<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-33807
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER 25, 1997
$728,241,524
(approximate)
CHEVY CHASE BANK
Seller and Servicer
CHEVY CHASE BANK, F.S.B.
MORTGAGE-BACKED PASS-THROUGH CERTIFICATES, SERIES 1997-CCB1
CLASS A
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
Depositor
----------
The Chevy Chase Bank, F.S.B. Mortgage-Backed Pass-Through Certificates, Series
1997-CCB1 (the "CERTIFICATES") will consist of the Class A Certificates (the
"CLASS A CERTIFICATES"), the Class S Certificates (the "CLASS S
CERTIFICATES") and the Class R-I and Class R-II Certificates (collectively,
the "CLASS R CERTIFICATES"). Only the Class A Certificates are offered
hereby. It is a condition to their issuance that the Class A Certificates be
rated "AAA" by Standard & Poor's Ratings Services ("S&P") and "Aaa" by
Moody's Investors Service ("MOODY'S"). The Certificates will evidence in
the aggregate the entire beneficial ownership interest in a trust fund (the
"TRUST FUND") to be created by Credit Suisse First Boston Mortgage
Securities Corp. (the "DEPOSITOR"), which will consist primarily of a pool
(the "MORTGAGE POOL") of conventional, fully-amortizing, adjustable-rate
mortgage loans (the "MORTGAGE LOANS") secured by first liens on one- to
four-family, residential real properties and certain other property held
in trust for the benefit of the holders of the Certificates (the
"CERTIFICATEHOLDERS"). The Mortgage Loans were originated by or acquired
by Chevy Chase Bank, F.S.B. ("CHEVY CHASE") or its wholly owned
subsidiary B.F. Saul Mortgage Company, and will be sold to the Depositor
by Chevy Chase (in such capacity, the "SELLER"). The Mortgage Loans are
more fully described under "Description of the Mortgage Loans" herein.
On or before the date of issuance of the Certificates, the Depositor will
obtain from MBIA Insurance Corporation (the "INSURER") a certificate guaranty
insurance policy (the "POLICY"), which will, subject to its terms, protect
the holders of the Class A Certificates against certain shortfalls in the
amount available to pay the interest portion of Realized Losses (as
described herein), excluding Prepayment Interest Shortfalls (as defined
herein) and shortfalls relating to the Civil Relief Act (as defined
herein) allocated to the Class A Certificates, and any
Overcollateralization Deficit (as defined herein). See "Description of
the Certificates--Certificate Guaranty Insurance Policy" herein.
MBIA (continued on next page.)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" HEREIN ON PAGE S-13 AND IN THE PROSPECTUS ON PAGE 18.
THE CERTIFICATES WILL NOT EVIDENCE A SAVINGS ACCOUNT OR DEPOSIT WITH, OR
OTHER OBLIGATION OF, OR INTEREST IN, AND ARE NOT GUARANTEED BY, CREDIT
SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., CHEVY CHASE BANK, F.S.B.,
THE TRUSTEE OR ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES NOR
THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY THE
SAVINGS ASSOCIATION INSURANCE FUND, THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
The Class A Certificates will be offered by Credit Suisse First Boston
Corporation (the "UNDERWRITER") from time to time in negotiated transactions,
or otherwise, at prices to be determined at the time of sale. The Class A
Certificates are being offered by the Underwriter subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to certain
conditions. For further information with respect to the plan of distribution
and any discounts, commissions and profits on resale that may be deemed
underwriting discounts or commissions, see "Plan of Distribution" herein. It
is expected that the delivery of the Class A Certificates will be made in
book-entry form through the facilities of The Depository Trust Company on or
about September 29, 1997.
CREDIT | FIRST
SUISSE | BOSTON
Prospectus Supplement dated September 29, 1997
<PAGE>
(continued from previous page)
Interest and principal, in the amounts set forth herein, will be distributed
to Certificateholders on the twenty-fifth day of each month (or, if such day
is not a business day, on the following business day), commencing in October,
1997 (each, a "DISTRIBUTION DATE"). On each Distribution Date, payments on
the Class S Certificates will be subordinate to the payment of principal and
interest, in the manner described herein, on the Class A Certificates.
THE YIELD TO INVESTORS IN THE CLASS A CERTIFICATES WILL DEPEND, AMONG OTHER
THINGS, ON THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS,
DEFAULTS AND LIQUIDATIONS) ON THE MORTGAGE LOANS. SEE "CERTAIN YIELD AND
PREPAYMENT CONSIDERATIONS" HEREIN.
There is currently no secondary market for the Class A Certificates. Credit
Suisse First Boston Corporation may make a secondary market in the Class A
Certificates, but has no obligation to do so. There can be no assurance that
any secondary market for the Class A Certificates will develop, or if it does
develop, that it will continue.
One or more elections will be made to treat certain assets in the Trust Fund
as a "real estate mortgage investment conduit" (a "REMIC") for federal income
tax purposes. The Class A Certificates and the Class S Certificates will
constitute "regular interests" in the related REMIC and each class of the
Class R Certificates will constitute the sole class of "residual interests" in
the related REMIC. See "Certain Federal Income Tax Consequences" herein and in
the Prospectus.
The Class A Certificates will be available to investors only in book-entry
form through the facilities of The Depository Trust Company ("DTC").
Beneficial interests in the Class A Certificates will be shown on, and
transfers thereof will be effected only through, records maintained by DTC and
its participants. Physical certificates for the Class A Certificates will be
available only under certain limited circumstances described herein. See
"Description of Certificates--Book-Entry Registration" herein.
THE CLASS A CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE DEPOSITOR FROM
TIME TO TIME PURSUANT TO ITS PROSPECTUS DATED SEPTEMBER 25, 1997, WHICH
ACCOMPANIES THIS PROSPECTUS SUPPLEMENT AND OF WHICH THIS PROSPECTUS SUPPLEMENT
FORMS A PART. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO
READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE CLASS
A CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
------------
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, 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 UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
<PAGE>
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement (the "REGISTRATION STATEMENT") under
the Securities Act of 1933, as amended, with respect to the Class A
Certificates. This Prospectus Supplement and the related Prospectus, which
form a part of the Registration Statement, omit certain information contained
in such Registration Statement pursuant to the Rules and Regulations of the
Commission. The Registration Statement can be inspected and copied at the
Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington,
D.C. and the Commission's regional offices at 7 World Trade Center, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval System at the
Commission's web site (http://ww.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued (which will occur under
the limited circumstances described herein), unaudited monthly and unaudited
annual reports concerning the Trust will be sent by the Trustee to Cede & Co.,
as the nominee of DTC and registered holder of the Class A Certificates. So
long as the Class A Certificates are in book-entry form, DTC will supply such
reports to Beneficial Owners (as defined herein) in accordance with its normal
procedures. Such reports will not contain financial information that has been
examined and reported upon by an independent or certified public accountant.
See "Description of the Certificates--Reports to Certificateholders" in the
Prospectus.
This Prospectus Supplement contains a number of defined terms, the meanings
of which are necessary for potential investors to understand in order for them
to evaluate an investment in the Class A Certificates. See the "Index of
Principal Definitions" in this Prospectus Supplement for the locations of the
definitions of certain capitalized terms. See the "Index of Terms" in the
Prospectus for the locations of the definitions of capitalized terms not
otherwise defined in this Prospectus Supplement.
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Capitalized terms used in this Prospectus
Supplement and not defined herein have the meanings ascribed to them in the
Prospectus.
Description of the The Chevy Chase Bank, F.S.B. Mortgage-Backed Pass-
Certificates............. Through Certificates, Series 1997-CCB1. The
Certificates will be issued pursuant to a Pooling
and Servicing Agreement dated as of September 1,
1997 (the "POOLING AND SERVICING AGREEMENT") and
will evidence interests in a trust fund (the "TRUST
FUND"), the primary assets of which will consist of
residential mortgage loans. The Trust Fund will
also include (i) the Trust's rights under the
Policy and (ii) any property that secured a
Mortgage Loan and is acquired by foreclosure or
deed in lieu of foreclosure, and certain other
related property, as more fully described herein
and in the Prospectus.
Certificates Offered...... $728,241,524 (approximate) Certificate Principal
Balance (as defined herein) of Class A
Certificates. The Certificate Principal Balance of
the Class A Certificates will initially equal the
aggregate Principal Balance (as defined herein) of
the Mortgage Loans as of the Cut-off Date. The
Class A Certificates are "SENIOR CERTIFICATES" as
described in the Prospectus.
Other Classes of In addition to the Class A Certificates, the
Certificates............. Certificates will include the Class S Certificates
and the Class R-I Certificates and Class R-II
Certificates (collectively, the "CLASS R
CERTIFICATES"), which are not offered hereby. The
Class S Certificates will have no principal balance
and will be entitled, subject to the priority of
payments, to receive monthly the lesser of (i) the
Available Distribution Amount after payment of the
Class A Interest Distribution Amount and the Class
A Principal Distribution Amount and (ii)(A)
interest at a rate equal to one-twelfth of 0.70% of
the Principal Balance of the Mortgage Loans as of
the Due Date immediately preceding the related Due
Period, plus (B) certain other amounts, subject to
the conditions set forth herein and as more fully
described in the Pooling and Servicing Agreement.
The Class S Certificates are "SUBORDINATED
CERTIFICATES" as described in the Prospectus. The
Class R Certificates will have no principal
balance.
Depositor................. Credit Suisse First Boston Mortgage Securities
Corp., a Delaware corporation.
Seller and Servicer....... Chevy Chase Bank, F.S.B. See "Chevy Chase Bank,
F.S.B." herein.
Trustee................... U.S. Bank National Association, a national banking
association.
Insurer................... MBIA Insurance Corporation. See "The Insurer"
herein.
Cut-off Date.............. September 1, 1997.
Delivery Date............. On or about September 29, 1997.
S-4
<PAGE>
Available Distribution The "AVAILABLE DISTRIBUTION AMOUNT" for any
Amount................... Distribution Date (as defined below) will equal (a)
the sum of (i) scheduled payments of principal and
interest (net of the Servicing Fee and the Trustee
Fee) due on the Mortgage Loans during the related
Due Period (as defined below) and received on or
prior to the related Determination Date (as defined
below), (ii) principal prepayments and other
unscheduled collections of principal received
during the related Prepayment Period (as defined
below), (iii) any Advances (as defined herein) with
respect to the Mortgage Loans made by the Servicer
for such Distribution Date and (iv) any Insured
Payments (as defined herein) payable pursuant to
the Policy, less (b) the Insurer Premium Amount (as
defined below) and amounts representing
reimbursements for previously unreimbursed Insured
Payments by the Insurer, Nonrecoverable Advances by
the Servicer and certain expenses incurred by the
Servicer.
The "DUE DATE" for each Mortgage Loan is the first
day of each month. The "DUE PERIOD" with respect to
any Distribution Date commences on the second day
of the month preceding the month in which such
Distribution Date occurs and ends on the Due Date
in the month in which such Distribution Date
occurs. The "PREPAYMENT PERIOD" with respect to any
Distribution Date is the month preceding the month
in which such Distribution Date occurs. The
"DETERMINATION DATE" with respect to any
Distribution Date is the 15th day of the month in
which such Distribution Date occurs (or, if such
day is not a business day, the preceding business
day).
Interest Distributions.... Interest on the Certificates will be calculated and
payable on the basis of a 360-day year divided into
twelve 30-day months. Interest will be passed
through to Certificateholders on the twenty-fifth
day of each month (or, if such day is not a
business day, on the following business day),
commencing in October, 1997.
On each Distribution Date, holders of the Class A
Certificates will be entitled to receive, to the
extent of the Available Distribution Amount,
distributions allocable to one month's interest in
an amount (the "CLASS A INTEREST DISTRIBUTION
AMOUNT") equal to (i) one-twelfth of the product of
the Certificate Principal Balance of the Class A
Certificates immediately preceding such
Distribution Date multiplied by a rate (the
"CERTIFICATE RATE") equal to the weighted average
of the Net Mortgage Rates (as defined herein),
weighted by the aggregate Principal Balance of the
Mortgage Loans as of the Due Date immediately
preceding the related Due Period, minus (ii) the
sum of (a) the Insurer Premium Amount, (b)
Prepayment Interest Shortfalls (as defined herein),
if any, and (c) the amount of any interest that is
determined to be uncollectible from Mortgagors
pursuant to the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended ("CIVIL RELIEF ACT
SHORTFALLS") during the related Due Period. Neither
the Servicer nor any other entity will be required
to pay any compensating interest with respect to
such Prepayment Interest Shortfalls or Civil Relief
Act Shortfalls.
S-5
<PAGE>
To the extent that any portion of the interest due
on the Class A Certificates is not paid on a
Distribution Date, such interest will be payable on
future Distribution Dates to the extent of
available funds, but no additional interest will be
paid on such unpaid interest.
See "Description of the Certificates--Distributions
in Respect of Interest and Principal" herein.
Principal Distributions... Holders of the Class A Certificates will be
entitled to receive a distribution of principal on
each Distribution Date, in the amount and priority
set forth herein, to the extent of the portion of
the related Available Distribution Amount remaining
after the Class A Interest Distribution Amount has
been distributed on the Class A Certificates.
The subordination and cash flow provisions of the
Class S Certificates will result in a limited
acceleration of the principal payments to the
holders of the Class A Certificates; such
subordination provisions are described under
"Description of the Certificates--
Overcollateralization Provisions" herein. Such
subordination provisions have the effect of
shortening the weighted average life of the Class A
Certificates by increasing the rate at which
principal is distributed to the Class A
Certificateholders. See "Certain Yield and
Prepayment Considerations" herein and "Yield
Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
See "Description of Certificates--Distributions in
Respect of Interest and Principal" herein.
Certificate Guaranty
Insurance Policy.........
The Insurer will issue the Policy as a means of
providing additional credit enhancement to the
Class A Certificates. Under the Policy, the Insurer
will, subject to the terms of the Policy, pay to
the Trustee, for the benefit of the holders of the
Class A Certificates, on each Distribution Date, as
further described herein, an amount that will equal
the sum of (i) any shortfall in the Available
Distribution Amount to pay the interest portion of
any Realized Loss (as defined herein) (excluding
Prepayment Interest Shortfalls and Civil Relief Act
Shortfalls) which would otherwise be allocated to
the Class A Certificates, and (ii) the
Overcollateralization Deficit (as defined herein).
The Policy does not guarantee the Class A
Certificates any specified rate of prepayments or
the payment of the amount of any Realized Loss with
respect to a Mortgage Loan on the Distribution Date
which immediately follows such Realized Loss unless
and only to the extent such loss results in an
Overcollateralization Deficit. An
Overcollateralization Deficit is equal to the
excess of (x) the aggregate outstanding Class A
Certificate Principal Balance (after giving effect
to all distributions to be made on the related
Distribution Date) over (y) the aggregate
outstanding Principal Balance of the Mortgage Loans
as of the close of business on the related Due
Date. A payment by the Insurer under the Policy is
referred to herein as an "INSURED PAYMENT". See
"Description of the Certificates--Certificate
Guaranty Insurance Policy" and "The Insurer"
herein.
S-6
<PAGE>
The Mortgage Loans........ The Mortgage Loans are conventional, fully-
amortizing, adjustable-rate Mortgage Loans secured
by first liens on one- to four-family, residential
real properties.
All percentages of the Mortgage Loans described
herein are approximate percentages (except as
otherwise indicated) of the aggregate Principal
Balance of the Mortgage Loans (except as otherwise
indicated) as of the Cut-off Date.
The Mortgage Loans consist of 2,377 adjustable-rate
Mortgage Loans with an aggregate Principal Balance
as of the Cut-off Date of approximately
$728,241,525. The Mortgage Loans have individual
Principal Balances as of the Cut-off Date of at
least $42,388 but not more than $1,298,112, with an
average Principal Balance as of the Cut- off Date
of approximately $306,370, and a term to stated
maturity of 30 years, except for 25 Mortgage Loans
with a term to stated maturity of 40 years, and a
weighted average remaining term to stated maturity
of approximately 333 months as of the Cut-off Date.
As of the Cut-off Date, the Mortgage Loans bore
interest at Mortgage Rates of at least 5.25% per
annum but no more than 9.5% per annum, with a
weighted average Mortgage Rate of approximately
6.90% per annum. The original Loan-to-Value Ratio
of each of the Mortgage Loans was not more than
100%, with a weighted average original Loan-to-
Value Ratio of approximately 76.70%. The Mortgage
Loans will have different Adjustment Dates, Note
Margins and limitations on the Mortgage Rate
adjustments, as described herein.
The Mortgage Rate on each Mortgage Loan will adjust
annually, commencing in some cases after an initial
period of years following origination during which
the interest rate accruing thereon is fixed, on the
Adjustment Date specified in the related Mortgage
Note to a rate equal to the sum of the weekly
average yield on U.S. Treasury securities adjusted
to a constant maturity of one year (the "INDEX"),
as further described herein, and the fixed
percentage set forth in the related Note (the "NOTE
MARGIN"), subject to the limitations described
herein. The initial fixed period is three years
with respect to approximately 16% of the Mortgage
Loans, five years with respect to approximately 47%
of the Mortgage Loans, seven years with respect to
approximately 3% of the Mortgage Loans and ten
years with respect to less than 1% of the Mortgage
Loans. The remaining approximately 34% of the
Mortgage Loans adjust annually but, at origination,
bore an initial annual interest rate which was
lower than the applicable rate based on the Index
and Note Margin. Because of Periodic Rate Caps,
some of these loans continue to bear interest at
rates which are lower than the applicable rate
based on the Index and Note Margin.
The Mortgage Rate effective on any Adjustment Date
shall not exceed the maximum rate set forth in the
related Mortgage Note and the amount of any
increase or decrease on any Adjustment Date shall
not exceed the periodic rate cap set forth in the
related Mortgage Note, so
S-7
<PAGE>
the Mortgage Rate on any Adjustment Date may not
equal the applicable rate based on the Index and
Note Margin. The monthly payment on each Mortgage
Loan will be adjusted on the Due Date of the month
following the month in which any Adjustment Date
occurs to the amount necessary to pay interest at
the then applicable Mortgage Rate and to fully
amortize the outstanding Principal Balance of the
Mortgage Loan over its then remaining term to
stated maturity.
None of the Mortgage Loans will be guaranteed by
any governmental agency or instrumentality, the
Depositor, Chevy Chase, or any of their respective
affiliates or any other person. For a further
description of the Mortgage Loans, see "Description
of the Mortgage Loans" herein.
Conversion of Mortgage Approximately 50% of the Mortgage Loans provide
Loans.................... that, at the option of the related Mortgagors, the
adjustable interest rate thereon may be converted
to a fixed interest rate, provided that certain
conditions have been satisfied. The Servicer will
have the right to purchase any Mortgage Loan that
has converted if the Servicer so elects, but none
of the Servicer, the Seller, the Depositor, the
Trustee or any other party will be obligated to
purchase any converting Mortgage Loan. Therefore,
if the Mortgage Rate on any Mortgage Loan converts
to a fixed interest rate and the Servicer does not
elect to purchase such Mortgage Loan the Mortgage
Loans will then include both fixed-rate and
adjustable-rate Mortgage Loans. See "Certain Yield
and Prepayment Considerations" herein.
Credit Enhancement........ The credit enhancement provided for the benefit of
the holders of the Class A Certificates primarily
consists of the subordination and
overcollateralization provided by the Class S
Certificates, and the Policy, in each case in the
manner and to the extent described herein.
Subordination and Overcollateralization: On each
Distribution Date, payments on the Class S
Certificates will be subordinate to the payment of
principal and interest, in the amounts described
herein, on the Class A Certificates. The
subordination and cash flow provisions of the Class
S Certificates will result in a limited
acceleration of the Class A Certificates relative
to the amortization of the Mortgage Loans. This
acceleration feature will create
overcollateralization equal to the excess of the
aggregate Principal Balance of the Mortgage Loans
over the aggregate Certificate Principal Balance of
the Class A Certificates. Once the required level
of overcollateralization is reached, the limited
acceleration of the Class A Certificates relative
to the amortization of the Mortgage Loans will
cease, unless necessary to maintain the required
level of overcollateralization.
Pursuant to the Pooling and Servicing Agreement,
the required level of overcollateralization may
increase or decrease from time to time. An increase
would result in a temporary period of accelerated
principal distributions to the Class A Certificates
with the effect of increasing overcollateralization
to its required level; a decrease would result in a
S-8
<PAGE>
temporary period of decelerated principal
distributions with the effect of reducing
overcollateralization to its required level. See
"Description of the Certificates--
Overcollateralization Provisions" herein.
The Certificate Guaranty Insurance Policy: The
Class A Certificates will be entitled to the
benefit of the Policy to be issued by the Insurer,
which, subject to its terms, will protect the
holders of the Class A Certificates against any
shortfall in the Available Distribution Amount to
pay the interest portion of Realized Losses
(excluding Prepayment Interest Shortfalls and Civil
Relief Act Shortfalls) which would otherwise be
allocated to the Class A Certificates, and any
Overcollateralization Deficit. See "Description of
the Certificates--Certificate Guaranty Insurance
Policy" herein.
Yield and Maturity The yield to maturity on the Class A Certificates
Considerations........... will be sensitive to the rate and timing of
principal payments (including prepayments, defaults
and liquidations) on the Mortgage Loans, and may
fluctuate significantly from time to time. Since
the Mortgage Rates on the Mortgage Notes will be
based on the Index (which may not rise and fall
consistently with prevailing mortgage rates) plus
the related Note Margin (which may be different
from the prevailing margins on other mortgage
loans), and may be limited by the Maximum Mortgage
Rate, Minimum Mortgage Rate and Periodic Rate Caps,
the Mortgage Rates on the Mortgage Loans at any
time may not equal the prevailing rates for other
adjustable rate mortgage loans and the rate of
prepayment may be lower or higher than would
otherwise be anticipated. In addition, to the
extent that any Mortgagor converts the Mortgage
Rate on a Mortgage Loan to a fixed rate and the
Servicer does not elect to purchase such Mortgage
Loan, the yield to investors may be adversely
affected to the extent such Mortgage Rate reduces
the interest rate on the Class A Certificates from
the level that would otherwise be in effect. In
addition, to the extent that Prepayment Interest
Shortfalls or Civil Relief Act Shortfalls occur,
such shortfalls will adversely affect the yield to
investors in the Class A Certificates.
In general, if a Class A Certificate is purchased
at a premium and principal distributions thereon
occur at a rate faster than anticipated at the time
of purchase, the investor's actual yield to
maturity will be lower than that assumed at the
time of purchase. Conversely, if a Class A
Certificate is purchased at a discount and
principal distributions thereon occur at a rate
slower than that assumed at the time of purchase,
the investor's actual yield to maturity will be
lower than that assumed at the time of purchase.
See "Certain Yield and Prepayment Considerations"
herein and "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
The yield on the Class A Certificates will be less
than the yield that would otherwise be produced by
the Certificate Rate minus the Insurer Premium
Amount and the applicable purchase price because
distributions of interest in respect of any month
will be made on the
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<PAGE>
twenty-fifth day of the following month or, if such
day is not a Business Day, then the next succeeding
Business Day. See "Yield Considerations" in the
Prospectus.
Servicing Fee............. The Servicer will be entitled to receive each month
a servicing fee (the "SERVICING FEE") equal to one-
twelfth of 0.375% per annum (the "SERVICING FEE
RATE") on the Principal Balance of each Mortgage
Loan as compensation for servicing the Mortgage
Loans.
Trustee Fee............... The Trustee will be entitled to receive each month
a fee (the "TRUSTEE FEE") equal to one-twelfth of
0.0032% per annum (the "TRUSTEE FEE RATE") on the
Principal Balance of each Mortgage Loan as
compensation for acting as trustee of the Trust
Fund under the Pooling and Servicing Agreement.
Advances.................. The Servicer will be obligated to advance
delinquent installments of principal and interest
on each Mortgage Loan (net of the related Servicing
Fee) at any time prior to the commencement of
foreclosure proceedings with respect to such
Mortgage Loan, but only to the extent the Servicer
believes that the amount advanced will be
recoverable from subsequent payments or collections
(including insurance proceeds and liquidation
proceeds net of liquidation expenses) in respect of
the related Mortgage Loan. See "Servicing--
Advances" herein.
Prepayment Interest In the event of a prepayment, in whole or in part,
Shortfalls............... of a Mortgage Loan on any day other than the last
day of a Prepayment Period, the Mortgagor will be
required to pay interest on the amount prepaid only
to the date of such prepayment and not thereafter.
Neither the Servicer nor any other entity will be
required to pay any amounts in excess of the amount
of interest paid by the Mortgagor in connection
with such prepayment. The amount by which one
month's interest exceeds the amount of interest
paid by the Mortgagor in connection with such
prepayment (the "PREPAYMENT INTEREST SHORTFALL")
will not be covered by the Policy and will be
allocated to the Class A Certificates as described
above under "--Interest Distributions."
Civil Relief Act The Soldiers' and Sailors' Civil Relief Act of
Shortfalls............... 1940, as amended (the "CIVIL RELIEF ACT") limits
the amount of interest that may be charged to a
Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan.
Shortfalls in the collection of interest due to the
application of the Civil Relief Act will not be
covered by the Policy and will be allocated to the
Class A Certificates as described above under "--
Interest Distributions". See "Certain Legal Aspects
of the Mortgage Loans and Contracts--Soldiers' and
Sailors' Relief Act" in the Prospectus.
Record Date............... The Record Date for each distribution of principal
and interest on the Certificates is the last
business day of the month preceding the month in
which the applicable Distribution Date occurs.
S-10
<PAGE>
Certificate The Class A Certificates will be represented by one
Registration............. or more certificates registered in the name of Cede
& Co., as nominee of DTC. No beneficial owner will
be entitled to receive a Class A Certificate in
fully registered, certificated form (a "DEFINITIVE
CERTIFICATE"), except under the limited
circumstances described herein. See "Description of
the Certificates--Book-Entry Registration" herein.
Optional Termination...... The Trust Fund may be terminated and the
Certificates retired on any Distribution Date on or
after the date on which the aggregate Principal
Balance of the Mortgage Loans has been reduced
below 5% of the aggregate Principal Balance of the
Mortgage Loans as of the Cut-off Date pursuant to
procedures described herein. See "Description of
the Certificates--Optional Termination" herein.
Representations and Chevy Chase will have made certain limited
Warranties............... representations and warranties as to the status of
the mortgages securing the Mortgage Loans, the
payment status of the Mortgage Loans and certain
other information described herein. In the event
that any such representation or warranty is
breached in respect of any Mortgage Loan in a
manner that materially and adversely affects the
interests of Certificateholders or the Insurer and
is not thereafter cured, Chevy Chase will be
required to purchase such Mortgage Loan from the
Trust Fund, or, during certain specified periods
after the date of issuance of the Certificates, at
its option and subject to certain conditions, to
substitute a qualifying mortgage loan or loans in
place of the affected Mortgage Loan. See
"Description of Certificates--Repurchase or
Substitution of Mortgage Loans" herein.
Certain Federal Income
Tax Consequences.........
Two separate REMIC elections will be made with
respect to the Trust Fund for federal income tax
purposes. Upon the issuance of the Certificates,
Orrick, Herrington & Sutcliffe LLP, counsel to the
Depositor, will deliver its opinion generally to
the effect that, assuming compliance with all
provisions of the Pooling and Servicing Agreement,
for federal income tax purposes, REMIC I and REMIC
II will each qualify as a REMIC under Sections 860A
through 860G of the Code.
The assets of REMIC I will consist of the Mortgage
Loans, any property received from foreclosure
proceedings, such assets as from time to time are
deposited in the Custodial Account and in the
Certificate Account, any hazard or other insurance
policies with respect to the Mortgage Loans and any
proceeds of such policies. For federal income tax
purposes, (i) the separate non-certificated regular
interests in REMIC I will be the "regular
interests" in REMIC I and will constitute the
assets of REMIC II, (ii) the Class R-I Certificates
will be the sole class of "residual interests" in
REMIC I, (iii) the Class A and Class S Certificates
will be the "regular interests" in, and generally
will be treated as debt obligations of, REMIC II,
and (iv) the Class R-II Certificates will be the
sole class of "residual interests" in REMIC II.
S-11
<PAGE>
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.......... Upon issuance, the Class A Certificates will
constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") for so long as
they are rated in one of the two highest rating
categories by at least one nationally recognized
statistical rating agency. Accordingly, the Class A
Certificates will be legal investments for certain
entities to the extent provided in SMMEA. See
"Legal Investment" in the Prospectus.
ERISA Considerations...... Any Plan fiduciary or other investor that proposes
to use Plan Assets to effect the purchase and
holding of the Offered Certificates should consult
with its legal counsel with respect to the
potential applicability to such investment of the
fiduciary responsibility and prohibited transaction
provisions of ERISA and Section 4975 of the Code.
See "ERISA Considerations" herein and in the
Prospectus. The United States Department of Labor
has issued an individual prohibited transaction
exemption to Credit Suisse First Boston
Corporation, which generally exempts from the
application of certain of the prohibited
transaction provisions of Section 406 of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the excise taxes and civil
penalties imposed on such prohibited transactions
by Section 4975(a) and (b) of the Code and Section
502(i) and (l) of ERISA, transactions relating to
the purchase, sale and holding of certificates
underwritten by the Underwriter, such as the Class
A Certificates, and the servicing and operation of
asset pools such as the Mortgage Pool, provided
that certain conditions are satisfied. See "ERISA
Considerations" herein and in the Prospectus.
Ratings................... It is a condition to their issuance that the Class
A Certificates be rated "AAA" by S&P and "Aaa" by
Moody's. Such ratings are based upon the claims
paying ability of the Insurer. A security rating is
not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning rating
agency. In addition, a security rating does not
address the frequency of prepayments of Mortgage
Loans, or the corresponding effect on yield to
investors. See "Certain Yield and Payment
Considerations" herein.
S-12
<PAGE>
RISK FACTORS
Prospective investors should consider, in addition to the factors described
in the accompanying Prospectus, the following additional risk factors in
connection with a purchase of the Class A Certificates.
YIELD AND PREPAYMENT RISKS
The weighted average life of the Class A Certificates will be affected by
the rate of principal payments (including prepayments) of the Mortgage Loans.
All of the Mortgage Loans may be prepaid in whole or in part at any time.
Certain of the Mortgage Notes contain terms requiring payment of a penalty by
the Mortgagor in the event the Mortgage Loan is prepaid in full. The
prepayment experience on the Mortgage Loans may be affected by a wide variety
of factors, including general economic conditions, interest rates, the
availability of alternative financing and homeowner mobility. In addition, a
substantial portion of the Mortgage Loans contain due-on-sale provisions; the
Servicer generally will enforce such provisions unless such enforcement is not
permitted by applicable law, the permissibility of enforcement is in doubt, or
such enforcement would materially and adversely affect the interests of
Certificateholders or the Insurer. See "Certain Legal Aspects of the Mortgage
Loans and Contracts--Enforcement of "Due-on-Sale" Clauses; Realization on
Defaulted Contracts" in the Prospectus. In addition, prepayments may result
from liquidations due to default, the receipt of Insurance Proceeds,
repurchases by the Seller as a result of certain breaches of representations
and warranties made by the Seller in the Pooling and Servicing Agreement or
the exercise by the Seller of its option to repurchase any Convertible
Mortgage Loan upon its conversion to a fixed-rate loan or its option to
purchase all of the outstanding Mortgage Loans in the Mortgage Pool pursuant
to the optional termination provision in the Pooling and Servicing Agreement.
As a result of the interaction of the foregoing factors, it may be difficult
to predict the weighted average life of, and the resulting yield to maturity
on, the Class A Certificates. None of the Depositor, the Seller, the Servicer,
the Trustee, the Insurer or the Underwriter makes any representation as to the
weighted average life of, or yield to maturity on, the Certificates.
INSOLVENCY-RELATED MATTERS
Transfer of Mortgage Loans. The Seller intends that the transfer of all of
the Seller's right, title and interest in the Mortgage Loans to the Depositor
be treated as a sale by the Seller to the Depositor and, accordingly, that
such Mortgage Loans neither be included in the assets of the Seller in the
event of the appointment of a receiver or conservator for the Seller nor be
available to the creditors of the Seller. In the event of an insolvency of the
Seller, however, it is possible that a receiver or a conservator for, or a
creditor of, the Seller may assert that the transaction between the Seller and
the Depositor was a pledge of each such Mortgage Loan in connection with a
borrowing by the Seller, rather than a sale. The Seller will cause the
Mortgage Loans to be assigned to the Depositor, and by the Depositor to the
Trustee for the benefit of the Certificateholders and the Insurer. In
addition, the Seller will deliver or cause to be delivered to the Depositor,
and by the Depositor to the Trustee, each Mortgage Note endorsed to the order
of the Trustee, each Mortgage with evidence of recording indicated thereon
(except for any Mortgage not returned from the public recording office, in
which case the Seller will deliver a copy of such Mortgage together with a
certificate to the effect 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 by the Seller to the Depositor, and by the
Depositor to the Trustee, will be recorded in the appropriate public office
for real property records. If the transfer by the Seller to the Depositor of
the Mortgage Loans is deemed to be a grant to the Depositor of a security
interest in the Mortgage Loans, the Depositor should have a perfected security
interest in the Mortgage Loans. If a receiver or conservator were appointed
for the Seller, certain administrative expenses of the receiver or conservator
may have priority over the Depositor's (and therefore, the
Certificateholders') right, title and interest in the Mortgage Loans. For so
long as the Seller is the Servicer, cash collections on the Mortgage Loans may
be held by the Seller and commingled with its funds until transferred to the
Custodial Account or Certificate Account, and in an insolvency proceeding or
receivership or conservatorship of the Seller, the Depositor (and therefore,
the Certificateholders) may not have a perfected interest in such commingled
collections.
S-13
<PAGE>
Certain Matters Related to Receivership. To the extent that the Seller's
transfer of the Mortgage Loans to the Depositor is deemed to constitute the
creation of a security interest in the Mortgage Loans in favor of the
Depositor, and to the extent such security interest was validly perfected
before the Seller's insolvency and was not taken in contemplation of
insolvency of the Seller, or with the intent to hinder, delay or defraud the
Seller or the creditors of the Seller, the Federal Deposit Insurance Act
("FDIA"), as amended by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, as amended ("FIRREA"), provides that such security
interest should not be subject to avoidance by the Federal Deposit Insurance
Corporation (the "FDIC"), as receiver or conservator for the Seller. Positions
taken by the FDIC staff prior to the passage of FIRREA do not suggest that the
FDIC, as receiver or conservator for the Seller, would interfere with the
timely transfer to the Depositor of payments collected on the related Mortgage
Loans. If, however, the FDIC were to assert a contrary position, such as
requiring the Depositor or the Trustee to establish its right to those
payments by submitting to and completing the administrative claims procedure
under the FDIA, or the conservator or receiver for the Seller were to request
a stay of proceedings with respect to the Seller, as provided under the FDIA,
delays in payments to the Depositor, and, therefore, on the Certificates and
possible reductions in the amount of those payments could occur. In addition,
the FDIC, if it were appointed as receiver or conservator for the Seller,
would also have the power under the FDIA to repudiate contracts, including the
Seller's obligations under the Pooling and Servicing Agreement to repurchase
certain Mortgage Loans. In addition, in the case of an Event of Default
relating to the receivership, conservatorship or insolvency of the Servicer,
the receiver or conservator may have the power either to terminate the
Servicer and replace it with a successor Servicer or to prevent the
termination of the Servicer and its replacement with a successor Servicer if
no Event of Default exists other than the receivership, conservatorship or
insolvency of the Servicer.
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The Depositor will acquire the Mortgage Loans from Chevy Chase and will
cause the Mortgage Loans to be assigned to U.S. Bank National Association, as
trustee (the "TRUSTEE"). Chevy Chase, in its capacity as servicer (the
"SERVICER"), will service the Mortgage Loans pursuant to a Pooling and
Servicing Agreement, dated as of September 1, 1997 (the "POOLING AND SERVICING
AGREEMENT"), among the Depositor, Chevy Chase, as Seller and Servicer, and the
Trustee. See "The Trust Fund--The Mortgage Pools" in the Prospectus.
DESCRIPTION OF THE MORTGAGE LOANS
The description of the Mortgage Loans set forth in this Prospectus
Supplement is based on the characteristics of the Mortgage Loans as of the
Cut-off Date. Unless the context otherwise requires, all percentages used
herein are based on the aggregate Principal Balance of the Mortgage Loans as
of the Cut-off Date.
Each Mortgage Loan, at the time of origination, was represented by the
related Mortgagor to be owner-occupied. As of the Cut-off Date, 1.25% of the
Mortgage Loans are more than 30 days but 60 days or less delinquent in
scheduled payments of principal and interest. No Mortgage Loan provides for
deferred interest or
S-14
<PAGE>
negative amortization. The Mortgage Loans were originated by or acquired by
Chevy Chase or its wholly owned subsidiary, B.F. Saul Mortgage Company, in the
normal course of its business and will be purchased by the Depositor from
Chevy Chase.
The Mortgage Loans consist of 2,377 adjustable-rate Mortgage Loans, with an
aggregate Principal Balance as of the Cut-off Date of approximately
$728,241,525 and original terms to stated maturity of not more than 30 years,
except for 25 Mortgage Loans with original terms to stated maturity of not
more than 40 years. The Mortgage Loans had individual Principal Balances as of
the Cut-off Date of at least $42,388 but not more than $1,298,112, with an
average Principal Balance as of the Cut-off Date of approximately $306,370.
The Mortgage Loans have a weighted average remaining term to stated maturity
of approximately 333 months as of the Cut-off Date. As of the Cut-off Date,
the Mortgage Loans bore interest at Mortgage Rates of at least 5.25% per annum
but no more than 9.5% per annum, with a weighted average Mortgage Rate of
approximately 6.90% per annum. The original Loan-to-Value Ratio of each of the
Mortgage Loans was not more than 100%, with a weighted average original Loan-
to-Value Ratio of approximately 76.70%.
The Mortgage Rates on the Mortgage Loans will adjust annually, commencing
after a fixed period, on the Adjustment Date specified in the related Mortgage
Note to a rate equal to the sum (rounded as specified in the related Mortgage
Note) of the weekly average yield on U.S. Treasury securities adjusted to a
constant maturity of one year as published by the Federal Reserve Board in
Statistical Release H.15 (519) (the "INDEX") and a fixed percentage set forth
in the related Mortgage Note (the "NOTE MARGIN"), subject to the limitation
that the Mortgage Rate will not exceed the maximum Mortgage Rate as specified
in the related Mortgage Note and any increase or decrease on any Adjustment
Date will be limited by the amount set forth in the related Mortgage Note (the
"PERIODIC RATE CAP"). With respect to 788 Mortgage Loans, representing
approximately 34% of the Mortgage Loans, the Mortgage Rate will adjust
annually commencing approximately one year after origination (the "ONE YEAR
FIXED PERIOD MORTGAGE LOANS"); (ii) with respect to 356 Mortgage Loans,
representing approximately 16% of the Mortgage Loans, the Mortgage Rate will
adjust annually commencing approximately three years after origination (the
"THREE YEAR FIXED PERIOD MORTGAGE LOANS"); (iii) with respect to 1,151
Mortgage Loans, representing approximately 47% of the Mortgage Loans, the
Mortgage Rate will adjust annually commencing approximately five years after
origination (the "FIVE YEAR FIXED PERIOD MORTGAGE LOANS"); (iv) with respect
to 71 Mortgage Loans, representing approximately 3% of the Mortgage Loans, the
Mortgage Rate will adjust annually commencing approximately seven years after
origination (the "SEVEN YEAR FIXED PERIOD MORTGAGE LOANS"); and (v) with
respect to 11 Mortgage Loans, representing less than 1% of the Mortgage Loans,
the Mortgage Rate will adjust annually commencing approximately ten years
after origination (the "TEN YEAR FIXED PERIOD MORTGAGE LOANS").
The monthly payment on each Mortgage Loan will be adjusted on the Due Date
of the month following the month in which the related Adjustment Date occurs
(subject to the related Periodic Rate Cap, as described in the related
Mortgage Note) to equal the amount necessary to pay interest at the then-
applicable Mortgage Rate and to fully amortize the outstanding Principal
Balance of such Mortgage Loan over its then remaining term to stated maturity.
As of the Cut-off Date, less than 13.13% of the Mortgage Loans had reached
their first Adjustment Date. Due to application of the Periodic Rate Cap, the
Mortgage Rate on a Mortgage Loan may be less than the sum of the Index and
Note Margin, even following the Adjustment Date for such Mortgage Loan. The
Mortgage Loans will have various Adjustment Dates, Note Margins and
limitations on the Mortgage Rate adjustments, as described below.
The Mortgage Rate on a Mortgage Loan may not exceed the maximum Mortgage
Rate (the "MAXIMUM MORTGAGE RATE") or be less than the minimum Mortgage Rate
(the "MINIMUM MORTGAGE RATE") specified for such Mortgage Loan in the related
Mortgage Note. The Minimum Mortgage Rate for each Mortgage Loan is equal to
the Note Margin. As of the Cut-off Date, the Minimum Mortgage Rates on the
Mortgage Loans ranged from 2.375% to 3.625%, with a weighted average Minimum
Mortgage Rate of 2.96%. As of the Cut-off Date, the Maximum Mortgage Rates on
the Mortgage Loans ranged from 10.25% to 16.75%, with a weighted average
Maximum Mortgage Rate of 12.91%.
S-15
<PAGE>
The tables below set forth certain additional statistical characteristics of
the Mortgage Loans as of the Cut-off Date, unless otherwise indicated.
DISTRIBUTION OF CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF CURRENT NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
5.01% - 5.50%............... 6 $ 1,318,468.15 0.18%
5.51% - 6.00%............... 77 25,745,575.49 3.53
6.01% - 6.50%............... 887 275,533,183.94 37.83
6.51% - 7.00%............... 564 169,021,101.50 23.21
7.01% - 7.50%............... 372 115,611,446.88 15.88
7.51% - 8.00%............... 261 83,507,818.75 11.47
8.01% - 8.50%............... 150 40,913,832.77 5.62
8.51% - 9.00%............... 58 15,589,689.38 2.14
9.01% - 9.50%............... 2 1,000,407.80 0.14
----- --------------- ------
Total..................... 2,377 $728,241,524.66 100.00%*
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-off Date, the weighted average Mortgage Rate on the Mortgage
Loans was 6.90% per annum.
DISTRIBUTION OF MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
RANGE OF CUT-OFF DATE NUMBER OF AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Up to $50,000.00............ 1 $ 42,387.57 0.01
$50,000.01 - $100,000.00.... 6 472,434.12 0.06
$100,000.01 - $150,000.00... 7 812,046.69 0.11
$150,000.01 - $200,000.00... 23 4,319,618.65 0.59
$200,000.01 - $250,000.00... 900 205,094,257.68 28.16
$250,000.01 - $300,000.00... 579 158,752,249.65 21.80
$300,000.01 - $350,000.00... 324 104,668,191.38 14.37
$350,000.01 - $400,000.00... 195 73,327,323.25 10.07
$400,000.01 - $450,000.00... 107 45,664,607.78 6.27
$450,000.01 - $500,000.00... 84 40,044,593.26 5.50
$500,000.01 - $550,000.00... 41 21,708,648.81 2.98
$550,000.01 - $600,000.00... 36 20,619,547.80 2.83
$600,000.01 - $650,000.00... 25 15,624,717.83 2.15
$650,000.01 - $700,000.00... 21 14,206,915.90 1.95
$700,000.01 - $750,000.00... 12 8,709,842.93 1.20
Over $750,000.00............ 16 14,174,141.36 1.95
----- --------------- ------
Total..................... 2,377 $728,241,524.66 100.00%*
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-off Date, the average Principal Balance of the Mortgage Loans was
approximately $306,370.
S-16
<PAGE>
DISTRIBUTION OF MORTGAGED PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single-Family Detached...... 2,155 $666,286,487.13 91.49
Condominium................. 47 13,391,733.31 1.84
Townhouse................... 169 46,854,241.85 6.43
Duplex...................... 6 1,709,062.37 0.24
----- --------------- ------
Total..................... 2,377 $728,241,524.66 100.00%*
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Refinancing................. 1,082 $348,285,674.97 47.83
Purchase.................... 1,063 302,376,844.57 41.52
Cash-Out Refinancing........ 232 77,579,005.12 10.65
----- --------------- ------
Total..................... 2,377 $728,241,524.66 100.00%*
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Connecticut................. 5 $ 1,821,386.00 0.25
Delaware.................... 1 247,751.10 0.03
Florida..................... 3 1,271,508.24 0.17
Georgia..................... 26 8,854,622.29 1.22
Illinois.................... 2 538,033.83 0.07
Maryland.................... 1,056 321,195,991.90 44.11
Massachusetts............... 11 4,046,112.86 0.56
New Hampshire............... 1 220,812.32 0.03
New Jersey.................. 39 13,780,177.82 1.89
New York.................... 8 3,029,477.96 0.42
North Carolina.............. 117 36,051,285.32 4.95
Ohio........................ 2 529,368.82 0.07
Pennsylvania................ 13 5,062,202.12 0.69
South Carolina.............. 16 5,254,341.99 0.72
Texas....................... 3 1,378,626.77 0.19
Virginia.................... 764 225,792,914.63 31.01
Washington, DC.............. 310 99,166,910.69 13.62
----- --------------- ------
Total..................... 2,377 $728,241,524.66 100.00%*
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-17
<PAGE>
DISTRIBUTION OF INITIAL FIXED PERIOD LENGTHS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
FIXED PERIOD LENGTH MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
One Year Fixed Period....... 788 $249,336,234.65 34.24
Three Year Fixed Period..... 356 114,505,749.29 15.72
Five Year Fixed Period...... 1,151 339,688,308.43 46.65
Seven Year Fixed Period..... 71 21,334,645.84 2.93
Ten Year Fixed Period....... 11 3,376,586.45 0.46
----- --------------- ------
Total..................... 2,377 $728,241,524.66 100.00%*
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
DISTRIBUTION OF PERIODIC RATE CAP
<TABLE>
<CAPTION>
PERIODIC
RATE NUMBER OF AGGREGATE % OF AGGREGATE
CAP MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------- -------------- ----------------- -----------------
<S> <C> <C> <C>
1.000%...................... 2 $ 520,434.20 0.07
2.000%...................... 2,236 683,294,999.40 93.83
3.000%...................... 139 44,426,091.06 6.10
----- --------------- ------
Total..................... 2,377 $728,241,524.66 100.00%*
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
DISTRIBUTION OF NOTE MARGINS AND MINIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
NOTE MARGINS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
2.01% - 2.50%............... 1 $ 268,364.75 0.04
2.51% - 3.00%............... 2,222 689,660,271.00 94.70
3.01% - 3.50%............... 152 37,868,341.44 5.20
3.51% - 4.00%............... 2 444,547.47 0.06
----- --------------- ------
Total..................... 2,377 $728,241,524.66 100.00%*
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-off Date, the weighted average Note Margin and Minimum Mortgage
Rate on the Mortgage Loans was approximately 2.96% per annum.
DISTRIBUTION OF REMAINING TERM TO STATED MATURITY
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MONTHS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------- -------------- ----------------- -----------------
<S> <C> <C> <C>
0 - 249..................... 18 $ 5,670,641.33 0.78
250 - 299................... 117 30,966,643.75 4.25
300 - 349................... 1,330 391,533,990.13 53.76
350 - 399................... 906 298,065,698.30 40.93
400 - 449................... 6 2,004,551.15 0.28
----- --------------- ------
Total..................... 2,377 $728,241,524.66 100.00%*
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-off Date, the weighted average remaining term to stated maturity
for the Mortgage Loans was approximately 333 months.
S-18
<PAGE>
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MAXIMUM RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
10.01% - 11.00%............ 5 $ 999,514.67 0.14
11.01% - 12.00%............ 55 18,015,103.22 2.47
12.01% - 13.00%............ 1,432 440,186,756.60 60.45
13.01% - 14.00%............ 754 232,742,860.27 31.96
14.01% - 15.00%............ 123 33,698,950.46 4.63
15.01% - 16.00%............ 7 2,343,844.18 0.32
16.01% - 17.00%............ 1 254,495.26 0.03
----- --------------- ------
Total.................... 2,377 $728,241,524.66 100.00%*
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-off Date, the weighted average Maximum Mortgage Rate of the
Mortgage Loans was approximately 12.91% per annum.
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
RANGE OF
LOAN-TO- NUMBER OF AGGREGATE % OF AGGREGATE
VALUE RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
Up to 50.00%................ 100 $ 33,168,540.09 4.55
50.01% - 55.00%............. 57 17,697,637.13 2.43
55.01% - 60.00%............. 92 33,009,200.20 4.53
60.01% - 65.00%............. 62 21,084,465.84 2.90
65.01% - 70.00%............. 141 52,893,000.08 7.26
70.01% - 75.00%............. 344 117,432,986.20 16.13
75.01% - 80.00%............. 838 265,249,808.68 36.42
80.01% - 85.00%............. 60 16,638,648.45 2.29
85.01% - 90.00%............. 401 105,156,818.81 14.44
90.01% - 95.00%............. 279 65,116,717.68 8.94
95.01% - 100.00%............ 3 793,701.50 0.11
----- --------------- ------
Total..................... 2,377 $728,241,524.66 100.00%*
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans was approximately 76.70%.
Less than 1% of the Mortgage Loans contain terms requiring the payment of a
penalty by the Mortgagor in the event such Mortgage Loan is prepaid prior to
its maturity.
THE INDEX
The "INDEX" with respect to each Mortgage Loan is the weekly average yield
on U.S. Treasury securities adjusted to a constant maturity of one year as
published by the Federal Reserve Board in Statistical Release No. 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 prior to each Adjustment Date for such Mortgage
Loan as specified in the Mortgage Note. Should the Index not be published or
become otherwise unavailable, the Servicer will select a comparable
alternative index reasonably acceptable to the Trustee.
S-19
<PAGE>
The following table sets forth the monthly averages of the Index for each of
the last five calendar years or portions thereof, based on information
published by the Federal Reserve Board in Statistical Release No. H.15 (519).
Such monthly averages are not necessarily indicative of the Index on any given
date in the relevant month since significant week-to-week fluctuations in the
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 the Index
on any Adjustment Date or for the lives of the Mortgage Loans.
<TABLE>
<CAPTION>
MONTH 1997 1996 1995 1994 1993
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January.......................................... 5.61% 5.09% 7.05% 3.54% 3.50%
February......................................... 5.53% 4.94% 6.70% 3.87% 3.39%
March............................................ 5.80% 5.34% 6.43% 4.32% 3.33%
April............................................ 5.99% 5.54% 6.27% 4.82% 3.24%
May.............................................. 5.87% 5.64% 6.00% 5.31% 3.36%
June............................................. 5.69% 5.81% 5.64% 5.27% 3.54%
July............................................. 5.54% 5.85% 5.59% 5.48% 3.47%
August........................................... 5.56% 5.67% 5.75% 5.56% 3.66%
September........................................ -- 5.83% 5.62% 5.76% 3.36%
October.......................................... -- 5.55% 5.59% 6.11% 3.89%
November......................................... -- 5.42% 5.43% 6.54% 3.58%
December......................................... -- 5.47% 5.31% 7.14% 3.61%
</TABLE>
The initial Mortgage Rate in effect with respect to a Mortgage Loan
generally will be lower, and may be significantly lower, than the Mortgage
Rate that would have been in effect based on the Index and Note Margin.
Therefore, unless the Index declines after origination of a Mortgage Loan, the
related Mortgage Rate will generally increase on the first Adjustment Date
following origination of such Mortgage Loan subject to the Periodic Rate Cap.
The repayment of the Mortgage Loans will be dependent on the ability of the
Mortgagors to make larger monthly payments following adjustments of the
Mortgage Rate. Mortgage Loans that have the same initial Mortgage Rate may not
always bear interest at the same Mortgage Rate because such Mortgage Loans may
have different Adjustment Dates (and the related Mortgage Rates therefore may
reflect different Index values), Note Margins, Maximum Mortgage Rates and
Minimum Mortgage Rates. The Net Mortgage Rate with respect to each Mortgage
Loan as of the Cut-off Date will be set forth in the Mortgage Loan Schedule
attached to the Pooling and Servicing Agreement. The "NET MORTGAGE RATE" on
each Mortgage Loan will be adjusted on each Adjustment Date to equal the
Mortgage Rate thereon, subject to the Periodic Rate Cap, minus (i) the rate
per annum at which the servicing fee accrues thereon (the "SERVICING FEE
RATE") minus (ii) the rate per annum at which the trustee fee accrues thereon
(the "TRUSTEE FEE RATE") minus (iii) 0.70% per annum; provided, however, that
the Net Mortgage Rate may not exceed the Maximum Mortgage Rate minus the sum
of the Servicing Fee Rate, Trustee Fee Rate and 0.70% per annum (the "MAXIMUM
NET MORTGAGE RATE") or be less than the Minimum Mortgage Rate minus the sum of
the Servicing Rate Fee, the Trustee Fee Rate and 0.70% per annum (the "MINIMUM
NET MORTGAGE RATE") for such Mortgage Loan.
CONVERSION OF MORTGAGE LOANS
Approximately 50.21% of the Mortgage Loans (the "CONVERTIBLE MORTGAGE
LOANS") provide that in each such case the adjustable interest rate on such
Mortgage Loan may be converted at the option of the related Mortgagor to a
fixed interest rate. Upon the conversion of a Convertible Mortgage Loan, the
related Mortgage Rate will be converted to a fixed interest rate determined in
accordance with the formula set forth in the related Mortgage Note which
formula is intended to result in a Mortgage Rate which is not less than the
then current market interest rate for similar loans (subject to applicable
usury laws). After any such conversion, monthly payments of principal and
interest on the Mortgage Loan will be adjusted to provide for full
amortization over the remaining term to scheduled maturity. The Servicer will
have the option to purchase each Convertible Mortgage Loan upon its
conversion, but neither the Servicer nor any other entity will be obligated to
do so. Any Convertible Mortgage Loan which is converted but not purchased by
the Servicer will remain in the Mortgage
S-20
<PAGE>
Pool as a fixed-rate Mortgage Loan and will result in the Mortgage Pool having
both fixed-rate and adjustable-rate Mortgage Loans. See "Certain Yield and
Prepayment Considerations" herein.
LOAN UNDERWRITING
The Mortgage Loans are "CLOSED LOANS" as described in the Prospectus under
"The Trust Fund--Mortgage Loan Program". All of the Mortgage Loans were
originated or purchased by Chevy Chase or its wholly owned subsidiary, B.F.
Saul Mortgage Company, in the normal course of its business. The
representations and warranties of Chevy Chase in respect of the Mortgage
Loans, which will be assigned to the Trustee in connection with the issuance
of the Certificates, will be made by Chevy Chase as of the Closing Date. See
"The Trust Fund--Mortgage Loan Program--Representations by Unaffiliated
Sellers; Repurchases" in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Chevy Chase Bank F.S.B. Mortgage-Backed Pass-Through Certificates,
Series 1997-CCB1 (the "CERTIFICATES") will be comprised of the Class A
Certificates, Class S Certificates and the Class R-I and Class R-II
Certificates. Only the Class A Certificates are offered hereby. The Class R
Certificates are sometimes referred to herein as the "RESIDUAL CERTIFICATES".
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. 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 term "CERTIFICATE PRINCIPAL
BALANCE" is used in the Prospectus Supplement in the same manner as the term
"STATED PRINCIPAL BALANCE" is used in the Prospectus. 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.
BOOK-ENTRY REGISTRATION
The Class A Certificates will be book-entry Certificates (the "BOOK-ENTRY
CERTIFICATES"). Any person acquiring an interest in any Class A Certificate
(each such person, a "BENEFICIAL OWNER") will hold its Class A Certificate
through the DTC, if it is a participant in such system, or indirectly through
organizations which are participants in such system. The Book-Entry
Certificates will be issued in one or more certificates the aggregate
Certificate Principal Balance of which will equal the aggregate Certificate
Principal Balance of the Class A Certificates and will initially be registered
in the name of Cede & Co. ("CEDE"), the nominee of the DTC. Except as
described below, no person acquiring a Book-Entry Certificate will be entitled
to receive a physical certificate representing such Certificate (a "DEFINITIVE
CERTIFICATE"). Unless and until Definitive Certificates are issued, it is
anticipated that the only "Certificateholder" of the Class A Certificates will
be Cede & Co., as nominee of DTC. Beneficial Owners will be permitted to
exercise their rights only indirectly through DTC participants and the DTC.
A Beneficial Owner's ownership of a Book-Entry Certificate will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "FINANCIAL INTERMEDIARY") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on
the records of the DTC or, if such Financial Intermediary is not a DTC
participant, on the records of the firm that acts as agent for the Financial
Intermediary and whose ownership of such Book-Entry Certificate will in turn
be recorded on the records of the DTC.
S-21
<PAGE>
Beneficial Owners will receive all distributions of principal of and
interest on the Class A Certificates from the Trustee through the DTC and DTC
participants. While the Class A Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting the DTC and its operations (the "RULES"), the DTC is
required to make book-entry transfers among DTC participants on whose behalf
it acts with respect to the Class A Certificates and is required to receive
and transmit distributions of principal of, and interest on, the Class A
Certificates. DTC participants and indirect participants make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Beneficial Owners. Accordingly, although Beneficial Owners will not
possess certificates representing their respective interests in the Class A
Certificates, the Rules provide a mechanism by which Beneficial Owners will
receive distributions and will be able to transfer their interests.
Beneficial Owners will not receive or be entitled to receive certificates
representing their respective interests in the Class A Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Beneficial Owners who are not DTC participants may
transfer ownership of such Certificates only through DTC participants and
indirect participants by instructing such participants and indirect
participants to transfer Class A Certificates, by book-entry transfer, through
the DTC for the accounts of the purchasers of such Certificates, which
accounts are maintained with their respective DTC participants or Financial
Intermediaries. Under the Rules and in accordance with the DTC's normal
procedures, transfers of the interests in the Class A Certificates will be
executed through the DTC and the accounts of the related DTC participants at
the DTC will be debited and credited appropriately. Similarly, the
participants and indirect participants will make debits or credits, as the
case may be, on their records on behalf of the selling and purchasing
Beneficial Owners.
Transfers between DTC participants will occur in accordance with DTC rules.
The DTC, which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own the DTC. In accordance with its normal procedures, the
DTC is expected to record the positions held by each DTC participant in the
Book-Entry Certificates, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the Rules, as in effect from time to time.
Distributions on Book-Entry Certificates will be made on each Distribution
Date by the Trustee to the DTC. The DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC participants in
accordance with the DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the Beneficial Owners of the Book-
Entry Certificates that it represents and to each Financial Intermediary for
which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the Beneficial Owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments
will be forwarded by the Trustee to Cede. Because the DTC can only act on
behalf of Financial Intermediaries, the ability of a Beneficial Owner to
pledge Book-Entry Certificates to persons or entities that do not participate
in the DTC system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates
in book-entry form may reduce the liquidity of such Certificates in the
secondary market since certain potential investors may be unwilling to
purchase Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust will be provided to Cede, as nominee
of DTC, and may be made available by Cede to Beneficial Owners upon request in
accordance with the Rules and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Beneficial Owners of such Certificateholders are
credited.
S-22
<PAGE>
DEFINITIVE CERTIFICATES
The Class A Certificates will be issued as Definitive Certificates to
Certificateholders or their nominees, rather than to DTC or its nominee, only
if (i) the Depositor advises the Trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Book-Entry Certificates and the Trustee and the Depositor are
unable to locate a qualified successor, (ii) the Depositor, at its option,
elects to terminate the book-entry system through DTC or (iii) after the
occurrence of an event of default under the Pooling and Servicing Agreement,
holders of Book-Entry Certificates evidencing not less than 66% of the
aggregate outstanding Certificate Principal Balance advise the Trustee and DTC
through DTC Participants in writing that the continuation of a book-entry
system through DTC (or a successor thereto) is no longer in the best interests
of the holders of such Certificates.
Upon notice of the occurrence of any of the events described in the
preceding paragraph, DTC is required to notify all DTC Participants of the
availability of Definitive Certificates. Upon surrender of the global
certificate for the Class A Certificates and receipt from DTC of instructions
for re-registration, the Trustee will issue such Certificates in the form of
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as Certificateholders under the Pooling and
Servicing Agreement.
DISTRIBUTIONS IN RESPECT OF INTEREST AND PRINCIPAL
On each Distribution Date, payments on the Class S Certificates will be
subordinate to the payment of principal and interest, in the amounts described
herein, on the Class A Certificates.
Distributions on the Class A Certificates in respect of interest and
principal on each Distribution Date will be made from the Available
Distribution Amount. The "AVAILABLE DISTRIBUTION AMOUNT" for any Distribution
Date will equal (a) the sum of (i) scheduled payments of principal and
interest (net of the Servicing Fee and the Trustee's Fee) due on the Mortgage
Loans during the related Due Period (as defined herein) and received on or
prior to the related Determination Date, (ii) principal prepayments and other
unscheduled collections of principal received during the related Prepayment
Period (as defined herein), (iii) any Advances (as defined herein) with
respect to the Mortgage Loans made by the Servicer for such Distribution Date
and (iv) any Insured Payments (as defined herein) payable pursuant to the
Policy, less (b) the Insurer Premium Amount and amounts representing
reimbursements for previously unreimbursed Insured Payments by the Insurer,
Nonrecoverable Advances by the Servicer and certain expenses incurred by the
Servicer.
The "DUE DATE" for each Mortgage Loan is the first day of each month. The
"DUE PERIOD" with respect to any Distribution Date commences on the second day
of the month preceding the month in which such Distribution Date occurs and
ends on the Due Date in the month in which such Distribution Date occurs. The
"PREPAYMENT PERIOD" with respect to any Distribution Date is the month
preceding the month in which such Distribution Date occurs. The "DETERMINATION
DATE" with respect to any Distribution Date is the 15th day of the month in
which such Distribution Date occurs (or, if such day is not a business day,
the preceding business day).
The "PRINCIPAL BALANCE" of any Mortgage Loan as of any date of determination
is equal to the principal balance thereof as of the Cut-off Date, minus all
amounts allocated to principal that have been distributed to
Certificateholders with respect to such Mortgage Loan on or before such date
of determination as further reduced to the extent any Realized Loss therein
has been allocated to one or more classes of Certificates on or before such
date of determination. The "INSURER PREMIUM AMOUNT" with respect to any
Distribution Date is the amount payable to the Insurer as a premium on the
Policy.
Interest Distribution Amounts
On each Distribution Date, holders of the Class A Certificates will be
entitled to receive, to the extent of the Available Distribution Amount,
distribution allocable to one-month's interest in an amount (the "CLASS A
INTEREST DISTRIBUTION AMOUNT"), equal to (i) one-twelfth of the product of the
Certificate Principal Balance of
S-23
<PAGE>
the Class A Certificates immediately preceding such Distribution Date
multiplied by a rate (the "CERTIFICATE RATE") equal to the weighted average of
the Net Mortgage Rates, weighted by the aggregate Principal Balance of the
Mortgage Loans as of the Due Date immediately preceding the related Due Period
minus (ii) the sum of (a) the Insurer Premium Amount, (b) any Prepayment
Interest Shortfalls occurring during the related Prepayment Period and (c) any
Civil Relief Act Shortfalls occurring during the related Due Period.
Interest on the Certificates will be calculated and payable on the basis of
a 360-day year divided into twelve 30-day months.
Principal Distribution Amounts
On each Distribution Date, the holders of the Class A Certificates will be
entitled to receive the "CLASS A PRINCIPAL DISTRIBUTION AMOUNT" to the extent
of the sum of (a) the Available Distribution Amount remaining after payment of
certain amounts including the Class A Interest Distribution Amount and (b) the
amount of payments pursuant to the Policy, equal to the sum of (i) the portion
of the Available Distribution Amount that is attributable to scheduled
payments of principal of the Mortgage Loans received by the Trustee, (ii) the
portion of the Available Distribution Amount that is attributable to
unscheduled payments of principal of the Mortgage Loans received by the
Servicer, (iii) the amount of any related Overcollateralization Increase
Amount (as defined herein) for such Distribution Date, and (iv) the payment of
any Overcollateralization Deficit pursuant to the Policy, minus (v) the amount
of any Overcollateralization Reduction Amount (as defined herein) for such
Distribution Date.
Insured Payments do not include Realized Losses until such time as such
aggregate, cumulative Realized Losses have created an Overcollateralization
Deficit. An "OVERCOLLATERALIZATION DEFICIT" with respect to a Distribution
Date is the amount, if any, by which (x) the Certificate Principal Balance of
the Class A Certificates, after giving effect to all distributions to be made
on such Distribution Date, exceeds (y) the aggregate Principal Balance of the
Mortgage Loans as of the close of business on the last day of the related Due
Period.
Order of Distributions
On each Distribution Date, amounts in the Certificate Account will be
distributed in the following order of priority:
(a)to the Insurer, the Insurer Premium Amount;
(b)to the Trustee, the Trustee Fee;
(c)to the Servicer, the Servicing Fee;
(d)to the Insurer, the aggregate amount of Insured Payments which have
not been previously reimbursed to the Insurer (together with interest
thereon);
(e)to the holders of the Class A Certificates, to the extent of the
Available Distribution Amount, the Class A Interest Distribution Amount,
and any portion of such amount remaining unpaid from any preceding
Distribution Date;
(f)to the holders of the Class A Certificates, to the extent of the
Available Distribution Amount remaining, the Class A Principal Distribution
Amount and any portion of such amount remaining unpaid from any preceding
Distribution Date, until the Certificate Principal Balance thereof has been
reduced to zero; and
(g)to the holders of the Class S Certificates, to the extent of the
Available Distribution Amount remaining, the Class S Interest Distribution
Amount (as defined herein) and certain other amounts.
S-24
<PAGE>
The "CLASS S INTEREST DISTRIBUTION AMOUNT" with respect to any Distribution
Date will equal (a) one-twelfth of 0.70% multiplied by the aggregate Principal
Balance of the Mortgage Loans as of the Due Date immediately preceding the
related Due Period plus (b) certain other amounts, to the extent of the
Available Distribution Amount remaining after payment of certain amounts
including the following amounts: (i) the Class A Interest Distribution Amount;
(ii) the Class A Principal Distribution Amount; and (iii) to the extent the
Required Overcollateralization Amount has not been satisfied, all payments to
the Class A Certificates necessary in order to increase the
Overcollateralization Amount to the Required Overcollateralization Amount.
Within a class of Certificates, distributions of interest or principal will
be made in accordance with the Percentage Interest represented by each
Certificate of such class.
CUSTODIAL AND CERTIFICATE ACCOUNT
Within two business days of receipt by the Servicer, all payments and
collections in respect of the Mortgage Loans will be deposited in an account
(the "CUSTODIAL ACCOUNT") established and maintained by the Servicer with a
depository institution, which may be the Servicer, and in a manner acceptable
to the Rating Agencies and the Insurer. No later than the second Business Day
prior to each Distribution Date, the Servicer will remit to an account (the
"CERTIFICATE ACCOUNT"), to be maintained by the Trustee, all funds on deposit
in the Custodial Account that are required to be distributed on such
Distribution Date. Such funds, together with the Advances, if any, required to
be deposited in the Certificate Account by the Servicer, will be available to
make distributions of interest on, and in reduction of the Certificate
Principal Balance of, the Certificates on each Distribution Date and to pay
certain other fees and expenses. See "Description of the Certificates--
Payments on Mortgage Loans" in the Prospectus.
OVERCOLLATERALIZATION PROVISIONS
The Pooling and Servicing Agreement requires that, on each Distribution
Date, amounts equal to the Class S Interest Distribution Amount be applied on
such Distribution Date as an accelerated payment of principal on the Class A
Certificates, but only in the manner and to the extent hereafter described.
The Class S Interest Distribution Amount for any Distribution Date will be
equal to (a) one-twelfth of 0.70% multiplied by the aggregate Principal
Balance of the Mortgage Loans as of the Due Date immediately preceding the
related Due Period plus (b) certain other amounts. The Class S Interest
Distribution Amount will be available on any Distribution Date first, to pay
all amounts of principal and interest due the holders of the Class A
Certificates (excluding any interest shortfalls due to Prepayment Interest
Shortfalls or Civil Relief Act Shortfalls); second, to pay to the holders of
the Class A Certificates any Overcollateralization Increase Amount; and third,
to pay holders of the Class S Certificates.
With respect to any Distribution Date, the excess, if any, of (a) the
aggregate Principal Balance of the Mortgage Loans immediately following such
Distribution Date over (b) the Certificate Principal Balance of the Class A
Certificates as of such Distribution Date (after taking into account the
payment to the Class A Certificates of the amounts described in clauses (i)-
(ii) of the definition of "Class A Principal Distribution Amount" on such
Distribution Date) is the "Overcollateralization Amount" as of such
Distribution Date. The Pooling and Servicing Agreement requires that the Class
S Interest Distribution Amount with respect to a Distribution Date, to the
extent available therefor as described above, on such Distribution Date be
applied as an accelerated payment of principal on the Class A Certificates on
such Distribution Date to the extent that the Required Overcollateralization
Amount exceeds the Overcollateralization Amount as of such Distribution Date.
Any amount of Class S Interest Distribution Amount actually applied as an
accelerated payment of principal on the Class A Certificates is an
"OVERCOLLATERALIZATION INCREASE AMOUNT." The required level of the
Overcollateralization Amount with respect to a Distribution Date (the
"REQUIRED OVERCOLLATERALIZATION AMOUNT") will initially be equal to
approximately 1.00% of the aggregate Principal Balance of the Mortgage Loans
as of the Cut-off Date, but may be reduced in certain circumstances.
S-25
<PAGE>
In the event that the Required Overcollateralization Amount is permitted to
decrease or "step down" on a Distribution Date in the future, a portion of the
principal which would otherwise be distributed to the holders of the Class A
Certificates on such Distribution Date will be distributed to the holders of
the Class S Certificates on such Distribution Date. This will have the effect
of decelerating the amortization of the Class A Certificates relative to the
amortization of the Mortgage Loans, and of reducing the Overcollateralization
Amount. With respect to any Distribution Date, the excess, if any, of (a) the
Overcollateralization Amount on such Distribution Date, over (b) the Required
Overcollateralization Amount is the "EXCESS OVERCOLLATERALIZATION AMOUNT" with
respect to such Distribution Date. If, on any Distribution Date, the Excess
Overcollateralization Amount is, or, after taking into account all other
distributions to be made on such Distribution Date would be, greater than zero
(i.e., the Overcollateralization Amount is or would be greater than the
related Required Overcollateralization Amount), then any amounts relating to
principal which would otherwise be distributed to the holders of the Class A
Certificates on such Distribution Date will instead be distributed to the
holders of the Class S Certificates (the "OVERCOLLATERALIZATION REDUCTION
AMOUNT").
ALLOCATION OF REALIZED LOSSES
Subject to the terms of the Policy, the Policy requires a payment to the
holders of the Class A Certificates to the extent that Realized Losses result
in an Overcollateralization Deficit. Notwithstanding the foregoing, if
payments are not made as required under the Policy, Realized Losses will be
allocated first, by application of clause (iii) of the definition of Class A
Principal Distribution Amount, to the reduction of the amounts otherwise
payable to the Class S Certificates, and second, to the Class A Certificates.
In order to maximize the likelihood of distribution in full of amounts of
interest and principal to be distributed to holders of the Class A
Certificates on each applicable Distribution Date, holders of the Class A
Certificates will have a right to receive distributions of the related
Available Distribution Amount that will be prior to the rights of the holders
of the Class S Certificates to such Available Distribution Amount. In
addition, the overcollateralization, together with the availability of the
Class S Interest Distribution Amount to cover the interest and principal
portion of current Realized Losses on the Mortgage Loans, will also increase
the likelihood of distribution of full amounts of interest and principal to
the holders of Class A Certificates on each Distribution Date.
"REALIZED LOSS" means (i) with respect to any Liquidated Loan, the excess of
the Principal Balance of each Liquidated Loan immediately prior to
liquidation, together with accrued and unpaid interest thereon, over the
liquidation proceeds, if any, received in connection with such Liquidated
Loan, less liquidation expenses and any unreimbursed Advances made with
respect thereto, (ii) with respect to any Mortgage Loan whose related
Mortgaged Property has been valued (such valuation, a "DEFICIENT VALUATION")
at less than the then current Principal Balance of such Mortgage Loan by a
court of competent jurisdiction as a result of a proceeding (a "BANKRUPTCY
PROCEEDING") under the United States Bankruptcy Code, as amended (11 U.S.C.),
the excess of the Principal Balance of such Mortgage Loan over the principal
amount as reduced in the Deficient Valuation, or (iii) with respect to any
Mortgage Loan as to which the amount of the scheduled payment has been reduced
in a Bankruptcy Proceeding (a "DEBT SERVICE REDUCTION"), the present value of
all monthly Debt Service Reductions on such Mortgage Loan, assuming that the
Mortgagor pays each scheduled payment on the applicable Due Date and that no
principal prepayments are received with respect to such Mortgage Loan,
discounted monthly at the applicable Mortgage Rate.
"LIQUIDATED LOAN" means a Mortgage Loan that has been liquidated through
deed in lieu of foreclosure, sale in foreclosure, trustee's sale or other
realization as provided by applicable real property law to which the related
Mortgage is subject and any security agreements, or with respect to which
payment under related hazard insurance and/or from any public governmental
authority on account of a taking or condemnation of any such property has been
received and as to which, in the best judgment of the Servicer, no further
proceeds will be received.
S-26
<PAGE>
CERTIFICATE GUARANTY INSURANCE POLICY
The following information has been supplied by the Insurer for inclusion
herein.
The Insurer, in consideration of the payment of the premium and subject to
the terms of the Policy, thereby unconditionally and irrevocably guarantees to
any Owner that an amount equal to each full and complete Insured Payment will
be received by the Trustee, or its successor, as trustee for the Owners, on
behalf of the Owners from the Insurer, for distribution by the Trustee to each
Owner of each Owner's proportionate share of the Insured Payment. The
Insurer's obligations under the Policy with respect to a particular Insured
Payment shall be discharged to the extent funds equal to the applicable
Insured Payment are received by the Trustee, whether or not such funds are
properly applied by the Trustee. Insured Payments shall be made only at the
time set forth in the Policy, and no accelerated Insured Payments shall be
made regardless of any acceleration of the Class A Certificates, unless such
acceleration is at the sole option of the Insurer. The Policy does not cover
Prepayment Interest Shortfalls or Civil Relief Act Shortfalls.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust Fund, REMIC I
or REMIC II or the Trustee for withholding taxes, if any (including interest
and penalties in respect of any such liability).
The Insurer will pay any amounts payable under the Policy no later than
12:00 noon, New York City time, on the later of the Distribution Date on which
the related Deficiency Amount is due or the third Business Day following
receipt in New York, New York on a Business Day by State Street Bank and Trust
Company, N.A., as the Insurer's fiscal agent or any successor fiscal agent
appointed by the Insurer (the "INSURER'S FISCAL AGENT") of a Notice; provided,
that if such Notice is received after 12:00 noon New York City time on such
Business Day, it will be deemed to be received on the following Business Day.
If any such Notice received by the Insurer's Fiscal Agent is not in proper
form or is otherwise insufficient for the purpose of making a claim under the
Policy it shall be deemed not to have been received by the Insurer's Fiscal
Agent for purposes of this paragraph, and the Insurer or the Insurer's Fiscal
Agent, as the case may be, shall promptly so advise the Trustee and the
Trustee may submit an amended Notice.
Insured Payments due under the Policy, unless otherwise stated therein, will
be disbursed by the Insurer's Fiscal Agent to the Trustee on behalf of the
Owners by wire transfer of immediately available funds in the amount of the
Insured Payment.
The Insurer's Fiscal Agent is the agent of the Insurer only and the
Insurer's Fiscal Agent shall in no event be liable to the Owners for any acts
of the Insurer's Fiscal Agent or any failure of the Insurer to deposit, or
cause to be deposited, sufficient funds to make payments due under the Policy.
As used in this section and in the Policy, the following terms shall have
the following meanings:
"AGREEMENT" means the Pooling and Servicing Agreement, dated as of September
1, 1997, among the Depositor, Chevy Chase, as Seller and Servicer, and the
Trustee, as trustee for the Owners, without regard to any amendment or
supplement thereto unless such amendment or supplement has been approved in
writing by the Insurer.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which banking institutions in New York City or in the city in which the
corporate trust office of the Trustee or the Servicer under the Agreement or
the Insurer is located are authorized or obligated by law or executive order
to close.
"DEFICIENCY AMOUNT" means, with respect to the Class A Certificates for any
Distribution Date, (i) any shortfall in the Available Distribution Amount to
pay the interest portion of any Realized Loss, excluding Prepayment Interest
Shortfalls and Civil Relief Act Shortfalls, and (ii) the Overcollateralization
Deficit.
"INSURED PAYMENT" means, as of any Distribution Date, any Deficiency Amount.
S-27
<PAGE>
"NOTICE" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to the
Policy, the original of which is subsequently delivered by registered or
certified mail from the Trustee specifying the Insured Payment which shall be
due and owing on the applicable Distribution Date.
"OWNER" means each Holder (as defined in the Agreement) of any Class A
Certificate who, on the applicable Distribution Date, is entitled under the
terms of the Class A Certificates to payment thereunder.
Capitalized terms used in the Policy and not otherwise defined in the Policy
shall have the respective meanings set forth in the Agreement as of the date
of execution of the Policy, without giving effect to any subsequent amendment
to or modification of the Agreement unless such amendment or modification has
been approved in writing by the Insurer.
Any notice under the Policy or service of process on the Insurer's Fiscal
Agent may be made at the address listed below for the Insurer's Fiscal Agent
or such other address as the Insurer shall specify to the Trustee in writing.
The notice address of the Insurer's Fiscal Agent is 61 Broadway, 15th Floor,
New York, New York 10006, Attention: Municipal Registrar and Paying Agency, or
such other address as the Insurer's Fiscal Agent shall specify in writing to
the Trustee.
The Policy is being issued under and pursuant to and shall be construed
under the laws of the State of New York, without giving effect to the conflict
of laws principles thereof.
The insurance provided by the Policy is not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York Insurance Law.
The Policy is not cancelable for any reason. The premium on the Policy is
not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the Class A Certificates.
OPTIONAL TERMINATION
On any Distribution Date on or after the date on which the aggregate
Principal Balance of the Mortgage Loans has been reduced below 5% of the
aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date, the
Servicer will have the right to purchase, in whole, but not in part, all of
the Mortgage Loans and any property acquired in respect of the Mortgage Loans
at a purchase price equal to the sum of (a) the greater of (i) the aggregate
principal amount of each Mortgage Loan plus, in each case, interest accrued
thereon at the sum of the applicable Net Mortgage Rate and the Trustee Fee
Rate to the last day of the month of purchase, plus any unreimbursed Advances
made with respect to the Mortgage Loans, and (ii) the fair market value of the
Mortgage Loans as determined by the Servicer; (b) the appraised value of any
property acquired in respect of the Mortgage Loans; and (c) all amounts due to
the Insurer; provided, however, that if such purchase will cause a draw on the
Policy, the consent of the Insurer shall be necessary prior to the exercise of
such option by the Servicer. The proceeds of any such purchase will be treated
as a payment of principal and interest on the Mortgage Loans for purposes of
distributions to Certificateholders and any such purchase will effect an early
retirement of the Certificates and payment to the Insurer of all amounts due
to it. Any such purchase will be made only in connection with a "Qualified
Liquidation" of each related REMIC within the meaning of Section 860F(a)(4)(A)
of the Code.
THE TRUSTEE
U.S. Bank National Association, a national 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 180 East Fifth
Street, St. Paul, MN 55101, Attention: Bondholder Services, and its telephone
number is (800) 934-6802.
S-28
<PAGE>
The following obligations which are described in the Prospectus as
obligations of the Servicer have been specifically assigned to the Trustee in
the Pooling and Servicing Agreement and will be performed by the Trustee in
the manner and to the extent set forth below. The Trustee will be obligated,
among other things, to establish and maintain the Certificate Account and to
withdraw from the Certificate Account and distribute to Certificateholders of
record on the applicable Record Date the payments on account of principal and
interest required to be so distributed on each Distribution Date. In addition,
the Trustee will undertake reporting responsibilities for federal income tax
purposes.
VOTING RIGHTS
Each Certificate will be allocated voting rights for purposes of certain
actions that may be taken pursuant to the Pooling and Servicing Agreement. 98%
of all voting rights will be allocated to the Class A Certificates in
proportion to their Certificate Principal Balances. 1% of all voting rights
will be allocated to the Class S Certificates in proportion to their
percentage interests. 0.5% and 0.5% of all voting rights will be allocated to
the Class R-I and Class R-II Certificates, respectively.
REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
Under certain circumstances, Chevy Chase, as an Unaffiliated Seller (as
described in "The Trust Fund--Mortgage Loan Program" in the Prospectus), may
be required to repurchase one or more Mortgage Loans from the 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
material breach of representation or warranty is discovered, which defect or
breach materially and adversely affects the interests of the
Certificateholders or the Insurer. This repurchase obligation of Chevy Chase
constitutes the sole remedy available to Certificateholders for a breach of
such representation or warranty. 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 will
generally be equal to the sum of the Principal Balance of such Mortgage Loan
on the date of repurchase plus interest accrued thereon at the sum of the
applicable Net Mortgage Rate and the Trustee Fee Rate to the following Due
Date.
Within two years from the date of the delivery of the Certificates, Chevy
Chase may, instead of repurchasing a Mortgage Loan required to be repurchased
pursuant to the Pooling and Servicing Agreement, deliver one or more mortgage
loans (each, a "REPLACEMENT MORTGAGE LOAN") in substitution for any Mortgage
Loan that would otherwise have been repurchased (each, a "DELETED MORTGAGE
LOAN"). See "Description of the Certificates--Assignment of Mortgage Loans" in
the Prospectus.
To the extent that Chevy Chase elects to deliver one or more Replacement
Mortgage Loans for a Deleted Mortgage Loan, such Replacement Mortgage Loan or
Loans must, collectively, on the date of substitution: (a) have an outstanding
Principal Balance, after the deduction of payments due in the month of
substitution, not in excess of the Principal Balance of the Deleted Mortgage
Loan; (b) have a Net Mortgage Rate not lower than the Net Mortgage Rate on the
Deleted Mortgage Loan; (c) have a Loan-to-Value Ratio calculated as of such
date no higher than the Loan-to-Value Ratio of the Deleted Mortgage Loan; (d)
have a remaining term to maturity no greater than (and not more than one year
less than) that of the Deleted Mortgage Loan; (e) be of the same or better
credit quality classification as that of the Deleted Mortgage Loan; and (f)
comply with each representation and warranty with respect to the Mortgage
Loans. Upon any such substitution, Chevy Chase 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 Trust Fund.
For any month in which one or more Replacement Mortgage Loans are
substituted for any Deleted Mortgage Loan, the 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
Principal Balance of such Deleted Mortgage Loan (after application of the
scheduled principal portion of the scheduled payments due in
S-29
<PAGE>
such month). The amount of any such shortage will be deposited by the Servicer
from its own funds into the Custodial Account in the month of substitution,
without any reimbursement therefor, and will be distributed to the
Certificateholders on the Distribution Date in the month following such
substitution.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
FACTORS AFFECTING PREPAYMENTS ON THE MORTGAGE LOANS
The yields to maturity of the Class A Certificates and the aggregate amount
of distributions on the Class A Certificates will be related, among other
things, to the rate and timing of payments of principal on the underlying
Mortgage Loans. The rate of principal payments on the Mortgage Loans will be
affected by the amortization schedules of the Mortgage Loans and by the rate
of principal prepayments thereon. For this purpose, the term "prepayment"
includes prepayments and liquidations due to defaults or other dispositions of
the Mortgage Loans or the Mortgaged Properties, including application of
insurance proceeds or condemnation awards, or the purchase of the Mortgage
Loans by the Servicer under the circumstances described under "Description of
the Certificates--Optional Termination" herein. NO ASSURANCE CAN BE GIVEN AS
TO THE RATE OR TIMING OF PRINCIPAL PAYMENTS OR PREPAYMENTS ON ANY OF THE
MORTGAGE LOANS.
All of the Mortgage Loans may be prepaid in whole or in part at any time.
Certain of the Mortgage Notes contain terms requiring payment of a penalty by
the Mortgagor in the event the Mortgage Loan is prepaid in full. Prepayments,
liquidations and purchases of the Mortgage Loans will result in (a) principal
distributions to Certificateholders that would otherwise be distributed over
the remaining terms of the Mortgage Loans and (b) the termination of ongoing
interest distributions with respect to such Mortgage Loans to the
Certificateholders. See "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
The rate of principal prepayments on 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 mortgagors default on their
mortgages. In general, if prevailing interest rates fall significantly below
the Mortgage Rates on the Mortgage Loans, the Mortgage Loans (and the Class A
Certificates) are likely to be subject to a higher incidence of prepayment
than if prevailing rates remain at or above the Mortgage Rates on the Mortgage
Loans. Conversely, if prevailing interest rates rise significantly above the
Mortgage Rates on the Mortgage Loans, the Mortgage Loans (and the Class A
Certificates) are likely to be subject to a lower incidence of prepayment than
if prevailing rates remain at or below the Mortgage Rates on the Mortgage
Loans. The Depositor makes no representation as to the expected rate of
prepayments on the Mortgage Loans. See "Description of the Mortgage Loans"
herein and "Maturity and Prepayment Considerations" in the Prospectus for
additional information about the effect of the rate of prepayments on the
yield on and maturity of the Class A Certificates.
The "CONVERTIBLE MORTGAGE LOANS" provide that the Mortgagors may, during a
specified period of time, convert the adjustable interest rate of such
Mortgage Loans to a fixed interest rate. The Depositor is not aware of any
publicly available statistics that set forth principal prepayment, conversion
experience or conversion forecasts of adjustable-rate mortgage loans over an
extended period of time, and its experience with respect to adjustable-rate
mortgages is insufficient to draw any conclusions with respect to the expected
prepayment or conversion rates on the adjustable-rate Mortgage Loans. As is
the case with conventional, fixed-rate mortgage loans originated in a high
interest rate environment which may be subject to a greater rate of principal
prepayments when interest rates decrease, adjustable-rate mortgage loans may
be subject to a greater rate of principal prepayments due to their refinancing
or conversion to fixed interest rate loans in a low interest rate environment.
For example, if prevailing interest rates fall significantly, adjustable-rate
mortgage loans could be subject to higher prepayment and conversion rates than
if prevailing interest rates remain constant because the availability of
fixed-rate or other adjustable-rate mortgage loans at competitive interest
rates may encourage mortgagors to refinance their adjustable-rate mortgages to
"lock in" a lower fixed interest rate or to take advantage of the availability
of such other adjustable-rate mortgage loans, or, in the case of convertible
S-30
<PAGE>
adjustable-rate mortgage loans, to exercise their option to convert the
adjustable interest rates to fixed interest rates. The conversion feature may
also be exercised in a rising interest rate environment as mortgagors attempt
to limit their risk of higher rates. Such a rising interest rate environment
may also result in an increase in the rate of defaults on the Mortgage Loans.
If any Mortgagor chooses to convert its Convertible Mortgage Loan to a fixed
interest rate, and the Servicer does not elect to purchase such Mortgage Loan,
the Mortgage Pool will then include fixed-rate Mortgage Loans, which will have
the effect of limiting the extent to which the Class A Interest Distribution
Amount can increase or decrease in accordance with changes in the Index and
accordingly may affect the yield to the Class A Certificateholders.
The yield to investors on the Class A Certificates will be sensitive to
fluctuations in the index applicable to each Mortgage Loan and may be
adversely affected by the application of the Maximum Mortgage Rates on the
Mortgage Loans. The prepayment of the Mortgage Loans with higher Mortgage
Rates and the existence of any Convertible Mortgage Loan which have been
converted into fixed interest rate mortgage loans, may result in lower Class A
Interest Distribution Amounts with respect to subsequent Distribution Dates.
Investors in the Class A Certificates should also be aware that although the
Mortgage Rates on the Mortgage Loans will adjust periodically, such increases
and decreases will be limited by the applicable Periodic Rate Caps, Maximum
Mortgage Rates and Minimum Mortgage Rates thereon. In addition, the initial
Mortgage Rates borne by the Mortgage Loans may be lower than the rate based on
the sum of the current index and the Note Margin. In addition, the Mortgage
Rates on the Mortgage Loans will be based on the related Index (which may not
rise and fall consistently with prevailing mortgage rates) plus the related
Note Margin (which may be different from the prevailing margins on other
mortgage loans). As a result of these factors, the Mortgage Rates on the
Mortgage Loans at any time may not equal the prevailing rates for other
adjustable rate mortgage loans and the rate of prepayment may be lower or
higher than would otherwise be anticipated.
Investors in the Class A Certificates should consider the risk that rapid
rates of prepayments on the Mortgage Loans, and therefore of principal
distributions on the Class A Certificates, may coincide with periods of low
prevailing interest rates. During such periods, the effective interest rates
on securities in which an investor in the Class A Certificates may choose to
reinvest amounts received as principal distributions on the Class A
Certificates may be lower than the interest rate borne by such Certificates.
Conversely, slow rates of prepayments on the Mortgage Loans, and therefore of
principal distributions on the Class A Certificates may coincide with periods
of high prevailing interest rates. During such periods, the amount of
principal distributions available to an investor in the Class A Certificates
for reinvestment at such high prevailing interest rates may be relatively low.
All of the Mortgage Loans will contain "due-on-sale" clauses. The sale of
Mortgaged Properties encumbered by non-assumable Mortgage Loans will result in
the prepayment of such Mortgage Loans and a corresponding decrease in the
weighted average life of the Class A Certificates. See "Maturity and
Prepayment Considerations" in the Prospectus.
The assumed final Distribution Date for the Class A Certificates is May 25,
2032, which is the Distribution Date occurring in the 12th month following the
month in which the latest stated maturity of any Mortgage Loan occurs.
No event of default, change in the priorities for distribution among the
classes or other provision under the Pooling and Servicing Agreement will
arise or become applicable solely by reason of the failure to retire the
entire Certificate Principal Balance of the Class A Certificates on or before
its assumed final Distribution Date.
MODELING ASSUMPTIONS
For purposes of preparing the table below, indicating the percentage of
initial Certificate Principal Balance outstanding and the weighted average
life of the Class A Certificates under certain prepayment scenarios, the
following assumptions, among others, (the "MODELING ASSUMPTIONS") have been
made:
S-31
<PAGE>
(a)the Mortgage Loans consist of eight groups with the following
characteristics:
<TABLE>
<CAPTION>
MORTGAGE RATE WEIGHTED CUT-OFF WEIGHTED
LESS TRUSTEE AND MORTGAGE AVERAGE DATE AVERAGE NEXT
GROUP SERVICING FEE RATES RATE REMAINING TERM SEASONING BALANCE RATE RESET DATE
- ----- ------------------- -------- -------------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1 6.34968 6.72788 334 27 342,037,375.75 April 1, 1998
2 6.30366 6.68187 319 43 188,826,047.96 Jan. 1, 1999
3 7.01561 7.39381 351 9 76,752,203.55 April 1, 2000
4 6.66839 7.04659 341 23 40,454,150.87 April 1, 2001
5 7.17117 7.54937 356 5 54,642,959.72 May 1, 2002
6 7.23569 7.61389 317 43 4,194,140.97 Nov. 1, 2002
7 7.27543 7.65363 358 2 20,961,145.84 July 1, 2004
8 6.49680 6.87500 360 0 373,500.00 Sept. 1, 2004
</TABLE>
(b)there are no repurchases of the Mortgage Loans;
(c)the Certificates will be purchased on September 29, 1997;
(d)distributions on the Certificates will be made on the 25th day of each
month (or, if such day is not a business day, on the following business
day), commencing in October, 1997;
(e)no Mortgage Loan is delinquent and there are no Realized Losses while
the Certificates are outstanding;
(f)there are no Prepayment Interest Shortfalls or shortfalls of interest
with regard to the Mortgage Loans; and
(g)there is no optional termination of the Trust Fund by the Servicer.
The Modeling Assumptions have been based on the weighted average
characteristics or aggregate characteristics, as applicable, of the Mortgage
Loans. The actual characteristics of many of the Mortgage Loans may vary
significantly from the Modeling Assumptions.
The prepayment model used in this Prospectus Supplement, the Constant
Prepayment Rate model ("CPR"), assumes that the outstanding principal balance
of a pool of Mortgage Loans prepays at a specified constant annual rate. In
generating monthly cash flows, this rate is converted to an equivalent
constant monthly rate. To assume CPR of 18% or any other CPR percentage is to
assume that the stated percentage (in this example 18%) of the outstanding
principal balance of the pool is prepaid over the course of a year. No
representation is made that the Mortgage Loans will prepay at that rate or any
other rate.
The actual characteristics and performance of the Mortgage Loans will differ
from the assumptions used in constructing the tables set forth below, which
are hypothetical in nature and are provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at the
same rate until maturity or that all of the Mortgage Loans will prepay at a
constant rate until maturity or that all of the Mortgage Loans could produce
slower or faster principal distributions than indicated in the tables at the
various assumptions specified, even if the weighted average remaining term to
stated maturity of the Mortgage Loans is assumed. Any difference between such
assumptions and the actual characteristics and performance as the Mortgage
Loans, or actual prepayment experience, will affect the percentage of initial
Certificate Principal Balance outstanding over time and the weighted average
life of the Class A Certificates.
S-32
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A CERTIFICATES
AT THE FOLLOWING PERCENTAGES OF CPR
---------------------------------------
DISTRIBUTION DATE 6% 12% 18% 24% 30%
- ----------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Initial Percentage..................... 100.00 100.00 100.00 100.00 100.00
September 25, 1998..................... 92.21 86.30 80.39 74.48 68.58
September 25, 1999..................... 85.37 74.70 64.73 55.46 46.90
September 25, 2000..................... 79.23 64.83 52.26 41.56 32.47
September 25, 2001..................... 73.46 56.19 42.26 31.18 22.44
September 25, 2002..................... 68.02 48.64 34.17 23.37 15.49
September 25, 2003..................... 62.90 42.15 27.59 17.49 10.65
September 25, 2004..................... 58.06 36.47 22.25 13.07 7.25
September 25, 2005..................... 53.49 31.50 17.91 9.70 4.90
September 25, 2006..................... 49.17 27.16 14.38 7.16 3.28
September 25, 2007..................... 45.17 23.35 11.51 5.25 2.17
September 25, 2008..................... 41.38 20.03 9.15 3.82 1.40
September 25, 2009..................... 37.80 17.13 7.24 2.76 0.87
September 25, 2010..................... 34.41 14.60 5.70 1.97 0.51
September 25, 2011..................... 31.20 12.39 4.45 1.37 0.26
September 25, 2012..................... 28.16 10.43 3.45 0.93 0.10
September 25, 2013..................... 25.27 8.72 2.65 0.61 0.00
September 25, 2014..................... 22.53 7.24 2.00 0.37 0.00
September 25, 2015..................... 19.92 5.95 1.49 0.19 0.00
September 25, 2016..................... 17.45 4.83 1.08 0.06 0.00
September 25, 2017..................... 15.09 3.87 0.75 0.00 0.00
September 25, 2018..................... 12.85 3.03 0.49 0.00 0.00
September 25, 2019..................... 10.68 2.31 0.29 0.00 0.00
September 25, 2020..................... 8.60 1.69 0.13 0.00 0.00
September 25, 2021..................... 6.61 1.16 0.01 0.00 0.00
September 25, 2022..................... 4.71 0.70 0.00 0.00 0.00
September 25, 2023..................... 2.89 0.31 0.00 0.00 0.00
September 25, 2024..................... 1.34 0.02 0.00 0.00 0.00
September 25, 2025..................... 0.26 0.00 0.00 0.00 0.00
September 25, 2026..................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years)*......... 10.40 6.57 4.57 3.41 2.67
</TABLE>
- --------
*The weighted average life of a Certificate is determined by (i) multiplying
the net reduction, if any, of the Certificate Principal Balance by the number
of years from the date of issuance of the Certificate to the related
Distribution Date, (ii) adding the results, and (iii) dividing the sum by the
aggregate of the net reductions of Certificate Principal Balance described in
(i) above.
This table has been prepared based on the assumptions described in the fourth
paragraph preceding this table (including the assumptions regarding the
characters and performance of the Mortgage Loans, which differ from the
actual characteristics and performance thereof) and should be read in
conjunction herewith.
S-33
<PAGE>
CHEVY CHASE BANK, F.S.B.
The Seller is a federally chartered stock savings bank. The Seller's home
office is located at 7926 Jones Branch Drive, McLean, Virginia 22102, and its
executive offices are located at 8401 Connecticut Avenue, Chevy Chase,
Maryland 20815. The Seller's telephone number is (301) 986-7000. The Seller is
subject to comprehensive regulation, examination and supervision by the Office
of Thrift Supervision ("OTS") within the Department of the Treasury and the
FDIC. Deposits at the Seller are fully insured up to $100,000 per insured
depositor by the Savings Association Insurance Fund ("SAIF"), which is
administered by the FDIC.
Based on unaudited results, at June 30, 1997, the Seller had consolidated
assets of approximately $6.2 billion, deposits of approximately $4.8 billion
and stockholders' equity of approximately $345.5 million. As a savings bank
chartered under the laws of the United States, the Seller is subject to
certain minimum regulatory capital requirements imposed under FIRREA. At June
30, 1997, the Seller's tangible, core, tier 1 risk-based and total risk-based
regulatory capital ratios were 6.48%, 6.48%, 7.19% and 13.21%, respectively.
As of such date, the Seller's capital ratios exceeded the ratios required
under FIRREA as well as the standards established for "well-capitalized"
institutions under the prompt corrective action regulations established
pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991.
The OTS has the discretion to treat a "well-capitalized" institution as an
"adequately capitalized" institution for purposes of the prompt corrective
action regulations if after notice and an opportunity for a hearing, the OTS
determines that the institution (i) is being operated in an unsafe or unsound
condition or (ii) has received and has not corrected a less than satisfactory
examination rating for asset quality, management, earnings or liquidity.
Legislation passed in 1996 requires the merger of the Bank Insurance Fund
("BIF") and the SAIF into a single Deposit Insurance Fund on January 1, 1999
but only if the thrift charter is eliminated by that date. Congress is
considering legislation in various forms that would require federal thrifts,
like the Seller, to convert their charters to national or state bank charters,
and the House Banking Committee approved a version of such legislation on June
20, 1997. In the absence of appropriate "grandfather" provisions, such
legislation could have an adverse effect on the Seller and its parent company,
the B.F. Saul Real Estate Investment Trust (the "REAL ESTATE INVESTMENT
TRUST"), because, among other things, the Real Estate Investment Trust engages
in activities that are not permissible for bank holding companies and the
regulatory capital and accounting treatment for banks and thrifts differs in
certain significant respects. While the bill approved by the House Banking
Committee contains grandfather provisions that address many of these issues,
the Seller cannot determine at this time whether, or in what form, such
legislation may eventually be enacted, and there can be no assurances that any
such legislation that is enacted will contain adequate grandfather rights for
the Seller or the Real Estate Investment Trust.
DELINQUENCY AND FORECLOSURE EXPERIENCE
As of June 30, 1997, the Servicer provided servicing for approximately
$1,865 million aggregate principal amount of residential mortgage loans. The
Mortgage Loans are being serviced in Laurel, Maryland.
S-34
<PAGE>
The following table sets forth the delinquency and foreclosure experience by
aggregate principal balance of the residential mortgage loans funded and
serviced by Chevy Chase, as a percentage of all such mortgage loans, as of the
dates indicated.
CHEVY CHASE RESIDENTIAL LOAN PORTFOLIO DELINQUENCY AND FORECLOSURE EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF JUNE 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total Portfolio(/1/).... $1,369,570 $1,391,694 $1,601,483 $1,500,534 $1,865,122
30-59 Days Past
Due(/2/)............... 2,509 594 4,964 4,686 6,940
60-89 Days Past
Due(/2/)............... 355 1,711 784 1,185 1,190
90 or more Days Past
Due(/2/)............... 6,330 5,373 4,859 4,613 6,296
Total Delinquencies as a
Percentage of Total
Portfolio.............. 0.67% 0.55% 0.66% 0.70% 0.77%
Foreclosures
Pending(/3/)........... $7,343 $5,699 $6,132 $5,789 $6,379
</TABLE>
- --------
(1) Excluding Real Estate Owned.
(2) Contractually past due.
(3) Are included in the appropriate delinquency bucket.
There can be no assurance that delinquency and foreclosure experience on the
Mortgage Loans will be similar. The information should not be considered to
reflect the credit quality of the Mortgage Loans included in the Mortgage
Pool, or as a basis for assessing the likelihood, amount or severity of losses
on the Mortgage Loans. The statistical data in the table is based on all of
the residential mortgage loans in Chevy Chase's servicing portfolio. The
Mortgage Loans may have characteristics which distinguish them from the
majority of the loans in Chevy Chase's servicing portfolio.
SERVICING
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be entitled to receive each month a Servicing Fee equal to
one-twelfth of 0.375% per annum on the Principal Balance of each Mortgage
Loan. The Servicing Fee relating to each Mortgage Loan will be retained by the
Servicer from payments and collections (including insurance proceeds and
liquidation proceeds) in respect of such Mortgage Loan. The Servicer will also
be entitled to retain as additional servicing compensation all investment
income earned on amounts on deposit in the Custodial Account and the
Certificate Account, all default charges and all prepayment, late payment and
assumption fees and certain other fees payable by a Mortgagor pursuant to the
related Mortgage Note.
The Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to
reimbursement as described herein and in the Prospectus), including all fees
and expenses payable to any Servicer and the various expenses discussed in the
Prospectus. See "Description of the Certificates--Servicing by Unaffiliated
Sellers" in the Prospectus.
ADVANCES
On each Distribution Date, the Servicer will be obligated to advance (each,
an "ADVANCE") any scheduled payments of principal and interest (net of the
related Servicing Fee) that are delinquent as of the close of business
S-35
<PAGE>
on the preceding Determination Date at any time prior to the commencement of
foreclosure proceedings with respect to such Mortgage Loan, but only if the
Servicer determines that the amount so advanced will be recoverable from
subsequent payments or collections (including insurance proceeds and
liquidation proceeds net of liquidation expenses) in respect of the affected
Mortgage Loan. Advances will be reimbursable from recoveries on the affected
Mortgage Loan and, to the extent the Servicer determines that Advances will
not be ultimately recoverable from related recoveries, from any funds on
deposit in the Custodial Account and the Certificate Account. The Servicer
will also be obligated to advance certain taxes and insurance premiums not
paid by Mortgagors on a timely basis, but only to the extent deemed
recoverable from the related Mortgage Loans. The Servicer's right of
reimbursement out of such recoveries will be prior to the rights of the Class
A Certificateholders to receive any amounts recovered with respect to such
Mortgage Loans. See "Description of the Certificates--Advances" in the
Prospectus.
THE INSURER
The following information has been supplied by MBIA Insurance Corporation
(the "INSURER") for inclusion in this Prospectus Supplement.
The Insurer is the principal operating subsidiary of MBIA Inc., a New York
Stock Exchange-listed company. MBIA Inc. is not obligated to pay the debts of
or claims against the Insurer. The Insurer is domiciled in the State of New
York and licensed to do business in and subject to regulation under the laws
of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico,
the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the
United States and the Territory of Guam. The Insurer has two European
branches, one in the Republic of France and the other in the Kingdom of Spain.
New York has laws prescribing minimum capital requirements, limiting classes
and concentrations of investments and requiring the approval of policy rates
and forms. State laws also regulate the amount of both the aggregate and
individual risks that may be insured, the payment of dividends by the Insurer,
changes in control and transactions among affiliates. Additionally, the
Insurer is required to maintain contingency reserves on its liabilities in
certain amounts and for certain periods of time.
The consolidated financial statements of the Insurer, a wholly owned
subsidiary of MBIA Inc., and its subsidiaries as of December 31, 1996 and
December 31, 1995 and for each of the three years in the period ended December
31, 1996, prepared in accordance with generally accepted accounting
principles, included in the Annual Report on Form 10-K of MBIA Inc. for the
year ended December 31, 1996 and the consolidated financial statements of the
Insurer and its subsidiaries for the six months ended June 30, 1997 and for
the periods ending June 30, 1997 and June 30, 1996 included in the Quarterly
Report on Form 10-Q of MBIA Inc. for the period ending June 30, 1997 are
hereby incorporated by reference into this Prospectus Supplement and shall be
deemed to be a part hereof. Any statement contained in a document incorporated
by reference herein shall be modified or superseded for purposes of this
Prospectus Supplement to the extent that a statement contained herein or in
any other subsequently filed document which also is incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus Supplement.
All financial statements of the Insurer and its subsidiaries included in
documents filed by MBIA Inc. pursuant to Section 13(a), 14 or 15(d) of the
Securities Exchanges Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the
Class A Certificates shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
S-36
<PAGE>
The tables below present selected financial information of the Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP").
<TABLE>
<CAPTION>
SAP
-------------------------------
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets................................. $4,476 $4,824
Liabilities..................................... 3,009 3,259
Capital and Surplus............................. 1,467 1,565
<CAPTION>
GAAP
-------------------------------
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Assets.......................................... $5,066 $5,408
Liabilities..................................... 2,262 2,412
Shareholder's Equity............................ 2,804 2,996
</TABLE>
Copies of the financial statements of the Insurer incorporated by reference
herein and copies of the Insurer's 1996 year-end audited financial statements
prepared in accordance with statutory accounting practices are available,
without charge, from the Insurer. The address of the Insurer is 113 King
Street, Armonk, New York 10504. The telephone number of the Insurer is (914)
273-4545.
The Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Policy and the Insurer set forth under the
headings "Description of the Certificates--Certificate Guaranty Insurance
Policy" and "The Insurer." Additionally, the Insurer makes no representation
regarding the Class A Certificates or the advisability of investing in the
Class A Certificates.
Moody's Investors Service, Inc. rates the claims paying ability of the
Insurer "Aaa."
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. rates the claims paying ability of the Insurer "AAA."
Fitch Investors Service, L.P. rates the claims paying ability of the Insurer
"AAA."
Each rating of the Insurer should be evaluated independently. The ratings
reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability to pay claims on its policies
of insurance. Any further explanation as to the significance of the above
ratings may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Class A
Certificates, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the Class A
Certificates. The Insurer does not guaranty the market price of the Class A
Certificates nor does it guaranty that the ratings on the Class A Certificates
will not be revised or withdrawn.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Two separate REMIC elections will be made with respect to the Trust Fund for
federal income tax purposes (the REMICs formed thereby being referred to as
"REMIC I" and "REMIC II", respectively). Upon the issuance of the
Certificates, Orrick, Herrington & Sutcliffe LLP, counsel to the Depositor,
will deliver its opinion generally to the effect that, assuming compliance
with all provisions of the Pooling and Servicing Agreement, for federal income
tax purposes, REMIC I and REMIC II will each qualify as a REMIC under Sections
860A through 860G of the Code.
S-37
<PAGE>
The assets of REMIC I will consist of the Mortgage Loans, any property
received upon foreclosure of the Mortgage Loans, such assets as from time to
time are deposited in the Custodial Account and in the Certificate Account,
any hazard or other insurance policies with respect to the Mortgage Loans and
any proceeds of such policies. For federal income tax purposes, (i) the
separate non-certificated regular interests in REMIC I will be the "regular
interests" in REMIC I and will constitute the assets of REMIC II, (ii) the
Class R-I Certificates will be the sole class of "residual interests" in REMIC
I, (iii) the Class A Certificates and Class S Certificates will be the
"regular interests" in, and generally will be treated as debt obligations of,
REMIC II, and (iv) the Class R-II Certificates will be the sole class of
"residual interests" in REMIC II.
For federal income tax reporting purposes, the Class A Certificates will not
be treated as having been issued with original issue discount. The prepayment
assumption that will be used in determining the rate of accrual of original
issue discount, market discount and premium, if any, for federal income tax
purposes will be based on the assumption that, subsequent to the date of any
determination the Mortgage Loans will prepay at a rate equal to 18% CPR. No
representation is made that the Mortgage Loans will prepay at that rate or at
any other rate. See "Certain Federal Income Tax Consequences--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount" in the
Prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
REGULATIONS") under sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers
of the Class A Certificates should be aware that Section 1272(a)(6) of the
Code and the OID Regulations do not adequately address certain issues relevant
to, or applicable to, prepayable securities bearing a variable rate of
interest such as the Class A Certificates. In the absence of other authority,
the Servicer intends to be guided by certain principles of the OID Regulations
applicable to variable rate debt instruments in determining whether such
Certificates should be treated as issued with original issue discount and in
adapting the provisions of Section 1272(a)(6) of the Code to such Certificates
for the purpose of preparing reports furnished to Certificateholders and the
IRS. Because of the uncertainties concerning the application of Section
1272(a)(6) of the Code to such Certificates and because the rules relating to
debt instruments having a variable rate of interest are limited in their
application in ways that could preclude their application to such Certificates
even in the absence of Section 1272(a)(6) of the Code, the IRS could assert
that the Class A Certificates should be governed by some other method not yet
set forth in regulations or should be treated as having been issued with
original issue discount. Prospective purchasers of the Class A Certificates
are advised to consult their tax advisors concerning the tax treatment of such
Certificates.
The Servicer believes that, if the Class A Certificates were determined to
have been issued with original issue discount, a reasonable application of the
principles of the OID Regulations to the Class A Certificates generally would
be to report all income with respect to such Certificates as original issue
discount for each period, computing such original issue discount (i) by
assuming that the value of the applicable index will remain constant for
purposes of determining the original yield to maturity of each such class of
Certificates and projecting future distributions on such Certificates, thereby
treating such Certificates as fixed rate instruments to which the original
issue discount computation rules described in the Prospectus can be applied,
and (ii) by accounting for any positive or negative variation in the actual
value of the applicable index in any period from its assumed value as a
current adjustment to original issue discount with respect to such period. See
"Certain Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC
Regular Certificates--Original Issue Discount" in the Prospectus.
In certain circumstances the OID Regulations permit the holder of a debt
instrument to recognize original issue discount under a method that differs
from that used by the issuer. Accordingly, the holder of a Class A Certificate
may be able to select a method for recognizing original issue discount that
differs from that used by the Servicer in preparing reports to the
Certificateholders and the IRS.
The Class A Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(5)(A)
of the Code generally in the same proportion that the assets of the Trust Fund
would be so treated. In addition, interest on the Class A Certificates will be
treated as "interest on
S-38
<PAGE>
obligations secured by mortgages on real property" under Section 856(c)(3)(B)
of the Code generally to the extent that such Class A Certificates are treated
as "real estate assets" under Section 856(c)(5)(A) of the Code. Moreover, the
Class A Certificates will be "qualified mortgages" within the meaning of
Section 860G(a)(3) of the Code. However, prospective investors in Class A
Certificates that will be generally treated as assets described in Section
860G(a)(3) of the Code should note that, notwithstanding such treatment, any
repurchase of such a Certificate pursuant to the right of the Servicer to
repurchase such Class A Certificates may adversely affect any REMIC that holds
such Class A Certificates if such repurchase is made under circumstances
giving rise to a Prohibited Transaction Tax. See "Pooling and Servicing
Agreement--Termination" herein and "Certain Federal Income Tax Consequences--
REMICs--Characterization of Investments in REMIC Certificates" in the
Prospectus.
For further information regarding federal income tax consequences of
investing in the Class A Certificates, see "Certain Federal Income Tax
Consequences--REMICs" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Class A Certificates, see "Certain Federal Income Tax
Consequences--REMIC Trust Funds" in the Prospectus.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans and certain other retirement plans and
arrangements that are subject to ERISA or Section 4975 of the Code ("PLANS"),
including, but not limited to, insurance company general or separate accounts,
collective investment funds and other accounts in which "plan assets" of any
Plan are invested, should review carefully the discussion under "ERISA
Considerations" in the Prospectus and should consult with their legal advisers
as to whether the purchase or holding of Class A Certificates could give rise
to a transaction that is prohibited or not otherwise permissible under either
ERISA or Section 4975 of the Code.
The Depositor believes that the Class A Certificates will constitute an
Exempt Series for purposes of applying PTCE 83-1. See "ERISA Considerations-
Prohibited Transactions Class Exemptions" in the Prospectus. In addition, the
purchase or holding of the Class A Certificates by or on behalf of, or with
"plan assets" of, any Plan may be eligible for exemptive relief under the
Underwriter's PTE, as described under "ERISA Considerations--Underwriter's
PTE" in the Prospectus. The Underwriter believes that conditions (a) through
(d) to the availability of the Underwriter's PTE, as described under "ERISA
Considerations--Underwriter's PTE" in the Prospectus, are satisfied with
respect to the Class A Certificates and that condition (i) set forth therein
is likely to be satisfied. Whether or not the other conditions of the
Underwriter's PTE are met will depend upon the particular circumstances at the
time the Class A Certificates are acquired by or on behalf of, or with "plan
assets" of the Plan.
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 from the
Seller.
PLAN OF DISTRIBUTION
The Depositor has entered into an underwriting agreement (the "UNDERWRITING
AGREEMENT") with Credit Suisse First Boston Corporation, an affiliate of the
Depositor, as underwriter (the "UNDERWRITER"). The Underwriting Agreement
provides that the obligations of the Underwriter are subject to certain
conditions precedent, and that the Underwriter will be obligated to purchase
all of the Class A Certificates if any are purchased.
The Underwriter has advised the Depositor that it proposes 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.
S-39
<PAGE>
The Underwriter 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 and any purchasers of the Class A Certificates for whom the
Underwriter may act as agent.
The Underwriter and any dealers that participate with the Underwriter in the
distribution of the Class A 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 Depositor has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or contribute to payments which the Underwriter may be required to
make in respect thereof.
EXPERTS
The consolidated financial statements of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996 incorporated by reference into this
Prospectus Supplement have been audited by Coopers & Lybrand, L.L.P.,
independent accountants, as set forth in their report thereon, incorporated by
reference herein in reliance upon the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
The legality of the Class A Certificates and the material federal income tax
consequences of the Class A Certificates will be passed upon for the Depositor
by Orrick, Herrington & Sutcliffe LLP, New York, New York. The legality of the
Class A Certificates will be passed upon for the Underwriter by Orrick,
Herrington & Sutcliffe LLP, New York, New York.
RATINGS
It is a condition to the issuance of the Class A Certificates that they be
rated "AAA" by S&P and "Aaa" by Moody's. Such ratings are based on the claims
paying ability of the Insurer. The ratings on mortgage pass-through
certificates address the likelihood of the receipt by certificateholders of
all distributions on the underlying mortgage loans to which they are entitled.
Such rating opinions address the structural and legal aspects associated with
the certificates, including the nature of the underlying mortgage loans.
Ratings on mortgage pass-through certificates do not represent an assessment
of the likelihood that principal prepayments will be made by mortgagors or the
degree to which such prepayments might differ from those originally
anticipated, and do not address the possibility that certificateholders might
suffer a lower than anticipated yield.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organizations. Each security rating should be evaluated independently
of any other security rating. In addition, a security rating does not address
the frequency of prepayments of Mortgage Loans or the corresponding effect on
yield to investors. See "Certain Yield and Prepayment Considerations" herein.
S-40
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
Advance......................................................... S-35
Agreement....................................................... S-27
Available Distribution Amount................................... S-5, S-23
Bankruptcy Proceeding........................................... S-26
BIF............................................................. S-34
Book-Entry Certificates......................................... S-21
Business Day.................................................... S-27
Certificate Account............................................. S-25
Certificate Principal Balance................................... S-21
Certificate Rate................................................ S-5, S-24
Certificateholders.............................................. S-1
Certificates.................................................... S-1, S-21
Chevy Chase..................................................... S-1
Civil Relief Act................................................ S-10
Civil Relief Act Shortfalls..................................... S-5
Class A Certificates............................................ S-1
Class A Interest Distribution Amount............................ S-5, S-23
Class A Principal Distribution Amount........................... S-24
Class R Certificates............................................ S-1, S-4, S-21
Class S Certificates............................................ S-1
Class S Interest Distribution Amount............................ S-25
Closed Loans.................................................... S-21
Commission...................................................... S-3
Convertible Mortgage Loans...................................... S-20, S-30
CPR............................................................. S-32
Custodial Account............................................... S-25
Debt Service Reduction.......................................... S-26
Deficiency Amount............................................... S-27
Deficient Valuation............................................. S-26
Definitive Certificate.......................................... S-11, S-21
Deleted Mortgage Loan........................................... S-29
Depositor....................................................... S-1
Determination Date.............................................. S-5, S-23
Distribution Date............................................... S-2
DTC............................................................. S-2
Due Date........................................................ S-5, S-23
Due Period...................................................... S-5, S-23
ERISA........................................................... S-12
Excess Overcollateralization Amount............................. S-26
FDIA............................................................ S-14
FDIC............................................................ S-14
Financial Intermediary.......................................... S-21
FIRREA.......................................................... S-14
Five Year Fixed Period Mortgage Loans........................... S-15
GAAP............................................................ S-37
Index........................................................... S-7, S-15, S-19
Insured Payment................................................. S-6, S-27
Insurer......................................................... S-1, S-36
Insurer Premium Amount.......................................... S-23
Insurer's Fiscal Agent.......................................... S-27
</TABLE>
S-41
<PAGE>
<TABLE>
<S> <C>
IRS.................................................................. S-38
Liquidated Loan...................................................... S-26
Maximum Mortgage Rate................................................ S-15
Maximum Net Mortgage Rate............................................ S-20
Minimum Mortgage Rate................................................ S-15
Minimum Net Mortgage Rate............................................ S-20
Modeling Assumptions................................................. S-31
Moody's.............................................................. S-1
Mortgage Loans....................................................... S-1
Mortgage Pool........................................................ S-1
Net Mortgage Rate.................................................... S-20
Note Margin.......................................................... S-7, S-15
Notice............................................................... S-27
OID Regulations...................................................... S-38
One Year Fixed Period Mortgage Loans................................. S-15
OTS.................................................................. S-34
Overcollateralization Deficit........................................ S-24
Overcollateralization Increase Amount................................ S-25
Overcollateralization Reduction Amount............................... S-26
Owner................................................................ S-27
Periodic Rate Cap.................................................... S-15
Plans................................................................ S-39
Policy............................................................... S-1
Pooling and Servicing Agreement...................................... S-4, S-14
Prepayment Interest Shortfall........................................ S-10
Prepayment Period.................................................... S-5, S-23
Principal Balance.................................................... S-23
Real Estate Investment Trust......................................... S-34
Realized Loss........................................................ S-26
Registration Statement............................................... S-3
REMIC................................................................ S-2
Replacement Mortgage Loan............................................ S-29
Required Overcollateralization Amount................................ S-25
Residual Certificates................................................ S-21
Rules................................................................ S-22
S&P.................................................................. S-1
SAIF................................................................. S-34
SAP.................................................................. S-37
Seller............................................................... S-1
Senior Certificates.................................................. S-4
Servicer............................................................. S-14
Servicing Fee........................................................ S-10
Servicing Fee Rate................................................... S-10, S-20
Seven Year Fixed Period Mortgage Loans............................... S-15
SMMEA................................................................ S-12
Stated Principal Balance............................................. S-21
Subordinated Certificates............................................ S-4
Ten Year Fixed Period Mortgage Loans................................. S-15
Three Year Fixed Period Mortgage Loans............................... S-15
Trust Fund........................................................... S-1, S-4
Trustee.............................................................. S-14
Trustee Fee.......................................................... S-10
</TABLE>
S-42
<PAGE>
<TABLE>
<S> <C>
Trustee Fee Rate.................................................... S-10, S-20
Underwriter......................................................... S-1, S-39
Underwriting Agreement.............................................. S-39
</TABLE>
S-43
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLE-
MENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR BY
THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTI-
TUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURI-
TIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE ANY SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
SINCE SUCH DATE.
------------
INDEX
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Summary of Terms........................................................... S-4
Risk Factors............................................................... S-13
Description of the Mortgage Loans ......................................... S-14
Description of the Certificates............................................ S-21
Certain Yield and Prepayment Considerations................................ S-30
Chevy Chase Bank, F.S.B. .................................................. S-34
Servicing.................................................................. S-35
The Insurer................................................................ S-36
Certain Federal Income Tax Consequences ................................... S-37
ERISA Considerations ...................................................... S-39
Use of Proceeds............................................................ S-39
Plan of Distribution....................................................... S-39
Experts.................................................................... S-40
Legal Matters.............................................................. S-40
Ratings.................................................................... S-40
Index of Principal Definitions............................................. S-41
PROSPECTUS
Prospectus Supplement...................................................... 2
Additional Information..................................................... 2
Incorporation of Certain Information by Reference.......................... 2
Summary of Terms........................................................... 4
Risk Factors............................................................... 18
The Trust Fund............................................................. 23
The Depositor.............................................................. 35
Use of Proceeds............................................................ 35
Yield Considerations....................................................... 36
Maturity and Prepayment Considerations..................................... 38
Description of the Certificates............................................ 40
Credit Support............................................................. 67
Description of Insurance................................................... 71
Certain Legal Aspects of the Mortgage Loans and Contracts.................. 79
Certain Federal Income Tax Consequences.................................... 99
ERISA Considerations....................................................... 122
Legal Investment........................................................... 127
Plan of Distribution....................................................... 128
Legal Matters.............................................................. 129
Index of Terms............................................................. 130
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$728,241,524
(Approximate)
CHEVY CHASE BANK, F.S.B.
MORTGAGE-BACKED PASS-THROUGH
CERTIFICATES
SERIES 1997-CCB1
CLASS A
CHEVY CHASE BANK, F.S.B.
Seller and Servicer
Credit Suisse First Boston
Mortgage Securities Corp.
Depositor
PROSPECTUS SUPPLEMENT
CREDIT | FIRST
SUISSE | BOSTON
- -------------------------------------------------------------------------------
