney (included on Page II-5 of the Registration
Statement)
*28.1 -- Form of Performance Bond
*28.2 -- Form of Letter of Credit
*28.3 -- Form of Primary Mortgage Insurance Policy
*28.4 -- Form of Pool Insurance Policy
*28.5 -- Form of Special Hazard Insurance Policy
*28.6 -- Form of Mortgagor Bankruptcy Bond
</TABLE>
- --------
* As previously filed in connection with Registration Statement on Form S-11
(Registration No. 33-47579) and incorporated herein by reference.
** As previously filed in connection with Registration Statement on Form S-3
(Registration No. 333-21329) and incorporated herein by reference.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) Undertaking pursuant to Rule 415.
The undersigned 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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective 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) As to documents subsequently filed that are incorporated by reference:
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13 (a) or Section 15 (d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) 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>
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, reasonably believes that the security
rating requirement referred to in Transaction Requirement B.2 or B.5 of Form S-3
will be met by the time of sale of the securities registered hereby, and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of New York, State of New
York on the 12th day of August 1997.
CREDIT SUISSE FIRST BOSTON MORTGAGE
SECURITIES CORP.
/s/ Lawrence A. Shelley
-------------------------------------
Lawrence A. Shelley
President
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William S. Pitofsky, Lawrence A. Shelley and
Scott J. Ulm, or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him or her and his or
her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, or their or his substitutes, may lawfully do or
cause to be done virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated:
SIGNATURES TITLE DATE
/s/ LAWRENCE A. SHELLEY Director and August 12,
- -------------------------------------- President 1997
LAWRENCE A. SHELLEY (Principal
Executive Officer)
/s/ SCOTT J. ULM Director and August 12,
- -------------------------------------- Chairman of the 1997
SCOTT J. ULM Board
/s/ WILLIAM S. PITOFSKY Director and August 12,
- -------------------------------------- Vice President 1997
WILLIAM S. PITOFSKY
/s/ STEWART W. DAUMAN Director August 12,
- -------------------------------------- 1997
STEWART W. DAUMAN
/s/ DIANE MANNO Treasurer (Principal August 13,
- -------------------------------------- Financial Officer) 1997
DIANE MANNO
/s/ THOMAS ZINGALLI Vice President and August 14,
- -------------------------------------- Controller 1997
THOMAS ZINGALLI (Principal
Accounting Officer)
II-5
<PAGE>
As filed with the Securities and Exchange Commission on August __, 1997
================================================================================
Registration No. 333-
MARKED
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PG. NO.
------- ----------- -------
<C> <S> <C>
*1.1 -- Forms of Underwriting Agreement (Mortgage Loans/Mortgage
Certificates)
*1.2 -- Form of Underwriting Agreement (Contracts)
**3.1 -- Restated Certificate of Incorporation of Depositor
*3.2 -- By-laws of Depositor
*4.1 -- Form of Standard Terms and Provisions of Pooling and
Servicing Mortgage Certificates)
*4.2 -- Forms of Reference Agreement (Mortgage Loans/Mortgage
Certificates)
*4.3 -- Form of Deposit Trust Agreement between Depositor and
Trustee
*4.4 -- Form of Master Seller's Warranty and Servicing Agreement
*4.5 -- Form of Standard Terms and Provisions of Pooling and
Servicing (Contracts)
*4.6 -- Forms of Reference Agreement (Contracts)
*4.7 -- Form of Standard Terms and Provisions of Pooling and
Servicing and
Reference Agreement
*4.8 -- Form of Pooling and Servicing Agreement (Mortgage Loans)
5.1 --Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
certain matters involving the Certificates
8.1 --Opinion of Orrick, Herrington & Sutcliffe LLP as to tax matters
23.1 --Consent of Orrick, Herrington & Sutcliffe LLP (included as part of
Exhibits 5.1 and 8.1)
24.1 -- Power of Attorney (included on Page II-5 of Registration Statement)
*28.1 -- Form of Performance Bond
*28.2 -- Form of Letter of Credit
*28.3 -- Form of Primary Mortgage Insurance Policy
*28.4 -- Form of Pool Insurance Policy
*28.5 -- Form of Special Hazard Insurance Policy
*28.6 -- Form of Mortgagor Bankruptcy Bond
</TABLE>
- --------
* As previously filed in connection with Registration Statement on Form S-11
(Registration No. 33-47579) and incorporated herein by reference.
** As previously filed in connection with Registration Statement on Form S-3
(Registration No. 333-21329) and incorporated herein by reference.
<PAGE>
Exhibit 5.1
ORRICK, HERRINGTON & SUTCLIFFE LLP
666 Fifth Avenue
New York, New York 10103
August 15, 1997
Credit Suisse First Boston Mortgage Securities Corp.
11 Madison Avenue
New York, New York 10010
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-3,
to be filed by Credit Suisse First Boston Mortgage Securities Corp., a Delaware
corporation (the "Registrant"), with the Securities and Exchange Commission on
August 15, 1997 (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 in series (each, a "Series")
under either a separate Pooling and Servicing Agreement (each such agreement, a
"Pooling and Servicing Agreement") by and among the Registrant, the Master
Servicer, Special Servicer or Servicer named therein and the Trustee named
therein. The Certificates of each Series are to be sold as set forth in the
Registration Statement, any amendment thereto, and the prospectus and prospectus
supplement relating to such Series.
We have examined such instruments, documents and records as we deemed
relevant and necessary as a basis of our opinion hereinafter expressed. In such
examination, we have assumed the following: (a) the authenticity of original
documents and the genuineness of all signatures; (b) the conformity to the
originals of all documents submitted to us as copies; and (c) the truth,
accuracy and completeness of the information, representations and warranties
contained in the records, documents, instruments and certificates we have
reviewed.
Based on such examination, we are of the opinion that when the issuance of
each Series of Certificates has been duly authorized by appropriate corporate
action and the Certificates of such Series have been duly executed,
authenticated and delivered in accordance with the Pooling and Servicing
Agreement relating to such Series and sold, the Certificates will be legally
issued, fully paid, binding obligations of the trust created by the
<PAGE>
Credit Suisse First Boston Mortgage Securities Corp
August 15, 1997
Page 2
Pooling and Servicing Agreement, and the holders of the Certificates will be
entitled to the benefits of the Pooling and Servicing Agreement or the Trust
Agreement, except as enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance,
moratorium, or other laws relating to or affecting the rights of creditors
generally and general principles of equity, including without limitation,
concepts of materiality, reasonableness, good faith and fair dealing, and the
possible unavailability of specific performance or injunctive relief, regardless
of whether such enforceability is considered in a proceeding in equity or at
law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever appearing in the
Registration Statement and the prospectus contained therein. 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/ ORRICK, HERRINGTON & SUTCLIFFE LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP
<PAGE>
Exhibit 8.1
ORRICK, HERRINGTON & SUTCLIFFE LLP
666 Fifth Avenue
New York, New York 10103
August 15, 1997
Credit Suisse First Boston Mortgage Securities Corp.
11 Madison Avenue
New York, New York 10010
Ladies and Gentlemen:
We have advised Credit Suisse First Boston Mortgage Securities Corp. (the
"Registrant") with respect to certain federal income tax aspects of the issuance
by the Registrant of its Conduit Mortgage and Manufactured Housing Contract
Pass-Through Certificates, issuable in series (the "Certificates"). Such advice
conforms to the description of selected federal income tax consequences to
holders of the Certificates that appears under the heading "Certain Federal
Income Tax Consequences" in the prospectus (the "Prospectus") forming a part of
the Registration Statement on Form S-3 as prepared for filing by the Registrant
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act") on August 15, 1997 (the "Registration Statement"). Such
description does not purport to discuss all possible income tax ramifications of
the proposed issuance, but with respect to those tax consequences which are
discussed, in our opinion the description is accurate in all material respects.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever appearing in the
Registration Statement and the Prospectus contained therein. 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/ ORRICK, HERRINGTON & SUTCLIFFE LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP
