<PAGE>
RULE NO. 424(b)(2)
REGISTRATION NO. 333-33807
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE +
+SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED WITHOUT DELIVERY +
+OF A FINAL PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS PROSPECTUS SUPPLEMENT +
+AND THE ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, SEPTEMBER 22, 1997
$
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER , 1997
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.,
DEPOSITOR
WILSHIRE MORTGAGE FUNDING COMPANY V, INC.,
UNAFFILIATED SELLER
WILSHIRE SERVICING CORPORATION,
SERVICER
WILSHIRE FUNDING CORPORATION MORTGAGE-BACKED CERTIFICATES, SERIES 1997-WFC1
The Wilshire Funding Corporation Mortgage-Backed Certificates, Series 1997-
WFC1 (the "CERTIFICATES") will represent beneficial interests in a trust (the
"TRUST"), the assets of which (the "TRUST FUND") will consist primarily of a
pool of fixed and adjustable rate, closed-end loans secured by mortgages on
residential one- to four-family properties (the "MORTGAGE LOANS")
purchased by Wilshire Funding Corporation (the "WILSHIRE SELLER") in the
ordinary course of its business and conveyed, together with certain
related property described herein, to Wilshire Mortgage Funding Company
V, Inc. (the "SELLER"). The Seller will convey such property to Credit
Suisse First Boston Mortgage Securities Corp. (the "DEPOSITOR"),
which will convey it to the Trust. The Trust will be created and
the Certificates will be issued pursuant to a Pooling and
Servicing Agreement, dated as of September 15, 1997 (the "POOLING
AND SERVICING AGREEMENT"), among the Depositor, Wilshire
Servicing Corporation, as Master Servicer and Bankers Trust
Company of California, N.A., as Trustee and Back-Up Servicer.
See "Description of the Certificates" herein.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CERTIFICATE RATING FINAL
BALANCE OR PASS-THROUGH (FITCH/MOODY'S SCHEDULED
NOTIONAL BALANCE RATE /DCR) DISTRIBUTION DATE(1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-I Certificates.. $ %
Class A-II Certificates. $ (2)
Class A-III
Certificates........... $ (2)
Class IO Certificates... $ (4)
Class PO Certificates... $ (5)
Class M-1 Certificates.. $ (3)
Class M-2 Certificates.. $ (3)
Class M-3 Certificates.. $ (3)
</TABLE>
- --------------------------------------------------------------------------------
(1) The Final Scheduled Distribution Date is the Distribution Date occurring in
the second month following the month in which the latest scheduled maturity
date for any Mortgage Loan occurs. See "Certain Yield and Prepayment
Considerations" herein.
(2) The Pass-Through Rates with respect to the Class A-II and Class A-III
Certificates are variable, and will be calculated as set forth herein under
"Description of the Certificates--Distributions in Respect of Interest and
Principal--Interest Distribution Amounts."
(3) The Pass-Through Rates with respect to the Class M Certificates are fixed,
subject to the limitations described herein.
(4) The Class IO Certificates are "interest only" certificates and will not be
entitled to distributions of principal. Interest will accrue on the
Notional Amount of the Class IO Certificates at a variable Pass-Through
Rate calculated as set forth herein under "Description of the
Certificates--Distributions in Respect of Interest and Principal--Interest
Distribution Amounts."
(5) The Class PO Certificates are "principal only" certificates and will not be
entitled to distributions of interest.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" HEREIN ON PAGE S-14 AND PAGE 18 OF THE PROSPECTUS.
THE OFFERED CERTIFICATES (DEFINED HEREIN) WILL NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF THE DEPOSITOR, THE TRUSTEE, THE WILSHIRE SELLER, THE SELLER,
THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. THE OFFERED
CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Underwriter proposes to offer the Offered Certificates from time to time
in negotiated transactions or otherwise, at prices to be determined at the time
of sale. Proceeds to the Depositor from the sale of all Classes of Offered
Certificates will be approximately % of the Certificate Principal Balance
thereof, plus accrued interest thereon from September , 1997, before
deducting expenses payable by the Depositor, estimated at $ . For
further information with respect to the plan of distribution and any discounts,
commissions or profits that may be deemed underwriting discounts or
commissions, see "Underwriting" herein.
The Offered Certificates are offered by Credit Suisse First Boston
Corporation (the "UNDERWRITER") when, as and if delivered to and accepted by
the Underwriter, subject to prior sale, withdrawal or modification of the offer
without notice, the approval of counsel and other conditions. It is expected
that the Offered Certificates will be delivered through the Same Day Funds
Settlement System of The Depository Trust Company ("DTC"), on or about
September 29, 1997.
CREDIT SUISSE FIRST BOSTON
The date of this Prospectus Supplement is September , 1997.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
---------------
The Certificates will be part of a separate series of Conduit Mortgage and
Manufactured Housing Pass-Through Certificates being offered by the Depositor
from time to time pursuant to a Prospectus dated September , 1997 (the
"PROSPECTUS"), of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains important
information about the Offered Certificates that is not contained herein, and
prospective investors are urged to read both this Prospectus Supplement and
the Prospectus in full. Sales of the Offered Certificates may not be
consummated unless the purchaser has received both this Prospectus Supplement
and the Prospectus.
---------------
AVAILABLE INFORMATION
The Depositor, as sponsor of the Trust, has filed a Registration Statement
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), with the
Securities and Exchange Commission (the "COMMISSION") with respect to the
Certificates offered pursuant to this Prospectus Supplement and the related
Prospectus. This Prospectus Supplement and the related Prospectus, which form
a part of the Registration Statement, omit certain information contained in
such Registration Statement pursuant to the Rules and Regulations of the
Commission. The Registration Statement can be inspected and copied at the
Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington,
D.C., and the Commission's regional offices at Seven World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 or electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval system at the
Commission's web site (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued (which will occur under
the limited circumstances described herein), unaudited monthly and unaudited
annual reports concerning the Trust will be sent by the Trustee to Cede & Co.,
as the nominee of DTC and registered holder of the Offered Certificates. So
long as the Offered Certificates are in book-entry form, DTC will supply such
reports to Beneficial Owners (as defined herein) in accordance with its normal
procedures. Such reports will not contain financial information that has been
examined and reported upon by an independent or certified public accountant.
See "Description of the Certificates--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 Offered Certificates. See the "Index of
Principal Definitions" in this Prospectus Supplement for the location of the
definitions of certain capitalized terms. See the "Index of Terms" in the
Prospectus for the location of the definitions of capitalized terms not
otherwise defined in this Prospectus Supplement.
UNTIL THE DATE 90 DAYS FROM THE DATE HEREOF ALL DEALERS EFFECTING
TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement.
Securities Issued........... The Certificates will be issued pursuant to a
pooling and servicing agreement (the "POOLING
AND SERVICING AGREEMENT") to be dated as of
September 15, 1997 among the Depositor, the
Master Servicer, the Trustee and the Back-Up
Servicer.
The Certificates will consist of the following
eleven classes (each, a "CLASS"): (i) the Class
A-I Certificates, Class A-II Certificates and
Class A-III Certificates (collectively, the
"CLASS A CERTIFICATES"); (ii) the Class IO
Certificates; (iii) the Class PO Certificates;
(iv) the Class M-1 Certificates, Class M-2
Certificates and Class M-3 Certificates
(collectively, the "CLASS M CERTIFICATES"); and
(v) the Class B-1 Certificates, Class B-2
Certificates and Class B-3 Certificates
(collectively, the "CLASS B CERTIFICATES"). The
Class A Certificates, Class IO Certificates and
Class PO Certificates are referred to herein
collectively as the "SENIOR CERTIFICATES." The
Class M Certificates and Class B Certificates
are referred to herein as the "SUBORDINATE
CERTIFICATES." The Class A-I Certificates and
Subordinate Certificates are referred to herein
as the "GROUP I CERTIFICATES."
The Trust will also issue a "residual interest"
with respect to each REMIC held by the Trust
(collectively, the "RESIDUAL CERTIFICATES").
Only the Senior Certificates and the Class M
Certificates (the "OFFERED CERTIFICATES") are
offered hereby.
Payments of principal and interest on the Class
A-I, Class IO, Class PO and Subordinate
Certificates will derive primarily from the Pool
I Loans. Payments of principal and interest on
the Class A-II Certificates will derive
primarily from the Pool II Loans. Payments of
principal and interest on the Class A-III
Certificates will derive primarily from the Pool
III Loans.
Securities Offered.......... The Offered Certificates (other than the Class IO
Certificates) will be issued in book-entry form
in minimum denominations of $25,000 and integral
multiples of $1 in excess thereof. The Class IO
Certificates will be issued in book-entry form
in minimum denominations of 20% Percentage
Interests. The Offered Certificates initially
will be represented by certificates registered
in the name of Cede & Co., as the nominee of
DTC. See "Description of the Certificates--Book-
Entry Registration" herein and "Risk Factors--
Limitation on Exercise of Rights Due to Book
Entry Registration" in the Prospectus.
The Offered Certificates will evidence undivided
interests in the Mortgage Loans and all other
assets of the Trust Fund.
S-3
<PAGE>
The Offered Certificates will not represent
interests in or obligations of the Depositor,
the Wilshire Seller, the Seller, the Master
Servicer, the Back-Up Servicer, the Trustee or
any of their respective affiliates. The Offered
Certificates will not be insured or guaranteed
by any governmental agency or instrumentality.
Cut-Off Date................ September 15, 1997, after application of all
payments due on or before such date (the "CUT-
OFF DATE").
Closing Date................ On or about September 29, 1997 (the "CLOSING
DATE").
Depositor................... Credit Suisse First Boston Mortgage Securities
Corp., a Delaware corporation.
Seller...................... Wilshire Mortgage Funding Company V, Inc., a
Delaware corporation. The Mortgage Loans sold by
the Seller were acquired from the Wilshire
Seller.
Master Servicer............. Wilshire Servicing Corporation, a Delaware
corporation (together with its permitted
successors and assigns, the "MASTER SERVICER").
Trustee..................... Bankers Trust Company of California, N.A., a
national banking association (the "TRUSTEE").
Distribution Dates and Distributions on the Certificates will be made on
Record Dates................ the 25th day of each month (or, if such 25th day
is not a Business Day, on the next succeeding
Business Day) (each, a "DISTRIBUTION DATE"),
commencing October 27, 1997. "BUSINESS DAY"
shall mean any day other than (i) a Saturday or
Sunday, or (ii) any day on which banking
institutions located in the States of New York
or California are authorized or obligated by law
or executive order to close. Distributions on
each Distribution Date will be made to the
holders of record of the related Offered
Certificates (the "CERTIFICATEHOLDERS") as of
the close of business on the last day of the
calendar month immediately preceding such
Distribution Date (each, a "RECORD DATE"),
except that the final distribution in respect of
the Certificates will only be made upon
presentation and surrender of the Certificates
at the office or agency appointed by the Trustee
for that purpose in New York, New York.
Distributions............... Interest Distributions. Holders of each Class of
Senior Certificates (other than the Class PO
Certificates) will be entitled to receive
interest distributions in an amount equal to one
month's interest at the applicable Pass-Through
Rate on the Certificate Principal Balance or
Notional Amount of such Class on each
Distribution Date in the manner and priority set
forth herein and to the extent of the Available
Distribution Amount for such Distribution Date.
Holders of each Class of the Class M Certificates
will be entitled to receive interest
distributions in an amount equal to one month's
S-4
<PAGE>
interest at the applicable Pass-Through Rate on
the Certificate Principal Balance of such Class
on each Distribution Date in the manner and
priority set forth herein and to the extent
payable from the Available Distribution Amount
for such Distribution Date remaining after (i)
distributions of principal and interest to the
Senior Certificates and (ii) distributions of
interest and principal to any Class of Class M
Certificates having a higher payment priority.
Interest shortfalls resulting from mortgagor
prepayments and the Relief Act will also be
allocated to all of the Offered Certificates in
reduction of their interest distributions to the
extent and in the manner set forth herein.
The Class PO Certificates are not entitled to
distributions of interest.
The Pass-Through Rate on the Class A-I
Certificates is fixed at % per annum. The Pass-
Through Rates on the Class M Certificates are
fixed, subject to the limitations described
herein. The Pass-Through Rates on the remaining
Classes of Offered Certificates (other than the
Class PO Certificates) are variable and will be
calculated as set forth herein.
See "Description of the Certificates--
Distributions in Respect of Interest and
Principal--Interest Distribution Amounts"
herein.
Principal Distributions. Holders of the Class PO
Certificates will be entitled to receive a
distribution of principal on each Distribution
Date, in the manner and priority set forth
herein, to the extent of the portion of the
Available Distribution Amount remaining after
the distributions in respect of interest to the
holders of the Senior Certificates (other than
the Class PO Certificates). Holders of the Class
PO Certificates are entitled to receive
principal payments only in relation to principal
payments (including prepayments, defaults and
liquidations) on the Class PO Mortgage Loans,
all of which are Pool I Loans. Holders of the
Class A Certificates will be entitled to receive
a distribution of principal on each Distribution
Date, in the manner and priority set forth
herein, to the extent of the portion of the
Available Distribution Amount remaining after
distributions in respect of interest to the
holders of the Senior Certificates (other than
the Class PO Certificates). If the Available
Distribution Amount is not sufficient, after
paying the full amount of interest due on the
Senior Certificates, to distribute to the
holders of the Class PO Certificates and Class A
Certificates the full amount of principal to
which they are entitled, the shortfall will be
allocated (i) to the Class PO Certificates in an
amount equal to the Class PO Principal
Percentage of the amount of the shortfall
attributable to payments due but not received on
the Class PO Mortgage Loans, and (ii) otherwise,
among the Class A Certificates on a pro rata
S-5
<PAGE>
basis in accordance with the amount of principal
to which they would otherwise be entitled.
Holders of each Class of the Subordinate
Certificates will be entitled to receive a
distribution of principal on each Distribution
Date, in the manner and priority set forth
herein, to the extent of the portion of the
Available Distribution Amount remaining after
(i) distributions in respect of interest and
principal to the holders of the Senior
Certificates and any Class of Subordinate
Certificates having a higher payment priority,
and (ii) distributions in respect of interest to
the holders of such Class of Subordinate
Certificates.
See "Description of the Certificates--
Distributions in Respect of Interest and
Principal--Principal Distribution Amounts"
herein.
Allocation of Losses;
Subordination............... The credit enhancement provided for the benefit
of the Senior Certificates primarily consists of
the subordination provided by the Subordinate
Certificates. The credit enhancement provided
for the benefit of each Class of the Class M
Certificates primarily consists of the
subordination provided by all Classes of
Subordinate Certificates subordinate thereto.
Realized Losses on the Mortgage Loans will be
allocated as follows: first, to the Class B-3
Certificates; second, to the Class B-2
Certificates; third, to the Class B-1
Certificates; fourth, to the Class M-3
Certificates; fifth, to the Class M-2
Certificates; sixth, to the Class M-1
Certificates until, in each case, the
Certificate Principal Balance of each such Class
of Certificates is reduced to zero; and
thereafter, if any such Realized Loss is on a
Class PO Mortgage Loan, to the Class PO
Certificates in an amount equal to the related
Class PO Principal Percentage of the principal
portion of such Realized Loss, and the remainder
of such Realized Loss and the entire amount of
Realized Losses on Non-Class PO Mortgage Loans
to the remaining Classes of Senior Certificates
on a pro rata basis, as described herein.
Investors in the Subordinate Certificates should
also be aware that, in order to increase the
period during which the Subordinate Certificates
remain available as credit enhancement to the
Senior Certificates, a disproportionate amount
of mortgagor prepayments and other unscheduled
recoveries with respect to the Mortgage Loans
will be allocated to the Class A Certificates at
least until the Distribution Date occurring in
October 2002. This allocation has the effect of
accelerating the amortization of the Class A
Certificates while, in the absence of Realized
Losses on the Mortgage Loans, increasing the
respective percentage interest in the Principal
Balance of the Mortgage Loans evidenced by the
Subordinate Certificates.
Further, investors in the Subordinate
Certificates should be aware that certain of the
Mortgage Loans in Pool II and Pool III may,
S-6
<PAGE>
under certain circumstances, be subject to
negative amortization from time to time, which
may result in cash flow shortfalls which could
reduce payments to the Subordinate Certificates
with the lowest payment priority.
The Offered Certificates are not insured or
guaranteed by any governmental agency or
instrumentality or by the Depositor, the
Wilshire Seller, the Seller, the Master
Servicer, the Trustee, the Back-Up Servicer or
any affiliate thereof.
See "Description of the Certificates--Allocation
of Losses; Subordination" herein.
Prepayment Interest If, on any Distribution Date, and as a result of
Shortfalls.................. full or partial principal prepayments on the
Mortgage Loans during the related Prepayment
Period, the amount of interest due on such
Mortgage Loans is less than a full month's
interest on such Mortgage Loans, the Master
Servicer will be required to remit to the
Certificate Account the lesser of (x) the amount
of such insufficiency due to such prepayments
and (y) the aggregate Master Servicing Fee and
Servicing Fee payable on such Distribution Date;
provided that the Servicing Fee with respect to
the PHH Mortgage Loans will only be available on
such Distribution Date in the case of principal
prepayments in full on the PHH Mortgage Loans.
The Master Servicer will be required to remit
such amount (each such amount, "PREPAYMENT
INTEREST") not later than the close of business
on each Master Servicer Remittance Date. The
excess of any such insufficiency over the
portion of the aggregate Master Servicing Fee
and Servicing Fee described above, is the
"PREPAYMENT INTEREST SHORTFALL" for such
Distribution Date.
The amount of any Prepayment Interest Shortfalls
with respect to any Distribution Date will be
deducted from the amount of interest due on all
Classes of the Certificates (other than the
Class PO Certificates) on such Distribution Date
on a pro rata basis.
Special Prepayment The rate and timing of principal payments on the
Considerations.............. Offered Certificates will differ, and will
depend on, among other things, the rate and
timing of principal payments (including
prepayments, defaults, liquidations and
purchases of Mortgage Loans due to a breach of
representation and warranty) on the Mortgage
Loans. As is the case with mortgage-backed
securities generally, the Offered Certificates
are subject to substantial inherent cash flow
uncertainties because the Mortgage Loans may be
prepaid at any time. Generally, when prevailing
interest rates increase, prepayment rates on
mortgage loans tend to decrease, resulting in a
slower return of principal to investors at a
time when reinvestment at such higher prevailing
rates would be desirable. Conversely, when
prevailing interest rates decline, prepayment
rates on mortgage loans tend to increase,
resulting in a faster
S-7
<PAGE>
return of principal to investors at a time when
reinvestment at comparable yields may not be
possible.
Investors in the Offered Certificates should be
aware that 8.97% of the Mortgage Loans will be
secured by Junior Mortgage Loans. Generally,
Junior Mortgage Loans are not viewed by
Mortgagors as permanent financing. Accordingly,
such Mortgage Loans may experience a higher rate
of prepayment than first lien mortgage loans.
The multiple Class structure of Offered
Certificates results in the allocation of
payments among certain Classes as follows:
Class A Certificates: Scheduled and unscheduled
principal payments (including prepayments) on
the Pool I Loans will be distributed to the
Group I Certificates and Class PO Certificates,
except under certain circumstances set forth
herein. For example, after the Certificate
Principal Balance of the Class A-I Certificates
has been reduced to zero, certain amounts of
unscheduled principal payments on the Pool I
Loans will be distributed to the Class A-II and
Class A-III Certificates under the circumstances
set forth herein.
Scheduled and unscheduled principal payments on
the Pool II Loans and Pool III Loans will be
distributed to the Class A-II Certificates and
Class A-III Certificates, respectively, except
under certain circumstances set forth herein.
The principal distributions and the weighted
average lives of the Class A Certificates will
be affected by the rate and timing of
unscheduled principal payments (including
prepayments, defaults and liquidations) on the
Mortgage Loans.
Investors in the Class A Certificates should also
be aware that prior to the Distribution Date
occurring in October 2002, all unscheduled
principal payments on the Pool I Loans (other
than the related Class PO Principal Percentage
of such payments with respect to the Class PO
Mortgage Loans) will be distributed to the Class
A Certificates, and prior to the Distribution
Date occurring in October 2006, and during
certain periods thereafter if certain loss and
delinquency tests have not been met, a
disproportionately large portion of such
unscheduled payments will be distributed to the
Class A Certificates. Such distributions of
principal payments will be allocated among the
Class A Certificates in the manner set forth
herein.
Class A-II Certificates and Class A-III
Certificates. Because the Pool II Loans and Pool
III Loans have different Net Mortgage Rates, the
Pass-Through Rates on the Class A-II
Certificates and Class A-III Certificates (which
vary directly with the weighted average of the
Net Mortgage Rates of the Pool II Loans and Pool
S-8
<PAGE>
III Loans, respectively) may increase or
decrease from time to time due to prepayments,
defaults and liquidations on such Mortgage
Loans. In addition, Mortgage Loans with higher
Mortgage Rates are generally more likely to be
prepaid at a faster rate under most
circumstances than are Mortgage Loans having
lower Mortgage Rates, thereby resulting in a
decrease in the Pass-Through Rate with respect
to the Class A-II Certificates and Class A-III
Certificates.
Class IO Certificates. The Pass-Through Rate on
the Class IO Certificates varies directly with
the weighted average of the Net Mortgage Rates
on the Pool I Loans, and may increase or
decrease from time to time due to prepayments,
defaults and liquidations on such Mortgage
Loans.
Certificates with Subordination Features: As
described herein, during certain periods all or
a disproportionately large percentage of
unscheduled principal payments on the Mortgage
Loans in each Pool will be allocated to the
Class A Certificates and, during certain
periods, no unscheduled principal payments will
be distributed to any Class of Subordinate
Certificates. Unless the Certificate Principal
Balances of the Class A Certificates have been
reduced to zero, the Subordinate Certificates
will not be entitled to receive unscheduled
principal payments until the Distribution Date
occurring in September 2002, and will not be
entitled to receive any such payments during
certain periods thereafter if certain loss and
delinquency tests have not been met. To the
extent that no unscheduled principal payments
are distributed on the Subordinate Certificates,
the Subordination afforded the Senior
Certificates by the Subordinate Certificates, in
the absence of offsetting Realized Losses
allocated thereto, will be increased, and the
weighted average lives of the Subordinate
Certificates will be longer than would have
otherwise been the case.
See "Description of the Certificates--
Distributions in Respect of Interest and
Principal--Principal Distribution Amounts" and
"Certain Yield and Prepayment Considerations"
herein and "Maturity and Prepayment
Considerations" in the Prospectus. For further
information regarding the effect of principal
prepayments on the weighted average life of the
Offered Certificates, see the table entitled
"Percent of Initial Certificate Principal
Balance Outstanding at Various Prepayment
Speeds" herein.
Special Yield The yield to maturity on the Offered Certificates
Considerations.............. will depend on, among other things, the rate and
timing of principal payments (including
prepayments, defaults, liquidations and
purchases of Mortgage Loans due to a breach of
representation and warranty) on the Mortgage
Loans and the allocation thereof to reduce the
Certificate Principal Balance of such Class.
Prepayment Interest
S-9
<PAGE>
Shortfalls will adversely affect the yield to
investors in the Offered Certificates. See
"Description of the Certificates--Distributions
in Respect of Interest and Principal--Interest
Distribution Amounts" herein.
In general, if the Offered Certificates are
purchased at a premium and principal
distributions to such Class occur at a rate
faster than the rate assumed at the time of
purchase, the investor's actual yield to
maturity will be lower than anticipated at the
time of purchase. Conversely, if the Offered
Certificates are purchased at a discount and
principal distributions to such Class occur at a
rate slower than the rate assumed at the time of
purchase, the investor's actual yield to
maturity will be lower than anticipated at the
time of purchase.
The multiple Class structure of the Offered
Certificates causes the yield of certain Classes
to be particularly sensitive to changes in the
rates of prepayment of the Mortgage Loans and
other factors, as follows:
Class A-II Certificates and Class A-III
Certificates: The Pass-Through Rates on the
Class A-II Certificates and Class A-III
Certificates will vary directly with the
weighted average of the Net Mortgage Rates on
the Pool II Loans and Pool III Loans,
respectively. Adjustments to the Net Mortgage
Rates of the Pool II Loans and Pool III Loans
are based on the indices related to such
Mortgage Loans as most recently made available
as of a fixed number of days (generally 45 days)
prior to the adjustment date. Accordingly, the
yield to investors in the Class A-II
Certificates and Class A-III Certificates will
be affected on a delayed basis relative to
movements in the indices applicable to the Pool
II Loans and Pool III Loans. Although the
Mortgage Rate with respect to each Pool II Loan
and Pool III Loan will adjust to reflect changes
in its related index, such Mortgage Rate is
subject to any applicable periodic cap, maximum
Mortgage Rate and minimum Mortgage Rate. If an
index increases substantially between adjustment
dates, the Net Mortgage Rate may be lower than
if the Net Mortgage Rate was not subject to a
cap. Furthermore, because the Pass-Through Rates
on the Class A-II Certificates and Class A-III
Certificates are subject to adjustment, such
Pass-Through Rates will generally decrease if
the indices with respect to the Pool II Loans
and Pool III Loans, as applicable, decline.
Class IO Certificates: The yield to investors on
the Class IO Certificates will be extremely
sensitive to the rate and timing of principal
payments on the Mortgage Loans (including
prepayments, defaults and liquidations), which
may fluctuate significantly over time. A faster
than expected rate of principal payments on the
Mortgage Loans (especially the Pool I Loans
(other than the Class PO Mortgage Loans)) will
have an adverse
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effect on the yield to such investors and could
result in the failure of investors in the Class
IO Certificates to fully recover their initial
investments. In addition, the Pass-Through Rate
on the Class IO Certificates varies directly
with the weighted average of the Net Mortgage
Rates on the Pool I Loans, and may increase or
decrease from time to time due to prepayments,
defaults and liquidations on such Mortgage
Loans. If the weighted average of the Net
Mortgage Rates on the Pool I Loans with respect
to any Distribution Date is less than %, the
Pass-Through Rate on the Class IO Certificates
with respect to such Distribution Date will be
0%. The Pass-Through Rate on the Class IO
Certificates will also be affected by the
weighted average of the Net Mortgage Rates on
Pool II Loans and the Pool III Loans under the
circumstances described herein. See "Certain
Yield and Prepayment Considerations" herein.
Class PO Certificates: The amounts payable with
respect to the Class PO Certificates derive from
principal payments on the Class PO Mortgage
Loans. As a result, the yield on the Class PO
Certificates will be adversely affected by
slower than expected payments of principal on
the Class PO Mortgage Loans. Because the Class
PO Mortgage Loans have lower Net Mortgage Rates
than the Non-Class PO Mortgage Loans, and
because the Mortgage Loans with lower Net
Mortgage Rates are likely to have lower Mortgage
Rates, the Class PO Mortgage Loans are generally
likely to prepay at a slower rate than the Non-
Class PO Mortgage Loans. See "Certain Yield and
Prepayment Considerations" herein.
Certificates with Subordination Features: The
yield to investors on each Class of Subordinate
Certificates, and particularly on those Classes
of Subordinate Certificates with lower payment
priorities, will be extremely sensitive to
losses due to defaults on the Mortgage Loans
(and the timing thereof), to the extent such
losses are not covered by any other Class of
Subordinate Certificates having a lower payment
priority, because the entire amount of such
losses will be allocable to such Class or
Classes of Subordinate Certificates, as
described herein. Furthermore, as described
herein, the timing of receipt of principal and
interest by any Class of Subordinate
Certificates may be adversely affected by losses
even if such Class does not ultimately bear such
loss.
See "Certain Yield and Prepayment Considerations"
herein and "Yield Considerations" in the
Prospectus.
Advances.................... On each Master Servicer Remittance Date, the
Master Servicer will be required to advance
funds (each, an "ADVANCE") to cover any
scheduled payment of interest and principal due
on a Mortgage Loan during the related Due Period
that was not received on a timely basis by the
Master Servicer for a reason other than
prepayment of such Mortgage Loan; provided,
however, that the
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Master Servicer will not be required to make any
such Advance if it determines reasonably and in
good faith that such Advance would not be
recoverable from collections with respect to
such Mortgage Loan. The Trustee, as Back-Up
Servicer, will be obligated to make Advances
unless it determines reasonably and in good
faith that such Advances would not be
recoverable. Advances by the Master Servicer and
the Back-Up Servicer will add to the funds
available for distribution to the
Certificateholders, but the Master Servicer and
the Back-Up Servicer will be entitled to
reimbursement for such Advances from subsequent
payments on the Mortgage Loans or amounts held
in the Collection Account.
Payments on Mortgage Loans.. All payments on the Mortgage Loans will be made
by the mortgagors to a lock-box account
established at Bank of America Oregon, N.A. (the
"LOCK-BOX ACCOUNT"). On each Business Day,
appropriate amounts on deposit in the Lock-box
Account will be transferred to the Collection
Account. The Master Servicer will be entitled to
the investment income with respect to all
amounts on deposit in the Collection Account,
and will be responsible for all losses on
investments thereon.
Servicing of the Mortgage Pursuant to the Pooling and Servicing Agreement,
Loans....................... the Master Servicer will be responsible for
servicing, managing and collecting payments on
the Mortgage Loans. The PHH Mortgage Loans will
be subserviced by PHH Mortgage Services
Corporation ("PHH") and the remaining Mortgage
Loans will be subserviced by Wilshire Credit
Corporation ("WILSHIRE CREDIT" and, together
with PHH, the "SERVICERS"). The Master Servicer
will carry out such servicing activities in
accordance with customary servicing standards.
In certain limited circumstances, Wilshire
Servicing may be removed as Master Servicer, in
which event the Back-Up Servicer will be
appointed as successor servicer, subject to the
terms of the Pooling and Servicing Agreement.
The Master Servicer and the Trustee will be
responsible for certain administrative functions
including, without limitation, preparing certain
reports and computing the amounts owing to the
Certificateholders.
Optional Termination........ The Master Servicer will have the option, subject
to certain conditions, to cause the early
termination of the Trust and thereby cause early
repayment of the Certificates on any
Distribution Date on which the aggregate
outstanding Principal Balance of the Mortgage
Loans held by the Trust is reduced to 10% or
less of the aggregate outstanding principal
balance of such Mortgage Loans as of the Cut-Off
Date.
Certain Federal Income Tax
Consequences............... Two separate REMIC elections will be made with
respect to the Trust Fund for federal income tax
purposes. Upon the issuance of the Offered
Certificates, Orrick, Herrington & Sutcliffe
LLP,
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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 REO Properties, such
assets as from time to time are deposited in the
Certificate Account, any hazard or other
insurance policies with respect to the Mortgage
Loans and any proceeds thereof. 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
Senior Certificates and Subordinate 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 further information regarding the federal
income tax consequences of investing in the
Offered Certificates, see "Certain Federal
Income Tax Consequences" herein and in the
Prospectus.
ERISA Considerations........ No Plan fiduciary or other investor that proposes
to use Plan Assets to effect the purchase and
holding of the Offered Certificates may purchase
or acquire any Offered Certificates. See "ERISA
Considerations" herein and in the Prospectus.
Ratings..................... It is a condition to the original issuance of the
Offered Certificates that they receive the
following ratings from Moody's Investors
Service, Inc. ("MOODY'S"), Fitch Investors
Service, L.P. ("FITCH") and Duff & Phelps Credit
Rating Co. ("DCR").
<TABLE>
<CAPTION>
CLASS MOODY'S FITCH DCR
----- ------- ----- ---
<S> <C> <C> <C> <C>
A-I Aaa AAA AAA
A-II Aaa AAA AAA
A-III Aaa AAA AAA
IO Aaa AAA AAA
PO Aaa AAA AAA
M-1 Aa2 AA AA
M-2 A2 A A
M-3 Baa2 BBB BBB
</TABLE>
Such ratings assess the likelihood of timely
payment of interest and the ultimate payment of
principal to the Certificateholders. There is no
assurance that any rating will not be lowered or
withdrawn if, in the judgment of the assigning
entity, circumstances in the future so warrant.
Legal Investment The Offered Certificates will not constitute
Considerations.............. "mortgage related securities" for purposes of
SMMEA. Accordingly, many institutions with legal
authority to invest in comparably rated
securities may not legally be authorized to
invest in the Offered Certificates.
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<PAGE>
RISK FACTORS
In addition to the matters described elsewhere in this Prospectus Supplement
and the Prospectus, prospective investors should carefully consider, among
other things, the following factors in connection with the purchase of the
Offered Certificates:
RISKS ASSOCIATED WITH THE MORTGAGE LOANS
Nature of the Mortgagors. Approximately 29.11%, 24.36% and 11.34% of the
Mortgage Loans were originated by WMC Mortgage Corp., PHH Mortgage Services
Corporation and The Prudential Home Mortgage Company, Inc., respectively,
whose underwriting standards generally would have required the Mortgagor to
submit documentation demonstrating a good credit history. The remaining
Mortgage Loans were generally originated at least five years prior to the Cut-
off Date and underwriting criteria is generally not available with respect to
such Mortgage Loans. However, the Mortgagors with respect to such remaining
Mortgage Loans may have had imperfect credit histories, including charged-off
loans, irregular employment and previous bankruptcy filings. As of the Cut-Off
Date, a significant number of the Mortgagors have been more than 30 days
delinquent in payment of principal and interest a number of times in the past
twelve months and 0.68% of the Mortgage Loans have been modified following a
Chapter 13 bankruptcy proceeding with respect to the Mortgagor.
As a result of the foregoing, the Mortgage Loans are likely to experience
rates of delinquency, foreclosure and bankruptcy that are higher, and that may
be substantially higher, than those experienced by mortgage loans whose
mortgagors have more reliable payment histories. See "The Mortgage Loan Pools"
herein.
Loan-to-Value Ratios. The Mortgage Loans with higher Loan-to-Value Ratios
may also present a greater risk of loss. In particular, 28.08% of the Mortgage
Loans are Mortgage Loans with Loan-to-Value Ratios as of the Cut-Off Date in
excess of 80% and are not insured by a Primary Mortgage Insurance Policy that
might otherwise protect against such greater risk of loss. Many of the
Mortgage Loans have high Loan-to-Value Ratios because of the value of the
related Mortgaged Property has declined at a faster rate than the amortization
of the related Mortgage Loan. No assurance can be given that the value of such
Mortgaged Properties will not continue to decline.
Mortgage loans with high Loan-to-Value Ratios may be more likely to
experience mortgagor default and foreclosure than mortgage loans with lower
Loan-to-Value Ratios. A high rate of foreclosure on Mortgage Loans with high
Loan-to-Value Ratios is likely to result in significant losses on such
Mortgage Loans. In addition, mortgage loans with high Loan-to-Value ratios are
more likely to be subject to a judicial reduction of the loan amount in
bankruptcy or other proceedings than mortgage loans with lower Loan-to-Value
Ratios. If a court relieves a Mortgagor's obligation to repay amounts
otherwise due on a Mortgage Loan, neither the Servicer nor the Master Servicer
will be required to make an Advance in respect of such amounts, and any loss
in respect thereof may reduce the amounts available to be paid to the holders
of the Offered Certificates. See "Certain Legal Aspects of Mortgage Loans and
Contracts" in the Prospectus.
Non-Owner Occupied Properties. 5.39% and 2.21% of the Mortgage Loans are
secured by unimproved land and single-family residential property held for
investment, respectively. Such Mortgage Loans may present a greater risk of
loss, and the unimproved land may present a significantly greater risk of
loss, if the related Mortgagor experiences financial difficulties, because
such Mortgagor may be more likely to default on a Mortgage Loan secured by
non-owner occupied property than a mortgage loan secured by a primary
residence.
Balloon Loans. 9.86% of the Mortgage Loans may not be fully amortizing over
their terms to maturity and, thus, will require substantial principal payments
(i.e., a Balloon Payment, as defined herein) at their stated maturity.
Mortgage loans with Balloon Payments involve a greater degree of risk because
the ability of a mortgagor to make a Balloon Payment typically will depend
upon its ability either to timely refinance the loan or to timely sell the
related Mortgaged Property. See "The Mortgage Loan Pools--General" herein.
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<PAGE>
Junior Liens. 8.97% of the Mortgage Loans are secured by junior liens on the
related Mortgaged Properties, which liens will be subordinate to the rights of
the mortgagee under the related senior mortgage or mortgages (such Mortgage
Loans, the "JUNIOR MORTGAGE LOANS"). Accordingly, the holder of a Junior
Mortgage Loan will be subject to a loss of its mortgage if the holder of a
senior mortgage is successful in foreclosure of its mortgage since no junior
liens or encumbrances survive such a foreclosure. Also, due to the priority of
the senior mortgage, the holder of a Junior Mortgage Loan may not be able to
control the timing, method or procedure of any foreclosure action relating to
the Mortgaged Property. Investors should be aware that any liquidation,
insurance or condemnation proceeds received in respect of such Junior Mortgage
Loans will be available to satisfy the outstanding balance of such Mortgage
Loans only to the extent that the claims of such senior mortgages have been
satisfied in full, including any related foreclosure costs. For additional
information regarding mortgage loans secured by junior liens see "Risk
Factors" and "Certain Legal Aspects of the Mortgage Loans and Contracts" in
the Prospectus.
Negative Amortization Loans. 1.59% of the Pool II Loans and 22.78% of the
Pool III Loans may be subject to negative amortization from time to time prior
to their maturity (such Mortgage Loans, the "NEGATIVE AMORTIZATION LOANS").
Such negative amortization may result from either the adjustment of the
Mortgage Rate on a more frequent basis than the adjustment of the Monthly
Payment or the application of a cap on the size of the Monthly Payment. In the
first case, negative amortization results if an increase in the Mortgage Rate
occurs prior to an adjustment of the Monthly Payment on the related Mortgage
Loan and such increase causes accrued monthly interest on the Mortgage Loan to
exceed the Monthly Payment. In the second case, negative amortization results
if an increase in the Mortgage Rate causes one month's interest on a Mortgage
Loan to exceed the limit on the size of the Monthly Payment on such Mortgage
Loan. In the event that the Monthly Payment is not sufficient to pay one
month's interest on a Negative Amortization Loan, the amount of accrued
interest that exceeds the Monthly Payment on such Mortgage Loan (the "DEFERRED
INTEREST") is added to the Principal Balance of such Mortgage Loan and is to
be repaid from future Monthly Payments. Negative Amortization Loans do not
provide for the extension of their original stated maturity to accommodate
changes in their Mortgage Rate.
During a period of rising interest rates as well as immediately after
origination, the amount of interest accruing on the Principal Balance of a
Negative Amortization Mortgage Loans may exceed the amount of the Monthly
Payment thereon. As a result, a portion of the accrued interest on such
Negative Amortization Loans may become Deferred Interest, which will be added
to the Principal Balance thereof and will bear interest at the applicable
Mortgage Rate. Any such increase in the Principal Balance of a Negative
Amortization Loan could increase the Loan-to-Value Ratio of the related
Mortgage Loan. To the extent that the addition of Deferred Interest to the
Principal Balance of any Mortgage Loans causes the aggregate Principal Balance
of a Pool to increase after distributions have been made on any Distribution
Date, the amount of such increase will result in a corresponding increase in
the Certificate Principal Balance of the Class or Classes of Certificates that
are then entitled to receive payments of principal with respect to such
Mortgage Loans, in proportion to the respective amounts of such entitlements.
Any such increase in the Certificate Principal Balance of a Certificate will
lengthen the weighted average life thereof and may adversely affect yield to
the holders. In addition, with respect to certain Negative Amortization Loans,
during a period of declining interest rates, it might be expected that each
Monthly Payment on such a Mortgage Loan would exceed the amount of scheduled
principal and accrued interest on the Principal Balance thereof, and since
such excess will be applied to reduce the Certificate Principal Balance of the
related Class or Classes of Certificates, the weighted average life of such
Certificates will be reduced and may adversely affect yield to holders
thereof.
1.92% of the Mortgage Loans are Negative Amortization Loans that are also
Balloon Loans.
Limited Information. Information regarding the underwriting criteria applied
by the originators of the Mortgage Loans and the original values of the
Mortgaged Properties with respect to the Mortgage Loans that were not
purchased by the Wilshire Seller from WMC, PHMC and PHH is not available.
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<PAGE>
With respect to certain of the Mortgage Loans, information regarding the
occupancy status and purpose for such Mortgage Loans was also unavailable.
Mortgage Loan Documentation Defects. Certain of the loan files being
transferred to the Trust (the "LOAN FILES") are known by the Wilshire Seller
to have one or more of the following document defects: (i) the Loan File did
not contain the original Mortgage Note or a lost note affidavit for the
related Mortgage Loan; (ii) the Mortgage Note was missing the proper
endorsements; (iii) the Loan File did not contain the original mortgage or a
copy thereof for the related Mortgage Loan; (iv) the Loan File was missing
intervening assignments; and (v) the Loan File was missing a copy of certain
assumptions, modifications or waivers. Notwithstanding the foregoing, the
Wilshire Seller will represent and warrant that each Loan File is complete in
all material respects and will be obligated to repurchase any Mortgage Loan if
such Mortgage Loan's value to the Trust, or the Trust's interest in such
Mortgage Loan, is materially adversely affected by such documentation defect.
No Mortgage Loan with respect to which a copy of the original Mortgage is
missing will be required to be repurchased unless and until such Mortgage Loan
is to be foreclosed upon and the related Mortgage is unenforceable because the
original Mortgage is not obtainable from the public recording office. With
respect to approximately 48% of the Mortgage Loans, copies of the title
insurance policies have not been obtained. The Wilshire Seller, however, will
represent and warrant that a title policy is in full force and effect and will
be obligated to repurchase any Mortgage Loan if the Trust's interest in such
Mortgage Loan is materially adversely affected by such missing policy.
Economic Conditions. In addition to the foregoing, from time to time certain
geographic regions will experience weaker regional economic conditions and
housing markets and, consequently, may experience higher rates of loss and
delinquency than will be experienced on mortgage loans generally. For example,
a region's economic condition and housing market may be directly, or
indirectly, adversely affected by natural disasters or civil disturbances such
as earthquakes, hurricanes, floods, eruptions or riots. The economic impact of
any of these types of events may also be felt in areas beyond the region
immediately affected by the disaster or disturbance. The Mortgage Loans in the
Trust Fund may be concentrated in these regions, and such concentration may
present risks in addition to those generally present for similar mortgage-
backed securities without such concentration.
MATURITY, YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of the Offered Certificates will depend on the rate
and timing of principal payments (including prepayments, liquidations due to
defaults, or breaches of representations and warranties) on the Mortgage Loans
and the price paid by Certificateholders. Such yield may be adversely affected
by a higher or lower than anticipated rate of prepayments on the Mortgage
Loans. Prepayments are influenced by a number of factors, including prevailing
mortgage market interest rates, local and regional economic conditions and
homeowner mobility. Because of the characteristics of the Mortgage Loans, the
Mortgage Loans' maturity and prepayment experience may differ from the
maturity and prepayment experience of other, more traditional, mortgage loans.
The disproportionate allocation of unscheduled principal payments, including
principal prepayments, to the Class A Certificates will have the effect of
slowing the amortization of the Subordinate Certificates relative to the
amortization of the Mortgage Loans, which is intended to cause the Certificate
Principal Balances of the Subordinate Certificates to remain outstanding and
available to absorb Realized Losses for a longer period than such Certificates
would have been had such disproportionate allocation not been in effect. As a
result, the weighted average life of each Class of Subordinate Certificates
will likely be longer, and the total amount of Realized Losses allocated
thereto is likely to be greater, than otherwise would be the case. Because it
is impossible to accurately predict the timing and dollar amount of principal
prepayments on the Mortgage Loans, if any, that will be made, investors may
find it difficult to analyze the effect of prepayments on the yield and
weighted average life of the Offered Certificates of any given Class.
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<PAGE>
See "Certain Yield and Prepayment Considerations" herein.
CLASS IO CERTIFICATE YIELD CONSIDERATIONS
Investors in the Class IO Certificates should be aware that the yield to
maturity on such Certificates will be sensitive to both the timing of receipt
of prepayments and the overall rate of principal prepayments and defaults on
the Mortgage Loans (especially to the extent that such prepayments and
defaults pertain to the Pool I Loans), which rate may fluctuate significantly
over time. Investors in the Class IO Certificates should fully consider the
risk that a rapid rate of prepayments on the Mortgage Loans (especially the
Pool I Loans (other than the Class PO Mortgage Loans)) could result in the
failure of such investors to fully recover their investments.
CLASS PO CERTIFICATE YIELD CONSIDERATIONS
The amounts payable with respect to the Class PO Certificates derive from
principal payments on the Class PO Mortgage Loans. As a result, the yield on
the Class PO Certificates will be adversely affected by slower than expected
payments of principal on the Class PO Mortgage Loans. Because the Class PO
Mortgage Loans have lower Net Mortgage Rates than the Non-Class PO Mortgage
Loans, and because the Mortgage Loans with lower Net Mortgage Rates are likely
to have lower Mortgage Rates, the Class PO Mortgage Loans are generally likely
to prepay at a slower rate than the Non-Class PO Mortgage Loans. See "Certain
Yield and Prepayment Considerations" herein.
SUBORDINATE CERTIFICATE YIELD CONSIDERATIONS
As described herein, during certain periods all or a disproportionately
large percentage of unscheduled principal payments on the Mortgage Loans will
be allocated among the related Class A Certificates and, during certain
periods, no unscheduled principal payments will be distributed to each Class
of Subordinate Certificates. Unless the Certificate Principal Balances of the
Class A Certificates have been reduced to zero, the Subordinate Certificates
will not be entitled to receive unscheduled principal payments at least until
the Distribution Date occurring in October 2002 and, to the extent that no
unscheduled principal payments are distributed on the Subordinate
Certificates, the Subordination afforded the Senior Certificates by the
Subordinate Certificates, in the absence of offsetting Realized Losses
allocated thereto, will be increased, and the weighted average lives of the
Subordinate Certificates will be extended.
The yield to investors on each Class of Subordinate Certificates, and
particularly on those Classes of Subordinate Certificates with lower payment
priorities, will be extremely sensitive to losses due to defaults on the
Mortgage Loans (and the timing thereof), to the extent such losses are not
covered by any Class of Subordinate Certificates having a lower payment
priority, because the entire amount of such losses will be allocable to such
Class or Classes of Subordinate Certificates, as described herein.
Furthermore, as described herein, the timing of receipt of principal and
interest by any Class of Subordinate Certificates may be adversely affected by
losses even if such Class does not ultimately bear such loss.
UNAUDITED REPORTS
Unaudited monthly and unaudited annual reports, prepared by the Master
Servicer and delivered by it to the Trustee, concerning the Trust will be sent
by the Trustee to Cede & Co., as nominee of DTC and, so long as the Offered
Certificates are in book-entry form, DTC will supply such reports to
Beneficial Owners in accordance with its normal procedures. However, such
reports will not contain financial information that has been examined and
reported upon by an independent or certified public accountant.
FAILURE TO REPURCHASE DEFECTIVE MORTGAGE LOANS
The Wilshire Seller will be obligated to repurchase Mortgage Loans as to
which there exists an uncured breach of certain of its representations and
warranties, which breach materially adversely affects the value of, or
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interest of the Trust in, such Mortgage Loan. See "Description of the
Certificates--Assignment of Mortgage Loans" in the Prospectus. No assurance
can be given that the Wilshire Seller will, or will have the financial ability
to, repurchase any Mortgage Loan.
LIMITED OBLIGATIONS
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer, the Servicers, the Wilshire Seller, the
Seller, the Trustee or any of their affiliates. The only obligations of the
foregoing entities with respect to the Certificates or any Mortgage Loan will
be the obligations (if any) of the Wilshire Seller pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans and the
Master Servicer's servicing obligations under the Pooling and Servicing
Agreement (including the Master Servicer's limited obligation to make certain
Advances). The Certificates will not be guaranteed or insured by any
governmental agency or instrumentality, or by the Depositor, the Master
Servicer, the Servicers, the Wilshire Seller, the Seller, the Trustee or any
of their affiliates. Proceeds of the assets included in the Trust Fund will be
the sole source of payments on the Certificates, and there will be no recourse
to the Depositor, the Master Servicer, the Servicers, the Wilshire Seller, the
Seller, the Trustee or any other entity in the event that such proceeds are
insufficient or otherwise unavailable to make all payments provided for under
the Certificates.
LIMITATIONS AND REDUCTION OF CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the Senior Certificates
primarily consists of the subordination provided by the Subordinate
Certificates. The credit enhancement provided for the benefit of each Class of
the Class M Certificates primarily consists of the subordination provided by
all Classes of Subordinate Certificates subordinate thereto. None of the
Depositor, the Master Servicer, the Servicers, the Wilshire Seller, the
Seller, the Trustee nor any of their affiliates will have any obligation to
replace or supplement such credit enhancement, or to take any other action to
maintain any rating of the Offered Certificates.
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<PAGE>
THE MORTGAGE LOAN POOLS
GENERAL
All of the Mortgage Loans will be sold to the Depositor by the Seller on or
before the date of initial issuance of the Certificates. The Mortgage Loans
were acquired by the Wilshire Seller, which is an affiliate of the Seller,
from the various prior sellers. See "--Description of the Mortgage Loan
Sellers."
The Mortgage Pool will consist of Mortgage Loans with an aggregate principal
balance outstanding as of the Cut-Off Date, after deducting payments of
principal due on such date, of $146,745,563. The Mortgage Loans are secured by
first and junior liens on fee simple interests in (i) single family
residential real properties (representing approximately 65.48% of the Mortgage
Loans); (ii) two- to four-family residential real properties (representing
approximately 5.33% of the Mortgage Loans); (iii) unimproved land
(representing approximately 5.39% of the Mortgage Loans); (iv) multi-family
residential properties (representing approximately 1.40% of the Mortgage
Loans); (v) mixed residential/commercial properties (representing
approximately 1.49% of the Mortgage Loans); (vi) manufactured housing
contracts (representing approximately 0.49% of the Mortgage Loans); and (vii)
interests in timeshares (representing approximately 0.11% of the Mortgage
Loans) (each such property, a "MORTGAGED PROPERTY"). 12.78% of the Mortgage
Loans have a Due Date other than the first day of each month. The Mortgage
Loans will be separated into three pools ("POOL I," "POOL II" and "POOL III,"
and each, a "POOL"), designated, respectively, as the "POOL I LOANS," "POOL II
LOANS" and "POOL III LOANS." The Pool I Loans will consist of fixed-rate
Mortgage Loans. The Pool II Loans will consist of adjustable rate Mortgage
Loans (adjustable in accordance with One-Year U.S. Treasury). The Pool III
Loans will consist of adjustable rate Mortgage Loans (adjustable in accordance
with a variety of indices). All percentages of the Mortgage Loans herein are
based on the outstanding principal balances thereof as of the Cut-Off Date.
Approximately 24.36% of the Mortgage Loans were purchased by the Wilshire
Seller from PHH (the "PHH MORTGAGE LOANS"). Approximately 29.11% and 11.34% of
the Mortgage Loans were purchased by the Wilshire Seller from WMC and PHMC,
respectively.
7.26% and 5.40% of the Mortgage Loans are insured by the FHA or guaranteed
by the Department of Veterans Affairs, respectively. 15.52% of the Mortgage
Loans have Loan-to-Value Ratios over 80% and are insured by Primary Mortgage
Insurance Policies.
With respect to Mortgage Loans that have been modified, references herein to
the date of origination shall be deemed to be the date of the most recent
modification. All percentages of the Mortgage Loans described herein are
approximate percentages (except as otherwise indicated) by aggregate principal
balance as of the Cut-Off Date.
The Wilshire Seller will make certain limited representations and warranties
regarding the Mortgage Loans as of the date of issuance of the Certificates.
The Wilshire Seller will be required to repurchase any Mortgage Loan as to
which a breach of its representations and warranties with respect to such
Mortgage Loan occurs if such breach materially and adversely affects the
interests of the Certificateholders in any such Mortgage Loan.
9.86% of the Mortgage Loans will not fully amortize over their terms to
maturity (each such Mortgage Loan, a "BALLOON MORTGAGE LOAN"), leaving a
substantial portion of the original principal amount due and payable on the
respective scheduled maturity date (a "BALLOON PAYMENT"). The Balloon Mortgage
Loans have Monthly Payments generally based on 30 year amortization schedules
and have scheduled maturity dates (upon which the related Balloon Payment is
due) ranging from 3 to 37 years from the due date of the first Monthly
Payment. The existence of a Balloon Payment generally will require the related
mortgagor to refinance such Mortgage Loan or to sell the Mortgaged Property on
or prior to the scheduled maturity date. The ability of a mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the level of available mortgage rates at the time of sale or
refinancing, the mortgagor's equity in the related Mortgaged Property, the
financial condition of the mortgagor, tax laws and prevailing general economic
conditions. None of the Depositor, the Master Servicer, the Servicers, the
Wilshire Seller, the Seller or the Trustee is obligated to refinance any
Balloon Mortgage Loan.
S-19
<PAGE>
The "LOAN-TO-VALUE RATIO" with respect to each Mortgage Loan (other than the
Junior Mortgage Loans) is equal to the outstanding principal balance of such
Mortgage Loan as of the Cut-Off Date, plus, in the case of each Junior
Mortgage Loan, the aggregate outstanding principal balance of each mortgage
loan senior thereto, divided by the value of the related Mortgaged Property as
determined in accordance with a broker's price opinion obtained, in most
cases, not earlier than 18 months prior to the Cut-Off Date.
See "Certain Legal Aspects of the Mortgage Loans and Contracts--The
Contracts" in the Prospectus for information regarding the risks associated
with loans secured by manufactured housing conditional sales contracts and
installment loan agreements (the "Contracts").
POOL I
The Pool I Loans consist of 1,347 Mortgage Loans, with Mortgaged Properties
located in 46 states, the District of Columbia and the Commonwealth of Puerto
Rico. As of the Cut-Off Date, the Pool I Loans have: (i) an aggregate
Principal Balance of $85,012,843.43; (ii) individual Principal Balances
ranging from $1,105.56 to $813,946.94; and (iii) an average Principal Balance
of $63,112.73. The Mortgage Rates on the Pool I Loans range from 5.00% per
annum to 19.99% per annum, and have a weighted average Mortgage Rate of 9.06%
per annum.
The Pool I Loans have remaining terms to stated maturity ranging from 1
month to 357 months, a weighted average remaining term to stated maturity of
243 months and a weighted average seasoning of 65 months. No Pool I Loan has a
stated maturity later than June 1, 2027. 90.18% of the Pool I Loans require
Monthly Payments that will substantially amortize such Mortgage Loans by their
respective maturity dates and 9.82% of the Pool I Loans are Balloon Loans.
The weighted average Loan-to-Value Ratio of the Pool I Loans is 77.48%.
16.25% of the Mortgage Loans in Pool I have been modified.
As of the Cut-Off Date, 1.84%, 0.66% and 3.79% of the Pool I Loans are
secured by Mortgaged Properties that are Mixed-Use Properties, Multifamily
Properties and unimproved land, respectively. See "Risk Factors" herein and in
the Prospectus.
The following tables describe the Pool I Loans and the related Mortgaged
Properties as of the Cut-Off Date.
PRINCIPAL BALANCES OF THE POOL I LOANS
<TABLE>
<CAPTION>
Range of
Pincipal Balancesr
as of the Cut- Aggregate % of Aggregate
Off Number of Principal Principal
Date Pool I Loans Balance Balance
- ------------------ ------------ -------------- --------------
<S> <C> <C> <C>
$ 1 - 25,000................... 560 $ 6,149,513.86 7.23%
25,001 - 50,000................... 253 9,014,979.69 10.60
50,001 - 100,000................... 284 20,124,925.96 23.67
100,001 - 150,000................... 109 13,364,781.14 15.72
150,001 - 200,000................... 39 6,667,107.89 7.84
200,001 - 250,000................... 46 10,263,338.15 12.07
250,001 - 300,000................... 27 7,245,112.14 8.52
300,001 - 350,000................... 9 2,912,696.39 3.43
350,001 or greater.................. 20 9,270,388.21 10.90
----- -------------- ------
TOTAL............................... 1,347 $85,012,843.43 100.00%*
===== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the average unpaid principal balance of the Pool I
Loans will be approximately $63,112.73.
S-20
<PAGE>
MORTGAGE RATES ON THE POOL I LOANS
<TABLE>
<CAPTION>
Range of Aggregate % of Aggregate
Mortgage Number of Principal Principal
Rates Pool I Loans Balance Balance
-------- ------------ -------------- --------------
<S> <C> <C> <C>
6.00% or less...................... 16 $ 1,456,988.55 1.71%
6.01 - 7.00....................... 115 7,003,150.36 8.24
7.01 - 8.00....................... 194 25,970,335.26 30.55
8.01 - 9.00....................... 205 21,802,663.94 25.65
9.01 - 10.00....................... 191 9,760,122.44 11.48
10.01 - 11.00....................... 134 5,416,845.70 6.37
11.01 - 12.00....................... 171 5,489,876.31 6.46
12.01 - 13.00....................... 110 3,691,019.89 4.34
13.01 - 14.00....................... 72 1,593,555.28 1.87
14.01 - 15.00....................... 37 894,729.39 1.05
15.01 - 16.00....................... 35 837,616.96 0.99
16.01 - 17.00....................... 25 415,764.29 0.49
17.01 - 18.00....................... 29 489,078.79 0.58
18.01 - 19.00....................... 7 132,604.47 0.16
19.00 or greater.................... 6 58,491.80 0.07
----- -------------- ------
TOTAL............................. 1,347 $85,012,843.43 100.00%*
===== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Mortgage Rate on the Pool I
Loans will be approximately 9.06% per annum.
LOAN-TO-VALUE RATIOS OF THE POOL I LOANS
<TABLE>
<CAPTION>
Range of Aggregate % of Aggregate
Loan-to-Value Number of Principal Principal
Ratios Pool I Loans Balance Balance
------------- ------------ -------------- --------------
<S> <C> <C> <C>
120.01% - 125.00%................... 9 $ 971,611.97 1.14%
115.01 - 120.00.................... 12 937,832.15 1.10
110.01 - 115.00.................... 20 2,164,357.59 2.55
105.01 - 110.00.................... 22 1,729,611.13 2.03
100.01 - 105.00.................... 35 2,969,569.38 3.49
95.01 - 100.00.................... 67 6,496,409.81 7.64
90.01 - 95.00.................... 104 10,881,550.01 12.80
85.01 - 90.00.................... 85 9,143,133.80 10.76
80.01 - 85.00.................... 83 8,212,433.33 9.66
75.01 - 80.00.................... 80 8,869,603.11 10.43
70.01 - 75.00.................... 75 6,116,956.18 7.20
65.01 - 70.00.................... 61 4,707,136.17 5.54
60.01 - 65.00.................... 63 3,853,391.32 4.53
55.01 - 60.00.................... 42 2,980,317.52 3.51
50.01 - 55.00.................... 53 3,429,323.21 4.03
00.01 - 50.00.................... 400 10,078,247.51 11.85
Unavailable......................... 136 1,471,359.24 1.73
----- -------------- ------
TOTAL............................. 1,347 $85,012,843.43 100.00%*
===== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Loan-to-Value Ratio of the Pool
I Loans will be approximately 77.48%.
S-21
<PAGE>
DELINQUENCY STATUS OF THE POOL I LOANS
<TABLE>
<CAPTION>
Delinquency Aggregate % of Aggregate
Status as of the Number of Principal Principal
Cut-Off Date Pool I Loans Balance Balance
---------------- ------------ -------------- --------------
<S> <C> <C> <C>
Current.............................. 1,175 $76,603,982.67 90.11%
30 - 59 days......................... 135 6,018,265.68 7.08
60 - 89 days......................... 37 2,390,595.08 2.81
----- -------------- ------
TOTAL.............................. 1,347 $85,012,843.43 100.00%*
===== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
STATED TERM TO MATURITY OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Months Pool I Loans Balance Balance
- ------ ------------ -------------- --------------
<S> <C> <C> <C>
60 or less.......................... 368 $8,783,042.16 10.33%
61 - 120............................ 251 6,891,050.71 8.11
121 - 180............................ 193 9,926,631.88 11.68
181 - 240............................ 121 7,558,122.93 8.89
241 - 300............................ 98 9,045,729.55 10.64
301 - 360............................ 316 42,808,266.20 50.36
----- -------------- ------
TOTAL.............................. 1,347 $85,012,843.43 100.00%*
===== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average stated term to maturity of the
Pool I Loans will be approximately 243 months.
SEASONING OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Months of Number of Principal Principal
Seasoning Pool I Loans Balance Balance
- --------- ------------ -------------- --------------
<S> <C> <C> <C>
1 - 12............................ 33 $ 4,353,747.08 5.12%
13 - 24............................ 172 23,883,688.53 28.09
25 - 36............................ 54 3,771,207.23 4.44
37 - 48............................ 107 12,526,904.79 14.74
49 - 60............................ 103 8,060,440.95 9.48
61 - 84............................ 156 6,098,561.92 7.17
85 - 120........................... 337 13,512,580.05 15.89
121 or greater...................... 385 12,805,712.88 15.06
----- -------------- ------
TOTAL............................. 1,347 $85,012,843.43 100.00%*
===== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average seasoning of the Pool I Loans
will be approximately 65 months.
S-22
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
State Pool I Loans Balance Balance
- ----- ------------ -------------- --------------
<S> <C> <C> <C>
Alabama............................. 16 $ 411,566.53 0.48%
Alaska.............................. 1 32,943.60 0.04
Arizona............................. 27 1,887,959.01 2.22
Arkansas............................ 2 22,026.18 0.03
California.......................... 277 26,330,379.78 30.97
Colorado............................ 21 2,139,310.94 2.52
Connecticut......................... 28 1,817,693.81 2.14
Delaware............................ 37 824,545.66 0.97
District of Columbia................ 3 244,388.89 0.29
Florida............................. 71 3,152,511.60 3.71
Georgia............................. 73 2,075,504.19 2.44
Hawaii.............................. 7 1,268,301.44 1.49
Idaho............................... 3 402,297.34 0.47
Illinois............................ 17 1,467,241.14 1.73
Indiana............................. 4 264,687.84 0.31
Iowa................................ 4 257,320.93 0.30
Kansas.............................. 6 333,711.44 0.39
Kentucky............................ 2 36,856.82 0.04
Louisiana........................... 11 773,041.50 0.91
Maine............................... 2 165,036.02 0.19
Maryland............................ 84 3,170,228.98 3.73
Massachusetts....................... 41 2,742,845.71 3.23
Michigan............................ 11 894,557.15 1.05
Minnesota........................... 4 213,710.28 0.25
Mississippi......................... 9 238,789.87 0.28
Missouri............................ 11 1,176,576.02 1.38
Nevada.............................. 18 1,429,582.43 1.68
New Hampshire....................... 9 519,630.27 0.61
New Jersey.......................... 65 7,582,731.76 8.92
New Mexico.......................... 1 76,949.71 0.09
New York............................ 62 3,870,241.87 4.55
North Carolina...................... 36 1,916,799.05 2.25
Ohio................................ 6 224,399.48 0.26
Oklahoma............................ 10 307,769.36 0.36
Oregon.............................. 19 762,734.38 0.90
Pennsylvania........................ 32 1,738,423.90 2.04
Puerto Rico......................... 1 218,010.28 0.26
Rhode Island........................ 1 135,678.79 0.16
South Carolina...................... 20 809,544.59 0.95
Tennessee........................... 15 660,319.06 0.78
Texas............................... 215 7,635,834.25 8.98
Utah................................ 4 491,963.35 0.58
Vermont............................. 2 346,507.97 0.41
Virginia............................ 32 1,716,280.25 2.02
Washington.......................... 15 1,486,332.05 1.75
West Virginia....................... 2 146,025.04 0.17
Wisconsin........................... 8 368,707.13 0.43
Wyoming............................. 2 224,345.79 0.26
----- -------------- ------
TOTAL............................. 1,347 $85,012,843.43 100.00%*
===== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-23
<PAGE>
MORTGAGE LOAN PURPOSE OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Mortgage Loan Number of Principal Principal
Purpose Pool I Loans Balance Balance
------------- ------------ -------------- --------------
<S> <C> <C> <C>
Unknown............................ 46 $ 1,972,740.59 2.32%
Rate/Term Refinance................ 156 14,783,287.90 17.39
Purchase........................... 644 51,151,679.15 60.17
N/A................................ 226 3,518,487.88 4.14
Home Improvement................... 105 2,633,084.74 3.10
Permanent Construction............. 7 721,154.25 0.85
Debt Consolidation................. 110 5,251,834.58 6.18
Equity Refinance................... 53 4,980,574.34 5.86
----- -------------- ------
TOTAL............................ 1,347 $85,012,843.43 100.00%*
===== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
PROPERTY TYPES OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Property Number of Principal Principal
Type Pool I Loans Balance Balance
-------- ------------ -------------- --------------
<S> <C> <C> <C>
Single Family Detached.............. 858 $60,841,929.04 71.57%
Single Family Attached.............. 22 1,229,264.07 1.45
2-4 Family.......................... 49 3,536,562.12 4.16
Townhouse........................... 17 1,029,672.59 1.21
Planned Unit Development............ 30 3,890,158.00 4.58
Condominium......................... 103 8,523,554.82 10.03
Manufactured Housing Double Wide.... 10 314,177.76 0.37
Manufactured Housing Single Wide.... 12 169,991.52 0.20
Mixed Use........................... 6 1,564,428.70 1.84
Time Share.......................... 6 124,474.14 0.15
Unimproved Land..................... 226 3,225,236.80 3.79
Multi-Family........................ 8 563,393.87 0.66
----- -------------- ------
TOTAL............................. 1,347 $85,012,843.43 100.00%*
===== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
OCCUPANCY STATUS OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Occupancy Status Pool I Loans Balance Balance
- ---------------- ------------ -------------- --------------
<S> <C> <C> <C>
Primary Residence.................... 1,005 $73,351,635.22 86.28%
Second/Vacation Home................. 19 1,704,645.93 2.01
Investment Properties................ 78 4,302,086.02 5.06
Not-Applicable/1/.................... 240 5,353,059.37 6.30
Unknown.............................. 5 301,416.89 0.35
----- -------------- ------
TOTAL.............................. 1,347 $85,012,843.43 100.00%*
===== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
(/1/) Includes Mortgage Loans backed by unimproved land, Multifamily Properties
and Mixed-Use Properties.
S-24
<PAGE>
POOL II
The Pool II Loans consist of 341 Mortgage Loans, with Mortgaged Properties
located in 35 states. As of the Cut-Off Date, the Pool II Loans have: (i) an
aggregate Principal Balance of $35,582,447.23; (ii) individual Principal
Balances ranging from $1,323.44 to $1,177,229.20; and (iii) an average
Principal Balance of $104,347.35. As of the Cut-Off Date, the Mortgage Rates
on the Pool II Loans range from 4.00% per annum to 13.90% per annum, have a
weighted average Mortgage Rate of 8.09% per annum and have a weighted average
margin of 2.76%.
The Pool II Loans have remaining terms to stated maturity ranging from 6
months to 351 months, a weighted average remaining term to stated maturity of
288 months and a weighted average seasoning of 62 months. No Pool II Loan has
a stated maturity later than December 1, 2026. 99.70% of the Pool II Loans
require Monthly Payments that will substantially amortize such Mortgage Loans
by their respective maturity dates and 0.30% of the Pool II Loans are Balloon
Loans.
The weighted average Loan-to-Value Ratio of the Pool II Loans is 81.09%.
9.04% of the Mortgage Loans in Pool II have been modified.
As of the Cut-Off Date, 0.32%, 2.93% and 7.74% of the Pool II Loans are
secured by Mortgaged Properties that are Mixed-Use Properties, Multifamily
Properties and unimproved land, respectively. See "Risk Factors" herein and in
the Prospectus.
51.38% of the Pool II Loans have Mortgage Rates that adjust in accordance
with an index equal to the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of one year as reported by the Federal Reserve
Board ("ONE-YEAR CMT"). 2.41%, 10.80%, 11.86% and 5.50% of the Pool II Loans
have Mortgage Rates that adjust in accordance with the One-Year CMT commencing
approximately (i) two years after origination, (ii) three years after
origination, (iii) five years after origination and (iv) ten years after
origination, respectively. 9.67% of the Pool II Loans have Mortgage Rates that
adjust in accordance with an index equal to the weekly average yield on U.S.
Treasury securities adjusted to a constant maturity of three years as reported
by the Federal Reserve Board. The remainder of the Pool II Loans have Mortgage
Rates that adjust in accordance with the offered yields on U.S. Treasury
securities with maturities ranging from three months to ten years. The
Mortgage Rates on the Pool II Loans adjust at various intervals ranging from
monthly to once every 8 years. See the table entitled "Frequency of Mortgage
Rate Change of the Pool II Loans" below.
The Pool II Loans have a weighted average margin of 2.76%. The margins for
the Pool II Loans range from -0.69% to 8.00%. With respect to the Pool II
Loans, 9.94% have a periodic rate adjustment cap of 1.00%; 78.06% have a
periodic rate adjustment cap of 2.00%; 1.36% have a periodic rate adjustment
cap of 3.00%; and 9.20% have no periodic rate adjustment cap. The weighted
average number of months until the next reset date is approximately 18 months.
The weighted average maximum stated Mortgage Rate is 13.30%, with maximum
stated Mortgage Rates that range from 7.10% to 24.00%. The weighted average
minimum stated Mortgage Rate is 4.73%, with minimum stated Mortgage Rates that
range from 0.50% to 12.25%.
S-25
<PAGE>
The following tables describe the Pool II Loans and the related Mortgaged
Properties as of the Cut-Off Date.
PRINCIPAL BALANCES OF THE POOL II LOANS
<TABLE>
<CAPTION>
Range of
Principal Balances Aggregate % of Aggregate
as of the Cut- Number of Principal Principal
Off Date Pool II Loans Balance Balance
- ------------------ ------------- -------------- --------------
<S> <C> <C> <C>
$1 - 25,000.................. 100 $ 1,381,132.60 3.88%
25,001 - 50,000.................. 48 1,805,223.12 5.07
50,001 - 100,000.................. 72 5,061,711.24 14.23
100,001 - 150,000.................. 54 6,356,597.57 17.86
150,001 - 200,000.................. 16 2,707,150.75 7.61
200,001 - 250,000.................. 14 3,185,471.69 8.95
250,001 - 300,000.................. 12 3,201,802.21 9.00
300,001 - 350,000.................. 7 2,291,393.61 6.44
350,001 or greater................. 18 9,591,964.44 26.96
--- -------------- ------
TOTAL............................ 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the average unpaid principal balance of the Pool II
Loans will be approximately $104,347.35.
MORTGAGE RATES ON THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Principal Principal
Mortgage Rates Pool II Loans Balance Balance
-------------- ------------- -------------- --------------
<S> <C> <C> <C>
6.00% or less.................... 18 $ 711,907.56 2.00%
6.01 - 7.00..................... 22 4,722,419.30 13.27
7.01 - 8.00..................... 71 9,791,978.51 27.52
8.01 - 9.00..................... 127 16,865,696.25 47.40
9.01 - 10.00..................... 73 2,599,020.14 7.30
10.01 - 11.00..................... 25 702,208.44 1.97
11.01 - 12.00..................... 2 32,522.46 0.09
12.01 - 13.00..................... 2 16,088.03 0.05
13.01 - 14.00..................... 1 140,606.54 0.40
--- -------------- ------
TOTAL........................... 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Mortgage Rate on the Pool II
Loans will be approximately 8.09% per annum.
S-26
<PAGE>
MAXIMUM MORTGAGE RATES ON THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Maximum Number of Principal Principal
Mortgage Rates Pool II Loans Balance Balance
---------------- ------------- -------------- --------------
<S> <C> <C> <C>
No stated maximum rate............ 56 $ 3,857,266.69 10.84%
10.00% or less.................... 5 877,566.92 2.47
10.00 + to 11.00.................. 19 1,806,867.11 5.08
11.00 + to 12.00.................. 30 3,678,046.11 10.34
12.00 + to 13.00.................. 57 10,035,248.72 28.20
13.00 + to 14.00.................. 32 7,110,717.92 19.98
14.00 + to 15.00.................. 33 3,782,561.43 10.63
15.00 + to 16.00.................. 34 1,841,625.97 5.18
16.00 + to 17.00.................. 51 1,817,488.14 5.11
17.00 + to 18.00.................. 18 558,980.20 1.57
18.00 + to 19.00.................. 2 169,173.36 0.48
19.00 + or greater................ 4 46,904.66 0.13
--- -------------- ------
TOTAL........................... 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average of the Maximum Mortgage Rates
on the Pool II Loans will be approximately 13.30% per annum.
MINIMUM MORTGAGE RATES ON THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Minimum Number of Principal Principal
Mortgage Rates Pool II Loans Balance Balance
---------------- ------------- -------------- --------------
<S> <C> <C> <C>
No stated minimum rate............ 266 $29,438,511.40 82.73%
4.00% or less.................... 24 2,194,524.60 6.17
4.00 + to 5.00.................. 11 1,137,809.47 3.20
5.00 + to 6.00.................. 12 1,244,481.24 3.50
6.00 + to 7.00.................. 5 259,686.92 0.73
7.00 + to 8.00.................. 6 625,539.55 1.76
8.00 + to 9.00.................. 8 483,019.08 1.36
9.00 + to 10.00.................. 6 136,997.84 0.39
10.00 + to 11.00.................. 2 49,258.37 0.14
11.00 + to 12.00.................. 0 0.00 0.00
12.00 + or greater................ 1 12,618.76 0.04
--- -------------- ------
TOTAL........................... 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average of the Minimum Mortgage Rates
on the Pool II Loans will be approximately 4.73%.
S-27
<PAGE>
INTEREST RATE MARGINS ON THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Range of Margins Pool II Loans Balance Balance
- ---------------- ------------- -------------- --------------
<S> <C> <C> <C>
Negative............................ 1 $ 26,216.15 0.07%
0.000%.............................. 6 65,787.58 0.18
0.001 - 1.000....................... 8 902,528.99 2.54
1.001 - 2.000....................... 34 2,941,852.79 8.27
2.001 - 3.000....................... 192 27,784,450.63 78.08
3.001 - 4.000....................... 86 3,132,666.61 8.80
4.001 - 5.000....................... 10 520,688.33 1.46
5.001 or greater ................... 4 208,256.15 0.59
-------------- ------
TOTAL............................. $35,582,447.23 100.00%*
============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average of the Interest Rate Margins on
the Pool II Loans will be approximately 2.76%.
FREQUENCY OF MORTGAGE RATE CHANGE OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Rate Change Number of Principal Principal
Frequency Pool II Loans Balance Balance
----------- ------------- -------------- --------------
<S> <C> <C> <C>
1 Month........................... 1 $ 33,022.68 0.09%
1 Year............................ 230 29,345,991.15 82.47
3 Month........................... 2 226,599.94 0.64
3 Year............................ 75 3,764,070.05 10.58
5 Year............................ 19 1,142,339.24 3.21
6 Month........................... 13 1,008,087.66 2.83
8 Year............................ 1 62,336.51 0.18
--- -------------- ------
TOTAL........................... 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
FREQUENCY OF MONTHLY PAYMENT CHANGE OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Payment Change Number of Principal Principal
Frequency Pool II Loans Balance Balance
-------------- ------------- -------------- --------------
<S> <C> <C> <C>
1 Month........................... 1 $ 33,022.68 0.09%
1 Year............................ 232 29,572,591.09 83.11
3 Year............................ 76 3,852,345.32 10.83
5 Year............................ 23 1,312,440.80 3.69
6 Month........................... 8 749,710.83 2.11
8 Year............................ 1 62,336.51 0.18
--- -------------- ------
TOTAL........................... 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-28
<PAGE>
PERIODIC RATE CAP OF THE POOL II LOANS
<TABLE>
<CAPTION>
Periodic Aggregate % of Aggregate
Rate Cap Number of Principal Principal
- -------- Pool II Loans Balance Balance
------------- -------------- --------------
<S> <C> <C> <C>
None............................... 63 $ 3,272,716.44 9.20%
0.5000%............................ 1 99,347.67 0.28
1.0000............................. 41 3,536,271.78 9.94
2.0000............................. 220 27,775,705.51 78.06
3.0000............................. 5 482,507.45 1.36
5.0000............................. 2 63,659.95 0.18
6.1000............................. 3 27,912.23 0.08
6.6000............................. 1 60,016.07 0.17
7.5000............................. 5 264,310.13 0.74
--- -------------- ------
TOTAL............................ 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
PERIODIC PAYMENT CAP OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Periodic Number of Principal Principal
Payment Cap Pool II Loans Balance Balance
- ----------- ------------- -------------- --------------
<S> <C> <C> <C>
0.000%............................. 339 $35,476,991.83 99.70%
1.000.............................. 1 17,180.13 0.05
25.000.............................. 1 88,275.27 0.25
--- -------------- ------
TOTAL............................. 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
NEGATIVE AMORTIZATION LIMIT OF THE POOL II LOANS
<TABLE>
<CAPTION>
Negative Aggregate % of Aggregate
Amortization Number of Principal Principal
Limit Pool II Loans Balance Balance
------------ ------------- -------------- --------------
<S> <C> <C> <C>
No negative amortization........... 331 $35,017,254.22 98.41%
110.000%........................... 1 26,412.41 0.07
125.000............................ 7 323,253.06 0.91
Unlimited.......................... 2 215,527,54 0.61
--- -------------- ------
TOTAL............................ 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-29
<PAGE>
LOAN-TO-VALUE RATIOS OF THE POOL II LOANS
<TABLE>
<CAPTION>
Range of
Loan-to-Value Aggregate % of Aggregate
Ratios Number of Principal Principal
- ------------- Pool II Loans Balance Balance
------------- -------------- --------------
<S> <C> <C> <C>
120.01% - 125.00%.................. 2 $ 146,305.60 0.41%
115.01 - 120.00................... 6 784,194.91 2.20
110.01 - 115.00................... 7 1,048,462.08 2.95
105.01 - 110.00................... 12 1,100,253.92 3.09
100.01 - 105.00................... 17 2,470,933.13 6.94
95.01 - 100.00................... 20 3,642,597.15 10.24
90.01 - 95.00................... 21 3,156,119.36 8.87
85.01 - 90.00................... 27 4,828,669.42 13.57
80.01 - 85.00................... 22 2,426,056.79 6.82
75.01 - 80.00................... 19 2,633,620.22 7.40
70.01 - 75.00................... 29 4,438,718.57 12.47
65.01 - 70.00................... 23 1,834,720.37 5.16
60.01 - 65.00................... 20 1,460,795.69 4.11
55.01 - 60.00................... 19 1,413,666.62 3.97
50.01 - 55.00................... 22 934,847.59 2.63
00.01 - 50.00................... 67 2,738,151.35 7.70
Unavailable........................ 8 524,334.46 1.47
--- -------------- ------
TOTAL............................ 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Loan-to-Value Ratio of the Pool
II Loans will be approximately 81.09%.
DELINQUENCY STATUS OF THE POOL II LOANS
<TABLE>
<CAPTION>
Delinquency Aggregate % of Aggregate
Status as of the Number of Principal Principal
Cut-Off Date Pool II Loans Balance Balance
- ---------------- ------------- -------------- --------------
<S> <C> <C> <C>
None............................... 306 $32,190,789.02 90.47%
30 - 59 days....................... 30 2,679,100.10 7.53
60 - 89 days....................... 5 712,558.11 2.00
--- -------------- ------
TOTAL............................ 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-30
<PAGE>
STATED TERM TO MATURITY OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Months Pool II Loans Balance Balance
------ ------------- -------------- --------------
<S> <C> <C> <C>
60 or less....................... 12 $ 533,472.77 1.50%
61 - 120......................... 34 636,132.87 1.79
121 - 180......................... 29 2,122,136.28 5.96
181 - 240......................... 69 5,565,203.07 15.64
241 - 300......................... 81 4,802,384.49 13.50
301 - 360......................... 116 21,923,117.75 61.61
--- -------------- ------
TOTAL........................... 341 $35,682,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average stated term to maturity of the
Pool II Loans will be approximately 288 months.
SEASONING OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Months of Number of Principal Principal
Seasoning Pool II Loans Balance Balance
--------- ------------- -------------- --------------
<S> <C> <C> <C>
1 - 12.......................... 10 $ 2,519,115.53 7.08%
13 - 24.......................... 38 10,773,925.67 30.28
25 - 36.......................... 36 4,517,854.87 12.70
37 - 48.......................... 23 2,920,206.69 8.21
49 - 60.......................... 5 804,269.99 2.26
61 - 84.......................... 21 1,714,469.80 4.82
85 - 120......................... 105 5,320,689.97 14.95
121 or greater.................... 103 7,011,914.71 19.71
--- -------------- ------
TOTAL........................... 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average seasoning of the Pool II Loans
will be approximately 62 months.
S-31
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
State Pool II Loans Balance Balance
- ----- ------------- -------------- --------------
<S> <C> <C> <C>
Arkansas............................ 1 $ 251,011.68 0.71%
Alabama............................. 1 5,967.03 0.02
Arizona............................. 6 751,928.13 2.11
California.......................... 64 13,501,247.75 37.94
Colorado............................ 5 1,006,501.84 2.83
Connecticut......................... 12 846,908.04 2.38
Florida............................. 41 2,325,850.79 6.54
Georgia............................. 5 738,681.55 2.08
Hawaii.............................. 1 62,253.38 0.17
Illinois............................ 6 1,016,423.69 2.86
Indiana............................. 2 24,183.78 0.07
Kansas.............................. 1 22,741.26 0.06
Massachusetts....................... 19 1,589,450.37 4.47
Maryland............................ 5 920,456.28 2.59
Maine............................... 2 35,817.42 0.10
Michigan............................ 2 370,858.80 1.04
Minnesota........................... 2 299,046.31 0.84
Missouri............................ 2 18,905.80 0.05
Mississippi......................... 2 82,852.02 0.23
North Carolina...................... 6 673,914.95 1.89
New Hampshire....................... 6 249,944.14 0.70
New Jersey.......................... 21 2,861,990.60 8.04
Nevada.............................. 6 876,585.31 2.46
New York............................ 20 1,859,963.12 5.23
Ohio................................ 4 347,128.62 0.98
Oklahoma............................ 4 396,880.01 1.12
Oregon.............................. 2 256,797.05 0.72
Pennsylvania........................ 4 438,700.42 1.23
Rhode Island........................ 2 234,922.12 0.66
South Carolina...................... 2 130,558.10 0.37
Tennessee........................... 1 10,416.95 0.03
Texas............................... 17 1,406,674.39 3.95
Virginia............................ 65 1,862,351.44 5.23
Washington.......................... 1 88,651.44 0.25
West Virginia....................... 1 15,882.65 0.04
--- -------------- ------
TOTAL............................. 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-32
<PAGE>
MORTGAGE LOAN PURPOSE OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Mortgage Loan Purpose Pool II Loans Balance Balance
- --------------------- ------------- -------------- --------------
<S> <C> <C> <C>
Unknown............................. 7 $ 506,732.74 1.42%
Rate/Term Refinance................. 37 6,814,726.38 19.15
Purchase............................ 178 20,587,947.25 57.86
N/A................................. 75 2,570,967.97 7.23
Home Improvement.................... 15 1,854,852.20 5.21
Permanent Construction.............. 5 916,259.46 2.58
Debt Consolidation.................. 9 723,494.67 2.03
Equity Refinance.................... 15 1,607,466.56 4.52
--- -------------- ------
TOTAL............................. 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
PROPERTY TYPES OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Property Type Pool II Loans Balance Balance
- ------------- ------------- -------------- --------------
<S> <C> <C> <C>
Single Family Detached............. 143 $19,032,939.07 53.49%
2-4 Family......................... 12 2,228,919.00 6.26
Townhouse.......................... 2 255,867.15 0.72
Planned Unit Development........... 24 4,749,598.77 13.35
Condominium........................ 62 5,266,231.53 14.80
Manufactured Housing--Double Wide.. 2 38,030.66 0.11
Manufactured Housing--Single Wide.. 4 99,218.56 0.28
Mixed Use.......................... 2 115,148.75 0.32
Unimproved Land.................... 85 2,753,129.41 7.74
Multi-Family....................... 5 1,043,364.33 2.93
--- -------------- ------
TOTAL............................ 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
OCCUPANCY STATUS OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Occupancy Status Pool II Loans Balance Balance
- ---------------- ------------- -------------- --------------
<S> <C> <C> <C>
Primary Residence.................. 225 $29,904,478.51 84.04%
Second/Vacation Home............... 4 528,306.49 1.48
Investment Properties.............. 20 1,238,019.74 3.48
Not-Applicable/1/.................. 92 3,911,642.49 10.99
--- -------------- ------
TOTAL............................ 341 $35,582,447.23 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
(/1/) Includes Mortgage Loans backed by unimproved land, Multifamily Properties
and Mixed-Use Properties.
S-33
<PAGE>
POOL III
The Pool III Loans consist of 631 Mortgage Loans, with Mortgaged Properties
located in 37 states and the District of Columbia. As of the Cut-Off Date, the
Pool III Loans have: (i) an aggregate Principal Balance of $26,150,272.64;
(ii) individual Principal Balances ranging from $1,380.97 to $1,366,804.53;
and (iii) an average Principal Balance of $41,442.59. As of the Cut-Off Date,
the Mortgage Rates on the Pool III Loans range from 4.00% per annum to 18.50%
per annum, have a weighted average Mortgage Rate of 9.29% per annum and have a
weighted average margin of 2.70%.
The Pool III Loans have remaining terms to stated maturity ranging from 6
months to 356 months, a weighted average remaining term to stated maturity of
196 months and a weighted average seasoning of 107 months. No Pool III Loan
has a stated maturity later than May 01, 2027. 76.98% of the Pool III Loans
require Monthly Payments that will substantially amortize such Mortgage Loans
by their respective maturity dates and 23.02% of the Pool III Loans are
Balloon Loans.
The weighted average Loan-to-Value Ratio of the Pool III Loans is 75.37%.
29.13% of the Mortgage Loans in Pool III have been modified.
As of the Cut-Off Date, 1.96%, 1.69% and 7.40% of the Pool III Loans are
secured by Mortgaged Properties that are Mixed-Use Properties, Multifamily
Properties and unimproved land, respectively. See "Risk Factors" herein and in
the Prospectus.
36.92% of the Pool III Loans have Mortgage Rates that adjust in accordance
with an index equal to the daily bank prime loan rate as reported by the
Federal Reserve Board. 33.12% of the Pool III Loans have Mortgage Rates that
adjust in accordance with an index equal to the monthly weighted average cost
of funds for member institutions in the Eleventh District of the Federal Home
Loan Bank System. 11.09% of the Pool III Loans have Mortgage Rates that adjust
in accordance with an index equal to the average of interbank offered rates
for six-month U.S. dollar-denominated deposits in the London market based on
quotations of major banks. The remainder of the Pool III Loans have Mortgage
Rates that adjust in accordance with a variety of indices. The Mortgage Rates
on the Pool III Loans adjust at various intervals ranging from monthly to once
every 5 years. See the table entitled "Frequency of Mortgage Rate Change of
the Pool III Loans" below.
The Pool III Loans have a weighted average margin of 2.70%. The margins for
the Pool III Loans range from -1.69% to 12.50%. With respect to the Pool III
Loans, 13.05% have a periodic rate adjustment cap of 1.00%; 6.89% have a
periodic rate adjustment cap of 1.50%; 9.82% have a periodic rate adjustment
cap of 2.00%; and 62.74% have no periodic rate adjustment cap. The weighted
average number of months until the next reset date is approximately 5 months.
The weighted average maximum stated Mortgage Rate is 17.47%, with maximum
stated Mortgage Rates that range from 9.50% to 55.00%. The weighted average
minimum stated Mortgage Rate is 7.96%, with minimum stated Mortgage Rates that
range from 2.25% to 18.50%.
S-34
<PAGE>
The following tables describe the Pool III Loans and the related Mortgaged
Properties as of the Cut-Off Date.
PRINCIPAL BALANCES OF THE POOL III LOANS
<TABLE>
<CAPTION>
Range of
Principal Balances Aggregate % of Aggregate
as of the Cut- Number of Principal Principal
Off Date Pool III Loans Balance Balance
------------------ -------------- -------------- --------------
<S> <C> <C> <C>
$ 1 - 25,000................ 345 $ 4,604,721.16 17.61%
25,001 - 50,000................ 141 5,002,304.61 19.13
50,001 - 100,000................ 90 6,351,297.31 24.29
100,001 - 150,000................ 34 4,067,618.02 15.55
150,001 - 200,000................ 6 1,103,153.11 4.22
200,001 - 250,000................ 9 2,001,963.29 7.66
250,001 - 300,000................ 3 790,235.12 3.02
300,001 - 350,000................ 1 304,592.45 1.16
350,001 or greater............... 2 1,924,387.57 7.36
--- -------------- ------
TOTAL.......................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the average unpaid principal balance of the Pool III
Loans will be approximately $41,442.59.
MORTGAGE RATES ON THE POOL III LOANS
<TABLE>
<CAPTION>
Range of Aggregate % of Aggregate
Mortgage Number of Principal Principal
Rates Pool III Loans Balance Balance
-------- -------------- -------------- --------------
<S> <C> <C> <C>
6.00% or less.................... 7 $ 585,982.11 2.24%
6.01 - 7.00..................... 14 767,781.92 2.94
7.01 - 8.00..................... 228 9,022,702.88 34.50
8.01 - 9.00..................... 117 3,792,437.35 14.50
9.01 - 10.00..................... 55 2,451,461.52 9.37
10.01 - 11.00..................... 95 4,137,870.34 15.82
11.01 - 12.00..................... 43 2,093,965.52 8.01
12.01 - 13.00..................... 38 1,863,645.03 7.13
13.01 - 14.00..................... 20 1,157,282.22 4.43
14.01 - 15.00..................... 11 247,025.08 0.94
15.01 - 16.00..................... 1 15,595.20 0.06
16.01 - 17.00..................... 1 8,397.87 0.03
17.01 - 18.00..................... 0 0.00 0.00
18.01 - 19.00..................... 1 6,125.60 0.02
19.01 or greater.................. 0 0.00 0.00
--- -------------- ------
TOTAL........................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Mortgage Rate on the Pool III
Loans will be approximately 9.29% per annum.
S-35
<PAGE>
MAXIMUM MORTGAGE RATES ON THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Principal Principal
Maximum Mortgage Rates Pool III Loans Balance Balance
- ---------------------- -------------- -------------- --------------
<S> <C> <C> <C>
No stated maximum rate............. 116 $ 4,630,199.65 17.71%
10.00% or less..................... 3 337,628.76 1.29
10.00 + to 11.00................... 2 293,109.85 1.12
11.00 + to 12.00................... 8 1,157,079.14 4.42
12.00 + to 13.00................... 18 2,494,699.85 9.54
13.00 + to 14.00................... 93 2,775,586.30 10.61
14.00 + to 15.00................... 142 3,302,858.90 12.63
15.00 + to 16.00................... 27 1,726,829.48 6.60
16.00 + to 17.00................... 45 1,569,616.60 6.00
17.00 + to 18.00................... 72 2,939,718.53 11.24
18.00 + to 19.00................... 11 455,883.17 1.74
19 + or greater.................... 94 4,467,062.41 17.08
--- -------------- ------
TOTAL............................ 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average of the Maximum Mortgage Rates on
the Pool III Loans will be approximately 17.47% per annum.
MINIMUM MORTGAGE RATES ON THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Minimum Number of Principal Principal
Mortgage Rates Pool III Loans Balance Balance
---------------- -------------- -------------- --------------
<S> <C> <C> <C>
No stated minimum rate........... 373 $15,345,784.18 58.68%
4.00% or less................... 45 2,756,324.80 10.54
4.00 + to 5.00................. 5 239,757.55 0.92
5.00 + to 6.00................. 8 408,581.79 1.56
6.00 + to 7.00................. 12 359,780.43 1.38
7.00 + to 8.00................. 85 1,953,510.88 7.47
8.00 + to 9.00................. 28 1,097,545.43 4.20
9.00 + to 10.00................. 12 634,417.46 2.43
10.00 + to 11.00................. 6 146,205.82 0.56
11.00 + to 12.00................. 27 1,683,897.08 6.44
12.00 + or greater............... 30 1,524,467.22 5.83
--- -------------- ------
TOTAL.......................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average of the Minimum Mortgage Rates on
the Pool III Loans will be approximately 7.96%.
S-36
<PAGE>
INTEREST RATE MARGINS ON THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Principal Principal
Margins Pool III Loans Balance Balance
-------- -------------- -------------- --------------
<S> <C> <C> <C>
Negative.......................... 8 $ 333,200.78 1.27%
0.000%............................ 36 1,258,991.88 4.81
0.001 to 1.000.................... 22 957,469.76 3.66
1.001 to 2.000.................... 141 6,189,044.43 23.67
2.001 to 3.000.................... 266 10,852,145.61 41.50
3.001 to 4.000.................... 82 2,895,455.44 11.07
4.001 to 5.000.................... 32 1,830,030.87 7.00
5.001 or greater.................. 44 1,833,933.87 7.01
--- -------------- ------
TOTAL........................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average of the Interest Rate Margins on
the Pool III Loans will be approximately 2.70%.
FREQUENCY OF MORTGAGE RATE CHANGE OF THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Rate Change Number of Principal Principal
Frequency Pool III Loans Balance Balance
- ----------- -------------- -------------- --------------
<S> <C> <C> <C>
1 Month........................... 300 $ 8,456,356.25 32.34%
1 Year............................ 119 6,875,741.56 26.29
3 Month........................... 16 450,168.09 1.72
3 Year............................ 35 1,542,304.55 5.90
3.5 Year.......................... 4 13,283.28 0.05
5 Year............................ 6 348,445.01 1.33
6 Month........................... 119 7,034,640.85 26.90
Daily............................. 32 1,429,333.05 5.47
--- -------------- ------
TOTAL........................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
FREQUENCY OF MONTHLY PAYMENT CHANGE OF THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Payment Change Number of Principal Principal
Frequency Pool III Loans Balance Balance
- -------------- -------------- -------------- --------------
<S> <C> <C> <C>
1 Month........................... 124 $ 5,283,411.75 20.20%
1 Year............................ 336 11,728,598.35 44.85
3 Month........................... 8 266,806.03 1.02
3 Year............................ 38 1,574,771.96 6.02
3.5 Year.......................... 4 13,283.28 0.05
5 Year............................ 7 366,469.73 1.40
6 Month........................... 114 6,916,931.54 26.45
--- -------------- ------
TOTAL........................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-37
<PAGE>
PERIODIC RATE CAP OF THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Periodic Rate Cap Pool III Loans Balance Balance
- ----------------- -------------- -------------- --------------
<S> <C> <C> <C>
None.............................. 477 $16,407,311.70 62.74%
0.2500%........................... 4 28,115.95 0.11
0.5000............................ 3 115,936.38 0.44
0.7500............................ 2 67,831.49 0.26
1.0000............................ 59 3,412,256.84 13.05
1.2500............................ 1 54,498.81 0.21
1.5000............................ 39 1,802,495.92 6.89
1.7500............................ 1 1,366,804.53 5.23
2.0000............................ 36 2,567,119.90 9.82
2.5000............................ 1 6,759.38 0.03
3.0000............................ 3 247,350.76 0.95
5.5000............................ 1 12,599.56 0.05
6.1000............................ 1 7,107.13 0.03
7.5000............................ 2 37,327.22 0.14
18.0000............................ 1 16,757.07 0.06
--- -------------- ------
TOTAL............................ 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
PERIODIC PAYMENT CAP OF THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Periodic Payment Cap Pool III Loans Balance Balance
- -------------------- -------------- -------------- --------------
<S> <C> <C> <C>
None.............................. 403 $20,485,202.53 78.34%
0.5000%........................... 1 16,004.48 0.06
2.0000............................ 1 140,219.59 0.54
7.5000............................ 225 5,497,783.23 21.02
9.5000............................ 1 11,062.81 0.04
--- -------------- ------
TOTAL........................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
NEGATIVE AMORTIZATION LIMIT OF THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Negative Number of Principal Principal
Amortization Limit Pool III Loans Balance Balance
- ------------------ -------------- --------------- --------------
<S> <C> <C> <C>
No negative amortization......... 395 $ 20,192,265.10 77.22%
110.000%......................... 10 1,227,581.77 4.69
115.000.......................... 1 46,025.36 0.18
125.000.......................... 74 1,664,551.59 6.37
Unlimited........................ 151 3,019,848.82 11.55
--- --------------- ------
TOTAL.......................... 631 $26,150,272.64 100.00%*
=== =============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-38
<PAGE>
LOAN-TO-VALUE RATIOS OF THE POOL III LOANS
<TABLE>
<CAPTION>
Range of
Loan-to- Aggregate % of Aggregate
Value Number of Principal Principal
Ratios Pool III Loans Balance Balance
-------- -------------- -------------- --------------
<S> <C> <C> <C>
120.01% - 125.00%................. 6 $ 194,892.86 0.75%
115.01 - 120.00................. 23 832,895.85 3.19
110.01 - 115.00................. 29 2,236,606.01 8.55
105.01 - 110.00.................. 35 805,014.74 3.08
100.01 - 105.00.................. 31 1,543,997.24 5.90
95.01 - 100.00.................. 31 1,144,328.69 4.38
90.01 - 95.00.................. 31 1,432,131.14 5.48
85.01 - 90.00.................. 37 1,740,837.97 6.66
80.01 - 85.00.................. 42 1,758,013.13 6.72
75.01 - 80.00.................. 42 2,054,531.99 7.86
70.01 - 75.00.................. 36 1,988,545.94 7.60
65.01 - 70.00.................. 34 1,844,515.84 7.05
60.01 - 65.00.................. 25 1,262,522.44 4.83
55.01 - 60.00.................. 19 909,158.71 3.48
50.01 - 55.00.................. 13 698,103.04 2.67
00.01 - 50.00.................. 181 5,305,072.29 20.29
Unavailable....................... 16 399,104.76 1.53
--- -------------- ------
TOTAL........................... 631 $26,150,272.84 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Loan-to-Value Ratio of the Pool
III Loans will be approximately 75.37%.
DELINQUENCY STATUS OF THE POOL III LOANS
<TABLE>
<CAPTION>
Delinquency
Status as of Aggregate % of Aggregate
the Number of Principal Principal
Cut-Off Date Pool III Loans Balance Balance
------------ -------------- -------------- --------------
<S> <C> <C> <C>
Current.......................... 571 $23,159,084.97 88.56%
30 - 59 days..................... 45 2,149,810.48 8.22
60 - 89 days..................... 15 841,377.19 3.22
--- -------------- ------
TOTAL.......................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-39
<PAGE>
STATED TERM TO MATURITY OF THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Months Pool III Loans Balance Balance
------ -------------- -------------- --------------
<S> <C> <C> <C>
60 or less...................... 98 $ 1,977,163.11 7.56%
61 - 120........................ 266 5,509,148.13 21.07
121 - 180........................ 95 4,204,977.55 16.08
181 - 240........................ 88 6,424,826.76 24.57
241 - 300........................ 32 1,970,290.26 7.53
301 - 360........................ 52 6,063,866.83 23.19
--- -------------- ------
TOTAL.......................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average stated term to maturity of the
Pool III Loans will be approximately 196 months.
SEASONING OF THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Months of Number of Principal Principal
Seasoning Pool III Loans Balance Balance
- --------- -------------- -------------- --------------
<S> <C> <C> <C>
1 - 12........................... 3 $ 240,801.70 0.92%
13 - 24........................... 5 455,034.96 1.74
25 - 36........................... 6 666,303.68 2.55
37 - 48........................... 11 1,378,137.74 5.27
49 - 60........................... 13 919,326.22 3.52
61 - 84........................... 39 2,422,855.34 9.27
85 - 120.......................... 374 11,414,569.06 43.65
121 or greater.................... 180 8,653,243.94 33.09
--- -------------- ------
TOTAL........................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average seasoning of the Pool III Loans
will be approximately 107 months.
S-40
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
tateS Pool III Loans Balance Balance
- ----- -------------- -------------- --------------
<S> <C> <C> <C>
Alabama........................... 5 $ 127,035.33 0.49%
Arizona........................... 10 205,961.83 0.79
Arkansas ......................... 1 6,485.69 0.02
California........................ 323 13,537,129.85 51.77
Colorado.......................... 3 149,872.15 0.57
Connecticut....................... 14 703,373.98 2.69
District of Columbia ............. 4 116,064.12 0.44
Florida........................... 25 709,553.91 2.71
Georgia .......................... 17 531,711.40 2.03
Illinois.......................... 5 157,487.81 0.60
Iowa.............................. 2 36,798.38 0.14
Kentucky ......................... 1 28,253.49 0.11
Louisiana ........................ 1 44,511.49 0.17
Maine............................. 4 50,123.40 0.19
Maryland.......................... 6 520,759.05 1.99
Massachusetts..................... 63 3,551,523.68 13.58
Michigan.......................... 3 115,486.49 0.44
Minnesota......................... 2 195,844.43 0.75
Mississippi....................... 3 93,349.01 0.36
Missouri.......................... 6 203,446.06 0.78
Montana .......................... 1 34,658.60 0.13
New Hampshire..................... 8 259,593.80 0.99
New Jersey........................ 16 708,443.52 2.71
New Mexico........................ 3 58,547.02 0.22
New York.......................... 17 1,087,926.02 4.16
North Carolina.................... 5 155,053.55 0.59
Ohio.............................. 2 114,345.36 0.44
Oklahoma.......................... 1 4,197.90 0.02
Oregon............................ 2 257,664.06 0.99
Pennsylvania...................... 13 378,925.61 1.45
South Carolina.................... 3 55,250.36 0.21
Tennessee......................... 3 284,881.85 1.09
Texas............................. 44 1,194,437.25 4.57
Vermont .......................... 2 24,334.10 0.09
Virginia.......................... 9 185,207.73 0.71
Washington........................ 2 225,715.10 0.86
West Virginia..................... 1 25,546.06 0.10
Wisconsin ........................ 1 10,773.20 0.04
--- -------------- ------
TOTAL........................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-41
<PAGE>
MORTGAGE LOAN PURPOSE OF THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Mortgage Loan Purpose Pool III Loans Balance Balance
- --------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Purchase.......................... 325 $12,703,961.17 48.58%
Rate/Term Refinance............... 72 3,767,389.46 14.41
Equity Refinance.................. 29 1,628,189.95 6.23
Debt Consolidation................ 38 1,753,766.09 6.71
Permanent Construction............ 5 240,604.91 0.92
Home Improvement.................. 96 3,023,344.26 11.56
Unknown........................... 21 736,253.23 2.82
N/A............................... 45 2,296,763.57 8.78
--- -------------- ------
TOTAL........................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
PROPERTY TYPES OF THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Property Type Pool III Loans Balance Balance
- ------------- -------------- -------------- --------------
<S> <C> <C> <C>
Single Family Detached............ 381 $14,700,557.05 56.22%
Single Family Attached............ 17 279,931.05 1.07
2-4 Family........................ 43 2,053,880.43 7.85
Townhouse......................... 7 340,885.85 1.30
Planned Unit Development.......... 6 384,888.77 1.47
Condominium....................... 110 5,360,992.94 20.50
Manufactured Housing--Double
Wide............................. 5 47,521.52 0.18
Manufactured Housing--Single
Wide............................. 3 50,915.90 0.19
Mixed Use......................... 4 511,368.32 1.96
Timeshare......................... 1 42,537.00 0.16
Unimproved Land................... 49 1,934,835.04 7.40
Multi-Family...................... 5 441,958.77 1.69
--- -------------- ------
TOTAL........................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
OCCUPANCY STATUS OF THE POOL III LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Occupancy Number of Principal Principal
Status Pool III Loans Balance Balance
--------- -------------- -------------- --------------
<S> <C> <C> <C>
Primary Residence................. 486 $18,638,895.80 71.28%
Second/Vacation Home.............. 7 460,930.39 1.76
Investment Properties............. 69 3,335,334.37 12.75
Not-Applicable/1/................. 58 2,888,162.13 11.04
Unknown........................... 11 826,949.95 3.16
--- -------------- ------
TOTAL........................... 631 $26,150,272.64 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
(/1/) Includes Mortgage Loans backed by unimproved land, Multifamily Properties
and Mixed-Use Properties.
S-42
<PAGE>
DESCRIPTION OF THE MORTGAGE LOAN SELLERS
General. The Mortgage Loans were purchased by the Wilshire Seller in the
ordinary course of its business and conveyed, together with certain related
property described herein, to the Seller. The Seller will convey such property
to the Depositor, which will convey it to the Trust.
The Seller, a Delaware corporation, will be organized as a limited purpose
company on or before the Closing Date and will be substantially owned by the
Wilshire Seller. The Seller will be organized for limited purposes, which will
include purchasing loans and receivables and debt obligations secured by
collateral, and transferring such loans, receivables and debt obligations to
third parties and any activities incidental to and necessary or convenient for
the accomplishment of such purposes (including entering into and performing
its obligations under the Pooling and Servicing Agreement). The Seller will be
located at 1776 S.W. Madison Street, Portland, Oregon 97205, and its telephone
number will be (503) 223-5600.
The only obligations, if any, of the Seller with respect to the Certificates
may be pursuant to certain limited representations and warranties and limited
undertakings to enforce its rights against the Wilshire Seller under certain
circumstances. The Wilshire Seller will make certain representations and
warranties with respect to the Mortgage Loans. The Wilshire Seller will be
liable only with respect to the representations and warranties made with
respect to the Mortgage Loans and Wilshire Servicing Corporation, as Master
Servicer, will be liable for certain servicing-related data with respect
thereto. The Seller will have no servicing obligations or responsibilities
with respect to any Mortgage Loans or any of the assets of the Trust. The
Seller will not have on the Closing Date, nor is it expected in the future to
have, any significant assets.
The Wilshire Seller. The Wilshire Seller is a Delaware corporation formed in
November 1996. The Wilshire Seller is a subsidiary of Wilshire Financial
Services Group Inc. ("WFSG"), a publicly traded company engaged in a wide
variety of activities including the acquisition, origination, ownership and
securitization of loan portfolios, banking and non-traditional bankcard
processing.
The Wilshire Seller acquires pools of loans from a wide variety of sources,
including banks, savings institutions, finance companies, leasing companies,
mortgage companies, insurance companies, governmental agencies and its
affiliates. The Wilshire Seller generally obtains information on available
pools of loans from several sources, including referrals from sellers with
whom the Wilshire Seller has transacted business in the past. Pools of loans
generally are acquired in negotiated transactions or through sealed
competitive bids.
Prior to making an offer to purchase a pool of loans, the Wilshire Seller
conducts an extensive investigation and evaluation of the individual loans
comprising the pool of loans and/or the separate parcels of real estate in the
pool. This examination typically consists of an analysis of the information
provided by the seller (generally, the credit and collateral files for the
loans), other relevant material that may be available (including tax records)
and the underlying collateral. The Wilshire Seller compares this data with its
own mortgage loan database, which contains among other things, listings of
property values and loan loss experience in local markets for similar assets,
obtains value opinions from third parties and, in some cases, conducts site
inspections. In addition, the Wilshire Seller generally obtains a broker price
opinion on each parcel of real property. The Wilshire Seller also reviews
information on the local economy and real estate markets including the amount
of time generally required to complete foreclosure on real property in the
jurisdiction in which the property is located. In connection with its review
of a pool of loans being considered for acquisition, the Wilshire Seller
reviews each loan or property in such pool of loans and designs a preliminary
servicing plan for each loan and property that is intended to maximize the
cash flow from such loan or property.
The Wilshire Seller's senior acquisition personnel, who conduct the due
diligence review of each pool of loans being considered for purchase,
recommend to management the price to be offered for the pool by using a
proprietary modeling system that focuses on, among other things, the
anticipated future cash flow from each component loan or property. In
evaluating anticipated cash flow, the Wilshire Seller makes a number of
S-43
<PAGE>
assumptions concerning the overall pool of loans based on its review of each
loan or property, including assumptions as to the percentage of loans to be
foreclosed, the timing of the receipt of payments and the expenses associated
with servicing the loans. The Wilshire Seller's investment committee, which
consists of senior management and the senior acquisition personnel who conduct
the due diligence review, makes a final determination as to the offering
price. If an offer is accepted by the seller, the Wilshire Seller and the
seller generally enter into a loan sale agreement, which generally contains
representations and warranties by the seller concerning the loans being sold
and an agreement by the seller to repurchase any loan found to be in breach of
those representations and warranties.
Primary Originators. The Wilshire Seller purchased approximately 29.11%,
24.36% and 11.34% of the Mortgage Loans from WMC, PHH and PHMC, respectively.
WMC Mortgage Corp. WMC Mortgage Corp. ("WMC") is a mortgage banking
company incorporated in the State of California. Established in 1955, WMC
has developed a mortgage origination franchise in the western United States
and maintains additional operations in the Southeast, Southwest, Midwest
and the Mid-Atlantic, with special emphasis on originating single-family
mortgage loans in each of the regions in which it competes. WMC originates
both prime-quality mortgage loans and sub-prime-quality mortgage loans. WMC
has approximately 1,400 employees and operates both production support and
loan servicing platforms for its originations.
WMC was owned by a subsidiary of Weyerhauser Company until May, 1997 when
it was sold to WMC Finance Co., a company owned principally by affiliates
of Apollo Management, L.P. ("APOLLO"), a private investment firm.
Prudential Home Mortgage Company, Inc. The Prudential Home Mortgage
Company, Inc. ("PHMC"), a direct, wholly-owned subsidiary of Residential
Services Corporation of America and an indirect wholly-owned subsidiary of
The Prudential Insurance Company of America, a mutual insurance company
organized under the laws of the State of New Jersey ("PRUDENTIAL
INSURANCE"), was incorporated in the State of New Jersey on September 18,
1978.
PHH Mortgage Services Corporation. PHH is a New Jersey corporation,
formed in 1977. PHH is a wholly owned subsidiary of PHH Holdings
Corporation which is a subsidiary of PHH Corporation, an international
financial services corporation. PHH's executive offices are located at 600
Atrium Way, Mt. Laurel, New Jersey 08054.
MASTER SERVICING
Wilshire Servicing Corporation ("WILSHIRE SERVICING") will be responsible
for master servicing the Mortgage Loans. Such responsibilities will include
the receipt of funds from the Servicers, the reconciliation of servicing
activity with respect to the Mortgage Loans, investor reporting, remittances
to the Trustee to accommodate distributions to Certificateholders, follow up
with the Servicers with respect to Mortgage Loans that are delinquent or for
which servicing decisions may need to be made, management and liquidation of
mortgaged properties acquired by foreclosure or deed in lieu of foreclosure,
notices and other responsibilities as detailed in the Pooling and Servicing
Agreement.
Wilshire Servicing is a Delaware corporation and a wholly owned subsidiary
of WFSG. Wilshire Servicing was recently formed to engage in the loan
servicing business and to continue the loan servicing business conducted by
Wilshire Credit, an affiliate of WFSG, once Wilshire Servicing has obtained
all necessary licenses (which is currently expected to be approximately two to
three years from the date of this prospectus supplement). Wilshire Servicing
will retain Wilshire Credit to act as its sub-servicer with respect to the
Mortgage Loans until such time as Wilshire Servicing is fully licensed.
S-44
<PAGE>
SERVICING
Primary servicing will be provided by PHH, with respect to the PHH Mortgage
Loans, and Wilshire Credit, with respect to all other Mortgage Loans.
PHH is a New Jersey corporation, formed in 1977. PHH is a wholly owned
subsidiary of PHH Holdings Corporation which is a subsidiary of PHH
Corporation, an international financial services corporation. PHH's executive
offices are located at 600 Atrium Way, Mt. Laurel, New Jersey 08054. As of
August 31, 1997, PHH managed assets (including mortgage loans) in excess of
$57.1 billion. PHH was servicing approximately 246,000 mortgage loans as of
August 31, 1997.
Wilshire Credit, a Nevada corporation, is a privately held corporation based
in Portland, Oregon. Wilshire Credit is a member of a group of affiliated
companies (the "Wilshire Group") that engage in a wide variety of financial
activities, including the acquisition, ownership, servicing and securitization
of financial assets. Wilshire Credit's principal executive offices are located
at 1776 S.W. Madison Street, Portland, Oregon 97205. The telephone number of
such offices is (503) 223-5600.
Wilshire Credit was formed in May 1989 to manage the Wilshire Group's
activities in the loan and lease servicing business and to service the
Wilshire Group's heavy industrial equipment leasing portfolio, which consisted
of leases of containers, railroad cars and other similar equipment. In 1990,
Wilshire Credit began to expand its activities by acquiring portfolios of
financial assets from the Resolution Trust Corporation, the Federal Deposit
Insurance Corporation and other parties and selling participation in such
portfolios to institutional investors while retaining the servicing rights and
a participation in the overall return on such portfolios. As of March 31,
1997, Wilshire Credit was providing servicing for financial assets having
total principal amounts in excess of $2.2 billion. Portfolios acquired by
Wilshire Credit include performing, non-performing and charged-off consumer
and commercial loans or receivables, including home mortgage loans, home
equity loans, commercial real estate loans, commercial and business loans,
auto loans, manufactured housing loans, marine or boat loans and consumer
loans. Wilshire Credit also services loans originated or acquired by the
Wilshire Seller's affiliates, First Bank of Beverly Hills, F.S.B. and Girard
Savings Bank, F.S.B. (together, the "BANK AFFILIATES"). Of the $2.2 billion of
loans serviced by Wilshire Credit, approximately $1.1 billion are loan
portfolios held by unaffiliated third parties (including approximately $557.2
million of loans previously securitized by WFSG and its affiliates).
Delinquency and Foreclosure Statistics. No information is provided herein
with respect to the Wilshire Credit's mortgage loan servicing portfolio. The
Wilshire Credit's servicing portfolio was acquired from, and originated by, a
variety of institutions. The Wilshire Credit does not believe that the
information regarding the delinquency, loss and foreclosure experience of its
servicing portfolio is likely to be a meaningful indicator of the delinquency,
loss and foreclosure experience of the Mortgage Loans. For example, the
delinquency and loss experience of the Wilshire Credit's servicing portfolio
may include (i) loans and financial assets acquired from entities other than
those by which the Mortgage Loans were originated, (ii) loans and financial
assets from the same or different entities originated pursuant to different
underwriting standards and (iii) loans and financial assets having a
geographic distribution that varies from the geographic distribution of the
Mortgage Loans. In addition, Wilshire Credit's consolidated servicing
portfolio includes loans with a variety of payment and other characteristics
that may not correspond to those of the Mortgage Loans.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Loans is based
upon the Mortgage Loans as constituted at the close of business on the Cut-Off
Date, as adjusted for the scheduled principal payments due on
S-45
<PAGE>
or before such date. Prior to the issuance of the Offered Certificates,
Mortgage Loans may be removed from the Mortgage Pool, if the Depositor deems
such removal necessary or appropriate. A limited number of other mortgage
loans may be included in the Mortgage Pool prior to the issuance of the
Offered Certificates. The Depositor believes that the information set forth
herein will be substantially representative of the characteristics of the
Mortgage Pool as it will be constituted at the time the Offered Certificates
are issued, although the range of Mortgage Rates and maturities and certain
other characteristics of the Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K, together with the Pooling and Servicing
Agreement, will be filed with the Securities and Exchange Commission within
fifteen days after the initial issuance of the Offered Certificates. In the
event Mortgage Loans are removed from or added to the Mortgage Pool as set
forth in the preceding paragraph, such removal or addition will be noted in
the Current Report on Form 8-K.
S-46
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will consist of the following eleven classes (each, a
"CLASS"): (i) the Class A-I Certificates, the Class A-II Certificates and the
Class A-III Certificates (collectively, the "CLASS A CERTIFICATES"); (ii) the
Class IO Certificates; (iii) the Class PO Certificates; (iv) the Class M-1
Certificates, the Class M-2 Certificates and the Class M-3 Certificates
(collectively, the "CLASS M CERTIFICATES"); and (v) the Class B-1
Certificates, the Class B-2 Certificates and the Class B-3 Certificates
(collectively, the "CLASS B CERTIFICATES"). The Class A Certificates, the
Class IO Certificates and the Class PO Certificates are referred to herein
collectively as the "SENIOR CERTIFICATES." The Class M Certificates and the
Class B Certificates are referred to herein as the "SUBORDINATE CERTIFICATES."
The Class A-I Certificates and Subordinate Certificates are referred to herein
as the "GROUP I CERTIFICATES." The Trust will also issue a "residual interest"
with respect to each REMIC held by the Trust (collectively, the "RESIDUAL
CERTIFICATES"). See the "Index of Terms" in the Prospectus for the meanings of
capitalized terms and acronyms not otherwise defined herein.
The Certificates in the aggregate will evidence the entire beneficial
ownership interest in the Trust Fund. The Trust Fund will consist of: (i) the
Mortgage Loans; (ii) such assets as from time to time are identified as
deposited in respect of the Mortgage Loans in the Collection Account and the
Certificate Account and belonging to the Trust Fund; (iii) property acquired
by foreclosure of such Mortgage Loans or deed in lieu of foreclosure; (iv) any
hazard or other insurance policies with respect to the Mortgage Loans; and (v)
all proceeds of the foregoing.
The Class PO Certificates will be entitled to payments based on the Class PO
Principal Percentage of the Class PO Mortgage Loans. A "CLASS PO MORTGAGE
LOAN" is any Pool I Loan with a Net Mortgage Rate less than % per annum.
With respect to each Class PO Mortgage Loan, the "CLASS PO PRINCIPAL
PERCENTAGE" is equal to a fraction, expressed as a percentage, the numerator
of which is % minus the Net Mortgage Rate for such Class PO Mortgage Loan
and the denominator of which is %. The Mortgage Loans other than the Class
PO Mortgage Loans are referred to herein as the "NON-CLASS PO MORTGAGE LOANS."
The Offered Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its Participants. The Offered Certificates
(other than the Class IO Certificates) will be issued in minimum denominations
of $25,000 and integral multiples of $1 in excess thereof. The Class IO
Certificates will be issued in book-entry form in minimum denominations of 20%
Percentage Interests.
The Offered Certificates will be represented by one or more certificates
registered in the name of the nominee of DTC. The Depositor has been informed
by DTC that DTC's nominee will be Cede & Co. ("CEDE"). No Beneficial Owner
will be entitled to receive a Definitive Certificate, except as set forth
herein under "Description of the Certificates--Book-Entry Registration."
Unless and until Definitive Certificates are issued for the Offered
Certificates under the limited circumstances described herein, all references
to actions by Certificateholders with respect to the Offered Certificates
shall refer to actions taken by DTC upon instructions from its Participants,
and all references herein to distributions, notices, reports and statements to
Certificateholders with respect to the Offered Certificates shall refer to
distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Offered Certificates, for distribution to Beneficial
Owners by DTC in accordance with DTC procedures.
BOOK-ENTRY REGISTRATION
General. The Offered Certificates will be initially issued through the book-
entry facilities of DTC or Cedel Bank, SA ("CEDEL") or the Euroclear System
("EUROCLEAR") (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems. The
record holder of the Offered Certificates will be Cede. CEDEL and Euroclear
will hold omnibus positions on behalf of their participants through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (the "DEPOSITARIES"), which in turn will hold such
positions in customers' securities accounts in the depositaries' names on the
books of DTC.
S-47
<PAGE>
DTC is a limited-purpose trust company organized under the laws of the State
of New York, which holds securities for its participating organizations ("DTC
PARTICIPANTS," and together with the CEDEL and Euroclear participating
organizations, "PARTICIPANTS") and facilitates the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in the accounts of Participants. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Other institutions that are not
Participants but clear through or maintain a custodial relationship with
Participants (such institutions, "INDIRECT PARTICIPANTS") have indirect access
to DTC's clearance system.
No person acquiring an interest in any Offered Certificate (each such
person, a "BENEFICIAL OWNER") will be entitled to receive a Certificate
representing such interest in registered, certificated form, unless either (i)
DTC ceases to act as depository in respect thereof and a successor depository
is not obtained, or (ii) the Depositor elects in its sole discretion to
discontinue the registration of such Certificates through DTC. Prior to any
such event, Beneficial Owners will not be recognized by the Trustee or the
Master Servicer as holders of the related Certificates for purposes of the
Pooling and Servicing Agreement, and Beneficial Owners will be able to
exercise their rights as owners of such Certificates only indirectly through
DTC, Participants and Indirect Participants. Any Beneficial Owner that desires
to purchase, sell or otherwise transfer any interest in the Offered
Certificates may do so only through DTC, either directly if such Beneficial
Owner is a Participant or indirectly through Participants and, if applicable,
Indirect Participants. Pursuant to the procedures of DTC, transfers of the
beneficial ownership of any Offered Certificates will be required to be made
in the minimum denominations specified herein. The ability of a Beneficial
Owner to pledge Offered Certificates to persons or entities that are not
Participants in the DTC system, or to otherwise act with respect to such
Certificates, may be limited because of the lack of physical certificates
evidencing such Certificates and because DTC may act only on behalf of
Participants.
Because of time zone differences, the securities account of a CEDEL
Participant or Euroclear Participant as a result of a transaction with a DTC
Participant (other than a depositary holding on behalf of CEDEL or Euroclear)
will be credited during a subsequent securities settlement processing day
(which must be a business day for CEDEL or Euroclear, as the case may be)
immediately following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Euroclear Participant or CEDEL Participants on such
business day. Cash received in CEDEL or Euroclear as a result of sales of
securities by or through a CEDEL Participant or Euroclear Participant to a DTC
Participant (other than the depositary for CEDEL or Euroclear) will be
received with value on the DTC settlement date, but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant Depositaries; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver
instructions directly to the Depositaries.
CEDEL, a professional depository, holds securities for its participating
organizations ("CEDEL PARTICIPANTS") and facilitates the clearance and
settlement of securities transactions between CEDEL
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<PAGE>
Participants through electronic book-entry changes in accounts of CEDEL
Participants, thereby eliminating the need for physical movement of
certificates. As a professional depository, CEDEL is subject to regulation by
the Luxembourg Monetary Institute.
Euroclear was created to hold securities for participants of Euroclear
("EUROCLEAR PARTICIPANTS") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "EUROCLEAR OPERATOR"), under contract
with Euroclear Clearance Systems S.C., a Belgian co-operative corporation (the
"CLEARANCE COOPERATIVE"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Clearance
Cooperative. The Clearance Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission. Securities clearance accounts and cash accounts with the
Euroclear Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "TERMS AND CONDITIONS"). The Terms
and Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts.
Distributions in respect of the Offered Certificates will be forwarded by
the Trustee to DTC, and DTC will be responsible for forwarding such payments
to Participants, each of which will be responsible for disbursing such
payments to the Beneficial Owners it represents or, if applicable, to Indirect
Participants. Accordingly, Beneficial Owners may experience delays in the
receipt of payments in respect of their Certificates. Under DTC's procedures,
DTC will take actions permitted to be taken by holders of any class of Offered
Certificates under the Pooling and Servicing Agreement only at the direction
of one or more Participants to whose account the Offered Certificates are
credited and whose aggregate holdings represent no less than any minimum
amount of Percentage Interests or voting rights required therefor. DTC may
take conflicting actions with respect to any action of Certificateholders of
any Class to the extent that Participants authorize such actions. None of the
Master Servicer, the Depositor, the Trustee or any of their respective
affiliates will have any liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Offered
Certificates, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Beneficial Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Offered Certificates may do so only through Participants and
Indirect Participants. In addition, Beneficial Owners will receive all
distributions of principal of and interest on the Offered Certificates from
the Paying Agent through DTC and Participants. Accordingly, Beneficial Owners
may experience delays in their receipt of payments. Unless and until
Definitive Certificates are issued for the Offered Certificates, it is
anticipated that the only registered Certificateholder of the Offered
Certificates will be Cede, as nominee of DTC. Beneficial Owners will not be
recognized by the Trustee or the Master Servicer as Certificateholders, as
such term is used in the Pooling and Servicing Agreement, and Beneficial
Owners will be permitted to receive information furnished to
Certificateholders and to exercise the rights of Certificateholders only
indirectly through DTC, its Participants and Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "RULES"), DTC is required to make book-entry transfers of
Offered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, such Offered Certificates.
Participants and Indirect Participants with which Beneficial Owners have
accounts with respect to such Offered Certificates similarly are required to
make book-entry transfers and receive and transmit such distributions on
behalf of their respective
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<PAGE>
Beneficial Owners. Accordingly, although Beneficial Owners will not possess
physical certificates evidencing their interests in the Offered Certificates,
the Rules provide a mechanism by which Beneficial Owners, through their
Participants and Indirect Participants, will receive distributions and will be
able to transfer their interests in the Offered Certificates. Transfers
between Participants will occur in accordance with the Rules. Transfers
between CEDEL Participants and Euroclear Participants will occur in accordance
with their respective rules and operating procedures.
None of the Depositor, the Master Servicer or the Trustee will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the Offered Certificates held
by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth herein.
Upon the occurrence of an event described herein in the third paragraph
under "Description of the Certificates--Book-Entry Registration--General," the
Trustee is required to notify, through DTC, Participants who have ownership of
Offered Certificates as indicated on the records of DTC of the availability of
Definitive Certificates for their Offered Certificates. Upon surrender by DTC
of the definitive certificates representing the Offered Certificates and upon
receipt of instructions from DTC for re-registration, the Trustee will reissue
the Offered Certificates as Definitive Certificates issued in the respective
principal amounts owned by individual Beneficial Owners, and thereafter the
Trustee and the Master Servicer will recognize the holders of such Definitive
Certificates as Certificateholders under the Pooling and Servicing Agreement.
DISTRIBUTIONS IN RESPECT OF INTEREST AND PRINCIPAL
Distributions on the 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 generally equals
the aggregate of (i) scheduled payments of principal and interest on each
Mortgage Loan (the "MONTHLY PAYMENT") due during the related Due Period and
received by the Master Servicer on or prior to the related Determination Date,
net of the Master Servicing Fee, the Servicing Fee and the Trustee Fee for
such Due Period, (ii) principal prepayments and other unscheduled collections
of principal, including Liquidation Proceeds, Insurance Proceeds and the
proceeds of the repurchase of any Mortgage Loans, received during the related
Prepayment Period, and (iii) any Advances made by the Master Servicer or
Servicer and payments of any Prepayment Interest made by the Master Servicer
for such Distribution Date, in each case net of any amounts that the Master
Servicer or Servicers is permitted to withdraw from the Custodial Account,
including but not limited to any unpaid Master Servicing Fees, unpaid
Servicing Fees and any unreimbursed Advances or servicing advances.
The "DUE DATE" with respect to each Mortgage Loan is the date on which the
monthly payment is due. The "DUE PERIOD" with respect to any Distribution Date
commences on the sixteenth day of the month preceding the month in which such
Distribution Date occurs and ends on the fifteenth day of the month in which
such Distribution Date occurs. The "PREPAYMENT PERIOD" with respect to any
Distribution Date is the calendar month preceding the month in which such
Distribution Date occurs. The "DETERMINATION DATE" with respect to any
Distribution Date is the 20th day of the month in which the Distribution Date
occurs or, if such day is not a Business Day, the following Business Day. The
"MASTER SERVICER REMITTANCE DATE" with respect to any Distribution Date is the
Business Day immediately preceding the related Distribution Date.
Payments of principal and interest on the Subordinate Certificates on each
Distribution Date shall be subordinate to the payment of principal and
interest, in the amounts described herein, on the Senior Certificates. Among
the Subordinate Certificates, amounts payable in respect of principal and
interest shall be distributed to each Class in accordance with its payment
priority (with the Class M-1 Certificates having the highest payment priority
and the Class B-3 Certificates having the lowest payment priority).
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<PAGE>
Interest Distribution Amounts. On each Distribution Date, the holders of the
Senior Certificates will be entitled to receive, to the extent of the
Available Distribution Amount, one month's interest at the applicable per
annum rate (the "PASS-THROUGH RATE") set forth herein on the Certificate
Principal Balance or Notional Amount thereof as of the day preceding such
Distribution Date. As to any Distribution Date, one month's interest at the
applicable Pass-Through Rate for any Class of the Class A Certificates on the
Certificate Principal Balance thereof immediately prior to such Distribution
Date (less the amount of any Prepayment Interest Shortfalls and Relief Act
shortfalls allocated thereto) is referred to as the Class A-I Interest
Distribution Amount, Class A-II Interest Distribution Amount or Class A-III
Interest Distribution Amount, as applicable.
The Pass-Through Rate with respect to the Class A-I Certificates is % per
annum.
The Pass-Through Rate with respect to the Class A-II Certificates and Class
A-III Certificates on any Distribution Date will be equal to the lesser of:
(a) the related Weighted Average Pool Net Mortgage Rate; and
(b) the percentage per annum equivalent of a fraction, the numerator of
which is equal to the sum of:
(A) the product of:
(1) the related Weighted Average Pool Net Mortgage Rate; and
(2) the Non-Surplus Percentage of the aggregate Principal Balance
of the Mortgage Loans in the related Pool (other than the Class PO
Principal Percentage of each Class PO Mortgage Loan in the case of
the Pool I Loans) immediately prior to such Distribution Date; and
(B) the product of:
(1) the Cross Support Weighted Average Net Mortgage Rate; and
(2) the amount, if any, by which the Certificate Principal Balance
of the related Class of Class A Certificates plus, in the case of
Pool I, the Subordinate Certificates, immediately prior to such
Distribution Date exceeds the aggregate Principal Balance of the
Mortgage Loans in the related Pool (other than the Class PO
Principal Percentage of each Class PO Mortgage Loan in the case of
the Pool I Loans) immediately prior to such Distribution Date (with
respect to such Pool, the related "POOL DEFICIT AMOUNT");
and the denominator of which is equal to the Certificate Principal
Balance of the related Class of Class A Certificates plus, in the case
of Pool I, the Subordinate Certificates, immediately prior to such
Distribution Date (the rate described in this clause (b), the related
"BLENDED RATE").
With respect to any Distribution Date and each Pool of Mortgage Loans, the
"WEIGHTED AVERAGE POOL NET MORTGAGE RATE" is equal to the weighted average of
the Net Mortgage Rates on the Mortgage Loans in such Pool as of the Due Dates
for such Mortgage Loans in the second preceding Due Period, weighted on the
basis of the Principal Balance of each such Mortgage Loan immediately prior to
such Distribution Date; provided that for the purposes of such calculation,
the Class PO Principal Percentage of each Class PO Mortgage Loan will be
excluded and the Net Mortgage Rate on the remaining portion of such Principal
Balance will be deemed to be equal to % per annum. With respect to any
Distribution Date, the "CROSS SUPPORT WEIGHTED AVERAGE NET MORTGAGE RATE" is
equal to the percentage equivalent of a fraction:
(a) the numerator of which is equal to the sum of:
(i) the product of:
(A) the Pool Surplus Amount with respect to Pool I; and
(B) the Weighted Average Pool Net Mortgage Rate with respect to
Pool I;
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<PAGE>
(ii) the product of:
(A) the Pool Surplus Amount with respect to Pool II; and
(B) the Weighted Average Pool Net Mortgage Rate with respect to
Pool II; and
(iii) the product of:
(A) the Pool Surplus Amount with respect to Pool III; and
(B) the Weighted Average Pool Net Mortgage Rate with respect to
Pool III; and
(b) the denominator of which is equal to the aggregate of the Pool Surplus
Amounts with respect to each Pool.
With respect to any Distribution Date and each Pool of Mortgage Loans, the
"POOL SURPLUS AMOUNT" is equal to the amount (but not less than zero) by which
the aggregate Principal Balance of the Mortgage Loans in the related Pool
(other than the Class PO Principal Percentage of each Class PO Mortgage Loan
in the case of the Pool I Loans) exceeds the Certificate Principal Balance of
the Group I, Class A-II or Class A-III Certificates, as applicable.
On each Distribution Date, the holders of the Class IO Certificates will be
entitled to receive one month's interest at the Class IO Pass-Through Rate on
the Class IO Notional Amount with respect to such Distribution Date. The
"CLASS IO PASS-THROUGH RATE" with respect to each Distribution Date is a per
annum rate equal to the Blended Rate for Pool I for such Distribution Date
minus the weighted average of the Pass-Through Rates on the Class A-I, Class
M-1, Class M-2 and Class M-3 Certificates, weighted on the basis of their
respective Certificate Principal Balances immediately prior to such
Distribution Date (but not less than 0.00%). With respect to any Distribution
Date, the "NOTIONAL AMOUNT" of the Class IO Certificates shall be an amount
equal to the aggregate Certificate Principal Balance of the Class A-I, Class
M-1, Class M-2 and Class M-3 Certificates immediately prior to such
Distribution Date. The initial Class IO Pass-Through Rate is % per
annum. One month's interest at the Pass-Through Rate for the Class IO
Certificates on the Class IO Notional Amount (less any Prepayment Interest
Shortfalls and Relief Act shortfalls allocated thereto) is referred to herein
as the "CLASS IO INTEREST DISTRIBUTION AMOUNT."
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, reduced by
all scheduled principal payments due on or before the Cut-Off Date, that have
not been received, plus, with respect to any Negative Amortization Loan, the
amount of any Deferred Interest on such Mortgage Loan that is added to the
Principal Balance thereof, and minus all amounts allocable to principal that
have been distributed to Certificateholders with respect to such Mortgage Loan
on or before such date of determination, and as further reduced to the extent
that any Realized Loss thereon has been allocated to one or more Classes of
Certificates on or before such date of determination.
On each Distribution Date, to the extent of the Available Distribution
Amount remaining after the payment of principal and interest to the Senior
Certificates and to each Class of Subordinate Certificates with a higher
payment priority, the holders of the Class M-1, Class M-2, Class M-3 and Class
B Certificates, in that order, will be entitled to receive distributions
allocable to interest in an amount equal to one month's interest at the
applicable Pass-Through Rate on the Certificate Principal Balance of such
Class of Certificates immediately preceding such Distribution Date. The Pass-
Through Rate with respect to the Class M-1, Class M-2 and Class M-3
Certificates or any Distribution Date is the lesser of (i) % per annum and
(ii) the Blended Rate for Pool I with respect to such Distribution Date. The
Pass-Through Rate for the Class B Certificates or any Distribution Date is
equal to the Blended Rate for Pool I with respect to such Distribution Date.
One month's interest at the applicable Pass-Through Rate for each of the Class
M-1, Class M-2, Class M-3 and Class B Certificates on the Certificate
Principal Balance of such Class of Certificates immediately preceding such
Distribution Date is referred to herein as the "CLASS M-1 INTEREST
DISTRIBUTION AMOUNT," the "CLASS M-2
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<PAGE>
INTEREST DISTRIBUTION AMOUNT," the "CLASS M-3 INTEREST DISTRIBUTION AMOUNT"
and the "CLASS B INTEREST DISTRIBUTION AMOUNT," respectively.
The "SERVICING FEE" is the fee payable to the Servicers for servicing the
Mortgage Loans and, with respect to approximately % of the PHH Mortgage
Loans, includes the premium on lender-paid mortgage insurance policies to be
maintained on such PHH Mortgage Loans. The "MASTER SERVICING FEE" is the fee
payable to the Master Servicer for master servicing the Mortgage Loans. The
"TRUSTEE FEE" is the fee payable to the Trustee for acting as Trustee pursuant
to the Pooling and Servicing Agreement. The "NET MORTGAGE RATE" on each
Mortgage Loan is equal to the Mortgage Rate thereon minus the sum of the per
annum rates at which the Servicing Fee (the "SERVICING FEE RATE"), the Master
Servicing Fee (the "MASTER SERVICING FEE RATE") and the Trustee Fee (the
"TRUSTEE FEE RATE") accrue. The Servicing Fee Rate is 0.325% per annum with
respect to the Mortgage Loans other than the PHH Mortgage Loans and 0.375% per
annum with respect to the PHH Mortgage Loans (except with respect to % of
the PHH Mortgage Loans, for which the Servicing Fee Rate ranges from % to
% per annum). The Master Servicing Fee Rate is 0.05% per annum and the
Trustee Fee Rate is 0.02% per annum with respect to each of the Mortgage
Loans.
To the extent that any portion of the interest due on a Class of
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.
To the extent that any prepayment of a Mortgage Loan has occurred during a
Prepayment Period, a shortfall in interest could occur because interest is
paid by the Mortgagor only to the date of prepayment. Such shortfalls in
interest resulting from full and partial prepayments are required to be offset
to the extent of the Master Servicing Fee and the Servicing Fee payable with
respect to such Distribution Date; provided that the Servicing Fee with
respect to the PHH Mortgage Loans will only be available in the case of
principal prepayments in full on the PHH Mortgage Loans. To the extent any
such shortfalls are not covered by the Master Servicer or Servicer, such
shortfall (the "PREPAYMENT INTEREST SHORTFALL") will be allocated to reduce
the Class A-I Interest Distribution Amount, Class A-II Interest Distribution
Amount, Class A-III Interest Distribution Amount, Class IO Interest
Distribution Amount, Class M-1 Interest Distribution Amount, Class M-2
Interest Distribution Amount, Class M-3 Interest Distribution Amount and Class
B Interest Distribution Amount for the related Distribution Date on a pro rata
basis in accordance with the respective amounts of interest due on such
Distribution Date absent such reduction. Interest shortfalls resulting from
the Relief Act (as hereinafter defined) will also be allocated to all of the
Certificates in reduction of their interest distributions on a pro rata basis.
The holders of the Class PO Certificates will not be entitled to any
distribution of interest.
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 PO Certificates will be entitled to receive, from the Available
Distribution Amount after, and in the order of priority set forth herein, an
amount (the "CLASS PO PRINCIPAL DISTRIBUTION AMOUNT") which will be equal to
the aggregate of the related Class PO Principal Percentage multiplied by the
portion of the Available Distribution Amount that is attributable to principal
of each Class PO Mortgage Loan and (ii) unless the aggregate Certificate
Principal Balance of the Subordinate Certificates has been reduced to zero,
the related Class PO Principal Percentage multiplied by the principal amount
of any Realized Loss incurred with respect to any Class PO Mortgage Loan. The
"CLASS PO PRINCIPAL PERCENTAGE" with respect to a Class PO Mortgage Loan is
the difference (if such difference is a positive number) between (i) 100% and
(ii) the percentage equivalent of the Net Mortgage Rate of such Mortgage Loan
divided by %.
On each Distribution Date, the holders of the Class A-I Certificates will be
entitled to receive from the Available Distribution Amount after distributions
with a higher payment priority have been made, an amount (the "CLASS A-I
PRINCIPAL DISTRIBUTION AMOUNT"), which will be equal to the sum of:
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<PAGE>
(i) the Adjusted Class A-I Percentage of the portion of the Available
Distribution Amount for such Distribution Date that is attributable to the
principal portion of Monthly Payments due on the Mortgage Loans in Pool I
(after the deduction of the Class PO Principal Percentage of such amount
attributable to any Class PO Mortgage Loan), whether or not received by the
Servicer; and
(ii) the Adjusted Class A-I Prepayment Percentage of the portion of the
Available Distribution Amount that is attributable to (a) any amounts
received in connection with the repurchase of a Mortgage Loan in Pool I
(after the deduction of the Class PO Principal Percentage of such amount
attributable to any Class PO Mortgage Loan and less the portion of such
repurchase proceeds allocable to interest), (b) the aggregate net
Liquidation Proceeds (net of any Liquidation Expenses) and Insurance
Proceeds received by the Servicer in connection with a Mortgage Loan in
Pool I, less the amounts allocable to principal of any unreimbursed
Advances previously made by the Servicer or the Master Servicer (after the
deduction of the Class PO Principal Percentage of such amount attributable
to any Class PO Mortgage Loan and less the portion of such Liquidation
Proceeds or Insurance Proceeds allocable to interest), and (c) all full and
partial principal prepayments by the Mortgagors of Mortgage Loans in Pool I
(after deduction of the Class PO Principal Percentage of such amounts
attributable to any Class PO Mortgage Loans).
The "CLASS A-I PERCENTAGE" as of any Distribution Date is equal to the
Certificate Principal Balance of the Class A-I Certificates divided by the sum
of the aggregate Certificate Principal Balance of the Class A-I Certificates
and Subordinate Certificates immediately preceding such Distribution Date. The
"ADJUSTED CLASS A-I PERCENTAGE" for any Distribution Date is equal to the
Class A-I Percentage for such Distribution Date multiplied by the related Non-
Surplus Percentage for such Distribution Date. The "SURPLUS PERCENTAGE" for
any Pool on any Distribution Date is equal to 100% minus the Surplus
Percentage for such Pool and such Distribution Date. The "NON-SURPLUS
PERCENTAGE" for any Pool on any Distribution Date is equal to a fraction,
expressed as a percentage, the numerator of which is equal to the aggregate
Certificate Principal Balance of the related Class of Class A Certificates
and, in the case of Pool I, the Subordinate Certificates, and the denominator
of which is equal to the aggregate Principal Balance of the Mortgage Loans in
the related Pool (other than the Class PO Principal Percentage of each Class
PO Mortgage Loan in the case of Pool I), but not more than 100% or less than
0%. The "ADJUSTED CLASS A-I PREPAYMENT PERCENTAGE" for any Distribution Date
is equal to the Class A-I Prepayment Percentage for such Distribution Date
multiplied by the related Non-Surplus Percentage for such Distribution Date.
The "DEFICIT PERCENTAGE" for any Pool and any Distribution Date is equal to a
fraction, expressed as a percentage, the numerator of which is equal to the
Pool Deficit Amount for such Pool and such Distribution Date, and the
denominator of which is equal to the aggregate Pool Deficit Amounts for all
Pools and such Distribution Date. The "SENIOR PERCENTAGE" as of any
Distribution Date is equal to the aggregate Certificate Principal Balance of
the Class A Certificates and the Class PO Certificates divided by the sum of
the aggregate Certificate Principal Balance of all of the Certificates
immediately preceding such Distribution Date. The "CERTIFICATE PRINCIPAL
BALANCE" of any Certificate as of any date of determination is equal to the
initial Certificate Principal Balance thereof minus the sum of any
distributions of principal thereon and the principal portion of any Realized
Losses allocated thereto on any prior Distribution Date or, with respect to
the Class of Subordinate Certificates outstanding with the lowest payment
priority, an amount equal to the Principal Balance of the Mortgage Loans
(other than the Class PO Percentage of the Class PO Mortgage Loans) minus the
Certificate Principal Balance of all other Classes of Certificates (other than
the Class PO Certificates) then outstanding; provided that if, after
distributions of principal on any Distribution Date, the aggregate Principal
Balance of the Pool II Loans or Pool III Loans is increased as a result of
negative amortization on the Negative Amortization Loans, the Certificate
Principal Balance of the Class A-II Certificates or Class A-III Certificates,
as appropriate, will be increased by the related Non-Surplus Percentage of
such negative amortization and the Certificate Principal Balance of the Group
I Certificates and the Class A-II Certificates or Class A-III Certificates, as
applicable, will be increased by the related Surplus Percentage of such
negative amortization on a pro rata basis in accordance with the Deficit
Percentages of the related pool, and among the Group I Certificates in
accordance with their respective Certificate Principal Balances.
"INSURANCE PROCEEDS" means proceeds of any title, hazard or other insurance
policy covering any Mortgage Loan, other than (i) proceeds to be applied to
the restoration or repair of the related Mortgaged
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Property, (ii) proceeds released to the related Mortgagor in accordance with
the Pooling and Servicing Agreement and (iii) proceeds released to the
Servicer or Master Servicer to reimburse the Servicer or Master Servicer for
any Advances made in respect of the related Mortgage Loan pursuant to the
Servicing Agreement or the Master Servicing Agreement, as applicable.
"LIQUIDATION EXPENSES" means expenses incurred by the Servicer in connection
with the liquidation of any defaulted Mortgage Loan.
"LIQUIDATION PROCEEDS" means amounts, other than Insurance Proceeds,
received in connection with the liquidation of defaulted Mortgage Loans,
whether through trustee's sale, foreclosure sale or otherwise, or amount
received in connection with any condemnation or partial release of a Mortgaged
Property, other than amounts required to be paid to the Mortgagor pursuant to
the terms of the applicable Mortgage Loan or otherwise pursuant to law.
As of any Distribution Date, the "CLASS A-I PREPAYMENT PERCENTAGE" will be
the percentage indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE CLASS A-I PREPAYMENT PERCENTAGE
- ----------------- -------------------------------
<S> <C>
October 1997 through September 2002... 100%
October 2002 through September 2003... the applicable Class A-I Percentage, plus 70% of the
Subordinate Percentage;
October 2003 through September 2004... the applicable Class A-I Percentage, plus 60% of the
Subordinate Percentage.
October 2004 through September 2005... the applicable Class A-I Percentage, plus 40% of the
Subordinate Percentage;
October 2005 through September 2006... the applicable Class A-I Percentage, plus 20% of the
Subordinate Percentage; and
October 2006 and thereafter........... the applicable Class A-I Percentage;
</TABLE>
provided, however, that for any Distribution Date on which the Senior
Percentage is greater than the initial Senior Percentage, the Class A-I
Prepayment Percentage will be 100%; and provided further, no reduction of the
Class A-I Prepayment Percentage will occur on any Distribution Date unless:
(A) (i) as of such Distribution Date as to which any such reduction
applies, the aggregate Principal Balance of the Mortgage Loans delinquent
60 days or more (including for this purpose any Mortgage Loans in
foreclosure and Mortgage Loans with respect to which the related Mortgaged
Property has been acquired by the Trust Fund), averaged over the preceding
three months, as a percentage of the aggregate Principal Balance of all
Mortgage Loans averaged over the last three months, does not exceed 4%; and
(ii) as of such Distribution Date, cumulative Realized Losses with respect
to the Mortgage Loans do not exceed (a) 10% of the Certificate Principal
Balance of the Subordinate Certificates as of the Cut-Off Date (the
"ORIGINAL SUBORDINATE PRINCIPAL BALANCE") if such Distribution Date occurs
between and including October 2002 and September 2003, (b) 15% of the
Original Subordinate Principal Balance if such Distribution Date occurs
between and including October 2003 and September 2004, (c) 20% of the
Original Subordinate Principal Balance if such Distribution Date occurs
between and including October 2004 and September 2005, (d) 25% of the
Original Subordinate Principal Balance if such Distribution Date occurs
between and including October 2005 and September 2006, and (e) 30% of the
Original Subordinate Principal Balance if such Distribution Date occurs
during or after October 2006; or
(B) (i) as of such Distribution Date, the aggregate Principal Balances of
Mortgage Loans delinquent 60 days or more (including for this purpose any
Mortgaged Loans in foreclosure and Mortgage Loans with respect to which the
related Mortgaged Property has been acquired by the Trust Fund) does not
exceed 50% of the aggregate Certificate Principal Balance of the
Subordinate Certificates as of such date; and
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<PAGE>
(ii) cumulative Realized Losses do not exceed (a) 30% of these Original
Subordinate Principal Balance if such Distribution Date occurs between and
including October 2002 and September 2003, (b) 35% of the Original
Subordinate Principal Balance if such Distribution Date occurs between and
including October 2003 and September 2004, (c) 40% of the Original
Subordinate Principal Balance if such Distribution Date occurs between and
including October 2004 and September 2005, (d) 45% of the Original
Subordinate Principal Balance if such Distribution Date occurs between and
including October 2005 and September 2006, and (e) 50% of the Original
Subordinate Principal Balance if such Distribution Date occurs during or
after October 2006.
If on any Distribution Date the allocation to the Class A Certificates of a
disproportionate amount of full and partial principal prepayments and other
unscheduled amounts would reduce the outstanding Certificate Principal Balance
of the Class A Certificates below zero, the Class A-I Prepayment Percentage
for such Distribution Date will be limited to the percentage necessary to
reduce the Certificate Principal Balance of the Class A Certificates to zero
and the Subordinate Prepayment Percentage will be increased accordingly.
The "SUBORDINATE PERCENTAGE" as of any Distribution Date is equal to 100%
minus the Class A-I Percentage for such Distribution Date. The "ADJUSTED
SUBORDINATE PERCENTAGE" with respect to any Distribution Date is equal to the
Subordinate Percentage for such Distribution Date multiplied by the Non-
Surplus Percentage for Pool I for such Distribution Date. The "ADJUSTED
SUBORDINATE PREPAYMENT PERCENTAGE" with respect to any Distribution Date is
equal to the Subordinate Prepayment Percentage multiplied by the Non-Surplus
Percentage for Pool I. The "SUBORDINATE PREPAYMENT PERCENTAGE" is equal to 0%
for any Distribution Date prior to October 2002, 30% of the Subordinate
Percentage for any Distribution Date occurring from October 2002 to September
2003, 40% of the Subordinate Percentage for any Distribution Date occurring
from October 2003 to September 2004, 60% of the Subordinate Percentage for any
Distribution Date occurring from October 2004 to September 2005, 80% of the
Subordinate Percentage for any Distribution Date occurring from October 2005
to September 2006, and 100% of the Subordinate Percentage thereafter; provided
that for any Distribution Date on which the Senior Percentage is greater than
the initial Senior Percentage, the Subordinate Prepayment Percentage will be
0%; and provided further that no increase in the Subordinate Prepayment
Percentage will occur on any Distribution Date on which the Class A-I
Prepayment Percentage is not permitted to decrease in accordance with the
definition thereof.
On each Distribution Date, the holders of the Class A-II and Class A-III
Certificates will be entitled to receive from the Available Distribution
Amount after distributions with a higher priority have been made, an amount
(the "CLASS A-II PRINCIPAL DISTRIBUTION AMOUNT" and the "CLASS A-III PRINCIPAL
DISTRIBUTION AMOUNT," respectively), which will be equal to the sum of:
(i) the Non-Surplus Percentage for the related Pool of the portion of the
Available Distribution Amount for such Distribution Date that is
attributable to the sum of (a) the principal portion of Monthly Payments on
the Mortgage Loans in the related Pool, whether or not received by the
Servicer, (b) any amounts received in connection with the repurchase of a
Mortgage Loan in the related Pool during the preceding calendar month (less
the portion of such repurchase proceeds allocable to interest), (c) the
aggregate net Liquidation Proceeds (net of any Liquidation Expenses) and
Insurance Proceeds received by the Servicer during the preceding calendar
month in connection with a Mortgage Loan in the related Pool, less the
amounts allocable to principal of any unreimbursed Advances previously made
by the Servicer or the Master Servicer (less the portion of such
Liquidation Proceeds or Insurance Proceeds allocable to interest), and (d)
all full and partial principal prepayments by the Mortgagors of Mortgage
Loans in the related Pool during the applicable Prepayment Period;
(ii) the related Surplus Percentages of the principal portion of all
Monthly Payments, whether or not received, and the portion of the Surplus
Percentage of all other payments of principal on the Mortgage Loans in Pool
II and Pool III that are not allocated to the Subordinate Certificates in
accordance with clause (iv) of the definition of the Subordinate Principal
Distribution Amount, below, on the Mortgage Loans in Pool I and Pool III
(in the case of the Class A-II Certificates) or in Pool I and Pool II (in
the case of the
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Class A-III Certificates) and included in the Available Distribution Amount
for such Distribution Date multiplied by the Deficit Percentage for the
related Pool; and
(iii) if the Certificate Principal Balance of the Class A-I Certificates
has been reduced to zero, a pro rata portion of amounts described in clause
(ii) of the definition of the Class A-I Principal Distribution Amount,
which amounts will be allocated to the Class A-II Certificates and Class A-
III Certificates in accordance with their respective Certificate Principal
Balances.
The Class A-I Interest Distribution Amount, the Class A-II Interest
Distribution Amount and the Class A-III Interest Distribution Amount are
referred to herein separately and collectively as the "CLASS A INTEREST
DISTRIBUTION AMOUNT."
On each Distribution Date, the holders of the Subordinate Certificates in
the aggregate will be entitled to receive, from the Available Distribution
Amount after distributions with a higher payment priority have been made, an
amount (the "SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT") which will be equal
to the sum of:
(i) the Adjusted Subordinate Percentage of the portion of the Available
Distribution Amount with respect to such Distribution Date that is
attributable to the principal portion of Monthly Payments due on the
Mortgage Loans in Pool I (after the deduction of the Class PO Principal
Percentage of such amount attributable to any Class PO Mortgage Loan),
whether or not received by the Servicer;
(ii) the Adjusted Subordinate Prepayment Percentage of the portion of the
Available Distribution Amount that is attributable to (a) any amounts
received in connection with the repurchase of any Mortgage Loan in Pool I
(after the deduction of the Class PO Principal Percentage of such amount
attributable to any Class PO Mortgage Loan and less the portion of such
repurchase proceeds allocable to interest), (b) the aggregate Liquidation
Proceeds (net of any Liquidation Expenses) and Insurance Proceeds received
by the Servicer in respect of a Mortgage Loan in Pool I, less the amounts
allocable to principal of any unreimbursed Advances previously made by the
Servicer or the Master Servicer (after the deduction of the Class PO
Principal Percentage of such amount attributable to any Class PO Mortgage
Loan and less the portion of such Liquidation Proceeds or Insurance
Proceeds allocable to interest), and (c) all full and partial principal
prepayments by the Mortgagors of Mortgage Loans in Pool I (after the
deduction of the Class PO Principal Percentage of such amount attributable
to any Class PO Mortgage Loan);
(iii) the Subordinate Percentage of the related Surplus Percentage of the
principal portion of the Monthly Payments due on the Mortgage Loans in Pool
II and Pool III, whether or not received, multiplied by the Deficit
Percentage for Pool I; and
(iv) the Subordinate Prepayment Percentage of the related Surplus
Percentage of the principal portion of all payments received on the
Mortgage Loans in Pool II and Pool III (other than the Monthly Payments)
multiplied by the Deficit Percentage for Pool I.
The Subordinate Principal Distribution Amount will be allocated among the
Subordinate Certificates in the amounts and in accordance with the priority of
distributions set forth below.
The holders of the Class IO Certificates will not be entitled to any
distributions of principal.
Priority of Distributions. On each Distribution Date, to the extent of the
Available Distribution Amount for such Distribution Date, the following
amounts will be distributed to the Certificateholders in the following order
of priority:
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(a) concurrently, (i) to the Class IO Certificates, the Class IO Interest
Distribution Amount for such Distribution Date and any Class IO Interest
Distribution Amount remaining unpaid from any preceding Distribution Date
and (ii) to the Class A Certificates, the related Class A Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(b) concurrently, to the holders of the Class PO Certificates and Class A
Certificates, in reduction of their Certificate Principal Balances, until
the Certificate Principal Balances thereof have been reduced to zero: (i)
the Class PO Principal Distribution Amount and any Class PO Principal
Distribution Amount remaining unpaid from any preceding Distribution Date,
and (ii) the related Class A Principal Distribution Amount, respectively;
provided that any shortfall in amounts due pursuant to this clause (b) will
be allocated (i) to the Class PO Certificates in an amount equal to the
Class PO Principal Percentage of the amount of the shortfall attributable
to payments due but not received on the Class PO Mortgage Loans, and (ii)
otherwise, among the Class A Certificates.
(c) to the holders of the Class M-1 Certificates, the Class M-1 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(d) to the holders of the Class M-1 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below;
(e) to the holders of the Class M-2 Certificates, the Class M-2 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(f) to the holders of the Class M-2 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below;
(g) to the holders of the Class M-3 Certificates, the Class M-3 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(h) to the holders of the Class M-3 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below;
(i) to the holders of the Class B-1 Certificates, the Class B-1 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(j) to the holders of the Class B-1 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below;
(k) to the holders of the Class B-2 Certificates, the Class B-2 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(l) to the holders of the Class B-2 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below;
(m) to the holders of the Class B-3 Certificates, the Class B-3 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date; and
(n) to the holders of the Class B-3 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below.
The Subordinate Principal Distribution Amount will be allocated to the
Subordinate Certificates on a pro rata basis in accordance with their
respective Certificate Principal Balances; provided, however, that if, on any
Distribution Date, the Credit Support for any Class of Subordinate
Certificates is less than the Initial Credit Support for such Class, the
portion of Subordinate Principal Distribution Amount described in clauses (ii)
and (iv) of the definition thereof will be allocated among the Class of
Subordinate Certificates with the highest payment priority and those Classes
of Subordinate Certificates with respect to which the Credit Support is at
least equal to the Initial Credit Support, pro rata based on the respective
Certificate Principal Balances thereof, and that payments to such Subordinate
Certificates will be made in accordance with the payment priorities described
above.
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With respect to any Class of Subordinate Certificates and any Distribution
Date, "CREDIT SUPPORT" shall mean the percentage equivalent of (a) the
aggregate Certificate Principal Balance of (i) such Class of Subordinate
Certificates and (ii) all Classes of Subordinate Certificates with lower
payment priorities than such Class of Subordinate Certificates divided by (b)
the aggregate Certificate Principal Balance of all the Certificates (other
than the Class PO Certificates), before the allocation of any Realized Losses
on such Distribution Date and prior to the application of any distributions of
principal to be made on such Distribution Date. With respect to any Class of
Subordinate Certificates, "INITIAL CREDIT SUPPORT" shall mean the percentage
equivalent of (a) the initial aggregate Certificate Principal Balance of (i)
such Class and (ii) all Classes of Subordinate Certificates with lower payment
priorities divided by (b) the initial aggregate Certificate Principal Balance
of all Classes of Certificates (other than the Class PO Certificates).
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. The undivided percentage interest (the "PERCENTAGE
INTEREST") of an individual Certificate in distributions on the related Class
of Certificates will equal the percentage obtained from dividing the Initial
Certificate Principal Balance of such Certificate by the Initial Certificate
Principal Balance of the related Class (or, with respect to the Class IO
Certificates, the Percentage Interest set forth on the face of any such
Certificate).
ALLOCATION OF LOSSES; SUBORDINATION
The Subordination provided to the Senior Certificates by the Subordinate
Certificates and the Subordination provided to each Class of Class M
Certificates by the Class B Certificates and by any Class of Class M
Certificates subordinate thereto will cover Realized Losses on the Mortgage
Loans. Realized Losses will be allocated as follows: first, to the Class B-3
Certificates; second, to the Class B-2 Certificates; third, to the Class B-1
Certificates; fourth, to the Class M-3 Certificates; fifth, to the Class M-2
Certificates; and sixth, to the Class M-1 Certificates, in each case until the
Certificate Principal Balance of such Class of Certificates has been reduced
to zero; and thereafter, if any such Realized Loss is on a Class PO Mortgage
Loan, to the Class PO Certificates in an amount equal to the related Class PO
Principal Percentage of the principal portion of such Realized Loss, and the
remainder of such Realized Loss and the entire amount of such Realized Losses
on Non-Class PO Mortgage Loans among all the remaining Classes of Class A
Certificates on a pro rata basis.
Any allocation of a Realized Loss to a Certificate will be made by reducing
the Certificate Principal Balance thereof, in the case of the principal
portion of such Realized Loss, in each case until the Certificate Principal
Balance of such Class has been reduced to zero, and the accrued interest
thereon, in the case of the interest portion of such Realized Loss, by the
amount so allocated as of the Distribution Date occurring in the month
following the calendar month in which such Realized Loss was incurred. In
addition, any such allocation of a Realized Loss to a Subordinate Certificate
may also be made by operation of the payment priority to the Senior
Certificates set forth under "--Distributions in Respect of Interest and
Principal--Principal Distribution Amounts" and any Class of Class M
Certificates with a higher payment priority. As used herein, "SUBORDINATION"
refers to the provisions discussed above for the sequential allocation of
Realized Losses among the various Classes, as well as all provisions effecting
such allocations including the priorities for distribution of cash flows in
the amounts described herein.
An allocation of a Realized Loss on a "pro rata basis" among two or more
Classes of Certificates means an allocation to each such Class of Certificates
on the basis of its then outstanding Certificate Principal Balance prior to
giving effect to distributions to be made on such Distribution Date in the
case of an allocation of the principal portion of a Realized Loss, or based on
the Accrued Certificate Interest thereon in respect of such Distribution Date
in the case of an allocation of the interest portion of a Realized Loss.
With respect to any defaulted Mortgage Loan that is finally liquidated,
through foreclosure sale, disposition of the related Mortgaged Property if
acquired on behalf of the Certificateholders by deed in lieu of foreclosure,
or otherwise, the amount of loss realized, if any, will equal the portion of
the Principal Balance remaining, if any, plus interest thereon through the
last day of the month in which such Mortgage Loan was finally liquidated,
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after application of all amounts recovered (net of amounts reimbursable to the
Master Servicer or the Servicer for Advances and expenses, including
attorneys' fees) towards interest and principal owing on the Mortgage Loan.
Such amount of loss realized is referred to herein as a "REALIZED LOSS." With
respect to the calculation of a Realized Loss on a Mortgage Loan subject to a
Deficient Valuation, the amount of the Realized Loss will be the difference
between the unpaid Principal Balance of the related Mortgage Loan immediately
prior to Deficient Valuation and the unpaid Principal Balance as reduced by
the Deficient Valuation. The term "DEFICIENT VALUATION" shall mean, with
respect to any Mortgage Loan, a valuation by a court of competent jurisdiction
of the Mortgaged Property in an amount less than the outstanding indebtedness
under the Mortgage Loan, which valuation results from a proceeding under the
United States Bankruptcy Code, as amended from time to time (the "BANKRUPTCY
CODE"), or any reduction pursuant to the Bankruptcy Code that results in a
permanent forgiveness of principal.
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CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yield to maturity and the aggregate amount of distributions on the
Offered Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans, the amount and timing of Mortgagor defaults
resulting in Realized Losses and by adjustments to the Mortgage Rates. Such
yield may be adversely affected by a higher or lower than anticipated rate of
principal payments on the Mortgage Loans in the Trust Fund. The rate of
principal payments on such Mortgage Loans will in turn be affected by the
amortization schedules of the Mortgage Loans, the rate and timing of principal
prepayments thereon by the Mortgagors, liquidations of defaulted Mortgage
Loans and purchases of Mortgage Loans due to certain breaches of
representations and warranties. The timing of changes in the rate of
prepayments, liquidations and repurchases of the Mortgage Loans may, and the
timing of Realized Losses will, significantly affect the yield to an investor,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation. Since the rate and timing of
principal payments on the Mortgage Loans will depend on future events and on a
variety of factors, no assurance can be given as to such rate or the timing of
principal payments on the Offered Certificates.
The Mortgage Loans generally may be prepaid in full or in part at any time.
Investors in the Offered Certificates should be aware that 8.97% of the
Mortgage Loans will be Junior Mortgage Loans, which are secured by junior
liens on the related Mortgaged Properties. Generally, junior mortgage loans
are not viewed by Mortgagors as permanent financing. Accordingly, such Junior
Mortgage Loans may experience a higher rate of prepayment than first lien
mortgage loans. The Mortgage Loans generally are assumable under certain
circumstances if, in the sole judgment of the Master Servicer or Servicer, the
prospective purchaser of a Mortgaged Property is creditworthy and the security
for such Mortgage Loan is not impaired by the assumption. In the event the
Master Servicer or Sub-Servicer does not approve an assumption, the related
Mortgaged Property will be due-on-sale. The Master Servicer shall enforce any
due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent
permitted under applicable law and governmental regulations; provided,
however, if the Master Servicer determines that it is reasonably likely that
the Mortgagor will bring, or if any Mortgagor does bring, legal action to
declare invalid or otherwise avoid enforcement of a due-on-sale clause
contained in any Mortgage Note or Mortgage, the Master Servicer shall not be
required to enforce the due-on-sale clause or to contest such action. The
extent to which the Mortgage Loans are assumed by purchasers of the Mortgaged
Properties rather than prepaid by the related Mortgagors in connection with
the sales of the Mortgaged Properties will affect the weighted average life of
the related Offered Certificates and may result in a prepayment experience on
the Mortgage Loans that differs from that on other conventional mortgage
loans. See "Maturity and Prepayment Considerations" in the Prospectus.
Prepayments, liquidations and purchases of the Mortgage Loans will result in
distributions to holders of the Offered Certificates of principal amounts
which would otherwise be distributed over the remaining terms of the Mortgage
Loans. Factors affecting prepayment (including defaults and liquidations) of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties, changes in
the value of the mortgaged properties, mortgage market interest rates and
servicing decisions. In addition, if prevailing mortgage rates fell
significantly below the Mortgage Rates on the Mortgage Loans, the rate of
prepayments (including refinancings) would be expected to increase.
Conversely, if prevailing mortgage rates rose significantly above the Mortgage
Rates on the Mortgage Loans, the rate of prepayments on the Mortgage Loans
would be expected to decrease.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years, especially with respect to the Pool II Loans and Pool III Loans as
increases in the monthly payments to an amount in excess of the monthly
payment required at the time of origination may result in a default rate
higher than that on level payment mortgage loans, particularly since the
Mortgagor under each such Pool II Loan and Pool III Loan was qualified on the
basis of the Mortgage Rate in effect at origination. The repayment of such
Mortgage Loans will be dependent on the ability of the Mortgagor to make
larger monthly payments as the Mortgage Rate increases. With respect to the
Mortgage Loans, the Junior Mortgage Loans are subordinate to the
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rights of the mortgagee under the related senior mortgage or mortgages and,
therefore, the holder of a Junior Mortgage Loan will be subject to a loss of
its mortgage if the holder of a senior mortgage is successful in foreclosure
of its mortgage since no junior liens or encumbrances survive such a
foreclosure. Investors should be aware that any liquidation, insurance or
condemnation proceeds received in respect of such Junior Mortgage Loans will
be available to satisfy the outstanding balance of such Mortgage Loans only to
the extent that the claims of such senior mortgages have been satisfied in
full, including any related foreclosure costs. See "Risk Factors" herein and
in the Prospectus and "Certain Legal Aspects of the Mortgage Loans and
Contracts" in the Prospectus. Furthermore, the rate of default on Mortgage
Loans with high Loan-to-Value Ratios may be higher than for other types of
Mortgage Loans. As a result of the imperfect credit quality of a substantial
portion of the Mortgagors, the Mortgage Loans are likely to experience rates
of delinquency, foreclosure, bankruptcy and loss that are higher, and that may
be substantially higher, than those experienced by mortgage loans whose
mortgagors have more reliable credit histories. In addition, because of
certain of the Mortgagors' imperfect credit histories and their likely effect
on the delinquency, foreclosure, bankruptcy and loss experience of the
Mortgage Loans, the Mortgage Loans may be serviced in a manner intended to
result in a faster exercise of remedies, which may include foreclosure, in the
event Mortgage Loan delinquencies and defaults occur, than would be the case
if the Mortgage Loans were serviced in accordance with such other programs.
Furthermore, the rate and timing of prepayments, defaults and liquidations on
the Mortgage Loans will be affected by the general economic condition of the
region of the country in which the related Mortgaged Properties are located.
The risk of delinquencies and loss is greater and prepayments are less likely
in regions where a weak or deteriorating economy exists, as may be evidenced
by, among other factors, increasing unemployment or falling property values.
The yield to investors on the Offered Certificates may also be adversely
affected by the allocation thereto of Prepayment Interest Shortfalls. In
addition, the yield to maturity of the Offered Certificates will depend on,
among other things, the price paid by the holders of the Offered Certificates
and the Pass-Through Rate. The extent to which the yield to maturity of a
Offered Certificate is sensitive to prepayments will depend, in part, upon the
degree to which it is purchased at a discount or premium. In general, if an
Offered Certificate is purchased at a premium and principal distributions
thereon occur at a rate faster than assumed at the time of purchase, the
investor's actual yield to maturity will be lower than that anticipated at the
time of purchase. Conversely, if Offered Certificate is purchased at a
discount and principal distributions thereon occur at a rate slower than that
assumed at the time of purchase, the investor's actual yield to maturity will
be lower than that anticipated at the time of purchase.
1.59% and 22.78% of the Pool II Loans and Pool III Loans, respectively are
Negative Amortization Loans. During a period of rising interest rates as well
as immediately after origination, the amount of interest accruing on the
Principal Balance of such Mortgage Loans may exceed the amount of the Monthly
Payment thereon. As a result, a portion of the accrued interest on such
Negative Amortization Loans may become Deferred Interest, which will be added
to the Principal Balance thereof and will bear interest at the applicable
Mortgage Rate. Any such increase in the Principal Balance of a Negative
Amortization Loan could increase the loan-to-value ratio of the related
Mortgage Loan. To the extent that the addition of Deferred Interest to the
Principal Balance of any Mortgage Loans causes the aggregate Principal Balance
of a Pool to increase after distributions have been made on any Distribution
Date, the amount of such increase will result in a corresponding increase in
the Certificate Principal Balance of (i) the Class A-II Certificates, if such
Negative Amortization Loan is in Pool II, (ii) the Class A-III Certificates,
if such Negative Amortization Loan is in Pool III, or (iii) the Subordinate
Certificates in reverse order of payment priority if the Certificate Principal
Balance of the Class A-II Certificates or Class A-III Certificates, as
applicable, have been reduced to zero. Any such increase in the Certificate
Principal Balance of a Certificates will lengthen the weighted average life
thereof and may adversely affect yield to the holders. In addition, with
respect to certain Negative Amortization Loans, during a period of declining
interest rates, it might be expected that each Monthly Payment on such a
Mortgage Loan would exceed the amount of scheduled principal and accrued
interest on the Principal Balance thereof, and since such excess will be
applied to reduce the Certificate Principal Balance of the related Class or
Classes of Certificates, the weighted average life of such Certificates will
be reduced and may adversely affect yield to holders thereof.
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Class A Certificates. Scheduled and unscheduled principal payments on the
Pool I Loans will be distributed to the Group I Certificates and Class PO
Certificates, except under certain circumstances set forth herein. For
example, after the Certificate Principal Balance of the Class A-I Certificates
has been reduced to zero, certain amounts of unscheduled principal payments on
the Pool I Loans will be distributed to the Class A-II and Class A-III
Certificates under the circumstances set forth herein.
Scheduled and unscheduled principal payments on the Pool II Loans and Pool
III Loans will be distributed to the Class A-II Certificates and Class A-III
Certificates, respectively, except under certain circumstances set forth
herein.
The principal distributions and the weighted average lives of the Class A
Certificates will be affected by the rate and timing of unscheduled principal
payments (including prepayments, defaults and liquidations) on the Mortgage
Loans in the related Pool.
Investors in the Class A Certificates should also be aware that prior to the
Distribution Date occurring in October 2002, all unscheduled principal
payments on the Pool I Loans (other than the related Class PO Principal
Percentage of such payments with respect to the Class PO Mortgage Loans) will
be distributed to the Class A Certificates, and prior to the Distribution Date
occurring in October 2006, and during certain periods thereafter if certain
loss and delinquency tests have not been met, a disproportionately large
portion of such unscheduled payments will be distributed to the Class A
Certificates. Such distributions of principal payments will be allocated among
the Class A Certificates in the manner set forth herein.
Class A-II Certificates and Class A-III Certificates. Because the Pool II
Loans and Pool III Loans have different Net Mortgage Rates, the Pass-Through
Rates on the Class A-II Certificates and Class A-III Certificates (which vary
directly with the weighted average of the Net Mortgage Rates of the Pool II
Loans and Pool III Loans, respectively) may increase or decrease from time to
time due to prepayments, defaults and liquidations on such Mortgage Loans. In
addition, Mortgage Loans with higher Mortgage Rates are generally more likely
to be prepaid at a faster rate under most circumstances than are Mortgage
Loans having lower Mortgage Rates, thereby resulting in a decrease in the
Pass-Through Rate with respect to the Class A-II Certificates and Class A-III
Certificates.
The Pass-Through Rates on the Class A-II Certificates and Class A-III
Certificates will vary directly with the weighted average of the Net Mortgage
Rates on the Pool II Loans and Pool III Loans, respectively. Adjustments to
the Net Mortgage Rates of the Pool II Loans and Pool III Loans are based on
the indices related to such Mortgage Loans as most recently made available as
of a fixed number of days (generally 45 days) prior to the adjustment date.
Accordingly, the yield to investors in the Class A-II Certificates and Class
A-III Certificates will be affected on a delayed basis relative to movements
in the indices applicable to the Pool II Loans and Pool III Loans. Although
the Mortgage Rate with respect to each Pool II Loan and Pool III Loan will
adjust to reflect changes in its related index, such Mortgage Rate is subject
to any applicable periodic cap, maximum Mortgage Rate and minimum Mortgage
Rate. If an index increases substantially between adjustment dates, the Net
Mortgage Rate may be lower than if the Net Mortgage Rate could be based on the
index without such caps. Furthermore, because the Pass-Through Rate on the
Class A-II Certificates and Class A-III Certificates is subject to adjustment,
such Pass-Through Rate will generally decrease if the indices with respect to
the Pool II Loans and Pool III Loans, as applicable, decline for any
subsequent adjustment dates.
Class IO Certificates. The yield to investors on the Class IO Certificates
will be extremely sensitive to the rate and timing of principal payments on
the Mortgage Loans (including prepayments, defaults and liquidations), which
may fluctuate significantly over time. A faster than expected rate of
principal payments on the Mortgage Loans (especially the Pool I Loans (other
than the Class PO Mortgage Loans)) will have an adverse effect on the yield to
such investors and could result in the failure of investors in the Class IO
Certificates to fully recover their initial investments. In addition, the
Pass-Through Rate on the Class IO Certificates varies directly with the
weighted average of the Net Mortgage Rates on the Pool I Loans, and may
increase or decrease from time to
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time due to prepayments, defaults and liquidations on such Mortgage Loans. If
the weighted average of the Net Mortgage Rates on the Pool I Loans with
respect to any Distribution Date is less than %, the Pass-Through Rate on
the Class IO Certificates with respect to such Distribution Date will be 0%.
The Pass-Through Rate on the Class IO Certificates will also be affected by
the weighted average of the Net Mortgage Rates on Pool II Loans and the Pool
III Loans under the circumstances described herein.
Class PO Certificates. The amounts payable with respect to the Class PO
Certificates derive from principal payments on the Class PO Mortgage Loans. As
a result, the yield on the Class PO Certificates will be adversely affected by
slower than expected payments of principal on the Class PO Mortgage Loans.
Because the Class PO Mortgage Loans have lower Net Mortgage Rates than the
Non-Class PO Mortgage Loans, and because the Mortgage Loans with lower Net
Mortgage Rates are likely to have lower Mortgage Rates, the Class PO Mortgage
Loans are generally likely to prepay at a slower rate than the Non-Class PO
Mortgage Loans.
Certificates with Subordination Features. As described herein, during
certain periods all or a disproportionately large percentage of principal
prepayments on the Mortgage Loans in each Pool will be allocated to the Class
A Certificates and, during certain periods, no principal prepayments will be
distributed to each Class of Subordinate Certificates. Unless the Certificate
Principal Balances of the Class A Certificates have been reduced to zero, the
Subordinate Certificates will not be entitled to receive principal prepayments
until the Distribution Date occurring in October 2002. To the extent that no
principal prepayments are distributed on the Subordinate Certificates, the
Subordination afforded the Senior Certificates by the Subordinate
Certificates, in the absence of offsetting Realized Losses allocated thereto,
will be increased, and the weighted average lives of the Subordinate
Certificates will be extended.
The yield to investors on each class of Subordinate Certificates, and
particularly on those classes of Subordinate Certificates with lower payment
priorities, will be extremely sensitive to losses due to defaults on the
Mortgage Loans (and the timing thereof), to the extent such losses are not
covered by any Class of Subordinate Certificates having a lower payment
priority, because the entire amount of such losses that are covered by
Subordination will be allocable to such Class or Classes of Subordinate
Certificates, as described herein. Furthermore, as described herein, the
timing of receipt of principal and interest by any Class of Subordinate
Certificates may be adversely affected by losses even if such Class does not
ultimately bear such loss.
As described under "Description of the Certificates--Allocation of Losses;
Subordination", amounts otherwise distributable to holders of one or more
Classes of the Subordinate Certificates may be made available to protect the
holders of the Class A Certificates and holders of any related Subordinate
Certificates with a higher payment priority against interruptions in
distributions due to certain Mortgagor delinquencies, to the extent not
covered by Advances. Such delinquencies may affect the yields to investors on
such Classes of the Subordinate Certificates, and, even if subsequently cured,
may affect the timing of the receipt of distributions by the holders of such
Classes of Subordinate Certificates.
Final Scheduled Distribution Date. The "FINAL SCHEDULED DISTRIBUTION DATE"
with respect to each class of Offered Certificates is , which date is
the Distribution Date occurring in the second month following the month in
which the latest scheduled maturity date for any Mortgage Loan occurs. No
event of default, change in the priorities for distribution among the various
classes or other provisions 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 any class of Certificates on or before
its Final Scheduled Distribution Date.
MODELING ASSUMPTIONS
For purposes of preparing the tables below, the following assumptions (the
"MODELING ASSUMPTIONS") have been made:
(i) the Mortgage Loans are, for purposes of this analysis, grouped within
Pools by similar characteristics into a number of assumed collateral lines
for each Pool;
S-64
<PAGE>
(ii) all scheduled payments on the Mortgage Loans are timely received on
the first day of each month, commencing October 1, 1997;
(iii) there are no defaults, losses or delinquencies on the Mortgage
Loans;
(iv) the Mortgage Loans prepay monthly at the specified constant annual
percentages of PSA (with respect to the Pool I Loans) or CPR (with respect
to the Pool II Loans and Pool III Loans);
(v) the Settlement Date used for all calculations is September 29, 1997;
(vi) cash distributions are received by the Certificateholders on the
25th day of each month, commencing in October, 1997;
(vii) the initial principal amounts of the Offered Securities are as
follows:
<TABLE>
<S> <C>
A-I $
A-II $
A-III $
IO $
PO $
M-1 $
M-2 $
M-3 $
B-1 $
B-2 $
B-3 $
</TABLE>
(viii) all principal prepayments represent prepayments in full of the
Mortgage Loans and are received on the last day of each month commencing
September 30, 1997 and include 30 days' of interest thereon;
(ix) there are no repurchases of or substitutions for the Mortgage Loans;
(x) no early redemption of the Offered Securities or early termination of
the Trust is effected;
(xi) the Index Rates are as follows:
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used herein with respect to the Pool I Loans, the
Prepayment Standard Assumption ("PSA"), represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of new mortgage loans. A prepayment assumption of 100% PSA assumes
constant prepayment rates of 0.2% per annum of the then outstanding principal
balance of such mortgage loans in the first month of the life of the mortgage
loans increasing by an additional 0.2% per annum in each month thereafter
until the thirtieth month. Beginning in the thirtieth month and in each month
thereafter during the life of the mortgage loans, 100% PSA assumes a constant
prepayment rate of 6% per annum each month. As used in the table below, "0%
PSA" assumes prepayment rates equal to 0% of PSA, i.e., no prepayments.
Correspondingly, "200% PSA" assumes prepayment rates equal to 200% of PSA, and
so forth.
The model used herein with respect to the Pool II Loans and Pool III Loans
is the "CONSTANT PREPAYMENT RATE" or "CPR" assumption, which represents an
assumed annualized rate of prepayment relative to the then-outstanding balance
of a pool of new mortgage loans.
Based upon the PSA and CPR assumptions set forth below, the tables on the
following pages indicate the weighted average life of each Class of Offered
Certificates, and set forth the percentages of the initial Certificate
Principal Balance or initial Notional Amount of each Class.
S-65
<PAGE>
PSA and CPR do not purport to be historical descriptions of prepayment
experience or predictions of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Loans.
<TABLE>
<CAPTION>
0% SLOW II SLOW I BASE FAST I FAST II
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Pool I.................... % PSA % PSA % PSA % PSA % PSA % PSA
Pool II................... % CPR % CPR % CPR % CPR % CPR % CPR
Pool III.................. % CPR % CPR % CPR % CPR % CPR % CPR
</TABLE>
Interest on Mortgage Loans prepaid in full or any portion thereof prepaid in
part is accrued only to the date of application of such prepayment. Any
interest shortfall in excess of the sum of the Trustee Fee, the Servicing Fee
and the Master Servicing Fee in any month will result in a pro rata reduction
of interest distributable to the holders of each Class of Certificates.
S-66
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT VARIOUS
PREPAYMENT SPEEDS
<TABLE>
<CAPTION>
DISTRIBUTION
DATE CLASS A-I CLASS A-II
------------ -------------------------------------- --------------------------------------
0% SLOW II SLOW I BASE FAST I FAST II 0% SLOW II SLOW I BASE FAST I FAST II
--- ------- ------ ---- ------ ------- --- ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percentage......
September 25,
1998............
September 25,
1999............
September 25,
2000............
September 25,
2001............
September 25,
2002............
September 25,
2003............
September 25,
2004............
September 25,
2005............
September 25,
2006............
September 25,
2007............
September 25,
2008............
September 25,
2009............
September 25,
2010............
September 25,
2011............
September 25,
2012............
September 25,
2013............
September 25,
2014............
September 25,
2015............
September 25,
2016............
September 25,
2017............
September 25,
2018............
September 25,
2019............
September 25,
2020............
September 25,
2021............
September 25,
2023............
September 25,
2024............
September 25,
2025............
September 25,
2026............
September 25,
2027............
September 25,
2028............
Weighted
Average.........
Life in Years*..
<CAPTION>
DISTRIBUTION
DATE CLASS A-III
------------ --------------------------------------
0% SLOW II SLOW I BASE FAST I FAST II
--- ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Initial
Percentage......
September 25,
1998............
September 25,
1999............
September 25,
2000............
September 25,
2001............
September 25,
2002............
September 25,
2003............
September 25,
2004............
September 25,
2005............
September 25,
2006............
September 25,
2007............
September 25,
2008............
September 25,
2009............
September 25,
2010............
September 25,
2011............
September 25,
2012............
September 25,
2013............
September 25,
2014............
September 25,
2015............
September 25,
2016............
September 25,
2017............
September 25,
2018............
September 25,
2019............
September 25,
2020............
September 25,
2021............
September 25,
2023............
September 25,
2024............
September 25,
2025............
September 25,
2026............
September 25,
2027............
September 25,
2028............
Weighted
Average.........
Life in Years*..
</TABLE>
- ----
(*) The weighted average life of the Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years from
the date of issuance of the Certificates to the related Distribution Date,
(ii) adding the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Certificates.
THIS TABLE HAS BEEN PREPARED BASED ON THE "MODELING ASSUMPTIONS" PRECEDING
THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND
PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE ACTUAL CHARACTERISTICS
AND PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
(Table continued on next page.)
S-67
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT VARIOUS
PREPAYMENT SPEEDS
<TABLE>
<CAPTION>
CLASS IO* CLASS PO
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE 0% SLOW II SLOW I BASE FAST I FAST II 0% SLOW II SLOW I BASE FAST I FAST II
- ----------------- --- ------- ------ ---- ------ ------- --- ------- ------ ---- ------ -------
Initial Percentage......
September 25, 1998......
September 25, 1999......
September 25, 2000......
September 25, 2001......
September 25, 2002......
September 25, 2003......
September 25, 2004......
September 25, 2005......
September 25, 2006......
September 25, 2007......
September 25, 2008......
September 25, 2009......
September 25, 2010......
September 25, 2011......
September 25, 2012......
September 25, 2013......
September 25, 2014......
September 25, 2015......
September 25, 2016......
September 25, 2017......
September 25, 2018......
September 25, 2019......
September 25, 2020......
September 25, 2021......
September 25, 2023......
September 25, 2024......
September 25, 2025......
September 25, 2026......
September 25, 2027......
September 25, 2028......
Weighted Average Life in
Years**.................
</TABLE>
- ----
*The Class IO Certificates have a Notional Amount.
** The weighted average life of the Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the date of issuance of the Certificates to the related Distribution
Date, (ii) adding the results, and (iii) dividing the sum by the initial
respective Certificate Principal Balance for such Class of Certificates.
THIS TABLE HAS BEEN PREPARED BASED ON THE "MODELING ASSUMPTIONS" PRECEDING
THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND
PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE ACTUAL CHARACTERISTICS
AND PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
(Table continued on next page.)
S-68
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT VARIOUS
PREPAYMENT SPEEDS
<TABLE>
<CAPTION>
CLASS M-1 CLASS M-2
--------------------------------------- ---------------------------------------
DISTRIBUTION DATE 0% SLOW II SLOW I BASE FAST I FAST II 0% SLOW II SLOW I BASE FAST I FAST II
- ----------------- ---- ------- ------ ---- ------ ------- ---- ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage......
September 25, 1998......
September 25, 1999......
September 25, 2000......
September 25, 2001......
September 25, 2002......
September 25, 2003......
September 25, 2004......
September 25, 2005......
September 25, 2006......
September 25, 2007......
September 25, 2008......
September 25, 2009......
September 25, 2010......
September 25, 2011......
September 25, 2012......
September 25, 2013......
September 25, 2014......
September 25, 2015......
September 25, 2016......
September 25, 2017......
September 25, 2018......
September 25, 2019......
September 25, 2020......
September 25, 2021......
September 25, 2023......
September 25, 2024......
September 25, 2025......
September 25, 2026......
September 25, 2027......
September 25, 2028......
Weighted Average
Life in Years*..........
<CAPTION>
CLASS M-3
---------------------------------------
DISTRIBUTION DATE 0% SLOW II SLOW I BASE FAST I FAST II
- ----------------- ---- ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage......
September 25, 1998......
September 25, 1999......
September 25, 2000......
September 25, 2001......
September 25, 2002......
September 25, 2003......
September 25, 2004......
September 25, 2005......
September 25, 2006......
September 25, 2007......
September 25, 2008......
September 25, 2009......
September 25, 2010......
September 25, 2011......
September 25, 2012......
September 25, 2013......
September 25, 2014......
September 25, 2015......
September 25, 2016......
September 25, 2017......
September 25, 2018......
September 25, 2019......
September 25, 2020......
September 25, 2021......
September 25, 2023......
September 25, 2024......
September 25, 2025......
September 25, 2026......
September 25, 2027......
September 25, 2028......
Weighted Average
Life in Years*..........
</TABLE>
- ----
(*) The weighted average life of the Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years from
the date of issuance of the Certificates to the related Distribution Date,
(ii) adding the results, and (iii) dividing the sum by the initial respective
Certificate Principal Balance for such Class of Certificates.
THIS TABLE HAS BEEN PREPARED BASED ON THE "MODELING ASSUMPTIONS" PRECEDING
THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND
PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE ACTUAL CHARACTERISTICS
AND PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-69
<PAGE>
SENSITIVITY OF THE CLASS A-II, CLASS A-III, CLASS IO AND CLASS PO CERTIFICATES
The yield to investors in the Class A-II, Class A-III and Class IO
Certificates will be highly sensitive to the level of the indices (the
"INDICES") relating to the Pool II Loans and Pool III Loans, as applicable,
and sensitive to the rate and timing of principal payments (including
prepayments, defaults and liquidations) of the related Pool, which may
fluctuate significantly from time to time.
Since there can be no assurance that the level of the Indices will correlate
with the levels of prevailing mortgage interest rates, it is possible that
lower prevailing mortgage rates, which might be expected to result in faster
prepayments, could occur concurrently with an increased level of any Index.
To illustrate the significance of changes in the level of both the Indices
and in prepayments on the yield to maturity of the Class A-II, Class A-III and
Class IO Certificates, the tables below indicate the pretax yields to maturity
(on a corporate bond equivalent basis) under the assumptions discussed below
at the different constant percentages of CPR and PSA and the constant levels
of the Indices indicated. It is not likely that the Mortgage Loans will prepay
at a constant level of CPR or PSA until maturity, that all of the Mortgage
Loans in each Pool will prepay at the same rate or that the level of the
Indices will remain constant.
The yield to investors in the Class IO Certificates will be extremely
sensitive to both the timing of receipt of prepayments and the overall rate of
principal payments.
The yield to investors in the Class PO Certificates will be extremely
sensitive to the rate and timing of principal payments (including prepayments)
on the Class PO Mortgage Loans, respectively, which rate may vary
significantly from time to time. Investors should fully consider the
associated risks, including the risk that a relatively low rate of principal
payments (including prepayments) on the Class PO Mortgage Loans will have a
negative effect on the yield to investors in the Class PO Certificates.
The pre-tax yields set forth in the following tables were calculated by (i)
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Class A-II, Class A-III, Class IO and
Class PO Certificates would cause the discounted present value of such assumed
streams of cash flows to equal the respective assumed purchase price set forth
in the tables below for such Class, and (ii) converting such monthly rates to
a semi-annual corporate bond equivalent rate. Such calculation does not take
into account the interest rate at which investors will be able to reinvest
funds received by them and does not purport to reflect the return on any
investment in any such Classes when such reinvestment rates are considered.
SENSITIVITY OF PRE-TAX YIELDS TO MATURITY OF THE CLASS A-II, CLASS A-III,
CLASS IO AND CLASS PO CERTIFICATES TO PREPAYMENTS AND CHANGES TO THE INDEX
RATES/*/
CLASS A-II CERTIFICATES
AT VARIOUS PREPAYMENT SPEEDS
<TABLE>
<CAPTION>
SLOW SLOW FAST
0% II I BASE I FAST II
--- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
- -3.00%
Unchanged
+3.00%
</TABLE>
Assuming a Purchase Price of $ plus accrued interest.
/*/ "-3.00%" means a 3.00% decrease in such Index listed on Modeling
Assumption (xii) above; "Unchanged" means the Indexes were assumed to be at
the level indicated, and "+3.00%" means an increase in each Index listed in
Modeling Assumption (xii) above.
S-70
<PAGE>
CLASS A-III CERTIFICATES
AT VARIOUS PREPAYMENT SPEEDS
<TABLE>
<CAPTION>
SLOW SLOW FAST
0% II I BASE I FAST II
--- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
- -3.00%
Unchanged
+3.00%
</TABLE>
Assuming a Purchase Price of $ plus accrued interest.
/*/ "-3.00%" means a 3.00% decrease in such Index listed on Modeling
Assumption (xii) above; "Unchanged" means the Indexes were assumed to be at
the level indicated, and "+3.00%" means an increase in each Index listed in
Modeling Assumption (xii) above.
CLASS IO CERTIFICATES
AT VARIOUS PREPAYMENT SPEEDS
<TABLE>
<CAPTION>
SLOW SLOW FAST
0% II I BASE I FAST II
--- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
- -3.00%
Unchanged
+3.00%
</TABLE>
Assuming a Purchase Price of $ plus accrued interest.
/*/ "-3.00%" means a 3.00% decrease in such Index listed on Modeling
Assumption (xii) above; "Unchanged" means the Indexes were assumed to be at
the level indicated, and "+3.00%" means an increase in each Index listed in
Modeling Assumption (xii) above.
CLASS PO CERTIFICATES
AT VARIOUS PREPAYMENT SPEEDS
<TABLE>
<CAPTION>
SLOW SLOW FAST
0% II I BASE I FAST II
--- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Unchanged
</TABLE>
Assuming a Purchase Price of $ .
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement dated as of September 15, 1997, among the Depositor, the Master
Servicer, the Trustee and the Back-Up Servicer. Reference is made to the
Prospectus for important information in addition to that set forth herein
regarding the terms and conditions of the Pooling and Servicing Agreement and
the Offered Certificates. The Offered Certificates will be transferable and
exchangeable at the corporate trust office of the Trustee, which will serve as
Certificate Registrar and Paying Agent. The Depositor will provide a
prospective or actual Certificateholder without charge, on written request, a
copy (without exhibits) of the Pooling and Servicing Agreement. Requests
should be addressed to Eleven Madison Avenue, New York, New York 10010.
Pursuant to the Pooling and Servicing Agreement, transfers of certain of the
Certificates, including the Residual Certificates, are subject to transfer
restrictions as set forth in the Pooling and Servicing Agreement. See "Certain
Federal Income Tax Consequences" herein and
S-71
<PAGE>
"Certain Federal Income Tax Consequences--REMIC Trust Funds--Sales of REMIC
Certificates" and "--Taxation of Owners of REMIC Residual Certificates--
Noneconomic REMIC Residual Certificates" in the Prospectus. In addition to the
circumstances described in the Prospectus, the Depositor may terminate the
Trustee for cause under certain circumstances. See "Description of the
Certificates--Certain Matters Regarding The Master Servicer, The Depositor,
The Trustee and The Special Servicer" in the Prospectus.
THE MASTER SERVICER
Wilshire Servicing will act as Master Servicer for the Certificates pursuant
to the Pooling and Servicing Agreement. For a general description of Wilshire
Servicing and its activities, see "The Mortgage Pool Loans--Master Servicing."
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicing Fee and Servicing Fees for each Mortgage Loan are
payable out of the interest payments on such Mortgage Loan. The Master
Servicing Fee and Servicing Fees is set forth herein under "Description of the
Certificates--Distributions in Respect of Interest and Principal--Interest
Distribution Amounts." The Master Servicer is obligated to pay certain ongoing
expenses associated with the Trust Fund and incurred by the Master Servicer in
connection with its responsibilities under the Pooling and Servicing
Agreement. See "Description of the Certificates--Servicing Compensation and
Payment of Expenses" in the Prospectus for information regarding other
possible compensation to the Master Servicer and Servicers and for information
regarding expenses payable by the Master Servicer.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by holders of
Certificates evidencing a specified percentage of all undivided interests in
the Trust Fund may be taken by holders of Certificates entitled in the
aggregate to such percentage of the voting rights. 98% of all voting rights
will be allocated among all holders of the Certificates (other than the Class
IO Certificates and Residual Certificates) in proportion to their then
outstanding Certificate Principal Balances, 1% of all voting rights will be
allocated among the holders of the Class IO Certificates, and 0.5% and 0.5% of
all voting rights will be allocated among holders of the Class R-I
Certificates and Class R-II Certificates, respectively, in proportion to the
Percentage Interests evidenced by their respective Certificates. The Pooling
and Servicing Agreement will be subject to amendment without the consent of
the holders of the Residual Certificates in certain circumstances.
TERMINATION
The circumstances under which the obligations created by the Pooling and
Servicing Agreement will terminate in respect of the Offered Certificates are
described in "Description of the Certificates--Termination" in the Prospectus.
The Master Servicer will have the option, on any Distribution Date on which
the aggregate Principal Balance of the Mortgage Loans is less than 10% of the
aggregate principal balance of the Mortgage Loans as of the Cut-Off Date, to
purchase all remaining Mortgage Loans and other assets in the Trust Fund,
thereby effecting early retirement of the Offered Certificates. Any such
purchase of Mortgage Loans and other assets of the Trust Fund shall be made at
a price equal to the sum of (a) 100% of the unpaid principal balance of each
Mortgage Loan (or the fair market value of the related underlying Mortgaged
Properties with respect to defaulted Mortgage Loans as to which title to such
Mortgaged Properties has been acquired if such fair market value is less than
such unpaid principal balance) (net of any unreimbursed Advances attributable
to principal) as of the date of repurchase plus (b) accrued interest thereon
at the Net Mortgage Rate to, but not including, the Due Date in the Due Period
relating to the Distribution Date on which such repurchase price is
distributed. Distributions on the Certificates in respect of any such optional
termination will be paid, first, to the Senior Certificates, second, to the
Class M Certificates in the order of their payment priority and, third, to the
Class B Certificates. The proceeds of any such distribution may not be
sufficient to distribute the full amount to each Class of Certificates if the
purchase price is based in part on the fair market value of the underlying
Mortgaged
S-72
<PAGE>
Property and such fair market value is less than 100% of the unpaid principal
balance of the related Mortgage Loan.
Upon presentation and surrender of the Offered Certificates in connection
with the termination of the Trust Fund, the holders of the Offered
Certificates will receive an amount equal to the Certificate Principal Balance
of such Class plus one month's interest thereon at the then-applicable Pass-
Through Rate (or, with respect to the Class IO Certificates, one month's
interest on the Notional Amount thereof), plus any previously unpaid accrued
interest (reduced, as described above, in the case of the termination of the
Trust Fund resulting from a purchase of all the assets of the Trust Fund).
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 Offered
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 REO
Properties, such assets as from time to time are deposited in the Collection
Account and 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 Offered Certificates
and Class B 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 Certificates
will not be treated as having been issued with original issue discount. All
other Classes of Offered Certificates will be treated as having been issued
with original issue discount for federal income tax reporting purposes. 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 Pool I Loans will prepay at a rate equal to %
PSA and the Pool II Loans and Pool III Loans will prepay at a rate equal to
% 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--REMIC
Trust Funds--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 Offered 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-II, Class A-III, Class IO and Class M
Certificates. In the absence of other authority, certain principles of the OID
Regulations applicable to variable rate debt instruments may be applied 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-II, Class A-III,
Class IO and Class M 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
S-73
<PAGE>
Class A-II, Class A-III, Class IO and Class M Certificates are advised to
consult their tax advisors concerning the tax treatment of such Certificates.
If the Class A-II, Class A-III, Class IO and Class M 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-II, Class
A-III, Class IO and Class M 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--REMIC Trust Funds--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 an Offered
Certificate may be able to select a method for recognizing original issue
discount that differs from that used by the Master Servicer in preparing
reports to the Certificateholders and the IRS.
For further information regarding federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences--REMIC Trust Funds" in the Prospectus.
ERISA CONSIDERATIONS
Because the exemptive relief afforded by the Underwriter's PTE (or any
similar exemption that might be available) will not likely apply to the
purchase, sale or holding of the Offered Certificates, transfers of the
Offered Certificates to a Plan, to a trustee or other person acting on behalf
of any Plan, or to any other person using "Plan Assets" to effect such
acquisition will not be registered by the Trustee.
A written certification will not be required with respect to the purchase of
the Offered Certificates, provided that the Offered Certificates are DTC
Registered Certificates. Any purchaser of a DTC Registered Certificate will be
deemed to have represented by such purchase that such purchaser is not a Plan
and is not purchasing such Offered Certificates on behalf of or with "Plan
Assets" of any Plan.
RATINGS
It is a condition to the original issuance of the Certificates that they
receive the following ratings from Moody's Investors Service, Inc.
("MOODY'S"), Fitch Investors Service, L.P. ("FITCH") and Duff & Phelps Credit
Rating Co. ("DCR", and, collectively with Moody's and Fitch, the "RATING
AGENCIES").
<TABLE>
<CAPTION>
MOODY'S FITCH DCR
CLASS RATING RATING RATING
----- ------- ------ ------
<S> <C> <C> <C>
A-I Aaa AAA AAA
A-II Aaa AAA AAA
A-III Aaa AAA AAA
IO Aaa AAA AAA
PO Aaa AAA AAA
M-1 Aa2 AA AA
M-2 A2 A A
M-3 Baa2 BBB BBB
</TABLE>
S-74
<PAGE>
The ratings assigned to this issue do not constitute a recommendation to
purchase or sell these securities. Rather, they are indications of the
likelihood of the payment of principal and/or interest as set forth in the
transaction disclosure. The ratings do not address the effect on the
certificates' yield attributable to prepayments or recoveries on the
underlying mortgage loans.
The ratings assigned by DCR to mortgage pass-through certificates address
the likelihood of the receipt by certificateholders of all distributions to
which they are entitled under the transaction structure. Such ratings reflect
its analysis of the riskiness of the mortgage loans and its analysis of the
structure of the transaction as set forth in the operative documents. DCR's
ratings do not address the effect on the Certificates' yield attributable to
prepayments or recoveries on the underlying mortgage loans.
The ratings of Moody's and Fitch on mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all
distributions to which such certificateholders are entitled. Moody's and
Fitch's rating opinions address the structural, legal and issuer aspects
associated with the certificates, including the nature of the underlying
mortgage loans and the credit quality of the credit support provider, if any.
Moody's and Fitch's ratings on mortgage pass-through certificates do not
represent any assessment of the likelihood or rate of principal prepayments.
The ratings of the Rating Agencies do not address the possibility that, as a
result of principal prepayments, Certificateholders may receive a lower than
anticipated yield.
The ratings assigned to the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A rating is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Offered
Certificates or, if it does, what rating would be assigned by such other
rating agency. The rating assigned by such other rating agency to the Offered
Certificates could be lower than the respective ratings assigned by the Rating
Agencies.
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will not constitute "mortgage related securities"
for purposes of SMMEA.
The Depositor makes no representations as to the proper characterization of
any Class of the Offered Certificates for legal investment or other purposes,
or as to the ability of particular investors to purchase any Class of the
Offered Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any Class of Offered
Certificates. Accordingly, all institutions whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their
legal advisors in determining whether and to what extent any Class of the
Offered Certificates constitutes a legal investment or is subject to
investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
S-75
<PAGE>
UNDERWRITING
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Offered
Certificates offered hereby if any Offered Certificates are purchased.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined, in each case, at the time of
sale. The Underwriter may effect such transactions by selling the Offered
Certificates to or through dealers and such dealers may receive compensation
in the form of underwriting discounts, concessions or commissions from the
Underwriter. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Offered Certificates may be deemed to
be underwriters and any commissions received by them and any profit on the
resale of the Offered Certificates purchased by them may be deemed to be
underwriting discounts and commissions under the Securities Act.
The Seller and the Depositor will each indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act, or
contribute to payments the Underwriter may be required to make in respect
thereof.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Seller and the Master Servicer by
Dewey Ballantine, New York, New York and for the Depositor and the Underwriter
by Orrick, Herrington & Sutcliffe LLP, New York, New York.
S-76
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
Adjusted Class A-I Percentage...................................... .......S-54
Adjusted Class A-I Prepayment Percentage........................... .......S-54
Adjusted Subordinate Percentage.................................... .......S-56
Adjusted Subordinate Prepayment Percentage......................... .......S-56
Advance............................................................ .......S-11
Apollo............................................................. .......S-44
Available Distribution Amount...................................... .......S-50
Balloon Mortgage Loan.............................................. .......S-19
Balloon Payment.................................................... .......S-19
Bank Affiliates.................................................... .......S-45
Bankruptcy Code.................................................... .......S-60
Beneficial Owner................................................... .......S-48
Blended Rate....................................................... .......S-51
Business Day....................................................... ........S-4
Cede............................................................... .......S-47
CEDEL.............................................................. .......S-47
CEDEL Participants................................................. .......S-48
Certificate Principal Balance...................................... .......S-54
Certificateholders................................................. ........S-4
Certificates....................................................... ........S-1
Class.............................................................. ..S-3, S-47
Class A Certificates............................................... ..S-3, S-47
Class A Interest Distribution Amount............................... .......S-57
Class A-I Percentage............................................... .......S-54
Class A-I Prepayment Percentage.................................... .......S-55
Class A-I Principal Distribution Amount............................ .......S-53
Class A-II Principal Distribution Amount........................... .......S-56
Class A-III Principal Distribution Amount.......................... .......S-56
Class B Certificates............................................... ..S-3, S-47
Class B Interest Distribution Amount............................... .......S-53
Class IO Interest Distribution Amount.............................. .......S-52
Class IO Pass-Through Rate......................................... .......S-52
Class M Certificates............................................... ..S-3, S-47
Class M-1 Interest Distribution Amount............................. .......S-52
Class M-2 Interest Distribution Amount............................. .......S-52
Class M-3 Interest Distribution Amount............................. .......S-53
Class PO Mortgage Loan............................................. .......S-47
Class PO Principal Distribution Amount............................. .......S-53
Class PO Principal Percentage...................................... .S-47, S-53
Clearance Cooperative.............................................. .......S-49
Closing Date....................................................... ........S-4
Commission......................................................... ........S-2
Constant Prepayment Rate........................................... .......S-65
CPR................................................................ .......S-65
Credit Support..................................................... .......S-59
Cross Support Weighted Average Net Mortgage Rate................... .......S-51
Cut-Off Date....................................................... ........S-4
DCR................................................................ .S-13, S-74
Deferred Interest.................................................. .......S-15
Deficient Valuation................................................ .......S-60
</TABLE>
S-77
<PAGE>
<TABLE>
<S> <C>
Beficit Percentage................................................. .......S-54
Depositaries....................................................... .......S-47
Depositor.......................................................... ........S-1
Determination Date................................................. .......S-50
Distribution Date.................................................. ........S-4
DTC................................................................ ........S-1
DTC Participants................................................... .......S-48
Due Date........................................................... .......S-50
Due Period......................................................... .......S-50
Euroclear.......................................................... .......S-47
Euroclear Operator................................................. .......S-49
Euroclear Participants............................................. .......S-49
Final Scheduled Distribution Date.................................. .......S-64
Fitch ............................................................. .S-13, S-74
Group I Certificates............................................... ..S-3, S-47
Indices............................................................ .......S-70
Indirect Participants.............................................. .......S-48
Initial Credit Support............................................. .......S-59
Insurance Proceeds................................................. .......S-54
IRS................................................................ .......S-73
Junior Mortgage Loans.............................................. .......S-15
Liquidation Expenses............................................... .......S-55
Liquidation Proceeds............................................... .......S-55
Loan Files......................................................... .......S-16
Loan-to-Value Ratio................................................ .......S-20
Lock-box Account................................................... .......S-12
Master Servicer.................................................... ........S-4
Master Servicer Remittance Date.................................... .......S-50
Master Servicing Fee............................................... .......S-53
Master Servicing Fee Rate.......................................... .......S-53
Modeling Assumptions............................................... .......S-64
Monthly Payment.................................................... .......S-50
Moody's............................................................ .S-13, S-74
Mortgage Loans..................................................... ........S-1
Mortgaged Property................................................. .......S-19
Negative Amortization Loans........................................ .......S-15
Net Mortgage Rate.................................................. .......S-53
Non-Class PO Mortgage Loans........................................ .......S-47
Non-Surplus Percentage............................................. .......S-54
Notional Amount.................................................... .......S-52
Offered Certificates............................................... ........S-3
OID Regulations.................................................... .......S-73
One-Year CMT....................................................... .......S-25
Original Subordinate Principal Balance............................. .......S-55
Participants....................................................... .......S-48
Pass-Through Rate.................................................. .......S-31
Percentage Interest................................................ .......S-59
PHH................................................................ .......S-12
PHH Mortgage Loans................................................. .......S-19
PHMC............................................................... .......S-44
Pool............................................................... .......S-51
Pool Deficit Amount................................................ .......S-51
Pool I............................................................. .......S-19
Pool I Loans....................................................... .......S-19
</TABLE>
S-78
<PAGE>
<TABLE>
<S> <C>
Pool II............................................................. ......S-19
Pool II Loans....................................................... ......S-19
Pool III............................................................ ......S-19
Pool III Loans...................................................... ......S-19
Pool Surplus Amount................................................. ......S-52
Pooling and Servicing Agreement..................................... ..S-1, S-3
Prepayment Interest................................................. .......S-7
Prepayment Interest Shortfall....................................... .S-7, S-53
Prepayment Period................................................... ......S-50
Principal Balance................................................... ......S-52
Prospectus.......................................................... .......S-2
Prudential Insurance................................................ ......S-44
PSA................................................................. ......S-65
Rating Agencies..................................................... ......S-74
Realized Loss....................................................... ......S-60
Record Date......................................................... .......S-4
REMIC I............................................................. ......S-73
REMIC II............................................................ ......S-73
Residual Certificates............................................... .S-1, S-47
Rules............................................................... ......S-49
Securities Act...................................................... .........i
Seller.............................................................. .........i
Senior Certificates................................................. .S-3, S-47
Senior Percentage................................................... ......S-54
Servicers........................................................... ......S-12
Servicing Fee....................................................... ......S-53
Servicing Fee Rate.................................................. ......S-53
Subordinate Certificates............................................ .S-3, S-47
Subordinate Percentage.............................................. ......S-56
Subordinate Prepayment Percentage................................... ......S-56
Subordinate Principal Distribution Amount........................... ......S-57
Subordination....................................................... ......S-59
Surplus Percentage.................................................. ......S-54
Terms and Conditions................................................ ......S-49
Trust............................................................... .......S-1
Trust Fund.......................................................... .......S-1
Trustee............................................................. .......S-4
Trustee Fee......................................................... ......S-53
Trustee Fee Rate.................................................... ......S-53
Underwriter......................................................... .......S-1
Weighted Average Pool Net Mortgage Rate............................. ......S-51
WFSG................................................................ ......S-43
Wilshire Credit..................................................... ......S-12
Wilshire Group...................................................... ......S-45
Wilshire Seller..................................................... .......S-1
Wilshire Servicing.................................................. ......S-44
WMC................................................................. ......S-44
</TABLE>
S-79
<PAGE>
SUBJECT TO COMPLETION, SEPTEMBER 22, 1997
PROSPECTUS
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
DEPOSITOR
CONDUIT MORTGAGE AND MANUFACTURED HOUSING CONTRACT
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
---------------
The Conduit Mortgage and Manufactured Housing Contract Pass-Through
Certificates (the "Certificates") offered hereby and by the related Prospectus
Supplements will be offered from time to time in series (each, a "Series") in
one or more separate classes (each, a "Class"), which may be divided into one
or more subclasses (each, a "Subclass"), that represent interests in specified
percentages of principal and interest (a "Percentage Interest") with respect
to the related Mortgage Pool or the Contract Pool (each, as defined below), or
that have been assigned a Stated Principal Balance and an Interest Rate (as
such terms are defined herein), as more fully set forth herein, and will
evidence the undivided interest, beneficial interest or notional amount
specified in the related Prospectus Supplement in one of a number of trusts,
each to be created by Credit Suisse First Boston Mortgage Securities Corp.
(the "Depositor") from time to time. The trust property of each trust (the
"Trust Fund") will consist of a pool containing one- to four-family
residential mortgage loans, mortgage loans secured by multifamily residential
rental properties consisting of five or more dwelling units or apartment
buildings owned by cooperative housing corporations, loans made to finance the
purchase of certain rights relating to cooperatively owned properties secured
by a pledge of shares of a cooperative corporation and an assignment of a
proprietary lease or occupancy agreement on a cooperative dwelling, loans
secured by commercial real estate properties and/or mixed
residential/commercial properties, loans secured by unimproved land, mortgage
participation certificates evidencing participation interests in such loans
that are acceptable to the nationally recognized statistical rating agency or
agencies rating the related Series of Certificates (collectively, the "Rating
Agency") for a rating in one of the four highest rating categories of such
Rating Agency (such loans and participation certificates being referred to
collectively hereinafter as the "Mortgage Loans"), or certain conventional
mortgage pass-through certificates (the "Mortgage Certificates") and related
property (the "Mortgage Pool") or a pool of manufactured housing conditional
sales contracts and installment loan agreements (the "Contracts") or
participation certificates representing participation interests in such
Contracts and related property (the "Contract Pool") conveyed to such trust by
the Depositor. The Mortgage Loans may be conventional mortgage loans,
conventional cooperative loans, mortgage loans insured by the Federal Housing
Administration (the "FHA"), or mortgage loans partially guaranteed by the
Veterans Administration (the "VA"), or any combination of the foregoing,
bearing fixed or variable rates of interest. The Contracts may be conventional
contracts, contracts insured by the FHA or partially guaranteed by the VA, or
any combination of the foregoing, bearing fixed or variable rates of interest,
as specified in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, the rights of the holders of the Certificates
of one or more Classes or Subclasses of a Series to receive distributions with
respect to the related Mortgage Pool or Contract Pool may be subordinated to
such rights of the holders of the Certificates of one or more Classes or
Subclasses of such Series to the extent described herein and in such
Prospectus Supplement. As provided in the applicable Prospectus Supplement,
the timing of payments, whether of principal or of interest, to any one or
more of such Classes or Subclasses may be on a sequential or a pro rata basis.
The Prospectus Supplement with respect to each Series will also set forth
specific information relating to the Trust Fund with respect to the Series in
respect of which the Prospectus is being delivered, together with specific
information regarding the Certificates of such Series.
The Certificates do not represent an obligation of or interest in the
Depositor or any affiliate thereof. Neither the Certificates, the Mortgage
Loans, the Contracts nor the Mortgage Certificates are insured or guaranteed
by any governmental agency or instrumentality, except to the extent provided
herein.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER "ERISA
CONSIDERATIONS" HEREIN AND IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS THAT POTENTIAL INVESTORS SHOULD CONSIDER IN DETERMINING WHETHER TO
INVEST IN THE CERTIFICATES OF A SERIES IN RESPECT OF WHICH THIS PROSPECTUS IS
BEING DELIVERED.
---------------
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, which may include Credit
Suisse First Boston Corporation, an affiliate of the Depositor, as more fully
described under "Plan of Distribution" and in the related Prospectus
Supplement. Certain offerings of the Certificates, as specified in the related
Prospectus Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
There will have been no public market for the Certificates of any Series
prior to the offering thereof. No assurance can be given that such a market
will develop as a result of such offering or, if it does develop, that it will
continue.
The Depositor, as specified in the applicable Prospectus Supplement, may
elect to treat the Trust Fund with respect to certain Series of Certificates
as one or more Real Estate Mortgage Investment Conduits (each, a "REMIC"). See
"Certain Federal Income Tax Consequences."
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Certificates of such Series may be subject to early
termination and may receive Special Distributions (as defined herein) in
reduction of Stated Principal Balance (as defined herein) under the
circumstances described herein and in such Prospectus Supplement.
This Prospectus may not be used to consummate sales of the Certificates
offered hereby unless accompanied by a Prospectus Supplement.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CREDIT SUISSE FIRST BOSTON
The date of this Prospectus is September , 1997.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement with respect to each Series of Certificates will,
among other things, set forth with respect to such Series of Certificates: (i)
the identity of each Class or Subclass within such Series; (ii) the undivided
interest, Percentage Interest, Stated Principal Balance or notional amount of
each Class or Subclass of Certificates; (iii) the Pass-Through Rate, Interest
Rate or Annual Rate borne by each Class or Subclass within such Series; (iv)
certain information concerning the Mortgage Loans, the Mortgage Certificates,
the Contracts, if any, and the other assets comprising the Trust Fund for such
Series; (v) the final Distribution Date of each Class or Subclass of
Certificates within such Series; (vi) the identity of each Class or Subclass
of Compound Interest Certificates, if any, within such Series; (vii) the
method used to calculate the amount to be distributed with respect to each
Class or Subclass of Certificates; (viii) the order of application of
distributions to each of the Classes or Subclasses within such Series, whether
sequential, pro rata, or otherwise; (ix) the Distribution Dates with respect
to such Series; (x) information with respect to the terms of the Residual
Certificates or Subordinated Certificates offered hereby, if any are offered;
(xi) information with respect to the method of credit support, if any, with
respect to such Series; and (xii) additional information with respect to the
plan of distribution of such Series of Certificates.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of
the information set forth in the Registration Statement of which this
Prospectus and the related Prospectus Supplement is a part. For further
information, reference is made to such Registration Statement and the exhibits
thereto which the Depositor has filed with the Securities and Exchange
Commission (the "Commission"), under the Securities Act of 1933, as amended.
Statements contained in this Prospectus and any Prospectus Supplement as to
the contents of any contract or other document referred to are summaries and
in each instance reference is made to the copy of the contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement may be obtained from the Commission, upon payment of
the prescribed charges, or may be examined free of charge at the Commission's
offices. Reports and other information filed with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center,
Suite 1300, New York, New York 10048. Copies of such information can be
obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
Copies of the Pooling and Servicing Agreement pursuant to which a Series of
Certificates is issued will be provided to each person to whom a Prospectus
and the related Prospectus Supplement are delivered, upon written or oral
request directed to: Treasurer, Credit Suisse First Boston Mortgage Securities
Corp., 11 Madison Avenue, New York, New York 10010, (212) 325-2000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering of Certificates offered hereby. The Depositor will
provide or cause to be provided without charge to each person to whom this
Prospectus is delivered in connection with the offering of one or more Classes
of Certificates, upon request, a copy of any or all such documents or reports
incorporated
2
<PAGE>
herein by reference, in each case to the extent such documents or reports
relate to one or more of such Classes of such Certificates, other than the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Requests to the Depositor should be directed
to: Credit Suisse First Boston Mortgage Securities Corp., 11 Madison Avenue,
New York, New York 10010, telephone number (212) 325-2000.
IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OF REGULATIONS, THIS
PROSPECTUS AND THE ATTACHED PROSPECTUS SUPPLEMENT WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.
3
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, and by reference to the
information with respect to each Series of Certificates contained in the
related Prospectus Supplement. Certain capitalized terms used and not otherwise
defined herein shall have the meanings given elsewhere in this Prospectus.
Securities Offered.......... Conduit Mortgage and Manufactured Housing
Contract Pass-Through Certificates (the
"Certificates"), issuable in series (each, a
"Series"). The Certificates may be issued in one
or more classes (each, a "Class") and such
Classes may be divided into one or more
subclasses (each, a "Subclass"). One or more of
such Classes or Subclasses of a Series may be
subordinated to one or more Classes or
Subclasses of such Series, as specified in the
related Prospectus Supplement (any such Class or
Subclass to which another Class or Subclass is
subordinated being hereinafter referred to as a
"Senior Class" or a "Senior Subclass,"
respectively, and any such subordinated Class or
Subclass being hereinafter referred to as a
"Subordinated Class" or "Subordinated Subclass,"
respectively). One or more of such Classes or
Subclasses of Certificates of a Series (the
"Residual Certificates") may evidence a residual
interest in the related Trust Fund (as defined
below). If so specified in the related
Prospectus Supplement, one or more Classes or
Subclasses of Certificates within a Series (the
"Multi-Class Certificates") may be assigned a
principal balance (a "Stated Principal Balance"
or a "Certificate Principal Balance") based on
the cash flow from the Mortgage Loans (as
hereinafter defined), Mortgage Certificates (as
hereinafter defined), the Contracts (as
hereinafter defined) and/or the other assets in
the Trust Fund if specified as such in the
related Prospectus Supplement and a stated
annual interest rate, determined in the manner
set forth in such Prospectus Supplement, which
may be fixed or variable (an "Interest Rate").
If so specified in the related Prospectus
Supplement, one or more such Classes or
Subclasses may receive unequal amounts of the
distributions of principal and interest on the
Mortgage Loans, the Contracts and the Mortgage
Certificates included in the related Trust Fund,
as specified in such Prospectus Supplement (any
such Class or Subclass receiving the higher
proportion of principal distributions being
referred to hereinafter as a "Principal Weighted
Class" or "Principal Weighted Subclass,"
respectively, and any such Class or Subclass
receiving the higher proportion of interest
distributions being referred to hereinafter as
an "Interest Weighted Class" or an "Interest
Weighted Subclass," respectively). If so
specified in the related Prospectus Supplement,
the allocation of the principal and interest
distributions may involve as much as 100% of
each distribution of principal or interest being
allocated to one or more Classes or Subclasses
and 0% to another. If so specified in the
related Prospectus Supplement, one or more
Classes or Subclasses may
4
<PAGE>
receive disproportionate amounts of certain
distributions of principal, which proportions
may change over time subject to certain
conditions. Payments may be applied to any one
or more Class or Subclass on a sequential or pro
rata basis, or otherwise, as specified in the
related Prospectus Supplement.
Each Certificate will represent the undivided
interest, beneficial interest or percentage
interest specified in the related Prospectus
Supplement in one of a number of trusts to be
created by the Depositor from time to time. The
trust property of each trust (the "Trust Fund")
will consist of (a) one or more mortgage pools
(each, a "Mortgage Pool") containing (i)
conventional one- to four-family residential
mortgage loans, (ii) loans (the "Cooperative
Loans") made to finance the purchase of certain
rights relating to cooperatively owned
properties secured by the pledge of shares
issued by a cooperative corporation (the
"Cooperative") and the assignment of a
proprietary lease or occupancy agreement
providing the exclusive right to occupy a
particular dwelling unit (a "Cooperative
Dwelling" and, together with one- to four-family
residential properties, "Single Family
Property"), (iii) mortgage loans ("Multifamily
Mortgage Loans") secured by multifamily
residential rental properties consisting of five
or more dwelling units or apartment buildings
owned by cooperative housing corporations
("Multifamily Property"), purchased by the
Depositor either directly or through one or more
affiliates from an affiliate or from
unaffiliated sellers, (iv) mortgage loans
("Commercial Mortgage Loans") secured by
commercial real estate properties ("Commercial
Property"), (v) mortgage loans ("Mixed-Use
Mortgage Loans") secured by mixed
residential/commercial properties ("Mixed-Use
Property"), (vi) loans secured by unimproved
land, (vii) mortgage participation certificates
evidencing participation interests in such loans
that are acceptable to the nationally recognized
rating agency or agencies identified in the
related Prospectus Supplement (collectively, the
"Rating Agency") rating the Certificates of such
Series for a rating in one of the four highest
rating categories of such Rating Agency (such
loans and mortgage participation certificates
being referred to collectively hereinafter as
the "Mortgage Loans"), or (b) one or more
contract pools (each, a "Contract Pool")
containing manufactured housing conditional
sales contracts and installment loan agreements
(the "Contracts") or participation certificates
representing participation interests in such
Contracts (such Contracts, together with the
Mortgage Loans and the Mortgage Certificates,
being referred to collectively hereinafter as
the "Trust Assets") purchased by the Depositor
either directly or through one or more
affiliates or Unaffiliated Sellers, and related
property conveyed to such trust by the
Depositor.
Unless otherwise specified in the related
Prospectus Supplement, each Series of
Certificates will be offered in fully registered
form
5
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only, in one or more Classes, which may be
divided into one or more Subclasses evidencing
the right to receive a share of principal
payments and the percentages of interest
payments on the underlying Mortgage Loans,
Mortgage Certificates or Contracts at the Pass-
Through Rate for the related Mortgage Pool or
Contract Pool. If so specified in the related
Prospectus Supplement, Multi-Class Certificates
of a Series may be issued with the Stated
Principal Balances and the Interest Rates
therein specified. At the time of issuance, each
Certificate offered by means of this Prospectus
and the related Prospectus Supplements will be
rated in one of the four highest rating
categories by at least one Rating Agency. The
minimum undivided interest, percentage interest
or beneficial interest in a Mortgage Pool or
Contract Pool, the minimum notional amount to be
evidenced by a Certificate of a Class or
Subclass, or the minimum denomination in which a
Certificate of a Class or Subclass is to be
issued will be set forth in the related
Prospectus Supplement.
Depositor................... Credit Suisse First Boston Mortgage Securities
Corp., a Delaware corporation.
Master Servicer............. The entity, if any, named as Master Servicer in
the applicable Prospectus Supplement, which may
be an affiliate of the Depositor. See
"Description of the Certificates."
Special Servicer............ The entity, if any, named as Special Servicer in
the applicable Prospectus Supplement, which may
be an affiliate of the Depositor. See
"Description of the Certificates."
Interest.................... Interest will be distributed on the days
specified in the Prospectus Supplement with
respect to a Series, or if any such day is not a
business day, the next succeeding business day
(the "Distribution Date"), at the rate, or
pursuant to the method of determining such rate,
specified in the related Prospectus Supplement
for each Class or Subclass within such Series,
commencing on the day specified in such
Prospectus Supplement, in the manner specified
in such Prospectus Supplement. See "Yield
Considerations" and "Description of the
Certificates--Payments on Mortgage Loans" and
"--Payments on Contracts."
Principal (including Unless otherwise specified in the related
prepayments)............... Prospectus Supplement, principal on each Trust
Asset underlying a Series of Certificates will
be distributed on each Distribution Date,
commencing on the date specified in the related
Prospectus Supplement in the priority and manner
specified in such Prospectus Supplement. If so
specified in the Prospectus Supplement with
respect to a Series that includes Multi-Class
Certificates, distributions on such Multi-Class
Certificates may be made in reduction of the
Stated Principal Balance, in an amount equal to
the Stated Principal Distribution Amount. Unless
otherwise specified in the related Prospectus
Supplement, the Stated Principal Distribution
Amount
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<PAGE>
will equal the amount by which the Stated
Principal Balance of such Class of Multi-Class
Certificates (before taking into account the
amount of interest accrued and added to the
Stated Principal Balance of any Class or of
Compound Interest Certificates) exceeds the
Asset Value (as defined herein) of the Trust
Assets and other property in the related Trust
Fund as of the Business Day prior to the related
Distribution Date. See "Maturity and Prepayment
Considerations" and "Description of the
Certificates--Payments on Mortgage Loans" and
"--Payments on Contracts." If so specified in
the Prospectus Supplement relating to a Series,
the Multi-Class Certificates of such Series
which have other than monthly Distribution Dates
may receive special distributions in reduction
of Stated Principal Balance ("Special
Distributions") in any month, other than a month
in which a Distribution Date occurs, if, as a
result of principal prepayments on the Trust
Assets included in the related Trust Fund and/or
low reinvestment yields, the Trustee determines,
based on assumptions specified in the related
Pooling and Servicing Agreement, that the amount
of cash anticipated to be on deposit in the
Certificate Account for such Series on the next
Distribution Date may be less than the sum of
the interest distributions and the amount of
distributions in reduction of Stated Principal
Balance to be made on such Distribution Date.
Unless otherwise specified in the related
Prospectus Supplement, Special Distributions
will be made on such Certificates in the same
priority and manner as distributions in
reduction of Stated Principal Balance would be
made on the next Distribution Date for such
Certificates. See "Description of the
Certificates--Special Distributions."
The Mortgage Pools.......... If so specified in the related Prospectus
Supplement, the Certificates of a Series will
represent the interest specified in such
Prospectus Supplement in the Mortgage Pool or
Pools included in the Trust Fund for such
Series. Unless otherwise specified in the
applicable Prospectus Supplement, the original
principal amount of each Mortgage Loan in a
Mortgage Pool will not be more than 95% (such
ratio, the "Loan-to-Value Ratio") of the value
of the property securing such Mortgage Loan (the
"Mortgaged Property"), based upon an appraisal
of the Mortgaged Property considered acceptable
to the originator of such Mortgage Loan or the
sales price, whichever is less (the "Original
Value"). Unless otherwise specified in the
applicable Prospectus Supplement, Mortgage Loans
secured by Single Family Property having an
original principal amount exceeding 80% of the
Original Value will be covered by a policy of
private mortgage insurance until the outstanding
principal amount is reduced to the percentage of
the Original Value set forth in the related
Prospectus Supplement as a result of principal
payments by the borrower (the "Mortgagor").
Unless otherwise specified in the applicable
Prospectus Supplement, the principal balance at
origination of each Mortgage Loan that is
7
<PAGE>
secured by Single Family Property will not
exceed $500,000. Mortgage Loans in a Mortgage
Pool will all have original maturities of 10 to
40 years, unless otherwise specified in the
applicable Prospectus Supplement. Mortgage Pools
may be formed from time to time in varying
sizes.
As of the related Cut-off Date, no more than 10%
of the aggregate principal balance of any
Mortgage Pool will consist of Commercial
Mortgage Loans.
Some of the Mortgage Loans will fully amortize
over their remaining terms to maturity and
others will provide for balloon payments at
maturity. If so specified in the related
Prospectus Supplement, some of the Mortgage
Loans may prohibit prepayments entirely or for
certain periods and/or may require payment of
premiums or yield maintenance penalties in
connection with certain prepayments. The
Mortgage Loans will provide for recourse against
only the Mortgaged Properties or provide for
recourse against the other assets of the
Mortgagors thereunder.
Fixed Pass-Through Rate
Mortgage Pools............. Unless otherwise specified in the related
Prospectus Supplement, with respect to each
Mortgage Pool included in the Trust Fund with
respect to a Series bearing a fixed Pass-Through
Rate, the Depositor will be obligated to deliver
Mortgage Loans that (i) have interest rates (the
"Mortgage Rates") at least 3/8 of 1% over the
interest rate (the "Pass-Through Rate") for such
Series, (ii) conform to the eligibility
requirements for such Series set forth in the
related Prospectus Supplement, and (iii) have an
aggregate principal balance equal to the amount
specified in such Prospectus Supplement, subject
to a permitted variance of up to 10%.
Variable Pass-Through Rate
Mortgage Pools............. If so specified in the related Prospectus
Supplement, the Depositor may establish one or
more Mortgage Pools, each of which will have a
variable as opposed to a fixed Pass-Through
Rate. Unless otherwise provided in the
applicable Prospectus Supplement, the variable
Pass-Through Rate will equal the weighted
average of the Mortgage Rates of all of the
Mortgage Loans in the Mortgage Pool minus the
fixed percentage servicing fee for each Mortgage
Loan set forth in the related Prospectus
Supplement or in a Current Report on Form 8-K. A
Mortgage Pool with a variable Pass-Through Rate
may be composed of Mortgage Loans that have
fluctuating Mortgage Rates. The characteristics
of a variable Pass-Through Rate and its effect
on the yield to Certificateholders as well as
the servicing compensation payable to the
related Servicer, Special Servicer, if any, and
the Master Servicer and the amounts, if any,
with respect to such Mortgage Loans payable to
the Depositor or to the person or entity
specified in the related Prospectus Supplement
will be more fully described in such Prospectus
Supplement.
8
<PAGE>
Mortgage Certificates....... If so specified in the related Prospectus
Supplement, the Trust Fund for a Series of
Certificates may include Mortgage Certificates
issued by one or more trusts established by one
or more private entities, with the respective
aggregate principal balances and the
characteristics described in such Prospectus
Supplement. Each Mortgage Certificate included
in a Trust Fund will evidence an interest of the
type specified in the related Prospectus
Supplement in a pool of mortgage loans of the
type described in such Prospectus Supplement,
secured principally by mortgages on one- to
four-family residences, mortgages on multi-
family residential rental properties or
apartment buildings owned by cooperative housing
corporations or by pledges of shares of
cooperative corporations and assignments of
proprietary leases or occupancy agreements on
cooperative dwellings, unless otherwise
specified in such Prospectus Supplement.
The Contract Pools.......... If so specified in the related Prospectus
Supplement, the Certificates of a Series will
represent the interest specified in such
Prospectus Supplement in the Contract Pool or
Pools included in the Trust Fund for such
Series. Unless otherwise specified in the
applicable Prospectus Supplement, the Contracts
will be fixed rate Contracts. Such Contracts, as
specified in the related Prospectus Supplement,
will consist of manufactured housing conditional
sales contracts and installment loan agreements
and will be conventional Contracts or Contracts
insured by the FHA or partially guaranteed by
the VA. Each Contract may be secured by a new or
used unit of manufactured housing (a
"Manufactured Home"). The related Prospectus
Supplement will specify the range of terms to
maturity of the Contracts at origination and the
maximum Loan-to-Value Ratio at origination (the
"Contract Loan-to-Value Ratio"). Because
manufactured homes, unlike site-built homes,
generally depreciate in value, the Loan-to-Value
Ratios of some of the Contracts may be higher at
the Cut-off Date than at origination and may
increase over time. Unless otherwise specified
in the related Prospectus Supplement, Contracts
that are conventional Contracts will not be
covered by primary mortgage insurance policies
or primary credit insurance policies. Each
Manufactured Home which secures a Contract will
be covered by a standard hazard insurance policy
(which may be a blanket policy) to the extent
described herein or in the related Prospectus
Supplement insuring against hazard losses due to
various causes, including fire, lightning and
windstorm. A Manufactured Home located in a
federally designated flood area will be required
to be covered by flood insurance. Contract Pools
may be formed from time to time in varying
sizes.
None of the Contracts will have been originated
by the Depositor or any of its affiliates.
Yield Considerations........ If so specified in the applicable Prospectus
Supplement, an assumed rate of prepayment will
be used to calculate the expected yield to
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<PAGE>
maturity on each Class of the Certificates of a
Series. The yield on any Class of Certificates,
the purchase price of which is greater than the
aggregate amount of the Principal Distributions
to be made to such Class (a "Premium
Certificate"), is likely to be adversely
affected by a higher than anticipated level of
principal prepayments on the Trust Assets
included in the related Trust Fund. This effect
on yield will intensify with any increase in the
amount by which the purchase price of such
Certificate exceeds the aggregate amount of such
Principal Distributions. If the differential is
particularly wide and a high level of
prepayments occurs, it is possible for Holders
of Premium Certificates not only to suffer a
lower than anticipated yield but, in extreme
cases, to fail to recoup fully their initial
investment. Conversely, a lower than anticipated
level of principal prepayments (which can be
anticipated to increase the expected yield to
Holders of Certificates that are Premium
Certificates) will likely result in a lower than
anticipated yield to Holders of Certificates of
a Class the purchase price of which is less than
the aggregate amount of the Principal
Distributions to be made to such Class (a
"Discount Certificate"). The Prospectus
Supplement for each Series of Certificates that
includes an Interest Weighted or a Principal
Weighted Class will set forth certain yield
calculations on each such Class based upon a
range of specified prepayment assumptions on the
Trust Assets included in the related Trust Fund.
The yield to Certificateholders will also be
adversely affected because interest will accrue
on the Mortgage Loans, the Contracts or the
mortgage loans underlying the Mortgage
Certificates included in a Trust Fund, from the
first day of the month preceding the month in
which a Distribution Date occurs, but the
distribution of such interest will be made no
earlier than the 25th day of the succeeding
month unless otherwise provided in the
applicable Prospectus Supplement. The adverse
effect on yield of this delay will intensify
with any increase in the period of time by which
the Distribution Date for a Series of
Certificates succeeds the date on which
distributions on the Mortgage Loans, the
Contracts, or the Mortgage Certificates are
received by the Master Servicer or the Trustee.
See "Yield Considerations."
Credit Support.............. Neither the Certificates nor the Trust Assets are
insured or guaranteed by any governmental
agency, except to the extent of any FHA
insurance or VA guarantee. Credit support will
be provided on the Mortgage Pools or Contract
Pools by one or more irrevocable letters of
credit (the "Letter of Credit"), a policy of
mortgage pool insurance (the "Pool Insurance
Policy"), a bond or similar form of insurance
coverage against certain losses in the event of
the bankruptcy of a Mortgagor (the "Mortgagor
Bankruptcy Bond") or any combination of the
foregoing as specified in the applicable
Prospectus Supplement. In lieu or in
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<PAGE>
addition to the foregoing credit support
arrangements if so specified in the related
Prospectus Supplement, the Certificates of a
Series may be issued in one or more Classes or
Subclasses. Payments on the Certificates of one
or more Classes or Subclasses (the "Senior
Certificates") may be supported by a prior right
to receive distributions attributable or
otherwise payable to another Class or Subclass
(the "Subordinated Certificates") to the extent
specified in the related Prospectus Supplement
(the "Subordinated Amount"). In addition, if so
specified in the related Prospectus Supplement,
one or more Classes or Subclasses of
Subordinated Certificates may be subordinated to
another Class or Subclass of Subordinated
Certificates and may be entitled to receive
disproportionate amounts of distributions of
principal. If so specified in the related
Prospectus Supplement, a reserve (the "Reserve
Fund") and certain other accounts or funds may
be established to support payments on the
Certificates. A Prospectus Supplement with
respect to a Series may also provide for
additional or alternative forms of credit
support, including a guarantee or surety bond,
acceptable to the Rating Agency ("Alternative
Credit Support").
A. Letter of Credit......... If so specified in the applicable Prospectus
Supplement, the issuer of one or more Letters of
Credit (the "L/C Bank") will deliver to the
Trustee the Letters of Credit for the Mortgage
Pool or Contract Pool. Unless otherwise
specified in the related Prospectus Supplement,
to the extent described herein, the L/C Bank
will honor the Trustee's demands with respect to
such Letter of Credit, to the extent of the
amount available thereunder, to make payments to
the Certificate Account on each Distribution
Date in an amount equal to the amount sufficient
to repurchase each Liquidating Loan that has not
been purchased by the related Servicer or the
Master Servicer pursuant to the terms of the
applicable Servicing Agreement or Pooling and
Servicing Agreement referred to herein. Unless
otherwise provided in the related Prospectus
Supplement, the term "Liquidating Loan" means:
(a) each Mortgage Loan with respect to which
foreclosure proceedings have been commenced (and
the Mortgagor's right of reinstatement has
expired), (b) each Mortgage Loan with respect to
which the Servicer or the Master Servicer has
agreed to accept a deed to the property in lieu
of foreclosure, (c) each Cooperative Loan as to
which the shares of the related Cooperative and
the related proprietary lease or occupancy
agreement have been sold or offered for sale or
(d) each Contract with respect to which
repossession proceedings have been commenced.
The liability of the L/C Bank under the Letter
of Credit will be reduced by the amount of
unreimbursed payments thereunder. In the event
that at any time there remains no amount
available under the Letter of Credit for a
specific Mortgage Pool or Contract Pool, and
coverage under another form of credit support,
if any, is exhausted, any losses will be borne
by the holder of Certificates
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<PAGE>
of the Series evidencing interests in such
Mortgage Pool or Contract Pool, as specified in
the related Prospectus Supplement.
Unless otherwise specified in the related
Prospectus Supplement, the maximum liability of
the L/C Bank under the Letter of Credit for a
Mortgage Pool or Contract Pool will be an amount
equal to a percentage (not greater than 10% of
the initial aggregate principal balance of the
Mortgage Loans in such Mortgage Pool or
Contracts in such Contract Pool) (the "L/C
Percentage"), set forth in the Prospectus
Supplement, relating to such Mortgage Pool or
Contract Pool. The maximum amount available at
any time to be paid under the Letter of Credit
will be determined in accordance with the
provisions of the applicable Pooling and
Servicing Agreement referred to herein. The
duration of coverage and the amount and
frequency of any reduction in coverage provided
by the Letter of Credit with respect to a Series
of Certificates will be in compliance with
requirements established by the Rating Agency
rating such Series and will be set forth in the
related Prospectus Supplement. If so specified
in the related Prospectus Supplement, the Letter
of Credit with respect to a Series of
Certificates may, in addition to or in lieu of
the foregoing, provide coverage with respect to
the unpaid principal or notional amount of the
Certificates of a Class or Classes within such
Series. See "Credit Support--Letter of Credit."
B. Pool Insurance........... If so specified in the applicable Prospectus
Supplement, the Master Servicer will obtain a
Pool Insurance Policy to cover any loss (subject
to the limitations described below) by reason of
default by the Mortgagors on the related
Mortgage Loans to the extent not covered by any
policy of primary mortgage insurance (a "Primary
Mortgage Insurance Policy"). The amount of
coverage provided by the Pool Insurance Policy
for a Mortgage Pool will be specified in the
related Prospectus Supplement. A Pool Insurance
Policy for a Mortgage Pool, however, will not be
a blanket policy against loss, because claims
thereunder may only be made for particular
defaulted Mortgage Loans and only upon
satisfaction of certain conditions precedent.
See "Description of Insurance--Pool Insurance
Policies."
The Master Servicer, if any, or the Depositor or
the applicable Servicer will be required to use
its best reasonable efforts to maintain the Pool
Insurance Policy for each such Mortgage Pool and
to present claims thereunder to the issuer of
such Pool Insurance Policy (the "Pool Insurer")
on behalf of the Trustee and the
Certificateholders. See "Description of the
Certificates--Presentation of Claims."
C. Mortgagor Bankruptcy If so specified in the related Prospectus
Bond....................... Supplement, the Master Servicer, if any, or the
Depositor or the applicable Servicer will obtain
and use its best reasonable efforts to maintain
a Mortgagor Bankruptcy Bond for such Series
covering certain losses resulting
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<PAGE>
from action that may be taken by a bankruptcy
court in connection with the bankruptcy of a
Mortgagor. The level of coverage provided by
such Mortgagor Bankruptcy Bond will be specified
in the applicable Prospectus Supplement. See
"Description of Insurance--Mortgagor Bankruptcy
Bond."
D. Subordinated If so specified in the related Prospectus
Certificates............... Supplement, the rights of holders of the
Certificates of one or more Subordinated Classes
or Subclasses of a Series to receive
distributions with respect to the Mortgage Loans
in the Mortgage Pool or Contracts in the
Contract Pool for such Series, or with respect
to a Subordinated Pool (as defined herein), will
be subordinated to the rights of the holders of
the Certificates of one or more Classes or
Subclasses of such Series to receive such
distributions to the extent described in the
related Prospectus Supplement, and limited to
the Subordinated Amount set forth in the related
Prospectus Supplement. This subordination will
be intended to enhance the likelihood of regular
receipt by holders of the Senior Certificates of
the full amount of scheduled payments of
principal and interest due them and to reduce
the likelihood that the holders of such Senior
Certificates will experience losses. See "Credit
Support--Subordinated Certificates."
E. Shifting Interest........ If so specified in the applicable Prospectus
Supplement, the protection afforded to holders
of Senior Certificates of a Series by the
subordination of certain rights of holders of
Subordinated Certificates of such Series to
distributions on the related Mortgage Loans or
Contracts may be effected by the preferential
right of the holders of the Senior Certificates
to receive, prior to any distribution being made
in respect of the holders of the related
Subordinated Certificates, current distributions
on the related Mortgage Loans or Contracts of
principal and interest due them on each
Distribution Date out of funds available for
distribution on such date in the related
Certificate Account and by the distribution to
the holders of the Senior Certificates on each
Distribution Date of a greater than pro rata
percentage of certain principal prepayments or
other recoveries of principal specified in the
related Prospectus Supplement on a Mortgage Loan
or Contract that are received in advance of
their scheduled Due Dates and are not
accompanied by an amount as to interest
representing scheduled interest due on any date
or dates in any month or months subsequent to
the month of prepayment (the "Principal
Prepayments"). The allocation of a greater than
pro rata share of such amounts to the Senior
Certificates will have the effect of
accelerating the amortization of the Senior
Certificates while increasing the respective
interest in the Trust Fund evidenced by the
Subordinated Certificates. Increasing the
respective interest of the Subordinated
Certificates relative to that of the Senior
Certificates is intended to preserve the
availability of the benefits of the
subordination provided by the Subordinated
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<PAGE>
Certificates. See "Description of the
Certificates--Distributions of Principal and
Interest" and "--Distributions on Certificates"
and "Credit Support--Shifting Interest."
F. Reserve Fund............. If so specified in the related Prospectus
Supplement, a Reserve Fund may be established
for such Series. Unless otherwise specified in
such Prospectus Supplement, such Reserve Fund
will not be included in the corpus of the Trust
Fund for such Series. If so specified in the
related Prospectus Supplement, such Reserve Fund
may be created by the deposit, in escrow, by the
Depositor, of a separate pool of mortgage loans,
cooperative loans, commercial loans, mixed-use
loans or manufactured housing conditional sales
contracts and installment loan agreements (the
"Subordinated Pool"), with the aggregate
principal balance specified in the related
Prospectus Supplement, or by the deposit of cash
in the amount specified in the related
Prospectus Supplement (the "Initial Deposit").
The Reserve Fund will be funded by the retention
of specified distributions on the Trust Assets
of the related Mortgage Pool or Contract Pool,
and/or on the mortgage loans, cooperative loans,
commercial loans, mixed-use loans or
manufactured housing conditional sales contracts
and installment loan agreements in the
Subordinated Pool, until the Reserve Fund
(without taking into account the amount of any
Initial Deposit) reaches an amount (the
"Required Reserve") set forth in the related
Prospectus Supplement. Thereafter, specified
distributions on the Trust Assets of the related
Mortgage Pool or Contract Pool, and/or on the
mortgage loans, cooperative loans, commercial
loans, mixed-use loans or manufactured housing
conditional sales contracts and installment loan
agreements in the Subordinated Pool, will be
retained to the extent necessary to maintain
such Reserve Fund (without taking into account
the amount of the Initial Deposit, if any) at
the related Required Reserve. In no event will
the Required Reserve for any Series ever be
required to exceed the lesser of the
Subordinated Amount for such Series or the
outstanding aggregate principal amount of
Certificates of the Subordinated Classes or
Subclasses of such Series specified in the
related Prospectus Supplement. If so specified
in the related Prospectus Supplement, the
Reserve Fund with respect to such Series may be
funded at a lesser amount or in another manner
acceptable to the Rating Agency rating such
Series. See "Credit Support--Subordinated
Certificates" and "--Reserve Fund."
G. Other Funds.............. Assets consisting of cash, certificates of
deposit or letters of credit, or any combination
thereof, in the aggregate amount specified in
the related Prospectus Supplement, will be
deposited by the Depositor in one or more
accounts to be established with respect to a
Series of Certificates by the Depositor with the
Trustee on the related Delivery Date if such
assets are required to make timely distributions
in respect of principal of, and interest on, the
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Certificates of such Series, are otherwise
required as a condition to the rating of such
Certificates in the rating category specified in
the Prospectus Supplement, or are required in
order to provide for certain contingencies or in
order to make certain distributions regarding
Certificates which represent interests in GPM
Loans (a "GPM Fund") or Buy-Down Loans (a "Buy-
Down Fund"). Following each Distribution Date,
amounts may be withdrawn from any such fund and
used and/or distributed in accordance with the
Pooling and Servicing Agreement under the
conditions and to the extent specified in the
related Prospectus Supplement.
H. Swap Agreement........... If so specified in the Prospectus Supplement
relating to a Series of Certificates, the Trust
will enter into or obtain an assignment of a
swap agreement or similar agreement pursuant to
which the Trust will have the right to receive
certain payments of interest (or other payments)
as set forth or determined as described therein.
See "Credit Support--Swap Agreement."
Hazard Insurance and
Special Hazard Insurance Unless otherwise specified in the applicable
Policies................... Prospectus Supplement, all of the Mortgage Loans
(except for the Cooperative Loans) and the
Contracts will be covered by standard hazard
insurance policies insuring against losses due
to various causes, including fire, lightning and
windstorm. In addition, the Depositor will, if
so specified in the applicable Prospectus
Supplement, obtain an insurance policy (the
"Special Hazard Insurance Policy") covering
losses that result from certain other physical
risks that are not otherwise insured against
(including earthquakes and mudflows). The
Special Hazard Insurance Policy will be limited
in scope and will cover losses in an amount
specified in the applicable Prospectus
Supplement. In addition, the Master Servicer
will also require or maintain flood insurance if
the related Mortgaged Property was located at
its time of origination in a federally
designated special flood hazard area. Any hazard
losses not covered by the standard hazard
policies, Special Hazard Insurance Policy or
flood insurance policies will not be insured
against and to the extent that the amount
available under any other method of credit
support available for such Series is exhausted,
will be borne by Certificateholders of such
Series. The hazard insurance policies, Special
Hazard Insurance Policy and flood insurance
policies will be subject to the limitations
described under "Description of Insurance--
Standard Hazard Insurance Policies on Mortgage
Loans," "--Standard Hazard Insurance Policies on
the Manufactured Homes" and "--Special Hazard
Insurance Policies."
Substitution of Trust If so specified in the Prospectus Supplement
Assets..................... relating to a Series of Certificates, within the
period following the date of issuance of such
Certificates specified in such Prospectus
Supplement, the Depositor or one or more
Servicers will deliver to the Trustee with
respect to such Series Trust Assets in
substitution for any
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one or more of the Trust Assets included in the
Trust Fund relating to such Series which do not
conform in one or more material respects to the
representations and warranties in the related
Pooling and Servicing Agreement. See
"Description of the Certificates--Assignment of
Mortgage Loans," "--Assignment of Contracts" and
"--Assignment of Mortgage Certificates."
Advances.................... The Servicers of the Mortgage Loans and Contracts
(and the Master Servicer, if any, with respect
to each Mortgage Loan and Contract that it
services directly, and otherwise to the extent
the related Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans and
Contracts (the "Advances") under certain
circumstances. See "Description of the
Certificates--Advances."
Optional Termination........ If so specified in the Prospectus Supplement with
respect to a Series, the Depositor or such other
persons as may be specified in a Prospectus
Supplement may purchase the Trust Assets in the
related Trust Fund and any property acquired in
respect thereof at the time, in the manner and
at the price specified in such Prospectus
Supplement. In the event that the Depositor
elects to treat the related Trust Fund as a Real
Estate Mortgage Investment Conduit (a "REMIC")
under the Internal Revenue Code of 1986 (the
"Code"), any such repurchase will be effected
only in compliance with the requirements of
Section 860F(a)(4) of the Code, so as to
constitute a "qualified liquidation" thereunder.
The exercise of the right of repurchase will
effect early retirement of the Certificates of
that Series. See "Maturity and Prepayment
Considerations" and "Description of the
Certificates--Termination."
ERISA Limitations........... A fiduciary of any employee benefit plan subject
to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or Section 4975
of the Code should carefully review with its own
legal advisers whether the purchase or holding
of Certificates could give rise to a transaction
prohibited or otherwise impermissible under
ERISA or Section 4975 of the Code. See "ERISA
Considerations."
Tax Status.................. See "Certain Federal Income Tax Consequences."
Legal Investment............ If so specified in the related Prospectus
Supplement relating to a Series of Certificates,
a Class or Subclass of such certificates will
constitute a "mortgage related security" under
the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") if and for so long as it is rated
in one of the two highest rating categories by
at least one nationally recognized statistical
rating organization. Such Classes or Subclasses,
if any, will be legal investments for certain
types of institutional investors to the
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extent provided in SMMEA, subject, in any case,
to any other regulations which may govern
investments by such institutional investors. See
"Legal Investment."
Use of Proceeds.............
The Depositor will use the net proceeds from the
sale of each Series for one or more of the
following purposes: (i) to purchase the related
Trust Assets, (ii) to repay indebtedness which
has been incurred to obtain funds to acquire
such Trust Assets, (iii) to establish any
reserve funds described in the related
Prospectus Supplement and (iv) to pay costs of
structuring, guaranteeing and issuing such
Certificates. If so specified in the related
Prospectus Supplement, the purchase of the Trust
Assets for a Series may be effected by an
exchange of Certificates by the Depositor with
the seller of such Trust Assets. See "Use of
Proceeds."
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RISK FACTORS
In addition to the other information contained in this Prospectus and in the
applicable Prospectus Supplement to be prepared and delivered in connection
with the offering of any Series of Certificates, prospective investors should
carefully consider the following risk factors before investing in any Class or
Classes of Certificates of any such Series.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any Series will develop or, if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for
the life of the Certificates of any Series. The Prospectus Supplement for any
Series of Certificates may indicate that an underwriter specified therein
intends to establish a secondary market in such Certificates; however, no
underwriter will be obligated to do so. The Certificates will not be listed on
any securities exchange.
LIMITED OBLIGATIONS
Except for any related insurance policies or credit support described in the
applicable Prospectus Supplement, the Trust Assets included in the related
Trust Fund will be the sole source of payments on the Certificates of a
Series. The Certificates of any Series will not represent an interest in or
obligation of the Depositor, the Master Servicer, any Servicer, any
Unaffiliated Seller, the Trustee or any of their affiliates, except for the
limited obligations of the Depositor, the Master Servicer or any Unaffiliated
Seller with respect to certain breaches of representations and warranties and
the Master Servicer's obligations as Master Servicer. Neither the Certificates
of any Series nor the related Trust Assets will be guaranteed or insured by
any governmental agency or instrumentality (except to the limited extent
described in the related Prospectus Supplement that certain Trust Assets may
be insured or guaranteed, in whole or in part, by the FHA or VA), the
Depositor, the Master Servicer, any Servicer, any Unaffiliated Seller, the
Trustee, any of their affiliates or any other person. Consequently, in the
event that payments on the Trust Assets are insufficient or otherwise
unavailable to make all payments required on the Certificates, there will be
no recourse to the Depositor, the Master Servicer, any Servicer, any
Unaffiliated Seller, the Trustee or, except as specified in the applicable
Prospectus Supplement, any other entity.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT SUPPORT
With respect to each Series of Certificates, credit support may be provided
in limited amounts to cover certain types of losses on the underlying Trust
Assets. Credit support may be provided in one or more of the forms referred to
herein, including, but not limited to: a Letter of Credit; a Pool Insurance
Policy; a Mortgagor Bankruptcy Bond; subordination of other Classes of
Certificates of the same Series; a Reserve Fund; and any combination thereof.
See "Credit Support" herein. Regardless of the form of credit support, if any,
provided, the amount of coverage will be limited in amount and in most cases
will be subject to periodic reduction in accordance with a schedule or
formula. Furthermore, such credit support may provide only very limited
coverage as to certain types of losses, and may provide no coverage as to
certain other types of losses. All or a portion of the credit support, if any,
for any Series of Certificates will generally be permitted to be reduced,
terminated or substituted for, if each applicable Rating Agency indicates that
the then current rating thereof will not be adversely affected. See "Credit
Support."
RISKS OF THE TRUST ASSETS
General. An investment in securities such as the Certificates of any Series
which generally represent interests in mortgage loans or manufactured housing
conditional sales contracts and installment loan agreements ("contracts"), as
the case may be, may be affected by, among other things, a decline in real
estate values and changes in the mortgagor's or obligor's financial condition.
No assurance can be given that the values of the Mortgaged Properties securing
the Mortgage Loans, the values of the mortgaged properties securing the
mortgage loans underlying the Mortgage Certificates or the values of the
Manufactured Homes securing the Contracts, as the case may be, underlying any
Series of Certificates have remained or will remain at their levels
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on the dates of origination of the related Mortgage Loans, mortgage loans or
Contracts. If the residential or commercial real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and the mortgage loans underlying the Mortgage
Certificates comprising a particular Trust Fund, and any secondary financing
on the related Mortgaged Properties and mortgaged properties, become equal to
or greater than the value of the related Mortgaged Properties or mortgaged
properties, as applicable, the actual rates of delinquencies, foreclosures and
losses could be higher than those now generally experienced in the mortgage
lending industry and those experienced in the related Originator's portfolio.
Moreover, a decline in the value of a Mortgaged Property will increase the
risk of loss particularly with respect to any related junior Mortgage Loan. In
addition, adverse economic conditions generally, in particular geographic
areas or industries, or affecting particular segments of the borrowing
community (such as Mortgagors or Obligors relying on commission income and
self-employed Mortgagors or Obligors) and other factors, may affect the timely
payment by Mortgagors, Obligors or mortgagors of scheduled payments of
principal and interest on the Mortgage Loans, Contracts or Mortgage
Certificates, as the case may be, and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. See
"Yield Considerations" and "Maturity and Prepayment Considerations" herein. To
the extent that such losses are not covered by the applicable credit support,
holders of Certificates of the Series evidencing interests in the related
Trust Fund will bear all risk of loss resulting from default by Mortgagors.
Certificateholders will have to look primarily to the value of the Mortgaged
Properties, mortgaged properties or Manufactured Homes for recovery of the
outstanding principal and unpaid interest on the defaulted Mortgage Loans or
Contracts. In addition to the foregoing, certain geographic regions on the
United States from time to time will experience weaker regional economic
conditions and housing markets and, consequently, will experience higher rates
of loss and delinquency on mortgage loans or contracts generally. The Mortgage
Loans, Contracts or mortgage loans underlying the Mortgage Certificates
underlying certain Series of Certificates may be concentrated in these
regions, and such concentration may present risk considerations in addition to
those generally present for similar mortgage-backed or contract-backed
securities without such concentration. See "The Trust Fund--The Mortgage
Pools; --Underwriting Standards; --The Contract Pools; and --Underwriting
Policies."
If applicable, certain legal aspects of the Mortgage Loans for a Series of
Certificates may be described in the related Prospectus Supplement.
Commercial, Multifamily and Mixed-Use Mortgage Loans. Mortgage loans secured
by commercial real estate properties, multifamily properties and mixed
residential/commercial properties may have a greater likelihood of delinquency
and foreclosure, and a greater likelihood of loss in the event thereof, than
similar risks associated with mortgage loans secured by single family
residential properties. The ability of a mortgagor to repay a single family
loan typically depends primarily on the mortgagor's household income rather
than on the capacity of the property to produce income, and (other than in
geographic areas where employment is dependent upon a particular employer or
industry) the mortgagor's income tends not to reflect directly the value of
such property. Accordingly, a decline in the income of a mortgagor on a loan
secured by a single family property may adversely affect the performance of
the loan, but may not affect the liquidation value of such property. In
contrast, the ability of a mortgagor to repay a loan secured by an income-
producing property typically depends primarily on the successful operation of
such property rather than on any independent income or assets of the mortgagor
and thus, in general, the value of the income-producing property also is
directly related to the net operating income derived from such property. As a
result, if the net operating income of the property is reduced (for example,
if rental or occupancy rates decline or real estate tax rates or other
operating expenses increase), the mortgagor's ability to repay the loan may be
impaired, and the liquidation value of the related property also may be
adversely affected.
Further, with respect to a particular Trust Fund that includes Commercial
Mortgage Loans, Multifamily Mortgage Loans and/or Mixed-Use Mortgage Loans,
the concentration of default, foreclosure and loss risks in individual
Mortgagors or Mortgage Loans or the related Mortgaged Properties generally
will be greater than for Mortgage Pools that consist solely of Mortgage Loans
secured by Single Family Properties, because such Trust Fund generally will
consist of a smaller number of higher balance loans than would a Mortgage Pool
of
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comparable aggregate unpaid principal balance comprised solely of Mortgage
Loans secured by Single Family Properties.
If applicable, risks particular to specific types of commercial real estate
properties included in a Trust Fund will be described in the related
Prospectus Supplement.
It is anticipated that a substantial portion of any Mortgage Loans included
in a Trust Fund that are Commercial Mortgage Loans, Multifamily Mortgage Loans
and/or Mixed-Use Mortgage Loans will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable. As to any such Mortgage Loan,
recourse in the event of a Mortgagor's default will be limited to the specific
real property and such other assets, if any, that were pledged to secure the
Mortgage Loan. Even with respect to those Mortgage Loans that provide for
recourse against the Mortgagor and its assets generally, however, there can be
no assurance that enforcement of such recourse provisions will be practicable,
or that the assets of the related Mortgagor will be sufficient to permit a
recovery in respect of a defaulted Mortgage Loan in excess of the liquidation
value of the related Mortgaged Property.
Risks Associated with Leases. The performance of a mortgage loan secured by
an income-producing property that is leased by the mortgagor to tenants, as
well as the liquidation value of such property, may depend on the businesses
operated by such tenants in connection with such property and/or the
creditworthiness of such tenants. The risks associated with such mortgage loan
may be offset to the extent that such property is leased to a relatively
greater number of tenants or such tenants operate more diverse types of
businesses.
If so described in the related Prospectus Supplement, each Mortgagor under a
Commercial Mortgage Loan, Multifamily Mortgage Loan or Mixed-Use Mortgage Loan
may be an entity created by the owner or purchaser of the related Mortgaged
Property solely to own or purchase such Mortgaged Property, in part to isolate
the Mortgaged Property from the debts and liabilities of such owner or
purchaser. Unless otherwise specified in the related Prospectus Supplement,
each such Mortgage Loan will represent a nonrecourse obligation of the related
Mortgagor secured by the lien of the related Mortgage and any related Lease
assignments. Whether or not such loans are recourse or nonrecourse
obligations, it is not expected that such Mortgagors will have any significant
assets other than the Mortgaged Properties and the related Leases, which will
be pledged to the Trustee under the related Pooling and Servicing Agreement.
Accordingly, the payment of amounts due on any such Mortgage Loans and,
consequently, the payment of principal of and interest on the related
Certificates, will depend primarily or solely on rental payments by the
Lessees. Such rental payments will, in turn, depend on continued occupancy by
and/or the creditworthiness of such Lessees, which in either case may be
adversely affected by a general economic downturn or an adverse change in
their financial condition. Moreover, to the extent a Mortgaged Property was
designed for the needs of a specific type of tenant (e.g., a nursing home,
hotel or motel), the value of such Mortgaged Property may be adversely
affected in the event of a default by the Lessee or the early termination of
such Lease, because of difficulty in re-leasing the Mortgaged Property to a
suitable substitute lessee or, if re-leasing to such a substitute is not
possible, because of the cost of altering the property for another, more
marketable, use. As a result, without the benefit of the Lessee's continued
rental payments and absent significant amortization of the related Mortgage
Loan, if such Mortgage Loan is foreclosed on and the Mortgaged Property
liquidated following a Lease default, the net proceeds might be insufficient
to cover the outstanding principal and interest owing on such Mortgage Loan,
thereby increasing the risk that holders of the related Series of Certificates
will suffer loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") included in a
Trust Fund as of the related Cut-Off Date may not be fully amortizing over
their terms to maturity and, thus, will require substantial principal payments
(i.e., balloon payments) at their stated maturity. Mortgage loans with balloon
payments involve a greater degree of risk because the ability of a mortgagor
to make a balloon payment typically will depend upon its ability either to
timely refinance the loan or to timely sell the related mortgaged property.
The ability of a mortgagor to accomplish either of these goals will be
affected by a number of factors, including the level of available mortgage
interest rates at the time of sale or refinancing, the mortgagor's equity in
the related
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mortgaged property, the financial condition and operating history of the
mortgagor and the related mortgaged property, tax laws, rent control laws
(with respect to certain multifamily properties and mixed-use properties),
Medicaid and Medicare reimbursement rates (with respect to certain nursing
homes), renewability of operating licenses, prevailing general economic
conditions and the availability of credit for single family properties,
multifamily properties, commercial properties and mixed-use properties, as the
case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain of the
Mortgage Loans included in a Trust Fund may be secured primarily by junior
mortgages. In the event of liquidation, mortgage loans secured by junior
mortgages are entitled to satisfaction from proceeds that remain from the sale
of the related mortgaged property after all mortgage loans senior to such
mortgage loans have been satisfied. If there are not sufficient funds to
satisfy any such junior Mortgage Loan in a Trust Fund and the related senior
mortgage loans, such Mortgage Loan would suffer a loss and, accordingly, one
or more classes of Certificates would bear such loss. Therefore, any risks of
deficiencies associated with first Mortgage Loans in a Trust Fund will be
relatively greater with respect to junior Mortgage Loans in such Trust Fund.
OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Mortgage Loans, a Master Servicer (or, with respect to
certain Specially Serviced Commercial Mortgage Loans, a Special Servicer) will
be permitted (within prescribed parameters) to extend and modify Mortgage
Loans that are in default or as to which a payment default is imminent,
including in particular with respect to balloon payments. In addition, a
Master Servicer or a Special Servicer with respect to certain Commercial
Mortgage Loans may receive a workout fee based on receipts from or proceeds of
such Mortgage Loans. While any such entity generally will be required to
determine that any such extension or modification is reasonably likely to
produce a greater recovery on a present value basis than liquidation, there
can be no assurance that such flexibility with respect to extensions or
modifications or payment of a workout fee will increase the present value of
receipts from or proceeds of Mortgage Loans that are in default or as to which
a payment default is imminent.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of Mortgage Loans made to individuals. The mortgagor's sophistication
and form of organization may increase the likelihood of protracted litigation
or bankruptcy in default situations.
ENFORCEABILITY
Mortgage Loans may contain a due-on-sale clause, which in general permits
the lender to accelerate the maturity of the Mortgage Loan if the Mortgagor
sells, transfers or conveys the related Mortgaged Property or its interest in
the Mortgaged Property. Commercial Mortgage Loans may also include a debt-
acceleration clause, which permits the lender to accelerate the debt upon a
monetary or non-monetary default by the Mortgagor. Such clauses are generally
enforceable subject to certain exceptions. The courts of all states will
enforce clauses providing for acceleration in the event of a material payment
default. The equity courts of any state, however, may refuse the foreclosure
of a mortgage or deed of trust when an acceleration of the indebtedness would
be inequitable or unjust or the circumstances would render the acceleration
unconscionable.
If so specified in the related Prospectus Supplement, any Commercial
Mortgage Loans, Multifamily Mortgage Loans and/or Mixed-Use Mortgage Loans in
a Trust Fund will be secured by an assignment of leases and rents pursuant to
which the Mortgagor typically assigns its right, title and interest as
landlord under the Leases on the related Mortgaged Property and the income
derived therefrom to the lender as further security for the related Mortgage
Loan, while retaining a license to collect rents for so long as there is no
default. In the
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event the Mortgagor defaults, the license terminates and the lender is
entitled to collect rents. Such assignments are typically not perfected as
security interests prior to actual possession of the cash flows. Some state
laws may require that the lender take possession of the Mortgaged Property and
obtain a judicial appointment of a receiver before becoming entitled to
collect the rents. In addition, if bankruptcy or similar proceedings are
commenced by or in respect of the Mortgagor, the lender's ability to collect
the rents may be adversely affected.
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination
of a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") a lender may be liable, as
an "owner" or "operator," for costs of addressing releases or threatened
releases of hazardous substances that require remedy at a property, if agents
or employees of the lender have become sufficiently involved in the operations
of the mortgagor, regardless of whether or not the environmental damage or
threat was caused by a prior owner. A lender also risks such liability on
foreclosure of the mortgage. Any such lien arising with respect to a Mortgaged
Property would adversely affect the value of such Mortgaged Property and could
make impracticable the foreclosure on such Mortgaged Property in the event of
a default by the related Mortgagor.
With respect to any Commercial Mortgage Loans or Mixed-Use Mortgage Loans
included in a Trust Fund, the related Pooling and Servicing Agreement will
provide that the Master Servicer (or, if applicable, Special Servicer), acting
on behalf of the Trust Fund, may not acquire title to a Mortgaged Property
securing a Commercial Mortgage Loan or Mixed-Use Mortgage Loan or take over
its operation unless such Master Servicer (or, if applicable, Special
Servicer) has previously determined, based upon a report prepared by a person
who regularly conducts environmental audits, that: (i) the Mortgaged Property
is in compliance with applicable environmental laws or, if not, that taking
such actions as are necessary to bring the Mortgaged Property in compliance
therewith is likely to produce a greater recovery on a present value basis,
after taking into account any risks associated therewith, than not taking such
actions and (ii) there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances for
which investigation, testing, monitoring, containment, cleanup or remediation
could be required under any federal, state or local law or regulation, or
that, if any hazardous substances are present for which such action would be
required, taking such actions with respect to the affected Mortgaged Property
is reasonably likely to produce a greater recovery on a present value basis,
after taking into account any risks associated therewith, than not taking such
actions. Any additional restrictions on acquiring title to a Mortgaged
Property may be set forth in the related Prospectus Supplement.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate and timing of principal payments on the Certificates of each Series
will depend, among other things, on the rate and timing of principal payments
(including prepayments, defaults and liquidations) on the related Mortgage
Loans, Mortgage Certificates or Contracts. As is the case with mortgage-backed
securities generally, the Certificates of each Series are subject to
substantial inherent cash-flow uncertainties because the Mortgage Loans and
Contracts may be prepaid at any time. Generally, when prevailing interest
rates increase, prepayment rates on mortgage loans tend to decrease, resulting
in a slower return of principal to investors at a time when reinvestment at
such higher prevailing rates would be desirable. Conversely, when prevailing
interest rates decline, prepayment rates on mortgage loans tend to increase,
resulting in a faster return of principal to investors at a time when
reinvestment at comparable yields may not be possible.
The yield to maturity on each Class of Certificates of each Series will
depend, among other things, on the rate and timing of principal payments
(including prepayments, defaults and liquidations) on the Mortgage Loans,
Mortgage Certificates or Contracts, as applicable, and the allocation thereof
to reduce the Certificate Principal Balance of such Class. The yield to
maturity on each Class of Certificates will also depend on the Pass-Through
Rate and the purchase price for such Certificates. The yield to investors on
any Class of Certificates will be
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adversely affected by any allocation thereto of interest shortfalls on the
Mortgage Loans or Contracts, as applicable, which are expected to result from
the distribution of interest only to the date of prepayment (rather than a
full month's interest) in connection with prepayments in full and in part
(including for this purpose Insurance Proceeds and Liquidation Proceeds) to
the extent not covered by amounts otherwise payable to the Master Servicer as
servicing compensation.
In general, if a Class of Certificates is purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at the
time of purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if a Class of Certificates
is purchased at a discount and principal distributions thereon occur at a rate
slower than that assumed at the time of purchase, the investor's actual yield
to maturity will be lower than that assumed at the time of purchase.
SUBORDINATION
To the extent specified in the applicable Prospectus Supplement,
distributions of interest and principal on one or more Classes of Certificates
of a Series may be subordinated in priority of payment to interest and
principal due on one or more other Classes of Certificates of such Series.
LIMITATION ON EXERCISE OF RIGHTS DUE TO BOOK-ENTRY REGISTRATION
If so specified in the applicable Prospectus Supplement, one or more Classes
of Certificates of a Series initially will be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), or any other
nominee of The Depository Trust Company ("DTC") set forth in the applicable
Prospectus Supplement, and will not be registered in the names of the holders
of the Certificates of such Series or their nominees. Because of this, unless
and until Certificates in fully registered, certificated form ("Definitive
Certificates") for such Series are issued, holders of such Certificates will
not be recognized by the applicable Trustee as "Certificateholders" (as such
terms are used herein or in the related Pooling and Servicing Agreement or the
related Deposit Trust Agreement, as applicable). Hence, until Definitive
Certificates are issued, holders of such Certificates will be able to exercise
the rights of Certificateholders only indirectly through DTC and its
participating organizations.
THE TRUST FUND
Ownership of the Mortgage or Contract Pool or Pools included in the Trust
Fund (hereinafter defined) for a Series of Certificates may be evidenced by
one or more Classes of Certificates, which may consist of one or more
Subclasses, as specified in the Prospectus Supplement for such Series. Each
Certificate will evidence the undivided interest, beneficial interest or
notional amount specified in the related Prospectus Supplement in one or more
Mortgage Pools containing one or more Mortgage Loans or Contract Pools
containing Contracts, having an aggregate principal balance of not less than
approximately $50,000,000 as of the first day of the month of its creation
(the "Cut-off Date"), unless otherwise specified in the applicable Prospectus
Supplement. If so specified in the related Prospectus Supplement, each Class
or Subclass of the Certificates of a Series will evidence the percentage
interest specified in such Prospectus Supplement in the payments of principal
and interest on the Mortgage Loans in the related Mortgage Pool or Pools or on
the Contracts in the related Contract Pool or Pools (a "Percentage Interest").
To the extent specified in the related Prospectus Supplement, each Mortgage
Pool or Contract Pool with respect to a Series will be covered by a Letter of
Credit, a Pool Insurance Policy, a Special Hazard Insurance Policy, a
Mortgagor Bankruptcy Bond, by the subordination of the rights of the holders
of the Subordinated Certificates of a Series to the rights of the holders of
the Senior Certificates, which, if so specified in the related Prospectus
Supplement, may include Certificates of a Subordinated Class or Subclass and
the establishment of a Reserve Fund, by the right of one or more Classes or
Subclasses of Certificates to receive a disproportionate amount of certain
distributions of principal or another form or forms of Alternative Credit
Support acceptable to the Rating Agency rating the Certificates of such Series
or by any combination of the foregoing. See "Description of Insurance" and
"Credit Support."
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THE MORTGAGE POOLS
General. If so specified in the Prospectus Supplement with respect to a
Series, the Trust Fund for such Series may include (a) one or more Mortgage
Pools containing (i) conventional one- to four-family residential, first
and/or second mortgage loans, (ii) Cooperative Loans made to finance the
purchase of certain rights relating to cooperatively owned properties secured
by the pledge of shares issued by a Cooperative and the assignment of a
proprietary lease or occupancy agreement providing the exclusive right to
occupy a particular Cooperative Dwelling, (iii) Mortgage Loans secured by
Multifamily Property, (iv) Mortgage Loans secured by Commercial Property, (v)
Mortgage Loans secured by Mixed-Use Property, (vi) Mortgage Loans secured by
unimproved land, (vii) mortgage participation certificates evidencing
participation interests in such loans that are acceptable to the nationally
recognized Rating Agency rating the Certificates of such Series for a rating
in one of the four highest rating categories of such Rating Agency, or (viii)
certain conventional Mortgage Certificates issued by one or more trusts
established by one or more private entities or (b) one or more Contract Pools
containing manufactured housing conditional sales contracts and installment
loan agreements or participation certificates representing participation
interests in such Contracts. The Mortgage Loans and Contracts will be newly
originated or seasoned, and will be purchased by the Depositor either directly
or through one or more affiliates or Unaffiliated Sellers.
All Mortgage Loans will be evidenced by promissory notes (the "Mortgage
Notes") secured by first or more junior mortgages or first or second deeds of
trust or other similar security instruments creating a first or more junior
lien, as applicable, on the Mortgaged Properties (as defined below). Single
Family Property and Multifamily Property will consist of single family
detached homes, attached homes (single family units having a common wall),
individual units located in condominiums, multifamily residential rental
properties, apartment buildings owned by cooperative housing corporations and
such other type of homes or units as are set forth in the related Prospectus
Supplement. Each such detached or attached home or multifamily property will
be constructed on land owned in fee simple by the Mortgagor or on land leased
by the Mortgagor for a term at least two years greater than the term of the
applicable Mortgage Loan. Attached homes may consist of duplexes, triplexes
and fourplexes (multifamily structures where each Mortgagor owns the land upon
which the unit is built with the remaining adjacent land owned in common).
Multifamily Property may include, and Mixed-Use Property will consist of,
mixed commercial and residential buildings. The Mortgaged Properties may
include investment properties and vacation and second homes. Commercial
Property will consist of income-producing commercial real estate. Mortgage
Loans secured by Commercial Property, Multifamily Property and Mixed-Use
Property may also be secured by an assignment of leases and rents and
operating or other cash flow guarantees relating to the Mortgaged Properties
to the extent specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates. Any such Mortgage Loan
may provide that on the day on which the Mortgage Rate adjusts, the amount of
the monthly payments on the Mortgage Loan will be adjusted to provide for the
payment of the remaining principal amount of the Mortgage Loan with level
monthly payments of principal and interest at the new Mortgage Rate to the
maturity date of the Mortgage Loan. Alternatively, the Mortgage Loan may
provide that the Mortgage Rate adjusts more frequently than the monthly
payment. As a result, a greater or lesser portion of the monthly payment will
be applied to the payment of principal on the Mortgage Loan, thus increasing
or decreasing the rate at which the Mortgage Loan is repaid. See "Yield
Considerations." In the event that an adjustment to the Mortgage Rate causes
the amount of interest accrued in any month to exceed the amount of the
monthly payment on such Mortgage Loan, the excess (the "Deferred Interest")
will be added to the principal balance of the Mortgage Loan (unless otherwise
paid by the Mortgagor), and will bear interest at the Mortgage Rate in effect
from time to time. The amount by which the Mortgage Rate or monthly payment
may increase or decrease and the aggregate amount of Deferred Interest on any
Mortgage Loan may be subject to certain limitations, as described in the
related Prospectus Supplement.
If so specified in the Prospectus Supplement for the related Series, the
Mortgage Rate on certain ARM Loans will be convertible from an adjustable rate
to a fixed rate, at the option of the Mortgagor under certain circumstances.
Unless otherwise specified in the related Prospectus Supplement, the Pooling
and Servicing Agreement will provide that the Unaffiliated Seller from which
such convertible ARM Loans were acquired will
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be obligated to repurchase from the Trust Fund any such ARM Loan as to which
the conversion option has been exercised (a "Converted Mortgage Loan"), at a
purchase price set forth in the related Prospectus Supplement. The amount of
such purchase price will be required to be deposited in the Certificate
Account and will be distributed to the Certificateholders on the Distribution
Date in the month following the month of the exercise of the conversion
option. The obligation of the Unaffiliated Seller to repurchase Converted
Mortgage Loans may or may not be supported by cash, letters of credit, third
party guarantees or other similar arrangements.
A Mortgage Pool may include Mortgage Loans insured by the FHA ("FHA Loans")
and/or Mortgage Loans partially guaranteed by the Veterans Administration (the
"VA" and such mortgage loans are referred to as "VA Loans"). FHA Loans will be
insured by the Federal Housing Administration (the "FHA") as authorized under
the National Housing Act, as amended, and the United States Housing Act of
1937, as amended. Such FHA loans will be insured under various FHA programs
including the standard FHA 203-b programs to finance the acquisition of one-
to four-family housing units, the FHA 245 graduated payment mortgage program
and the FHA 221 and 223 programs to finance certain multifamily residential
rental properties. FHA Loans generally require a minimum down payment of
approximately 5% of the original principal amount of the FHA Loan. No FHA Loan
may have an interest rate or original principal amount exceeding the
applicable FHA limits at the time of origination of such FHA Loan.
VA Loans will be partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended (the "Servicemen's Readjustment Act").
The Servicemen's Readjustment Act permits a veteran (or in certain instances
the spouse of a veteran) to obtain a mortgage loan guarantee by the VA
covering mortgage financing of the purchase of a one- to four-family dwelling
unit at interest rates permitted by the VA. The program has no mortgage loan
limits, requires no down payment from the purchasers and permits the guarantee
of mortgage loans of up to 30 years' duration. However, no VA Loan will have
an original principal amount greater than five times the partial VA guarantee
for such VA Loan. The maximum guarantee that may be issued by VA under this
program is 50% of the principal amount of the Mortgage Loan if the principal
amount of the Mortgage Loan is $45,000 or less, the lesser of $36,000 and 40%
of the principal amount of the Mortgage Loan if the principal amount of the
Mortgage Loan is greater than $45,000 but less than or equal to $144,000, and
the lesser of $46,000 and 25% of the principal amount of the Mortgage Loan if
the principal amount of the Mortgage Loan is greater than $144,000.
The Prospectus Supplement (or, if such information is not available in
advance of the date of such Prospectus Supplement, a Current Report on Form 8-
K to be filed with the Commission) for each Series of Certificates the Trust
Fund with respect to which contains Mortgage Loans will contain information as
to the type of Mortgage Loans that will comprise the related Mortgage Pool or
Pools and information as to (i) the aggregate principal balance of the
Mortgage Loans as of the applicable Cut-off Date, (ii) the type of Mortgaged
Properties securing the Mortgage Loans, (iii) the original terms to maturity
of the Mortgage Loans, (iv) the largest in principal balance of the Mortgage
Loans, (v) the earliest origination date and latest maturity date of the
Mortgage Loans, (vi) the aggregate principal balance of Mortgage Loans having
Loan-to-Value Ratios at origination exceeding 80%, (vii) the interest rate or
range of interest rates borne by the Mortgage Loans, (viii) the average
outstanding principal balance of the Mortgage Loans, (ix) the geographical
distribution of the Mortgage Loans, (x) the number and aggregate principal
balance of Buy-Down Loans or GPM Loans, if applicable, (xi) with respect to
ARM Loans, the adjustment dates, the highest, lowest and weighted average
margin, and the maximum Mortgage Rate variation at the time of any periodic
adjustment and over the life of such ARM Loans, and (xii) with respect to
Mortgage Loans secured by Multifamily Property, Commercial Property, Mixed-Use
Property or such other Mortgage Loans as are specified in the Prospectus
Supplement, the related debt service coverage ratios, whether the Mortgage
Loan provides for an interest only period and whether the principal amount of
such Mortgage Loan is fully amortizing or is amortized on the basis of a
period of time that extends beyond the maturity date of the Mortgage Loan. If
specified in the related Prospectus Supplement, the Depositor may segregate
the Mortgage Loans in a Mortgage Pool into separate "Mortgage Loan Groups" (as
described in the related Prospectus Supplement) as part of the structure of
the payments of principal and
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interest on the Certificates of a Series. In such case, the Depositor will
disclose the above-specified information by Mortgage Loan Group.
No assurance can be given that values of the Mortgaged Properties in a
Mortgage Pool have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and any secondary financing on the Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual Rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced
in the mortgage lending industry. In addition, the value of property securing
Cooperative Loans and the delinquency rate with respect to Cooperative Loans
could be adversely affected if the current favorable tax treatment of
cooperative stockholders were to become less favorable. See "Certain Legal
Aspects of the Mortgage Loans and Contracts--The Mortgage Loans." To the
extent that such losses are not covered by the methods of credit support or
the insurance policies described herein or by Alternative Credit Support, they
will be borne by holders of the Certificates of the Series evidencing
interests in the Mortgage Pool.
The Depositor will cause the Mortgage Loans constituting each Mortgage Pool
to be assigned to the Trustee named in the applicable Prospectus Supplement,
for the benefit of the holders of the Certificates of such Series (the
"Certificateholders"). The Master Servicer, if any, named in the related
Prospectus Supplement will service the Mortgage Loans, either by itself or
through other mortgage servicing institutions, if any (each, a "Servicer"), or
a special servicer, if any (a "Special Servicer"), pursuant to a Pooling and
Servicing Agreement, as described herein, among the Master Servicer, if any,
the Special Servicer, if any, the Depositor and the Trustee (the "Pooling and
Servicing Agreement") and will receive a fee for such services. See "--
Mortgage Loan Program" and "Description of the Certificates." With respect to
those Mortgage Loans serviced by a Servicer or Special Servicer, such Servicer
or Special Servicer will be required to service the related Mortgage Loans in
accordance with the Seller's Warranty and Servicing Agreement between the
Servicer and the Depositor (a "Servicing Agreement") or the Pooling and
Servicing Agreement, as applicable, and will receive the fee for such services
specified in the related agreement; however, any Master Servicer will remain
liable for its servicing obligations under the Pooling and Servicing Agreement
as if the Master Servicer alone were servicing such Mortgage Loans.
The Depositor will make certain representations and warranties regarding the
Mortgage Loans, but its assignment of the Mortgage Loans to the Trustee will
be without recourse. See "Description of the Certificates--Assignment of
Mortgage Loans." The Master Servicer's obligations with respect to the
Mortgage Loans will consist principally of its contractual servicing
obligations under the Pooling and Servicing Agreement (including its
obligation to enforce certain purchase and other obligations of any Special
Servicer, Servicers and/or Unaffiliated Sellers, as more fully described
herein under "--Mortgage Loan Program--Representations by Unaffiliated
Sellers; Repurchases" and "Description of the Certificates--Assignment of
Mortgage Loans" and "--Servicing by Unaffiliated Sellers") and its obligations
to make Advances in the event of delinquencies in payments on or with respect
to the Mortgage Loans or in connection with prepayments and liquidations of
such Mortgage Loans, in amounts described herein under "Description of the
Certificates--Advances." Unless otherwise specified in the related Prospectus
Supplement, such Advances with respect to delinquencies will be limited to
amounts that the Master Servicer believes ultimately would be reimbursable
under any applicable Letter of Credit, Pool Insurance Policy, Special Hazard
Insurance Policy, Mortgagor Bankruptcy Bond or other policy of insurance, from
amounts in the Reserve Fund, under any Alternative Credit Support or out of
the proceeds of liquidation of the Mortgage Loans, cash in the Certificate
Account or otherwise. See "Description of the Certificates--Advances," "Credit
Support" and "Description of Insurance."
Unless otherwise specified in the applicable Prospectus Supplement, each
Mortgage Pool included in the related Trust Fund will be composed of Mortgage
Loans evidencing interests in Mortgage Loans that bear interest at annual
rates that will exceed by at least 3/8 of 1% the fixed or variable Pass-
Through Rate established for the Mortgage Pool. To the extent and in the
manner specified in the related Prospectus Supplement, Certificateholders of a
Series will be entitled to receive distributions based on the payments of
principal on the underlying Mortgage Loans, plus interest on the principal
balance thereof at the Pass-Through Rate. The
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difference between a Mortgage Rate and the related Pass-Through Rate (less any
servicing compensation payable to the Servicers of such Mortgage Loans and the
amount, if any, payable to the Depositor or the person or entity specified in
the applicable Prospectus Supplement) may be retained by the Master Servicer
as servicing compensation to it. See "Description of the Certificates--
Servicing Compensation and Payment of Expenses."
Single Family Mortgage Loans. Unless otherwise specified below or in the
applicable Prospectus Supplement, each Single Family Mortgage Loan in a
Mortgage Pool will (i) have an individual principal balance at origination of
not less than $25,000 nor more than $500,000, (ii) have monthly payments due
on the first day of each month (the "Due Date"), (iii) be secured by Mortgaged
Properties or relate to Cooperative Loans located in any of the 50 states or
the District of Columbia, and (iv) consist of fully-amortizing Single Family
Mortgage Loans, each with a 10 to 40 year term at origination, a fixed or
variable rate of interest and level or variable monthly payments over the term
of the Mortgage Loan. Unless otherwise specified in the related Prospectus
Supplement, the Loan-to-Value Ratio (as hereinafter described) of such Single
Family Mortgage Loans at origination will not exceed 95% on any Mortgage Loan
with an original principal balance of $150,000 or less, 90% on any Mortgage
Loan with an original principal balance in excess of $150,000 through
$200,000, 85% on any Mortgage Loan with an original principal balance in
excess of $200,000 through $300,000 and 80% on any Mortgage Loan with an
original principal balance exceeding $300,000. If so specified in the related
Prospectus Supplement, a Mortgage Pool may also include fully amortizing,
adjustable rate Mortgage Loans ("ARM Loans") with (unless otherwise specified
in the applicable Prospectus Supplement) a 30-year term at origination and a
mortgage interest rate adjusted periodically (with corresponding adjustments
in the amount of monthly payments) to equal the sum (which may be rounded) of
a fixed margin and an index described in such Prospectus Supplement, subject
to any applicable restrictions on such adjustments. The Mortgage Pools may
also include other types of Single Family Mortgage Loans to the extent set
forth in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, no
Single Family Mortgage Loan will have a Loan-to-Value Ratio at origination in
excess of 95%, regardless of its original principal balance. The Loan-to-Value
Ratio is the ratio, expressed as a percentage, of the principal amount of the
Mortgage Loan at the date of determination to the lesser of (a) the appraised
value determined in an appraisal obtained by the originator and (b) the sales
price for such property (the "Original Value"). Unless otherwise specified in
the related Prospectus Supplement, with respect to a Single Family Mortgage
Loan secured by a mortgage on a vacation or second home or an investment
property, no income derived from the property will be considered for
underwriting purposes, the Loan-to-Value Ratio (taking into account any
secondary financing) of such Mortgage Loan may not exceed 80% and the original
principal balance of the Mortgage Loan may not exceed $250,000.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool may
contain Single Family Mortgage Loans pursuant to which the monthly payments
made by the Mortgagor during the early years of such Mortgage Loan will be
less than the scheduled monthly payments on the Mortgage Loan ("Buy-Down
Loans"). The resulting difference in payment shall be compensated for from an
amount contributed by the Depositor, the seller of the related Mortgaged
Property, the Servicer or another source and placed in a custodial account
(the "Buy-Down Fund") by the Servicer, or if so specified in the related
Prospectus Supplement, with the Trustee. In lieu of a cash deposit, if so
specified in the related Prospectus Supplement, a letter of credit or
guaranteed investment contract may be delivered to the Trustee to fund the
Buy-Down Fund. See "Description of the Certificates--Payments on Mortgage
Loans." Buy-Down Loans included in a Mortgage Pool will provide for a
reduction in monthly interest payments by the Mortgagor for a period of up to
the first four years of the term of such Mortgage Loans.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool may
contain Single Family Mortgage Loans pursuant to which the monthly payments by
the Mortgagor during the early years of the related Mortgage Note are less
than the amount of interest that would otherwise be payable thereon, with the
interest not so paid added to the outstanding principal balance of such
Mortgage Loan ("GPM Loans"). If so specified in the related Prospectus
Supplement, the resulting difference in payment shall be compensated for from
an amount contributed by the Depositor or another source and delivered to the
Trustee (the "GPM Fund"). In lieu
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of cash deposit, the Depositor may deliver to the Trustee a letter of credit,
guaranteed investment contract or another instrument acceptable to the Rating
Agency rating the related Series to fund the GPM Fund.
Commercial, Multifamily and Mixed-Use Mortgage Loans. The Commercial
Mortgage Loans, Multifamily Mortgage Loans and Mixed-Use Mortgage Loans will
consist of mortgage loans secured by first or junior mortgages, deeds of trust
or similar security instruments on, or installment contracts ("Installment
Contracts") for the sale of, fee simple or leasehold interests in commercial
real estate property, multifamily residential property, cooperatively owned
multifamily properties and/or mixed residential/commercial property, and
related property and interests. Commercial Mortgage Loans will not represent
more than 10% of the aggregate principal balance of any Mortgage Pool as of
the related Cut-off Date.
Certain of the Commercial Mortgage Loans, Multifamily Mortgage Loans and
Mixed-Use Mortgage Loans ("Simple Interest Loans") may provide that scheduled
interest and principal payments thereon are applied first to interest accrued
from the last date to which interest has been paid to the date such payment is
received and the balance thereof is applied to principal, and other such
Mortgage Loans may provide for payment of interest in advance rather than in
arrears.
The Commercial Mortgage Loans, Multifamily Mortgage Loans and Mixed-Use
Mortgage Loans may also be secured by one or more assignments of leases and
rents, management agreements or operating agreements relating to the Mortgaged
Property and in some cases by certain letters of credit, personal guarantees
or both. Pursuant to an assignment of leases and rents, the Mortgagor assigns
its right, title and interest as landlord under each Lease and the income
derived therefrom to the related lender, while retaining a license to collect
the rents for so long as there is no default. If the Mortgagor defaults, the
license terminates and the related lender is entitled to collect the rents
from tenants to be applied to the monetary obligations of the Mortgagor. State
law may limit or restrict the enforcement of the assignment of leases and
rents by a lender until the lender takes possession of the related Mortgaged
Property and a receiver is appointed. See "Certain Legal Aspects of the
Mortgage Loans and Contracts--Leases and Rents."
The Prospectus Supplement relating to each Series will specify the
Originator or Originators relating to the Commercial Mortgage Loans,
Multifamily Mortgage Loans and Mixed-Use Mortgage Loans, which may include,
among others, commercial banks, savings and loan associations, other financial
institutions, insurance companies or real estate developers and, to the extent
available, the underwriting criteria in connection with originating such
Mortgage Loans.
Commercial, multifamily and mixed-use real estate lending is generally
viewed as exposing the lender to a greater risk of loss than one- to four-
family residential lending. Commercial, multifamily and mixed-use real estate
lending typically involves larger loans to single borrowers or groups of
related borrowers than residential one- to four-family mortgage loans.
Furthermore, the repayment of loans secured by income producing properties is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced (for example, if leases
are not obtained or renewed), the borrower's ability to repay the loan may be
impaired. Commercial, multifamily and mixed-use real estate can be affected
significantly by supply and demand in the market for the type of property
securing the loan and, therefore, may be subject to adverse economic
conditions. Market values may vary as a result of economic events or
governmental regulations outside the control of the borrower or lender, such
as rent control laws, which impact the future cash flow of the property.
Corresponding to the greater lending risk is a generally higher interest rate
applicable to commercial, multifamily and mixed-use real estate lending.
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor either directly
or through affiliates, from one or more affiliates or from sellers
unaffiliated with the Depositor ("Unaffiliated Sellers"). Mortgage Loans
acquired by the Depositor will have been originated in accordance with the
underwriting criteria specified below under "Underwriting Standards" or as
otherwise described in a related Prospectus Supplement.
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UNDERWRITING STANDARDS
Except in the case of certain Mortgage Loans originated by Unaffiliated
Sellers in accordance with their own underwriting criteria ("Closed Loans") or
such other standards as may be described in the applicable Prospectus
Supplement, all prospective Mortgage Loans will be subject to the underwriting
standards adopted by the Depositor. See "Closed Loan Program" below for a
description of underwriting standards applicable to Closed Loans. Unaffiliated
Sellers will represent and warrant that Mortgage Loans originated by them and
purchased by the Depositor have been originated in accordance with the
applicable underwriting standards established by the Depositor or such other
standards as may be described in the applicable Prospectus Supplement. The
following discussion describes the underwriting standards of the Depositor
with respect to any Mortgage Loan that it purchases.
Single and Multi-Family Mortgage Loans. The mortgage credit approval process
for one- to four-family residential loans follows a standard procedure that
generally complies with FHLMC and FNMA regulations and guidelines (except that
certain Mortgage Loans may have higher loan amount and qualifying ratios) and
applicable federal and state laws and regulations. The credit approval process
for Cooperative Loans follows a procedure that generally complies with
applicable FNMA regulations and guidelines (except for the loan amounts and
qualifying ratios) and applicable federal and state laws and regulations. The
originator of a Mortgage Loan (the "Originator") generally will review a
detailed credit application by the prospective mortgagor designed to provide
pertinent credit information, including a current balance sheet describing
assets and liabilities and a statement of income and expenses, as well as an
authorization to apply for a credit report that summarizes the prospective
mortgagor's credit history with local merchants and lenders and any record of
bankruptcy. In addition, an employment verification is obtained from the
prospective mortgagor's employer wherein the employer reports the length of
employment with that organization, the current salary, and gives an indication
as to whether it is expected that the prospective mortgagor will continue such
employment in the future. If the prospective mortgagor is self-employed, he or
she is required to submit copies of signed tax returns. The prospective
mortgagor may also be required to authorize verification of deposits at
financial institutions. In certain circumstances, other credit considerations
may cause the Originator or Depositor not to require some of the above
documents, statements or proofs in connection with the origination or purchase
of certain Mortgage Loans.
An appraisal generally will be required to be made on each residence to be
financed. Such appraisal generally will be made by an appraiser who meets FNMA
requirements as an appraiser of one- to four-family residential properties.
The appraiser is required to inspect the property and verify that it is in
good condition and that, if new, construction has been completed. The
appraisal generally will be based on the appraiser's judgment of value, giving
appropriate weight to both the market value of comparable homes and the cost
of replacing the residence. These underwriting standards also require a search
of the public records relating to a mortgaged property for liens and judgments
against such mortgaged property.
Based on the data provided, certain verifications and the appraisal, a
determination is made by the Originator as to whether the prospective
mortgagor has sufficient monthly income available to meet the prospective
mortgagor's monthly obligations on the proposed loan and other expenses
related to the residence (such as property taxes, hazard and primary mortgage
insurance and, if applicable, maintenance) and other financial obligations and
monthly living expenses. Each Originator's lending guidelines for conventional
mortgage loans generally will specify that mortgage payments plus taxes and
insurance and all monthly payments extending beyond one year (including those
mentioned above and other fixed obligations, such as car payments) would equal
no more than specified percentages of the prospective mortgagor's gross
income. These guidelines will be applied only to the payments to be made
during the first year of the loan. For FHA and VA Loans, the Originator's
lending guidelines will follow HUD and VA guidelines, respectively. Other
credit considerations may cause an Originator to depart from these guidelines.
For example, when two individuals co-sign the loan documents, the incomes and
expenses of both individuals may be included in the computation.
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The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a deficiency
judgment against the Mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. The Depositor's underwriting standards
applicable to all states (including anti-deficiency states) require that the
value of the property being financed, as indicated by the appraisal, currently
supports and is anticipated to support in the future the outstanding loan
balance.
Certain of the types of Mortgage Loans that may be included in the Mortgage
Pools or Subsidiary Trust Funds may involve additional uncertainties not
present in traditional types of loans. For example, Buy-Down Loans and GPM
Loans provide for escalating or variable payments by the Mortgagor. These
types of Mortgage Loans are underwritten on the basis of a judgment that the
Mortgagor will have the ability to make larger monthly payments in subsequent
years. In some instances the Mortgagor's income may not be sufficient to
enable it to continue to make scheduled loan payments as such payments
increase.
To the extent specified in the related Prospectus Supplement, the Depositor
may purchase Mortgage Loans for inclusion in a Trust Fund that are
underwritten under standards and procedures which vary from and are less
stringent than those described herein. For instance, Mortgage Loans may be
underwritten under a "limited documentation" program if so specified in the
related Prospectus Supplement. With respect to such Mortgage Loans, minimal
investigation into the borrowers' credit history and income profile is
undertaken by the originator and such Mortgage Loans may be underwritten
primarily on the basis of an appraisal of the Mortgaged Property or
Cooperative Dwelling and the Loan-to-Value Ratio at origination. Thus, if the
Loan-to-Value Ratio is less than a percentage specified in the related
Prospectus Supplement, the originator may forego certain aspects of the review
relating to monthly income, and traditional ratios of monthly or total
expenses to gross income may not be considered.
The underwriting standards for Mortgage Loans secured by Multifamily
Property will be described in the related Prospectus Supplement.
Commercial and Mixed-Use Mortgage Loans. The underwriting procedures and
standards for Commercial Mortgage Loans and Mixed-Use Mortgage Loans included
in a Mortgage Pool will be specified in the related Prospectus Supplement to
the extent such procedures and standards are known or available. Such Mortgage
Loans may be originated in contemplation of the transactions described in this
Prospectus and the related Prospectus Supplement or may have been originated
by third-parties and acquired by the Depositor directly or through its
affiliates in negotiated transactions.
Except as otherwise set forth in the related Prospectus Supplement for a
Series, the Originator of a Commercial Mortgage Loan or Mixed-Use Mortgage
Loan will have applied underwriting procedures intended to evaluate, among
other things, the income derived from the Mortgaged Property, the capabilities
of the management of the project, including a review of management's past
performance record, its management reporting and control procedures (to
determine its ability to recognize and respond to problems) and its accounting
procedures to determine cash management ability, the obligor's credit standing
and repayment ability and the value and adequacy of the Mortgaged Property as
collateral. Any such Mortgage Loan insured by the Federal Housing
Administration ("FHA"), a division of the United States Department of Housing
and Urban Development ("HUD"), will have been originated by a mortgage lender
that is approved by HUD as an FHA mortgagee in the ordinary course of its real
estate lending activities and will comply with the underwriting policies of
FHA.
If so specified in the related Prospectus Supplement, the adequacy of a
Commercial Property or Mixed-Use Property as security for repayment will
generally have been determined by an appraisal by an appraiser selected in
accordance with preestablished guidelines established by or acceptable to the
loan Originator for appraisers. If so specified in the related Prospectus
Supplement, the appraiser must have personally inspected the property and
verified that it was in good condition and that construction, if new, has been
completed. Unless otherwise stated in the applicable Prospectus Supplement,
the appraisal will have been based upon a cash flow analysis and/or a
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market data analysis of recent sales of comparable properties and, when deemed
applicable, a replacement cost analysis based on the current cost of
constructing or purchasing a similar property.
No assurance can be given that values of any Commercial Properties or Mixed-
Use Properties in a Mortgage Pool have remained or will remain at their levels
on the dates of origination of the related Mortgage Loans. Further, there is
no assurance that appreciation of real estate values generally will limit loss
experiences on commercial properties or mixed-use properties. If the
commercial real estate market should experience an overall decline in property
values such that the outstanding balances of any Commercial Mortgage Loans
and/or Mixed-Use Mortgage Loans and any additional financing on the related
Mortgaged Properties in a particular Mortgage Pool become equal to or greater
than the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses on such Mortgage Loans could be higher than those now
generally experienced in the mortgage lending industry. To the extent that
such losses are not covered by the methods of credit support or the insurance
policies described herein or by Alterative Credit Support, they will be borne
by holders of the Certificates of the Series evidencing interests in the
Mortgage Pool. Even where credit support covers all losses resulting from
defaults and foreclosure, the effect of defaults and foreclosures may be to
increase prepayment experience on the related Mortgage Loans, thus shortening
weighted average life and affecting yield to maturity.
QUALIFICATIONS OF UNAFFILIATED SELLERS
Unless otherwise specified in the applicable Prospectus Supplement with
respect to an Unaffiliated Seller of Closed Loans secured by residential
properties, each Unaffiliated Seller must be an institution experienced in
originating conventional mortgage loans and/or FHA Loans or VA Loans in
accordance with accepted practices and prudent guidelines, and must maintain
satisfactory facilities to originate those loans. In addition, except as
otherwise specified, the Depositor requires adequate financial stability and
adequate servicing experience, where appropriate, as well as satisfaction of
certain other criteria.
REPRESENTATIONS BY UNAFFILIATED SELLERS; REPURCHASES
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller or any of its affiliates (or the Master Servicer, if the
Unaffiliated Seller is also the Master Servicer under the Pooling and
Servicing Agreement) will have made representations and warranties in respect
of the Mortgage Loans sold by such Unaffiliated Seller to the Depositor or its
affiliates. Such representations and warranties will generally include, among
other things: (i) with respect to each Mortgaged Property, that title
insurance (or in the case of Mortgaged Properties located in areas where such
policies are generally not available, an attorney's certificate of title) and
any required hazard and primary mortgage insurance was effective at the
origination of each Mortgage Loan, and that each policy (or certificate of
title) remained in effect on the date of purchase of the Mortgage Loan from
the Unaffiliated Seller; (ii) that the Unaffiliated Seller had good and
marketable title to each such Mortgage Loan; (iii) with respect to each
Mortgaged Property, that each mortgage constituted a valid first (or, if
applicable, more junior) lien on the Mortgaged Property (subject only to
permissible title insurance exceptions); (iv) that there were no delinquent
tax or assessment liens against the Mortgaged Property; and (v) that each
Mortgage Loan was current as to all required payments (unless otherwise
specified in the related Prospectus Supplement). With respect to a Cooperative
Loan, the Unaffiliated Seller will represent and warrant that (a) the security
interest created by the cooperative security agreements constituted a valid
first lien on the collateral securing the Cooperative Loan (subject to the
right of the related Cooperative to cancel shares and terminate the
proprietary lease for unpaid assessments and to the lien of the related
Cooperative for unpaid assessments representing the Mortgagor's pro rata share
of the Cooperative's payments for its mortgage, current and future real
property taxes, maintenance charges and other assessments to which like
collateral is commonly subject) and (b) the related cooperative apartment was
free from damage and was in good repair.
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All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate.
A substantial period of time may have elapsed between such date and the date
of initial issuance of the Series of Certificates evidencing an interest in
such Mortgage Loan. Since the representations and warranties of an
Unaffiliated Seller do not address events that may occur following the sale of
a Mortgage Loan by an Unaffiliated Seller, the repurchase obligation described
below will not arise if, during the period commencing on the date of sale of a
Mortgage Loan by the Unaffiliated Seller to or on behalf of the Depositor, the
relevant event occurs that would have given rise to such an obligation had the
event occurred prior to sale of the affected Mortgage Loan. However, the
Depositor will not include any Mortgage Loan in the Trust Fund for any Series
of Certificates if anything has come to the Depositor's attention that would
cause it to believe that the representations and warranties of an Unaffiliated
Seller will not be accurate and complete in all material respects in respect
of such Mortgage Loan as of the related Cut-off Date.
The only representations and warranties to be made for the benefit of
holders of Certificates of a Series in respect of any Mortgage Loan relating
to the period commencing on the date of sale of such Mortgage Loan to the
Depositor or its affiliates will be certain limited representations of the
Depositor and of the Master Servicer described below under "Description of the
Certificates--Assignment of Mortgage Loans." If the Master Servicer is also an
Unaffiliated Seller of Mortgage Loans with respect to a particular Series,
such representations will be in addition to the representations and warranties
made in its capacity as an Unaffiliated Seller.
Unless otherwise set forth or specified in the related Prospectus
Supplement, upon the discovery of the breach of any representation or warranty
made by an Unaffiliated Seller in respect of a Mortgage Loan that materially
and adversely affects the interests of the Certificateholders of the related
Series, such Unaffiliated Seller or the Servicer of such Mortgage Loan will be
obligated to repurchase such Mortgage Loan at a purchase price equal to 100%
of the unpaid principal balance thereof at the date of repurchase or, in the
case of a Series of Certificates as to which the Depositor has elected to
treat the related Trust Fund as a REMIC, as defined in the Code, at such other
price as may be necessary to avoid a tax on a prohibited transaction, as
described in Section 860F(a) of the Code, in each case together with accrued
interest at the Pass-Through Rate for the related Mortgage Pool, to the first
day of the month following such repurchase and the amount of any unreimbursed
Advances made by the Master Servicer or the Servicer, as applicable, in
respect of such Mortgage Loan. The Master Servicer will be required to enforce
this obligation for the benefit of the Trustee and the Certificateholders,
following the practices it would employ in its good faith business judgment
were it the owner of such Mortgage Loan. Unless otherwise specified in the
applicable Prospectus Supplement, and subject to the ability of the Depositor,
the Unaffiliated Seller or the Servicer to substitute for certain Mortgage
Loans as described below, this repurchase obligation constitutes the sole
remedy available to the Certificateholders of such Series for a breach of
representation or warranty by an Unaffiliated Seller.
The obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller or a Servicer defaults on its obligation to do so is
subject to limitations, and no assurance can be given that Unaffiliated
Sellers will carry out their respective repurchase obligations with respect to
Mortgage Loans. However, to the extent that a breach of the representations
and warranties of an Unaffiliated Seller may also constitute a breach of the
representations and warranties made by the Depositor or by the Master Servicer
with respect to the insurability of the Mortgage Loans, the Depositor may have
a repurchase obligation, and the Master Servicer may have the limited purchase
obligation, in each case as described below under "Description of the
Certificates--Assignment of Mortgage Loans."
CLOSED LOAN PROGRAM
The Depositor may also acquire Closed Loans that have been originated by
Unaffiliated Sellers in accordance with underwriting standards acceptable to
the Depositor. Unless otherwise specified in the applicable Prospectus
Supplement, Closed Loans for which 11 or fewer monthly payments have been
received will be further subject to the Depositor's customary underwriting
standards. Unless otherwise specified in the applicable Prospectus Supplement,
Closed Loans for which 12 to 60 monthly payments have been received will be
subject
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to a review of payment history and will conform to the Depositor's guidelines
for the related mortgage program. In the event one or two payments were over
30 days delinquent, a letter explaining the delinquencies will be required of
the Mortgagor. Unless otherwise specified in the applicable Prospectus
Supplement, the Depositor will not purchase for inclusion in a Mortgage Pool a
Closed Loan for which (i) more than two monthly payments were over 30 days
delinquent, (ii) one payment was over 60 days delinquent, or (iii) more than
60 monthly payments were received.
MORTGAGE CERTIFICATES
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include certain conventional mortgage pass-
through certificates (the "Mortgage Certificates") issued by one or more
trusts established by one or more private entities and evidencing, unless
otherwise specified in such Prospectus Supplement, the entire interest in a
pool of mortgage loans. A description of the mortgage loans underlying the
Mortgage Certificates, the related pooling and servicing arrangements and the
insurance arrangements in respect of such mortgage loans will be set forth in
the applicable Prospectus Supplement or in the Current Report on Form 8-K
referred to below. Such Prospectus Supplement (or, if such information is not
available in advance of the date of such Prospectus Supplement, a Current
Report on Form 8-K to be filed by the Depositor with the Commission within 15
days of the issuance of the Certificates of such Series) will also set forth
information with respect to the entity or entities forming the related
mortgage pool, the issuer of any credit support with respect to such Mortgage
Certificates, the aggregate outstanding principal balance and the pass-through
rate borne by each Mortgage Certificate included in the Trust Fund, together
with certain additional information with respect to such Mortgage
Certificates. The inclusion of Mortgage Certificates in a Trust Fund with
respect to a Series of Certificates is conditioned upon their characteristics
being in form and substance satisfactory to the Rating Agency rating the
related Series of Certificates. Mortgage Certificates, together with the
Mortgage Loans and Contracts, are referred to herein as the "Trust Assets."
THE CONTRACT POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include a Contract Pool evidencing interests in
manufactured housing conditional sales contracts and installment loan
agreements (the "Contracts") originated by a manufactured housing dealer in
the ordinary course of business and purchased by the Depositor. The Contracts
may be conventional manufactured housing contracts or contracts insured by the
FHA or partially guaranteed by the VA. Each Contract will be secured by a
Manufactured Home, as defined below. Unless otherwise specified in the related
Prospectus Supplement, the Contracts will be fully amortizing and will bear
interest at a fixed annual percentage rate ("APR").
The Manufactured Homes securing the Contracts consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to
the required utilities, and includes the plumbing, heating, air conditioning,
and electrical systems contained therein; except that such term shall include
any structure which meets all the requirements of [this] paragraph except the
size requirements and with respect to which the manufacturer voluntarily files
a certification required by the Secretary of Housing and Urban Development and
complies with the standards established under [this] chapter."
The Depositor will cause the Contracts constituting each Contract Pool to be
assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the related Certificateholder. The Master Servicer specified in the
related Prospectus Supplement will service the Contracts, either by itself or
through other Servicers, pursuant to the Pooling and Servicing Agreement. See
"Description of the Certificates--Servicing by Unaffiliated Sellers." With
respect to those Contracts serviced by the Master Servicer through a Servicer,
the Master Servicer will remain liable for its servicing obligations under the
Agreement as if the Master Servicer
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alone were servicing such Contracts. The Contract documents, if so specified
in the related Prospectus Supplement, may be held for the benefit of the
Trustee by a Custodian (the "Custodian") appointed pursuant to a Custodial
Agreement (the "Custodial Agreement") among the Depositor, the Trustee and the
Custodian.
Unless otherwise specified in the related Prospectus Supplement, each
Contract Pool will be composed of Contracts bearing interest at the annual
fixed APRs specified in the Prospectus Supplement. Each registered holder of a
Certificate will be entitled to receive periodic distributions, which will be
monthly unless otherwise specified in the related Prospectus Supplement, of
all or a portion of principal on the underlying Contracts or interest on the
principal balance thereof at the Pass-Through Rate, or both. Unless otherwise
stated in the related Prospectus Supplement, the difference between the APR on
a Contract and the related Pass-Through Rate (less sub-servicing
compensation), will be retained by the Master Servicer as servicing
compensation to it. See "Description of the Certificates--Payments on
Contracts."
The related Prospectus Supplement (or, if such information is not available
in advance of the date of such Prospectus Supplement, a Current Report on Form
8-K to be filed with the Commission) will specify, for the Contracts contained
in the related Contract Pool, among other things: (a) the dates of origination
of the Contracts; (b) the weighted average APR on the Contracts; (c) the range
of outstanding principal balances as of the Cut-off Date; (d) the average
outstanding principal balance of the Contracts as of the Cut-off Date; (e) the
weighted average term to maturity as of the Cut-off Date; and (f) the range of
original maturities of the Contracts.
With respect to the Contracts included in the Contract Pool, the Depositor,
the Master Servicer or such other party, as specified in the related
Prospectus Supplement, will make or cause to be made representations and
warranties as to the types and geographical distribution of such Contracts and
as to the accuracy in all material respects of certain information furnished
to the Trustee in respect of each such Contract. In addition, the Master
Servicer or the Unaffiliated Seller of the Contracts will represent and
warrant that, as of the Cut-off Date, unless otherwise specified in the
Prospectus Supplement no Contract was more than 30 days delinquent as to
payment of principal and interest. Upon a breach of any representation that
materially and adversely affects the interest of the Certificateholder in a
Contract, the Master Servicer, the Unaffiliated Seller or such other party, as
appropriate, will be obligated either to cure the breach in all material
respects or to purchase the Contract or, if so specified in the related
Prospectus Supplement, to substitute another Contract as described below. This
repurchase or substitution obligation constitutes the sole remedy available to
the Certificateholders or the Trustee for a breach of representation by the
Master Servicer, the Unaffiliated Seller or such other party.
If so specified in the related Prospectus Supplement, in addition to making
certain representations and warranties regarding its authority to enter into,
and its ability to perform its obligations under, the Agreement, the Master
Servicer will make certain representations and warranties, except to the
extent that another party specified in the Prospectus Supplement makes any
such representations, to the Trustee with respect to the enforceability of
coverage under any applicable insurance policy or hazard insurance policy. See
"Description of Insurance" for information regarding the extent of coverage
under certain of such insurance policies. Upon a breach of the insurability
representation that materially and adversely affects the interests of the
Certificateholders in a Contract, the Master Servicer, the Unaffiliated Seller
or such other party, as appropriate, will be obligated either to cure the
breach in all material respects or, unless otherwise specified in the related
Prospectus Supplement, to purchase such Contract at a price equal to the
principal balance thereof as of the date of purchase plus accrued interest at
the related Pass-Through-Rate to the first day of the month following the
month of purchase. The Master Servicer, if required by the rating agency or
agencies rating the Certificates, will procure a surety bond, guaranty, letter
of credit or other instrument (the "Performance Bond") acceptable to such
rating agency to support this purchase obligation. See "Credit Support--
Performance Bond." The purchase obligation constitutes the sole remedy
available to the Certificateholders or the Trustee for a breach of the Master
Servicer's or seller's insurability representation.
Unless otherwise provided in the related Prospectus Supplement, if the
Depositor discovers or receives notice of any breach of its representations
and warranties relating to a Contract within two years or such other period as
may be specified in the related Prospectus Supplement of the date of the
initial issuance of the
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Certificates, the Depositor may remove such Contract from the Trust Fund
("Deleted Contract"), rather than repurchase the Contract as provided above,
and substitute in its place another Contract ("Substitute Contract"). Any
Substitute Contract, on the date of substitution, will (i) have an outstanding
principal balance, after deduction of all scheduled payments due in the month
of substitution, not in excess of the outstanding principal balance of the
Deleted Contract (the amount of any shortfall to be distributed to
Certificateholders in the month of substitution), (ii) have an APR not less
than (and not more than 1% greater than) the APR of the Deleted Contract,
(iii) have a Pass-Through Rate equal to the Pass-Through Rate of the Deleted
Contract, (iv) have a remaining term to maturity not greater than (and not
more than one year less than) that of the Deleted Contract and (v) comply with
all the representations and warranties set forth in the Pooling and Servicing
Agreement as of the date of substitution. This repurchase or substitution
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for any such breach.
UNDERWRITING POLICIES
Conventional Contracts will comply with the underwriting policies of the
Originator or Unaffiliated Seller of the Contracts described in the related
Prospectus Supplement. Except as described below or in the related Prospectus
Supplement, the Depositor believes that these policies were consistent with
those utilized by mortgage lenders or manufactured home lenders generally
during the period of origination.
With respect to a Contract made in connection with the Obligor's purchase of
a Manufactured Home, the "appraised value" is the amount determined by a
professional appraiser. The appraiser must personally inspect the Manufactured
Home and prepare a report which includes market data based on recent sales of
comparable Manufactured Homes and, when deemed applicable, a replacement cost
analysis based on the current cost of a similar Manufactured Home. Unless
otherwise specified in the related Prospectus Supplement, the Contract Loan-
to-Value Ratio is equal to the original principal amount of the Contract
divided by the lesser of the "appraised value" or the sales price for the
Manufactured Home.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on December 31,
1985, as a wholly-owned subsidiary of First Boston Securities Corporation, the
name of which was subsequently changed to Credit Suisse First Boston
Securities Corporation ("FBSC"). FBSC is a wholly-owned subsidiary of Credit
Suisse First Boston, Inc. Credit Suisse First Boston Corporation, which may
act as an underwriter in offerings made hereby, as described in "Plan of
Distribution" below, is also a wholly-owned subsidiary of Credit Suisse First
Boston, Inc. The principal executive offices of the Depositor are located at
11 Madison Avenue, New York, N.Y. 10010. Its telephone number is (212) 325-
2000.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will ensure or guarantee distributions on
the Certificates of any Series.
Trust Assets will be acquired by the Depositor directly or through one or
more affiliates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the related Prospectus
Supplement to purchase the Trust Assets, to repay indebtedness which has been
incurred to obtain funds to acquire the Trust Assets, to establish the Reserve
Funds, if any, for the Series and to pay costs of structuring and issuing the
Certificates. If so specified in the related Prospectus Supplement,
Certificates may be exchanged by the Depositor for Trust Assets. Unless
otherwise specified in the related Prospectus Supplement, the Trust Assets for
each Series of Certificates will be acquired by the Depositor either directly,
or through one or more affiliates which will have acquired such Trust Assets
from time to time either in the open market or in privately negotiated
transactions.
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YIELD CONSIDERATIONS
Each monthly payment on a Mortgage Loan is calculated as one-twelfth of the
applicable Mortgage Rate multiplied by the unpaid principal balance of such
Mortgage Loan. Unless otherwise specified in the related Prospectus
Supplement, the amount of such interest payment distributed monthly to
Certificateholders with respect to each Mortgage Loan will be similarly
calculated based on the applicable Pass-Through Rate for the related Mortgage
Pool. The Pass-Through Rate for a Mortgage Pool will be either fixed or
variable, as specified in the related Prospectus Supplement.
Each monthly accrual of interest on a Contract is calculated as one-twelfth
of the product of the APR and the principal balance outstanding on the
scheduled payment date for such Contract in the preceding month. Unless
otherwise specified in the related Prospectus Supplement, the Pass-Through
Rate with respect to each Contract will be calculated on a Contract-by-
Contract basis and the Servicing Fee applicable to each Contract from the
applicable APR.
With respect to a Mortgage Pool or a Contract Pool bearing a fixed Pass-
Through Rate, each Mortgage Loan or Contract will have a Mortgage Rate or APR
that exceeds the Pass-Through Rate by at least 3/8 of 1% unless otherwise
specified in the related Prospectus Supplement. The difference between a
Mortgage Rate or APR and the related fixed Pass-Through Rate for the Mortgage
Pool or Contract Pool (less any servicing compensation payable to the related
Servicers and the amounts, if any, payable to the Depositor or the person or
entity specified in the related Prospectus Supplement) will be retained by the
Master Servicer as servicing compensation to it. See "Description of the
Certificates--Servicing Compensation and Payment of Expenses." Although
Mortgage Rates and APRs in a fixed Pass-Through Rate Mortgage Pool or Contract
Pool, respectively, may vary, unless otherwise specified in the related
Prospectus Supplement, disproportionate principal prepayments among Mortgage
Loans bearing different Mortgage Rates or APRs will not affect the return to
Certificateholders since, as set forth above, the Pass-Through Rate may not
exceed any Mortgage Rate or APR.
With respect to Mortgage Pools having a variable Pass-Through Rate, the
Pass-Through Rate will equal the weighted average of the Mortgage Rates on all
the Mortgage Loans in the Mortgage Pool, minus the servicing compensation
payable to the Master Servicer and the Servicer of such Mortgage Loans and the
amounts, if any, retained by the Depositor or an Unaffiliated Seller or paid
to the person or entity specified in the related Prospectus Supplement. The
servicing fee and such other amounts will be fixed as to each Mortgage Loan at
a rate per annum, and may vary among Mortgage Loans. Because the Mortgage
Rates in such a Mortgage Pool will differ and the aggregate servicing
compensation and such other amounts to be retained or distributed with respect
to each Mortgage Loan will be fixed, it is likely that the weighted average of
the Mortgage Rates, and the corresponding variable Pass-Through Rate, will
change as the Mortgage Loans amortize and as a result of prepayments.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates that adjust more
frequently than the monthly payment with respect to such Mortgage Loans. As a
result, the portion of each monthly payment allocated to principal may vary
from month to month. Negative amortization with respect to a Mortgage Loan
will occur if an adjustment to the Mortgage Rate causes the amount of interest
accrued in any month, calculated at the new Mortgage Rate for such period, to
exceed the amount of the monthly payment or if the allowable increase in any
monthly payment is limited to an amount that is less than the amount of
interest accrued in any month. The amount of any resulting Deferred Interest
will be added to the principal balance of the Mortgage Loan and will bear
interest at the Mortgage Rate in effect from time to time. To the extent that,
as a result of the addition of any Deferred Interest, the Mortgage Loan
negatively amortizes over its term, the weighted average life of the
certificates of the related Series will be greater than would otherwise be the
case. As a result, the yield on any such Mortgage Loan at any time may be less
than the yields on similar adjustable rate mortgage loans, and the rate of
prepayment may be lower or higher than would otherwise be anticipated.
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Generally, when a full prepayment is made on a Mortgage Loan or Contract,
the Mortgagor or the borrower under a Contract (the "Obligor"), is charged
interest for the number of days actually elapsed from the due date of the
preceding monthly payment up to the date of such prepayment, at a daily
interest rate determined by dividing the Mortgage Rate or APR by 365. Full
prepayments will reduce the amount of interest paid by the Mortgagor or the
Obligor because interest on the principal amount of any Mortgage Loan or
Contract so prepaid will be paid only to the date of prepayment instead of for
a full month; however, unless otherwise provided in the applicable Prospectus
Supplement, the Master Servicer with respect to a Series will be required to
advance from its own funds the portion of any interest at the related Pass-
Through Rate that is not so received. Partial prepayments generally are
applied on the first day of the month following receipt, with no resulting
reduction in interest payable for the period in which the partial prepayment
is made. Unless otherwise specified in the related Prospectus Supplement, full
and partial prepayments, together with interest on such full and partial
prepayments at the Pass-Through Rate for the related Mortgage Pool or Contract
Pool to the last day of the month in which such prepayments occur, will be
deposited in the Certificate Account and will be available for distribution to
Certificateholders on the next succeeding Distribution Date in the manner
specified in the related Prospectus Supplement. See "Maturity and Prepayment
Considerations."
Generally, the effective yield to holders of Certificates having a monthly
Distribution Date will be lower than the yield otherwise produced by the Pass-
Through Rate with respect to a Mortgage Pool or Contract Pool or the pass-
through rate borne by a Mortgage Certificate because, while interest will
accrue on each Mortgage Loan or Contract, or mortgage loan underlying a
Mortgage Certificate, to the first day of the month, the distribution of such
interest to holders of such Certificates will be made no earlier than the 25th
day of the month following the month of the accrual (unless otherwise provided
in the applicable Prospectus Supplement). The adverse effect on yield will
intensify with any increase in the period of time by which the Distribution
Date with respect to a Series of Certificates succeeds such 25th day. With
respect to the Multi-Class Certificates of a Series having other than monthly
Distribution Dates, the yield to holders of such Certificates will also be
adversely affected by any increase in the period of time from the date to
which interest accrues on such Certificate to the Distribution Date on which
such interest is distributed.
In the event that the Certificates of a Series are divided into two or more
Classes or Subclasses and that a Class or Subclass is an Interest Weighted
Class, in the event that such Series includes a Class of Residual
Certificates, or as otherwise may be appropriate, the Prospectus Supplement
for such Series will indicate the manner in which the yield to
Certificateholders will be affected by different rates of prepayments on the
Mortgage Loans, on the Contracts or on the mortgage loans underlying the
Mortgage Certificates. In general, the yield on Certificates that are offered
at a premium to their principal or notional amount ("Premium Certificates") is
likely to be adversely affected by a higher than anticipated level of
principal prepayments on the Mortgage Loans, on the Contracts or on the
mortgage loans underlying the Mortgage Certificates. This relationship will
become more sensitive as the amount by which the Percentage Interest of such
Class in each Interest Distribution is greater than the corresponding
Percentage Interest of such Class in each Principal Distribution. If the
differential is particularly wide (e.g., the Interest Distribution is
allocated primarily or exclusively to one Class or Subclass and the Principal
Distribution primarily or exclusively to another) and a high level of
prepayments occurs, there is a possibility that Certificateholders of Premium
Certificates will not only suffer a lower than anticipated yield but, in
extreme cases, will fail to recoup fully their initial investment. Conversely,
a lower than anticipated level of principal prepayments (which can be
anticipated to increase the expected yield to holders of Certificates that are
Premium Certificates) will likely result in a lower than anticipated yield to
holders of Certificates that are offered at a discount to their principal
amount ("Discount Certificates"). If so specified in the applicable Prospectus
Supplement, a disproportionately large amount of Principal Prepayments may be
distributed to the holders of the Senior Certificates at the times and under
the circumstances described therein.
In the event that the Certificates of a Series include one or more Classes
or Subclasses of Multi-Class Certificates, the Prospectus Supplement for such
Series will set forth information, measured relative to a prepayment standard
or model specified in such Prospectus Supplement, with respect to the
projected weighted average life of each such Class or Subclass and the
percentage of the initial Stated Principal Balance of each
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such Subclass that would be outstanding on special Distribution Dates for such
Series based on the assumptions stated in such Prospectus Supplement,
including assumptions that prepayments on the Mortgage Loans or Contracts or
on the mortgage loans underlying the Mortgage Certificates in the related
Trust Fund are made at rates corresponding to the various percentages of such
prepayment standard or model.
MATURITY AND PREPAYMENT CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, the
scheduled maturities of all of the Mortgage Loans (or the mortgage loans
underlying the Mortgage Certificates) at origination will not be less than
approximately 10 years or exceed 40 years and all the Contracts will have
maturities at origination of not more than 20 years, but such Mortgage Loans
(or such underlying mortgage loans) or Contracts may be prepaid in full or in
part at any time. Unless otherwise specified in the applicable Prospectus
Supplement, no such Mortgage Loan (or mortgage loan) or Contract will provide
for a prepayment penalty and each will contain (except in the case of FHA and
VA Loans) due-on-sale clauses permitting the mortgagee or obligee to
accelerate the maturity thereof upon conveyance of the Mortgaged Property,
Cooperative Dwelling or Manufactured Home.
The FHA has compiled statistics relating to one- to four-family, level
payment mortgage loans insured by the FHA under the National Housing Act of
1934, as amended, at various interest rates, all of which permit assumption by
the new buyer if the home is sold. Such statistics indicate that while some of
such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities. The
Actuarial Division of HUD has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentages of the
original number of FHA Loans in pools of level payment mortgage loans of
varying maturities that will remain outstanding on each anniversary of the
original date of such mortgage loans (assuming they all have the same
origination date) ("FHA Experience"). Published information with respect to
conventional residential mortgage loans indicates that such mortgage loans
have historically been prepaid at higher rates than government insured loans
because, unlike government insured mortgage loans, conventional mortgage loans
may contain due-on-sale clauses that allow the holder thereof to demand
payment in full of the remaining principal balance of such mortgage loans upon
sales or certain transfers of the mortgaged property. There are no similar
statistics with respect to the prepayment rates of cooperative loans or loans
secured by multifamily, commercial or mixed-use properties.
It is customary in the residential mortgage industry in quoting yields (a)
on a pool of 30-year fixed-rate, level payment mortgages, to compute the yield
as if the pool were a single loan that is amortized according to a 30-year
schedule and is then prepaid in full at the end of the twelfth year and (b) on
a pool of 15-year fixed-rate, level payment mortgages, to compute the yield as
if the pool were a single loan that is amortized according to a 15-year
schedule and then is prepaid in full at the end of the seventh year.
Prepayments on residential mortgage loans are also commonly measured
relative to a prepayment standard or model. If so specified in the Prospectus
Supplement relating to a Series of Certificates, the model used in a
Prospectus Supplement will be the Standard Prepayment Assumption ("SPA"). SPA
represents an assumed rate of prepayment relative to the then outstanding
principal balance of a pool of mortgages. A prepayment assumption of 100% of
SPA assumes prepayment rates of 0.2% per annum of the then outstanding
principal balance of such mortgages in the first month of the life of the
mortgages and an additional 0.2% per annum in each month thereafter until the
thirtieth month and in each month thereafter during the life of the mortgages,
100% of SPA assumes a constant prepayment rate of 6% per annum each month.
Information regarding FHA Experience, other published information, SPA or
any other rate of assumed prepayment, as applicable, will be set forth in the
Prospectus Supplement with respect to a Series of Certificates. There is,
however, no assurance that prepayment of the Mortgage Loans underlying a
Series of Certificates will conform to FHA Experience, mortgage industry
custom, any level of SPA, or any other rate specified in the related
Prospectus Supplement. A number of factors, including homeowner mobility,
economic conditions,
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enforceability of due-on-sale clauses, mortgage market interest rates,
mortgage recording taxes and the availability of mortgage funds, may affect
prepayment experience on residential mortgage loans.
The terms of the Pooling and Servicing Agreement, unless otherwise specified
in the related Prospectus Supplement, will require the Servicer, the Special
Servicer (if applicable) or the Master Servicer to enforce any due-on-sale
clause to the extent it has knowledge of the conveyance or the proposed
conveyance of the underlying Mortgaged Property or Cooperative Dwelling;
provided, however, that any enforcement action that would impair or threaten
to impair any recovery under any related Insurance Policy will not be required
or permitted. See "Description of the Certificates--Enforcement of "Due-On-
Sale" Clauses; Realization Upon Defaulted Mortgage Loans" and "Certain Legal
Aspects of the Mortgage Loans And Contracts--The Mortgage Loans--"Due-On-Sale"
Clauses" for a description of certain provisions of each Pooling and Servicing
Agreement and certain legal developments that may affect the prepayment
experience on the Mortgage Loans.
At the request of the Mortgagor, the Servicer may refinance the Mortgage
Loans in any Mortgage Pool by accepting prepayments thereon and making new
loans secured by a mortgage on the same property. Upon such refinancing, the
new loans will not be included in the Mortgage Pool and the related Servicer
will be required to repurchase the affected Mortgage Loan. A Mortgagor may be
legally entitled to require the Servicer to allow such a refinancing. Any such
repurchase will have the same effect as a prepayment in full of the related
Mortgage Loan.
There are no uniform statistics compiled for prepayments of contracts
relating to Manufactured Homes. Prepayments on the Contracts may be influenced
by a variety of economic, geographic, social and other facts, including
repossessions, aging, seasonality and interest rate fluctuations. Other
factors affecting prepayment of mortgage loans or Contracts include changes in
housing needs, job transfers, unemployment and servicing decisions. An
investment in Certificates evidencing interests in Contracts may be affected
by, among other things, a downturn in regional or local economic conditions.
These regional or local economic conditions are often volatile, and
historically have affected the delinquency, loan loss and repossession
experience of the Contracts. To the extent that losses on the Contracts are
not covered by the Subordination Amount, if any, Letters of Credit, applicable
Insurance Policies, if any, or by any Alternative Credit Support, holders of
the Certificates of a Series evidencing interests in such Contracts will bear
all risk of loss resulting from default by Obligors and will have to look
primarily to the value of the Manufactured Homes, which generally depreciate
in value, for recovery of the outstanding principal and unpaid interest of the
defaulted Contracts. See "The Trust Fund--The Contract Pools."
While most Contracts will contain "due-on-sale" provisions permitting the
holder of the Contract to accelerate the maturity of the Contract upon
conveyance by the borrower, the Master Servicer may permit proposed
assumptions of Contracts where the proposed buyer meets the underwriting
standards described above. Such assumption would have the effect of extending
the average life of the Contract. FHA Mortgage Loans and Contracts and VA
Mortgage Loans and Contracts are not permitted to contain "due on sale"
clauses, and are freely assumable.
Mortgage Loans made with respect to Commercial Properties, Multifamily
Properties and Mixed-Use Properties may have provisions that prohibit
prepayment entirely or for certain periods and/or require payment of premium
or yield maintenance penalties, and may provide for payments of interest only
during a certain period followed by amortization of principal on the basis of
a schedule extending beyond the maturity of the related Mortgage Loan.
Prepayments of such Mortgage Loans may be affected by these and other factors,
including changes in interest rates and the relative tax benefits associated
with ownership of Commercial Property, Multifamily Property and Mixed-Use
Property.
If set forth in the applicable Prospectus Supplement, the Depositor or other
specified entity will have the option to repurchase the Trust Assets included
in the related Trust Fund under the conditions stated in such Prospectus
Supplement. For any Series of Certificates for which the Depositor has elected
to treat the Trust as a REMIC pursuant to the provisions or the Internal
Revenue Code of 1986, as amended (the "Code"), any such
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repurchase will be effected in compliance with the requirements of Section
860F(a)(4) of the Code so as to constitute a "qualifying liquidation"
thereunder. In addition, the Depositor will be obligated, under certain
circumstances, to repurchase certain of the Trust Assets. The Master Servicer
and Unaffiliated Sellers will also have certain repurchase obligations, as
more fully described herein. In addition, the mortgage loans underlying the
Mortgage Certificates may be subject to repurchase under circumstances similar
to those described above. Such repurchases will have the same effect as
prepayments in full. See "The Trust Fund--Mortgage Loan Program--
Representations by Unaffiliated Sellers; Repurchases," "Description of the
Certificates--Assignment of Mortgage Loans," "--Assignment of Mortgage
Certificates," "--Assignment of Contracts" and "--Termination."
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an agreement
consisting of either (a) a Pooling and Servicing Agreement or (b) a Reference
Agreement (the "Reference Agreement") and the Standard Terms and Provisions of
Pooling and Servicing Agreement (such Standard Terms, the "Standard Terms"),
either the Standard Terms together with the Reference Agreement or the Pooling
and Servicing Agreement referred to as the "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer, if any, and the Trustee named in the
applicable Prospectus Supplement or a deposit trust agreement between the
Depositor and the Trustee (the "Deposit Trust Agreement," together with the
Pooling and Servicing Agreement, the "Agreement"). Forms of the Pooling and
Servicing Agreement and the Deposit Trust Agreement have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
following summaries describe certain provisions common to each Pooling and
Servicing Agreement and Deposit Trust Agreement. The summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Pooling and Servicing Agreement or
Deposit Trust Agreement for the applicable Series and the related Prospectus
Supplement. Wherever defined terms of the Pooling and Servicing Agreement or
Deposit Trust Agreement are referred to, such defined terms are thereby
incorporated herein by reference.
GENERAL
Unless otherwise specified in the Prospectus Supplement with respect to a
Series, each Certificate offered hereby and by means of the related Prospectus
Supplement will be issued in fully registered form and will represent the
undivided interest or beneficial interest attributable to such Class or
Subclass in the Trust Fund. The Trust Fund with respect to a Series will
consist of: (i) such Mortgage Loans, Contracts, and Mortgage Certificates and
distributions thereon as from time to time are subject to the applicable
Agreement; (ii) such assets as from time to time are identified as deposited
in the Certificate Account referred to below; (iii) property acquired by
foreclosure of Mortgage Loans or deed in lieu of foreclosure, or Manufactured
Homes acquired by repossession; (iv) the Letter of Credit, if any, with
respect to such Series; (v) the Pool Insurance Policy, if any, with respect to
such Series (described below under "Description of Insurance"); (vi) the
Special Hazard Insurance Policy, if any, with respect to such Series
(described below under "Description of Insurance"); (vii) the Mortgagor
Bankruptcy Bond and proceeds thereof, if any, with respect to such Series (as
described below under "Description of Insurance"); (viii) the Performance Bond
and proceeds thereof, if any, with respect to such Series; (ix) the Primary
Mortgage Insurance Policies, if any, with respect to such Series (as described
below under "Description of Insurance"); (x) the Depositor's rights under the
Warranty and Servicing Agreement with respect to the Mortgage Loans or
Contracts, if any, with respect to such Series; and (xi) the GPM and Buy-Down
Funds, if any, with respect to such Series; or, in lieu of some or all of the
foregoing, such Alternative Credit Support as shall be described in the
applicable Prospectus Supplement. Upon the original issuance of a Series of
Certificates, Certificates representing the minimum undivided interest or
beneficial ownership interest in the related Trust Fund or the minimum
notional amount allocable to each Class will evidence the undivided interest,
beneficial ownership interest or percentage ownership interest specified in
the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, one or more Servicers
or the Depositor may directly perform some or all of the duties of a Master
Servicer with respect to a Series.
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If so specified in the Prospectus Supplement for a Series with respect to
which the Depositor has elected to treat the Trust Fund as a REMIC under the
Code, ownership of the Trust Fund for such Series may be evidenced by Multi-
Class Certificates and Residual Certificates. Distributions of principal and
interest with respect to Multi-Class Certificates may be made on a sequential
or concurrent basis, as specified in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, one or more of such Classes or
Subclasses may be Compound Interest Certificates.
The Residual Certificates, if any, included in a Series will be designated
by the Depositor as the "residual interest" in the related REMIC for purposes
of Section 860G(a)(2) of the Code, and will represent the right to receive
distributions as specified in the Prospectus Supplement for such Series. All
other Classes of Certificates of such Series will constitute "regular
interests" in the related REMIC, as defined in the Code. If so specified in
the related Prospectus Supplement, such Residual Certificates may be offered
hereby and by means of such Prospectus Supplement. See "Certain Federal Income
Tax Consequences."
If so specified in the Prospectus Supplement for a Series which includes
Multi-Class Certificates, each Trust Asset in the related Trust Fund will be
assigned an initial "Asset Value." Unless otherwise specified in the related
Prospectus Supplement, the Asset Value of each Trust Asset in the related
Trust Fund will be the Stated Principal Balance of each Class or Classes of
Certificates of such Series that, based upon certain assumptions, can be
supported by distributions on such Trust Assets allocable to such Class or
Subclass, together with reinvestment income thereon, to the extent specified
in the related Prospectus Supplement, and amounts available to be withdrawn
from any Buy-Down, GPM Fund or Reserve Fund for such Series. The method of
determining the Asset Value of the Trust Assets in the Trust Fund for such a
Series that includes Multi--Class Certificates will be specified in the
related Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series,
ownership of the Trust Fund for such Series may be evidenced by one or more
Classes or Subclasses of Certificates that are Senior Certificates and
Subordinated Certificates, each representing the undivided interests in the
Trust Fund specified in such Prospectus Supplement. If so specified in the
related Prospectus Supplement, one or more Classes or Subclasses or
Subordinated Certificates of a Series may be subordinated to the right of the
holders of Certificates of one or more Classes or Subclasses within such
Series to receive distributions with respect to the Mortgage Loans or
Contracts in the related Trust Fund, in the manner and to the extent specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the holders of each Subclass of Senior Certificates will be
entitled to the Percentage Interests in the principal and/or interest payments
on the underlying Mortgage Loans or Contracts specified in such Prospectus
Supplement. If so specified in the related Prospectus Supplement, the
Subordinated Certificates of a Series will evidence the right to receive
distributions with respect to a specific pool of Mortgage Loans or Contracts,
which right will be subordinated to the right of the holders of the Senior
Certificates of such Series to receive distributions with respect to such
specific pool of Mortgage Loans or Contracts, as more fully set forth in such
Prospectus Supplement. If so specified in the related Prospectus Supplement,
the holders of the Senior Certificates may have the right to receive a greater
than pro rata percentage of Principal Prepayments in the manner and under the
circumstances described in the Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Depositor may sell
certain Classes or Subclasses of the Certificates of a Series, including one
or more Classes or Subclasses of Subordinated or Residual Certificates, in
privately negotiated transactions exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"). Such Certificates
will be transferable only pursuant to an effective registration statement or
an applicable exemption under the Securities Act and pursuant to any
applicable state law. Alternatively, if so specified in the related Prospectus
Supplement, the Depositor may offer one or more Classes or Subclasses of the
Subordinated or Residual Certificates of a Series by means of this Prospectus
and such Prospectus Supplement.
The Certificates of a Series offered hereby and by means of the related
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set forth in the related
Prospectus Supplement, unless such Prospectus Supplement provides otherwise.
No service charge will
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be made for any transfer or exchange of Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge in connection with such transfer or exchange.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Beginning on the date specified in the related Prospectus Supplement,
distributions of principal and interest on the Certificates of a Series will
be made by the Master Servicer or Trustee, if so specified in the Prospectus
Supplement, on each Distribution Date to persons in whose name the
Certificates are registered at the close of business on the day specified in
such Prospectus Supplement (the "Record Date"). Such distributions of interest
will be made periodically at the intervals, in the manner and at the per annum
rate specified in the related Prospectus Supplement, which rate may be fixed
or variable. Interest on the Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months, unless otherwise specified in
the related Prospectus Supplement. Distributions of principal on the
Certificates will be made in the priority and manner and in the amounts
specified in the related Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, distributions of interest and principal to a Certificateholder
will be equal to the product of the undivided interest evidenced by such
Certificate and the payments of principal and interest (adjusted to the
related Pass-Through Rate) on or with respect to the Mortgage Loans or
Contracts (including any Advances thereof) or the Mortgage Certificates
included in the Trust Fund with respect to such Series.
If so specified in the related Prospectus Supplement, distributions on a
Class or Subclass of Certificates of a Series may be based on the Percentage
Interest evidenced by a Certificate of such Class or Subclass in the
distributions (including any Advances thereof) of principal (the "Principal
Distribution") and interest (adjusted to the Pass-Through Rate for the related
Mortgage Pool or Contract Pool) (the "Interest Distribution") on or with
respect to the Mortgage Loans, the Contracts or the Mortgage Certificates in
the related Trust Fund. Unless otherwise specified in the related Prospectus
Supplement, on each Distribution Date, the Trustee will distribute to each
holder of a Certificate of such Class or Subclass an amount equal to the
product of the Percentage Interest evidenced by such Certificate and the
interest of such Class or Subclass in the Principal Distribution and the
Interest Distribution. A Certificate of such a Class or Subclass may represent
a right to receive a percentage of both the Principal Distribution and the
Interest Distribution or a percentage of either the Principal Distribution or
the Interest Distribution, as specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, the holders of the
Senior Certificates may have the right to receive a percentage of Principal
Prepayments that is greater than the percentage of regularly scheduled payment
of principal such holder is entitled to receive. Such percentages may vary
from time to time, subject to the terms and conditions specified in the
Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, distributions of
interest on each such Class or Subclass will be made on the Distribution
Dates, and at the Interest Rates, specified in such Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to such a
Series of Certificates, distributions of interest on each Class or Subclass of
Compound Interest Certificates of such Series will be made on each
Distribution Date after the Stated Principal Balance of all Certificates of
such Series having a Final Scheduled Distribution Date prior to that of such
Class or Subclass of Compound Interest Certificates has been reduced to zero.
Prior to such time, interest on such Class or Subclass of Compound Interest
Certificates will be added to the Stated Principal Balance thereof on each
Distribution Date for such Series.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, distributions in
reduction of the Stated Principal Balance of such Certificates will be made as
described herein. Distributions in reduction of the Stated Principal Balance
of such Certificates will be made on each Distribution Date for such Series to
the holders of the Certificates of the Class or Subclass then entitled to
receive such distributions until the aggregate amount of such distributions
have reduced the Stated
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Principal Balance of such Certificates to zero. Allocation of distributions in
reduction of Stated Principal Balance will be made to each Class or Subclass
of such Certificates in the order specified in the related Prospectus
Supplement, which, if so specified in such Prospectus Supplement, may be
concurrently. Unless otherwise specified in the related Prospectus Supplement,
distributions in reduction of the Stated Principal Balance of each Certificate
of a Class or Subclass then entitled to receive such distributions will be
made pro rata among the Certificates of such Class or Subclass.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, the maximum amount
which will be distributed in reduction of Stated Principal Balance to holders
of Certificates of a Class or Subclass then entitled thereto on any
Distribution Date will equal, to the extent funds are available in the
Certificate Account, the sum of (i) the amount of the interest, if any, that
has accrued but is not yet payable on the Compound Interest Certificates of
such Series since the prior Distribution Date (or since the date specified in
the related Prospectus Supplement in the case of the first Distribution Date)
(the "Accrual Distribution Amount"); (ii) the Stated Principal Distribution
Amount; and (iii) to the extent specified in the related Prospectus
Supplement, the applicable percentage of the Excess Cash Flow specified in
such Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, the "Stated Principal
Distribution Amount" with respect to a Distribution Date will equal the sum of
the Accrual Distribution Amount, if any, and the amount, if any, by which the
then outstanding Stated Principal Balance of the Multi-Class Certificates of
such Series (before taking into account the amount of interest accrued on any
Class of Compound Interest Certificates of such Series to be added to the
Stated Principal Balance thereof on such Distribution Date) exceeds the Asset
Value of the Trust Assets in the Trust Fund underlying such Series as of the
end of a period (a "Due Period") specified in the related Prospectus
Supplement. For purposes of determining the Stated Principal Distribution
Amount with respect to a Distribution Date, the Asset Value of the Trust
Assets will be reduced to take into account the interest evidenced by such
Classes or Subclasses of Certificates in the principal distributions on or
with respect of such Trust Assets received by the Trustee during the preceding
Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates that includes Multi-Class Certificates, Excess Cash Flow
represents the excess of (i) the interest evidenced by such Multi-Class
Certificates in the distributions received on the Mortgage Loans or Contracts
underlying such Series in the Due Period preceding a Distribution Date for
such Series (and, in the case of the first Due Period, the amount deposited in
the Certificate Account on the closing day for the sale of such Certificates),
together with income from the reinvestment thereof, and, to the extent
specified in such Prospectus Supplement, the amount of cash withdrawn from any
Reserve, GPM or Buy-Down Fund for such Series in the Due Period preceding such
Distribution Date, over (ii) the sum of all interest accrued, whether or not
then distributable, on the Multi-Class Certificates since the preceding
Distribution Date (or since the date specified in the related Prospectus
Supplement in the case of the first Distribution Date), the Stated Principal
Distribution Amount for the then current Distribution Date and, if applicable,
any payments made on any Certificates of such Class or Subclass pursuant to
any special distributions in reduction of Stated Principal Balance during such
Due Period.
The Stated Principal Balance of a Multi-Class Certificate of a Series at any
time represents the maximum specified dollar amount (exclusive of interest at
the related Interest Rate) to which the holder thereof is entitled from the
cash flow on the Trust Assets in the Trust Fund for such Series, and will
decline to the extent distributions in reduction of Stated Principal Balance
are received by such holder. The Initial Stated Principal Balance of each
Class or Subclass within a Series that has been assigned a Stated Principal
Balance will be specified in the related Prospectus Supplement.
Distributions (other than the final distribution in retirement of the
Certificates) will be made by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register, except that, with
respect to any holder of a Certificate meeting the requirements specified in
the applicable Prospectus Supplement, distributions shall be made by wire
transfer in immediately available funds, provided that the Trustee shall have
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been furnished with appropriate wiring instructions not less than two Business
Days prior to the related Distribution Date. The final distribution in
retirement of Certificates will be made only upon presentation and surrender
of the Certificates at the office or agency designated by the Master Servicer
for such purpose, as specified in the final distribution notice to
Certificateholders.
ASSIGNMENT OF MORTGAGE CERTIFICATES
Pursuant to the applicable Agreement for a Series of Certificates that
includes Mortgage Certificates in the related Trust Fund, the Depositor will
cause such Mortgage Certificates to be transferred to the Trustee together
with all principal and interest distributed on such Mortgage Certificates
after the Cut-off Date. Each Mortgage Certificate included in a Trust Fund
will be identified in a schedule appearing as an exhibit to the applicable
Agreement. Such schedule will include information as to the principal balance
of each Mortgage Certificate as of the date of issuance of the Certificates
and its coupon rate, maturity and original principal balance. In addition,
such steps will be taken by the Depositor as are necessary to cause the
Trustee to become the registered owner of each Mortgage Certificate which is
included in a Trust Fund and to provide for all distributions on each such
Mortgage Certificate to be made directly to the Trustee.
In connection with such assignment, the Depositor will make certain
representations and warranties in the Agreement as to, among other things, its
ownership of the Mortgage Certificates. In the event that these
representations and warranties are breached, and such breach or breaches
adversely affect the interests of the Certificateholders in the Mortgage
Certificates, the Depositor will be required to repurchase the affected
Mortgage Certificates at a price equal to the principal balance thereof as of
the date of purchase together with accrued and unpaid interest thereon at the
related pass-through rate to the distribution date for such Mortgage
Certificates. The Mortgage Certificates with respect to a Series may also be
subject to repurchase, in whole but not in part, under the circumstances and
in the manner described in the related Prospectus Supplement. Any amounts
received in respect of such repurchases will be distributed to
Certificateholders on the immediately succeeding Distribution Date.
If so specified in the related Prospectus Supplement, within the specified
period following the date of issuance of a Series of Certificates, the
Depositor may, in lieu of the repurchase obligation set forth above, and in
certain other circumstances, deliver to the Trustee Mortgage Certificates
("Substitute Mortgage Certificates") in substitution for any one or more of
the Mortgage Certificates ("Deleted Mortgage Certificates") initially included
in the Trust Fund. The required characteristics or any such Substitute
Mortgage Certificates and any additional restrictions relating to the
substitution of Mortgage Certificates will be set forth in the related
Prospectus Supplement.
ASSIGNMENT OF MORTGAGE LOANS
The Depositor will cause the Mortgage Loans constituting a Mortgage Pool to
be assigned to the Trustee, together with all principal and interest received
on or with respect to such Mortgage Loans after the Cut-off Date, but not
including principal and interest due on or before the Cut-off Date. The
Trustee will, concurrently with such assignment, deliver the Certificates to
the Depositor in exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule will include information as to the adjusted
principal balance of each Mortgage Loan as of the Cut-off Date, as well as
information respecting the Mortgage Rate, the currently scheduled monthly (or
other periodic) payment of principal and interest, the maturity of the
Mortgage Note and the Loan-to-Value Ratio at origination.
In addition, the Depositor will, as to each Mortgage Loan that is not a
Cooperative Loan, deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) the Mortgage Note endorsed to the order of
the Trustee, the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will deliver a copy of such Mortgage together with its
certificate that the original of such Mortgage was delivered to such recording
office) and an
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assignment of the Mortgage in recordable form. Assignments of the Mortgage
Loans to the Trustee will be recorded in the appropriate public office for
real property records, except in states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in the Mortgage Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the Originator
of such Mortgage Loan. In addition, with respect to any Commercial Mortgage
Loans, Multifamily Mortgage Loans and Mixed-Use Mortgage Loans, the Depositor
will deliver or cause to be delivered to the Trustee (or the custodian
hereinafter referred to) the assignment of leases, rents and profits (if
separate from the Mortgage) and an executed re-assignment of assignment of
leases, rents and profits.
The Depositor will cause to be delivered to the Trustee, its agent, or a
custodian, with respect to any Cooperative Loan, the related original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing statement and the relevant stock certificate
and related blank stock powers. The Master Servicer will file in the
appropriate office a financing statement evidencing the Trustee's security
interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will, within a
specified number of days after receipt thereof, review and hold such documents
in trust for the benefit of the Certificateholders. Unless otherwise specified
in the related Prospectus Supplement, if any document in the Mortgage Loan
File is found to be defective in any material respect, the Trustee will
promptly notify the Depositor and the Master Servicer. Unless otherwise
specified in the related Prospectus Supplement, if the Master Servicer or
other entity cannot cure such defect within the time period specified in such
Prospectus Supplement, the Master Servicer or such other entity will be
obligated to either substitute the affected Mortgage Loan for a Substitute
Mortgage Loan or Loans, or to repurchase the related Mortgage Loan from the
Trustee within the time period specified in such Prospectus Supplement at a
price equal to the principal balance thereof as of the date of purchase or, in
the case of a Series as to which an election has been made to treat the
related Trust Fund as a REMIC, at such other price as may be necessary to
avoid a tax on a prohibited transaction, as described in Section 860F(a) of
the Code, in each case together with accrued interest at the applicable Pass-
Through Rate to the first day of the month following such repurchase, plus the
amount of any unreimbursed Advances made by the Master Servicer in respect of
such Mortgage Loan. The Master Servicer is obligated to enforce the repurchase
obligation of the Servicer, to the extent described above under "The Trust
Fund--Mortgage Loan Program--Representations by Unaffiliated Sellers;
Repurchases." Unless otherwise specified in the applicable Prospectus
Supplement, this purchase obligation constitutes the sole remedy available to
the Certificateholders or the Trustee for a material defect in a constituent
document.
Unless otherwise specified in the applicable Prospectus Supplement, with
respect to the Mortgage Loans in a Mortgage Pool, the Depositor will make
representations and warranties as to the types and geographical distribution
of such Mortgage Loans and as to the accuracy in all material respects of
certain information furnished to the Trustee in respect of each such Mortgage
Loan. In addition, unless otherwise specified in the related Prospectus
Supplement, the Depositor will represent and warrant that, as of the Cut-off
Date for the related Series of Certificates, no Mortgage Loan is more than 30
days delinquent as to payment of principal and interest. Upon a breach of any
representation or warranty by the Depositor that materially and adversely
affects the interest of the Certificateholders, the Depositor will be
obligated either to cure the breach in all material respects or to purchase
the Mortgage Loan at the purchase price set forth above. Unless otherwise
specified in the applicable Prospectus Supplement and subject to the ability
of the Depositor, if so specified in the applicable Prospectus Supplement, to
substitute for certain Mortgage Loans as described below, this repurchase
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for a breach of representation or warranty by the Depositor.
Within the period specified in the related Prospectus Supplement, following
the date of issuance of a Series of Certificates, the Depositor, the Master
Servicer, the Unaffiliated Seller or the related Servicer, as the case may be,
may deliver to the Trustee Mortgage Loans ("Substitute Mortgage Loans") in
substitution for any one or more of the Mortgage Loans ("Deleted Mortgage
Loans") initially included in the Trust Fund but which do not conform in one
or more respects to the description thereof contained in the related
Prospectus Supplement, or as
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to which a breach of a representation or warranty is discovered, which breach
materially and adversely affects the interests of the Certificateholders. The
required characteristics of any such Substitute Mortgage Loan and any
additional restrictions relating to the substitution of Mortgage Loans will
generally be as described under "The Trust Fund--The Contract Pools" with
respect to the substitution of Contracts.
In addition to making certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under the
Pooling and Servicing Agreement relating to a Series of Certificates, the
Master Servicer may make certain representations and warranties to the Trustee
in such Pooling and Servicing Agreement with respect to the enforceability of
coverage under any applicable Primary Insurance Policy, Pool Insurance Policy,
Special Hazard Insurance Policy or Mortgagor Bankruptcy Bond. See "Description
of Insurance" for information regarding the extent of coverage under certain
of the aforementioned insurance policies. Upon a breach of any such
representation or warranty that materially and adversely affects the interests
of the Certificateholders of such Series in a Mortgage Loan, the Master
Servicer will be obligated either to cure the breach in all material respects
or to purchase such Mortgage Loan at the price calculated as set forth above.
To the extent described in the related Prospectus Supplement, the Master
Servicer will procure a surety bond, corporate guaranty or another similar
form of insurance coverage acceptable to the Rating Agency rating the related
Series of Certificates to support, among other things, this purchase
obligation. Unless otherwise stated in the applicable Prospectus Supplement,
the aforementioned purchase obligation constitutes the sole remedy available
to the Certificateholders or the Trustee for a breach of the Master Servicer's
insurability representation. The Master Servicer's obligation to purchase
Mortgage Loans upon such a breach is subject to limitations.
The Trustee will be authorized, with the consent of the Depositor and the
Master Servicer, to appoint a custodian pursuant to a custodial agreement to
maintain possession of documents relating to the Mortgage Loans as the agent
of the Trustee.
Pursuant to each Pooling and Servicing Agreement, the Master Servicer,
either directly or through Servicers, or the Special Servicer (if applicable),
will service and administer the Mortgage Loans assigned to the Trustee as more
fully set forth below. The Special Servicer may also be a party to the Pooling
and Servicing Agreement with respect to a Series of Certificates, in which
case the related Prospectus Supplement shall set forth the duties and
responsibilities of the Special Servicer thereunder.
ASSIGNMENT OF CONTRACTS
The Depositor will cause the Contracts constituting the Contract Pool to be
assigned to the Trustee, together with principal and interest due on or with
respect to the Contracts after the Cut-off Date, but not including principal
and interest due on or before the Cut-off Date. If the Depositor is unable to
obtain a perfected security interest in a Contract prior to transfer and
assignment to the Trustee, the Unaffiliated Seller will be obligated to
repurchase such Contract. The Trustee, concurrently with such assignment, will
authenticate and deliver the Certificates. Each Contract will be identified in
a schedule appearing as an exhibit to the Agreement (the "Contract Schedule").
Unless otherwise specified in the related Prospectus Supplement, the Contract
Schedule will specify, with respect to each Contract, among other things: the
original principal amount and the adjusted principal balance as of the close
of business on the Cut-off Date; the APR; the current scheduled monthly level
payment of principal and interest; and the maturity of the Contract.
In addition, the Depositor, as to each Contract, will deliver or cause to be
delivered to the Trustee, or, as specified in the related Prospectus
Supplement, the Custodian, the original Contract and copies of documents and
instruments related to each Contract and the security interest in the
Manufactured Home securing each Contract. In order to give notice of the
right, title and interest of the Certificateholders to the Contracts, the
Depositor will cause a UCC-1 financing statement to be executed by the
Depositor identifying the Trustee as the secured party and identifying all
Contracts as collateral. Unless otherwise specified in the related Prospectus
Supplement, the Contracts will not be stamped or otherwise marked to reflect
their assignment from the
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Depositor to the Trust Fund. Therefore, if a subsequent purchaser were able to
take physical possession of the Contracts without notice of such assignment,
the interest of the Certificateholders in the Contracts could be defeated. See
"Certain Legal Aspects of Mortgage Loans and Contracts--The Contracts."
The Trustee (or the Custodian) will review and hold such documents in trust
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, if any such document is found to be defective
in any material respect, the Unaffiliated Seller must cure such defect within
60 days, or within such other period specified in the related Prospectus
Supplement the Unaffiliated Seller, not later than 90 days or within such
other period specified in the related Prospectus Supplement, after the
Trustee's notice to the Unaffiliated Seller of the defect. If the defect is
not cured, the Unaffiliated Seller will repurchase the related Contract or any
property acquired in respect thereof from the Trustee at a price equal to the
remaining unpaid principal balance of such Contract (or, in the case of a
repossessed Manufactured Home, the unpaid principal balance of such Contract
immediately prior to the repossession) or, in the case of a Series as to which
an election has been made to treat the related Trust Fund as a REMIC, at such
other price as may be necessary to avoid a tax on a prohibited transaction, as
described in Section 860F(a) of the Code, in each case together with accrued
but unpaid interest to the first day of the month following repurchase at the
related Pass-Through Rate, plus any unreimbursed Advances respecting such
Contract. Unless otherwise specified in the related Prospectus Supplement, the
repurchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for a material defect in a Contract
document.
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller of Contracts will have represented, among other things,
that (i) immediately prior to the transfer and assignment of the Contracts,
the Unaffiliated Seller had good title to, and was the sole owner of each
Contract and there had been no other sale or assignment thereof, (ii) as of
the date of such transfer, the Contracts are subject to no offsets, defenses
or counterclaims, (iii) each Contract at the time it was made complied in all
material respects with applicable state and federal laws, including usury,
equal credit opportunity and disclosure laws, (iv) as of the date of such
transfer, each Contract is a valid first lien on the related Manufactured Home
and such Manufactured Home is free of material damage and is in good repair,
(v) as of the date of such transfer, no Contract is more than 30 days
delinquent in payment and there are no delinquent tax or assessment liens
against the related Manufactured Home and (vi) with respect to each Contract,
the Manufactured Home securing the Contract is covered by a Standard Hazard
Insurance Policy in the amount required in the Pooling and Servicing Agreement
and that all premiums now due on such insurance have been paid in full.
All of the representations and warranties of a seller in respect of a
Contract will have been made as of the date on which such seller sold the
Contract to the Depositor or its affiliate; the date such representations and
warranties were made may be a date prior to the date of initial issuance of
the related series of Certificates. A substantial period of time may have
elapsed between the date as of which the representations and warranties were
made and the later date of initial issuance of the related Series of
Certificates. Since the representations and warranties referred to in the
preceding paragraph are the only representations and warranties that will be
made by a seller, the seller's repurchase obligation described below will not
arise if, during the period commencing on the date of sale of a Contract by
the seller to the Depositor or its affiliate, the relevant event occurs that
would have given rise to such an obligation had the event occurred prior to
sale of the affected Contract. Nothing, however, has come to the Depositor's
attention that would cause it to believe that the representations and
warranties referred to in the preceding paragraph will not be accurate and
complete in all material respects in respect of Contracts as of the date of
initial issuance of the related series of Certificates.
The only representations and warranties to be made for the benefit of
Certificateholders in respect of any Contract relating to the period
commencing on the date of sale of such Contract to the Depositor or its
affiliate will be certain limited representations of the Depositor and of the
Master Servicer described above under "The Trust Fund--The Contract Pools."
If an Unaffiliated Seller cannot cure a breach of any representation or
warranty made by it in respect of a Contract that materially and adversely
affects the interest of the Certificateholders in such Contract within 90
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days (or such other period specified in the related Prospectus Supplement)
after notice from the Master Servicer, such Unaffiliated Seller will be
obligated to repurchase such Contract at a price equal to, unless otherwise
specified in the related Prospectus Supplement, the principal balance thereof
as of the date of the repurchase or, in the case of a Series as to which an
election has been made to treat the related Trust Fund as a REMIC, at such
other price as may be necessary to avoid a tax on a prohibited transaction, as
described in Section 860F(a) of the Code, in each case together with accrued
and unpaid interest to the first day of the month following repurchase at the
related Pass-Through Rate, plus the amount of any unreimbursed Advances in
respect of such Contract (the "Purchase Price"). The Master Servicer will be
required under the applicable Pooling and Servicing Agreement to enforce this
obligation for the benefit of the Trustee and the Certificateholders,
following the practices it would employ in its good faith business judgment
were it the owner of such Contract. Except as otherwise set forth in the
related Prospectus Supplement, this repurchase obligation will constitute the
sole remedy available to Certificateholders or the Trustee for a breach of
representation by an Unaffiliated Seller.
Neither the Depositor nor the Master Servicer will be obligated to purchase
a Contract if an Unaffiliated Seller defaults on its obligation to do so, and
no assurance can be given that sellers will carry out their respective
repurchase obligations with respect to Contracts. However, to the extent that
a breach of the representations and warranties of an Unaffiliated Seller may
also constitute a breach of a representation made by the Depositor or the
Master Servicer, the Depositor or the Master Servicer may have a purchase
obligation as described above under "The Trust Fund--The Contract Pools."
SERVICING BY UNAFFILIATED SELLERS
Each Unaffiliated Seller of a Mortgage Loan or a Contract may have the
option to act as the Servicer (or Master Servicer) for such Mortgage Loan or
Contract pursuant to a Servicing Agreement. A representative form of Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following description does not purport to be
complete and is qualified in its entirety by reference to the form of
Servicing Agreement and by the discretion of the Master Servicer or Depositor
to modify the Servicing Agreement and to enter into different Servicing
Agreements. The Pooling and Servicing Agreement provides that, if for any
reason the Master Servicer for such Series of Certificates is no longer the
Master Servicer of the related Mortgage Loans or Contracts, the Trustee or any
successor master servicer must recognize the Servicer's rights and obligations
under such Servicing Agreement.
A Servicer may delegate its servicing obligations to third-party servicers,
but continue to act as Servicer under the related Servicing Agreement. The
Servicer will be required to perform the customary functions of a servicer,
including collection of payments from Mortgagors and Obligors and remittance
of such collections to the Master Servicer, maintenance of primary mortgage,
hazard insurance, FHA insurance and VA guarantees and filing and settlement of
claims thereunder, subject in certain cases to (a) the right of the Master
Servicer to approve in advance any such settlement; (b) maintenance of escrow
accounts of Mortgagors and Obligors for payment of taxes, insurance, and other
items required to be paid by the Mortgagor pursuant to terms of the related
Mortgage Loan or the Obligor pursuant to the related Contract; (c) processing
of assumptions or substitutions; (d) attempting to cure delinquencies; (e)
supervising foreclosures or repossessions; (f) inspection and management of
Mortgaged Properties, Cooperative Dwellings or Manufactured Homes under
certain circumstances; and (g) maintaining accounting records relating to the
Mortgage Loans and Contracts. A Servicer will also be obligated to make
Advances in respect of delinquent installments of principal and interest on
Mortgage Loans and Contracts (as described more fully below under "--Payments
on Mortgage Loans" and "--Payments on Contracts"), and in respect of certain
taxes and insurance premiums not paid on a timely basis by Mortgagors and
Obligors.
As compensation for its servicing duties, a Servicer will be entitled to
amounts from payments with respect to the Mortgage Loans and Contracts
serviced by it. The Servicer will also be entitled to collect and retain, as
part of its servicing compensation, certain fees and late charges provided in
the Mortgage Note or related instruments. The Servicer will be reimbursed by
the Master Servicer for certain expenditures that it makes,
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generally to the same extent that the Master Servicer would be reimbursed
under the applicable Pooling and Servicing Agreement.
Each Servicer will be required to agree to indemnify the Master Servicer for
any liability or obligation sustained by the Master Servicer in connection
with any act or failure to act by the Servicer in its servicing capacity.
Each Servicer will be required to service each Mortgage Loan or Contract
pursuant to the terms of the Servicing Agreement for the entire term of such
Mortgage Loan or Contract, unless the Servicing Agreement is earlier
terminated by the Master Servicer or unless servicing is released to the
Master Servicer. Unless otherwise set forth in the Prospectus Supplement, the
Master Servicer may terminate a Servicing Agreement upon 30 days' written
notice to the Servicer, without cause, upon payment of an amount equal to the
fair market value of the right to service the Mortgage Loans or Contracts
serviced by any such Servicer under such Servicing Agreement, or if such fair
market value cannot be determined, a specified percentage of the aggregate
outstanding principal balance of all such Mortgage Loans or Contracts, or
immediately upon the giving of notice upon certain stated events, including
the violation of such Servicing Agreement by the Servicer.
The Master Servicer may agree with a Servicer to amend a Servicing
Agreement. The Master Servicer may also, at any time and from time to time,
release servicing to third-party servicers, but continue to act as Master
Servicer under the related Pooling and Servicing Agreement. Upon termination
of a Servicing Agreement, the Master Servicer may act as servicer of the
related Mortgage Loans or Contracts or enter into one or more new Servicing
Agreements. If the Master Servicer acts as servicer, it will not assume
liability for the representations and warranties of the Servicer that it
replaces. If the Master Servicer enters into a new Servicing Agreement, each
new Servicer must be an Unaffiliated Seller or meet the standards for becoming
an Unaffiliated Seller or have such servicing experience that is otherwise
satisfactory to the Master Servicer. The Master Servicer will make reasonable
efforts to have the new Servicer assume liability for the representations and
warranties of the terminated Servicer, but no assurance can be given that such
an assumption will occur. In the event of such an assumption, the Master
Servicer may, in the exercise of its business judgment, release the terminated
Servicer from liability in respect of such representations and warranties. Any
amendments to a Servicing Agreement or new Servicing Agreements may contain
provisions different from those described above that are in effect in the
original Servicing Agreements. However, the Pooling and Servicing Agreement
with respect to a Series will provide that any such amendment or new agreement
may not be inconsistent with or violate such Pooling and Servicing Agreement.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, unless otherwise specified in the Prospectus
Supplement with respect to a Series of Certificates, establish and maintain a
separate account or accounts in the name of the Trustee (the "Certificate
Account"), which must be maintained with a depository institution and in a
manner acceptable to the Rating Agency rating the Certificates of a Series.
If so specified in the applicable Prospectus Supplement, the Master
Servicer, in lieu of establishing a Certificate Account, may establish a
separate account or accounts in the name of the Trustee (the "Custodial
Account") meeting the requirements set forth herein for the Certificate
Account. In such a case, amounts in such Custodial Account, after making the
required deposits and withdrawals specified below, shall be remitted to the
Certificate Account maintained by the Trustee for distribution to
Certificateholders in the manner set forth herein and in such Prospectus
Supplement.
In those cases where a Servicer is servicing a Mortgage Loan pursuant to a
Servicing Agreement, the Servicer will establish and maintain an account (the
"Servicing Account") that will comply with either the standards set forth
above or, subject to the conditions set forth in the Servicing Agreement, be
maintained with a depository, meeting the requirements of the Rating Agency
rating the Certificates of the related Series, and that is otherwise
acceptable to the Master Servicer. The Servicer will be required to deposit
into the Servicing
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Account on a daily basis all amounts enumerated in the following paragraph in
respect of the Mortgage Loans received by the Servicer, less its servicing
compensation. On the date specified in the Servicing Agreement, the Servicer
shall remit to the Master Servicer all funds held in the Servicing Account
with respect to each Mortgage Loan. The Servicer will also be required to
advance any monthly installment of principal and interest that was not timely
received, less its servicing fee, provided that, unless otherwise specified in
the related Prospectus Supplement, such requirement shall only apply to the
extent such Servicer determines in good faith any such advance will be
recoverable out of Insurance Proceeds, proceeds of the liquidation of the
related Mortgage Loans or otherwise. Any payments or other amounts collected
by a Special Servicer with respect to any Specially Serviced Mortgage Loans
will be deposited by such Special Servicer as set forth in the related
Prospectus Supplement.
The Certificate Account may be maintained with a depository institution that
is an affiliate of the Master Servicer. The Master Servicer will deposit in
the Certificate Account for each Series of Certificates on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (other than payments due on or before the Cut-off Date) in the
manner set forth in the related Prospectus Supplement:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans, net of any portion of such payments
that represent unreimbursed or unrecoverable Advances made by the related
Servicer;
(ii) all payments on account of interest on the Mortgage Loans, net of
any portion thereof retained by the Servicer, if any, as its servicing fee;
(iii) all proceeds of (A) any Special Hazard Insurance Policy, Primary
Mortgage Insurance Policy, FHA Insurance, VA Guarantee, Mortgagor
Bankruptcy Bond or Pool Insurance Policy with respect to such Series of
Certificates and any title, hazard or other insurance policy covering any
of the Mortgage Loans included in the related Mortgage Pool (to the extent
such proceeds are not applied to the restoration of the related property or
released to the Mortgagor in accordance with customary servicing
procedures) (collectively, "Insurance Proceeds") or any Alternative Credit
Support established in lieu of any such insurance and described in the
applicable Prospectus Supplement; and (B) all other cash amounts received
and retained in connection with the liquidation of defaulted Mortgage
Loans, by foreclosure or otherwise, other than Insurance Proceeds, payments
under the Letter of Credit or proceeds of any Alternative Credit Support,
if any, with respect to such Series ("Liquidation Proceeds"), net of
expenses of liquidation, unpaid servicing compensation with respect to such
Mortgage Loans and unreimbursed or unrecoverable Advances made by the
Servicers of the related Mortgage Loans;
(iv) all payments under the Letter of Credit, if any, with respect to
such Series;
(v) all amounts required to be deposited therein from the Reserve Fund,
if any, for such Series;
(vi) any Advances made by a Servicer or the Master Servicer (as described
herein under "--Advances");
(vii) any Buy-Down Funds (and, if applicable, investment earnings
thereon) required to be deposited in the Certificate Account, as described
below; and
(viii) all proceeds of any Mortgage Loan repurchased by the Master
Servicer, the Depositor, any Servicer or any Unaffiliated Seller (as
described under "The Trust Fund--Mortgage Loan Program--Representations by
Unaffiliated Sellers; Repurchases" or "--Assignment of Mortgage Loans"
above or repurchased by the Depositor as described under "--Termination"
below).
With respect to each Buy-Down Loan, if so specified in the related
Prospectus Supplement, the Master Servicer or the related Servicer will
deposit the Buy-Down Funds with respect thereto in a custodial account
complying with the requirements set forth above for the Certificate Account,
which, unless otherwise specified in the related Prospectus Supplement, may be
an interest-bearing account. The amount of such required deposits, together
with investment earnings thereon at the rate specified in the applicable
Prospectus Supplement, will
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provide sufficient funds to support the full monthly payments due on such Buy-
Down Loan on a level debt service basis. Neither the Master Servicer nor the
Depositor will be obligated to add to the Buy-Down Fund should investment
earnings prove insufficient to maintain the scheduled level of payments on the
Buy-Down Loans. To the extent that any such insufficiency is not recoverable
from the Mortgagor under the terms of the related Mortgage Note, distributions
to Certificateholders will be affected. With respect to each Buy-Down Loan,
the Master Servicer will withdraw from the Buy-Down Fund and deposit in the
Certificate Account on or before each Distribution Date the amount, if any,
for each Buy-Down Loan that, when added to the amount due on that date from
the Mortgagor on such Buy-Down Loan, equals the full monthly payment that
would be due on the Buy-Down Loan if it were not subject to the buy-down plan.
If the Mortgagor on a Buy-Down Loan prepays such loan in its entirety, or
defaults on such loan and the Mortgaged Property is sold in liquidation
thereof, during the period when the Mortgagor is not obligated, on account of
the buy-down plan, to pay the full monthly payment otherwise due on such loan,
the related Servicer will withdraw from the Buy-Down Fund and deposit in the
Certificate Account the amounts remaining in the Buy-Down Fund with respect to
such Buy-Down Loan. In the event of a default with respect to which a claim,
including accrued interest supplemented by amounts in the Buy-Down Fund with
respect to the related Buy-Down Loan, has been made, the Master Servicer or
the related Servicer will pay an amount equal to the remaining amounts in the
Buy-Down Fund with respect to the related Buy-Down Loan, to the extent the
claim includes accrued interest supplemented by amounts in the Buy-Down Fund,
to the related Pool Insurer or the insurer under the related Primary Insurance
Policy (the "Primary Insurer") if the Mortgaged Property is transferred to the
Pool Insurer or the Primary Insurer, as the case may be, which pays 100% of
the related claim (including accrued interest and expenses) in respect of such
default, to the L/C Bank in consideration of such payment under the related
Letter of Credit, or to the guarantor or other person which pays the same
pursuant to Alternative Credit Support described in the applicable Prospectus
Supplement. In the case of any such prepaid or defaulted Buy-Down Loan the
amounts in the Buy-Down Fund in respect of which were supplemented by
investment earnings, the Master Servicer will withdraw from the Buy-Down Fund
and remit to the Depositor or the Mortgagor, depending on the terms of the
related buy-down plan, any investment earnings remaining in the related Buy-
Down Fund.
If so specified in the Prospectus Supplement with respect to a Series, in
lieu of, or in addition to the foregoing, the Depositor may deliver cash, a
letter of credit or a guaranteed investment contract to the Trustee to fund
the Buy-Down Fund for such Series, which shall be drawn upon by the Trustee in
the manner and at the times specified in such Prospectus Supplement.
PAYMENTS ON CONTRACTS
A Certificate Account meeting the requirements set forth under "Description
of the Certificates--Payments on Mortgage Loans" will be established in the
name of the Trustee.
There will be deposited in the Certificate Account on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (including scheduled payments of principal and interest due after
the Cut-off Date but received by the Master Servicer on or before the Cut-off
Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts,
adjusted to the Pass-Through Rate;
(iii) all Liquidation Proceeds received with respect to Contracts or
property acquired in respect thereof by foreclosure or otherwise;
(iv) all Insurance Proceeds received with respect to any Contract, other
than proceeds to be applied to the restoration or repair of the
Manufactured Home or released to the Obligor;
(v) any Advances made as described under "--Advances" and certain other
amounts required under the Pooling and Servicing Agreement to be deposited
in the Certificate Account;
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(vi) all amounts received from Credit Support provided with respect to a
Series of Certificates;
(vii) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Master Servicer, the Depositor or otherwise as
described above or under "--Termination" below; and
(viii) all amounts, if any, required to be transferred to the Certificate
Account from the Reserve Fund.
COLLECTION OF PAYMENTS ON MORTGAGE CERTIFICATES
The Mortgage Certificates included in the Trust Fund with respect to a
Series of Certificates will be registered in the name of the Trustee so that
all distributions thereon will be made directly to the Trustee. The Pooling
and Servicing Agreement will require the Trustee, if it has not received a
distribution with respect to any Mortgage Certificate by the second business
day after the date on which such distribution was due and payable pursuant to
the terms of such Mortgage Certificate, to request the issuer or guarantor, if
any, of such Mortgage Certificate to make such payment as promptly as possible
and legally permitted and to take such legal action against such issuer or
guarantor as the Trustee deems appropriate under the circumstances, including
the prosecution of any claims in connection therewith. The reasonable legal
fees and expenses incurred by the Trustee in connection with the prosecution
of any such legal action will be reimbursable to the Trustee out of the
proceeds of any such action and will be retained by the Trustee prior to the
deposit of any remaining proceeds in the Certificate Account pending
distribution thereof to Certificateholders of the affected Series. In the
event that the Trustee has reason to believe that the proceeds of any such
legal action may be insufficient to reimburse it for its projected legal fees
and expenses, the Trustee will notify such Certificateholders that it is not
obligated to pursue any such available remedies unless adequate indemnity for
its legal fees and expenses is provided by such Certificateholders.
DISTRIBUTIONS ON CERTIFICATES
On each Distribution Date with respect to a Series of Certificates as to
which credit support is provided by means other than the creation of a
Subordinated Class or Subclasses and the establishment of a Reserve Fund, the
Master Servicer will withdraw from the applicable Certificate Account funds on
deposit therein and distribute, or, if so specified in the applicable
Prospectus Supplement, will withdraw from the Custodial Account funds on
deposit therein and remit to the Trustee, who will distribute, such funds to
Certificateholders of record on the applicable Record Date. Such distributions
shall occur in the manner described herein under "Description of the
Certificates--Distributions of Principal and Interest" and in the related
Prospectus Supplement. If so specified in the applicable Prospectus
Supplement, the Master Servicer will withdraw from the applicable Certificate
Account funds on deposit therein and distribute them to the Trustee. Such
funds shall consist of the aggregate of all previously undistributed payments
on account of principal (including principal prepayments, if any) and interest
received after the Cut-off Date and on or prior to the 20th day (or if such
day is not a business day, the next preceding business day) of the month of
such distribution or such other day as may be specified in the related
Prospectus Supplement (in either case the "Determination Date"), except:
(i) all payments that were due on or before the Cut-off Date;
(ii) all principal prepayments received during the month of distribution
and all payments of interest representing interest for the month of
distribution or any portion thereof;
(iii) all payments which represent early receipt (other than prepayments)
of scheduled payments of principal and interest due on a date or dates
subsequent to the first day of the month of distribution;
(iv) amounts received on particular Mortgage Loans or Contracts as late
payments of principal or interest and respecting which the Master Servicer
has made an unreimbursed Advance;
(v) amounts representing reimbursement for other Advances which the
Master Servicer has determined to be otherwise nonrecoverable and amounts
representing reimbursement for certain losses and expenses incurred or
Advances made by the Master Servicer and discussed below; and
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(vi) that portion of each collection of interest on a particular Mortgage
Loan in such Mortgage Pool or on a particular Contract in such Contract
Pool that represents (A) servicing compensation to the Master Servicer and,
if applicable, the Special Servicer, (B) amounts payable to the entity or
entities specified in the applicable Prospectus Supplement or permitted
withdrawals from the Certificate Account out of payments under the Letter
of Credit, if any, with respect to the Series, (C) related Insurance
Proceeds or Liquidation Proceeds, (D) amounts in the Reserve Fund, if any,
with respect to the Series or (E) proceeds of any Alternative Credit
Support, each deposited in the Certificate Account to the extent described
under "Description of the Certificates--Maintenance of Insurance Policies,"
"--Presentation of Claims," "--Enforcement of Due-on-Sale Clauses;
Realization Upon Defaulted Mortgage Loans" and "--Enforcement of Due-on-
Sale Clauses; Realization Upon Defaulted Contracts" or in the applicable
Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement, no later
than the Business Day immediately preceding the Distribution Date for a Series
of Certificates, the Master Servicer will furnish a statement to the Trustee
setting forth the amount to be distributed on the next succeeding Distribution
Date on account of principal and interest on the Mortgage Loans or Contracts,
stated separately or the information enabling the Trustee to determine the
amount of distribution to be made on the Certificates and a statement setting
forth certain information with respect to the Mortgage Loans or Contracts.
If so specified in the applicable Prospectus Supplement, the Trustee will
establish and maintain the Certificate Account for the benefit of the holders
of the Certificates of the related Series in which the Trustee shall deposit,
as soon as practicable after receipt, each distribution made to the Trustee by
the Master Servicer, as set forth above, with respect to the Mortgage Loans or
Contracts, any distribution received by the Trustee with respect to the
Mortgage Certificates, if any, included in the Trust Fund and deposits from
any Reserve Fund or GPM Fund. If so specified in the applicable Prospectus
Supplement, prior to making any distributions to Certificateholders, any
portion of the distribution on the Mortgage Certificates that represents
servicing compensation, if any, payable to the Trustee shall be deducted and
paid to the Trustee.
Funds on deposit in the Certificate Account may be invested in Eligible
Investments maturing in general not later than the Business Day preceding the
next Distribution Date. Unless otherwise provided in the Prospectus
Supplement, all income and gain realized from any such investment will be for
the benefit of the Master Servicer. The Master Servicer will be required to
deposit the amount of any losses incurred with respect to such investments out
of its own funds, when realized. The Certificate Account established pursuant
to the Deposit Trust Agreement shall be a non-interest bearing account or
accounts.
The timing and method of distribution of funds in the Certificate Account to
Classes or Subclasses of Certificates having differing terms, whether
subordinated or not, to the extent not described herein, shall be set forth in
the related Prospectus Supplement.
SPECIAL DISTRIBUTIONS
To the extent specified in the Prospectus Supplement relating to a Series of
Certificates, one or more Classes of Multi-Class Certificates that do not
provide for monthly Distribution Dates may receive Special Distributions in
reduction of Stated Principal Balance ("Special Distributions") in any month,
other than a month in which a Distribution Date occurs, if, as a result of
principal prepayments on the Trust Assets in the related Trust Fund and/or low
reinvestment yields, the Trustee determines, based on assumptions specified in
the related Pooling and Servicing Agreement, that the amount of cash
anticipated to be on deposit in the Certificate Account on the next
Distribution Date for such Series and available to be distributed to the
holders of the Certificates of such Classes or Subclasses may be less than the
sum of (i) the interest scheduled to be distributed to holders of the
Certificates of such Classes or Subclasses and (ii) the amount to be
distributed in reduction of Stated Principal Balance or such Certificates on
such Distribution Date. Any such Special Distributions will be made in the
same priority and manner as distributions in reduction of Stated Principal
Balance would be made on the next Distribution Date.
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REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in the related Prospectus Supplement
for each Series, the Master Servicer or the Trustee will include with each
distribution to Certificateholders of record of such Series, or within a
reasonable time thereafter, a statement generally setting forth, among other
things, the following information, if applicable (per each Certificate, as to
(i) through (iii) or (iv) through (vi) below, as applicable):
(i) to each holder of a Certificate, other than a Multi-Class Certificate
or Residual Certificate, the amount of such distribution allocable to
principal of the Trust Assets, separately identifying the aggregate amount
of any Principal Prepayments included therein, and the portion, if any,
advanced by a Servicer or the Master Servicer;
(ii) to each holder of a Certificate, other than a Multi-Class
Certificate or Residual Certificate, the amount of such distribution
allocable to interest on the related Trust Assets and the portion, if any,
advanced by a Servicer or the Master Servicer;
(iii) to each holder of a Certificate, the amount of servicing
compensation with respect to the related Trust Assets and such other
customary information as the Master Servicer deems necessary or desirable
to enable Certificateholders to prepare their tax returns;
(iv) to each holder of a Multi-Class Certificate on which an interest
distribution and a distribution in reduction of Stated Principal Balance
are then being made, the amount of such interest distribution and
distribution in reduction of Stated Principal Balance, and the Stated
Principal Balance of each Class after giving effect to the distribution in
reduction of Stated Principal Balance made on such Distribution Date or on
any Special Distribution Date occurring subsequent to the last report;
(v) to each holder of a Multi-Class Certificate on which a distribution
of interest only is then being made, the aggregate Stated Principal Balance
of Certificates outstanding of each Class or Subclass after giving effect
to the distribution in reduction of Stated Principal Balance made on such
Distribution Date and on any Special Distribution Date occurring subsequent
to the last such report and after including in the aggregate Stated
Principal Balance the Stated Principal Balance of the Compound Interest
Certificates, if any, outstanding and the amount of any accrued interest
added to the Compound Value of such Compound Interest Certificates on such
Distribution Date;
(vi) to each holder of a Compound Interest Certificate (but only if such
holder shall not have received a distribution of interest on such
Distribution Date equal to the entire amount of interest accrued on such
Certificate with respect to such Distribution Date):
(a) the information contained in the report delivered pursuant to
clause (v) above;
(b) the interest accrued on such Class or Subclass of Compound
Interest Certificates with respect to such Distribution Date and added
to the Compound Value of such Compound Interest Certificate; and
(c) the Stated Principal Balance of such Class or Subclass of
Compound Interest Certificates after giving effect to the addition
thereto of all interest accrued thereon;
(vii) in the case of a series of Certificates with a variable Pass-
Through Rate, the weighted average Pass-Through Rate applicable to the
distribution in question;
(viii) the amount or the remaining obligations of an L/C Bank with
respect to a Letter of Credit, after giving effect to the declining amount
available and any payments thereunder and other amounts charged thereto on
the applicable Distribution Date, expressed as a percentage of the amount
reported pursuant to (x) below, and the amount of coverage remaining under
the Pool Insurance Policy, Special Hazard Insurance Policy, Mortgagor
Bankruptcy Bond, or Reserve Fund as applicable, in each case, as of the
applicable Determination Date, after giving effect to any amounts with
respect thereto distributed to Certificateholders on the Distribution Date;
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(ix) in the case of a Series of Certificates benefiting from the
Alternative Credit Support described in the related Prospectus Supplement,
the amount of coverage under such Alternative Credit Support as of the
close of business on the applicable Determination Date, after giving effect
to any amounts with respect thereto distributed to Certificateholders on
the Distribution Date;
(x) the aggregate scheduled principal balance of the Trust Assets as of a
date not earlier than such Distribution Date after giving effect to
payments of principal distributed to Certificateholders on the Distribution
Date;
(xi) the book value of any collateral acquired by the Mortgage Pool or
Contract Pool through foreclosure, repossession or otherwise; and
(xii) the number and aggregate principal amount of Mortgage Loans or
Contracts one month and two months delinquent.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer, or the Trustee, if specified in the
applicable Prospectus Supplement, will cause to be furnished to each
Certificateholder of record at any time during such calendar year a report as
to the aggregate of amounts reported pursuant to (i) through (iii) or (iv)
through (vi) above and such other information as in the judgment of the Master
Servicer or the Trustee, as the case may be, is needed for the
Certificateholder to prepare its tax return, as applicable, for such calendar
year or, in the event such person was a Certificateholder of record during a
portion of such calendar year, for the applicable portion of such year.
ADVANCES
Unless otherwise stated in the related Prospectus Supplement, each Servicer
and the Master Servicer (with respect to Mortgage Loans or Contracts serviced
by it and with respect to Advances required to be made by the Servicers that
were not so made) will be obligated to advance funds in an amount equal to the
aggregate scheduled installments of payments of principal and interest
(adjusted to the applicable Pass-Through Rate) that were due on the Due Date
with respect to a Mortgage Loan or Contract and that were delinquent
(including any payments that have been deferred by the Servicer or the Master
Servicer) as of the close of business on the date specified in the Pooling and
Servicing Agreement, to be remitted no later than the close of business on the
business day immediately preceding the Distribution Date, subject to (unless
otherwise provided in the applicable Prospectus Supplement) their respective
determinations that such advances are reimbursable under any Letter of Credit,
Pool Insurance Policy, Primary Mortgage Insurance Policy, Mortgagor Bankruptcy
Bond, from the proceeds of Alternative Credit Support, from cash in the
Reserve Fund, the Servicing or Certificate Accounts or otherwise. In making
such advances, the Servicers and Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to the
Certificateholders, rather than to guarantee or insure against losses. Any
such Advances are reimbursable to the Servicer or Master Servicer out of
related recoveries on the Mortgage Loans respecting which such amounts were
advanced. In addition, such Advances are reimbursable from cash in the Reserve
Fund, the Servicing or Certificate Accounts to the extent that the Servicer or
the Master Servicer, as the case may be, shall determine that any such
Advances previously made are not ultimately recoverable. The Servicers and the
Master Servicer generally will also be obligated to make advances in respect
of certain taxes, insurance premiums and, if applicable, Property Protection
Expenses not paid by Mortgagors or Obligors on a timely basis and, to the
extent deemed recoverable, foreclosure costs, including reasonable attorney's
fees. "Property Protection Expenses" comprise certain costs and expenses
incurred in connection with defaulted Mortgage Loans, acquiring title or
management of REO Property or the sale of defaulted Mortgage Loans or REO
Properties, as more fully described in the related Prospectus Supplement.
Unless otherwise set forth in the related Prospectus Supplement, funds so
advanced are reimbursable out of recoveries on the related Mortgage Loans.
This right of reimbursement for any Advance will be prior to the rights of the
Certificateholders to receive any amounts recovered with respect to such
Mortgage Loans or Contracts. Unless otherwise provided in the applicable
Prospectus Supplement, the Servicers and the Master Servicer will also be
required to advance an amount necessary to provide a full month's interest
(adjusted to the applicable Pass-Through Rate) in
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connection with full or partial prepayments, liquidations, defaults and
repurchases of the Mortgage Loans or Contracts. Any such Advances will not be
reimbursable to the Servicers or the Master Servicer.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer will be responsible for servicing the Mortgage Loans
pursuant to the Agreement for the related Series. If so specified in the
related Prospectus Supplement, the Master Servicer may subcontract the
servicing of all or a portion of the Mortgage Loans to one or more Servicers
and may subcontract the servicing of certain Commercial Mortgage Loans,
Multifamily Mortgage Loans and/or Mixed-Use Mortgage Loans that are in default
or otherwise require special servicing (the "Specially Serviced Mortgage
Loans") to a special servicer (the "Special Servicer"), and certain
information with respect to the Special Servicer will be set forth in such
Prospectus Supplement. Such Servicers and any Special Servicer may be an
affiliate of the Depositor and may have other business relationships with
Depositor and its affiliates.
The Master Servicer, directly or through the Servicers or a Special
Servicer, as the case may be, will make reasonable efforts to collect all
payments called for under the Mortgage Loans or Contracts and will, consistent
with the applicable Pooling and Servicing Agreement and any applicable Letter
of Credit, Pool Insurance Policy, Special Hazard Insurance Policy, Primary
Mortgage Insurance Policy, Mortgagor Bankruptcy Bond, or Alternative Credit
Support, follow such collection procedures as it follows with respect to
mortgage loans or contracts serviced by it that are comparable to the Mortgage
Loans or Contracts, except when, in the case of FHA or VA Loans, applicable
regulations require otherwise. Consistent with the above, the Master Servicer
may, in its discretion, waive any late payment charge or any prepayment charge
or penalty interest in connection with the prepayment of a Mortgage Loan or
Contract or extend the due dates for payments due on a Mortgage Note or
Contract for a period of not greater than 270 days, provided that the
insurance coverage for such Mortgage Loan or Contract or the coverage provided
by any Letter of Credit or any Alternative Credit Support, will not be
adversely affected.
Under the Pooling and Servicing Agreement, the Master Servicer, either
directly or through Servicers or a Special Servicer, to the extent permitted
by law, may establish and maintain an escrow account (the "Escrow Account") in
which Mortgages or Obligors will be required to deposit amounts sufficient to
pay taxes, assessments, mortgage and hazard insurance premiums and other
comparable items. This obligation may be satisfied by the provision of
insurance coverage against loss occasioned by the failure to escrow insurance
premiums rather than causing such escrows to be made. The Special Servicer, if
any, will be required to remit amounts received for such purposes on Mortgage
Loans serviced by it for deposit in the Escrow Account, and will be entitled
to direct the Master Servicer to make withdrawals from the Escrow Account as
may be required for servicing of such Mortgage Loans. Withdrawals from the
Escrow Account may be made to effect timely payment of taxes, assessments,
mortgage and hazard insurance, to refund to Mortgagors or Obligors amounts
determined to be overages, to pay interest to Mortgagors or Obligors on
balances in the Escrow Account, if required, and to clear and terminate such
account. The Master Servicer will be responsible for the administration of
each Escrow Account and will be obliged to make advances to such accounts when
a deficiency exists therein. Alternatively, in lieu of establishing an Escrow
Account, the Servicer may procure a performance bond or other form of
insurance coverage, in an amount acceptable to the Rating Agency rating the
related Series of Certificates, covering loss occasioned by the failure to
escrow such amounts.
MAINTENANCE OF INSURANCE POLICIES
To the extent that the applicable Prospectus Supplement does not expressly
provide for a method of credit support described below under "Credit Support"
or for Alternative Credit Support in lieu of some or all of the insurance
coverage set forth below, the following paragraphs on insurance shall apply.
STANDARD HAZARD INSURANCE
To the extent specified in a related Prospectus Supplement, the terms of
each Servicing Agreement will require the Servicer or the Special Servicer (if
applicable) to cause to be maintained for each Mortgage Loan or
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Contract that it services (and the Master Servicer will be required to
maintain for each Mortgage Loan or Contract serviced by it directly) a policy
of standard hazard insurance (a "Standard Hazard Insurance Policy") covering
the Mortgaged Property underlying such Mortgage Loan or Manufactured Home
underlying such Contract in an amount at least equal to the maximum insurable
value of the improvements securing such Mortgage Loan or Contract or the
principal balance of such Mortgage Loan or Contract, whichever is less. Each
Servicer, the Special Servicer (if applicable) or the Master Servicer, as the
case may be, shall also maintain on property acquired upon foreclosure, or
deed in lieu of foreclosure, of any Mortgage Loan or Contract, a Standard
Hazard Insurance Policy in an amount that is at least equal to the maximum
insurable value of the improvements that are a part of the Mortgaged Property
or Manufactured Home. Any amounts collected by the Servicer, the Special
Servicer (if applicable) or the Master Servicer under any such policies (other
than amounts to be applied to the restoration or repair of the Mortgaged
Property or Manufactured Home or released to the borrower in accordance with
normal servicing procedures) shall be deposited in the related Servicing
Account for deposit in the Certificate Account or, in the case of the Master
Servicer, shall be deposited directly into the Certificate Account. Any cost
incurred in maintaining any such insurance shall not, for the purpose of
calculating monthly distributions to Certificateholders, be added to the
amount owing under the Mortgage Loan or Contract, notwithstanding that the
terms of the Mortgage Loan or Contract may so permit. Such cost shall be
recoverable by the Servicer or the Special Servicer (if applicable) only by
withdrawal of funds from the Servicing Account or by the Master Servicer only
by withdrawal from the Certificate Account, as described in the Pooling and
Servicing Agreement. No earthquake or other additional insurance is to be
required of any borrower or maintained on property acquired in respect of a
Mortgage Loan or Contract, other than pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance. When the Mortgaged Property or Manufactured Home is
located at the time of origination of the Mortgage Loan or Contract in a
federally designated flood area, the related Servicer or the Special Servicer
(if applicable) (or the Master Servicer, in the case of each Mortgage Loan or
Contract serviced by it directly) will cause flood insurance to be maintained,
to the extent available, in those areas where flood insurance is required
under the National Flood Insurance Act of 1968, as amended.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the
restoration of damaged property, any damage to such borrower's Cooperative
Dwelling or such Cooperative's building could significantly reduce the value
of the collateral securing such Cooperative Loan to the extent not covered by
other credit support.
The Pooling and Servicing Agreement will require the Master Servicer to
perform the aforementioned obligations of the Servicer in the event the
Servicer fails to do so. In the event that the Master Servicer obtains and
maintains a blanket policy insuring against hazard losses on all of the
related Mortgage Loans or Contracts, it will conclusively be deemed to have
satisfied its obligations to cause to be maintained a Standard Hazard
Insurance Policy for each Mortgage Loan or Contract that it services. This
blanket policy may contain a deductible clause, in which case the Master
Servicer will, in the event that there has been a loss that would have been
covered by such policy absent such deductible, deposit in the Certificate
Account the amount not otherwise payable under the blanket policy because of
the application of such deductible clause.
Since the amount of hazard insurance to be maintained on the improvements
securing the Mortgage Loans or Contracts may decline as the principal balances
owing thereon decrease, and since properties have historically appreciated in
value over time, in the event of partial loss, hazard insurance proceeds may
be insufficient to fully restore the damaged Mortgaged Property or
Manufactured Home. See "Description of Insurance--Special Hazard Insurance
Policies" for a description of the limited protection afforded by a Special
Hazard Insurance Policy against losses occasioned by certain hazards that are
otherwise uninsured against as well as against losses caused by the
application of the coinsurance provisions contained in the Standard Hazard
Insurance Policies.
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With respect to Mortgage Loans secured by Commercial Property, Mixed-Use
Property and Multi-Family Property, certain additional insurance policies may
be required, including, but not limited to, loss of rent endorsements,
business interruption insurance and comprehensive public liability insurance,
and the related Pooling and Servicing Agreement may require the Master
Servicer to maintain public liability insurance with respect to any related
REO Properties. Any cost incurred by the Master Servicer in maintaining any
such insurance policy will be added to the amount owing under the related
Mortgage Loan where the terms of such Mortgage Loan so permit; provided,
however, that the addition of such cost will not be taken into account for
purposes of calculating the distribution to be made to Certificateholders.
Such costs may be recovered by the Master Servicer from the Certificate
Account, with interest thereon, as provided by the Agreement.
SPECIAL HAZARD INSURANCE
If so specified in the related Prospectus Supplement, the Master Servicer
will be required to exercise its best reasonable efforts to maintain the
Special Hazard Insurance Policy, if any, with respect to a Series of
Certificates in full force and effect, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premium for the Special
Hazard Insurance Policy on a timely basis; provided, however, that the Master
Servicer shall be under no such obligation if coverage under the Pool
Insurance Policy with respect to such Series has been exhausted. In the event
that the Special Hazard Insurance Policy is cancelled or terminated for any
reason (other than the exhaustion of total policy coverage), the Master
Servicer will exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to the Special Hazard Insurance Policy
with a total coverage that is equal to the then existing coverage of the
Special Hazard Insurance Policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated Special Hazard
Insurance Policy, the amount of coverage under the replacement Special Hazard
Insurance Policy may be reduced to a level such that the applicable premium
will not exceed the cost of the Special Hazard Insurance Policy that was
replaced. Certain characteristics of the Special Hazard Insurance Policy are
described under "Description of Insurance--Special Hazard Insurance Policies."
POOL INSURANCE
To the extent specified in a related Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Pool
Insurance Policy with respect to a Series of Certificates in effect throughout
the term of the Pooling and Servicing Agreement, unless coverage thereunder
has been exhausted through payment of claims, and will pay the premiums for
such Pool Insurance Policy on a timely basis. In the event that the Pool
Insurer ceases to be a qualified insurer because it is not qualified to
transact a mortgage guaranty insurance business under the laws of the state of
its principal place of business or any other state which has jurisdiction over
the Pool Insurer in connection with the Pool Insurance Policy, or if the Pool
Insurance Policy is cancelled or terminated for any reason (other than the
exhaustion of total policy coverage), the Master Servicer will exercise its
best reasonable efforts to obtain a replacement policy of pool insurance
comparable to the Pool Insurance Policy and may obtain, under the
circumstances described above with respect to the Special Hazard Insurance
Policy, a replacement policy with reduced coverage. In the event the Pool
Insurer ceases to be a qualified insurer because it is not approved as an
insurer by FHLMC, FNMA or any successors thereto, the Master Servicer will
agree to review, not less often than monthly, the financial condition of the
Pool Insurer with a view towards determining whether recoveries under the Pool
Insurance Policy are jeopardized and, if so, will exercise its best reasonable
efforts to obtain from another qualified insurer a replacement insurance
policy under the above-stated limitations. Certain characteristics of the Pool
Insurance Policy are described under "Description of Insurance--Pool Insurance
Policies."
PRIMARY MORTGAGE INSURANCE
To the extent specified in the related Prospectus Supplement, the Master
Servicer will be required to keep in force and effect for each Mortgage Loan
secured by Single Family Property serviced by it directly, and each Servicer
of a Mortgage Loan secured by Single Family Property will be required to keep
in full force and effect
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with respect to each such Mortgage Loan serviced by it, in each case to the
extent required by the underwriting standards of the Depositor, a Primary
Mortgage Insurance Policy issued by a qualified insurer (the "Primary Mortgage
Insurer") with regard to each Mortgage Loan for which such coverage is
required pursuant to the applicable Servicing Agreement and the Pooling and
Servicing Agreement and to act on behalf of the Trustee (the "Insured") under
each such Primary Mortgage Insurance Policy. Neither the Servicer nor the
Master Servicer will cancel or refuse to renew any such Primary Mortgage
Insurance Policy in effect at the date of the initial issuance of a Series of
Certificates that is required to be kept in force under the Pooling and
Servicing Agreement or applicable Servicing Agreement unless the replacement
Primary Mortgage Insurance Policy for such cancelled or non-renewed policy is
maintained with an insurer whose claims-paying ability is acceptable to the
Rating Agency rating the Certificates. See "Description of Insurance--Primary
Mortgage Insurance Policies."
MORTGAGOR BANKRUPTCY BOND
If so specified in the related Prospectus Supplement, the Master Servicer
will exercise its best reasonable efforts to maintain a Mortgagor Bankruptcy
Bond for a Series of Certificates in full force and effect throughout the term
of the Pooling and Servicing Agreement, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premiums for such
Mortgagor Bankruptcy Bond on a timely basis. At the request of the Depositor,
coverage under a Mortgagor Bankruptcy Bond will be cancelled or reduced by the
Master Servicer to the extent permitted by the Rating Agency rating the
related Series of Certificates, provided that such cancellation or reduction
does not adversely affect the then current rating of such Series. See
"Description of Insurance--Mortgagor Bankruptcy Bond."
PRESENTATION OF CLAIMS
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to HUD, the VA, the Pool Insurer, the
Special Hazard Insurer, the issuer of the Mortgagor Bankruptcy Bond, and each
Primary Mortgage Insurer, as applicable, and take such reasonable steps as are
necessary to permit recovery under such insurance policies or Mortgagor
Bankruptcy Bond, if any, with respect to a Series concerning defaulted
Mortgage Loans or Contracts or Mortgage Loans or Contracts that are the
subject of a bankruptcy proceeding. All collections by the Master Servicer
under any FHA insurance or VA guarantee, any Pool Insurance Policy, any
Primary Mortgage Insurance Policy or any Mortgagor Bankruptcy Bond and, where
the related property has not been restored, any Special Hazard Insurance
Policy, are to be deposited in the Certificate Account, subject to withdrawal
as heretofore described. In those cases in which a Mortgage Loan or Contract
is serviced by a Servicer, the Servicer, on behalf of itself, the Trustee and
the Certificateholders, will present claims to the applicable Primary Mortgage
Insurer and to the FHA and the VA, as applicable, and all collections
thereunder shall be deposited in the Servicing Account, subject to withdrawal,
as set forth above, for deposit in the Certificate Account.
If any property securing a defaulted Mortgage Loan or Contract is damaged
and proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under any Pool
Insurance Policy or any Primary Mortgage Insurance Policy, neither the related
Servicer nor the Master Servicer, as the case may be, will be required to
expend its own funds to restore the damaged property unless it determines,
and, in the case of a determination by a Servicer, the Master Servicer agrees,
(i) that such restoration will increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan or Contract after reimbursement of the
expenses incurred by the Servicer or the Master Servicer, as the case may be,
and (ii) that such expenses will be recoverable through proceeds of the sale
of the Mortgaged Property or proceeds of any related Pool Insurance Policy,
any related Primary Mortgage Insurance Policy or otherwise.
If recovery under a Pool Insurance Policy or any related Primary Mortgage
Insurance Policy is not available because the related Servicer or the Master
Servicer has been unable to make the above determinations or otherwise, the
Servicer or the Master Servicer is nevertheless obligated to follow such
normal practices and
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procedures as are deemed necessary or advisable to realize upon the defaulted
Mortgage Loan. If the proceeds of any liquidation of the Mortgaged Property or
Manufactured Home are less than the principal balance of the defaulted
Mortgage Loan or Contract, respectively, plus interest accrued thereon at the
Pass-Through Rate, and if coverage under any other method of credit support
with respect to such Series is exhausted, the related Trust Fund will realize
a loss in the amount of such difference plus the aggregate of expenses
incurred by the Servicer or the Master Servicer in connection with such
proceedings and which are reimbursable under the related Servicing Agreement
or the Pooling and Servicing Agreement. In the event that any such proceedings
result in a total recovery that is, after reimbursement to the Servicer or the
Master Servicer of its expenses, in excess of the principal balance of the
related Mortgage Loan or Contract, together with accrued and unpaid interest
thereon at the applicable Pass-Through Rates, the Servicer and the Master
Servicer will be entitled to withdraw amounts representing normal servicing
compensation on such Mortgage Loan or Contract from the Servicing Account or
the Certificate Account, as the case may be.
ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION
UPON DEFAULTED MORTGAGE LOANS
Each Servicing Agreement and the Pooling and Servicing Agreement with
respect to Certificates representing interests in a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the borrower, such
Servicer or the Master Servicer, as the case may be, will, to the extent it
has knowledge of such conveyance, exercise its rights to accelerate the
maturity of such Mortgage Loan under any "due-on-sale" clause applicable
thereto, if any, unless it reasonably believes that such enforcement is not
exercisable under applicable law or regulations, would result in loss of
insurance coverage with respect to such Mortgage Loan or would not be in the
best interest of the related Series of Certificateholders. In any such case,
where the due-on-sale clause will not be exercised, the Servicer or the Master
Servicer is authorized to take or enter into an assumption and modification
agreement from or with the person to whom such Mortgaged Property has been or
is about to be conveyed, pursuant to which such person becomes liable under
the Mortgage Note and, unless prohibited by applicable state law, the
Mortgagor remains liable thereon, provided that the Mortgage Loan will
continue to be covered by any Pool Insurance Policy and any related Primary
Mortgage Insurance Policy. In the case of an FHA Loan, such an assumption can
occur only with HUD approval of the substitute Mortgagor. Each Servicer and
the Master Servicer will also be authorized, with the prior approval of the
Insurer under any required insurance policies, to enter into a substitution of
liability agreement with such person, pursuant to which the original Mortgagor
is released from liability and such person is substituted as Mortgagor and
becomes liable under the Mortgage Note.
Under the Servicing Agreements and the Pooling and Servicing Agreement, the
Servicer or the Master Servicer, as the case may be, will foreclose upon or
otherwise comparably convert the ownership of properties securing such of the
related Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments.
In connection with such foreclosure or other conversion, the Servicer or the
Master Servicer will follow such practices and procedures as are deemed
necessary or advisable and as shall be normal and usual in its general
mortgage servicing activities and in accordance with FNMA guidelines, except
when, in the case of FHA or VA Loans, applicable regulations require
otherwise. However, neither the Servicer nor the Master Servicer will be
required to expend its own funds in connection with any foreclosure or towards
the restoration of any property unless it determines and, in the case of a
determination by a Servicer, the Master Servicer agrees (i) that such
restoration and/or foreclosure will increase the proceeds of liquidation of
the related Mortgage Loan to Certificateholders after reimbursement to itself
for such expenses and (ii) that such expenses will be recoverable to it either
through Liquidation Proceeds, Insurance Proceeds, payments under the Letter of
Credit, or amounts in the Reserve Fund, if any, with respect to the related
Series, or otherwise.
Any prospective purchaser of a Cooperative Dwelling will generally be
required to obtain the approval of the board of directors of the related
Cooperative before purchasing the shares and acquiring rights under the
proprietary lease or occupancy agreement securing the Cooperative Loan. See
"Certain Legal Aspects of the
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Mortgage Loans and Contracts--The Mortgage Loans--Foreclosure" herein. This
approval is usually based on the purchaser's income and net worth and numerous
other factors. Although the Cooperative's approval is unlikely to be
unreasonably withheld or delayed, the necessity of acquiring such approval
could limit the number of potential purchasers for those shares and otherwise
limit the Trust Fund's ability to sell and realize the value of those shares.
The market value of any Commercial Property, Multifamily Property or Mixed-
Use Property obtained in foreclosure or by deed in lieu of foreclosure will be
based substantially on the operating income obtained from renting the
commercial or dwelling units. Since a default on a Mortgage Loan secured by
Commercial Property, Multifamily Property or Mixed-Use Property is likely to
have occurred because operating income, net of expenses, is insufficient to
make debt service payments on the related Mortgage Loan, it can be anticipated
that the market value of such property will be less than was anticipated when
such Mortgage Loan was originated. To the extent that the equity in the
property does not absorb the loss in market value and such loss is not covered
by other credit support, a loss may be experienced by the related Trust Fund.
With respect to Multifamily Property consisting of an apartment building owned
by a Cooperative, the Cooperative's ability to meet debt service obligations
on the Mortgage Loan, as well as all other operating expenses, will be
dependent in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units or commercial
areas the Cooperative might control. Unanticipated expenditures may in some
cases have to be paid by special assessments of the tenant-stockholders. The
Cooperative's ability to pay the principal amount of the Mortgage Loan at
maturity may depend on its ability to refinance the Mortgage Loan. The
Depositor, the Unaffiliated Seller and the Master Servicer will have no
obligation to provide refinancing for any such Mortgage Loan.
ENFORCEMENT OF "DUE-ON-SALE" CLAUSES;
REALIZATION UPON DEFAULTED CONTRACTS
Each Servicing Agreement and Pooling and Servicing Agreement with respect to
Certificates representing interests in a Contract Pool will provide that, when
any Manufactured Home securing a Contract is about to be conveyed by the
Obligor, the Master Servicer, to the extent it has knowledge of such
prospective conveyance and prior to the time of the consummation of such
conveyance, may exercise its rights to accelerate the maturity of such
Contract under the applicable "due-on-sale" clause, if any, unless it is not
exercisable under applicable law. In such case, the Master Servicer is
authorized to take or enter into an assumption agreement from or with the
person to whom such Manufactured Home has been or is about to be conveyed,
pursuant to which such person becomes liable under the Contract and, unless
determined to be materially adverse to the interests of Certificateholders,
with the prior approval of the Pool Insurer, if any, to enter into a
substitution of liability agreement with such person, pursuant to which the
original Obligor is released from liability and such person is substituted as
Obligor and becomes liable under the Contract. Where authorized by the
Contract, the APR may be increased, upon assumption, to the then-prevailing
market rate, but shall not be decreased.
Under the Servicing Agreement or the Pooling and Servicing Agreement, the
Master Servicer will repossess or otherwise comparably convert the ownership
of properties securing such of the related Manufactured Homes as come into and
continue in default and as to which no satisfactory arrangements can be made
for collection of delinquent payments. In connection with such repossession or
other conversion, the Servicer or Master Servicer will follow such practices
and procedures as it shall deem necessary or advisable and as shall be normal
and usual in its general Contract servicing activities. The Servicer or Master
Servicer, however, will not be required to expend its own funds in connection
with any repossession or towards the restoration of any property unless it
determines (i) that such restoration or repossession will increase the
proceeds of liquidation of the related Contract to the Certificateholders
after reimbursement to itself for such expenses and (ii) that such expenses
will be recoverable to it either through liquidation proceeds or through
insurance proceeds.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Under the Pooling and Servicing Agreement for a Series of Certificates, the
Depositor or the person or entity specified in the related Prospectus
Supplement and any Master Servicer will be entitled to receive an amount
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described in such Prospectus Supplement. The Master Servicer's primary
compensation generally will be equal to the difference, with respect to each
interest payment on a Mortgage Loan, between the Mortgage Rate and the Pass-
Through Rate for the related Mortgage Pool and with respect to each interest
payment on a Contract, between the APR and the Pass-Through Rate for the
related Contract (less any servicing compensation payable to the Servicer of
the related Mortgage Loan or Contract, if any, as set forth below, and the
amount, if any, payable to the Depositor or to the person or entity specified
in the applicable Prospectus Supplement). As compensation for its servicing
duties, a Servicer will be entitled to receive a monthly servicing fee in the
amount specified in the related Servicing Agreement. Such servicing
compensation shall be payable by withdrawal from the related Servicing Account
prior to deposit in the Certificate Account. Each Servicer (with respect to
the Mortgage Loans or Contracts serviced by it) and the Master Servicer will
be entitled to servicing compensation out of Insurance Proceeds, Liquidation
Proceeds, or Letter of Credit payments. Additional servicing compensation in
the form of prepayment charges, assumption fees, late payment charges or
otherwise shall be retained by the Servicers and the Master Servicer to the
extent not required to be deposited in the Certificate Account. If the Master
Servicer subcontracts the servicing of Specially Serviced Mortgage Loans to a
Special Servicer, the exact amount and calculation of the fee payable to the
Special Servicer will be set forth in the related Prospectus Supplement and
Pooling and Servicing Agreement.
The Servicers, any Special Servicer and the Master Servicer, unless
otherwise specified in the related Prospectus Supplement, will pay from their
servicing compensation certain expenses incurred in connection with the
servicing of the Mortgage Loans or Contracts, including, without limitation,
payment of the Insurance Policy premiums and, in the case of the Master
Servicer, fees or other amounts payable for any Alternative Credit Support,
payment of the fees and disbursements of the Trustee (and any custodian
selected by the Trustee), the Certificate Register and independent accountants
and payment of expenses incurred in enforcing the obligations of Servicers and
Unaffiliated Sellers. Certain of these expenses may be reimbursable by the
Depositor pursuant to the terms of the Pooling and Servicing Agreement. In
addition, the Master Servicer will be entitled to reimbursement of expenses
incurred in enforcing the obligations of any Special Servicer, Servicers and
Unaffiliated Sellers under certain limited circumstances.
As set forth in the preceding section, the Servicers, any Special Servicer
and the Master Servicer will be entitled to reimbursement for certain expenses
incurred by them in connection with the liquidation of defaulted Mortgage
Loans or Contracts. The related Trust Fund will suffer no loss by reason of
such expenses to the extent claims are fully paid under the Letter of Credit,
if any, the related insurance policies, from amounts in the Reserve Fund or
under any applicable Alternative Credit Support described in a Prospectus
Supplement. In the event, however, that claims are either not made or fully
paid under such Letter of Credit, Insurance Policies or Alternative Credit
Support, or if coverage thereunder has ceased, or if amounts in the Reserve
Fund are not sufficient to fully pay such losses, the related Trust Fund will
suffer a loss to the extent that the proceeds of the liquidation proceedings,
after reimbursement of the expenses of the Servicers or the Master Servicer,
as the case may be, are less than the principal balance of the related
Mortgage Loan or Contract. In addition, the Servicers, a Special Servicer and
the Master Servicer will be entitled to reimbursement of expenditures incurred
by them in connection with the restoration of a Mortgaged Property,
Cooperative Dwelling or Manufactured Home, such right of reimbursement being
prior to the rights of the Certificateholders to receive any payments under
the Letter of Credit, or from any related Insurance Proceeds, Liquidation
Proceeds, amounts in the Reserve Fund or any proceeds of Alternative Credit
Support.
Under the Deposit Trust Agreement, the Trustee will be entitled to deduct,
from distributions of interest with respect to the Mortgage Certificates, a
specified percentage of the unpaid principal balance of each Mortgage
Certificate as servicing compensation. The Trustee shall be required to pay
all expenses, except as expressly provided in the Deposit Trust Agreement,
subject to limited reimbursement as provided therein.
EVIDENCE AS TO COMPLIANCE
The Master Servicer will deliver to the Depositor and the Trustee, on or
before the date specified in the Pooling and Servicing Agreement, an Officer's
Certificate stating that (i) a review of the activities of the Master
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Servicer and the Servicers during the preceding calendar year and of its
performance under the Pooling and Servicing Agreement has been made under the
supervision of such officer, and (ii) to the best of such officer's knowledge,
based on such review, the Master Servicer and each Servicer has fulfilled all
its obligations under the Pooling and Servicing Agreement and the applicable
Servicing Agreement throughout such year, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof. Such Officer's Certificate
shall be accompanied by a statement of a firm of independent public
accountants to the effect that, on the basis of an examination of certain
documents and records relating to servicing of the Mortgage Loans or Contract,
conducted in accordance with generally accepted accounting principles in the
mortgage banking industry, the servicing of the Mortgage Loans or Contract was
conducted in compliance with the provisions of the Pooling and Servicing
Agreement and the Servicing Agreements, except for such exceptions as such
firm believes it is required to report.
CERTAIN MATTERS REGARDING THE MASTER SERVICER,
THE DEPOSITOR, THE TRUSTEE AND THE SPECIAL SERVICER
The Master Servicer under each Pooling and Servicing Agreement will be named
in the applicable Prospectus Supplement. The entity acting as Master Servicer
may be an Unaffiliated Seller and have other normal business relationships
with the Depositor and/or affiliates of the Depositor and may be an affiliate
of the Depositor. In the event there is no Master Servicer under a Pooling and
Servicing Agreement, all servicing of Mortgage Loans or Contracts will be
performed by a Servicer pursuant to a Servicing Agreement.
The Master Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement except upon a determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor servicer has assumed
the Master Servicer's obligations and duties under the Pooling and Servicing
Agreement.
The Trustee under each Pooling and Servicing Agreement or Deposit Trust
Agreement will be named in the applicable Prospectus Supplement. The
commercial bank or trust company serving as Trustee may have normal banking
relationships with the Depositor and/or its affiliates and with the Master
Servicer and/or its affiliates.
The Trustee may resign from its obligations under the Pooling and Servicing
Agreement at any time, in which event a successor trustee will be appointed.
In addition, the Depositor may remove the Trustee if the Trustee ceases to be
eligible to act as Trustee under the Pooling and Servicing Agreement or if the
Trustee becomes insolvent, at which time the Depositor will become obligated
to appoint a successor Trustee. The Trustee may also be removed at any time by
the holders of Certificates evidencing voting rights aggregating not less than
50% of the voting rights evidenced by the Certificates of such Series. Any
resignation and removal of the Trustee, and the appointment of a successor
trustee, will not become effective until acceptance of such appointment by the
successor Trustee.
The Trustee may resign at any time from its obligations and duties under the
Deposit Trust Agreement by executing an instrument in writing resigning as
Trustee, filing the same with the Depositor, mailing a copy of a notice of
resignation to all Certificateholders then of record, and appointing a
qualified successor trustee. No such resignation will become effective until
the successor trustee has assumed the Trustee's obligations and duties under
the Deposit Trust Agreement.
Each Pooling and Servicing Agreement and Deposit Trust Agreement will also
provide that neither the Depositor nor the Master Servicer nor any director,
officer, employee or agent of the Depositor or the Master Servicer or the
Trustee, or any responsible officers of the Trustee will be under any
liability to the Certificateholders, for the taking of any action or for
refraining from the taking of any action in good faith pursuant to the Pooling
and Servicing Agreement, or for errors in judgment; provided, however, that
none of the Depositor, the Master Servicer or the Trustee nor any such person
will be protected against, in the case of the Master Servicer and the
Depositor, any breach of representations or warranties made by them, and in
the case of the Master Servicer, the Depositor and the Trustee, against any
liability that would otherwise be imposed by
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reason of willful misfeasance, bad faith or negligence in the performance of
its duties or by reason of reckless disregard of its obligations and duties
thereunder. Each Pooling and Servicing Agreement and Deposit Trust Agreement
will further provide that the Depositor, the Master Servicer and the Trustee
and any director, officer and employee or agent of the Depositor, the Master
Servicer or the Trustee shall be entitled to indemnification, by the Trust
Fund in the case of the Depositor and Master Servicer and by the Master
Servicer in the case of the Trustee and will be held harmless against any
loss, liability or expense incurred in connection with any legal action
relating to the applicable Agreement or the Certificates and in the case of
the Trustee, resulting from any error in any tax or information return
prepared by the Master Servicer or from the exercise of any power of attorney
granted pursuant to the Pooling and Servicing Agreement, other than any loss,
liability or expense related to any specific Mortgage Loan, Contract or
Mortgage Certificate (except any such loss, liability or expense otherwise
reimbursable pursuant to the applicable Agreement) and any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence in
the performance of their duties thereunder or by reason of reckless disregard
of their obligations and duties thereunder. In addition, each Agreement will
provide that neither the Depositor nor the Master Servicer, as the case may
be, will be under any obligation to appear in, prosecute or defend any legal
action that is not incidental to its duties under the Agreement and that in
its opinion may involve it in any expense or liability. The Depositor or the
Master Servicer may, however, in their discretion, undertake any such action
deemed by them necessary or desirable with respect to the applicable Agreement
and the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund, and the Master Servicer or the Depositor, as
the case may be, will be entitled to be reimbursed therefor out of the
Certificate Account.
If the Master Servicer subcontracts the servicing of Specially Serviced
Mortgage Loans to a Special Servicer, the standard of care for, and any
indemnification to be provided to, the Special Servicer will be set forth in
the related Prospectus Supplement and Pooling and Servicing Agreement.
DEFICIENCY EVENT
To the extent a deficiency event is specified in the related Prospectus
Supplement, a deficiency event (a "Deficiency Event") with respect to the
Certificates of each Series may be defined in the Pooling and Servicing
Agreement as being the inability of the Trustee to distribute to holders of
one or more Classes of Certificates of such Series, in accordance with the
terms thereof and the Pooling and Servicing Agreement, any distribution of
principal or interest thereon when and as distributable, in each case because
of the insufficiency for such purpose of the funds then held in the related
Trust Fund.
To the extent a deficiency event is specified in the related Prospectus
Supplement, upon the occurrence of a Deficiency Event, the Trustee is required
to determine whether or not the application on a monthly basis (regardless of
the frequency of regular Distribution Dates) of all future scheduled payments
on the Mortgage Loans, Contracts and Mortgage Certificates included in the
related Trust Fund and other amount receivable with respect to such Trust Fund
towards payments on such Certificates in accordance with the priorities as to
distributions of principal and interest set forth in such Certificates will be
sufficient to make distributions of interest at the applicable Interest Rates
and to distribute in full the principal balance of each such Certificate on or
before the latest Final Distribution Date of any outstanding Certificates of
such Series.
To the extent a deficiency event is specified in the related Prospectus
Supplement, the Trustee will obtain and rely upon an opinion or report of a
firm of independent accountants of recognized national reputation as to the
sufficiency of the amounts receivable with respect to such Trust Fund to make
such distributions on the Certificates, which opinion or report will be
conclusive evidence as to such sufficiency. Pending the making of any such
determination, distributions on the Certificates shall continue to be made in
accordance with their terms.
To the extent a deficiency event is specified in the related Prospectus
Supplement, in the event that the Trustee makes a positive determination, the
Trustee will apply all amounts received in respect of the related Trust
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Fund (after payment of fees and expenses of the Trustee and accountants for
the Trust Fund) to distributions on the Certificates of such Series in
accordance with their terms, except that such distributions shall be made
monthly and without regard to the amount of principal that would otherwise be
distributable on any Distribution Date. Under certain circumstances following
such positive determination, the Trustee may resume making distributions on
such Certificates expressly in accordance with their terms.
To the extent a deficiency event is specified in the related Prospectus
Supplement, if the Trustee is unable to make the positive determination
described above, the Trustee will apply all amounts received in respect of the
related Trust Fund (after payment of Trustee and accountants' fees and
expenses) to monthly distributions on the Certificates of such series pro
rata, without regard to the priorities as to distribution of principal set
forth in such Certificates, and such Certificates will, to the extent
permitted by applicable law, accrue interest at the highest Interest Rate
borne by any Certificate of such Series, or in the event any Class of such
Series shall accrue interest at a floating rate, at the weighted average
Interest Rate, calculated on the basis of the maximum interest rate applicable
to the Class having such floating interest rate and on the original principal
amount of the Certificates of that Class. In such event, the holders of a
majority in outstanding principal balance of such Certificates may direct the
Trustee to sell the related Trust Fund, any such direction being irrevocable
and binding upon the holders of all Certificates of such Series and upon the
owners of the residual interests in such Trust Fund. In the absence of such a
direction, the Trustee may not sell all or any portion of such Trust Fund.
EVENTS OF DEFAULT
Events of Default under each Pooling and Servicing Agreement, unless
otherwise provided in the applicable Prospectus Supplement, will consist of:
(i) any failure to make a specified payment which continues unremedied, in
most cases, for five business days after the giving of written notice; (ii)
any failure by the Trustee, the Servicer or the Master Servicer, as
applicable, duly to observe or perform in any material respect any other of
its covenants or agreements in the Pooling and Servicing Agreement which
failure shall continue for 60 days (15 days in the case of a failure to pay
the premium for any insurance policy) or any breach of any representation and
warranty made by the Master Servicer or the Servicer, if applicable, which
continues unremedied for 120 days after the giving of written notice of such
failure or breach; (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings regarding the
Master Servicer or a Servicer, as applicable; and (iv) any lowering,
withdrawal or notice of an intended or potential lowering, of the outstanding
rating of the Certificates by the Rating Agency rating such Certificates
because the existing or prospective financial condition or mortgage loan
servicing capability of the Master Servicer is insufficient to maintain such
rating.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default with respect to a Series of Certificates
remains unremedied and unless otherwise set forth in the related Prospectus
Supplement, the Depositor, the Trustee or the holders of Certificates
evidencing not less than 25% of the voting rights evidenced by the
Certificates of such Series may terminate all of the rights and obligations of
the Master Servicer under the Pooling and Servicing Agreement and in and to
the Mortgage Loans and Contracts and the proceeds thereof, whereupon (subject
to applicable law regarding the Trustee's ability to make advances) the
Trustee or, if the Depositor so notifies the Trustee and the Master Servicer,
the Depositor or its designee, will succeed to all the responsibilities,
duties and liabilities of the Master Servicer under such Pooling and Servicing
Agreement and will be entitled to similar compensation arrangements. In the
event that the Trustee would be obligated to succeed the Master Servicer but
is unwilling or unable so to act, it may appoint, or petition to a court of
competent jurisdiction for the appointment of, a successor master servicer.
Pending such appointment, the Trustee (unless prohibited by law from so
acting) shall be obligated to act in such capacity. The Trustee and such
successor master servicer may agree upon the servicing compensation to be paid
to such successor, which in no event may be greater than the compensation to
the Master Servicer under the Pooling and Servicing Agreement.
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AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Depositor, the
Master Servicer and the Trustee, without the consent of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement
any provision therein that may be inconsistent with any other provision
therein, or (iii) to make any other provisions with respect to matters or
questions arising under such Pooling and Servicing Agreement that are not
inconsistent with the provisions thereof, provided that such action will not
adversely affect in any material respect the interests of any
Certificateholder of the related Series. The Pooling and Servicing Agreement
may also be amended by the Depositor, the Master Servicer and the Trustee with
the consent of holders of Certificates evidencing not less than 66 2/3% of the
voting rights evidenced by the Certificates, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of such Pooling and Servicing Agreement or of modifying in any manner the
rights of the Certificateholders; provided, however, that no such amendment
may (i) reduce in any manner the amount of, delay the timing of or change the
manner in which payments received on or with respect to Mortgage Loans and
Contracts are required to be distributed with respect to any Certificate
without the consent of the holder of such Certificate, (ii) adversely affect
in any material respect the interests of the holders of a Class or Subclass of
the Senior Certificates, if any, of a Series in a manner other than that set
forth in (i) above without the consent of the holders of the Senior
Certificates of such Subclass evidencing not less than 66 2/3% of such Class
or Subclass, (iii) adversely affect in any material respect the interests of
the holders of the Subordinated Certificates of a Series in a manner other
than that set forth in (i) above without the consent of the holders of
Subordinated Certificates evidencing not less than 66 2/3% of such Class or
Subclass, or (iv) reduce the aforesaid percentage of the Certificates, the
holders of which are required to consent to such amendment, without the
consent of the holders of the Class affected thereby.
The Deposit Trust Agreement for a Series may be amended by the Trustee and
the Depositor without Certificateholder consent, to cure any ambiguity, to
correct or supplement any provision therein that may be inconsistent with any
other provision therein, or to make any other provisions with respect to
matters or questions arising thereunder that are not inconsistent with any
other provisions thereof, provided that such action will not, as evidenced by
an opinion of counsel, adversely affect the interests of any
Certificateholders of that Series in any material respect. The Deposit Trust
Agreement for each Series may also be amended by the Trustee and the Depositor
with the consent of the Holders of Certificates evidencing Percentage
Interests aggregating not less than 66 2/3% of each Class of the Certificates
of such Series affected thereby for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Agreement
or modifying in any manner the rights of Certificateholders of that Series;
provided, however, that no such amendment may (i) reduce in any manner the
amount of, or delay the timing of, or change the manner in which payments
received on Mortgage Certificates are required to be distributed in respect of
any Certificate, without the consent of the Holder of such Certificate or (ii)
reduce the aforesaid percentage of Certificates the Holders of which are
required to consent to any such amendment, without the consent of the Holders
of all Certificates of such Series then outstanding.
TERMINATION
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate upon the earlier of (a) the repurchase of all
Mortgage Loans or Contracts and all property acquired by foreclosure of any
such Mortgage Loan or Contract and (b) the later of (i) the maturity or other
liquidation of the last Mortgage Loan or Contract subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage
Loan or Contract and (ii) the payment to the Certificateholders of all amounts
held by the Master Servicer and required to be paid to them pursuant to such
Pooling and Servicing Agreement. The obligations created by the Deposit Trust
Agreement for a Series of Certificates will terminate upon the distribution to
Certificateholders of all amounts required to be distributed to them pursuant
to such Deposit Trust Agreement. In no event, however, will the trust created
by either such Agreement continue beyond the expiration of 21 years from the
death of the last survivor of certain persons identified therein. For each
Series of Certificates, the Master Servicer will give written notice of
termination of the applicable Agreement of each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency specified in the notice of termination.
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If so provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Depositor or such other person as may be specified in the
Prospectus Supplement to repurchase from the Trust Fund for such Series all
remaining Mortgage Loans or Contracts subject to the Pooling and Servicing
Agreement at a price specified in such Prospectus Supplement. In the event
that the Depositor elects to treat the related Trust Fund as a REMIC under the
Code, any such repurchase will be effected in compliance with the requirements
of Section 860F(a)(4) of the Code, in order to constitute a "qualifying
liquidation" thereunder. The exercise of any such right will effect early
retirement of the Certificates of that Series, but the right so to repurchase
may be effected only on or after the aggregate principal balance of the
Mortgage Loans or Contracts for such Series at the time of repurchase is less
than a specified percentage of the aggregate principal balance at the Cut-off
Date for the Series, or on or after the date set forth in the related
Prospectus Supplement.
CREDIT SUPPORT
Credit support for a Series of Certificates may be provided by one or more
Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Certificates (which may, if so specified in the related Prospectus Supplement,
be issued in notional amounts) the provision for shifting interest credit
enhancement, the establishment of a Reserve Fund, the method of Alternative
Credit Support specified in the applicable Prospectus Supplement, or any
combination of the foregoing, in addition to, or in lieu of, the insurance
arrangements set forth below under Description of Insurance. The amount and
method of credit support will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
LETTERS OF CREDIT
The Letters of Credit, if any, with respect to a Series of Certificates will
be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). The maximum obligation of the L/C Bank
under the Letter of Credit will be to honor requests for payment thereunder in
an aggregate fixed dollar amount, net of unreimbursed payments thereunder,
equal to the percentage of the aggregate principal balance on the related Cut-
off Date of the Mortgage Loans or Contracts evidenced by each Series (the "L/C
Percentage") specified in the Prospectus Supplement for such Series. The
duration of coverage and the amount and frequency of any reduction in coverage
provided by the Letter of Credit with respect to a Series of Certificates will
be in compliance with the requirements established by the Rating Agency rating
such Series and will be set forth in the Prospectus Supplement relating to
such Series of Certificates. The amount available under the Letter of Credit
in all cases shall be reduced to the extent of the unreimbursed payments
thereunder. The obligations of the L/C Bank under the Letter of Credit for
each Series of Certificates will expire 30 days after the latest of the
scheduled final maturity dates of the Mortgage Loans or Contracts in the
related Mortgage Pool or Contract Pool or the repurchase of all Mortgage Loans
or Contracts in the Mortgage Pool or Contract Pool in the circumstances
specified above. See "Description of the Certificates--Termination."
Unless otherwise specified in the applicable Prospectus Supplement, under
the Pooling and Servicing Agreement, the Master Servicer will be required not
later than three business days prior to each Distribution Date to determine
whether a payment under the Letter of Credit will be necessary on the
Distribution Date and will, no later than the third business day prior to such
Distribution Date, advise the L/C Bank and the Trustee of its determination,
setting forth the amount of any required payment. On the Distribution Date,
the L/C Bank will be required to honor the Trustee's request for payment
thereunder in an amount equal to the lesser of (A) the remaining amount
available under the Letter of Credit and (B) the outstanding principal
balances of any Liquidating Loans to be assigned on such Distribution Date
(together with accrued and unpaid interest thereon at the related Mortgage
Rate or APR to the related Due Date). The proceeds of such payments under the
Letter of Credit will be deposited into the Certificate Account and will be
distributed to Certificateholders, in the manner specified in the related
Prospectus Supplement, on such Distribution Date, except to the extent of any
unreimbursed Advances, servicing compensation due to the Servicers and the
Master Servicer and other amounts payable to the Depositor or the person or
entity named in the applicable Prospectus Supplement therefrom.
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If at any time the L/C Bank makes a payment in the amount of the full
outstanding principal balance and accrued interest on a Liquidating Loan, it
will be entitled to receive an assignment by the Trustee of such Liquidating
Loan, and the L/C Bank will thereafter own such Liquidating Loan free of any
further obligation to the Trustee or the Certificateholders with respect
thereto. Payments made to the Certificate Account by the L/C Bank under the
Letter of Credit with respect to such a Liquidating Loan will be reimbursed to
the L/C Bank only from the proceeds (net of liquidation costs) of such
Liquidating Loan. The amount available under the Letter of Credit will be
increased to the extent it is reimbursed for such payments.
To the extent the proceeds of liquidation of a Liquidating Loan acquired by
the L/C Bank in the manner described in the preceding paragraph exceed the
amount of payments made with respect thereto, the L/C Bank will be entitled to
retain such proceeds as additional compensation for issuance of the Letter of
Credit.
Prospective purchasers of Certificates of a Series with respect to which
credit support is provided by a Letter of Credit must look to the credit of
the L/C Bank, to the extent of its obligations under the Letter of Credit, in
the event of default by Mortgagors or Obligors. If the amount available under
the Letter of Credit is exhausted, or the L/C Bank becomes insolvent, and
amounts in the Reserve Fund, if any, with respect to such Series are
insufficient to pay the entire amount of the loss and still be maintained at
the level specified in the related Prospectus Supplement (the "Required
Reserve"), the Certificateholders (in the priority specified in the related
Prospectus Supplement) will thereafter bear all risks of loss resulting from
default by Mortgagors or Obligors (including losses not covered by insurance
or Alternative Credit Support), and must look primarily to the value of the
properties securing defaulted Mortgage Loans or Contracts for recovery of the
outstanding principal and unpaid interest.
In the event that a Subordinated Class or Subclass of a Series of
Certificates is issued with a notional amount, the coverage provided by the
Letter of Credit with respect to such Series, and the terms and conditions of
such coverage, will be set forth in the related Prospectus Supplement.
SUBORDINATED CERTIFICATES
To the extent specified in the Prospectus Supplement with respect to a
Series of Certificates, credit support may be provided by the subordination of
the rights of the holders of one or more Classes or Subclasses of Certificates
to receive distributions with respect to the Mortgage Loans in the Mortgage
Pool or Contracts in the Contract Pool underlying such Series, or with respect
to a Subordinated Pool of mortgage loans or manufactured housing conditional
sales contracts and installment loan agreements, to the rights of the Senior
Certificateholders or holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series to receive such distributions, to the
extent of the applicable Subordinated Amount. In such a case, credit support
may also be provided by the establishment of a Reserve Fund, as described
below. The Subordinated Amount, as described below, will be reduced by an
amount equal to Aggregate Losses. Aggregate Losses are defined in the related
Pooling and Servicing Agreement for any given period as the aggregate amount
of delinquencies, losses and other deficiencies in the amounts due to the
holders of the Certificates of one or more classes or Subclasses of such
Series paid or borne by the holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series ("payment deficiencies"), but
excluding any payments of interest on any amounts originally due to the
holders of the Certificates of a Class or Subclass to which the applicable
Class or Subclass of Subordinated Certificates are subordinated on a previous
Distribution Date, but not paid as due, whether by way of withdrawal from the
Reserve Fund (including, prior to the time that the Subordinated Amount is
reduced to zero, any such withdrawal of amounts attributable to the Initial
Deposit, if any), reduction in amounts otherwise distributable to the
Subordinated Certificateholders on any Distribution Date or otherwise, less
the aggregate amount of previous payment deficiencies recovered by the related
Trust Fund during such period in respect of the Mortgage Loans or Contracts
giving rise to such previous payment deficiencies, including, without
limitation, such recoveries resulting from the receipt of delinquent principal
and/or interest payments, Liquidation Proceeds or Insurance Proceeds (net, in
each case, of servicing compensation, foreclosure costs and other servicing
costs, expenses and unreimbursed Advances relating to such Mortgage Loans or
Contracts). The Prospectus Supplement for each Series of Certificates with
respect to which credit support will be provided by one or more Classes or
Subclasses
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of Subordinated Certificates will set forth the Subordinated Amount for such
Series. If specified in the related Prospectus Supplement, the Subordinated
Amount will decline over time in accordance with a schedule which will also be
set forth in the related Prospectus Supplement.
SHIFTING INTEREST
If specified in the Prospectus Supplement for a Series of Certificates for
which credit enhancement is provided by shifting interest as described herein,
the rights of the holders of the Subordinated Certificates of a Series to
receive distributions with respect to the Mortgage Loans or Contracts in the
related Trust Fund or Subsidiary Trust will be subordinated to such right of
the holders of the Senior Certificates of the same Series to the extent
described in such Prospectus Supplement. This subordination feature is
intended to enhance the likelihood of regular receipt by holders of Senior
Certificates of the full amount of scheduled monthly payments of principal and
interest due them and to provide limited protection to the holders of the
Senior Certificates against losses due to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series by
the shifting interest subordination feature will be effected by distributing
to the holders of the Senior Certificates a disproportionately greater
percentage (the "Senior Prepayment Percentage") of Principal Prepayments. The
initial Senior Prepayment Percentage will be the percentage specified in the
related Prospectus Supplement and will decrease in accordance with the
schedule and subject to the conditions set forth in the Prospectus Supplement.
This disproportionate distribution of Principal Prepayments will have the
effect of accelerating the amortization of the Senior Certificates while
increasing the respective interest of the Subordinated Certificates in the
Mortgage Pool or Contract Pool. Increasing the respective interest of the
Subordinated Certificates relative to that of the Senior Certificates is
intended to preserve the availability of the benefits of the subordination
provided by the Subordinated Certificates.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Trust will enter into or obtain an assignment of a swap
agreement or other similar agreement pursuant to which the Trust will have the
right to receive certain payments of interest (or other payments) as set forth
or determined as described therein. The Prospectus Supplement relating to a
Series of Certificates having the benefit of an interest rate swap agreement
will describe the material terms of such agreement and the particular risks
associated with the interest rate swap feature, including market and credit
risk, the effect of counterparty defaults and other risks, if any, addressed
by the rating. The Prospectus Supplement relating to such Series of
Certificates also will set forth certain information relating to the corporate
status, ownership and credit quality of the counterparty or counterparties to
such swap agreement.
RESERVE FUND
If so specified in the related Prospectus Supplement, credit support with
respect to a Series of Certificates may be provided by the establishment and
maintenance with the Trustee for such Series of Certificates, in trust, of a
Reserve Fund for such Series. Unless otherwise specified in the applicable
Prospectus Supplement, the Reserve Fund for a Series will not be included in
the Trust Fund for such Series. The Reserve Fund for each Series will be
created by the Depositor and shall be funded by the retention by the Master
Servicer of certain payments on the Mortgage Loans or Contracts, by the
deposit with the Trustee, in escrow, by the Depositor of a Subordinated Pool
of mortgage loans or manufactured housing conditional sales contracts and
installment loan agreements with the aggregate principal balance, as of the
related Cut-off Date, set forth in the related Prospectus Supplement, by any
combination of the foregoing, or in another manner specified in the related
Prospectus Supplement. Following the initial issuance of the Certificates of a
Series and until the balance of the Reserve Fund first equals or exceeds the
Required Reserve, the Master Servicer will retain specified distributions on
the Mortgage Loans or Contracts and/or on the mortgage loans or manufactured
housing conditional sales contracts and installment loan agreements in the
Subordinated Pool otherwise distributable to the holders of Subordinated
Certificates and deposit such amounts in the Reserve Fund. After the amounts
in the Reserve Fund for a Series
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first equal or exceed the applicable Required Reserve, the Master Servicer
will retain such distributions and deposit so much of such amounts in the
Reserve Fund as may be necessary, after the application of such distributions
to amounts due and unpaid on the Certificates or on the Certificates of such
Series to which the applicable Class or Subclass of Subordinated Certificates
are subordinated and the reimbursement of unreimbursed Advances and
liquidation expenses, to maintain the Reserve Fund at the Required Reserve.
The balance in the Reserve Fund in excess of the Required Reserve shall be
paid to the applicable Class or Subclass of Subordinated Certificates, or to
another specified person or entity, as set forth in the related Prospectus
Supplement, and shall be unavailable thereafter for future distribution to
Certificateholders of either Class. The Prospectus Supplement for each Series
will set forth the amount of the Required Reserve applicable from time to
time. The Required Reserve may decline over time in accordance with a schedule
which will also be set forth in the related Prospectus Supplement.
Amounts held in the Reserve Fund for a Series from time to time will
continue to be the property of the Subordinated Certificateholders of the
Classes or Subclasses specified in the related Prospectus Supplement until
withdrawn from the Reserve Fund and transferred to the Certificate Account as
described below. If on any Distribution Date the amount in the Certificate
Account available to be applied to distributions on the Senior Certificates of
such Series, after giving effect to any Advances made by the Servicers or the
Master Servicer on such Distribution Date, is less than the amount required to
be distributed to such Senior Certificateholders (the "Required Distribution")
on such Distribution Date, the Master Servicer will withdraw from the Reserve
Fund and deposit into the Certificate Account the lesser of (i) the entire
amount on deposit in the Reserve Fund available for distribution to the Senior
Certificateholders (which amount will not in any event exceed the Required
Reserve) or (ii) the amount necessary to increase the funds in the Certificate
Account eligible for distribution to the Senior Certificateholders on such
Distribution Date to the Required Distribution; provided, however, that in no
event will any amount representing investment earnings on amounts held in the
Reserve Fund be transferred into the Certificate Account or otherwise used in
any manner for the benefit of the Senior Certificateholders. If so specified
in the applicable Prospectus Supplement, the balance, if any, in the Reserve
Fund in excess of the Required Reserve shall be released, to the Subordinated
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, whenever the Reserve Fund is less than the Required Reserve,
holders of the Subordinated Certificates of the applicable Class or Subclass
will not receive any distributions with respect to the Mortgage Loans or
Contracts other than amounts attributable to interest on the Mortgage Loans or
Contracts after the initial Required Reserve has been attained and amounts
attributable to any income resulting from investment of the Reserve Fund as
described below. Whether or not the amount of the Reserve Fund exceeds the
Required Reserve on any Distribution Date, the holders of the Subordinated
Certificates of the applicable Class or Subclass are entitled to receive from
the Certificate Account their share of the proceeds of any Mortgage Loan or
Contract, or any property acquired in respect thereof, repurchased by reason
of defective documentation or the breach of a representation or warranty
pursuant to the Pooling and Servicing Agreement. Amounts in the Reserve Fund
shall be applied in the following order:
(i) to the reimbursement of Advances determined by the Master Servicer
and the Servicers to be otherwise unrecoverable, other than Advances of
interest in connection with prepayments in full, repurchases and
liquidations, and the reimbursement of liquidation expenses incurred by the
Servicers and the Master Servicer if sufficient funds for such
reimbursement are not otherwise available in the related Servicing Accounts
and Certificate Account;
(ii) to the payment to the holders of the Senior Certificates of such
Series of amounts distributable to them on the related Distribution Date in
respect of scheduled payments of principal and interest due on the related
Due Date to the extent that sufficient funds in the Certificate Account are
not available therefor; and
(iii) to the payment to the holders of the Senior Certificates of such
Series of the principal balance or purchase price, as applicable, of
Mortgage Loans or Contracts repurchased, liquidated or foreclosed during
the period ending on the day prior to the Due Date to which such
distribution relates and interest thereon at the related Pass-Through Rate,
to the extent that sufficient funds in the Certificate Account are not
available therefor.
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Amounts in the Reserve Fund in excess of the Required Reserve, including any
investment income on amounts therein, as set forth below, shall then be
released to the holders of the Subordinated Certificates, or to such other
person as is specified in the applicable Prospectus Supplement, as set forth
above.
Funds in the Reserve Fund for a Series shall be invested as provided in the
related Pooling and Servicing Agreement in certain types of eligible
investments. The earnings on such investments will be withdrawn and paid to
the holders of the applicable Class or Subclass of Subordinated Certificates
in accordance with their respective interests in the Reserve Fund in the
priority specified in the related Prospectus Supplement. Investment income in
the Reserve Fund is not available for distribution to the holders of the
Senior Certificates of such Series or otherwise subject to any claims or
rights of the holders of the applicable Class or Subclass of Senior
Certificates. Eligible investments for monies deposited in the Reserve Fund
will be specified in the Pooling and Servicing Agreement for a Series of
Certificates for which a Reserve Fund is established and in some instances
will be limited to investments acceptable to the Rating Agency rating the
Certificates of such Series from time to time as being consistent with its
outstanding rating of such Certificates. Such eligible investments will be
limited, however, to obligations or securities that mature at various time
periods up to 30 days according to a schedule in the Pooling and Servicing
Agreement based on the current balance of the Reserve Fund at the time of such
investment or the contractual commitment providing for such investment.
The time necessary for the Reserve Fund of a Series to reach and maintain
the applicable Required Reserve at any time after the initial issuance of the
Certificates of such Series and the availability of amounts in the Reserve
Fund for distributions on such Certificates will be affected by the
delinquency, foreclosure and prepayment experience of the Mortgage Loans or
Contracts in the related Trust Fund and/or in the Subordinated Pool and
therefore cannot be accurately predicted.
PERFORMANCE BOND
If so specified in the related Prospectus Supplement, the Master Servicer
may be required to obtain a Performance Bond that would provide a guarantee of
the performance by the Master Servicer of one or more of its obligations under
the Agreement, including its obligation to advance delinquent installments of
principal and interest on Mortgage Loans or Contracts and its obligation to
repurchase Mortgage Loans or Contracts in the event of a breach by the Master
Servicer of a representation or warranty contained in the Agreement. In the
event that the outstanding credit rating of the obligor of the Performance
Bond is lowered by the Rating Agency, with the result that the outstanding
rating on the Certificates would be reduced by such Rating Agency, the Master
Servicer will be required to secure a substitute Performance Bond issued by an
entity with a rating sufficient to maintain the outstanding rating on the
Certificates or to deposit and maintain with the Trustee cash in the amount
specified in the applicable Prospectus Supplement.
DESCRIPTION OF INSURANCE
To the extent that the applicable Prospectus Supplement does not expressly
provide for a form of credit support specified above or for Alternative Credit
Support in lieu of some or all of the insurance mentioned below, the following
paragraphs on insurance shall apply with respect to the Mortgage Loans
included in the related Trust Fund. Unless otherwise specified in the related
Prospectus Supplement, each Manufactured Home that secures a Contract will be
covered by a standard hazard insurance policy and other insurance policies to
the extent described in the related Prospectus Supplement. Any material
changes in such insurance from the description that follows or the description
of any Alternative Credit Support will be set forth in the applicable
Prospectus Supplement.
PRIMARY MORTGAGE INSURANCE POLICIES
To the extent specified in the related Prospectus Supplement, each Servicing
Agreement will require the Servicer to cause a Primary Mortgage Insurance
Policy to be maintained in full force and effect with respect to
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each Mortgage Loan that is secured by a Single Family Property covered by the
Servicing Agreement requiring such insurance and to act on behalf of the
Insured with respect to all actions required to be taken by the Insured under
each such Primary Mortgage Insurance Policy. Any primary mortgage insurance or
primary credit insurance policies relating to the Contracts underlying a
Series of Certificates will be described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the amount
of a claim for benefits under a Primary Mortgage Insurance Policy covering a
Mortgage Loan in the related Mortgage Pool (herein referred to as the "Loss")
will consist of the insured portion of the unpaid principal amount of the
covered Mortgage Loan (as described herein) and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the Insured (other than the proceeds of
hazard insurance) that are derived from or in any way related to such
Mortgaged Property, (ii) hazard insurance proceeds in excess of the amount
required to restore such Mortgaged Property and which have not been applied to
the payment of such Mortgage Loan, (iii) amounts expended but not approved by
the Primary Mortgage Insurer, (iv) claim payments previously made by the
Primary Mortgage Insurer, and (v) unpaid premiums.
Unless otherwise specified in the related Prospectus Supplement, as
conditions precedent to the filing of or payment of a claim under a Primary
Mortgage Insurance Policy covering a Mortgage Loan in the related Mortgage
Pool, the Insured will be required to, in the event of default by the
Mortgagor: (i) advance or discharge (A) all hazard insurance premiums and (B)
as necessary and approved in advance by the Primary Mortgage Insurer, (1) real
estate property taxes, (2) all expenses required to preserve, repair and
prevent waste to the Mortgaged Property so as to maintain such Mortgaged
Property in at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (3)
property sales expenses, (4) any outstanding liens (as defined in such Primary
Mortgage Insurance Policy) on the Mortgaged Property and (5) foreclosure
costs, including court costs and reasonable attorneys' fees; (ii) in the event
of a physical loss or damage to the Mortgaged Property, have restored and
repaired the Mortgaged Property to at least as good a condition as existed at
the effective date of such Primary Mortgage Insurance Policy, ordinary wear
and tear excepted; and (iii) tender to the Primary Mortgage Insurer good and
merchantable title to and possession of the mortgaged property.
Unless otherwise specified in the related Prospectus Supplement, other
provisions and conditions of each Primary Mortgage Insurance Policy covering a
Mortgage Loan in the related Mortgage Pool generally will provide that: (a) no
change may be made in the terms of such Mortgage Loan without the consent of
the Primary Mortgage Insurer; (b) written notice must be given to the Primary
Mortgage Insurer within 10 days after the Insured becomes aware that a
Mortgagor is delinquent in the payment of a sum equal to the aggregate of two
scheduled monthly payments due under such Mortgage Loan or that any
proceedings affecting the Mortgagor's interest in the Mortgaged Property
securing such Mortgage Loan have commenced, and thereafter the Insured must
report monthly to the Primary Mortgage Insurer the status of any such Mortgage
Loan until such Mortgage Loan is brought current, such proceedings are
terminated or a claim is filed; (c) the Primary Mortgage Insurer will have the
right to purchase such Mortgage Loan, at any time subsequent to the 10 days'
notice described in (b) above and prior to the commencement of foreclosure
proceedings, at a price equal to the unpaid principal amount of the Mortgage
Loan, plus accrued and unpaid interest thereon and reimbursable amounts
expended by the Insured for the real estate taxes and fire and extended
coverage insurance on the Mortgaged Property for a period not exceeding 12
months, and less the sum of any claim previously paid under the Primary
Mortgage Insurance Policy and any due and unpaid premiums with respect to such
policy; (d) the Insured must commence proceedings at certain times specified
in the Primary Mortgage Insurance Policy and diligently proceed to obtain good
and merchantable title to and possession of the Mortgaged Property; (e) the
Insured must notify the Primary Mortgage Insurer of the price specified in (c)
above at least 15 days prior to the sale of the Mortgaged Property by
foreclosure, and bid such amount unless the Mortgage Insurer specifies a lower
or higher amount; and (f) the Insured may accept a conveyance of the Mortgaged
Property in lieu of foreclosure with written approval of the Mortgage Insurer
provided the ability of the Insured to assign specified rights to the Primary
Mortgage Insurer are not thereby impaired or the specified rights of the
Primary Mortgage Insurer are not thereby adversely affected.
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Unless otherwise specified in the related Prospectus Supplement, the Primary
Mortgage Insurer will be required to pay to the Insured either: (1) the
insured percentage of the Loss; or (2) at its option under certain of the
Primary Mortgage Insurance Policies, the sum of the delinquent monthly
payments plus any advances made by the Insured, both to the date of the claim
payment, and thereafter, monthly payments in the amount that would have become
due under the Mortgage Loan if it had not been discharged plus any advances
made by the Insured until the earlier of (A) the date the Mortgage Loan would
have been discharged in full if the default had not occurred or (B) an
approved sale. Any rents or other payments collected or received by the
Insured which are derived from or are in any way related to the Mortgaged
Property will be deducted from any claim payment.
FHA INSURANCE AND VA GUARANTEES
The FHA is responsible for administering various federal programs, including
mortgage insurance, authorized under the National Housing Act, as amended, and
the United States Housing Act of 1937, as amended. Any FHA Insurance or VA
Guarantees relating to Contracts underlying a Series of Certificates will be
described in the related Prospectus Supplement.
The insurance premiums for FHA Loans are collected by HUD approved lenders
or by the Servicers of such FHA Loans and are paid to the FHA. The regulations
governing FHA single-family mortgage insurance programs provide that insurance
benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted FHA Loan to HUD. With respect to a defaulted FHA Loan, the
Servicer of such FHA Loan will be limited in its ability to initiate
foreclosure proceedings. When it is determined, either by the Servicer or HUD,
that default was caused by circumstances beyond the Mortgagor's control, the
Servicer will be expected to make an effort to avoid foreclosure by entering,
if feasible, into one of a number of available forms of forbearance plans with
the Mortgagor. Such plans may involve the reduction or suspension of scheduled
mortgage payments for a specified period, with such payments to be made upon
or before the maturity date of the mortgage, or the recasting of payments due
under the mortgage up to or beyond the scheduled maturity date. In addition,
when a default caused by such circumstances is accompanied by certain other
criteria, HUD may provide relief by making payments to the Servicer of such
Mortgage Loan in partial or full satisfaction of amounts due thereunder (which
payments are to be repaid by the Mortgagor to HUD) or by accepting assignment
of the Mortgage Loan from the Servicer. With certain exceptions, at least
three full monthly installments must be due and unpaid under the Mortgage
Loan, and HUD must have rejected any request for relief from the Mortgagor
before the Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Servicer of each FHA Loan in a Mortgage Pool will
be obligated to purchase any such debenture issued in satisfaction of a
defaulted FHA Loan serviced by it for an amount equal to the principal amount
of the FHA Loan.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal balance of the defaulted FHA Loan, adjusted to
reimburse the Servicer of such FHA Loan for certain costs and expenses and to
deduct certain amounts received or retained by such Servicer after default.
When entitlement to insurance benefits results from foreclosure (or other
acquisition of possession) and conveyance to HUD, the Servicer is compensated
for no more than two-thirds of its foreclosure costs, and is compensated for
interest accrued and unpaid prior to such date in general only to the extent
it was allowed pursuant to a forbearance plan approved by HUD. When
entitlement to insurance benefits results from assignment of the FHA Loan to
HUD, the insurance payment includes full compensation for interest accrued and
unpaid to the assignment date. The insurance payment itself, upon foreclosure
of an FHA Loan, bears interest from a date 30 days after the mortgagor's first
uncorrected failure to perform any obligation or make any payment due under
the Mortgage Loan and, upon assignment, from the date of assignment, to the
date of payment of the claim, in each case at the same interest rate as the
applicable HUD debenture interest rate as described above.
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The maximum guarantee that may be issued by the VA under a VA Loan is 50% of
the principal amount of the VA Loan if the principal amount of the Mortgage
Loan is $45,000 or less, the lesser of $36,000 and 40% if the principal amount
of the VA Loan if the principal amount of such VA Loan is greater than $45,000
but less than or equal to $144,000, and the lesser of $46,000 and 25% of the
principal amount of the Mortgage Loan if the principal amount of the Mortgage
Loan is greater than $144,000. The liability on the guarantee is reduced or
increased pro rata with any reduction or increase in the amount of
indebtedness, but in no event will the amount payable on the guarantee exceed
the amount of the original guarantee. The VA may, at its option and without
regard to the guarantee, make full payment to a mortgage holder of unsatisfied
indebtedness on a Mortgage upon its assignment to the VA.
With respect to a defaulted VA Loan, the Servicer is, absent exceptional
circumstances, authorized to announce its intention to foreclose only when the
default has continued for three months. Generally, a claim for the guarantee
is submitted after liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the VA Loan
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations. Payments under the
guarantee will be equal to the unpaid principal amount of the VA Loan,
interest accrued on the unpaid balance of the VA Loan to the appropriate date
of computation and limited expenses of the mortgagee, but in each case only to
the extent that such amounts have not been recovered through liquidation of
the Mortgaged Property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
STANDARD HAZARD INSURANCE POLICIES ON MORTGAGE LOANS
The Standard Hazard Insurance Policies covering the Mortgage Loans in a
Mortgage Pool will provide for coverage at least equal to the applicable state
standard form of fire insurance policy with extended coverage. In general, the
standard form of fire and extended coverage policy will cover physical damage
to, or destruction of, the improvements on the Mortgaged Property caused by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Because the Standard Hazard Insurance Policies relating to such
Mortgage Loans will be underwritten by different insurers and will cover
Mortgaged Properties located in various states, such policies will not contain
identical terms and conditions. The most significant terms thereof, however,
generally will be determined by state law and generally will be similar. Most
such policies typically will not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-
related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list
is merely indicative of certain kinds of uninsured risks and is not intended
to be all-inclusive.
The Standard Hazard Insurance Policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which,
in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of
the dwellings, structures and other improvements on the Mortgaged Property in
order to recover the full amount of any partial loss. If the insured's
coverage falls below this specified percentage, such clause will provide that
the insurer's liability in the event of partial loss will not exceed the
greater of (i) the actual cash value (the replacement cost less physical
depreciation) of the dwellings, structures and other improvements damaged or
destroyed or (ii) such proportion of the loss, without deduction for
depreciation, as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such dwellings, structures and
other improvements.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however,
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that a Cooperative and the related borrower on a Cooperative Loan do not
maintain such insurance or do not maintain adequate coverage or any insurance
proceeds are not applied to the restoration of damaged property, any damage to
such borrower's Cooperative Dwelling or such Cooperative's building could
significantly reduce the value of the collateral securing such Cooperative
Loan to the extent not covered by other credit support.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows and, with respect to Mortgaged Properties
located other than in HUD designated flood areas, floods) or insufficient
hazard insurance proceeds and any hazard losses incurred with respect to
Cooperative Loans could affect distributions to the Certificateholders.
With respect to Mortgage Loans secured by Commercial Property, Mixed-Use
Property and Multifamily Property, certain additional insurance policies may
be required; for example, general liability insurance for bodily injury and
property damage, steam boiler coverage where a steam boiler or other pressure
vessel is in operation, business interruption insurance and rent loss
insurance to cover income losses following damage or destruction of the
Mortgaged Property. The related Prospectus Supplement will specify the
required types and amounts of additional insurance that may be required in
connection with Mortgage Loans secured by Commercial Property, Mixed-Use
Property and Multifamily Property and will describe the general terms of such
insurance and conditions to payment thereunder.
STANDARD HAZARD INSURANCE POLICIES ON THE MANUFACTURED HOMES
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to cause to be maintained with respect to each Contract one or more
Standard Hazard Insurance Policies which provide, at a minimum, the same
coverage as a standard form file and extended coverage insurance policy that
is customary for manufactured housing, issued by a company authorized to issue
such policies in the state in which the Manufactured Home is located, and in
an amount which is not less than the maximum insurable value of such
Manufactured Home or the principal balance due from the Obligor on the related
Contract, whichever is less; provided, however, that the amount of coverage
provided by each Standard Hazard Insurance Policy shall be sufficient to avoid
the application of any co-insurance clause contained therein. When a
Manufactured Home's location was, at the time of origination of the related
Contract, within a federally designated flood area, the Master Servicer also
shall cause such flood insurance to be maintained, which coverage shall be at
least equal to the minimum amount specified in the preceding sentence or such
lesser amount as may be available under the federal flood insurance program.
Each Standard Hazard Insurance Policy caused to be maintained by the Master
Servicer shall contain a standard loss payee clause in favor of the Master
Servicer and its successors and assigns. If any Obligor is in default in the
payment of premiums on its Standard Hazard Insurance Policy or Policies, the
Master Servicer shall pay such premiums out of its own funds, and may add
separately such premium to the Obligor's obligation as provided by the
Contract, but may not add such premium to the remaining principal balance of
the Contract.
The Master Servicer may maintain, in lieu of causing individual Standard
Hazard Insurance Policies to be maintained with respect to each Manufactured
Home, and shall maintain, to the extent that the related Contract does not
require the Obligor to maintain a Standard Hazard Insurance Policy with
respect to the related Manufactured Home, one or more blanket insurance
policies covering losses on the Obligor's interest in the Contracts resulting
from the absence or insufficiency of individual Standard Hazard Insurance
Policies. Any such blanket policy shall be substantially in the form and in
the amount carried by the Master Servicer as of the date of the Pooling and
Servicing Agreement. The Master Servicer shall pay the premium for such policy
on the basis described therein and shall pay any deductible amount with
respect to claims under such policy relating to the Contracts. If the insurer
thereunder shall cease to be acceptable to the Master Servicer, the Master
Servicer shall exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to such policy.
If the Master Servicer shall have repossessed a Manufactured Home on behalf
of the Trustee, the Master Servicer shall either (i) maintain at its expense
hazard insurance with respect to such Manufactured Home or (ii) indemnify the
Trustee against any damage to such Manufactured Home prior to resale or other
disposition.
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POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master Servicer
will obtain a Pool Insurance Policy for a Mortgage Pool underlying
Certificates of such Series. Such Pool Insurance Policy will be issued by the
Pool Insurer named in the applicable Prospectus Supplement. Any Pool Insurance
Policy for a Contract Pool underlying a Series of Certificates will be
described in the related Prospectus Supplement. Each Pool Insurance Policy
will cover any loss (subject to the limitations described below) by reason of
default to the extent the related Mortgage Loan is not covered by any Primary
Mortgage Insurance Policy, FHA insurance or VA guarantee. The amount of the
Pool Insurance Policy, if any, with respect to a Series will be specified in
the related Prospectus Supplement. A Pool Insurance Policy, however, will not
be a blanket policy against loss, because claims thereunder may only be made
for particular defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent described below. Any Pool Insurance Policies relating to
the Contracts will be described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the Pool
Insurance Policy will provide that as a condition precedent to the payment of
any claim the Insured will be required (i) to advance hazard insurance
premiums on the Mortgaged Property securing the defaulted Mortgage Loan; (ii)
to advance, as necessary and approved in advance by the Pool Insurer, (a) real
estate property taxes, (b) all expenses required to preserve and repair the
Mortgaged Property, to protect the Mortgaged Property from waste, so that the
Mortgaged Property is in at least as good a condition as existed on the date
upon which coverage under the Pool Insurance Policy with respect to such
Mortgaged Property first became effective (ordinary wear and tear excepted),
(c) property sales expenses, (d) any outstanding liens on the Mortgaged
Property and (e) foreclosure costs including court costs and reasonable
attorneys' fees; and (iii) if there has been physical loss or damage to the
Mortgaged Property, to restore the Mortgaged Property to its condition
(reasonable wear and tear excepted) as of the issue date of the Pool Insurance
Policy. It also will be a condition precedent to the payment of any claim
under the Pool Insurance Policy that the Insured maintain a Primary Mortgage
Insurance Policy that is acceptable to the Pool Insurer on all Mortgage Loans
that have Loan-to-Value Ratios at the time of origination in excess of 80%.
FHA insurance and VA guarantees will be deemed to be an acceptable Primary
Mortgage Insurance Policy under the Pool Insurance Policy. Assuming
satisfaction of these conditions, the Pool Insurer will pay to the Insured the
amount of loss, determined as follows: (i) the amount of the unpaid principal
balance of the Mortgage Loan immediately prior to the Approved Sale (as
described below) of the Mortgaged Property, (ii) the amount of the accumulated
unpaid interest on such Mortgage Loan to the date of claim settlement at the
applicable Mortgage Rate and (iii) advances as described above, less (a) all
rents or other payments (excluding proceeds of fire and extended coverage
insurance) collected or received by the Insured, which are derived from or in
any way related to the Mortgaged Property, (b) amounts paid under applicable
fire and extended coverage policies which are in excess of the cost of
restoring and repairing the Mortgaged Property and which have not been applied
to the payment of the Mortgage Loan, (c) any claims payments previously made
by the Pool Insurer on the Mortgage Loan, (d) due and unpaid premiums payable
with respect to the Pool Insurance Policy and (e) all claim payments received
by the Insured pursuant to any Primary Mortgage Insurance Policy. An "Approved
Sale" is (1) a sale of the Mortgaged Property acquired because of a default by
the Mortgagor to which the Pool Insurer has given prior approval, (2) a
foreclosure or trustee's sale of the Mortgaged Property at a price exceeding
the maximum amount specified by the Pool Insurer, (3) the acquisition of the
Mortgaged Property under the Primary Insurance Policy by the Primary Mortgage
Insurer or (4) the acquisition of the Mortgaged Property by the Pool Insurer.
The Pool Insurer must be provided with good and merchantable title to the
Mortgaged Property as a condition precedent to the payment of any Loss. If any
Mortgaged Property securing a defaulted Mortgage Loan is damaged and the
proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
Mortgaged Property to a condition sufficient to permit recovery under the Pool
Insurance Policy, the Master Servicer or the Servicer of the related Mortgage
Loan will not be required to expend its own funds to restore the damaged
Mortgaged Property unless it is determined (A) that such restoration will
increase the proceeds to the Certificateholders of the related Series on
liquidation of the Mortgage Loan, after reimbursement of the expenses of the
Master Servicer or the Servicer, as the case may be, and (B) that such
expenses will be recoverable by it through payments under the Letter of
Credit, if any, with respect to such
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Series, Liquidation Proceeds, Insurance Proceeds, amounts in the Reserve Fund,
if any, or payments under any Alternative Credit Support, if any, with respect
to such Series.
No Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies may not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor,
the Unaffiliated Seller, the Originator or other persons involved in the
origination thereof, (ii) the exercise by the Insured of its right to call the
Mortgage Loan, or the term of the Mortgage Loan is shorter than the
amortization period and the defaulted payment is for an amount more than twice
the regular periodic payments of principal and interest for such Mortgage
Loan, or (iii) the exercise by the Insured of a "due-on-sale" clause or other
similar provision in the Mortgage Loan; provided, in either case (ii) or
(iii), such exclusion shall not apply if the Insured offers a renewal or
extension of the Mortgage Loan or a new Mortgage Loan at the market rate in an
amount not less than the then outstanding principal balance with no decrease
in the amortization period. A failure of coverage attributable to one of the
foregoing events might result in a breach of the Master Servicer's
insurability representation described under "Description of the Certificates--
Assignment of Mortgage Loans" above, and in such event, subject to the
limitations described therein, might give rise to an obligation on the part of
the Master Servicer to purchase the defaulted Mortgage Loan if the breach
materially and adversely affects the interests of the Certificateholders of
the related Series and cannot be cured by the Master Servicer. Depending upon
the nature of the event, a breach of representation made by the Depositor or
an Unaffiliated Seller may also have occurred. Such a breach, if it materially
and adversely affects the interests of the Certificateholders of such Series
and cannot be cured, would give rise to a repurchase obligation on the part of
the Unaffiliated Seller as more fully described under "The Trust Fund--
Mortgage Loan Program--Representations by Unaffiliated Sellers; Repurchases"
and "Description of the Certificates--Assignment of Mortgage Loans."
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Certificates of the related Series by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed Mortgaged
Properties covered thereby. The amount of claims paid will include certain
expenses incurred by the Master Servicer or by the Servicer of the defaulted
Mortgage Loan as well as accrued interest on delinquent Mortgage Loans to the
date of payment of the claim. Accordingly, if aggregate net claims paid under
a Pool Insurance Policy reach the original policy limit, coverage under the
Pool Insurance Policy will lapse and any further losses will be borne by the
holders of the Certificates of such Series. In addition, unless the Master
Servicer or the related Servicer could determine that an Advance in respect of
a delinquent Mortgage Loan would be recoverable to it from the proceeds of the
liquidation of such Mortgage Loan or otherwise, neither such Servicer nor the
Master Servicer would be obligated to make an Advance respecting any such
delinquency, since the Advance would not be ultimately recoverable to it from
either the Pool Insurance Policy or from any other related source. See
"Description of the Certificates--Advances."
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master Servicer
shall obtain a Special Hazard Insurance Policy for the Mortgage Pool
underlying a Series of Certificates. Any Special Hazard Insurance Policies for
a Contract Pool underlying a Series of Certificates will be described in the
related Prospectus Supplement. The Special Hazard Insurance Policy for the
Mortgage Pool underlying the Certificates of a Series will be issued by the
Special Hazard Insurer named in the applicable Prospectus Supplement. Each
Special Hazard Insurance Policy will, subject to the limitations described
below, protect against loss by reason of damage to Mortgaged Properties caused
by certain hazards (including vandalism and earthquakes and, except where the
Mortgagor is required to obtain flood insurance, floods and mudflows) not
insured against under the standard form of hazard insurance policy for the
respective states in which the Mortgaged Properties are located. See
"Description of the Certificates--Maintenance of Insurance Policies" and "--
Standard Hazard Insurance." The Special Hazard Insurance Policy will not cover
losses occasioned by war, certain governmental actions, nuclear reaction and
certain other perils. Coverage under a Special Hazard Insurance Policy will be
at least equal to the amount set forth in the related Prospectus Supplement.
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Subject to the foregoing limitations, each Special Hazard Insurance Policy
will provide that, when there has been damage to the Mortgaged Property
securing a defaulted Mortgage Loan and to the extent such damage is not
covered by the Standard Hazard Insurance Policy, if any, maintained by the
Mortgagor, the Master Servicer or the Servicer, the Special Hazard Insurer
will pay the lesser of (i) the cost of repair or replacement of such Mortgaged
Property or (ii) upon transfer of such Mortgaged Property to the Special
Hazard Insurer, the unpaid balance of such Mortgage Loan at the time of
acquisition of such Mortgaged Property by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim settlement (excluding
late charges and penalty interest) and certain expenses incurred in respect of
such Mortgaged Property. No claim may be validly presented under a Special
Hazard Insurance Policy unless (i) hazard insurance on the Mortgaged Property
has been kept in force and other reimbursable protection, preservation and
foreclosure expenses have been paid (all of which must be approved in advance
as necessary by the insurer) and (ii) the insured has acquired title to the
Mortgaged Property as a result of default by the Mortgagor. If the sum of the
unpaid principal balance plus accrued interest and certain expenses is paid by
the Special Hazard Insurer, the amount of further coverage under the related
Special Hazard Insurance Policy will be reduced by such amount less any net
proceeds from the sale of the Mortgaged Property. Any amount paid as the cost
of repair of the Mortgaged Property will further reduce coverage by such
amount.
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to maintain the Special Hazard Insurance Policy in full force and
effect throughout the term of the Pooling and Servicing Agreement. If a Pool
Insurance Policy is required to be maintained pursuant to the Pooling and
Servicing Agreement, the Special Hazard Insurance Policy will be designed to
permit full recoveries under the Pool Insurance Policy in circumstances where
such recoveries would otherwise be unavailable because Mortgaged Property has
been damaged by a cause not insured against by a Standard Hazard Insurance
Policy. In such event the Pooling and Servicing Agreement will provide that,
if the related Pool Insurance Policy shall have terminated or been exhausted
through payment of claims, the Master Servicer will be under no further
obligation to maintain such Special Hazard Insurance Policy.
MORTGAGOR BANKRUPTCY BOND
In the event of a personal bankruptcy of a Mortgagor, a bankruptcy court may
establish the value of the related Mortgaged Property or Cooperative Dwelling
at an amount less than the then outstanding principal balance of the related
Mortgage Loan. The amount of the secured debt could be reduced to such value,
and the holder of such Mortgage Loan thus would become an unsecured creditor
to the extent the outstanding principal balance of such Mortgage Loan exceeds
the value so assigned to the Mortgaged Property or Cooperative Dwelling by the
bankruptcy court. In addition, certain other modifications of the terms of a
Mortgage Loan can result from a bankruptcy proceeding. If so specified in the
related Prospectus Supplement, losses resulting from a bankruptcy proceeding
affecting the Mortgage Loans in a Mortgage Pool with respect to a Series of
Certificates will be covered under a Mortgagor Bankruptcy Bond (or any other
instrument that will not result in a downgrading of the rating of the
Certificates of a Series by the Rating Agency that rated such Series). Any
Mortgagor Bankruptcy Bond will provide for coverage in an amount acceptable to
the Rating Agency rating the Certificates of the related Series, which will be
set forth in the related Prospectus Supplement. Subject to the terms of the
Mortgagor Bankruptcy Bond, the issuer thereof may have the right to purchase
any Mortgage Loan with respect to which a payment or drawing has been made or
may be made for an amount equal to the outstanding principal amount of such
Mortgage Loan plus accrued and unpaid interest thereon. The coverage of the
Mortgagor Bankruptcy Bond with respect to a Series of Certificates may be
reduced as long as any such reduction will not result in a reduction of the
outstanding rating of the Certificates of such Series by the Rating Agency
rating such Series.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing conditional sales contracts and
installment loan agreements which are general in nature. Because such legal
aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Mortgage Loans or Contracts is situated. The summaries
are qualified in their entirety by reference to the applicable federal and
state laws governing the Mortgage Loans and Contracts.
THE MORTGAGE LOANS
General
The Mortgage Loans (other than the Cooperative Loans) comprising or
underlying the Trust Assets for a Series will be secured by either first or
more junior mortgages or deeds of trust, depending upon the prevailing
practice in the state in which the underlying property is located. The filing
of a mortgage, deed of trust or deed to secure debt creates a lien or title
interest upon the real property covered by such instrument and represents the
security for the repayment of an obligation that is customarily evidenced by a
promissory note. It is not prior to the lien for real estate taxes and
assessments or other charges imposed under governmental police powers.
Priority with respect to such instruments depends on their terms, the
knowledge of the parties to the mortgage and generally on the order of
recording with the applicable state, county or municipal office. There are two
parties to a mortgage: the mortgagor, who is the borrower and homeowner, and
the mortgagee, who is the lender. In a mortgage state, the mortgagor delivers
to the mortgagee a note or bond evidencing the loan and the mortgage. Although
a deed of trust is similar to a mortgage, a deed of trust has three parties:
the borrower-homeowner called the trustor (similar to a mortgagor), a lender
called the beneficiary (similar to a mortgagee) and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale,
to the trustee to secure payment of the loan. The trustee's authority under a
deed of trust and the mortgagee's authority under a mortgage are governed by
the express provisions of the deed of trust or mortgage, applicable law and,
in some cases, with respect to the deed of trust, the directions of the
beneficiary.
The real property covered by a mortgage is most often the fee estate in land
and improvements. However, a mortgage may encumber other interests in real
property such as a tenant's interest in a lease of land or improvements, or
both, and the leasehold estate created by such lease. A mortgage covering an
interest in real property other than the fee estate requires special
provisions in the instrument creating such interest or in the mortgage to
protect the mortgagee against termination of such interest before the mortgage
is paid. Certain representations and warranties in the related Agreement will
be made with respect to the Mortgage Loans which are secured by an interest in
a leasehold estate.
Installment Contracts
The Commercial Mortgage Loans and Mixed-Use Mortgage Loans included in the
Mortgage Pool for a Series may also consist of Installment Contracts. Under an
Installment Contract the seller (hereinafter referred to in this Section as
the "lender") retains legal title to the property and enters into an agreement
with the purchaser (hereinafter referred to in this Section as the "borrower")
for the payment of the purchase price, plus interest, over the term of such
contract. Only after full performance by the borrower of the contract is the
lender obligated to convey title to the real estate to the purchaser. As with
mortgage or deed of trust financing, during the effective period of the
Installment Contract, the borrower is generally responsible for maintaining
the property in good condition and for paying real estate taxes, assessments
and hazard insurance premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
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contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the borrower's equitable interest in the property is forfeited. The lender
in such a situation does not have to foreclose in order to obtain title to the
property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the borrower and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the
borrower may be granted some grace period during which the contract may be
reinstated upon full payment of the default amount and the borrower may have a
post-foreclosure statutory redemption right. In other states, courts in equity
may permit a borrower with significant investment in the property under an
Installment Contract for the sale of real estate to share in the proceeds of
sale of the property after the indebtedness is repaid or may otherwise refuse
to enforce the forfeiture clause. Nevertheless, generally speaking, the
lender's procedures for obtaining possession and clear title under an
Installment Contract for the sale of real estate in a given state are simpler
and less time-consuming and costly than are the procedures for foreclosing and
obtaining clear title to a mortgaged property.
Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be secured by junior mortgages or deeds of trust which are subordinate to
senior mortgages or deeds of trust held by other lenders or institutional
investors. The rights of the Trust Fund (and therefore the
Certificateholders), as beneficiary under a junior deed of trust or as
mortgagee under a junior mortgage, are subordinate to those of the mortgagee
or beneficiary under the senior mortgage or deed of trust, including the prior
rights of the senior mortgagee or beneficiary to receive rents, hazard
insurance and condemnation proceeds and to cause the property securing the
Mortgage Loan to be sold upon default of the mortgagor or trustor, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
Master Servicer asserts its subordinate interest in a property in foreclosure
litigation or satisfies the defaulted senior loan. As discussed more fully
below, in many states a junior mortgagee or beneficiary may satisfy a
defaulted senior loan in full, or may cure such default and bring the senior
loan current, in either event adding the amounts expended to the balance due
on the junior loan. Absent a provision in the senior mortgage, no notice of
default is required to be given to the junior mortgagee.
The form of the mortgage or deed of trust used by many institutional lenders
confers on the mortgagee or beneficiary the right both to receive all proceeds
collected under any hazard insurance policy and all awards made in connection
with any condemnation proceedings, and to apply such proceeds and awards to
any indebtedness secured by the mortgage or deed of trust, in such order as
the mortgagee or beneficiary may determine. Thus, in the event improvements on
the property are damaged or destroyed by fire or other casualty, or in the
event the property is taken by condemnation, the mortgagee or beneficiary
under the senior mortgage or deed of trust will have the prior right to
collect any insurance proceeds payable under a hazard insurance policy and any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or deed of trust. The laws of
certain states may limit the ability of mortgagees or beneficiaries to apply
the proceeds of hazard insurance and partial condemnation awards to the
secured indebtedness. In such states, the mortgagor or trustor must be allowed
to use the proceeds of hazard insurance to repair the damage unless the
security of the mortgagee or beneficiary has been impaired. Similarly, in
certain states, the mortgagee or beneficiary is entitled to the award for a
partial condemnation of the real property security only to the extent that its
security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor
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or trustor by the mortgagee or beneficiary are to be secured by the mortgage
or deed of trust. While such a clause is valid under the laws of most states,
the priority of any advance made under the clause depends, in some states, on
whether the advance was an "obligatory" or "optional" advance. If the
mortgagee or beneficiary is obligated to advance the additional amounts, the
advance may be entitled to receive the same priority as amounts initially made
under the mortgage or deed of trust, notwithstanding that there may be
intervening junior mortgages or deeds of trust and other liens between the
date of recording of the mortgage or deed of trust and the date of the future
advance, and notwithstanding that the mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust and other
liens at the time of the advance. Where the mortgagee or beneficiary is not
obligated to advance the additional amounts and has actual knowledge of the
intervening junior mortgages or deeds of trust and other liens, the advance
may be subordinate to such intervening junior mortgages or deeds of trust and
other liens. Priority of advances under a "future advance" clause rests, in
many other states, on state law giving priority to all advances made under the
loan agreement up to a "credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior to
the mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to
perform any of these obligations, the mortgagee or beneficiary is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the
mortgagee or beneficiary for any sums expended by the mortgagee or beneficiary
on behalf of the trustor. All sums so expended by the mortgagee or beneficiary
become part of the indebtedness secured by the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged
property, including, without limitation, leasing activities (including new
leases and termination or modification of existing leases), alterations and
improvements to buildings forming a part of the mortgaged property and
management and leasing agreements for the mortgaged property. Tenants will
often refuse to execute a lease unless the mortgagee or beneficiary executes a
written agreement with the tenant not to disturb the tenant's possession of
its premises in the event of a foreclosure. A senior mortgagee or beneficiary
may refuse to consent to matters approved by a junior mortgagee or beneficiary
with the result that the value of the security for the junior mortgage or deed
of trust is diminished. For example, a senior mortgagee or beneficiary may
decide not to approve a lease or to refuse to grant to a tenant a non-
disturbance agreement. If, as a result, the lease is not executed, the value
of the mortgaged property may be diminished.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right to
foreclosure is contested, the legal proceedings necessary to resolve the issue
can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale. If the mortgage covered the tenant's interest in a lease and leasehold
estate, the purchaser will acquire such tenant's interest subject to the
tenant's obligations under the lease to pay rent and perform other covenants
contained therein.
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Though a deed of trust may also be foreclosed by judicial action,
foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property upon a default by the borrower under the
terms of the note or deed of trust. In some states, the trustee must record a
notice of default and send a copy to the borrower-trustor and to any person
who has recorded a request for a copy of a notice of default and notice of
sale. In addition, the trustee must provide notice in some states to any other
individual having an interest in the real property, including any junior
lienholders. If the loan is not reinstated within any applicable cure period,
a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In
addition, some state laws require that a copy of the notice of sale be posted
on the property and sent to all parties having an interest of record in the
property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. Certain state laws control the amount of foreclosure expenses
and costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of a number of factors, including the difficulty a
potential buyer at the sale would have in determining the exact status of
title to the property subject to the lien of the mortgage or deed of trust and
the redemption rights that may exist (see "--Rights of Redemption" below), and
the fact that the physical condition and financial performance of the property
may have deteriorated during the foreclosure proceedings, it is uncommon for a
third party to purchase the property at the foreclosure sale. Rather, it is
common for the lender to purchase the property from the trustee or receiver
for a credit bid less than or equal to the unpaid principal amount of the
note, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance, paying operating expenses and real
estate taxes and making such repairs at its own expense as are necessary to
render the property suitable for sale. Frequently, the lender employs a third-
party management company to manage and operate the property. The costs of
operating and maintaining commercial and mixed-use property may be significant
and may be greater than the income derived from that property. The costs of
management and operation of those mortgaged properties that are hotels, motels
or nursing or convalescent homes or hospitals may be particularly significant
because of the expertise, knowledge and, with respect to nursing or
convalescent homes or hospitals, regulatory compliance, required to run such
operations and the effect which foreclosure and a change in ownership may have
on the public's and the industry's (including franchisors') perception of the
quality of such operations. The lender commonly will obtain the services of a
real estate broker and pay the broker a commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of
the sale of the property may not equal the lender's investment in the
property. Any loss may be reduced by the receipt of mortgage insurance
proceeds.
Under the REMIC provision of the Code and the related Agreement, the Master
Servicer or Special Servicer, if any, may be permitted to hire an independent
contractor to operate any REO Property. The costs of such operation may be
significantly greater than the costs of direct operation by the Master
Servicer or Special Servicer, if any. In the case of a Series in which an
election is made to treat the related Trust Fund as a REMIC, the Master
Servicer or the Special Servicer (as the case may be) shall, on behalf of the
Trust Fund, manage, conserve, protect and operate each REO Property for the
Certificateholders solely for the purpose of its prompt disposition and sale
in a manner which does not cause such REO Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of Section
860D(a) of the Code) or result in the receipt by the REMIC of any "income from
nonpermitted assets" within the meaning of Section 860F(a)(2)(B) of the Code
or any "net income from foreclosure property" under Section 860G(c) of the
Code, which is subject to taxation under the REMIC Provisions.
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Cooperative Loans
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also contain Cooperative Loans evidenced
by promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under
the Code and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in the
corporations' buildings. The security agreement will create a lien upon, or
grant a title interest in, the property that it covers, the priority of which
will depend on the terms of the particular security agreement as well as the
order of recordation of the agreement in the appropriate recording office.
Such a lien or title interest is not prior to the lien for real estate taxes
and assessments and other charges imposed under governmental police powers.
A corporation that is entitled to be treated as a housing cooperative under
the Code owns all the real property or some interest therein sufficient to
permit it to own the building and all separate dwelling units therein. The
cooperative is directly responsible for property management and, in most
cases, payment of real estate taxes and hazard and liability insurance. If
there is a blanket mortgage or mortgages on the cooperative apartment building
and/or underlying land, as is generally the case, or an underlying lease of
the land, as is the case in some instances, the cooperative, as property
mortgagor, is also responsible for meeting these mortgage or rental
obligations. The interest of the occupancy under proprietary leases or
occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and
to the interest of the holder of a land lease. If the cooperative is unable to
meet the payment obligations (i) arising under a blanket mortgage, the
mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the land lease could terminate it
and all subordinate proprietary leases and occupancy agreements. Also, a
blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one final payment at maturity. The inability of the cooperative
to refinance a mortgage and its consequent inability to make such final
payment could lead to foreclosure by the mortgagee. Similarly, a land lease
has an expiration date and the inability of the cooperative to extend its term
or, in the alternative, to purchase the land could lead to termination of the
cooperative's interest in the property and termination of all proprietary
leases and occupancy agreements. A foreclosure by the holder of a blanket
mortgage could eliminate or significantly diminish the value of any collateral
held by the lender who financed an individual tenant-stockholder of
cooperative shares including, in the case of the Cooperative Loans, the
collateral securing the Cooperative Loans. Similarly, the termination of the
land lease by its holder could eliminate or significantly diminish the value
of any collateral held by the lender who financed an individual tenant-
stockholder of the cooperative shares or, in the case of the Cooperative
Loans, the collateral securing the Cooperative Loans.
Each cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific units. Generally,
a tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured by
a security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement,
and a financing statement covering the proprietary lease or occupancy
agreement and the cooperative shares is filed in the appropriate state and
local offices to perfect the lender's interest in its collateral. Subject to
the limitations discussed below, upon default of the tenant-stockholder, the
lender may sue for judgment on the promissory note, dispose of the collateral
at a public or private sale or otherwise proceed against the collateral or
tenant-stockholder as an individual as provided in the security agreement
covering the assignment of the proprietary lease or occupancy agreement and
the pledge of cooperative shares. See "--Realizing upon Cooperative Loan
Security" below.
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Tax Aspects of Cooperative Loans
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation
representing his proportionate share of certain interest expenses and certain
real estate taxes allowable as a deduction under Section 216(a) of the Code to
the corporation under Sections 163 and 164 of the Code. In order for a
corporation to qualify under Section 216(b)(1) of the Code for its taxable
year in which such items are allowable as a deduction to the corporation, such
section requires, among other things, that at least 80% of the gross income of
the corporation be derived from its tenant-stockholder. By virtue of this
requirement the status of a corporation for purposes of Section 216(b)(1) of
the Code must be determined on a year-to-year basis. Consequently, there can
be no assurance that cooperatives relating to the Cooperative Loans will
qualify under such section for any particular year. In the event that such a
cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to tenant-stockholders under
Section 216(a) of the Code with respect to those years. In view of the
significance of the tax benefits accorded tenant-stockholders of a corporation
that qualifies under Section 216(b)(1) of the Code, the likelihood that such a
failure would be permitted to continue over a period of years appears remote.
Realizing Upon Cooperative Loan Security
The cooperative shares and proprietary lease or occupancy agreement owned by
the tenant-stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease
or occupancy agreement. The proprietary lease or occupancy agreement, even
while pledged, may be cancelled by the cooperative for failure by the tenant-
stockholder to pay rent or other obligations or charges owed by such tenant-
stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy
agreement which are owed to the cooperative are made liens upon the shares to
which the proprietary lease or occupancy agreement relates. In addition, the
proprietary lease or occupancy agreement generally permits the cooperative to
terminate such lease or agreement in the event the borrower defaults in the
performance of covenants thereunder. The lender and the cooperative will
typically enter into a recognition agreement which establishes the rights and
obligations of both parties in the event of a default by the tenant-
stockholder on its obligations under the proprietary lease or occupancy
agreement. A default by the tenant-stockholder under the proprietary lease or
occupancy agreement will usually constitute a default under the security
agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment
subject, however, to the cooperative's right to sums due under such
proprietary lease or occupancy agreement or that have become liens on the
shares relating to the proprietary lease or occupancy agreement. The total
amount owed to the cooperative by the tenant-stockholder, which the lender
generally cannot restrict and does not monitor, could reduce the value of the
collateral below the outstanding principal balance of the cooperative loan and
accrued and unpaid interest thereon.
Recognition agreements also provide that in the event the lender succeeds to
the tenant-shareholder's shares and proprietary lease or occupancy agreement
as the result of realizing upon the collateral for a cooperative loan, the
lender must obtain the approval or consent of the cooperative as required by
the proprietary lease before transferring the cooperative shares or assigning
the proprietary lease. Such approval or consent is usually based on the
prospective purchaser's income and net worth, among other factors, and may
significantly reduce the number of potential purchasers, which could limit the
ability of the lender to sell and realize upon the value of the collateral.
Generally, the lender is not limited in any rights it may have to dispossess
the tenant-shareholders.
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The terms of the Cooperative Loans do not require either the Mortgagor or
the Cooperative to obtain title insurance of any type. Consequently, the
existence of any prior liens or other imperfections of title also may
adversely affect the marketability of the Cooperative Dwelling in the event of
foreclosure.
In New York, lenders generally realize upon the pledged shares and
proprietary lease or occupancy agreement given to secure a cooperative loan by
public sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those
shares. Article 9 of the UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given
the debtor and the method, manner, time, place and terms of the sale.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the cooperative corporation to
receive sums due under the proprietary lease or occupancy agreement. If there
are proceeds remaining, the lender must account to the tenant-stockholder for
the surplus. Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency. See
"AntiDeficiency Legislation and Other Limitations on Lenders" below.
In the case of foreclosure on a Multifamily Property that was converted from
a rental building to a building owned by a cooperative housing corporation
under a non-eviction plan, some states require that a purchaser at a
foreclosure sale take the property subject to rent control and rent
stabilization laws which apply to certain tenants who elected to remain in the
building but not to purchase shares in the cooperative when the building was
so converted. Any such restrictions could adversely affect the number of
potential purchasers for and the value of such property.
Rights of Redemption
In some states, after a sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to a sale
following judicial foreclosure, and not a sale pursuant to a non-judicial
power of sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase price,
accrued interest and taxes. In some states, the right to redeem is an
equitable right. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The exercise of a
right of redemption would defeat the title of any purchaser from the lender
subsequent to foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the lender to retain the
property and pay the expenses of ownership until the redemption period has
run.
Borrowers under Installment Contracts generally do not have the benefits of
redemption periods such as exist in the same jurisdiction for mortgage loans.
Where redemption statutes do exist under state laws for Installment Contracts,
the redemption period is usually far shorter than for mortgages.
Anti-Deficiency Legislation and Other Limitations on Lenders
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be nonrecourse loans as to which, in the event of default by a Mortgagor,
recourse may be had only against the specific property pledged to secure the
related Mortgage Loan and not against the Mortgagor's other assets. Even if
recourse is available pursuant to the terms of the Mortgage Loan against the
Mortgagor's assets in addition to the Mortgaged Property, certain states have
imposed statutory restrictions that limit the remedies of a beneficiary under
a deed of trust or
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a mortgagee under a mortgage. In some states, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure or a non-judicial sale under a deed of trust. A
deficiency judgment is a personal judgment against the former borrower equal
in most cases to the difference between the amount due to the lender and the
net amount realized upon the foreclosure sale. Other statutes prohibit a
deficiency judgment where the loan proceeds were used to purchase a dwelling
occupied by the borrower.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
In the case of cooperative loans, lenders generally realize on cooperative
shares and the accompanying proprietary lease or occupancy agreement given to
secure a cooperative loan under Article 9 of the UCC. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a
Chapter 13 proceeding under the federal Bankruptcy Code, when a court
determines that the value of a home is less than the principal balance of the
loan, the court may prevent a lender from foreclosing on the home, and, as
part of the rehabilitation plan, reduce the amount of the secured indebtedness
to the value of the home as it exists at the time of the proceeding, leaving
the lender as a general unsecured creditor for the difference between that
value and the amount of outstanding indebtedness. A bankruptcy court may grant
the debtor a reasonable time to cure a payment default, and in the case of a
mortgage loan not secured by the debtor's principal residence, also may reduce
the monthly payments due under such mortgage loan, change the rate of interest
and alter the mortgage loan repayment schedule. Certain court decisions have
applied such relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These laws include the federal Truth in Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail
to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
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Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan secured by Multifamily Property will be a non-recourse loan to
the Mortgagor. As a result, the Mortgagor's obligation to repay the Mortgage
Loan can be enforced only against the Mortgaged Property regardless of whether
the Mortgagor has other assets from which it could repay the loan.
Unless otherwise specified in the related Prospectus Supplement, the
mortgage securing each Mortgage Loan relating to Multifamily Property, Mixed-
Use Property or Commercial Property will contain an assignment of rents and an
assignment of leases, pursuant to which the borrower assigns its right, title
and interest as landlord under each lease and the income derived therefrom to
the Depositor, while retaining a license to collect the rents so long as there
is no default. In the event the borrower defaults, the license terminates and
the Trustee (as the assignee of such assignment) is entitled to collect the
rents. The Trustee may enforce its right to such rents by seeking the
appointment of a receiver to collect the rents immediately after giving notice
to the borrower of the default.
Bankruptcy Laws
Numerous statutory provisions, including the Bankruptcy Code and state laws
affording relief to debtors, may interfere with and delay the ability of the
secured mortgage lender to obtain payment of the loan, to realize upon
collateral and/or to enforce a deficiency judgment. For example, under the
Bankruptcy Code, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of
the bankruptcy petition, and, often, no interest or principal payments are
made during the course of the bankruptcy proceeding. The delay and
consequences thereof caused by such automatic stay can be significant. Also,
under the Bankruptcy Code, the filing of a petition in bankruptcy by or on
behalf of a junior lienor, including, without limitation, any junior mortgagee
or beneficiary, may stay the senior lender from taking action to foreclose on
such junior lien. Certain of the Mortgaged Properties may have a junior
"wraparound" mortgage or deed of trust encumbering such Mortgaged Property. In
general terms, a "wraparound" mortgage is a junior mortgage where the full
amount of the mortgage is increased by an amount equal to the principal
balance of the senior mortgage and where the junior lender agrees to pay the
senior mortgage out of the payments received from the mortgagor under the
"wraparound" mortgage. As with other junior mortgages, the filing of a
petition under the Bankruptcy Code by or on behalf of such a "wrap" mortgagee
may stay the senior lender from taking action to foreclose upon such junior
"wrap" mortgage.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage or deed
of trust secured by property of the debtor may be modified under certain
circumstances. The outstanding amount of the loan secured by the real property
may be reduced to the then current value of the property (with a corresponding
partial reduction of the amount of the lender's security interest), thus
leaving the lender a general unsecured creditor for the difference between
such value and the outstanding balance of the loan. Other modifications may
include the reduction in the amount of each monthly payment, which reduction
may result from a reduction in the rate of interest and/or the alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or an extension (or reduction) of the final maturity date.
Some bankruptcy courts have approved plans, based on the particular facts of
the reorganization case, that effected the curing of a mortgage loan default
by paying arrearages over a number of years. Also, under the Bankruptcy Code,
a bankruptcy court may permit a debtor through its plan to de-accelerate a
secured loan and to reinstate the loan even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered in state
court (provided no sale of the property had yet occurred) prior to the filing
of the debtor's petition. This may be done even if the full amount due under
the original loan is never repaid. Other types of significant modifications to
the terms of the mortgage may be acceptable to the bankruptcy court, often
depending on the particular facts and circumstances of the specific case.
A "deficient valuation" with respect to any mortgage loan is the excess of
(a)(i) the then outstanding principal balance of the mortgage loan, plus (ii)
accrued and unpaid interest and expenses reimbursable under the terms of the
related note to the date of the bankruptcy petition (collectively, the
"Outstanding Balance"), over (b) a valuation by a court of competent
jurisdiction of the mortgaged property which reduces the principal
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balance receivable on such mortgage loan to an amount less than the
Outstanding Balance of the mortgage loan, which valuation results from a
proceeding initiated under the Bankruptcy Code. As used herein, "Deficient
Valuation" means, with respect to any Mortgage Loan, the deficient valuation
described in the preceding sentence, without giving effect to clause (a)(ii)
thereof. If the terms of a court order in respect of any retroactive Deficient
Valuation provide for a reduction in the indebtedness of a Mortgage Loan and
the earlier maturity thereof, the term Deficient Valuation includes an
additional amount equal to the excess, if any, of (a) the amount of principal
that would have been due on such Mortgage Loan for each month retroactively
affected (i.e. each month occurring after the effective date of such Deficient
Valuation but before the distribution of amounts in respect of such Deficient
Valuation to Certificateholders pursuant to the related Agreement), based on
the original payment terms and amortization schedule of such Mortgage Loan
over (b) the amount of principal due on such Mortgage Loan for each such
retroactive month (assuming the effect of such retroactive application
according to such Mortgage Loan's revised amortization schedule). A "Debt
Service Reduction," with respect to any Mortgage Loan, is a reduction in the
scheduled monthly payment, as described in the Agreement, for such Mortgage
Loan by a court of competent jurisdiction in a proceeding under the Bankruptcy
Code, except such a reduction resulting from a Deficient Valuation.
Federal bankruptcy law may also interfere with or affect the ability of the
secured mortgage lender to enforce an assignment by a mortgagor of rents and
leases related to the mortgaged property if the related mortgagor is in a
bankruptcy proceeding. Under Section 362 of the Bankruptcy Code, the mortgagee
will be stayed from enforcing the assignment, and the legal proceedings
necessary to resolve the issue can be time-consuming and may result in
significant delays in the receipt of the rents. Rents may also escape an
assignment thereof (i) if the assignment is not fully perfected under state
law prior to commencement of the bankruptcy proceeding, (ii) to the extent
such rents are used by the borrower to maintain the mortgaged property, or for
other court authorized expenses, or (iii) to the extent other collateral may
be substituted for the rents.
To the extent a mortgagor's ability to make payment on a mortgage loan is
dependent on payments under a lease of the related property, such ability may
be impaired by the commencement of a bankruptcy proceeding relating to a
lessee under such lease. Under the Bankruptcy Code, the filing of a petition
in bankruptcy by or on behalf of a lessee results in a stay in bankruptcy
against the commencement or continuation of any state court proceeding for
past due rent, for accelerated rent, for damages or for a summary eviction
order with respect to a default under the lease that occurred prior to the
filing of the lessee's petition.
In addition, federal bankruptcy law generally provides that a trustee or
debtor in possession in a bankruptcy or reorganization case under the
Bankruptcy Code may, subject to approval of the court, (a) assume the lease
and retain it or assign it to a third party or (b) reject the lease. If the
lease is assumed, the trustee or debtor in possession (or assignee, if
applicable) must cure any defaults under the lease, compensate the lessor for
its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, however, as the lessor may be
forced to continue under the lease with a lessee that is a poor credit risk or
an unfamiliar tenant if the lease was assigned, and any assurances provided to
the lessor may, in fact, be inadequate. Furthermore, there is likely to be a
period of time between the date upon which a lessee files a bankruptcy
petition and the date upon which the lease is assumed or rejected. Although
the lessee is obligated to make all lease payments currently with respect to
the post-petition period, there is a risk that such payments will not be made
due to the lessee's poor financial condition. If the lease is rejected, the
lessor will be treated as an unsecured creditor with respect to its claim for
damages for termination of the lease and the mortgagor must relet the
mortgaged property before the flow of lease payments will recommence. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection are limited.
In a bankruptcy or similar proceeding action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
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"Due-on-Sale" Clauses
The enforceability of these clauses has been subject of legislation or
litigation in many states, and in some cases the enforceability of these
clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law that prohibits the enforcement of due-
on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limited exceptions. The Garn-St Germain
Act does "encourage" lenders to permit assumption of loans at the original
rate of interest or at some other rate less than the average of the original
rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a due-on-
sale clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also
prohibit the imposition of prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the
average life of the Mortgage Loans and the number of Mortgage Loans which may
be outstanding until maturity.
Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon late charges which a lender may
collect from a borrower for delinquent payments. State and federal statutes or
regulations may also limit a lender's right to collect a prepayment penalty
when the prepayment is caused by the lender's acceleration of the loan
pursuant to a due-on-sale clause. Certain states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Servicing Agreements and the Pooling and Servicing
Agreement, late charges and prepayment fees (to the extent permitted by law
and not waived by the Servicers) may be retained by the Servicers, Special
Servicer or Master Servicer as additional servicing compensation.
Some of the Commercial Mortgage Loans, Multifamily Mortgage Loans and Mixed-
Use Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the Mortgagor. The courts of
all states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
courts of any state, however, may refuse to permit foreclosure of a mortgage
or deed of trust when an acceleration of the indebtedness would be inequitable
or unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the Mortgagor may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
State courts also are known to apply various legal and equitable principles
to avoid enforcement of the forfeiture provisions of Installment Contracts.
For example, a lender's practice of accepting late payments from the borrower
may be deemed a waiver of the forfeiture clause. State courts also may impose
equitable grace periods for payment of arrearages or otherwise permit
reinstatement of the contract following a default. Not infrequently, if a
borrower under an Installment Contract has significant equity in the property,
equitable principles will be applied to reform or reinstate the contract or to
permit the borrower to share the proceeds upon a foreclosure sale of the
property if the sale price exceeds the debt.
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Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and sometimes expensive actions to determine the causes
for the borrower's default and the likelihood that the borrower will be able
to reinstate the loan. In some cases, courts have substituted their judgment
for the lender's judgment and have required lenders to reinstate loans or
recast payment schedules to accommodate borrowers who are suffering from
temporary financial disability. In some cases, courts have limited the right
of lenders to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain or insure the
property or the borrower executing a second mortgage or deed of trust
affecting the property. In other cases, some courts have been faced with the
issue whether federal or state constitutional provisions reflecting due
process concerns for adequate notice require that borrowers under the deeds of
trust receive notices in addition to the statutorily-prescribed minimum
requirements. For the most part, these cases have upheld the notice provisions
as being reasonable or have found that the sale by a trustee under a deed of
trust or under a mortgage having a power of sale does not involve sufficient
state action to afford constitutional protections to the borrower.
Environmental Considerations
Real property pledged as security to a lender may be subject to potential
environmental risks. Such environmental risks may give rise to a diminution in
value of property securing any Mortgage Loan or, as more fully described
below, liability for cleanup costs or other remedial actions, which liability
could exceed the value of such property or the principal balance of the
related Mortgage Loan. In certain circumstances, a lender may choose not to
foreclose on contaminated property rather than risk incurring liability for
remedial actions.
Under the laws of certain states where the Mortgaged Properties are located,
the owner's failure to perform remedial actions required under environmental
laws may in certain circumstances give rise to a lien on the Mortgaged
Property to ensure the reimbursement of remedial costs incurred by the state.
In several states such lien has priority over the lien of an existing mortgage
against such property. Because the costs of remedial action could be
substantial, the value of a Mortgaged Property as collateral for a Mortgage
Loan could be adversely affected by the existence of an environmental
condition giving rise to a lien.
Under some circumstances, cleanup costs, or the obligation to take remedial
actions, can be imposed on a secured lender such as the Trust Fund with
respect to each Series. Under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"), current ownership or operation of a property provides a
sufficient basis for imposing liability for the costs of addressing prior or
current releases or threatened releases of hazardous substances on that
property. Under such laws, a secured lender who holds indicia of ownership
primarily to protect its interest in a property may, by virtue of holding such
indicia, fall within the literal terms of the definition of "owner or
operator"; consequently, such laws often specifically exclude such a secured
lender from the definitions of "owner" or "operator", provided that the lender
does not participate in the management of the facility.
Whether actions taken by a secured creditor would constitute such
participation in the management of a facility or property, so that the lender
loses the protection of the secured creditor exclusion, has been a matter of
judicial interpretation of the statutory language, and court decisions have
historically been inconsistent. In 1990, the United States Court of Appeals
for the Eleventh Circuit suggested, in United States v. Fleet Factors Corp.,
that the mere capacity of the lender to influence a borrower's decisions
regarding disposal of hazardous substances was sufficient participation in the
management of the borrower's business to deny the protection of the secured
creditor exclusion to the lender, regardless of whether the lender actually
exercised such influence. Other judicial decisions did not interpret the
secured creditor exclusion as narrowly as did the Eleventh Circuit.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996
(the "Asset Conservation Act"), which took effect on September 30, 1996. The
Asset Conservation Act provides that in order to be deemed to have
participated in the
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management of a secured property, a lender must actually participate in the
operational affairs of the property or the borrower. The Asset Conservation
Act also provides that participation in the management of the property does
not include "merely having the capacity to influence, or unexercised right to
control" operations. Rather, a lender will lose the protection of the secured
creditor exclusion only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all operational
functions of the secured property.
It should be noted that the secured creditor exclusion does not govern
liability for cleanup costs under federal laws other than CERCLA. CERCLA's
jurisdiction extends to the investigation and remediation of releases of
"hazardous substances." The definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Under federal law, the operation and
management of underground petroleum storage tanks (excluding heating oil) is
governed by Subtitle I of the Resource Conservation and Recovery Act ("RCRA").
Under the Asset Conservation Act, the protections accorded to lenders under
CERCLA are also accorded to the holders of security interests in underground
storage tanks. However, liability for cleanup of petroleum contamination will
most likely be governed by state law, which may not provide any specific
protection for secured creditors.
Except as otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller will represent, as of the date of delivery of the related
Series of Certificates, that to the best of its knowledge no Mortgaged
Property secured by Commercial Property, Multifamily Property or Mixed-Use
Property is subject to an environmental hazard that would have to be
eliminated under applicable law before the sale of, or which could otherwise
affect the marketability of, such Mortgaged Property or which would subject
the owner or operator of such Mortgaged Property or a lender secured by such
Mortgaged Property to liability under law, and that there are no liens which
relate to the existence of any clean-up of a hazardous substance (and to the
best of its knowledge no circumstances are existing that under law would give
rise to any such lien) affecting the Mortgaged Property which are or may be
liens prior to or on a parity with the lien of the related mortgage. The
Pooling and Servicing Agreement will further provide that the Master Servicer,
acting on behalf of the Trust Fund, may not acquire title to a Mortgaged
Property or take over its operation unless the Master Servicer has received a
report from a qualified independent person selected by the Master Servicer
setting forth whether such Mortgaged Property is subject to or presents any
toxic wastes or environmental hazards and an estimate of the cost of curing or
cleaning up such hazard. With respect to any Mortgage Pool that contains
Commercial Mortgage Loans or Mixed-Use Mortgage Loans, the related Pooling and
Servicing Agreement will provide that the Master Servicer (of, if applicable,
the Special Servicer), acting on behalf of the Trust Fund, may not acquire
title to a Mortgaged Property securing a Commercial Mortgage Loan or Mixed-Use
Mortgage Loan or take over its operation unless such Master Servicer (or, if
applicable, the Special Servicer) has previously determined, based upon a
report prepared by a person who regularly conducts environmental audits, that:
(i) the Mortgaged Property is in compliance with applicable environmental laws
or, if not, that taking such actions as are necessary to bring the Mortgaged
Property in compliance therewith is likely to produce a greater recovery on a
present value basis, after taking into account any risks associated therewith,
than not taking such actions and (ii) there are no circumstances present at
the Mortgaged Property relating to the use, management or disposal of any
hazardous substances for which investigation, testing, monitoring,
containment, cleanup or remediation could be required under any federal, state
or local law or regulation, or that, if any hazardous substances are present
for which such action would be required, taking such actions with respect to
the affected Mortgaged Property is reasonably likely to produce a greater
recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions. Such requirements
effectively preclude enforcement of the security for the related Mortgage Note
until a satisfactory environmental assessment is obtained or any required
remedial action is taken, reducing the likelihood that a given Trust Fund will
become liable for any environmental conditions affecting a Mortgaged Property,
but making it more difficult to realize on the security for the Mortgage Loan.
However, there can be no assurance that any environmental assessment obtained
by the Master Servicer will detect all possible environmental conditions or
that the other requirements of the Pooling and Servicing Agreement, even if
fully observed by the Master Servicer will in fact insulate a given Trust Fund
from liability for environmental conditions.
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If a lender is or becomes liable for clean-up costs, it may bring an action
for contribution against the current owners or operators, the owners or
operators at the time of on-site disposal activity or any other party who
contributed to the environmental hazard, but such persons or entities may be
bankrupt or otherwise judgment-proof. Furthermore, such action against the
Mortgagor may be adversely affected by the limitations on recourse in the loan
documents. Similarly, in some states anti-deficiency legislation and other
statutes requiring the lender to exhaust its security before bringing a
personal action against the borrower-trustor (see "--Anti-Deficiency
Legislation" below) may curtail the lender's ability to recover from its
borrower the environmental clean-up and other related costs and liabilities
incurred by the lender. Shortfalls occurring as the result of imposition of
any clean-up costs will be addressed in the Prospectus Supplement and
Agreement for the related Series.
Soldiers' and Sailors' Relief Act
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not
be charged interest (including fees and charges) above an annual rate of 6%
during the period of such Mortgagor's active duty status, unless a court
orders otherwise upon application of the lender. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent
not covered by any applicable Enhancements, could result in losses to the
Holders of the Certificates. The Relief Act applies to mortgagors who are
members of the Army, Navy, Air Force, Marines, National Guard, Reserves, Coast
Guard and officers of the U.S. Public Health Service assigned to duty with the
military. Because the Relief Act applies to mortgagors who enter military
service (including reservists who are later called to active duty) after
origination of the related Mortgage Loan, no information can be provided as to
the number of Mortgage Loans that may be affected by the Relief Act. In
addition, the Relief Act imposes limitations which would impair the ability of
the Master Servicer to foreclose on an affected Mortgage Loan during the
Mortgagor's period of active duty status and, under certain circumstances,
during an additional three months thereafter. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned by
the inability to realize upon the Mortgage Property in a timely fashion.
Alternative Mortgage Instruments
Alternative mortgage instruments, including adjustable rate mortgage loans,
originated by non-federally chartered lenders have historically been subjected
to a variety of restrictions. Such restrictions differed from state to state,
resulting in difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender was in compliance
with applicable law. These difficulties were alleviated substantially as a
result of the enactment of Title VIII of the Garn-St Germain Act ("Title
VIII"). Title VIII provides that, notwithstanding any state law to the
contrary, state-chartered banks may originate alternative mortgage instruments
in accordance with regulations promulgated by the Comptroller of the Currency
with respect to origination of alternative mortgage instruments by national
banks, state-chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the National Credit
Union Administration (the "NCUA") with respect to origination of alternative
mortgage instruments by federal credit unions, and all other non-federally
chartered housing creditors, including state-chartered savings and loan
associations, state-chartered savings banks and mortgage banking companies,
may originate alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board (now the Office of
Thrift Supervision) with respect to origination of alternative mortgage
instruments by federal savings and loan associations. Title VIII authorized
any state to reject applicability of the provision of Title VIII by adopting,
prior to October 15, 1985, a law or constitutional provision expressly
rejecting the applicability of such provisions. Certain states have taken such
action.
Leases and Rents
Some of the Commercial Mortgage Loans, Multifamily Mortgage Loans and Mixed-
Use Mortgage Loans included in the Mortgage Pool for a Series may be secured
by an assignment of leases (each, a "Lease") and
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rents of one or more lessees (each, a "Lessee"), either through a separate
document of assignment or as incorporated in the mortgage. Under such
assignments, the Mortgagor under the mortgage loan typically assigns its
right, title and interest as landlord under each Lease and the income derived
therefrom to the lender, while retaining a license to collect the rents for so
long as there is no default under the mortgage loan documentation. The manner
of perfecting the lender's interest in rents may depend on whether the
mortgagor's assignment was absolute or one granted as security for the loan.
Failure to properly perfect the lender's interest in rents may result in the
loss of a substantial pool of funds which could otherwise serve as a source of
repayment for the loan. In the event the Mortgagor defaults, the license
terminates and the lender may be entitled to collect rents. Some state laws
may require that to perfect its interest in rents, the lender must take
possession of the property and/or obtain judicial appointment of a receiver
before becoming entitled to collect the rents. Lenders that actually take
possession of the property, however, may incur potentially substantial risks
attendant to being a mortgagee in possession. Such risks include liability for
environmental clean-up costs and other risks inherent to property ownership.
In addition, if bankruptcy or similar proceedings are commenced by or in
respect of the borrower, the lender's ability to collect the rents may be
adversely affected. In the event of borrower default, the amount of rent the
lender is able to collect from the tenants can significantly affect the value
of the lender's security interest.
Secondary Financing; Due-on-Encumbrance Provisions
Some of the Mortgage Loans secured by Commercial Property, Mixed-Use
Property or Multifamily Property included in the Mortgage Pool for a Series
may not restrict secondary financing, thereby permitting the Mortgagor to use
the Mortgaged Property as security for one or more additional loans. Some of
the Mortgage Loans secured by Commercial Property, Mixed-Use Property or
Multifamily Property may preclude secondary financing (often by permitting the
first lender to accelerate the maturity of its loan if the Mortgagor further
encumbers the Mortgaged Property) or may require the consent of the senior
lender to any junior or substitute financing; however, such provisions may be
unenforceable in certain jurisdictions under certain circumstances. The
Pooling and Servicing Agreement for each Series will provide that if any
Mortgage Loan contains a provision in the nature of a "due-on-encumbrance"
clause, which by its terms: (i) provides that such Mortgage Loan shall (or may
at the mortgagee's option) become due and payable upon the creation of any
lien or other encumbrance on the related Mortgaged Property; or (ii) requires
the consent of the related mortgagee to the creation of any such lien or other
encumbrance on the related Mortgaged Property, then for so long as such
Mortgage Loan is included in a given Trust Fund, the Master Servicer or, if
such Mortgage Loan is a Specially Serviced Mortgage Loan, the Special
Servicer, if any, on behalf of such Trust Fund, shall exercise (or decline to
exercise) any right it may have as the mortgagee of record with respect to
such Mortgage Loan (x) to accelerate the payments thereon, or (y) to withhold
its consent to the creation of any such lien or other encumbrance, in a manner
consistent with the servicing standard set forth in the Agreement.
Where the Mortgagor encumbers the Mortgaged Property with one or more junior
liens, the senior lender is subject to additional risk. First, the Mortgagor
may have difficulty servicing and repaying multiple loans. Second, acts of the
senior lender which prejudice the junior lender or impair the junior lender's
security may create a superior equity in favor of the junior lender. For
example, if the Mortgagor and the senior lender agree to an increase in the
principal amount of or the interest rate payable on the senior loan, the
senior lender may lose its priority to the extent an existing junior lender is
prejudiced or the Mortgagor is additionally burdened. Third, if the Mortgagor
defaults on the senior loan and/or any junior loan or loans, the existence of
junior loans and actions taken by junior lenders can impair the security
available to the senior lender and can interfere with, delay and in certain
circumstances even prevent the taking of action by the senior lender. Fourth,
the bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
Certain Laws and Regulations
The Mortgaged Properties will be subject to compliance with various federal,
state and local statutes and regulations. Failure to comply (together with an
inability to remedy any such failure) could result in material
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diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan.
Type of Mortgaged Property
The lender may be subject to additional risk depending upon the type and use
of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care institutions.
Mortgages on Mortgaged Properties which are owned by the Mortgagor under a
condominium form of ownership are subject to the declaration, by-laws and
other rules and regulations of the condominium association. Mortgaged
Properties which are hotels or motels may present additional risk to the
lender in that: (i) hotels and motels are typically operated pursuant to
franchise, management and operating agreements which may be terminable by the
operator; and (ii) the transferability of the hotel's operating, liquor and
other licenses to the entity acquiring the hotel either through purchase or
foreclosure is subject to the vagaries of local law requirements. In addition,
Mortgaged Properties which are multifamily residential properties or
cooperatively owned multifamily properties may be subject to rent control
laws, which could impact the future cash flows of such properties.
Americans with Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, owners of public accommodations (such as
hotels, restaurants, shopping centers, hospitals, schools and social service
center establishments) must remove architectural and communication barriers
which are structural in nature from existing places of public accommodation to
the extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so that,
to the maximum extent feasible, such altered portions are readily accessible
to and usable by disabled individuals. The "readily achievable" standard takes
into account, among other factors, the financial resources of the affected
site, owner, landlord or other applicable Person. In addition to imposing a
possible financial burden on the borrower in its capacity as owner or
landlord, the ADA may also impose such requirements on a foreclosing lender
who succeeds to the interest of the Mortgagor as owner or landlord.
Furthermore, since the "readily achievable" standard may vary depending on the
financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the Mortgagor of complying with the requirements
of the ADA may be subject to more stringent requirements than those to which
the Mortgagor is subject.
THE CONTRACTS
General
As a result of the Depositor's assignment of the Contracts to the Trustee,
the Certificateholders will succeed collectively to all of the rights
(including the right to receive payment on the Contracts) and will assume
certain obligations of the Depositor. Each Contract evidences both (a) the
obligation of the Obligor to repay the loan evidenced thereby and (b) the
grant of a security interest in the Manufactured Home to secure repayment of
such loan. Certain aspects of both features of the Contracts are described
more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code in effect in the states in which the Manufactured Homes
initially were registered. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to perfection of a security interest in chattel
paper. Under the Pooling and Servicing Agreement, the Master Servicer or the
Depositor, as the case may be, will transfer physical possession of the
Contracts to the Trustee or its custodian. In addition, the Master Servicer
will make an appropriate filing of a UCC-1 financing statement in the
appropriate states to give notice of the Trustee's ownership of the Contracts.
Unless otherwise specified in the related Prospectus Supplement, the Contracts
will not be stamped or marked
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otherwise to reflect their assignment from the Depositor to the Trustee.
Therefore, if a subsequent purchaser were able to take physical possession of
the Contracts without notice of such assignment, the Trustee's interest in the
Contracts could be defeated.
Security Interests in the Manufactured Homes
The law governing perfection of a security interest in a Manufactured Home
varies from state to state. Security interests in manufactured homes may be
perfected either by notation of the secured party's lien on the certificate of
title or by delivery of the required documents and payment of a fee to the
state motor vehicle authority, depending on state law. In some non-title
states, perfection pursuant to the provisions of the UCC is required. The
lender or Master Servicer may effect such notation or delivery of the required
documents and fees, and obtain possession of the certificate of title, as
appropriate under the laws of the state in which any manufactured home
securing a manufactured housing conditional sales contract is registered. In
the event the Master Servicer or the lender fails, due to clerical errors, to
effect such notation or delivery, or files the security interest under the
wrong law (for example, under a motor vehicle title statute rather than under
the UCC, in a few states), the Certificateholders may not have a first
priority security interest in the Manufactured Home securing a Contract. As
manufactured homes have become larger and often have been attached their sites
without any apparent intention to move them, courts in many states have held
that manufactured homes, under certain circumstances, may become subject to
real estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate
law. In order to perfect a security interest in a manufactured home under real
estate laws, the holder of the security interest must file either a "fixture
filing" under the provisions of the UCC or a real estate mortgage under the
real estate laws of the state where the manufactured home is located. These
filings must be made in the real estate records office of the county where the
manufactured home is located. Substantially all of the Contracts will contain
provisions prohibiting the borrower from permanently attaching the
Manufactured Home to its site. So long as the Obligor does not violate this
agreement, a security interest in the Manufactured Home will be governed by
the certificate of title laws or the UCC, and the notation of the security
interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the seller's security
interest in the Manufactured Home. If, however, a Manufactured Home is
permanently attached to its site, other parties could obtain an interest in
the Manufactured Home which is prior to the security interest originally
retained by the Unaffiliated Seller and transferred to the Depositor. With
respect to a Series of Certificates and as described in the related Prospectus
Supplement, the Master Servicer may be required to perfect a security interest
in the Manufactured Home under applicable real estate laws. If such real
estate filings are not required and if any of the foregoing events were to
occur, the only recourse of the Certificateholders would be against the
Unaffiliated Seller pursuant to its repurchase obligation for breach of
warranties. Based on the representations of the Unaffiliated Seller, the
Depositor, however, believes that it has obtained a perfected first priority
security interest by proper notation or delivery of the required documents and
fees with respect to substantially all of the Manufactured Homes securing the
Contracts.
The Depositor will assign its security interests in the Manufactured Homes
to the Trustee on behalf of the Certificateholders. Unless otherwise specified
in the related Prospectus Supplement, neither the Depositor nor the Trustee
will amend the certificates of title to identify the Trustee as the new
secured party. Accordingly, the Depositor or such other entity as may be
specified in the Prospectus Supplement will continue to be named as the
secured party on the certificates of title relating to the Manufactured Homes.
In most states, such assignment is an effective conveyance of such security
interest without amendment of any lien noted on the related certificate of
title and the new secured party succeeds to the assignor's rights as the
secured party. However, in some states there exists a risk that, in the
absence of an amendment to the certificate of title, such assignment of the
security interest might not be held effective against creditors of the
assignor.
In the absence of fraud, forgery or permanent affixation of the Manufactured
Home to its site by the Manufactured Home owner, or administrative error by
state recording officials, the notation of the lien of the Depositor on the
certificate of title or delivery of the required documents and fees will be
sufficient to protect the
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Certificateholders against the rights of subsequent purchasers of a
Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the
security interest assigned to the Depositor and the Certificateholders is not
perfected, such security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Homes and holders of perfected
security interests. There also exists a risk in not identifying the
Certificateholders as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the Certificateholders
could be released.
In the event that the owner of a Manufactured Home moves it to a state other
than the state in which such Manufactured Home initially is registered, under
the laws of most states the perfected security interest in the Manufactured
Home would continue for four months after such relocation and thereafter only
if and after the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and not re-
register the Manufactured Home in such state, and if steps are not taken to
re-perfect the Trustee's security interest in such state, the security
interest in the Manufactured Home would cease to be perfected. A majority of
states generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Trustee, or the Master Servicer as
custodian for the Trustee, must surrender possession if it holds the
certificate of title to such Manufactured Home or, in the case of Manufactured
Homes registered in states which provide for notation of lien, the Trustee
would receive notice of surrender if the security interest in the Manufactured
Home is noted on the certificate of title. Accordingly, the Trustee would have
the opportunity to re-perfect its security interest in the Manufactured Home
in the state of relocation. In states which do not require a certificate of
title for registration of a Manufactured Home, re-registration could defeat
perfection. In the ordinary course of servicing manufactured housing
conditional sales contracts and installment loan agreements, the Master
Servicer takes steps to effect such re-perfection upon receipt of notice of
re-registration or information from the Obligor as to relocation. Similarly,
when an Obligor under a manufactured housing conditional sales contract or
installment loan agreement sells a Manufactured Home, the Trustee, or the
Master Servicer as custodian for the Trustee, must surrender possession of the
certificate of title or will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of
the related manufactured housing conditional sales contract or installment
loan agreement before release of the lien. Under the Pooling and Servicing
Agreement, the Master Servicer, on behalf of the Depositor, is obligated to
take such steps, at the Master Servicer's expense, as are necessary to
maintain perfection of security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a Manufactured
Home take priority even over a perfected security interest. The Depositor will
represent in the Pooling and Servicing Agreement that it has no knowledge of
any such liens with respect to any Manufactured Home securing payment on any
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Trustee or Certificateholders in the
event such a lien arises and such lien would not give rise to a repurchase
obligation on the part of the party specified in the Pooling and Servicing
Agreement.
Enforcement of Security Interests in Manufactured Homes
The Master Servicer on behalf of the Trustee, to the extent required by the
related Pooling and Servicing Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default by
repossession and resale of the Manufactured Homes securing such Defaulted
Contracts. Except in Louisiana, so long as the Manufactured Home has not
become subject to the real estate law, a creditor can repossess a Manufactured
Home securing a Contract by voluntary surrender, by "self-help" repossession
that is "peaceful" (i.e., without breach of the peace) or, in the absence of
voluntary surrender and the ability to repossess without breach of the peace,
by judicial process. The holder of a Contract must give the debtor a number of
days notice, which varies from 10 to 30 days depending on the state, prior to
commencement of any repossession. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including requiring prior
notice to the debtor and commercial reasonableness in effecting such a sale.
The law in most states also requires that the debtor be given notice of any
sale prior to resale of the unit so that the debtor may redeem at or before
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such resale. In the event of such repossession and resale of a Manufactured
Home, the Trustee would be entitled to be paid out of the sale proceeds before
such proceeds could be applied to the payment of the claims of unsecured
creditors or the holders of subsequently perfected security interests or,
thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and
resale of the Manufactured Home securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods. Liability under this rule is limited to
amounts paid under a Contract; however, the Obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
against such Obligor. Numerous other federal and state consumer protection
laws impose requirements applicable to the origination and lending pursuant to
the Contracts, including the Truth in Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act,
the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and
the Uniform Consumer Credit Code. In the case of some of these laws, the
failure to comply with their provisions may affect the enforceability of the
related Contract.
Transfers of Manufactured Homes, Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Depositor or the Master Servicer
and permit the acceleration of the maturity of the Contracts by the Depositor
or the Master Servicer upon any such sale or transfer that is not consented
to. Unless otherwise specified in the related Prospectus Supplement, the
Depositor or the Master Servicer expects that it will permit most transfers of
Manufactured Homes and not accelerate the maturity of the related Contracts.
In certain cases, the transfer may be made by a delinquent Obligor in order to
avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Depositor
desires to accelerate the maturity of the related Contract, the Depositor's
ability to do so will depend on the enforceability under state law of the
"due-on-sale" clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of "due-on-sale"
clauses applicable to the Manufactured Homes. In some states the Depositor or
the Master Servicer may be prohibited from enforcing a "due-on-sale" clause in
respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan that is
secured by a first lien on certain kinds of manufactured housing. The
Contracts would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and deferral fees
and requiring a 30-day notice period prior to instituting any action leading
to repossession of or foreclosure with respect to the related unit.
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Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision that expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on loans covered
by Title V. In any state in which application of Title V was expressly
rejected or a provision limiting discount points or other charges has been
adopted, no Contract which imposes finance charges or provides for discount
points or charges in excess of permitted levels has been included in the Trust
Assets or Fund. The Depositor, or the party specified in the related Pooling
and Servicing Agreement will represent that all of the Contracts comply with
applicable usury laws.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
I. GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Certificates. Brown & Wood LLP, San Francisco, California, Cadwalader,
Wickersham & Taft, New York, New York, Dewey Ballantine, New York, New York or
Orrick, Herrington & Sutcliffe LLP, counsel to the Depositor, is delivering
its opinion regarding certain federal income tax matters discussed below. The
opinion addresses only those issues specifically identified below as being
covered by such opinion; however, such opinion also states that the additional
discussion set forth below accurately sets forth Brown & Wood LLP's,
Cadwalader, Wickersham & Taft's, Dewey Ballantine's or Orrick, Herrington &
Sutcliffe LLP's advice with respect to material federal income tax issues. As
used hereinafter in "Certain Federal Income Tax Consequences," "Mortgage
Loans" shall include Mortgage Certificates and Contracts and "Mortgage Pool"
shall include "Contract Pool."
The following summary is based on the Code as well as Treasury regulations
and administrative and judicial rulings and practice. Legislative, judicial
and administrative changes may occur, possibly with retroactive effect, that
could alter or modify the continued validity of the statements and conclusions
set forth herein. This summary does not purport to address all federal income
tax matters that may be relevant to particular holders. For example, it
generally is addressed only to original purchasers of the Certificates that
are United States investors, deals only with Certificates held as capital
assets within the meaning of Section 1221 of the Code, and does not address
tax consequences to holders that may be relevant to investors subject to
special rules, such as non-U.S. investors, banks, insurance companies, tax-
exempt organizations, electing large partnership, dealers in securities or
currencies, mutual funds, REITs, S corporations, estates and trusts, investors
that hold the Certificates as part of a hedge, straddle, integrated or
conversion transaction, or holders whose "functional currency" is not the
United States dollar. Further, it does not address alternative minimum tax
consequences or the indirect effects on the holders of equity interests in an
entity that is a beneficial owner of the Certificates. Further, this
discussion does not address the state or local tax consequences of the
purchase, ownership and disposition of such Certificates. Investors should
consult their own tax advisers in determining the federal, state, local, or
other tax consequences to them of the purchase, ownership and disposition of
the Certificates offered hereunder.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Mortgage Pool
("REMIC Mortgage Pool") which the Master Servicer elects to have treated as a
real estate mortgage investment conduit ("REMIC") under Code Sections 860A
through 860G ("REMIC Provisions") and (ii) certificates ("Trust Certificates")
representing certain interests in a Trust Fund which the Master Servicer does
not elect to have treated as a REMIC. REMIC Certificates and Trust
Certificates will be referred to collectively as "Certificates."
Under the REMIC Provisions, REMICs may issue one or more classes of
"regular" interests and must issue one and only one class of "residual"
interests. A REMIC Certificate representing a regular interest in a REMIC
Mortgage Pool will be referred to as a "REMIC Regular Certificate" and a REMIC
Certificate representing a residual interest in a REMIC Mortgage Pool will be
referred to as a "REMIC Residual Certificate."
A Trust Certificate representing an undivided equitable ownership interest
in the principal of the Mortgage Loans constituting the related Trust Fund,
together with interest thereon at a remittance rate (which may be less than,
greater than, or equal to the pass-through rate), will be referred to as a
"Trust Fractional Certificate" and a Trust Certificate representing an
equitable ownership of all or a portion of the interest paid on each Mortgage
Loan constituting the related Trust Fund (net of normal servicing fees) will
be referred to as a "Trust Interest Certificate."
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Code Sections 1271 through 1273 and 1275
and in Treasury regulations issued under the original issue discount
provisions of the Code (the "OID Regulations"), and the Treasury regulations
issued under the provisions of the Code relating to REMICs (the "REMIC
Regulations").
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II. REMIC TRUST FUNDS
A. Classification of REMIC Trust Funds
With respect to each series of REMIC Certificates relating to a REMIC
Mortgage Pool, Brown & Wood LLP, San Francisco, California, Cadwalader,
Wickersham & Taft, New York, New York, Dewey Ballantine, New York, New York,
or Orrick, Herrington & Sutcliffe LLP, will deliver their opinion generally to
the effect that, assuming that (i) any required REMIC election is made timely
in the required form, (ii) there is ongoing compliance with all provisions of
the related Pooling and Servicing Agreement, (iii) certain representations set
forth in the Pooling and Servicing Agreement are true and (iv) there is
continued compliance with applicable provisions of the Code, as it may be
amended from time to time, and applicable Treasury regulations issued
thereunder, such REMIC Mortgage Pool (or a portion thereof) will qualify as
one or more REMICs and the classes of interests offered will be considered to
be "regular interests" or "residual interests" within the meaning of the REMIC
Provisions.
Holders of REMIC Certificates ("REMIC Certificateholders") should be aware
that, if an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for REMIC status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In such event, an entity electing to be treated
as a REMIC may be taxable as a separate corporation under Treasury
regulations, and the REMIC Certificates issued by such entity may not be
accorded the status described below under the heading "Characterization of
Investments in REMIC Certificates." In the case of an inadvertent termination
of REMIC status, the Code provides the Treasury Department with authority to
issue regulations providing relief. Any such relief, however, may be
accompanied by sanctions, such as the imposition of a corporate tax on all or
a portion of the REMIC's income for the period of time in which the
requirements for REMIC status are not satisfied.
Among the ongoing requirements in order to qualify for REMIC treatment is
that substantially all of the assets of the Trust Fund (as of the close of the
third calendar month beginning after the creation of the REMIC and continually
thereafter) must consist of only "qualified mortgages" and "permitted
investments." In order to be a "qualified mortgage" or to support treatment of
a certificate of participation therein as a "qualified mortgage", an
obligation must be principally secured by an interest in real property. The
REMIC Regulations treat an obligation secured by manufactured housing
qualifying as a single family residence under Code Section 25(e)(10) as an
obligation secured by real property, without regard to the treatment of the
obligation or the property under state law. Under Code Section 25(e)(10), a
single family residence includes any manufactured home that has a minimum of
400 square feet of living space and a minimum width in excess of 102 inches
and that is of a kind customarily used at a fixed location.
B. Taxation of Owners of REMIC Regular Certificates
In general, REMIC Regular Certificates will be treated for federal income
tax purposes as debt instruments issued by the REMIC Mortgage Pool and not as
ownership interests in the REMIC Mortgage Pool or its Assets. In general,
interest, original issue discount and market discount paid or accrued on a
REMIC Regular Certificate will be treated as ordinary income to the holder of
such REMIC Regular Certificate. Distributions in reduction of the stated
redemption price at maturity of the REMIC Regular Certificate will be treated
as a return of capital to the extent of such holder's basis in such REMIC
Regular Certificate. Holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
1. Original Issue Discount
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Code Section 1273(a). Any holders of REMIC
Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with a constant yield
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method that takes into account the compounding of interest, in advance of the
receipt of the cash attributable to such income. The Master Servicer will
report annually (or more frequently if required) to the Internal Revenue
Service ("IRS") and to Certificateholders such information with respect to the
original issue discount accruing on the REMIC Regular Certificates as may be
required under Code Section 6049 and the regulations thereunder. See
"Reporting and Other Administrative Matters of REMICs" below.
Rules governing original issue discount are set forth in Code Sections 1271
through 1273 and 1275 and in the OID Regulations. Code Section 1272(a)(6)
provides special original issue discount rules applicable to REMIC Regular
Certificates.
Code Section 1272(a)(6) requires that a mortgage prepayment assumption
("Prepayment Assumption") be used in computing the accrual of original issue
discount on REMIC Regular Certificates, and for certain other federal income
tax purposes. The Prepayment Assumption is to be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The Committee Report indicates that the regulations will provide
that the Prepayment Assumption, if any, used with respect to a particular
transaction must be the same as that used by the parties in pricing the
transaction. The Master Servicer will use a Prepayment Assumption in reporting
original issue discount that is consistent with this standard. However,
neither the Depositor nor the Master Servicer makes any representation that
the Mortgage Loans will in fact prepay at the rate reflected in the Prepayment
Assumption or at any other rate. Each investor must make its own decision as
to the appropriate prepayment assumption to be used in deciding whether or not
to purchase any of the REMIC Regular Certificates. The Prospectus Supplement
with respect to a Series of REMIC Certificates will disclose the Prepayment
Assumption to be used in reporting original issue discount, if any, and for
certain other federal income tax purposes.
The total amount of original issue discount on a REMIC Regular Certificate
is the excess of the "stated redemption price at maturity" of the REMIC
Regular Certificate over its "issue price." Except as discussed in the
following two paragraphs, in general, the issue price of a particular class of
REMIC Regular Certificates offered hereunder will be the price at which a
substantial amount of REMIC Regular Certificates of that class are first sold
to the public (excluding bond houses and brokers), and the stated redemption
price at maturity of a REMIC Regular Certificate will be its Stated Principal
Balance.
If a REMIC Regular Certificate is sold with accrued interest that relates to
a period prior to the issue date of such REMIC Regular Certificate, the amount
paid for the accrued interest will be treated instead as increasing the issue
price of the REMIC Regular Certificate. In addition, that portion of the first
interest payment in excess of interest accrued from the date of initial
issuance of the Certificates (the "Closing Date") to the first Distribution
Date will be treated for federal income tax reporting purposes as includible
in the stated redemption price at maturity of the REMIC Regular Certificates,
and as excludible from income when received as a payment of interest on the
first Distribution Date (except to the extent of any accrued market discount
as of that date). The OID Regulations suggest, however, that some or all of
this pre-issuance accrued interest "may" be treated as a separate asset (and
hence not includible in a REMIC Regular Certificate's issue price or stated
redemption price at maturity), whose cost is recovered entirely out of
interest paid on the first Distribution Date.
The stated redemption price at maturity of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
"qualified stated interest." Under the OID Regulations, "qualified stated
interest" is interest that is unconditionally payable at least annually during
the entire term of the Certificate at either (i) a single fixed rate that
appropriately takes into account the length of the interval between payments
or (ii) a current value of a single "qualified floating rate" or "objective
rate" (each, a "Single Variable Rate"). A "current value" is the value of a
variable rate on any day that is no earlier than three months prior to the
first day on which that value is in effect and no later than one year
following that day. A "qualified floating rate" is a rate whose variations can
reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds in the currency in which the Certificate is denominated.
Such a rate remains qualified even though it is multiplied by a fixed,
positive multiple greater than 0.65 but not exceeding 1.35, increased or
decreased by a fixed rate, or both. Certain combinations of rates constitute a
single qualified floating rate,
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including (i) interest stated at a fixed rate for an initial period of less
than one year followed by a qualified floating rate if the value of the
floating rate at the Closing Date is intended to approximate the fixed rate,
and (ii) two or more qualified floating rates that can reasonably be expected
to have approximately the same values throughout the term of the Certificate.
A combination of such rates is conclusively presumed to be a single floating
rate if the values of all rates on the Closing Date are within 0.25 percentage
points of each other. A variable rate that is subject to an interest rate cap,
floor, governor or similar restriction on rate adjustment may be a qualified
floating rate only if such restriction is fixed throughout the term of the
instrument, or is not reasonably expected as of the Closing Date to cause the
yield on the debt instrument to differ significantly from the expected yield
absent the restriction. Final regulations issued on June 11, 1996 define an
"objective rate" as a rate determined using a single fixed formula and based
on objective financial information or economic information. However, an
objective rate does not include a rate based on information that is in the
control of the issuer or that is unique to the circumstances of a related
party. A combination of interest stated at a fixed rate for an initial period
of less than one year followed by an objective rate is treated as a single
objective rate if the value of the objective rate at the Closing Date is
intended to approximate the fixed rate; such a combination of rates is
conclusively presumed to be a single objective rate if the objective rate on
the Closing Date does not differ from the fixed rate by more than 0.25
percentage points. The qualified stated interest payable with respect to
certain variable rate debt instruments not bearing stated interest at a Single
Variable Rate is discussed below under "Variable Rate Certificates." Under the
foregoing rules, some of the payments of interest on a Certificate bearing a
fixed rate of interest for an initial period followed by a qualified floating
rate of interest in subsequent periods could be treated as included in the
stated redemption price at maturity if the initial fixed rate were to differ
sufficiently from the rate that would have been set using the formula
applicable to subsequent periods. See "Variable Rate Certificates." REMIC
Regular Certificates offered hereby other than such Certificates providing for
variable rates of interest are not anticipated to have stated interest other
than "qualified stated interest," but if any such REMIC Regular Certificates
are so offered, appropriate disclosures will be made in the Prospectus
Supplement. Some or all of the payments on REMIC Regular Certificates
providing for the accretion of interest will be included in the stated
redemption price at maturity of such Certificates.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
original issue discount on a REMIC Regular Certificate will be considered to
be zero if such original issue discount is less than 0.25% of the stated
redemption price at maturity of the REMIC Regular Certificate multiplied by
the weighted average life of the REMIC Regular Certificate. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the amount of each payment under
the instrument (other than a payment of qualified stated interest) by a
fraction, whose numerator is the number of complete years from the issue date
until such payment is made and whose denominator is the stated redemption
price at maturity of such REMIC Regular Certificate. The IRS may take the
position that this rule should be applied taking into account the Prepayment
Assumption and the effect of any anticipated investment income. Under the OID
Regulations, REMIC Regular Certificates bearing only qualified stated interest
except for any "teaser" rate, interest holiday or similar provision are
treated as subject to the de minimis rule if the greater of the foregone
interest or any excess of the Certificates' stated principal amount over their
issue price is less than such de minimis amount.
The OID Regulations generally treat de minimis original issue discount as
includible in income as each principal payment is made, based on the product
of the total amount of such de minimis original issue discount and a fraction,
whose numerator is the amount of such principal payment and whose denominator
is the outstanding principal balance of the REMIC Regular Certificate. The OID
Regulations also permit a Certificateholder to elect to accrue de minimis
original issue discount (together with stated interest, market discount and
original issue discount) into income currently based on a constant yield
method. See "Taxation of Owners of REMIC Regular Certificates--Market Discount
and Premium."
Each holder of a REMIC Regular Certificate must include in gross income the
sum of the "daily portions" of original issue discount on its REMIC Regular
Certificate for each day during its taxable year on which it held such REMIC
Regular Certificate. For this purpose, in the case of an original holder of a
REMIC Regular
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Certificate, the daily portions of original issue discount will be determined
as follows. A calculation will first be made of the portion of the original
issue discount that accrued during each accrual period, that is generally each
period that ends on a date that corresponds to a Distribution Date on the
REMIC Regular Certificate and begins on the first day following the
immediately preceding accrual period (or in the case of the first such period,
begins on the Closing Date). For any accrual period such portion will equal
the excess, if any, of (i) the sum of (A) the present value of all of the
distributions remaining to be made on the REMIC Regular Certificate, if any,
as of the end of the accrual period and (B) distributions made on such REMIC
Regular Certificate during the accrual period of amounts included in the
stated redemption price at maturity, over (ii) the adjusted issue price of
such REMIC Regular Certificate at the beginning of the accrual period. The
present value of the remaining payments referred to in the preceding sentence
will be calculated based on (i) the yield to maturity of the REMIC Regular
Certificate, calculated as of the settlement date, giving effect to the
Prepayment Assumption, (ii) events (including actual prepayments) that have
occurred prior to the end of the accrual period and (iii) the Prepayment
Assumption. The adjusted issue price of a REMIC Regular Certificate at the
beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of original issue discount with
respect to such REMIC Regular Certificate that accrued in prior accrual
periods, and reduced by the amount of any distributions made on such REMIC
Regular Certificate in prior accrual periods of amounts included in the stated
redemption price at maturity. The original issue discount accruing during any
accrual period will then be allocated ratably to each day during the period to
determine the daily portion of original issue discount for each day. With
respect to an accrual period between the settlement date and the first
Distribution Date on the REMIC Regular Certificate that is shorter than a full
accrual period, the OID Regulations permit the daily portions of original
issue discount to be determined according to any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost (not including payment for accrued
qualified stated interest) less than its remaining stated redemption price at
maturity will also be required to include in gross income, for each day on
which it holds such REMIC Regular Certificate, the daily portions of original
issue discount with respect to such REMIC Regular Certificate, but reduced, if
such cost exceeds the "adjusted issue price", by an amount equal to the
product of (i) such daily portions and (ii) a constant fraction, whose
numerator is such excess and whose denominator is the sum of the daily
portions of original issue discount on such REMIC Regular Certificate for all
days on or after the day of purchase. The adjusted issued price of a REMIC
Regular Certificate on any given day is equal to the sum of the adjusted issue
price (or, in the case of the first accrual period, the issue price) of the
REMIC Regular Certificate at the beginning of the accrual period during which
such day occurs and the daily portions of original issue discount for all days
during such accrual period prior to such day, reduced by the aggregate amount
of distributions made during such accrual period prior to such day other than
distributions of qualified stated interest.
Variable Rate Certificates. REMIC Regular Certificates bearing interest at
one or more variable rates are subject to certain special rules. The qualified
stated interest payable with respect to certain variable rate debt instruments
not bearing interest at a Single Variable Rate generally is determined under
the OID Regulations by converting such instruments into fixed rate debt
instruments. Instruments qualifying for such treatment generally include those
providing for stated interest at (i) more than one qualified floating rate, or
(ii) a single fixed rate and (a) one or more qualified floating rates or (b) a
single "qualified inverse floating rate" (each, a "Multiple Variable Rate"). A
qualified inverse floating rate is an objective rate equal to a fixed rate
reduced by a qualified floating rate, the variations in which can reasonably
be expected to inversely reflect contemporaneous variations in the cost of
newly borrowed funds (disregarding permissible rate caps, floors, governors
and similar restrictions such as are described above).
Purchasers of REMIC Regular Certificates bearing a variable rate of interest
should be aware that there is uncertainty concerning the application of Code
Section 1272(a)(6) and the OID Regulations to such Certificates. In the
absence of other authority, the Master Servicer intends to be guided by the
provisions of the OID Regulations governing variable rate debt instruments in
adapting the provisions of Code Section 1272(a)(6) to such Certificates for
the purpose of preparing reports furnished to Certificateholders. The effect
of the application of such provisions generally will be to cause
Certificateholders holding Certificates bearing interest at a Single
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Variable Rate to take into account for each period an amount corresponding
approximately to the sum of (i) the qualified stated interest accruing on the
outstanding face amount of the REMIC Regular Certificate as the stated
interest rate for that Certificate varies from time to time and (ii) the
amount of original issue discount that would have been attributable to that
period on the basis of a constant yield to maturity for a bond issued at the
same time and issue price as the REMIC Regular Certificate, having the same
face amount and schedule of payments of principal as such Certificate, subject
to the same Prepayment Assumption, and bearing interest at a fixed rate equal
to the value of the applicable qualified floating rate or qualified inverse
floating rate in the case of a Certificate providing for either such rate, or
equal to the fixed rate that reflects the reasonably expected yield on the
Certificate in the case of a Certificate providing for an objective rate other
than an inverse floating rate, in each case as of the issue date.
Certificateholders holding REMIC Regular Certificates bearing interest at a
Multiple Variable Rate generally will take into account interest and original
issue discount under a similar methodology, except that the amounts of
qualified stated interest and original issue discount attributable to such a
Certificate first will be determined for an "equivalent" debt instrument
bearing fixed rates, the assumed fixed rates for which are (a) for each
qualified floating rate, the value of each such rate as of the Closing Date
(with appropriate adjustment for any differences in intervals between interest
adjustment dates), (b) for a qualified inverse floating rate, the value of the
rate as of the Closing Date, and (c) for any other objective rate, the fixed
rate that reflects the yield that is reasonably expected for the Certificate.
If the interest paid or accrued with respect to a Multiple Variable Rate
Certificate during an accrual period differs from the assumed fixed interest
rate, such difference will be an adjustment (to interest or original issue
discount, as applicable) to the Certificateholder's taxable income for the
taxable period or periods to which such difference relates.
In the case of a Certificate that provides for stated interest at a fixed
rate in one or more accrual periods and either one or more qualified floating
rates or a qualified inverse floating rate in other accrual periods, the fixed
rate is first converted into an assumed variable rate. The assumed variable
rate will be a qualified floating rate or a qualified inverse floating rate
according to the type of actual variable rates provided by the Certificate,
and must be such that the fair market value of the REMIC Regular Certificate
as of issuance is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for the assumed variable
rate in lieu of the fixed rate. The REMIC Regular Certificate is then subject
to the determination of the amount and accrual of original issue discount as
described above, by reference to the hypothetical variable rate instrument.
Purchasers of variable rate REMIC Regular Certificates further should be
aware that the provisions of the OID Regulations applicable to variable rate
debt instruments have been limited and may not apply to some REMIC Regular
Certificates having variable rates. If such a Certificate is not governed by
the provisions of the OID Regulations applicable to variable rate debt
instruments, it may be subject to provisions of Treasury regulations, issued
in final form on June 11, 1996, applicable to instruments having contingent
payments (the "1996 Contingent Debt Regulations"). The application of those
provisions to instruments such as variable rate REMIC Regular Certificates is
subject to differing interpretations. Prospective purchasers of variable rate
REMIC Regular Certificates are advised to consult their tax advisers
concerning the tax treatment of such Certificates.
2. Market Discount and Premium
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, at a purchase price less than the REMIC Regular
Certificate's stated redemption price at maturity, or, in the case of a REMIC
Regular Certificate issued with original issue discount, the REMIC Regular
Certificate's adjusted issue price (as defined under "Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount"), will recognize market
discount upon receipt of each payment of principal. In particular, such a
holder will generally be required to allocate each payment of principal on a
REMIC Regular Certificate first to accrued market discount, and to recognize
ordinary income to the extent such principal payment does not exceed the
aggregate amount of accrued market discount on such REMIC Regular Certificate
not previously included in income. Such market discount must be included in
income in addition to any original issue discount includible in income with
respect to such REMIC Regular Certificate.
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A Certificateholder may elect to include market discount in income currently
as it accrues, rather than including it on a deferred basis in accordance with
the foregoing. If made, such election will apply to all market discount bonds
acquired by such Certificateholder on or after the first day of the first
taxable year to which such election applies. In addition, the OID Regulations
permit a Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount), reduced by any
premium, in income as interest, based on a constant yield method. If such an
election were made for a REMIC Regular Certificate with market discount, the
Certificateholder is deemed to have made an election to currently include
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this
election for a Certificate that is acquired at a premium is deemed to have
made an election to amortize bond premium, as described below, with respect to
all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. The election to accrue interest, discount
and premium on a constant yield method with respect to a Certificate is
irrevocable without the consent of the IRS.
Under a statutory de minimis exception, market discount with respect to a
REMIC Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if such market discount is less than 0.25% of the
stated redemption price at maturity of such REMIC Regular Certificate
multiplied by the number of complete years to maturity remaining after the
date of its purchase. In interpreting a similar de minimis rule with respect
to original issue discount on obligations payable in installments, the OID
Regulations refer to the weighted average maturity of obligations, and it is
likely that the same rule will be applied in determining whether market
discount is de minimis. It appears that de minimis market discount on a REMIC
Regular Certificate would be treated in a manner similar to original issue
discount of a de minimis amount. See "Taxation of Holders of REMIC Regular
Certificates--Original Issue Discount." Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included using the method described above. However, Treasury
regulations implementing the market discount de minimis exception have not
been issued in proposed, temporary or final form, and the precise treatment of
de minimis market discount on obligations payable in more than one installment
therefore remains uncertain.
The 1986 Act grants authority to the Treasury Department to issue
regulations providing for the method for accruing market discount of more than
a de minimis amount on debt instruments, the principal of which is payable in
more than one installment. Until such time as regulations are issued by the
Treasury Department, certain rules described in the Committee Report might
apply. Under those rules, the holder of a bond purchased with more than de
minimis market discount may elect to accrue such market discount either on the
basis of a constant yield method or on the basis of the appropriate
proportionate method described below. Under the proportionate method for
obligations issued with original issue discount, the amount of market discount
that accrues during a period is equal to the product of (i) the total
remaining market discount, multiplied by (ii) a fraction, the numerator of
which is the original issue discount accruing during the period and the
denominator of which is the total remaining original issue discount at the
beginning of the period. Under the proportionate method for obligations issued
without original issue discount, the amount of market discount that accrues
during a period is equal to the product of (i) the total remaining market
discount, multiplied by (ii) a fraction, the numerator of which is the amount
of stated interest paid during the accrual period and the denominator of which
is the total amount of stated interest remaining to be paid at the beginning
of the period. The Prepayment Assumption, if any, used in calculating the
accrual of original issue discount is to be used in calculating the accrual of
market discount under any of the above methods. Because the regulations
referred to in this paragraph have not been issued, it is not possible to
predict what effect such regulations might have on the tax treatment of a
REMIC Regular Certificate purchased at a discount in the secondary market.
Further, a purchaser generally will be required to treat a portion of any
gain on sale or exchange of a REMIC Regular Certificate as ordinary income to
the extent of the market discount accrued to the date of disposition under one
of the foregoing methods, less any accrued market discount previously reported
as ordinary income. Such purchaser also may be required to defer a portion of
its interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such REMIC Regular Certificate. Any
such
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deferred interest expense is, in general, allowed as a deduction not later
than the year in which the related market discount income is recognized. If
such holder elects to include market discount in income currently as it
accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will
not apply.
A REMIC Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated
redemption price at maturity will be considered to be purchased at a premium.
The holder of such a REMIC Regular Certificate may elect to amortize such
premium under the constant yield method. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the
Certificateholder as having made the election to amortize premium generally,
as described above. The Committee Report indicates a Congressional intent that
the same rules that will apply to accrual of market discount on installment
obligations will also apply in amortizing bond premium under Code Section 171
on installment obligations such as the REMIC Regular Certificates.
3. Treatment of Subordinated Certificates
As described above under "Credit Support--Subordinated Certificates,"
certain Series of Certificates may contain one or more Classes or Subclasses
of Subordinated Certificates. Holders of Subordinated Certificates will be
required to report income with respect to such Certificates on the accrual
method without giving effect to delays and reductions in distributions
attributable to defaults or delinquencies on any Mortgage Loans, except
possibly, in the case of income that constitutes qualified stated interest, to
the extent that it can be established that such amounts are uncollectible. As
a result, the amount of income reported by a Certificateholder of a
Subordinated Certificate in any period could significantly exceed the amount
of cash distributed to such Certificateholder in that period.
Although not entirely clear, it appears that a corporate holder or a holder
who holds a Regular Certificate in the course of a trade or business generally
should be allowed to deduct as an ordinary loss any loss sustained on account
of partial or complete worthlessness of a Subordinated Certificate. Although
similarly unclear, a noncorporate holder who does not hold such Regular
Certificate in the course of a trade or business generally should be allowed
to deduct as a short-term capital loss any loss sustained on account of
complete worthlessness of a Subordinated Certificate. Special rules are
applicable to banks and thrift institutions, including rules regarding
reserves for bad debts. Holders of Subordinated Certificates should consult
their own tax advisers regarding the appropriate timing, character and amount
of any loss sustained with respect to Subordinated Certificates.
C. Taxation of Owners of REMIC Residual Certificates
1. General
An owner of a REMIC Residual Certificate ("Residual Owner") generally will
be required to report its daily portion of the taxable income or, subject to
the limitation described below in "Taxation of Owners of REMIC Residual
Certificates--Basis Rules and Distributions," the net loss of the REMIC
Mortgage Pool for each day during a calendar quarter that the Residual Owner
owned such REMIC Residual Certificate. For this purpose, the daily portion
will be determined by allocating to each day in the calendar quarter, using a
30 days per month/90 days per quarter/360 days per year counting convention,
its ratable portion of the taxable income or net loss of the REMIC Mortgage
Pool for such quarter, and by allocating the daily portions among the Residual
Owners (on such day) in accordance with their percentage of ownership
interests on such day. Any amount included in the gross income of, or allowed
as a loss to, any Residual Owner by virtue of the rule referred to in this
paragraph will be treated as ordinary income or loss. Purchasers of REMIC
Residual Certificates should be aware that taxable income from such
Certificates may exceed cash distributions with respect thereto in any taxable
year. For example, if the Mortgage Loans are acquired by a REMIC at a
discount, then the holder of a residual interest may recognize income without
corresponding cash distributions. This result could occur because
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a payment produces recognition by the REMIC of discount on the Mortgage Loan
while all or a portion of such payment could be used in whole or in part to
make principal payments on REMIC Regular Certificates issued without
substantial discount. Taxable income may also be greater in earlier years as a
result of the fact that interest expense deductions, expressed as a percentage
of the outstanding principal amount of the REMIC Regular Certificates, will
increase over time as the lower yielding sequences of Certificates are paid,
whereas interest income with respect to any given Mortgage Loan will remain
constant over time as a percentage of the outstanding principal amount of that
loan.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such Certificate will be taken into account
in determining the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisers concerning the treatment of such payments for
income tax purposes.
2. Taxable Income or Net Loss of the REMIC Trust Fund
The taxable income or net loss of the REMIC Mortgage Pool will reflect a
netting of income from the Mortgage Loans, any cancellation of indebtedness
income due to the allocation of Realized Losses to REMIC Regular Certificates,
and the deductions and losses allowed to the REMIC Mortgage Pool. Such taxable
income or net loss for a given calendar quarter will be determined in the same
manner as for an individual having the calendar year as his taxable year and
using the accrual method of accounting, with certain modifications. The first
modification is that a deduction will be allowed for accruals of interest
(including original issue discount) on the REMIC Regular Certificates. Second,
market discount equal to the excess of any Mortgage Loan's adjusted issue
price (as determined under "Taxation of Owners of REMIC Regular Certificates--
Market Discount and Premium") over its fair market value at the time of its
transfer to the REMIC Mortgage Pool generally will be included in income as it
accrues, based on a constant yield method and on the Prepayment Assumption.
For this purpose, the Master Servicer intends to treat the fair market value
of the Mortgage Loans as being equal to the aggregate issue prices of the
REMIC Regular Certificates and REMIC Residual Certificates; if one or more
classes of REMIC Regular Certificates or REMIC Residual Certificates are
retained by the Depositor, the Master Servicer will estimate the value of such
retained interests in order to determine the fair market value of the Mortgage
Loans for this purpose. Third, no item of income, gain, loss or deduction
allocable to a prohibited transaction (see "Prohibited Transactions and Other
Possible REMIC Taxes", below) will be taken into account. Fourth, the REMIC
Mortgage Pool generally may not deduct any item that would not be allowed in
calculating the taxable income of a partnership by virtue of Code Section
703(a)(2). Fifth, the REMIC Regulations provide that the limitation on
miscellaneous itemized deductions imposed on individuals by Code Section 67
will not be applied at the Mortgage Pool level to the servicing fees paid to
the Master Servicer or sub-servicers if any. (See, however, "Pass-Through of
Servicing Fees", below.) If the deductions allowed to the REMIC Mortgage Pool
exceed its gross income for a calendar quarter, such excess will be the net
loss for the REMIC Mortgage Pool for that calendar quarter.
3. Basic Rules and Distributions
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not be
included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC
Residual Certificate. Such distribution will reduce the adjusted basis of such
interest, but not below zero. To the extent a distribution exceeds the
adjusted basis of the REMIC Residual Certificate, it will be treated as gain
from the sale of the REMIC Residual Certificate. (See "Sales of REMIC
Certificates," below.) The adjusted basis of a REMIC Residual Certificate is
equal to the amount paid for such REMIC Residual Certificate, increased by
amounts included in the income of the Residual Owner (see "Taxation of Owners
of REMIC Residual Certificates--Daily Portions" above), and decreased by
distributions and by net losses taken into account with respect to such
interest.
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A Residual Owner is not allowed to take into account any net loss for any
calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Certificate.
The effect of these basis and distribution rules is that a Residual Owner
may not amortize its basis in a REMIC Residual Certificate, but may only
recover its basis through distributions, through the deduction of any net
losses of the REMIC Mortgage Pool or upon the sale of its REMIC Residual
Certificate. See "Sales of REMIC Certificates," below. The Residual Owner
does, however, receive reduced taxable income over the life of the REMIC
because the REMIC's basis in the underlying REMIC Mortgage Pool includes the
fair market value of the REMIC Regular Certificates and REMIC Residual
Certificates.
4. Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual Certificate are
subject to certain special tax rules. With respect to a Residual Owner, the
excess inclusion for any calendar quarter is defined as the excess (if any) of
the daily portions of taxable income over the sum of the "daily accruals" for
each day during such quarter that such REMIC Residual Certificate was held by
such Residual Owner. The daily accruals are determined by allocating to each
day during a calendar quarter its ratable portion of the product of the
"adjusted issue price" of the REMIC Residual Certificate at the beginning of
the calendar quarter and 120 percent of the long-term "applicable federal
rate" (generally, an average of current yields on Treasury securities of
comparable maturity, and hereafter the "AFR") in effect at the time of
issuance of the REMIC Residual Certificate. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of any
calendar quarter is the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters and decreased
by any distributions made with respect to such REMIC Residual Certificate
before the beginning of such quarter. The issue price of a REMIC Residual
Certificate is the initial offering price to the public (excluding bond houses
and brokers) at which a substantial amount of the REMIC Residual Certificates
were sold.
For Residual Owners, an excess inclusion cannot be offset by deductions,
losses or loss carryovers from other activities. However, net operating loss
carryovers are determined without regard to excess inclusion income. For
Residual Owners that are subject to tax on unrelated business taxable income
(as defined in Code Section 511), an excess inclusion is treated as unrelated
business taxable income. For Residual Owners that are nonresident alien
individuals or foreign corporations generally subject to United States 30%
withholding tax, even if interest paid to such Residual Owners is generally
eligible for exemptions from such tax, an excess inclusion will be subject to
such tax and no tax treaty rate reduction or exemption may be claimed with
respect thereto. See "Foreign Investors in REMIC Certificates."
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Owner. First, alternative minimum taxable income for a Residual Owner
is determined without regard to the special rule, discussed above, that
taxable income cannot be less than excess inclusions. Second, a Residual
Owner's alternative minimum taxable income for a taxable year cannot be less
than the excess inclusions for the year. Third, the amount of any alternative
minimum tax net operating loss deduction must be computed without regard to
any excess inclusions.
5. Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the
purported transferor will continue to remain liable for any taxes due with
respect to the income on such "noneconomic" REMIC Residual Certificate. It is
expected that the REMIC Residual Certificates will be noneconomic.
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6. Tax-Exempt Investors
Tax-exempt organizations (including employee benefit plans) that are subject
to tax on unrelated business taxable income (as defined in Code Section 511)
will be subject to tax on any excess inclusions attributed to them as owners
of Residual Certificates. Excess inclusion income associated with a Residual
Certificate may significantly exceed cash distributions with respect thereto.
See "Excess Inclusions."
Generally, tax-exempt organizations that are not subject to federal income
taxation on "unrelated business taxable income" pursuant to Code Section 511
are treated as "disqualified organizations" under provisions of the "Technical
and Miscellaneous Revenue Act of 1988" (the "1988 Act"). Under provisions of
the Pooling and Servicing Agreement, such organizations generally are
prohibited from owning Residual Certificates. See "Sales of REMIC
Certificates."
D. Sales of REMIC Certificates
If a REMIC Certificate is sold, the seller will recognize gain or loss equal
to the difference between the amount realized on the sale and its adjusted
basis in the REMIC Certificate. The adjusted basis of a REMIC Regular
Certificate generally will equal the cost of such REMIC Regular Certificate to
the seller, increased by any original issue discount or market discount
included in the seller's gross income with respect to such REMIC Regular
Certificate and reduced by premium amortization deductions and distributions
previously received by the seller of amounts included in the stated redemption
price at maturity of such REMIC Regular Certificate. The adjusted basis of a
REMIC Residual Certificate will be determined as described under "Taxation of
Owners of REMIC Residual Certificates--Basis Rules and Distributions." Gain
from the disposition of a REMIC Regular Certificate that might otherwise be
treated as a capital gain will be treated as ordinary income to the extent
that such gain does not exceed the excess, if any, of (i) the amount that
would have been includible in such holder's income had income accrued at a
rate equal to 110% of the AFR as of the date of purchase over (ii) the amount
actually includible in such holder's income. Except as otherwise provided
under "Taxation of Owners of REMIC Regular Certificates--Market Discount and
Premium" and under Code Section 582(c), any additional gain or any loss on the
sale or exchange of a REMIC Certificate will be capital gain or loss, provided
such REMIC Certificate is held as a capital asset (generally, property held
for investment) within the meaning of Code Section 1221. Capital Losses may
not, in general, be offset against ordinary income.
If a Residual Owner sells a REMIC Residual Certificate at a loss, the loss
will not be recognized if, within six months before or after the sale of the
REMIC Residual Certificate, such Residual Owner purchases another residual in
any REMIC or any interest in a taxable mortgage pool (as defined in Code
Section 7701(i)) comparable to a residual interest in a REMIC. Such disallowed
loss will be allowed upon the sale of the other residual interest (or
comparable interest) if the rule referred to in the preceding sentence does
not apply to that sale. While the Committee Report states that this rule may
be modified by Treasury regulations, the REMIC Regulations do not address this
issue and it is not clear whether any such modification will in fact be
implemented or, if implemented, what its precise nature or effective date
would be.
The 1988 Act makes transfers of a REMIC Residual Certificate to certain
"disqualified organizations" subject to an additional tax on the transferor in
an amount equal to the maximum corporate tax rate applied to the present value
(using a discount rate equal to the AFR) of the total anticipated excess
inclusions with respect to such residual interest for the periods after the
transfer. For this purpose, "disqualified organizations" includes the United
States, any state or political subdivision of a state, any foreign government
or international organization or any agency or instrumentality of any of the
foregoing; any tax-exempt entity (other than a Code Section 521 cooperative)
which is not subject to the tax on unrelated business income; and any rural
electrical or telephone cooperative. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred
and must be based on events that have occurred up to the time of such
transfer, the Prepayment Assumption, and any required or permitted clean up
calls or required liquidation provided for in the REMIC's organizational
documents. The tax generally is imposed on the transferor of the REMIC
Residual Certificate, except that it is imposed on an agent for a disqualified
organization if the transfer occurs through such agent. The Pooling and
Servicing Agreement requires, as a prerequisite to any transfer of a Residual
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Certificate, the delivery to the Trustee of an affidavit of the transferee to
the effect that it is not a disqualified organization and contains other
provisions designed to render any attempted transfer of a Residual Certificate
to a disqualified organization void.
In addition, if a "pass-through entity" includes in income excess inclusions
with respect to a REMIC Residual Certificate, and a disqualified organization
is the record holder of an interest in such entity at any time during any
taxable year of such entity, then a tax will be imposed on such entity equal
to the product of (i) the amount of excess inclusions on the REMIC Residual
Certificate for such taxable year that are allocable to the interest in the
pass-through entity held by such disqualified organization and (ii) the
highest marginal federal income tax rate imposed on corporations. A pass-
through entity will not be subject to this tax for any period, however, if the
record holder of an interest in such entity furnishes to such entity (i) such
holder's social security number and a statement under penalties of perjury
that such social security number is that of the record holder or (ii) a
statement under penalties of perjury that such record holder is not a
disqualified organization. For these purposes, a "pass-through entity" means
any regulated investment company, real estate investment trust, trust,
partnership or certain other entities described in Code Section 860E(e)(6). In
addition, a person holding an interest in a pass-through entity as a nominee
for another person shall, with respect to such interest, be treated as a pass-
through entity.
E. Pass-Through of Servicing Fees
The general rule is that Residual Owners take into account taxable income or
net loss of the related REMIC Mortgage Pool. Under that rule, servicing
compensation of the Master Servicer and the subservicers (if any) will be
allocated to the holders of the REMIC Residual Certificates, and therefore
will not affect the income or deductions of holders of REMIC Regular
Certificates. However, in the case of a "single-class REMIC", such expenses
and an equivalent amount of additional gross income will be allocated among
all holders of REMIC Regular Certificates and REMIC Residual Certificates for
purposes of the limitations on the deductibility of certain miscellaneous
itemized deductions by individuals contained in Code Sections 56(b)(1) and 67.
Generally, any holder of a REMIC Residual Certificate and any holder of a
REMIC Regular Certificate issued by a "single-class REMIC" who is an
individual, estate or trust (including such a person that holds an interest in
a pass-through entity holding such a REMIC Certificate) will be able to deduct
such expenses in determining regular taxable income only to the extent that
such expenses together with certain other miscellaneous itemized deductions of
such individual, estate or trust exceed 2% of adjusted gross income; such a
holder may not deduct such expenses to any extent in determining liability for
alternative minimum tax. Accordingly, REMIC Residual Certificates, and REMIC
Regular Certificates receiving an allocation of servicing compensation, may
not be appropriate investments for individuals, estates or trusts, and such
persons should carefully consult with their own tax advisers regarding the
advisability of an investment in such Certificates.
A "single-class REMIC" is a REMIC that either (i) would be treated as an
investment trust under the provisions of Treasury Regulation Section 301.7701-
4(c) in the absence of a REMIC election, or (ii) is substantially similar to
such an investment trust and is structured with the principal purpose of
avoiding the allocation of investment expenses to holders of REMIC Regular
Certificates. The Depositor intends (subject to certain exceptions which, if
applicable, will be stated in the applicable Prospectus Supplement) to treat
each REMIC Mortgage Pool as other than a "single-class REMIC," consequently
allocating servicing compensation expenses and related income amounts entirely
to REMIC Residual Certificates and in no part to REMIC Regular Certificates.
F. Prohibited Transactions and Other Possible Remic Taxes
The Code imposes a tax on REMIC Mortgage Pools equal to 100 percent of the
net income derived from "prohibited transactions." In general, a prohibited
transaction means the disposition of a Mortgage Loan other than pursuant to
certain specified exceptions, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an
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asset purchased with the payments on the Mortgage Loans for temporary
investment pending distribution on the REMIC Certificates. The Code also
imposes a 100 percent tax on the value of any contribution of assets to the
REMIC after the "startup day" (the day on which the regular and residual
interests are issued), other than pursuant to specified exceptions, and
subjects "net income from foreclosure property" to tax at the highest
corporate rate. It is not anticipated that a REMIC Mortgage Pool will engage
in any such transactions or receive any such income.
G. Termination of a Remic Trust Fund
In general, no special tax consequences will apply to a holder of a REMIC
Regular Certificate upon the termination of the REMIC Mortgage Pool by virtue
of the final payment or liquidation of the last Mortgage Loan remaining in the
REMIC Mortgage Pool. If a Residual Owner's adjusted basis in its REMIC
Residual Certificate at the time such termination occurs exceeds the amount of
cash distributed to such Residual Owner in liquidation of its interest, then,
although the matter is not entirely free from doubt, it appears that the
Residual Owner would be entitled to a loss (which could be a capital loss)
equal to the amount of such excess.
H. Reporting and Other Administrative Matters of Remics
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. Certain holders of REMIC
Regular Certificates who are generally exempt from information reporting on
debt instruments, such as corporations, banks, registered securities or
commodities brokers, real estate investment trusts, registered investment
companies, common trust funds, charitable remainder annuity trusts and
unitrusts, will be provided interest and original issue discount income
information and the information set forth in the following paragraph upon
request in accordance with the requirements of the Treasury regulations. The
information must be provided by the later of 30 days after the end of the
quarter for which the information was requested, or two weeks after the
receipt of the request. The REMIC Mortgage Pool must also comply with rules
requiring the face of a REMIC Certificate issued at more than a de minimis
discount to disclose the amount of original issue discount and the issue date
and requiring such information to be reported to the Treasury Department.
The REMIC Regular Certificate information reports must include a statement
of the "adjusted issue price" of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports must include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC
Mortgage Pool may not have, it appears that this provision will only require
information pertaining to the appropriate proportionate method of accruing
market discount.
The responsibility for complying with the foregoing reporting rules will be
borne by the Master Servicer.
For purposes of the administrative provisions of the Code, REMIC Pools will
be treated as partnerships and the holders of Residual Certificates will be
treated as partners. The Master Servicer will file federal income tax
information returns on behalf of the related REMIC Pool, and will be
designated as agent for and will act on behalf of the "tax matters person"
with respect to the REMIC Pool in all respects.
As agent for the tax matters person, the Master Servicer will, subject to
certain notice requirements and various restrictions and limitations,
generally have the authority to act on behalf of the REMIC and the Residual
Owners in connection with the administrative and judicial review of items of
income, deduction, gain or loss of the REMIC Mortgage Pool, as well as the
REMIC Mortgage Pool's classification. Residual Owners will generally be
required to report such REMIC Mortgage Pool items consistently with their
treatment on the REMIC Mortgage Pool's federal income tax information return
and may in some circumstances be bound by a settlement agreement between the
Master Servicer, as agent for the tax matters person, and the IRS concerning
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any such REMIC Mortgage Pool item. Adjustments made to the REMIC Mortgage Pool
tax return may require a Residual Owner to make corresponding adjustments on
its return, and an audit of the REMIC Mortgage Pool's tax return, or the
adjustments resulting from such an audit, could result in an audit of a
Residual Owner's return.
I. Backup Withholding With Respect to Remic Certificates
Payments of interest and principal on REMIC Regular Certificates, as well as
payment of proceeds from the sale of REMIC Certificates, may be subject to the
"backup withholding tax" under Code Section 3406 at a rate of 31 percent if
recipients of such payments fail to furnish to the payor certain information,
including their taxpayer identification numbers, or otherwise fail to
establish an exemption from such tax. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed
by the IRS on a recipient of payments that is required to supply information
but that does not do so in the manner required.
J. Foreign Investors In Remic Certificates
1. Remic Regular Certificates
Except as qualified below, payments made on a REMIC Regular Certificate to a
REMIC Regular Certificateholder that is not a U.S. Person, as hereinafter
defined (a "non-U.S. Person"), or to a person acting on behalf of such a
Certificateholder, generally will be exempt from U.S. federal income and
withholding taxes, provided that (a) the holder of the Certificate is not
subject to U.S. tax as a result of a connection to the United States other
than ownership of such Certificate, (b) the holder of such Certificate signs a
statement under penalties of perjury that certifies that such holder is a Non-
U.S. Person, and provides the name and address of such holder, and (c) the
last U.S. Person in the chain of payment to the holder receives such statement
from such holder or a financial institution holding on its behalf and does not
have actual knowledge that such statement is false. If the holder does not
qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to such holder may be subject to a
withholding tax rate of 30 percent, subject to reduction under an applicable
tax treaty.
"U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity treated as a corporation or
partnership for United States federal income tax purposes, created or
organized in or under the laws of the United States or any political
subdivision thereof (unless, in the case of a partnership, regulations provide
otherwise), or an estate or trust defined in Section 7701(a)(30)(D) and (E),
respectively.
Holders of REMIC Regular Certificates should be aware that the IRS may take
the position that exemption from U.S. withholding taxes does not apply to such
a holder that also directly or indirectly owns 10 percent or more of the REMIC
Residual Certificates. Further, the foregoing rules will not apply to exempt a
"United States shareholder" (as such term is defined in Code Section 951) of a
controlled foreign corporation from taxation on such United States
shareholder's allocable portion of the interest or original issue discount
income earned by such controlled foreign corporation.
2. Remic Residual Certificates
Amounts paid to a Residual Owner that is not a "U.S. Person" (as defined
above) (a "non-U.S. Person") generally will be treated as interest for
purposes of applying the withholding tax on non-U.S. Persons with respect to
income on its REMIC Residual Certificate. However, it is unclear whether
distributions on REMIC Residual Certificates will be eligible for the general
exemption from withholding tax that applies to REMIC Regular Certificates as
described above. Treasury Regulations provide that, for purposes of the
portfolio interest exception, payments to the foreign owner of a REMIC
Residual Certificate are to be considered paid on the obligations held by the
REMIC, rather than on the Certificate itself. Such payments will thus only
qualify for the portfolio interest exception if the underlying obligations
held by the REMIC would so qualify. Such withholding tax generally is imposed
at a rate of 30 percent but is subject to reduction under any tax treaty
applicable to the
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Residual Owner. However, there is no exemption from withholding tax nor may
the rate of such tax be reduced, under a tax treaty or otherwise, with respect
to any distribution of income that is an excess inclusion. Although no
regulations have been proposed or adopted addressing withholding on residual
interests held by non-U.S. Persons, the provisions of the REMIC Regulations,
described below, relating to the transfer of residual interests to non-U.S.
Persons can be read as implying that withholding with respect to excess
inclusion income is to be determined by reference to the amount of the accrued
excess inclusion income rather than to the amount of cash distributions. If
the IRS were successfully to assert such a position, cash distributions on
Residual Certificates held by non-U.S. Persons could be subject to withholding
at rates as high as 100 percent, depending on the relationship of accrued
excess inclusion income to cash distributions with respect to such Residual
Certificates. See "Taxation of Owners of REMIC Residual Certificates--Excess
Inclusions."
Certain restrictions relating to transfers of REMIC Residual Certificates to
and by investors who are non-U.S. Persons are also imposed by the REMIC
Regulations. First, transfers of REMIC Residual Certificates to a non-U.S.
Person that have "tax avoidance potential" are disregarded for all federal
income tax purposes. If such transfer is disregarded, the purported transferor
of such a REMIC Residual Certificate to a non-U.S. Person continues to remain
liable for any taxes due with respect to the income on such REMIC Residual
Certificate. A transfer of a REMIC Residual Certificate has tax avoidance
potential unless, at the time of the transfer, the transferor reasonably
expects (1) that the REMIC will distribute to the transferee Residual
Certificateholder amounts that will equal at least 30 percent of each excess
inclusion, and (2) that such amounts will be distributed at or after the time
at which the excess inclusion accrues and not later than the close of the
calendar year following the calendar year of accrual. This rule does not apply
to transfers if the income from the REMIC Residual Certificate is taxed in the
hands of the transferee as income effectively connected with the conduct of a
U.S. trade or business. Second, if a non-U.S. Person transfers a REMIC
Residual Certificate to a U.S. Person (or to a non-U.S. Person in whose hands
income from the REMIC Residual Certificate would be effectively connected),
and the transfer has the effect of allowing the transferor to avoid tax on
accrued excess inclusions, that transfer is disregarded for all federal income
tax purposes and the purported non-U.S. Person transferor continues to be
treated as the owner of the REMIC Residual Certificate. Thus, the REMIC's
liability to withhold 30 percent of the accrued excess inclusions is not
terminated even though the REMIC Residual Certificate is no longer held by a
non-U.S. Person.
Holders of REMIC Regular Certificates and REMIC Residual Certificates should
be aware that proposed Treasury Regulations (the "1996 Proposed Regulations")
were issued on April 15, 1996 which, if adopted in final form, could affect
the United States taxation of foreign investors in REMIC Certificates. The
1996 Proposed Regulations are generally proposed to be effective for payments
after December 31, 1997, regardless of the issue date of the REMIC Certificate
with respect to which such payments are made, subject to certain transition
rules. One of the effects of the 1996 Proposed Regulations would be to provide
certain presumptions with respect to withholding for holders not providing the
required certifications to qualify for the withholding exemption described
above. In addition, the 1996 Proposed Regulations would replace a number of
current tax certification forms with a single, restated form and standardize
the period of time for which withholding agents could rely on such
certifications. The 1996 Proposed Regulations would also provide rules to
determine whether, for purposes of United States federal withholding tax,
interest paid to a non-U.S. Person that is an entity should be treated as paid
to the entity or those holding an interest in that entity.
The discussion under this heading is not intended to be a complete
discussion of the provisions of the 1996 Proposed Regulations, and prospective
investors are urged to consult their tax advisers with respect to the effect
the 1996 Proposed Regulations may have.
K. State and Local Taxation
Many states do not automatically conform to changes in the federal income
tax laws. Consequently, a REMIC Mortgage Pool that would not qualify as a
fixed investment trust for federal income tax purposes may be characterized as
a corporation, a partnership, or some other entity for purposes of state
income tax law. Such characterization could result in entity level income or
franchise taxation of the REMIC Mortgage Pool formed
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in, owning mortgages or property in, or having servicing activity performed in
a state without conforming REMIC provisions in its income or franchise tax
law. Further, REMIC Regular Certificateholders resident in non-conforming
states may have their ownership of REMIC Regular Certificates characterized as
an interest other than debt of the REMIC such as stock or a partnership
interest. Investors are advised to consult their tax advisers concerning the
state and local income tax consequences of their purchase and ownership of
REMIC Regular Certificates.
III. NON-REMIC TRUST FUNDS
A. Classification of Trust Funds
With respect to each series of Trust Certificates for which they are
identified as counsel to the Depositor in the applicable Prospectus
Supplement, Brown & Wood LLP, Cadwalader, Wickersham & Taft, Dewey Ballantine,
or Orrick, Herrington & Sutcliffe LLP, will deliver their opinion to the
effect that the arrangements pursuant to which such Trust Fund will be
administered and such Trust Certificates will be issued will not be classified
as an association taxable as a corporation and that each such Trust Fund will
be classified as a trust whose taxation will be governed by the provisions of
subpart E, Part I of subchapter J of the Code.
B. Taxation of Owners of Trust Fractional Certificates
Each holder of a Trust Fractional Certificate (a "Trust Fractional
Certificateholder") will be treated as the owner of an undivided percentage
interest in the principal of, and possibly a different undivided percentage
interest in the interest portion of, each of the Trust Funds included in a
Mortgage Pool. Accordingly, each Trust Fractional Certificateholder must
report on its federal income tax return its allocable share of income from its
interests, as described below, at the same time and in the same manner as if
it had held directly interests in the Mortgage Loans and received directly its
share of the payments on such Mortgage Loans. Because those interests
represent interests in "stripped bonds" or "stripped coupons" within the
meaning of Code Section 1286, such interests would be considered to be newly
issued debt instruments, and thus to have no market discount or premium, and
the amount of original issue discount may differ from the amount of original
issue discount on the Mortgage Loans and the amount includible in income on
account of a Trust Fractional Certificate may differ significantly from the
amount payable thereon from payments of interest on the Mortgage Loans. Each
Trust Fractional Certificateholder may report and deduct its allocable share
of the servicing and related fees and expenses paid to or retained by the
Company at the same time, to the same extent, and in the same manner as such
items would have been reported and deducted had it held directly interests in
the Mortgage Loans and paid directly its share of the servicing and related
fees and expenses. A holder of a Trust Fractional Certificate who is an
individual, estate or trust will be allowed a deduction for servicing fees in
determining its regular tax liability only to the extent that the aggregate of
such holder's miscellaneous itemized deductions exceeds two percent of such
holder's adjusted gross income, and will be allowed no deduction for such fees
in determining its liability for alternative minimum tax. Amounts received by
Trust Fractional Certificateholders in lieu of amounts due with respect to any
Mortgage Loan but not received by the Depositor from the Mortgagor will be
treated for federal income tax purposes as having the same character as the
payments which they replace.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Stripped Mortgage Loans
should read the material under the headings "Application of Stripped Bond
Rules," "Market Discount and Premium" and "Allocation of Purchase Price" for a
discussion of particular rules applicable to their Certificates. A "Stripped
Mortgage Loan" means a Mortgage Loan having a Retained Yield (as that term is
defined below) or a Mortgage Loan included in a Trust Fund having either Trust
Interest Certificates or more than one class of Trust Fractional Certificates
or identified in the Prospectus Supplement as related to a Class of Trust
Certificates identified as representing interests in Stripped Mortgage Loans.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Unstripped Mortgage Loans
should read the material under the headings "Treatment of
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Unstripped Certificates", "Market Discount and Premium", and "Allocation of
Purchase Price" for a discussion of particular rules applicable to their
Certificates. However, the IRS has indicated that under some circumstances it
will view a portion of servicing and related fees and expenses paid to or
retained by the Master Servicer or sub-servicers as an interest in the
Mortgage Loans, essentially equivalent to that portion of interest payable
with respect to each Mortgage Loan that is retained by the Depositor
("Retained Yield"). If such a view were sustained with respect to a particular
Trust Fund, such purchasers would be subject to the rules set forth under
"Application of Stripped Bond Rules" rather than those under "Treatment of
Unstripped Certificates." The Depositor does not expect any Servicing Fee or
Master Servicing Fee to constitute a retained interest in the Mortgage Loans;
nevertheless, any such expectation generally will be a matter of uncertainty,
and prospective purchasers are advised to consult their own tax advisers with
respect to the existence of a retained interest and any effects on investment
in Trust Fractional Certificates.
1. Application of Stripped Bond Rules
Each Trust Fund will consist of an interest in each of the Mortgage Loans
relating thereto, exclusive of the Depositor's Retained Yield, if any. With
respect to each Series of Certificates for which they are identified as
counsel to the Depositor in the applicable Prospectus Supplement, Brown & Wood
LLP, Cadwalader, Wickersham & Taft, Dewey Ballantine, or Orrick, Herrington &
Sutcliffe LLP will advise the Depositor that, in their opinion, any Retained
Yield will be treated for federal income tax purposes as an ownership interest
retained by the Depositor in a portion of each interest payment on the
underlying Mortgage Loans. The sale of the Trust Certificates associated with
any Trust Fund for which there is a class of Trust Interest Certificates or
two or more Classes of Trust Fractional Certificates bearing different
interest rates or of Trust Certificates identified in the Prospectus
Supplement as representing interests in Stripped Mortgage Loans (subject to
certain exceptions which, if applicable, will be stated in the applicable
Prospectus Supplement) will be treated for federal income tax purposes as
having effected a separation in ownership between the principal of each
Mortgage Loan and some or all of the interest payable thereon. As a
consequence, each Stripped Mortgage Loan will become subject to the "stripped
bond" rules of the Code (the "Stripped Bond Rules"). The effect of applying
those rules will generally be to require each Trust Fractional
Certificateholder to accrue and report income attributable to its share of the
principal and interest on each of the Stripped Mortgage Loans as original
issue discount on the basis of the yield to maturity of such Stripped Mortgage
Loans, as determined in accordance with the provisions of the Code dealing
with original issue discount. For a description of the general method of
calculating original issue discount, see "REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount." See also "Non-
Remic Trust Funds--Prepayments" hereof. The yield to maturity of a Trust
Fractional Certificateholder's interest in the Stripped Mortgage Loans will be
calculated taking account of the price at which the holder purchased the
Certificate and the holder's share of the payments of principal and interest
to be made thereon. Although the provisions of the Code and the OID
Regulations do not directly address the treatment of instruments similar to
Trust Fractional Certificates, in reporting to Trust Fractional
Certificateholders the Trustee intends to treat such Certificates as a single
obligation with payments corresponding to the aggregate of the payments
allocable thereto from each of the Mortgage Loans, and to determine the amount
of original issue discount on such certificates accordingly. See "Aggregate
Reporting."
Under Treasury regulations, original issue discount so determined with
respect to a particular Stripped Mortgage Loan may be considered to be zero
under the de minimis rule described above, in which case it is treated as
market discount. See "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." Those regulations also provide that
original issue discount so determined with respect to a particular Stripped
Mortgage Loan will be treated as market discount if the rate of interest on
the Stripped Mortgage Loan, including a reasonable Servicing Fee, is no more
than one percentage point less than the unstripped rate of interest. See "--
Market Discount and Premium." The Trustee intends to apply the foregoing de
minimis and market discount rules on an aggregate poolwide basis, although it
is possible that investors may be required to apply them on a loan by loan
basis. The loan by loan information required for such application of those
rules may not be available. See "Aggregate Reporting."
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Subsequent purchasers of the Certificates may be required to include
"original issue discount" in an amount computed using the price at which such
subsequent purchaser purchased the Certificates. Further, such purchasers may
be required to determine if the above described de minimis and market discount
rules apply at the time a Trust Fractional Certificate is acquired, based on
the characteristics of the Mortgage Loans at that time.
Variable Rate Certificates. Purchasers of Trust Fractional Certificates
bearing a variable rate of interest should be aware that there is considerable
uncertainty concerning the application of the OID Regulations to Mortgage
Loans bearing a variable rate of interest. Although such regulations are
subject to a different interpretation, as discussed below, in the absence of
other contrary authority in preparing reports furnished to Certificateholders
the Trustee intends to treat Stripped Mortgage Loans bearing a variable rate
of interest (other than those treated as having market discount pursuant to
the regulations described above) as subject to the provisions therein
governing variable rate debt instruments. The effect of the application of
such provisions generally will be to cause Certificateholders holding Trust
Fractional Certificates bearing interest at a Single Variable Rate or at a
Multiple Variable Rate (as defined above under "REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount") to accrue
original issue discount and interest as though the value of each variable rate
were a fixed rate, which is (a) for each qualified floating rate, the value of
each such rate as of the Closing Date (with appropriate adjustment for any
differences in intervals between interest adjustment dates), (b) for a
qualified inverse floating rate, the value of the rate as of Closing Date, and
(c) for any other objective rate, the fixed rate that reflects the yield that
is reasonably expected for the Trust Fractional Certificate. If the interest
paid or accrued with respect to such Variable Rate Trust Fractional
Certificate during an accrual period differs from the assumed fixed interest
rate, such difference will be an adjustment (to interest or original issue
discount, as applicable) to the Certificateholder's taxable income for the
taxable period or periods to which such difference relates.
Prospective purchasers of Trust Fractional Certificates bearing a variable
rate of interest should be aware that the provisions in the OID Regulations
applicable to variable rate debt instruments may not apply to certain
adjustable and variable rate mortgage loans, possibly including the Mortgage
Loans, or to Stripped Certificates representing interests in such Mortgage
Loans. If variable rate Trust Fractional Certificates are not governed by the
provisions of the OID Regulations applicable to variable rate debt
instruments, such Certificates may be subject to the provisions of the 1996
Contingent Debt Regulations. The application of those provisions to
instruments such as the Trust Fractional Certificates is subject to differing
interpretations. Prospective purchasers of variable rate Trust Fractional
Certificates are advised to consult their tax advisers concerning the tax
treatment of such Certificates.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information
on an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount on
a mortgage loan by mortgage loan basis (or on the basis of the rights to
individual payments) taking account of an allocation of their basis in the
Certificates among the interests in the various mortgage loans represented by
such Certificates according to their respective fair market values. Investors
should be aware that it may not be possible to reconstruct after the fact
sufficient mortgage by mortgage information should a computation on that basis
be required by the IRS.
Because the treatment of the Certificates under the OID Regulations is both
complicated and uncertain, Certificateholders should consult their tax
advisers to determine the proper method of reporting amounts received or
accrued on Certificates.
2. Treatment of Unstripped Certificates
Mortgage Loans in a Trust Fund for which there is neither any Class of Trust
Interest Certificates, nor more than one Class of Trust Fractional
Certificates, nor any Retained Yield otherwise identified in the Prospectus
Supplement as being unstripped mortgage loans ("Unstripped Mortgage Loans")
will be treated as wholly
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owned by the Trust Fractional Certificateholders of a Trust Fund. Trust
Fractional Certificateholders using the cash method of accounting must take
into account their pro rata shares of original issue discount as it accrues
and qualified stated interest (as described in "REMIC Trust funds--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount") from
Unstripped Mortgage Loans as and when collected by the Trustee. Trust
Fractional Certificateholders using an accrual method of accounting must take
into account their pro rata shares of qualified stated interest from
Unstripped Mortgage Loans as it accrues or is received by the Trustee,
whichever is earlier.
Code Sections 1272 through 1275 provide rules for the current inclusion in
income of original issue discount on obligations issued by natural persons on
or after March 2, 1984. Generally those sections provide that original issue
discount should be included in income on the basis of a constant yield to
maturity. However, the application of the original issue discount rules to
mortgages is unclear in certain respects. The Treasury Department has issued
the OID Regulations relating to original issue discount, which generally
address the treatment of mortgages issued on or after April 4, 1994. The OID
Regulations would provide a new de minimis rule for determining whether
certain self-amortizing installment obligations, such as the Mortgage Loans,
are to be treated as having original issue discount. Such obligations would
have original issue discount if the points charged at origination (or other
loan discount) exceeded the greater of one-sixth of one percent times the
number of full years to final maturity or one-fourth of one percent times
weighted average maturity. The OID Regulations treat certain variable rate
mortgage loans as having original issue discount because of an initial rate of
interest that differs from that determined by the mechanism for setting the
interest rate during the remainder of the loan, or because of the use of an
index that does not vary in a manner approved the OID Regulations. For a
description of the general method of calculating the amount of original issue
discount see "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" and "Application of Stripped Bond
Rules--Variable Rate Certificates."
A subsequent purchaser of a Trust Fractional Certificate that purchases such
Certificate at a cost (not including payment for accrued qualified stated
interest) less than its allocable portion of the aggregate of the remaining
stated redemption prices at maturity of the Unstripped Mortgage Loans will
also be required to include in gross income, for each day on which it holds
such Trust Fractional Certificate, its allocable share of the daily portion of
original issue discount with respect to each Unstripped Mortgage Loan, but
reduced, if the cost of such subsequent purchaser's interest in such
Unstripped Mortgage Loan exceeds its "adjusted issue price," by an amount
equal to the product of (i) such daily portion and (ii) a constant fraction,
whose numerator is such excess and whose denominator is the sum of the daily
portions of original issue discount allocable to such subsequent purchaser's
interest for all days on or after the day of purchase. The adjusted issue
price of an Unstripped Mortgage Loan on any given day is equal to the sum of
the adjusted issue price (or, in the case of the first accrual period, the
issue price) of such Unstripped Mortgage Loan at the beginning of the accrual
period during which such day occurs and the daily portions of original issue
discount for all days during such accrual period prior to such day, reduced by
the aggregate amount of payments made during such accrual period prior to such
day other than payments of qualified stated interest.
3. Market Discount and Premium
In general, if the Stripped Bond Rules do not apply to a Trust Fractional
Certificate, a purchaser of a Trust Fractional Certificate will be treated as
acquiring market discount bonds to the extent that the share of such
purchaser's purchase price allocable to any Unstripped Mortgage Loan is less
than its allocable share of the "adjusted issue price" of such Mortgage Loan.
See "Treatment of Unstripped Certificates" and "Application of Stripped Bond
Rules." Thus, with respect to such Mortgage Loans, a holder will be required,
under Code Section 1276, to include as ordinary income the previously
unrecognized accrued market discount in an amount not exceeding each principal
payment on any such Mortgage Loans at the time each principal payment is
received or due, in accordance with the purchaser's method of accounting, or
upon a sale or other disposition of the Certificate. In general, the amount of
market discount that has accrued is determined on a ratable basis. A Trust
Fractional Certificateholder may, however, elect to determine the amount of
accrued market discount on a
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constant yield to maturity basis. This election is made on a bond-by-bond
basis and is irrevocable. In addition, the description of the market discount
rules in "Taxation of Owners of REMIC Regular Certificates--Market Discount
and Premium" with respect to (i) conversion to ordinary income of a portion of
any gain recognized on sale or exchange of a market discount bond, (ii)
deferral of interest expense deductions, (iii) the de minimis exception from
the market discount rules and (iv) the elections to include in income either
market discount or all interest, discount and premium as they accrue, is also
generally applicable to Trust Fractional Certificates. Treasury regulations
implementing the market discount rules, including the 1986 Act amendments
thereto, have not yet been issued and investors therefore should consult their
own tax advisers regarding the application of these rules.
If a Trust Fractional Certificate is purchased at a premium, under existing
law such premium must be allocated to each of the Mortgage Loans (on the basis
of its relative fair market value). The portion of any premium allocated to
Unstripped Mortgage Loans originated after September 27, 1985 can be amortized
and deducted under the provisions of the Code relating to amortizable bond
premium. The portion of such premium allocated to Unstripped Mortgage Loans
originated on or before September 27, 1985 may only be deducted upon the sale
or final distribution in respect of any such Mortgage Loan, as the special
rules of the Code that permit the amortization of such premium apply in the
case of debt instruments other than corporate and governmental obligations,
only to obligations issued after that date. Upon such a sale or final
distribution in respect of such a Mortgage Loan, the premium, if any,
allocable thereto would be recognized as a short-term or long-term capital
loss by a Certificateholder holding the interests in Mortgage Loans
represented by such Certificate as capital assets, depending on how long the
Certificate had been held.
The application of the Stripped Bond Rules to Stripped Mortgage Loans will
generally cause any premium allocable to Stripped Mortgage Loans to be
amortized automatically by adjusting the rate of accrual of interest and
discount to take account of the allocable portion of the actual purchase price
of the Certificate. In that event, no additional deduction for the
amortization of premium would be allowed. It is possible that the IRS may take
the position that the application of the Stripped Bond Rules to the Stripped
Mortgage Loans should be adjusted so as not to take account of any premium
allocable to a Stripped Mortgage Loan originated on or before September 27,
1985. Any such premium would then be subject to the provisions of the Code
relating to the amortization of bond premium, including the limitations
described in the preceding paragraph on the amortization of premium allocable
to Mortgage Loans originated on or before September 27, 1985.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations (the "Proposed Premium Regulations") on the amortization of bond
premium. The Proposed Premium Regulations describe the constant yield method
under which such premium is amortized and provide that the resulting offset to
interest income can be taken into account only as a Certificateholder takes
the corresponding interest income into account under such holder's regular
accounting method. In the case of instruments that may be called or repaid
prior to maturity, the Proposed Premium Regulations provide that the premium
is calculated by assuming that the issuer will exercise or not exercise its
redemption rights in the manner that maximizes the Certificateholder's yield
and the Certificateholder will exercise or not exercise its option in a manner
that maximizes the Certificateholder's Yield. The Proposed Premium Regulations
are proposed to be effective for debt instruments acquired on or after the
date 60 days after the date final regulations are published in the Federal
Register. However, if a Certificateholder elects to amortize bond premium for
the taxable year containing such effective date, the Proposed Premium
Regulations would apply to all the Certificateholder's debt instruments held
on or after the first day of that taxable year. It cannot be predicted at this
time whether the Proposed Premium Regulations will become effective or what,
if any, modifications will be made to them prior to their becoming effective.
Such regulations do not, however, apply to instruments that are subject to
Section 1272(a)(6).
4. Allocation of Purchase Price
As noted above, a purchaser of a Trust Fractional Certificate relating to
Unstripped Mortgage Loans will be required to allocate the purchase price
thereof to the undivided interest it acquires in each of the Mortgage Loans,
in proportion to the respective fair market values of the portions of such
Mortgage Loans included in the Trust
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Fund at the time the Certificate is purchased. The Depositor believes that it
may be reasonable to make such allocation in proportion to the respective
principal balances of the Mortgage Loans, where the interests in the Mortgage
Loans represented by a Trust Fractional Certificate have a common remittance
rate and other common characteristics, and otherwise so as to produce a common
yield for each interest in a Mortgage Loan, provided the Mortgage Loans are
not so diverse as to evoke differing prepayment expectations. However, if
there is any significant variation in interest rates among the Mortgage Loans,
a disproportionate allocation of the purchase price taking account of
prepayment expectations may be required.
C. Taxation of Owners of Trust Interest Certificates
With respect to each Series of Certificates for which they are identified as
counsel to the Depositor in the applicable Prospectus Supplement, Brown &
Wood, LLP, Cadwalader, Wickersham & Taft, Dewey Ballantine, or Orrick,
Herrington & Sutcliffe LLP will advise the Depositor that, in their opinion,
each holder of a Trust Interest Certificate (a "Trust Interest
Certificateholder") will be treated as the owner of an undivided interest in
the interest portion ("Interest Coupon") of each of the Mortgage Loans.
Accordingly, and subject to the discussion under "Application of Stripped Bond
Rules" below, each Trust Interest Certificateholder is treated as owning its
allocable share of the entire Interest Coupon from the Mortgage Loans, will
report income as described below, and may deduct its allocable share of the
servicing and related fees and expenses paid to or retained by the Depositor
at the same time and in the same manner as such items would have been reported
under the Trust Interest Certificateholder's tax accounting method had it held
directly an interest in the Interest Coupon from the Mortgage Loans, received
directly its share of the amounts received with respect to the Mortgage Loans
and paid directly its share of the servicing and related fees and expenses. An
individual, estate or trust holder of a Trust Interest Certificate will be
allowed a deduction for servicing fees in determining its regular tax
liability only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross
income, and will be allowed no deduction for such fees in determining its
liability for alternative minimum tax. Amounts, if any, received by Trust
Interest Certificateholders in lieu of amounts due with respect to any
Mortgage Loan but not received by the Master Servicer from the Mortgagor will
be treated for federal income tax purposes as having the same character as the
payment which they replace.
1. Application of Stripped Bond Rules
A Trust Interest Certificate will consist of an undivided interest in the
Interest Coupon of each of the Mortgage Loans. With respect to each Series of
Certificates for which they are identified as counsel to the Depositor in the
applicable Prospectus Supplement, Brown & Wood LLP, Cadwalader, Wickersham &
Taft, Dewey Ballantine, or Orrick, Herrington & Sutcliffe LLP will advise the
Depositor that, in their opinion a Trust Interest Certificate will be treated
for federal income tax purposes as comprised of an ownership interest in a
portion of the Interest Coupon of each of the Mortgage Loans (a "Stripped
Interest") separated by the Depositor from the right to receive principal
payments and the remainder, if any, of each interest payment on the underlying
Mortgage Loan. As a consequence, the Trust Interest Certificates will become
subject to the Stripped Bond Rules. Each Trust Interest Certificateholder will
be required to apply the Stripped Bond Rules to its interest in the Interest
Coupon under the method prescribed by the Code, taking account of the price at
which the holder purchased the Trust Interest Certificate and the Trust
Interest Certificateholder's share of the scheduled payment to be made
thereon. The Stripped Bond Rules generally require a holder of Stripped
Coupons to accrue and report income from such Stripped Coupons daily on the
basis of the yield to maturity of such stripped bonds or coupons, as
determined in accordance with the provisions of the Code dealing with original
issue discount. For a discussion of the general method of calculating original
issue discount, see "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." See also "Prepayments" below. The
provisions of the Code and the OID Regulations do not directly address the
treatment of instruments similar to Trust Interest Certificates. In reporting
to Trust Interest Certificateholders such Certificates will be treated as a
single obligation with payment corresponding to the aggregate of the payment
allocable thereto from each of the Mortgage Loans. See "Aggregate Reporting."
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Alternatively, Trust Interest Certificateholders may be required by the IRS
to treat each scheduled payment on each Stripped Interest (or their interests
in all scheduled payments from each of the Stripped Interests) as a separate
obligation for purposes of allocating purchase price and computing original
issue discount.
The tax treatment of the Trust Interest Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the Trustee intends to treat each Trust Interest Certificate
as a single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect
to a Trust Interest Certificate must be included in ordinary gross income for
federal income tax purposes as it accrues in accordance with a constant yield
method that takes into account the compounding of interest and such accrual of
income may be in advance of the receipt of any cash attributable to such
income. In general, the rules for accruing original issue discount set forth
above in "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" apply. See "Prepayments" below. For
purposes of applying the original issue discount provisions of the Code, the
issue price used in reporting original issue discount with respect to a Trust
Interest Certificate will be the purchase price paid by each holder thereof
and the stated redemption price at maturity may include the aggregate amount
of all payments to be made with respect to the Trust Interest Certificate
whether or not denominated as interest. The amount of original issue discount
with respect to a Trust Interest Certificate may be treated as zero under the
original issue discount de minimis rules described above.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information
on an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount
either on a mortgage loan by mortgage loan basis or on a payment by payment
basis taking account of an allocation of their basis in the Certificates among
the interests in the various mortgage loans represented by such Certificates
according to their respective fair market values. The effect of an aggregate
computation for the inclusion of original issue discount in income may be to
defer the recognition of losses due to early prepayments relative to a
computation on a mortgage by mortgage basis. Investors should be aware that it
may not be possible to reconstruct after the fact sufficient mortgage by
mortgage information should a computation on that basis be required by the
IRS.
Because the treatment of the Trust Interest Certificates under current law
and the potential application of the 1996 Contingent Debt Regulations are both
complicated and uncertain, Trust Interest Certificateholders should consult
their tax advisers to determine the proper method of reporting amounts
received or accrued on Trust Interest Certificates.
D. Prepayments
The Tax Reform Act of 1986 (the "1986 Act") contains a provision requiring
original issue discount on certain obligations issued after December 31, 1986
to be calculated taking into account a prepayment assumption and requiring
such discount to be taken into income on the basis of a constant yield to
assumed maturity taking account of actual prepayments. Although the proper
treatment of interests, such as the Trust Fractional Certificates and the
Trust Interest Certificates, in debt instruments that are subject to
prepayment is unclear. Legislation recently enacted has extended (for taxable
years beginning after such enactment) the rules contained in the 1986 Act to
any pool of debt instruments the yield on which may be affected by reason of
prepayments. Accordingly, it appears that Section 1272(a)(6) would apply to
such Certificates. See "Taxation of Owners of REMIC Regular Certificates--
Original Issue Discount." Trust Fractional Certificateholders and Trust
Interest Certificateholders should consult their tax advisers as to the proper
reporting of income from Trust Fractional Certificates and Trust Interest
Certificates, as the case may be, in the light of the possibility of
prepayment and, with respect to the Trust Interest Certificates, as to the
possible application of the 1996 Contingent Debt Regulations.
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E. Sales of Trust Certificates
If a Certificate is sold, gain or loss will be recognized by the holder
thereof in an amount equal to the difference between the amount realized on
the sale and the Certificateholder's adjusted tax basis in the Certificate.
Such tax basis will equal the Certificateholder's cost for the Certificate,
increased by any original issue or market discount with respect to the
interest in the Mortgage Loans represented by such Certificate previously
included in income, and decreased by any deduction previously allowed for
premium and by the amount of payments, other than payments of qualified stated
interest, previously received with respect to such Certificate. The portion of
any such gain attributable to accrued market discount not previously included
in income will be ordinary income, as will gain attributable to a Certificate
which is part of a "conversion transaction" or which the holder elects to
treat as ordinary. See "REMIC Trust Funds--Sales of REMIC Certificates" above.
Any remaining gain or any loss will be capital gain or loss if the Certificate
was held as a capital asset except to the extent that code Section 582(c)
applies to such gain or loss. Capital losses may not, in general, be offset
against ordinary income.
F. Trust Reporting
The Master Servicer will furnish to each holder of a Trust Fractional
Certificate with each distribution a statement setting forth the amount of
such distribution allocable to principal on the underlying Mortgage Loans and
to interest thereon at the Pass-Through Rate. In addition, the Master Servicer
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Trust Certificate who was such a holder at any time during
such year, information regarding the amount of servicing compensation received
by the Master Servicer and sub-servicer (if any) and such other customary
factual information as the Master Servicer deems necessary or desirable to
enable holders of Trust Certificates to prepare their tax returns.
G. Back-Up Withholding
In general, the rules described in "REMIC Trust Funds--Back-up Withholding"
will also apply to Trust Certificates.
H. Foreign Certificateholders
Payments in respect of interest or original issue discount (including
amounts attributable to servicing fees) on the Mortgage Loans to a
Certificateholder who is not a citizen or resident of the United States, a
corporation or other entity organized in or under the laws of the United
States or of any State thereof, or a United States estate or trust, will not
generally be subject to 30% United States withholding tax, provided that such
Certificateholder (i) does not own, directly or indirectly, 10% or more of,
and is not a controlled foreign corporation (within the meaning of Code
Section 957) related to, each of the issuers of the Mortgages and (ii)
provides required certification as to its non-United States status under
penalty of perjury and then will be free of such tax only to the extent that
the underlying Mortgages were issued after July 18, 1984. This withholding tax
may be reduced or eliminated by an applicable tax treaty. Notwithstanding the
foregoing, if any such payments are effectively connected with a United States
trade or business conducted by the Certificateholder, they will be subject to
regular United States income tax and, in the case of a corporation, to a
possible branch profits tax, but will ordinarily be exempt from United States
withholding tax provided that applicable documentation requirements are met.
Holders of Trust Certificates should be aware that proposed Treasury
Regulations were issued on April 15, 1996 which, if adopted in final form,
could affect the United States taxation of foreign investors in Trust
Certificates. For further discussion of those proposed regulations, see "REMIC
TRUST FUNDS--Foreign Investors in REMIC Certificates" above.
I. State and Local Taxation
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition
of the Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisers with respect to the various state tax
consequences of an investment in the Certificates.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA
("ERISA Plans") and on those persons who are ERISA fiduciaries with respect to
the assets of such ERISA Plans. In accordance with the general fiduciary
standards of ERISA, an ERISA Plan fiduciary should consider whether an
investment in the Certificates is permitted by the documents and instruments
governing the Plan, consistent with the Plan's overall investment policy and
appropriate in view of the composition of its investment portfolio.
Employee benefit plans which are governmental plans and certain church plans
(if no election has been made under Section 410(d) of the Code) are not
subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the Certificates subject to the provisions of applicable federal
and state law and, in the case of any such plan which is qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of
the Code, the restrictions imposed under Section 503 of the Code.
In addition to imposing general fiduciary standards, ERISA and Section 4975
of the Code prohibit a broad range of transactions involving assets of ERISA
Plans and other plans subject to Section 4975 of the Code (together with ERISA
Plans, "Plans") and certain persons ("Parties in Interest") who have certain
specified relationships to the Plans and taxes and/or imposes other penalties
on any such transaction under ERISA and/or Section 4975 of the Code, unless an
exemption applies. If the assets of a Trust Fund are treated for ERISA
purposes as the assets of the Plans that purchase or hold Certificates of the
applicable Series, an investment in Certificates of that Series by or with
"plan assets" of a Plan might constitute or give rise to a prohibited
transaction under ERISA or Section 4975 of the Code, unless a statutory or
administrative exemption applies. Violation of the prohibited transaction
rules could result in the imposition of excise taxes and/or other penalties
under ERISA and/or Section 4975 of the Code.
PLAN ASSETS REGULATION
The United States Department of Labor ("DOL") has issued a final regulation
(the "Plan Assets Regulation") under which assets of an entity in which a Plan
makes an equity investment will be treated as assets of the investing Plan in
certain circumstances. Unless the Plan Assets Regulation provides an exemption
from this "plan asset" treatment, and if such an exemption is not otherwise
available under ERISA, an undivided portion of the assets of a Trust Fund will
be treated, for purposes of applying the fiduciary standards and prohibited
transaction rules of ERISA and Section 4975 of the Code, as an asset of each
Plan which becomes a Certificateholder of the applicable Series.
The Plan Assets Regulation provides an exemption from "plan asset" treatment
for securities issued by an entity if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25% of the value
of each class of equity interests in the entity, excluding interests held by a
person who has discretionary authority or control with respect to the assets
of the entity (or any affiliate of such a person), are held by "benefit plan
investors" (e.g., Plans, governmental and other benefit plans not subject to
ERISA and entities holding assets deemed to be "plan assets"). Because the
availability of this exemption to any Trust Fund depends upon the identity of
the Certificateholders of the applicable Series at any time, there can be no
assurance that any Series or Class of Certificates will qualify for this
exemption.
PROHIBITED TRANSACTION CLASS EXEMPTIONS
Prohibited Transaction Class Exemption 83-1 (Class Exemption for Certain
Transactions Involving Mortgage Pool Investment Trusts) ("PTCE 83-1") permits,
subject to certain conditions, certain transactions involving the creation,
maintenance and termination of certain residential mortgage pools and the
acquisition and holding of certain residential mortgage pool pass-through
certificates by Plans, regardless of whether (a) the mortgage pool is exempt
from "plan asset" treatment or (b) the transactions would otherwise be
prohibited
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under ERISA or Section 4975 of the Code. A Series of Certificates will be an
"Exempt Series" if the general conditions (described below) of PTCE 83-1 are
satisfied, and if the applicable Series of Certificates evidences ownership
interests in Trust Assets which do not include Mortgage Certificates,
Cooperative Loans, Mortgage Loans secured by cooperative buildings, Mortgage
Loans secured by Multifamily Property, Mortgage Loans secured by unimproved
real property, or Contracts (collectively "Nonexempt Assets"). An investment
by a Plan in Certificates of an Exempt Series (1) will be exempt from the
prohibitions of Section 406(a) of ERISA (relating generally to Plan
transactions involving Parties in Interest who are not fiduciaries) if the
Plan purchases the Certificates at no more than fair market value, and (2)
will be exempt from the prohibitions of Sections 406(b)(1) and (2) of ERISA
(relating generally to Plan transactions with fiduciaries) if, in addition,
(i) the purchase is approved by an independent fiduciary, (ii) no sales
commission is paid to the Depositor as Mortgage Pool sponsor, (iii) the Plan
does not purchase more than 25% of the Certificates of that Series and (iv) at
least 50% of the Certificates of that Series is purchased by persons
independent of the Depositor, the Trustee and the Insurer, as applicable. PTCE
83-1 will not apply to a Series of Certificates with respect to which the
Trust Assets include Nonexempt Assets (a "Nonexempt Series"). See "The Trust
Fund--The Mortgage Pools" and "--The Contract Pools." Accordingly, it appears
that PTCE 83-1 will not exempt Plans that acquire Certificates of a Nonexempt
Series from the prohibited transaction rules of ERISA and Section 4975 of the
Code. The applicable Prospectus Supplement will state whether a Series of
Certificates is an Exempt Series or a Nonexempt Series.
PTCE 83-1 sets forth three general conditions that must be satisfied for any
transaction to be eligible for exemption: (1) the existence of a pool trustee
who is not an affiliate of the pool sponsor; (2) the maintenance of a system
of insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying certificateholders against
reductions in pass-through payment due to property damage or defaults in loan
payments; and (3) a limitation on the amount of the payment retained by the
pool sponsor, together with other benefits inuring to it, to not more than
adequate consideration for selling the mortgage loans and reasonable
compensation for services provided by the pool sponsor to the mortgage pool.
The Trustee for all Series will be unaffiliated with the Depositor, and,
accordingly, the first general condition will be satisfied. With respect to
the second general condition of PTCE 83-1, the credit support method
represented by the issuance of a Subordinated Class or Subclasses of
Certificates and/or the establishment of a Reserve Fund, with respect to any
Exempt Series for which such a method of Credit Support is provided (see
"Credit Support--Subordinated Certificates" and "--Reserve Fund"), is
substantially similar to a system for protecting Certificateholders against
reductions in pass-through payments which has been reviewed and accepted by
the DOL as an alternative to pool insurance or a letter of credit
indemnification system. This may support a Plan fiduciary's conclusion that
the second general condition is satisfied with respect to any such Exempt
Series although, in the absence of a ruling to this effect, there can be no
assurance that these features will be so viewed by the DOL. In addition, the
Depositor intends to use its best efforts to establish, for each Exempt Series
for which credit support is provided by a Letter of Credit (see "Credit
Support--Letters of Credit") and/or the insurance arrangements set forth above
under "Description of Insurance" (an "Insured Series"), a system that will
adequately protect the Mortgage Pools and indemnity Certificateholders of the
applicable Series against pass-through payment reductions resulting from
property damage or defaults in loan payments. With respect to the third
general condition of PTCE 83-1, the Depositor intends to use its best efforts
to establish a compensation system which will produce for the Depositor total
compensation that will not exceed adequate consideration for forming the
Mortgage Pool and selling the Certificates. However, the Depositor does not
guarantee that its systems will be sufficient to meet the second and third
general conditions (described above) with respect to any Exempt Series.
If an Exempt Series of Certificates is subdivided into two or more Classes
or Subclasses which are entitled to disproportionate allocations of the
principal or interest payments on the Mortgage Loans held by the applicable
Trust Fund, the availability of the exemption afforded by PTCE 83-1 may be
adversely affected, as described in the applicable Prospectus Supplement.
Moreover, if the Certificateholders of any Class or Subclass of Certificates
are entitled to pass-through payment of principal (but no or only nominal
interest) or interest (but no or only nominal principal), PTCE 83-1 will not
exempt Plans which acquire Certificates of that Class or Subclass from the
prohibited transaction rules of ERISA and Section 4975 of the Code.
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If an Exempt Series of Certificates includes a Class of Subordinated
Certificates, PTCE 83-1 will not provide an exemption from the prohibited
transaction rules of ERISA and Section 4975 of the Code for Plans that acquire
such Subordinated Certificates.
If for any reason PTCE 83-1 does not provide an exemption for a particular
Plan Certificateholder, one of five other prohibited transaction class
exemptions issued by the DOL might apply, i.e., PTCE 96-23 (Class Exemption
for Plan Asset Transactions Determined by In-House Asset Managers), PTCE 95-60
(Class Exemption for Certain Transactions Involving Insurance Company General
Accounts), PTCE 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds), PTCE 90-1 (Class Exemption for Certain
Transactions Involving Insurance Company Pooled Separate Accounts) or PTCE 84-
14 (Class Exemption for Plan Asset Transactions Determined by Independent
Qualified Professional Asset Managers). There can be no assurance that any of
these class exemptions will apply with respect to any particular Plan
Certificateholder or, even if it were to apply, that the available exemptive
relief would apply to all transactions involving the applicable Trust Fund.
Any person who is a fiduciary by reason of his or her authority to invest
"plan assets" of any Plan (a "Plan investor") and who is considering the use
of "plan assets" of any Plan to purchase of the offered Certificates should
consult with its counsel with respect to the potential applicability of ERISA
and Section 4975 of the Code to such investments, and should determine on its
own whether PTCE 83-1 or another exemption would be applicable (and whether
all conditions have been satisfied with respect to any such exemptions), and
whether the offered Certificates are an appropriate investment for a Plan.
Moreover, each Plan fiduciary should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment
in the offered Certificates is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
UNDERWRITER'S PTE
Credit Suisse First Boston Corporation ("First Boston") is the recipient of
a final prohibited transaction exemption, 54 Fed. Reg. 42597 (Oct. 17, 1989),
as amended by PTE 97-34, 62 Fed. Reg. 39021 (July 21, 1997)(the "Underwriter's
PTE" or "Credit Suisse First Boston Corporation's PTE" if specified in the
applicable Prospectus Supplement), which may accord protection from violations
under Sections 406 and 407 of ERISA and Section 4975 of the Code for Plans
that acquire Certificates. The Underwriter's PTE applies to certificates (a)
which represent (1) a beneficial ownership interest in the assets of a trust
and entitle the holder to pass-through payments of principal, interest and/or
other payments made with respect to the assets of the trust, or (2) an
interest in a REMIC if the certificates are issued by and are obligations of a
trust; and (b) with respect to which First Boston or any of its affiliates is
either the sole underwriter, the manager or co-manager of the underwriting
syndicate or a selling or placement agent. The corpus of a trust to which the
Underwriter's PTE applies may consist of (i) obligations which bear interest
or are purchased at a discount and which are secured by (A) single-family
residential, multifamily residential or commercial real property (including
obligations secured by leasehold interests on such real property) or (B)
shares issued by a cooperative housing association; (ii) secured consumer
receivables that bear interest or are purchased at a discount; (iii) secured
credit instruments that bear interest or are purchased at a discount in
transactions by or between business entities; and (iv) "guaranteed
governmental mortgage pool certificates" (as defined in the Plan Assets
Regulation).
Plans acquiring Certificates may be eligible for protection under the
Underwriter's PTE if:
(a) assets of the type included as Trust Assets have been included in
other investment pools ("Other Pools");
(b) certificates evidencing interests in Other Pools have been both (1)
rated in one of the three highest generic rating categories by Standard &
Poor's Ratings Services, Moody's Investors Service, Inc., Duff & Phelps
Inc. or Fitch Investors Service, L.P., and (2) purchased by investors other
than Plans, for at least one year prior to a Plan's acquisition of
Certificates in reliance upon the Underwriter's PTE;
(c) at the time of such acquisition, the Class of Certificates acquired
by the Plan has received a rating in one of the rating categories referred
to in condition (b) above;
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(d) the Trustee is not an affiliate of any member of the Restricted Group
(as defined below);
(e) the applicable Series of Certificates evidences ownership in Trust
Assets which may include non-Subordinated Mortgage Certificates (whether or
not interest and principal payable with respect to the Mortgage
Certificates are guaranteed by the GNMA, FHLMC or FNMA) or Contracts;
(f) the Class of Certificates acquired by the Plan are not subordinated
to other Classes of Certificates of that Series with respect to the right
to receive payment in the event of defaults or delinquencies on the
underlying Trust Assets;
(g) the Plan is an "accredited investor" (as defined in Rule 501(a)(1) of
Regulation D under the Securities Act);
(h) the acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan
as they would be in an arm's length transaction with an unrelated party;
and
(i) the sum of all payments made to and retained by the Underwriter or
members of any underwriting syndicate in connection with the distribution
of the Certificates represents not more than reasonable compensation for
underwriting the Certificates; the sum of all payments made to and retained
by the Seller pursuant to the sale of the Trust Assets to the Trust
represents not more than the fair market value of such Trust Assets; and
the sum of all payments made to and retained by the Master Servicer and all
Servicers represents not more than reasonable compensation for such
Servicers' services under the Pooling and Servicing Agreement and
reimbursement of such Servicers' reasonable expenses in connection
herewith.
In addition, the Underwriter's PTE will not apply to a Plan's investment in
Certificates if the Plan fiduciary responsible for the decision to invest in a
Class of Certificates is a Mortgagor or Obligor with respect to more than 5%
of the fair market value of the obligations constituting the Trust Assets or
an affiliate of such person, unless:
(1) in the case of an acquisition in connection with the initial issuance
of any Series of Certificates, at least 50% of each Class of Certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least 50% of the aggregate interest in the Trust is
acquired by persons independent of the Restricted Group;
(2) the Plan's investment in any Class of Certificates does not exceed
25% of the outstanding Certificates of that Class at the time of
acquisition;
(3) immediately after such acquisition, no more than 25% of the Plan
assets with respect to which the investing fiduciary has discretionary
authority or renders investment advice are invested in certificates
evidencing interest in trusts sponsored or containing assets sold or
serviced by the same entity; and
(4) the Plan is not sponsored by the Depositor, any Underwriter, the
Trustee, any Servicer, any Pool, Special Hazard or Primary Mortgage Insurer
or the obligor under any other credit support mechanism, a Mortgagor or
Obligor with respect to obligations constituting more than 5% of the
aggregate unamortized principal balance of the Trust Assets on the date of
the initial issuance of Certificates, or any of their affiliates (the
"Restricted Group").
Each Series of Certificates generally is expected to satisfy condition (a)
unless otherwise specified in the applicable Prospectus Supplement. If a
Series includes a Class of Subordinated Certificates, that Class will not
satisfy condition (f). Additionally, the Prospectus permits the issuance of
Certificates rated in one of the four highest rating categories, so a
particular Class of a Series may not satisfy condition (c).
Whether the other conditions in the Underwriter's PTE will be satisfied as
to Certificates or any particular Class will depend upon the relevant facts
and circumstances existing at the time the Plan acquires Certificates of that
Class. Any Plan investor who proposes to use "plan assets" of a Plan to
acquire Certificates in reliance upon the Underwriter's PTE should determine
whether the Plan satisfies all of the applicable conditions and consult with
its counsel regarding other factors that may affect the applicability of the
Underwriter's PTE.
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GENERAL CONSIDERATIONS
Any member of the Restricted Group, a Mortgagor or Obligor, or any of their
affiliates might be considered or might become a Party in Interest with
respect to a Plan. In that event, the acquisition or holding of Certificates
of the applicable Series or Class by, on behalf of or with "plan assets" of
such Plan might be viewed as giving rise to a prohibited transaction under
ERISA and Section 4975 of the Code, unless PTCE 83-1, the Underwriter's PTE or
another exemption is available. Accordingly, before a Plan Investor makes the
investment decision to purchase, to commit to purchase or to hold Certificates
of any Series or Class, the Plan Investor should determine (a) whether the
second and third general conditions and the specific conditions (described
briefly above) of PTCE 83-1 have been satisfied; (b) whether the Underwriter's
PTE is applicable and adequate exemptive relief is available; (c) whether any
other prohibited transaction exemption (if required) is available under ERISA
and Section 4975 of the Code; or (d) whether an exemption from "plan asset"
treatment is available to the applicable Trust Fund. The Plan Investor should
also consult the ERISA discussion, if any, in the applicable Prospectus
Supplement for further information regarding the application of ERISA to any
Series or Class of Certificates.
Subordinated Certificates are not available for purchase by or with "plan
assets" of any Plan, other than an insurance company general account which
satisfies the conditions set forth in Sections I and II of PTCE 95-60 or a
governmental or church plan which is not subject to ERISA or Section 4975 of
the Code (as described above), and any acquisition of Subordinated
Certificates by, on behalf of or with "plan assets" of any such Plan will be
treated as null and void for all purposes.
INSURANCE COMPANY GENERAL ACCOUNTS
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions
of Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by Section 4975 of the Code, for transactions involving an
insurance company general account. Pursuant to Section 401(c) of ERISA, the
DOL is required to issue final regulations (the "401(c) Regulations") no later
than December 31, 1997 which are to provide guidance for the purpose of
determining, in cases where insurance policies or annuity contracts supported
by an insurer's general account are issued to or for the benefit of a Plan on
or before December 31, 1998, which general account assets constitute "plan
assets." Section 401(c) of ERISA generally provides that, until the date which
is 18 months after the 401(c) Regulations become final, no person shall be
subject to liability under Part 4 of Title I of ERISA and Section 4975 of the
Code on the basis of a claim that the assets of an insurance company general
account constitute "plan assets," unless (i) as otherwise provided by the
Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations or (ii) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal
or state criminal law. Any assets of an insurance company general account
which support insurance policies issued to a Plan after December 31, 1998 or
issued to Plans on or before December 31, 1998 for which the insurance company
does not comply with the 401(c) Regulations may be treated as "plan assets."
In addition, because Section 401(c) does not relate to insurance company
separate accounts, separate account assets are still treated as "plan assets"
of any Plan invested in such separate account. Insurance companies
contemplating the investment of general account assets in the Certificates
should consult with their legal counsel with respect to the applicability of
Sections I and III of PTCE 95-60 and Section 401(c) or ERISA, including the
general account's ability to continue to hold the Certificates after the date
which is 18 months after the date the 401(c) Regulations become final.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO PURCHASE
CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH
RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE
OF THE ACQUISITION AND OWNERSHIP OF SUCH CERTIFICATES.
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LEGAL INVESTMENT
The applicable Prospectus Supplement for a Series of Certificates will
specify whether a Class or Subclass of such Certificates, as long as it is
rated in one of the two highest rating categories by one or more nationally
recognized statistical rating organizations, will constitute a "mortgage
related security" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Such Class or Subclass, if any, constituting a
"mortgage related security" will be a legal investment for persons, trusts,
corporations, partnerships, associations, business trusts and business
entities (including depository institutions, insurance companies, trustees and
state government employee retirement systems) created pursuant to or existing
under the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued
by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for such
entities.
Pursuant to SMMEA, a number of states enacted legislation, on or prior to
the October 3, 1991 cutoff for such enactments, limiting to varying extents
the ability of certain entities (in particular, insurance companies) to invest
in "mortgage related securities," in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Accordingly,
the investors affected by such legislation will be authorized to invest in
Certificates qualifying as "mortgage related securities" only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe. In this connection,
federal credit unions should review NCUA Letter to Credit Unions No. 96, as
modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage
related securities. The NCUA has adopted rules, codified as 12 C.F.R. Section
703.5(f)-(k), which prohibit federal credit unions from investing in certain
mortgage related securities (including securities such as certain Series,
Classes or Subclasses of Certificates), except under limited circumstances.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities"
dated January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of
the Federal Financial Institutions Examination Council.
The Policy Statement which has been adopted by the Board of Governors of the
Federal Reserve System, the Office of the Comptroller of the Currency, the
FDIC and the Office of Thrift Supervision and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain Series,
Classes or Subclasses of the Certificates), except under limited
circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain Series, Classes or Subclasses may be deemed
unsuitable investments, or may otherwise be restricted, under such rules,
policies or guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits,
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," and, with regard to any
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
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Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase Certificates under applicable legal
investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Certificates) may adversely
affect the liquidity of the Certificates.
Investors should consult their own legal advisers in determining whether and
to what extent such Certificates constitute legal investments for such
investors.
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of the related
Prospectus Supplements may be sold directly by the Depositor or may be offered
through Credit Suisse First Boston Corporation, an affiliate of the Depositor,
or underwriting syndicates represented by Credit Suisse First Boston
Corporation (the "Underwriters"). The Prospectus Supplement with respect to
each such Series of Certificates will set forth the terms of the offering of
such Series or Certificates and each Subclass within such Series, including
the name or names of the Underwriters, the proceeds to the Depositor, and
either the initial public offering price, the discounts and commissions to the
Underwriters and any discounts or concessions allowed or reallowed to certain
dealers, or the method by which the price at which the Underwriters will sell
such Certificates will be determined.
Unless otherwise specified in the Prospectus Supplement, the Underwriters
will be obligated to purchase all of the Certificates of a Series described in
the Prospectus Supplement with respect to such Series if any such Certificates
are purchased. The Certificates may be acquired by the Underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale.
If so indicated in the Prospectus Supplement, the Depositor will authorize
Underwriters or other persons acting as the Depositor's agents to solicit
offers by certain institutions to purchase the Certificates from the Depositor
pursuant to contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Depositor. The obligation of any
purchaser under any such contract will be subject to the condition that the
purchase of the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject. The Underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
The Depositor may also sell the Certificates offered hereby and by means of
the related Prospectus Supplements from time to time in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Depositor may effect such transactions by selling Certificates to or through
dealers, and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Depositor and any purchasers of
Certificates for whom they may act as agents.
The place and time of delivery for each Series of Certificates offered
hereby and by means of the related Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
If and to the extent required by applicable law or regulation, this
Prospectus and the attached Prospectus Supplement will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sales.
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LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriters by Brown & Wood
LLP, San Francisco, California, Cadwalader, Wickersham & Taft, New York, New
York, Dewey Ballantine, New York, New York or Orrick, Herrington & Sutcliffe
LLP.
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INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ---- -----------------
<S> <C>
1986 Act...................................................... 120
1988 Act...................................................... 109
1996 Contingent Debt Regulations.............................. 104
1996 Proposed Regulations..................................... 113
401(c) Regulations............................................ 126
Accrual Distribution Amount................................... 43
Advances...................................................... 16
AFR........................................................... 108
Agreement..................................................... 40
Alternative Credit Support.................................... 11
appraised value............................................... 35
Approved Sale................................................. 76
APR........................................................... 33
ARM Loans..................................................... 29
Asset Conservation Act........................................ 90
Balloon Mortgage Loans........................................ 20
Borrower...................................................... 79
Buy-Down Fund................................................. 15, 27
Buy-Down Loans................................................ 27
Cede.......................................................... 23
CERCLA........................................................ 22, 90
Certificate Account........................................... 49
Certificate Principal Balance................................. 4
Certificateholders............................................ 23, 26
Certificates.................................................. 1, 4, 114
Class......................................................... 1, 4
Closed Loans.................................................. 29
Closing Date.................................................. 101
Code.......................................................... 16, 39, 114
Commercial Mortgage Loans..................................... 5
Commercial Property........................................... 5
Commission.................................................... 2
Contract Loan-to-Value Ratio.................................. 9
Contract Pool................................................. 1, 5, 99
Contract Schedule............................................. 46
Contracts..................................................... 1, 5, 18, 33
Converted Mortgage Loan....................................... 25
Cooperative................................................... 5
Cooperative Dwelling.......................................... 5
Cooperative Loans............................................. 5
Credit Suisse First Boston Corporation's PTE.................. 124
Current value................................................. 101
Custodial Account............................................. 49
Custodial Agreement........................................... 34
Custodian..................................................... 34
Cut-off Date.................................................. 23
Debt Service Reduction........................................ 88
Deferred Interest............................................. 24
</TABLE>
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<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ---- -----------------
<S> <C>
Deficiency Event.............................................. 64
Deficient Valuation........................................... 87
Definitive Certificates....................................... 23
Deleted Contract.............................................. 35
Deleted Mortgage Certificates................................. 46
Deleted Mortgage Loans........................................ 45
Deposit Trust Agreement....................................... 40
Depositor..................................................... 1
Determination Date............................................ 52
Discount Certificate.......................................... 10
Discount Certificates......................................... 37
Distribution Date............................................. 6
DOL........................................................... 122
DTC........................................................... 23
Due Date...................................................... 27
Due Period.................................................... 43
ERISA......................................................... 16, 122
ERISA Plans................................................... 122
Escrow Account................................................ 56
FBSC.......................................................... 35
FHA........................................................... 1, 25, 30
FHA Experience................................................ 38
FHA Loans..................................................... 25
First Boston.................................................. 124
Garn-St Germain Act........................................... 89
GPM Fund...................................................... 15, 27
GPM Loans..................................................... 27
HUD........................................................... 30
Initial Deposit............................................... 14
Installment Contracts......................................... 28
Insurance Proceeds............................................ 50
Insured....................................................... 59
Insured Series................................................ 123
Interest Coupon............................................... 119
Interest Distribution......................................... 42
Interest Rate................................................. 4
Interest Weighted Class....................................... 4
Interest Weighted Subclass.................................... 4
IRS........................................................... 101
L/C Bank...................................................... 11, 67
L/C Percentage................................................ 12, 67
Lease......................................................... 92
Lender........................................................ 79
Lessee........................................................ 93
Letter of Credit.............................................. 10
Liquidating Loan.............................................. 11
Liquidation Proceeds.......................................... 50
Loan- to-Value Ratio.......................................... 7
Loss.......................................................... 72
</TABLE>
131
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ---- -----------------
<S> <C>
Manufactured Home............................................. 9
Mixed-Use Mortgage Loans...................................... 5
Mixed-Use Property............................................ 5
Mortgage Certificates......................................... 1, 33
Mortgage Loan Groups.......................................... 25
Mortgage Loans................................................ 1, 5, 99
Mortgage Notes................................................ 24
Mortgage Pool................................................. 1, 5, 99
Mortgage Rates................................................ 8
Mortgaged Property............................................ 7
Mortgagor..................................................... 7
Mortgagor Bankruptcy Bond..................................... 10
Multi-Class Certificates...................................... 4
Multifamily Mortgage Loans.................................... 5
Multifamily Property.......................................... 5
Multiple Variable Rate........................................ 103
Non-U.S. Person............................................... 112
Nonexempt Assets.............................................. 123
Nonexempt Series.............................................. 123
Obligor....................................................... 42
OID Regulations............................................... 99
Original Value................................................ 7, 27
Originator.................................................... 29
Other Pools................................................... 124
Outstanding Balance........................................... 87
Parties in Interest........................................... 122
Pass-Through Rate............................................. 8
Payment Deficiencies.......................................... 68
Percentage Interest........................................... 1, 23
Performance Bond.............................................. 34
Plan Assets................................................... 126
Plan Assets Regulation........................................ 122
Plan Investor................................................. 124
Plans......................................................... 122
Policy Statement.............................................. 127
Pool Insurance Policy......................................... 10
Pool Insurer.................................................. 12
Pooling and Servicing Agreement............................... 26, 40
Premium Certificate........................................... 10
Premium Certificates.......................................... 37
Prepayment Assumption......................................... 101
Primary Insurer............................................... 51
Primary Mortgage Insurance Policy............................. 12
Primary Mortgage Insurer...................................... 59
Principal Distribution........................................ 42
Principal Prepayments......................................... 13
Principal Weighted Class...................................... 4
Principal Weighted Subclass................................... 4
Proposed Premium Regulations.................................. 118
</TABLE>
132
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ---- -----------------
<S> <C>
PTCE 83-1..................................................... 122
Purchase Price................................................ 48
Qualified Floating Rate....................................... 101
Rating Agency................................................. 1, 5
RCRA.......................................................... 91
Record Date................................................... 42
Reference Agreement........................................... 40
REMIC......................................................... 1, 16, 99
REMIC Certificateholders...................................... 100
REMIC Certificates............................................ 99
REMIC Mortgage Pool........................................... 99
REMIC Provisions.............................................. 99
REMIC Regular Certificate..................................... 99
REMIC Regulations............................................. 99
REMIC Residual Certificate.................................... 99
Required Distribution......................................... 70
Required Reserve.............................................. 14, 68
Reserve Fund.................................................. 11
Residual Certificates......................................... 4
Residual Owner................................................ 106
Restricted Group.............................................. 125
Retained Yield................................................ 115
Securities Act................................................ 41
Senior Certificates........................................... 11
Senior Class.................................................. 4
Senior Prepayment Percentage.................................. 69
Senior Subclass............................................... 4
Series........................................................ 1, 4
Servicemen's Readjustment Act................................. 25
Servicer...................................................... 26
Servicing Account............................................. 49
Servicing Agreement........................................... 26
Simple Interest Loans......................................... 28
Single Family Property........................................ 5
Single Variable Rate.......................................... 101
Single-class REMIC............................................ 110
SMMEA......................................................... 16, 127
SPA........................................................... 38
Special Distributions......................................... 53
Special Hazard Insurance Policy............................... 15
Special Servicer.............................................. 26, 56
Specially Serviced Mortgage Loans............................. 56
Standard Hazard Insurance Policy.............................. 57
Standard Terms................................................ 40
Startup day................................................... 111
Stated Principal Balance...................................... 4
Stated Principal Distribution Amount.......................... 43
Stripped Bond Rules........................................... 115
Stripped Interest............................................. 119
</TABLE>
133
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ---- -----------------
<S> <C>
Stripped Mortgage Loan........................................ 114
Subclass...................................................... 1, 4
Subordinated Amount........................................... 11
Subordinated Certificates..................................... 11
Subordinated Class............................................ 4
Subordinated Pool............................................. 14
Subordinated Subclass......................................... 4
Substitute Contract........................................... 35
Substitute Mortgage Certificates.............................. 44
Substitute Mortgage Loans..................................... 45
Title V....................................................... 97
Trust Assets.................................................. 5, 33
Trust Certificates............................................ 99
Trust Fractional Certificate.................................. 99
Trust Fractional Certificateholder............................ 114
Trust Fund.................................................... 1, 5
Trust Interest Certificate.................................... 99
Trust Interest Certificateholder.............................. 119
U.S. Person................................................... 112
UCC........................................................... 85
Unaffiliated Sellers.......................................... 28
Underwriter's PTE............................................. 124
Underwriters.................................................. 128
Unstripped Mortgage Loans..................................... 116
VA............................................................ 1, 25
VA Loans...................................................... 25
</TABLE>
134
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PER-
SON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESEN-
TATION NOT CONTAINED IN THIS PRO-
SPECTUS SUPPLEMENT OR THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMA-
TION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE DEPOSITOR OR THE UNDER-
WRITERS. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY IN ANY JURISDICTION
TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER IN SUCH JURISDIC-
TION.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Prospectus Supplement........................................... S-3
Risk Factors............................................................... S-14
The Mortgage Loan Pools.................................................... S-19
Description of the Certificates............................................ S-47
Certain Yield and Prepayment Considerations................................ S-61
Pooling and Servicing Agreement............................................ S-71
Certain Federal Income Tax Consequences.................................... S-73
ERISA Considerations....................................................... S-74
Ratings.................................................................... S-74
Legal Investment Considerations............................................ S-75
Underwriting............................................................... S-76
Certain Legal Matters...................................................... S-76
Index of Principal Definitions............................................. S-77
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CREDIT SUISSE FIRST BOSTON
MORTGAGE SECURITIES CORP.
DEPOSITOR
WILSHIRE MORTGAGE
FUNDING COMPANY V, INC.,
UNAFFILIATED SELLER
WILSHIRE SERVICING CORPORATION,
SERVICER
$
WILSHIRE FUNDING CORPORATION
Mortgage-Backed Certificates,
Series 1997-WFC1
PROSPECTUS SUPPLEMENT
CREDIT | FIRST
SUISSE | BOSTON
- -------------------------------------------------------------------------------
