<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1997
REGISTRATION NO. 333-29239
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
AND POST-EFFECTIVE AMENDMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
----------------
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
(DEPOSITOR)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
11 MADISON AVENUE
NEW YORK, NEW YORK 10010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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AGENT FOR SERVICE:
----------------
LAWRENCE A. SHELLEY
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
11 MADISON AVENUE
NEW YORK, NEW YORK 10010
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COPIES TO:
----------------
REED D. AUERBACH, ESQ.
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NEW YORK 10038
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ______________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM AMOUNT OF
MAXIMUM OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING PRICE OFFERING REGISTRATION
BEING REGISTERED(1) REGISTERED(2) PER UNIT(3) PRICE(3) FEE(4)
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<S> <C> <C> <C> <C>
ABS Mortgage and Manufactured
Housing Contract Pass-Through
Certificates and ABS Mortgage and
Manufacturer Housing Contract-Backed
Notes................................ $1,000,000,000 100% $1,000,000,000 $303,030.30
</TABLE>
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(1) The securities are also being registered for the purpose of market making.
(2) $407,205,000 aggregate principal amount of ABS Mortgage and Manufactured
Housing Contract Pass-Through Certificates registered by the Registrant
under Registration Statement No. 333-21329 referred to below and not
previously sold are consolidated in this Registration Statement as permitted
by Rule 429. All registration fees in connection with such unsold amount of
ABS Mortgage and Manufactured Housing Contract Pass-Through Certificates
have been previously paid by the Registrant under the foregoing Registration
Statement. Accordingly, the total amount registered under this Registration
Statement as so consolidated as of the date of this filing is $408,205,000.
(3) Estimated solely for the purposes of calculating the registration fee.
(4) $304.00 was previously paid.
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THIS REGISTRATION STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUS INCLUDED
IN THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS AND RELATES TO
REGISTRATION STATEMENT NO. 333-21329 AS PREVIOUSLY FILED BY THE REGISTRANT ON
FORM S-3. SUCH REGISTRATION STATEMENT NO. 333-21329 WAS DECLARED EFFECTIVE ON
FEBRUARY 29, 1997. THIS REGISTRATION STATEMENT, WHICH IS A NEW REGISTRATION
STATEMENT, ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION
STATEMENT NO. 333-21329, AND SUCH POST-EFFECTIVE AMENDMENT SHALL HEREAFTER
BECOME EFFECTIVE CONCURRENTLY WITH THE EFFECTIVENESS OF THIS REGISTRATION
STATEMENT AND IN ACCORDANCE WITH SECTION 8(c) OF THE SECURITIES ACT OF 1933.
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<PAGE>
P R O S P E C T U S
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
ABS Mortgage and Manufactured Housing Contract
Asset-Backed Certificates and
Asset-Backed Notes
(Issuable in Series)
Credit Suisse First Boston Mortgage Securities Corp. (the "Depositor") may
offer from time to time the ABS Mortgage and Manufactured Housing Contract
Asset-Backed Certificates (the "Certificates") and the ABS Mortgage and
Manufactured Housing Contract Asset-Backed Notes (the "Notes" and, together with
the Certificates, the "Securities") offered hereby and by the related Prospectus
Supplements which may be sold from time to time in one or more series (each, a
"Series") in amounts, at prices and on terms to be determined at the time of
sale and to be set forth in the related Prospectus Supplement. Each Series of
Securities may include one or more separate classes (each, a "Class") of Notes
and/or Certificates, which may be divided into one or more subclasses (each, a
"Subclass"). The Certificates will be issued by a trust (the "Trust") to be
formed by the Depositor with respect to such Series pursuant to either a Trust
Agreement (each, a "Trust Agreement") to be entered into between the Depositor
and the trustee specified in the related Prospectus Supplement (the "Trustee")
or a Pooling and Servicing Agreement (each, a "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer and the Trustee. If a Series of
Securities includes Notes, such Notes will be issued and secured pursuant to an
Indenture (each, an "Indenture") to be entered into between any of (i) the Trust
or (ii) a partnership, corporation, limited liability company or other entity
formed by the Depositor solely for purpose of issuing Notes of a related Series
and matters incidental thereto, as issuer (the "Issuer") and the indenture
trustee specified in the related Prospectus Supplement (the "Indenture
Trustee"). The related Trust Fund will be serviced by the Master Servicer
pursuant to a Sale and Servicing Agreement (the "Sale and Servicing Agreement")
among the Depositor, the Master Servicer and the Indenture Trustee. The
Certificates represent interests in specified percentages of principal and
interest (a "Percentage Interest") with respect to the related Mortgage Pool or
Contract Pool (each, as defined below), or 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 the Depositor from time to time. If a
Series of Securities includes Notes, the Notes will represent indebtedness of
the related Trust Fund. The trust property of each Trust (the "Trust Fund") will
consist of a pool containing one- to four-family residential mortgage loans
(including revolving lines of credit), mortgage loans secured by multifamily
residential rental properties consisting of five or more dwelling units or
apartment buildings owned by cooperative housing corporations, loans made to
finance the purchase of certain rights relating to cooperatively owned
properties secured by a pledge of shares of a cooperative corporation and an
assignment of a proprietary lease or occupancy agreement on a cooperative
dwelling, mortgage participation certificates evidencing participation interests
in such loans that are acceptable to the nationally recognized statistical
rating agency or agencies rating the related Series of Securities (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, collateralized mortgage bonds or other
indebtedness secured by mortgage loans or manufactured housing contracts (the
"Mortgage Certificates"), in each case together with certain 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"), 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 Securities of one or
more Classes or Subclasses of Notes and/or
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Certificates 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 Securities of one or more Classes or Subclasses of Notes and/or
Certificates 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 this Prospectus is being delivered, together with specific information
regarding the Securities of such Series.
The Securities do not represent an obligation of or interest in the Depositor or
any affiliate thereof. Neither the Securities, 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 19 HEREIN FOR A DISCUSSION OF
CERTAIN FACTORS THAT POTENTIAL INVESTORS SHOULD CONSIDER IN DETERMINING WHETHER
TO INVEST IN THE SECURITIES OF A SERIES IN RESPECT OF WHICH THIS PROSPECTUS IS
BEING DELIVERED.
Offers of the Securities 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 Securities, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the registration
requirements of the Securities Act of 1933. Such offerings are not being made
pursuant to the Registration Statement of which this Prospectus forms a part.
There will have been no public market for the Securities 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 or certain assets of the Trust Fund with
respect to certain Series of Securities 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, one or more Classes of
Notes of a Series may be subject to optional redemption by the Issuer under the
circumstances described in the Prospectus Supplement. If so specified in the
Prospectus Supplement relating to a Series of Securities, 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 Securities
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 _______, 1997.
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<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement with respect to each Series of Securities
will, among other things, set forth with respect to such Series of Securities:
(i) the identity of each Class or Subclass of Securities within such Series;
(ii) the undivided interest, Percentage Interest, Stated Principal Balance,
principal balance or notional amount of each Class or Subclass of Securities;
(iii) the Interest Rate borne by each Class or Subclass of Securities 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 Securities within such Series; (vi) the identity of each Class or
Subclass of Compound Interest Securities, if any, within such Series; (vii) the
method used to calculate the amount to be distributed with respect to each Class
or Subclass of Securities within such Series; (viii) the order of application of
distributions to each of the Classes or Subclasses of Securities 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 Securities 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 Securities 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 or of the Trust
Agreement, Indenture and Sale and Servicing Agreement pursuant to which a Series
of Securities is issued, as applicable, 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 Securities 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
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<PAGE>
or Subclasses of Securities, upon request, a copy of any or all such documents
or reports incorporated herein by reference, in each case to the extent such
documents or reports relate to one or more of such Classes of such Securities,
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,(212) 325-2000.
IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATIONS, THIS
PROSPECTUS AND THE ATTACHED PROSPECTUS SUPPLEMENT WILL ALSO BE SUED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.
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 Securities 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.....................ABS Mortgage and Manufactured Housing
Contract Asset-Backed Certificates (the
"Certificates") and ABS Mortgage and
Manufactured Housing Contract
Asset-Backed Notes (the "Notes" and,
together with the Certificates, the
"Securities") issuable in series (each, a
"Series"). The Securities 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 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 Securities") 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 Classes or
Subclasses of Notes and/or Certificates
may receive unequal amounts of the
distributions of principal and interest
on the Mortgage Loans,
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the Contracts and the Mortgage
Certificates included in the related
Trust Fund, as specified in such
Prospectus Supplement (any such Class or
Subclass receiving the higher proportion
of principal distributions being referred
to hereinafter as a "Principal Weighted
Class" or "Principal Weighted Subclass,"
respectively, and any such Class or
Subclass receiving the higher proportion
of interest distributions being referred
to hereinafter as an "Interest Weighted
Class" or an "Interest Weighted
Subclass," respectively). If so specified
in the related Prospectus Supplement, the
allocation of the principal and interest
distributions may involve as much as 100%
of each distribution of principal or
interest being allocated to one or more
Classes or Subclasses and 0% to another.
If so specified in the related Prospectus
Supplement, one or more Classes or
Subclasses may receive disproportionate
amounts of certain distributions of
principal, which proportions may change
over time subject to certain conditions.
Payments may be applied to any one or
more Classes or Subclasses 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 (each, a "Trust") each to be
created by the Depositor from time to
time pursuant to either a Trust Agreement
(each, a "Trust Agreement") to be entered
into between the Depositor and the
trustee specified in the related
Prospectus Supplement (the "Trustee") or
a Pooling and Servicing Agreement (each,
a "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer
and the Trustee. If a Series of
Securities includes Notes, such Notes
will be issued and secured pursuant to an
Indenture (each, an "Indenture") to be
entered into between any of (i) the Trust
or (ii) a partnership, corporation,
limited liability company or other entity
formed by the Depositor solely for
purpose of issuing Notes of a related
Series and matters incidental thereto, as
issuer (the "Issuer") and the indenture
trustee specified in the related
Prospectus Supplement (the "Indenture
Trustee"), and such Notes will represent
indebtedness of the related Trust. 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) closed-end loans (the "Closed-End
Loans") and/or revolving home equity
loans or certain balances thereof (the
"Revolving Credit Line Loans" and,
together with the Closed-End Loans, the
"Home Equity Loans") secured by mortgages
or deeds of trust on residential
one-to-four family properties, including
townhouses and individual units in
condominiums and planned unit
developments, (iii) 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
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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"),
(iv) 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, (v)
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 Securities 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 (vi) certain
conventional mortgage pass-through
certificates (the "Mortgage
Certificates") issued by one or more
trusts established by one or more private
entities or (b) one or more contract
pools (each, a "Contract Pool")
containing manufactured housing
conditional sales contracts and
installment loan agreements (the
"Contracts") or participation
certificates representing participation
interests in such Contracts (such
Contracts, together with the Mortgage
Loans and the Mortgage Certificates,
being referred to collectively
hereinafter as the "Trust Assets")
purchased by the Depositor either
directly or through one or more
affiliates or Unaffiliated Sellers, and
related property conveyed to such trust
by the Depositor. Unless otherwise
specified in the related Prospectus
Supplement, each Series of Securities
will be offered in fully registered form
only, in one or more Classes of Notes
and/or Certificates, which may be divided
into one or more Subclasses. If so
specified in the related Prospectus
Supplement, Multi-Class Securities of a
Series may be issued with the Stated
Principal Balances and the Interest Rates
therein specified. At the time of
issuance, each Security 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
Securities."
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<PAGE>
Interest...............................Interest will be distributed on the
days specified in the Prospectus
Supplement with respect to each Class or
Subclass of Notes and/or Certificates of
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 of Notes and/or
Certificates within such Series,
commencing on the day specified in such
Prospectus Supplement, in the manner
specified in such Prospectus Supplement.
See "Maturity, Prepayment and Yield
Considerations" and "Description of the
Securities -- Payments on Mortgage Loans"
and "-- Payments on Contracts."
Principal (Including
Prepayments).......................... Unless otherwise specified in the related
Prospectus Supplement, principal on each
Trust Asset underlying a Series of
Securities 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 Securities,
distributions on such Multi-Class
Securities may be made in reduction of
the Stated Principal Balance, in an
amount equal to the Stated Principal
Distribution Amount. Unless otherwise
specified in the related Prospectus
Supplement, the Stated Principal
Distribution Amount will equal the amount
by which the Stated Principal Balance of
such Class of Multi-Class Securities
(before taking into account the amount of
interest accrued and added to the Stated
Principal Balance of any Class or of
Compound Interest Securities) 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, Prepayment and Yield
Considerations" and "Description of the
Securities -- Payments on Mortgage Loans"
and "-- Payments on Contracts." If so
specified in the Prospectus Supplement
relating to a Series, the Multi-Class
Securities 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 Agreement (as
defined herein), 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
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<PAGE>
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 Securities -- Special
Distributions." In addition, if so
specified in the related Prospectus
Supplement, one or more Classes of Notes
may be subject to optional redemption on
the terms and conditions specified in the
related Prospectus supplement.
The Mortgage Pools.....................If so specified in the related
Prospectus Supplement, the Securities of
a Series will represent the interest
specified in such Prospectus Supplement
in, or be secured by, the Mortgage Pool
or Pools included in the Trust Fund for
such Series. Unless otherwise specified
in the applicable Prospectus Supplement,
the original principal amount of each
Mortgage Loan in a Mortgage Pool will not
be more than 95% (such ratio, the "Loan-
to-Value Ratio") of the value of the
property securing such Mortgage Loan (the
"Mortgaged Property"), based upon an
appraisal of the Mortgaged Property
considered acceptable to the originator
of such Mortgage Loan or the sales price,
whichever is less (the "Original Value").
Unless otherwise specified in the
applicable Prospectus Supplement,
Mortgage Loans secured by Single Family
Property having an original principal
amount exceeding 80% of the Original
Value will be covered by a policy of
private mortgage insurance until the
outstanding principal amount is reduced
to the percentage of the Original Value
set forth in the related Prospectus
Supplement as a result of principal
payments by the borrower (the
"Mortgagor"). Unless otherwise specified
in the applicable Prospectus Supplement,
the principal balance at origination of
each Mortgage Loan that is secured by
Single Family Property will not exceed
$500,000. Mortgage Loans in a Mortgage
Pool will all have original maturities of
10 to 40 years, unless otherwise
specified in the applicable Prospectus
Supplement. Mortgage Loans in a Mortgage
Pool may have interest rates (the
"Mortgage Rates") that are either fixed
or variable. Mortgage Pools may be formed
from time to time in varying sizes.
Mortgage Certificates..................If so specified in the related
Prospectus Supplement, the Trust Fund for
a Series of Securities 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
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<PAGE>
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 Securities of
a Series will represent the interest
specified in such Prospectus Supplement
in, or be secured by, 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 maturity on each Class
of the Securities of a Series. The yield
on any Class of Securities, the purchase
price of which is greater than the
aggregate amount of the Principal
Distributions to be made to such Class (a
"Premium Security"), 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 Security 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
Securities not only to suffer a lower
than anticipated yield but, in extreme
cases, to fail to
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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 Securities that are
Premium Securities) will likely result in
a lower than anticipated yield to Holders
of Securities 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
Security"). The Prospectus Supplement for
each Series of Securities 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 Securityholders 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 "Maturity,
Prepayment and Yield Considerations."
Pre-Funding............................If so specified in the related
Prospectus Supplement, a portion of the
issuance proceeds of the Securities of a
particular Series (such amount, the
"Pre-Funded Amount") will be deposited in
an account (the "Pre-Funding Account") to
be established with the Trustee, which
will be used to acquire additional
Mortgage Loans, Contracts or Mortgage
Certificates, from time to time during
the period specified in the related
Prospectus Supplement (the "Pre-Funding
Period"). Prior to the investment of the
Pre-Funded Amount in additional Mortgage
Loans, Contracts or Mortgage
Certificates, such Pre- Funded Amount may
be invested in one or more Eligible
Investments. Any Eligible Investment must
mature no later than the Business Day
prior to the next Distribution Date. See
"Description of the Securities --
Pre-Funding." During any Pre-Funding
Period, the Depositor will be obligated
(subject only to the availability
thereof) to transfer to the related Trust
Fund additional Mortgage Loans, Contracts
or Mortgage Certificates from time to
time during such Pre-Funding Period. Such
additional Mortgage Loans, Contracts or
Mortgage Certificates will be required to
satisfy certain eligibility criteria more
fully set forth in the related Prospectus
Supplement, which eligibility criteria
will be consistent with the eligibility
criteria of the Mortgage Loans, Contracts
or Mortgage Certificates included in the
Trust Fund as of the
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<PAGE>
Closing Date, subject to such exceptions
as are expressly stated in such
Prospectus Supplement. Although the
specific parameters of the Pre-Funding
Account with respect to any issuance of
Securities will be specified in the
related Prospectus Supplement, it is
anticipated that: (a) the Pre-Funding
Period will not exceed 120 days from the
related Closing Date, (b) that the
additional Mortgage Loans, Contracts or
Mortgage Certificates to be acquired
during the Pre-Funding Period will be
subject to the same representations and
warranties as the Mortgage Loans,
Contracts or Mortgage Certificates
included in the related Trust Fund on the
Closing Date (although additional
criteria may also be required to be
satisfied, as described in the related
Prospectus Supplement) and (c) that the
Pre-Funded Amount will not exceed 25% of
the principal amount of the Securities
issued pursuant to a particular offering.
Credit Support.........................Neither the Securities nor the Trust
Assets are insured or guaranteed by any
governmental agency, except to the extent
of any FHA insurance or VA guarantee.
Credit support will be provided on the
Mortgage Pools or Contract Pools by one
or more irrevocable letters of credit
(the "Letter of Credit"), a policy of
mortgage pool insurance (the "Pool
Insurance Policy"), a bond or similar
form of insurance coverage against
certain losses in the event of the
bankruptcy of a Mortgagor (the "Mortgagor
Bankruptcy Bond") or any combination of
the foregoing as specified in the
applicable Prospectus Supplement. In lieu
or in addition to the foregoing credit
support arrangements if so specified in
the related Prospectus Supplement, the
Securities of a Series may be issued in
one or more Classes or Subclasses.
Payments on the Securities of one or more
Classes or Subclasses (the "Senior
Securities") may be supported by a prior
right to receive distributions
attributable or otherwise payable to
another Class or Subclass (the
"Subordinated Securities") 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 Securities may be
subordinated to another Class or Subclass
of Subordinated Securities and may be
entitled to receive disproportionate
amounts of distributions of principal. If
so specified in the related Prospectus
Supplement, if a Series of Securities
includes Notes, all Classes of
Certificates will be subordinated to the
Classes of Notes and one more Classes or
Subclasses of Notes may be subordinated
to another Class or Subclasses of Notes
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 one or more Classes
of Securities. 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
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<PAGE>
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,
Pooling and Servicing Agreement or Sale
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
Securities of the Series, 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 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 Securities 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
Securities or one or more Classes of
Series of
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<PAGE>
Securities may, in addition to or in lieu
of the foregoing, provide coverage with
respect to the unpaid principal or
notional amount of the Securities 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 related 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 Securityholders. See "Description of
the Securities --Presentation of Claims."
C. Mortgagor Bankruptcy Bond...........If so specified in the related
Prospectus Supplement, the Master
Servicer, if any, the Depositor or the
applicable Servicer will obtain and use
its best reasonable efforts to maintain a
Mortgagor Bankruptcy Bond for one or more
Classes of Securities of such Series
covering certain losses resulting from
action that may be taken by a bankruptcy
court in connection with the bankruptcy
of a Mortgagor. The level of coverage
provided by such Mortgagor Bankruptcy
Bond will be specified in the applicable
Prospectus Supplement. See "Description
of Insurance -- Mortgagor Bankruptcy
Bond."
D. Subordinated Securities.............If so specified in the related Prospectus
Supplement, the rights of holders of the
Securities 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 Securities of one or more Classes
or Subclasses of such Series to receive
such distributions to the extent
described in the related Prospectus
Supplement, and may be 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 Securities of the
full amount of scheduled payments of
principal and interest due them and to
reduce the likelihood
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<PAGE>
that the holders of such Senior
Securities will experience losses. See
"Credit Support -- Subordinated
Securities."
E. Shifting Interest...................If so specified in the applicable
Prospectus Supplement, the protection
afforded to holders of Senior Securities
of a Series by the subordination of
certain rights of holders of Subordinated
Securities 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 Securities to receive, prior to
any distribution being made in respect of
the holders of the related Subordinated
Securities, 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
Securities 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 Securities will
have the effect of accelerating the
amortization of the Senior Securities
while increasing the respective interest
in the Trust Fund evidenced by the
Subordinated Securities. Increasing the
respective interest of the Subordinated
Securities relative to that of the Senior
Securities is intended to preserve the
availability of the benefits of the
subordination provided by the
Subordinated Securities. See "Description
of the Securities -- Distributions of
Principal and Interest" and "--
Distributions on Securities" and "Credit
Support -- Shifting Interest."
F. Reserve Fund........................If so specified in the related
Prospectus Supplement, a Reserve Fund may
be established for such Series. Unless
otherwise specified in such Prospectus
Supplement, such Reserve Fund will not be
included in the corpus of the Trust Fund
for such Series. If so specified in the
related Prospectus Supplement, such
Reserve Fund may be created by the
deposit, in escrow, by the Depositor, of
a separate pool of mortgage loans,
cooperative loans or manufactured housing
conditional sales contracts and
installment loan agreements (the
"Subordinated Pool"), with the aggregate
principal balance specified in the
related Prospectus Supplement, or by the
deposit of cash in the amount specified
in the related Prospectus Supplement (the
"Initial Deposit"). The Reserve Fund will
be funded by the retention of specified
distributions on the Trust Assets of the
related Mortgage Pool or Contract Pool,
and/or on the mortgage loans, cooperative
loans or manufactured housing conditional
sales contracts and installment loan
agreements in the Subordinated Pool,
until the Reserve Fund (without taking
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<PAGE>
into account the amount of any Initial
Deposit, except as otherwise provided in
the related Prospectus Supplement),
reaches an amount (the "Required
Reserve") set forth in the related
Prospectus Supplement. Thereafter,
specified distributions on the Trust
Assets of the related Mortgage Pool or
Contract Pool, and/or on the mortgage
loans, cooperative loans or manufactured
housing conditional sales contracts and
installment loan agreements in the
Subordinated Pool, will be retained to
the extent necessary to maintain such
Reserve Fund (without, except as
otherwise provided in the related
Prospectus Supplement, taking into
account the amount of the Initial
Deposit, if any) at the related Required
Reserve. Except as otherwise provided in
the related Prospectus Supplement, 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 Securities 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 Securities" 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 Securities 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
Securities of such Series, are otherwise
required as a condition to the rating of
such Securities 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
Securities 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
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
Securities, the related Issuer will enter
into or obtain an assignment of a swap
agreement or similar agreement pursuant
to which such Issuer 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."
I. Security Guarantee Insurance........If so specified in the related Prospectus
Supplement, credit enhancement for a
Series may be provided by an insurance
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<PAGE>
policy (the "Security Guarantee
Insurance") issued by one or more
insurance companies. Such Security
Guarantee Insurance may guarantee timely
distributions of interest and full
distributions of principal on the basis
of a schedule of principal distributions
set forth in or determined in the manner
specified in the related Prospectus
Supplement.
Hazard Issuance and Special
Hazard Insurance Policies..............Unless otherwise specified in the
applicable Prospectus Supplement, all of
the Mortgage Loans (except for the
Cooperative Loans) and the Contracts will
be covered by standard hazard insurance
policies insuring against losses due to
various causes, including fire, lightning
and windstorm. In addition, the Depositor
will, if so specified in the applicable
Prospectus Supplement, obtain an
insurance policy (the "Special Hazard
Insurance Policy") covering losses that
result from certain other physical risks
that are not otherwise insured against
(including earthquakes and mudflows). The
Special Hazard Insurance Policy will be
limited in scope and will cover losses in
an amount specified in the applicable
Prospectus Supplement. Any hazard losses
not covered by either standard hazard
policies or the Special Hazard Insurance
Policy will not be insured against and to
the extent that the amount available
under any other method of credit support
available for such Series is exhausted,
will be borne by Securityholders of such
Series. The hazard insurance policies and
the Special Hazard Insurance Policy will
be subject to the limitations described
under "Description of Insurance --
Standard Hazard Insurance Policies on
Mortgage Loans," "-- Standard Hazard
Insurance Policies on the Manufactured
Homes" and "-- Special Hazard Insurance
Policies."
Substitution of Trust..................If so specified in the Prospectus
Supplement Assets. relating to a Series
of Securities, within the period
following the date of issuance of such
Securities specified in such Prospectus
Supplement, the Depositor or one or more
Servicers will deliver to the Trustee
with respect to such Series Trust Assets
in substitution for any one or more of
the Trust Assets included in the Trust
Fund relating to such Series which do not
conform in one or more material respects
to the representations and warranties in
the related Agreement. See "Description
of the Securities -- 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 Securities --
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<PAGE>
Advances."
Optional Termination...................If so specified in the Prospectus
Supplement with respect to a Series, the
Depositor or such other persons as may be
specified in a Prospectus Supplement may
purchase the Trust Assets in the related
Trust Fund and any property acquired in
respect thereof at the time, in the
manner and at the price specified in such
Prospectus Supplement. In the event that
the Depositor elects to treat the related
Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC") under the
Internal Revenue Code of 1986, as amended
(the "Code"), any such repurchase will be
effected only in compliance with the
requirements of Section 860F(a)(4) of the
Code, so as to constitute a "qualified
liquidation" thereunder. The exercise of
the right of repurchase will effect early
retirement of the Certificates of that
Series. See "Maturity, Prepayment and
Yield Considerations" and "Description of
the Securities --Termination."
ERISA Considerations...................A fiduciary of any employee benefit plan
or retirement arrangement 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 Securities 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
Securities, a Class or Subclass of such
Securities will constitute a "mortgage
related security" under the Secondary
Mortgage Market Enhancement Act of 1984
("SMMEA") if and for so long as it is
rated in one of the two highest rating
categories by at least one nationally
recognized statistical rating
organization. Such Classes or Subclasses,
if any, will be legal investments for
certain types of institutional investors
to the extent provided in SMMEA, subject,
in any case, to any other regulations
which may govern investments by such
institutional investors. See "Legal
Investment."
Use of Proceeds........................The Depositor will use the net proceeds
from the sale of each Series for one or
more of the following purposes: (i) to
purchase the related Trust Assets, (ii)
to repay indebtedness which has been
incurred to obtain funds to acquire such
Trust Assets, (iii) to establish any
reserve funds described in the related
Prospectus Supplement and (iv) to pay
costs of structuring, guaranteeing and
issuing such Securities. If so specified
in the related Prospectus Supplement, the
purchase of the Trust Assets for a Series
may be effected by an exchange of
Securities by the Depositor with the
seller of such Trust Assets. See "Use of
Proceeds."
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and
in the applicable Prospectus Supplement to be prepared and delivered in
connection with the offering of any Series of Securities, prospective investors
should carefully consider the following risk factors before investing in any
Class or Classes of Securities of any such Series.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Securities
of any Series will develop or, if it does develop, that it will provide
Securityholders with liquidity of investment or that it will continue for the
life of the Securities of any Series. The Prospectus Supplement for any Series
of Securities may indicate that an underwriter specified therein intends to
establish a secondary market in such Securities; however, no underwriter will be
obligated to do so. The Securities 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 Securities of a
Series. The Securities 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 Securities 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 Securities, 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 Securities, 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 or
Subclasses of Securities of the same Series; a Reserve Fund; and any combination
thereof. See "Credit Support." 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
Securities will generally be permitted to be reduced, terminated or substituted
for, if each applicable Rating Agency indicates that the then current rating
thereof will not be adversely affected. See "Credit Support."
RISKS OF THE TRUST ASSETS
An investment in securities such as the Securities of any Series which
generally represent interests in, or are secured by, 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 the Mortgage Loans, the values of the mortgaged properties
securing the mortgage
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loans underlying the Mortgage Certificates or the values of the Manufactured
Homes securing the Contracts, as the case may be, underlying any Series of
Securities have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans, mortgage loans, Mortgage Certificates
or Contracts. If the residential real estate market should experience an overall
decline in property values such that the outstanding balances of the Mortgage
Loans and the mortgage loans underlying the Mortgage Certificates comprising a
particular Trust Fund, and any secondary financing on the related Mortgaged
Properties and mortgaged properties, become equal to or greater than the value
of the related Mortgaged Properties or mortgaged properties, as applicable, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry and those
experienced in the related Originator's portfolio. In addition, adverse economic
conditions generally, in particular geographic areas or industries, or affecting
particular segments of the borrowing community (such as Mortgagors or Obligors
relying on commission income and self-employed Mortgagors or Obligors) and other
factors, may affect the timely payment by Mortgagors, Obligors or mortgagors of
scheduled payments of principal and interest on the Mortgage Loans, Contracts or
Mortgage Certificates, as the case may be, and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. See
"Maturity, Prepayment and Yield Considerations." To the extent that such losses
are not covered by the applicable credit support, holders of Securities of the
Series evidencing interests in, or secured by, the related Trust Fund will bear
all risk of loss resulting from default by Mortgagors, Obligors or mortgagors
and will have to look primarily to the value of the Mortgaged Properties,
mortgaged properties or Manufactured Homes for recovery of the outstanding
principal and unpaid interest on the defaulted Mortgage Loans or Contracts. In
addition to the foregoing, certain geographic regions on the United States from
time to time will experience weaker regional economic conditions and housing
markets and, consequently, will experience higher rates of loss and delinquency
on mortgage loans or contracts generally. The Mortgage Loans, Contracts or
mortgage loans underlying the Mortgage Certificates underlying certain Series of
Securities 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," "-- Mortgage Loan Program," "--
Underwriting Standards," "-- The Contract Pools," and "-- Underwriting
Policies."
PREPAYMENT AND YIELD CONSIDERATIONS
The rate and timing of principal payments on the Securities of each
Series will depend, among other things, on the rate and timing of principal
payments (including prepayments, defaults and liquidations) on the related
Mortgage Loans, Mortgage Certificates or Contracts. As is the case with
mortgage-backed securities generally, each Series of Securities 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 Securities 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 Securities will also depend on the Mortgage Rates and the purchase
price for such Securities. The yield to investors on any Class of Securities
will be adversely affected by any allocation thereto of interest shortfalls on
the Mortgage Loans or Contracts, as applicable, which are expected to result
from the distribution of interest only to the date of prepayment (rather than a
full month's interest) in connection with prepayments in full and in part
(including for this purpose Insurance Proceeds and Liquidation Proceeds) to the
extent not covered by amounts otherwise payable to the Master Servicer as
servicing compensation.
In general, if a Class of Securities 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 Securities is
purchased at a discount and principal
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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 or Subclasses of
Securities of a Series may be subordinated in priority of payment to interest
and principal due on one or more other Classes or Subclasses of Securities 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 Securities 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
Securities of such Series or their nominees. Because of this, unless and until
Securities in fully registered, certificated form ("Definitive Securities") for
such Series are issued, holders of such Securities will not be recognized by the
applicable Trustee as "Securityholders" (as such terms are used herein or in the
related Agreement, as applicable). Hence, until Definitive Securities are
issued, holders of such Securities will be able to exercise the rights of
Securityholders 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 Securities 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 Mortgage Certificates 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 or Mortgage Certificates 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 Securities of a Series to the
rights of the holders of the Senior Securities, which, if so specified in the
related Prospectus Supplement, may include Securities of a Subordinated Class or
Subclass and the establishment of a Reserve Fund, by the right of one or more
Classes or Subclasses of Securities to receive a disproportionate amount of
certain distributions of principal, by Security Guarantee Insurance or another
form or forms of Alternative Credit Support acceptable to the Rating Agency
rating the Securities of such Series or by any combination of the foregoing. See
"Description of Insurance" and "Credit Support."
THE MORTGAGE POOLS
If so specified in the Prospectus Supplement with respect to a Series,
the Trust Fund for such Series may include (a) one or more Mortgage Pools
containing (i) conventional one-to four-family residential, first and/or second
mortgage loans, (ii) closed-end loans (the "Closed-End Loans") and/or revolving
home equity loans or certain balances thereof (the "Revolving Credit Line Loans"
and, together with the Closed-End Loans, the "Home Equity Loans") secured by
mortgages or deeds of trust on residential one-to-four family properties,
including townhouses and individual units in condominiums and planned unit
developments, (iii) 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
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right to occupy a particular Cooperative Dwelling, (iv) mortgage loans secured
by Multifamily Property, (v) mortgage participation Securities evidencing
participation interests in such loans that are acceptable to the nationally
recognized Rating Agency rating the Securities of such Series for a rating in
one of the four highest rating categories of such Rating Agency or (vi) 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 Securities representing participation interests in such
Contracts purchased by the Depositor either directly or through one or more
affiliates or Unaffiliated Sellers, and related property conveyed to such trust
by the Depositor.
A Mortgage Pool may include Mortgage Loans insured by the FHA ("FHA
Loans") and/or Mortgage Loans partially guaranteed by the Veterans
Administration (the "VA" and such mortgage loans are referred to as "VA Loans").
All Mortgage Loans will be evidenced by promissory notes or other evidence of
indebtedness (the "Mortgage Notes") secured by first mortgages or first or
second deeds of trust or other similar security instruments creating a first
lien or second 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, townhouses, planned unit
developments, 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. Unless otherwise
specified in the applicable Prospectus Supplement, each such detached or
attached home or multifamily property will be constructed on land owned in fee
simple by the Mortgagor or on land leased by the Mortgagor for a term at least
two years greater than the term of the applicable Mortgage Loan. Attached homes
may consist of duplexes, triplexes and fourplexes (multifamily structures where
each Mortgagor owns the land upon which the unit is built with the remaining
adjacent land owned in common). Multifamily Property may include mixed
commercial and residential buildings. The Mortgaged Properties may include
investment properties and vacation and second homes. Mortgage Loans secured by
Multifamily Property may also be secured by an assignment of leases and rents
and operating or other cash flow guarantees relating to the Mortgaged Properties
to the extent specified in the related Prospectus Supplement.
Unless otherwise specified below or in the applicable Prospectus
Supplement, each Mortgage Loan in a Mortgage Pool will (i) have an individual
principal balance at origination of not less than $25,000 nor more than
$500,000, (ii) have monthly payments due on the first day of each month (the
"Due Date"), (iii) be secured by Mortgaged Properties or relate to Cooperative
Loans located in any of the 50 states or the District of Columbia, and (iv)
consist of fully-amortizing Mortgage Loans, each with a 10 to 40 year term at
origination, a fixed or variable rate of interest and level or variable monthly
payments over the term of the Mortgage Loan. Unless otherwise specified in the
related Prospectus Supplement, the Loan-to-Value Ratio (as hereinafter
described) of such Mortgage Loans at origination will not exceed 95% on any
Mortgage Loan with an original principal balance of $150,000 or less, 90% on any
Mortgage Loan with an original principal balance in excess of $150,000 through
$200,000, 85% on any Mortgage Loan with an original principal balance in excess
of $200,000 through $300,000 and 80% on any Mortgage Loan with an original
principal balance exceeding $300,000. If so specified in the related Prospectus
Supplement, a Mortgage Pool may also include fully amortizing, adjustable rate
Mortgage Loans ("ARM Loans") with (unless otherwise specified in the applicable
Prospectus Supplement) a 30-year terms at origination and mortgage interest
rates adjusted periodically (with corresponding adjustments in the amount of
monthly payments) to equal the sum (which may be rounded) of a fixed margin and
an index described in such Prospectus Supplement, subject to any applicable
restrictions on such adjustments. The Mortgage Pools may also include other
types of Mortgage Loans to the extent set forth in the applicable Prospectus
Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, no
Mortgage Loan will have a Loan-to-Value Ratio at origination in excess of 95%,
regardless of its original principal balance. The Loan-to-Value Ratio is the
ratio, expressed as a percentage, of the principal amount of the Mortgage Loan
at the date of determination to the lesser of (a) the appraised value determined
in an appraisal obtained by the originator and (b) the sales price for such
property (the "Original Value"). Unless otherwise specified in the related
Prospectus Supplement, with respect to a Mortgage Loan secured by a mortgage on
a vacation or second home or an investment property (other than Multifamily
Property), no income derived from the property will be considered for
underwriting
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Loan-to-Value Ratio (taking into account any secondary financing) of such
Mortgage Loan may not exceed 80% and the original principal balance of the
Mortgage Loan may not exceed $250,000.
If so specified in the related Prospectus Supplement, a Mortgage Pool
may contain Mortgage Loans with fluctuating Mortgage Rates. Any such Mortgage
Loan may provide that on the day on which the Mortgage Rate adjusts, the amount
of the monthly payments on the Mortgage Loan will be adjusted to provide for the
payment of the remaining principal amount of the Mortgage Loan with level
monthly payments of principal and interest at the new Mortgage Rate to the
maturity date of the Mortgage Loan. Alternatively, the Mortgage Loan may provide
that the Mortgage Rate adjusts more frequently than the monthly payment. As a
result, a greater or lesser portion of the monthly payment will be applied to
the payment of principal on the Mortgage Loan, thus increasing or decreasing the
rate at which the Mortgage Loan is repaid. See "Maturity, Prepayment and 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 Agreement will provide that the Unaffiliated Seller from which such
convertible ARM Loans were acquired will be obligated to repurchase from the
Trust Fund any such ARM Loan as to which the conversion option has been
exercised (a "Converted Mortgage Loan"), at a purchase price set forth in the
related Prospectus Supplement. The amount of such purchase price will be
required to be deposited in the Certificate Account and will be distributed to
the Securityholders on the Distribution Date in the month following the month of
the exercise of the conversion option. The obligation of the Unaffiliated Seller
to repurchase Converted Mortgage Loans may or may not be supported by cash,
letters of credit, third party guarantees or other similar arrangements.
If provided for in the applicable Prospectus Supplement, a Mortgage
Pool may contain Mortgage Loans pursuant to which the monthly payments made by
the Mortgagor during the early years of the Mortgage Loan will be less than the
scheduled monthly payments on the Mortgage Loan ("Buy-Down Loans"). The
resulting difference in payment shall be compensated for from an amount
contributed by the Depositor, the seller of the related Mortgaged Property, the
Servicer or another source and placed in a custodial account (the "Buy- Down
Fund") by the Servicer, or if so specified in the related Prospectus Supplement,
with the Trustee. In lieu of a cash deposit, if so specified in the related
Prospectus Supplement, a letter of credit or guaranteed investment contract may
be delivered to the Trustee to fund the Buy-Down Fund. See "Description of the
Securities --Payments on Mortgage Loans." Buy-Down Loans included in a Mortgage
Pool will provide for a reduction in monthly interest payments by the Mortgagor
for a period of up to the first four years of the term of such Mortgage Loans.
If provided for in the applicable Prospectus Supplement, a Mortgage
Pool may contain Mortgage Loans pursuant to which the monthly payments by the
Mortgagor during the early years of the related Mortgage Note are less than the
amount of interest that would otherwise be payable thereon, with the interest
not so paid added to the outstanding principal balance of such Mortgage Loan
("GPM Loans"). If so specified in the related Prospectus Supplement, the
resulting difference in payment shall be compensated for from an amount
contributed by the Depositor or another source and delivered to the Trustee (the
"GPM Fund"). In lieu of cash deposit, the Depositor may deliver to the Trustee a
letter of credit, guaranteed investment contract or another instrument
acceptable to the Rating Agency rating the related Series to fund the GPM Fund.
If provided for in the applicable Prospectus Supplement, a Mortgage
Pool may contain Mortgage Loans which are Home Equity Loans pursuant to which
the full principal amount of such Mortgage Loan is advanced at origination of
the loan and generally is repayable in equal (or substantially equal)
installments of an amount sufficient to fully amortize such loan at its stated
maturity. Interest on each Home Equity Loan may be calculated on
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the basis of the outstanding principal balance of such loan multiplied by the
Mortgage Rate thereon and further multiplied by a fraction, the numerator of
which is the number of days in the period elapsed since the preceding payment of
interest was made and the denominator is the number of days in the annual period
for which interest accrues on such loan. Under certain circumstances, under a
Home Equity Loan, a borrower may choose an interest only payment option and is
obligated to pay only the amount of interest which accrues on the loan during
the billing cycle. Generally, an interest only payment option may be available
for a specified period before the borrower must begin paying at least the
minimum monthly payment of a specified percentage of the average outstanding
balance of the loan.
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.
Unless otherwise specified in the related Prospectus Supplement,
interest on each Revolving Credit Line Loan, excluding introduction rates
offered from time to time during promotional periods, is computed and payable
monthly on the average daily outstanding principal balance of such Loan.
Principal amounts on a Revolving Credit Line Loan may be drawn down (up to a
maximum amount as set forth in the related Prospectus Supplement) or repaid
under each Revolving Credit Line Loan from time to time, but may be subject to a
minimum periodic payment. To the extent and accordingly to the terms provided in
the related Prospectus Supplement, the Trust Fund may include amounts borrowed
under a Revolving Credit Line Loan after the Cut-off Date. The full amount of a
Closed-End Loan is advanced at the inception of the Loan and generally is
repayable in equal (or substantially equal) installments of an amount to fully
amortize such Loan at its stated maturity. Except to the extent provided in the
related Prospectus Supplement, the original terms to stated maturity of
Closed-End Loans will not exceed 360 months. Under certain circumstances, under
either a Revolving Credit Line Loan or a Closed-End Loan, a borrower may choose
an interest only payment option and is obligated to pay only the amount of
interest which accrues on the Loan during the billing cycle. An interest only
payment option may be available for a specified period before the borrower must
begin paying at least the minimum monthly payment of a specified percentage of
the average outstanding balance of the Loan.
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 Securities 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
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balance of the Mortgage Loans, (v) the earliest origination date and latest
maturity date of the Mortgage Loans, (vi) the aggregate principal balance of
Mortgage Loans having Loan-to-Value Ratios at origination exceeding 80%, (vii)
the interest rate or range of interest rates borne by the Mortgage Loans, (viii)
the average outstanding principal balance of the Mortgage Loans, (ix) the
geographical distribution of the Mortgage Loans, (x) the number and aggregate
principal balance of Buy-Down Loans or GPM Loans, if applicable, (xi) with
respect to ARM Loans, the adjustment dates, the highest, lowest and weighted
average margin, and the maximum Mortgage Rate variation at the time of any
periodic adjustment and over the life of such ARM Loans, and (xii) with respect
to Mortgage Loans secured by Multifamily Property or such other Mortgage Loans
as are specified in the Prospectus Supplement, whether the Mortgage Loan
provides for an interest only period and whether the principal amount of such
Mortgage Loan is amortized on the basis of a period of time that extends beyond
the maturity date of the Mortgage Loan.
No assurance can be given that values of the Mortgaged Properties in a
Mortgage Pool have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and any secondary financing on the Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, the value of property securing
Cooperative Loans and the delinquency rate with respect to Cooperative Loans
could be adversely affected if the current favorable tax treatment of
cooperative stockholders were to become less favorable. See "Certain Legal
Aspects of the Mortgage Loans and Contracts -- The Mortgage Loans." To the
extent that such losses are not covered by the methods of credit support or the
insurance policies described herein or by Alternative Credit Support, they will
be borne by holders of the Securities of the Series evidencing interests in, or
secured by, the Mortgage Pool.
Multifamily lending is generally viewed as exposing the lender to a
greater risk of loss than one- to four-family residential lending. Multifamily
lending typically involve larger loans to single borrowers or groups of related
borrowers than residential one- to four-family mortgage loans. Furthermore, the
repayment of loans secured by income producing properties is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired. Multifamily
real estate can be affected significantly by supply and demand in the market for
the type of property securing the loan and, therefore, may be subject to adverse
economic conditions. Market values may vary as a result of economic events or
governmental regulations outside the control of the borrower or lender, such as
rent control laws, which impact the future cash flow of the property.
Corresponding to the greater lending risk is a generally higher interest rate
applicable to multifamily mortgage lending.
The Depositor will cause the Mortgage Loans constituting each Mortgage
Pool to be assigned to the Trustee named in the applicable Prospectus
Supplement, for the benefit of the holders of the Certificates of such Series
(the "Certificateholders") and, if a Series of Securities includes Notes, the
Depositor will cause the Mortgage Loans constituting the Mortgage Pool to be
pledged to the Indenture Trustee, for the benefit of the holders of the Notes of
such Series (the "Noteholders" and, together with the Certificateholders, the
"Securityholders"). The Master Servicer, if any, named in the related Prospectus
Supplement will service the Mortgage Loans, either by itself or through other
mortgage servicing institutions, if any (each, a "Servicer"), pursuant to a
Pooling and Servicing Agreement or a Sale and Servicing Agreement, as described
herein, and will receive a fee for such services. See "--Mortgage Loan Program"
and "Description of the Securities." As used herein, "Agreement" means, with
respect to a Series that only includes Certificates, the Pooling and Servicing
Agreement, and with respect to a Series that includes Notes, the Indenture, the
Trust Agreement and the Sale and Servicing Agreement, as the context requires.
Unless otherwise specified in the applicable Prospectus Supplement, with respect
to those Mortgage Loans serviced by a Servicer, such Servicer will be required
to service the related Mortgage Loans in accordance with the Pooling and
Servicing Agreement, Sale and Servicing Agreement or Seller's Warranty and
Servicing Agreement between the Servicer and the Depositor (each, a "Servicing
Agreement"), as applicable, and will receive the fee for such services specified
in such Servicing Agreement; however, any Master Servicer will remain liable for
its servicing obligations under the applicable Agreement as if the Master
Servicer alone were
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servicing such Mortgage Loans.
The Depositor will make certain representations an d warranties
regarding the Mortgage Loans, but its assignment of the Mortgage Loans to the
Trustee will be without recourse. See "Description of the Securities --
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 Servicing Agreement (including its obligation to enforce
certain purchase and other obligations of Servicers and/or Unaffiliated Sellers,
as more fully described herein under "-- Mortgage Loan Program" and "--
Representations by Unaffiliated Sellers; Repurchases" and "Description of the
Securities -- 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 Securities -- 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 Securities
- --Advances," "Credit Support" and "Description of Insurance."
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor either
directly or through affiliates or by the Trust formed by the Depositor, from one
or more affiliates or from sellers unaffiliated with the Depositor
("Unaffiliated Sellers"). Mortgage Loans acquired by the Depositor will have
been originated in accordance with the underwriting criteria specified below
under "Underwriting Standards" or as otherwise described in a related Prospectus
Supplement.
UNDERWRITING STANDARDS
Except in the case of certain Mortgage Loans originated by Unaffiliated
Sellers in accordance with their own underwriting criteria ("Closed Loans") or
such other standards as may be described in the applicable Prospectus
Supplement, all prospective Mortgage Loans will be subject to the underwriting
standards adopted by the Depositor. See "-- Closed Loan Program" below for a
description of underwriting standards applicable to Closed Loans. Unaffiliated
Sellers will represent and warrant that Mortgage Loans originated by them and
purchased by the Depositor have been originated in accordance with the
applicable underwriting standards established by the Depositor or such other
standards as may be described in the applicable Prospectus Supplement. The
following discussion describes the underwriting standards of the Depositor with
respect to any Mortgage Loan that it purchases.
The mortgage credit approval process for one- to four-family
residential loans follows a standard procedure that generally complies with
FHLMC and FNMA regulations and guidelines (except that certain Mortgage Loans
may have higher loan amount and qualifying ratios) and applicable federal and
state laws and regulations. The 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
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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.
Unless otherwise specified in the applicable Prospectus Supplement, an
appraisal generally will be required to be made on each residence to be
financed. Such appraisal generally will be made by an appraiser who meets FNMA
requirements as an appraiser of one- to four-family residential properties. The
appraiser is required to inspect the property and verify that it is in good
condition and that, if new, construction has been completed. The appraisal
generally will be based on the appraiser's judgment of value, giving appropriate
weight to both the market value of comparable homes and the cost of replacing
the residence. These underwriting standards also require a search of the public
records relating to a mortgaged property for liens and judgments against such
mortgaged property.
Based on the data provided, certain verifications and the appraisal, a
determination is made by the Originator as to whether the prospective mortgagor
has sufficient monthly income available to meet the prospective mortgagor's
monthly obligations on the proposed loan and other expenses related to the
residence (such as property taxes, hazard and primary mortgage insurance and, if
applicable, maintenance) and other financial obligations and monthly living
expenses. Each Originator's lending guidelines for conventional mortgage loans
generally will specify that mortgage payments plus taxes and insurance and all
monthly payments extending beyond one year (including those mentioned above and
other fixed obligations, such as car payments) would equal no more than
specified percentages of the prospective mortgagor's gross income. These
guidelines will be applied only to the payments to be made during the first year
of the loan. For FHA and VA Loans, the Originator's lending guidelines will
follow HUD and VA guidelines, respectively. Other credit considerations may
cause an Originator to depart from these guidelines. For example, when two
individuals co-sign the loan documents, the incomes and expenses of both
individuals may be included in the computation.
The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a deficiency
judgment against the Mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. The Depositor's underwriting standards
applicable to all states (including anti-deficiency states) require that the
value of the property being financed, as indicated by the appraisal, currently
supports and is anticipated to support in the future the outstanding loan
balance.
Certain of the types of Mortgage Loans that may be included in the
Mortgage Pools or Subsidiary Trust Funds may involve additional uncertainties
not present in traditional types of loans. For example, Buy-Down Loans and GPM
Loans provide for escalating or variable payments by the Mortgagor. These types
of Mortgage Loans are underwritten on the basis of a judgment that the Mortgagor
will have the ability to make larger monthly payments in subsequent years. In
some instances the Mortgagor's income may not be sufficient to enable it to
continue to make scheduled loan payments as such payments increase.
To the extent specified in the related Prospectus Supplement, the
Depositor may purchase or cause the Trust to 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.
QUALIFICATIONS OF UNAFFILIATED SELLERS
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Unless otherwise specified in the applicable Prospectus Supplement with
respect to an Unaffiliated Seller of Closed Loans secured by residential
properties, each Unaffiliated Seller must be an institution experienced in
originating conventional mortgage loans and/or FHA Loans or VA Loans in
accordance with accepted practices and prudent guidelines, and must maintain
satisfactory facilities to originate those loans. In addition, except as
otherwise specified, the Depositor requires adequate financial stability and
adequate servicing experience, where appropriate, as well as satisfaction of
certain other criteria.
REPRESENTATIONS BY UNAFFILIATED SELLERS; REPURCHASES
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller (or the Master Servicer, if the Unaffiliated Seller is also
the Master Servicer under the Agreement) will have made representations and
warranties in respect of the Mortgage Loans sold by such Unaffiliated Seller to
the Depositor. Such representations and warranties will generally include, among
other things: (i) with respect to each Mortgaged Property, that title insurance
(or in the case of Mortgaged Properties located in areas where such policies are
generally not available, an attorney's certificate of title) and any required
hazard and primary mortgage insurance was effective at the origination of each
Mortgage Loan, and that each policy (or certificate of title) remained in effect
on the date of purchase of the Mortgage Loan from the Unaffiliated Seller; (ii)
that the Unaffiliated Seller had good and marketable title to each such Mortgage
Loan; (iii) with respect to each Mortgaged Property, that each mortgage
constituted a valid first lien on the Mortgaged Property (subject only to
permissible title insurance exceptions); (iv) that there were no delinquent tax
or assessment liens against the Mortgaged Property; and (v) that each Mortgage
Loan was current as to all required payments (unless otherwise specified in the
related Prospectus Supplement). With respect to a Cooperative Loan, the
Unaffiliated Seller will represent and warrant that (a) the security interest
created by the cooperative security agreements constituted a valid first lien on
the collateral securing the Cooperative Loan (subject to the right of the
related Cooperative to cancel shares and terminate the proprietary lease for
unpaid assessments and to the lien of the related Cooperative for unpaid
assessments representing the Mortgagor's pro rata share of the Cooperative's
payments for its mortgage, current and future real property taxes, maintenance
charges and other assessments to which like collateral is commonly subject) and
(b) the related cooperative apartment was free from damage and was in good
repair.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate. A
substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Securities evidencing an interest in, or
secured by, 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
Securities 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 Securities 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 Securities --
Assignment of Mortgage Loans." If the Master Servicer is also an Unaffiliated
Seller of Mortgage Loans with respect to a particular Series, such
representations will be in addition to the representations and warranties made
in its capacity as an Unaffiliated Seller.
Upon the discovery of the breach of any representation or warranty made
by an Unaffiliated Seller in respect of a Mortgage Loan that materially and
adversely affects the interests of the Securityholders of the related Series,
such Unaffiliated Seller or the Servicer of such Mortgage Loan will be obligated
to repurchase such
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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 Securities 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 Mortgage Rate for the related
Mortgage Loan, 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
Securityholders, 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 Securityholders 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 Securities
- --Assignment of Mortgage Loans."
CLOSED LOAN PROGRAM
The Depositor may also acquire Closed Loans that have been originated
by Unaffiliated Sellers in accordance with underwriting standards acceptable to
the Depositor. Unless otherwise specified in the applicable Prospectus
Supplement, Closed Loans for which 11 or fewer monthly payments have been
received will be further subject to the Depositor's customary underwriting
standards. Unless otherwise specified in the applicable Prospectus Supplement,
Closed Loans for which 12 to 60 monthly payments have been received will be
subject to a review of payment history and will conform to the Depositor's
guidelines for the related mortgage program. In the event one or two payments
were over 30 days delinquent, a letter explaining the delinquencies will be
required of the Mortgagor. Unless otherwise specified in the applicable
Prospectus Supplement, the Depositor will not purchase for inclusion in a
Mortgage Pool a Closed Loan for which (i) more than two monthly payments were
over 30 days delinquent, (ii) one payment was over 60 days delinquent, or (iii)
more than 60 monthly payments were received.
MORTGAGE CERTIFICATES
If so specified in the Prospectus Supplement with respect to a Series,
the Trust Fund for such Series may include certain conventional mortgage pass-
through certificates, collateralized mortgage bonds or other indebtedness
secured by mortgage loans or manufactured housing contracts (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 and/or manufactured housing contracts 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 Securities 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 Securities is
conditioned upon their characteristics being in form and substance satisfactory
to the Rating Agency rating the related Series of Securities. Mortgage
Certificates, together with the
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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 and/or pledged to the related Trustee named in the related
Prospectus Supplement for the benefit of the related Securityholder. The Master
Servicer specified in the related Prospectus Supplement will service the
Contracts, either by itself or through other Servicers, pursuant to the
Agreement. See "Description of the Securities -- 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 . In 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 the related Pooling and Servicing
Agreement or 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
Security 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 of the Security at the Interest Rate, or both. See
"Description of the Securities -- 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
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Securityholder 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 Securityholders 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
Securityholders 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
Securities, 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 Securityholders 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 Securities, 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 Securityholders 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 remaining term to
maturity not greater than (and not more than one year less than) that of the
Deleted Contract and (iv) comply with all the representations and warranties set
forth in the Agreement as of the date of substitution. This repurchase or
substitution obligation constitutes the sole remedy available to the
Securityholders 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
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The Depositor was incorporated in the State of Delaware on December
31, 1985, and is a wholly-owned subsidiary of Credit Suisse First Boston
Management Corporation. Credit Suisse First Boston Mangement Corporation is a
sholly-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
Securities of any Series.
Trust Assets will be acquired by the Depositor directly or through one
or more affiliates.
USE OF PROCEEDS
Except as otherwise provided in the related Prospectus Supplement, 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 or
Pre-Funding Accounts, if any, for the Series and to pay costs of structuring and
issuing the Securities. If so specified in the related Prospectus Supplement,
Securities may be exchanged by the Depositor for Trust Assets. Unless otherwise
specified in the related Prospectus Supplement, the Trust Assets for each Series
of Securities 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.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, the
scheduled maturities of all of the Mortgage Loans (or the mortgage loans
underlying the Mortgage Certificates) at origination will not be less than
approximately 10 years or exceed 40 years and all the Contracts will have
maturities at origination of not more than 20 years, but such Mortgage Loans (or
such underlying mortgage loans) or Contracts may be prepaid in full or in part
at any time. Unless otherwise specified in the applicable Prospectus Supplement,
no such Mortgage Loan (or mortgage loan) or Contract will provide for a
prepayment penalty and each will contain (except in the case of FHA and VA
Loans) due-on-sale clauses permitting the mortgagee or obligee to accelerate the
maturity thereof upon conveyance of the Mortgaged Property, Cooperative Dwelling
or Manufactured Home.
The FHA has compiled statistics relating to one- to four-family, level
payment mortgage loans insured by the FHA under the National Housing Act of
1934, as amended, at various interest rates, all of which permit assumption by
the new buyer if the home is sold. Such statistics indicate that while some of
such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities. The
Actuarial Division of HUD has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentages of the
original number of FHA Loans in pools of level payment mortgage loans of varying
maturities that will remain outstanding on each anniversary of the original date
of such mortgage loans (assuming they all have the same origination date) ("FHA
Experience"). Published information with respect to conventional residential
mortgage loans indicates that such mortgage loans have historically been prepaid
at higher rates than government insured loans because, unlike government insured
mortgage loans, conventional mortgage loans may contain due-on-sale clauses that
allow the holder thereof to demand payment in full of the remaining principal
balance of such mortgage loans upon sales or certain transfers of the mortgaged
property. There are no similar statistics with respect to the prepayment rates
of cooperative loans or loans secured by multifamily properties.
It is customary in the residential mortgage industry in quoting yields
(a) on a pool of 30-year fixed-rate,
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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 Securities, 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 Securities. There is, however,
no assurance that prepayment of the Mortgage Loans underlying a Series of
Securities will conform to FHA Experience, mortgage industry custom, any level
of SPA, or any other rate specified in the related Prospectus Supplement. A
number of factors, including homeowner mobility, economic conditions,
enforceability of due-on-sale clauses, mortgage market interest rates, mortgage
recording taxes and the availability of mortgage funds, may affect prepayment
experience on residential mortgage loans.
The terms of the Servicing Agreement will require the Servicer or the
Master Servicer to enforce any due-on-sale clause to the extent it has knowledge
of the conveyance or the proposed conveyance of the underlying Mortgaged
Property or Cooperative Dwelling; provided, however, that any enforcement action
that would impair or threaten to impair any recovery under any related Insurance
Policy will not be required or permitted. See "Description of the Securities --
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
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
Securities evidencing interests in, or secured by, 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 Securities of a
Series evidencing interests in, or secured by, 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, to the extent provided in the related
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Prospectus Supplement the Master Servicer may permit proposed assumptions of
Contracts where the proposed buyer meets the underwriting standards described
above. Such assumption would have the effect of extending the average life of
the Contract. FHA Mortgage Loans and Contracts and VA Mortgage Loans and
Contracts are not permitted to contain "due on sale" clauses, and are freely
assumable.
Mortgage Loans made with respect to Multifamily Properties may have
provisions that prevent prepayment for a number of years and may provide for
payments of interest only during a certain period followed by amortization of
principal on the basis of a schedule extending beyond the maturity of the
related Mortgage Loan. Prepayments of Mortgage Loans secured by Multifamily
Property may be affected by these and other factors, including changes in
interest rates and the relative tax benefits associated with ownership of
Multifamily Property.
If set forth in the applicable Prospectus Supplement, the Depositor or
other specified entity will have the option to repurchase the Trust Assets
included in the related Trust Fund under the conditions stated in such
Prospectus Supplement. For any Series of Securities for which the Depositor has
elected to treat the Trust Fund or certain assets of the Trust Fund as a REMIC
pursuant to the provisions or the Code, any such repurchase will be effected in
compliance with the requirements of Section 860F(a)(4) of the Code so as to
constitute a "qualifying liquidation" thereunder. In addition, the Depositor
will be obligated, under certain circumstances, to repurchase certain of the
Trust Assets. The Master Servicer and Unaffiliated Sellers will also have
certain repurchase obligations, as more fully described herein and in the
related Prospectus Supplement. 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" and "--
Representations by Unaffiliated Sellers; Repurchases" "Description of the
Securities -- Assignment of Mortgage Loans," "-- Assignment of Mortgage
Certificates," "-- Assignment of Contracts" and "-- Termination."
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 Securities of the related Series will
be greater than would otherwise be the case. As a result, the yield on any such
Mortgage Loan at any time may be less than the yields on similar adjustable rate
mortgage loans, and the rate of prepayment may be lower or higher than would
otherwise be anticipated.
Generally, when a full prepayment is made on a Mortgage Loan or
Contract, the Mortgagor or the borrower under a Contract (the "Obligor"), is
charged interest for the number of days actually elapsed from the due date of
the preceding monthly payment up to the date of such prepayment, at a daily
interest rate determined by dividing the Mortgage Rate or APR by 365. Full
prepayments will reduce the amount of interest paid by the Mortgagor or the
Obligor because interest on the principal amount of any Mortgage Loan or
Contract so prepaid will be paid only to the date of prepayment instead of for a
full month; however, unless otherwise provided in the applicable Prospectus
Supplement, the Master Servicer with respect to a Series will be required to
advance from its own funds the portion of any interest at the related Mortgage
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
Mortgage Rate or APR for the related Mortgage Loan or Contract 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 Securityholders on
the next succeeding Distribution Date in the manner specified in the related
Prospectus Supplement.
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Generally, the effective yield to holders of Securities having a
monthly Distribution Date will be lower than the yield otherwise produced
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 Securities 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 Securities succeeds such 25th
day. With respect to the Multi-Class Securities 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 Securities 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 Securityholders 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 Securities that are offered at a premium to their principal or notional
amount ("Premium Securities") 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 Securityholders of Premium
Securities 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 Securities that are Premium
Securities) will likely result in a lower than anticipated yield to holders of
Securities that are offered at a discount to their principal amount ("Discount
Securities"). If so specified in the applicable Prospectus Supplement, a
disproportionately large amount of Principal Prepayments may be distributed to
the holders of the Senior Securities at the times and under the circumstances
described therein.
In the event that the Securities of a Series include one or more
Classes or Subclasses of Multi-Class Securities, the Prospectus Supplement for
such Series will set forth information, measured relative to a prepayment
standard or model specified in such Prospectus Supplement, with respect to the
projected weighted average life of each such Class or Subclass and the
percentage of the initial Stated Principal Balance of each such Subclass that
would be outstanding on special Distribution Dates for such Series based on the
assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the Mortgage Loans or Contracts or on the mortgage loans
underlying the Mortgage Certificates in the related Trust Fund are made at rates
corresponding to the various percentages of such prepayment standard or model.
DESCRIPTION OF THE SECURITIES
Each Series of Securities will be issued pursuant to either (a) an
agreement consisting of either (i) a Pooling and Servicing Agreement or (ii) 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 (b) if a Series of
Securities includes Notes, a deposit trust agreement or trust agreement between
the Depositor and the Trustee. Forms of the Pooling and Servicing Agreement and
the Trust Agreement have been filed as exhibits to the Registration Statement of
which this Prospectus is a part. If a Series of Securities includes Notes, such
Notes will be issued and secured pursuant to an Indenture (each, an "Indenture")
to be entered into between the related Issuer and the indenture trustee
specified in the related Prospectus Supplement (the "Indenture Trustee"), and
the related Trust Fund will be serviced by the Master Servicer pursuant to a
Sale and
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Servicing Agreement (the "Sale and Servicing Agreement") among the
Depositor, the Master Servicer or Servicer and the Indenture Trustee. Forms of
the Indenture and the Sale and Servicing Agreement have been filed as exhibits
to the Registration Statement of which this Prospectus is a part. In addition, a
Series of Securities may include a Warranty and Servicing Agreement between the
Master Servicer and the Servicer (the "Warranty and Servicing Agreement"). As
used herein, "Agreement" means, with respect to a Series that only includes
Certificates, the Pooling and Servicing Agreement and, if applicable, the
Warranty and Servicing Agreement, and with respect to a Series that includes
Notes, the Indenture, the Trust Agreement and the Sale and Servicing Agreement
and, if applicable, the Warranty and Servicing Agreement, as the context
requires.
The following summaries describe certain provisions common to each
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
Agreement for the applicable Series and the related Prospectus Supplement.
Wherever defined terms of the 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 Security offered hereby and by means of the related Prospectus
Supplement will be issued in fully registered. Securities will represent the
undivided interest or beneficial interest attributable to such Class or Subclass
in, and Notes will be secured by, 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 Security Guarantee Insurance, if any, with
respect to such Series; (xi) the Depositor's rights under the Servicing
Agreement with respect to the Mortgage Loans or Contracts, if any, with respect
to such Series; and (xii) 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 Securities, Certificates representing
the minimum undivided interest or beneficial ownership interest in the related
Trust Fund or the minimum notional amount allocable to each Class will evidence
the undivided interest, beneficial ownership interest or percentage ownership
interest specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, one or more
Servicers or the Depositor may directly perform some or all of the duties of a
Master Servicer with respect to a Series.
If so specified in the Prospectus Supplement for a Series with respect
to which the Depositor has elected to treat the Trust Fund as a REMIC under the
Code, ownership of the Trust Fund for such Series may be evidenced by Multi-
Class Certificates and/or Notes and Residual Certificates. Distributions of
principal and interest with respect to Multi-Class Securities 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 Securities.
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 Securities of
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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 Securities, 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 Securities
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 Securities 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
Securities of a Series may be subordinated to the right of the holders of
Securities of one or more Classes or Subclasses within such Series to receive
distributions with respect to the Mortgage Loans, Mortgage Certificates 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 Securities 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
Securities of a Series will evidence the right to receive distributions with
respect to a specific pool of Mortgage Loans, Mortgage Certificates or
Contracts, which right will be subordinated to the right of the holders of the
Senior Securities of such Series to receive distributions with respect to such
specific pool of Mortgage Loans, Mortgage Certificates or Contracts, as more
fully set forth in such Prospectus Supplement. If so specified in the related
Prospectus Supplement, the holders of the Senior Securities 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, if a Series of Securities
includes Notes, one more Classes or Subclasses of Notes may be subordinated to
another Class or Subclasses of Notes 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 Securities 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 Securities 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 Securities of a Series offered hereby and by means of the related
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set forth in the related
Prospectus Supplement, unless such Prospectus Supplement provides otherwise. No
service charge will be made for any transfer or exchange of Securities, 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 Securities 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 Securities
are registered at the close of
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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 Securities 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 Securities 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 Securities, 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 as set forth in
the Prospectus Supplement) 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 Securities of a Series may be based on the Percentage
Interest evidenced by a Security of such Class or Subclass in the distributions
(including any Advances thereof) of principal (the "Principal Distribution") and
interest (adjusted as set forth in the Prospectus Supplement) (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 Security of such Class or Subclass an amount
equal to the product of the Percentage Interest evidenced by such Security and
the interest of such Class or Subclass in the Principal Distribution and the
Interest Distribution. A Security 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 Securities 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 Securities that includes Multi-Class Securities, 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
Securities, distributions of interest on each Class or Subclass of Compound
Interest Securities of such Series will be made on each Distribution Date after
the Stated Principal Balance of all Certificates and/or Notes of such Series
having a Final Scheduled Distribution Date prior to that of such Class or
Subclass of Compound Interest Securities has been reduced to zero. Prior to such
time, interest on such Class or Subclass of Compound Interest Securities 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 Securities that includes Multi-Class Securities, distributions in
reduction of the Stated Principal Balance of such Securities will be made as
described herein. Distributions in reduction of the Stated Principal Balance of
such Securities will be made on each Distribution Date for such Series to the
holders of the Securities of the Class or Subclass then entitled to receive such
distributions until the aggregate amount of such distributions have reduced the
Stated Principal Balance of such Securities to zero. Allocation of distributions
in reduction of Stated Principal Balance will be made to each Class or Subclass
of such Securities 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 Security of a Class or
Subclass then entitled to receive such distributions will be made pro rata among
the Securities of such Class or Subclass.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, the maximum amount
which will be distributed in reduction of Stated Principal Balance to
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holders of Securities 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 Securities 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 Securities that includes Multi-Class Securities, 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 Securities of such
Series (before taking into account the amount of interest accrued on any Class
of Compound Interest Securities 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 Securities
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 Securities that includes Multi-Class Securities, Excess Cash Flow
represents the excess of (i) the interest evidenced by such Multi-Class
Securities 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 Securities),
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 Securities 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 Securities 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
Securities) will be made by check mailed to the address of the person entitled
thereto as it appears on the registers maintained for holders of Notes (the
"Note Register") or holders of Certificates (the "Certificate Register"), as
applicable, except that, with respect to any holder of a Security meeting the
requirements specified in the applicable Prospectus Supplement, except as
otherwise provided in such Prospectus Supplement distributions shall be made by
wire transfer in immediately available funds, provided that the Trustee shall
have been furnished with appropriate wiring instructions not less than two
Business Days prior to the related Distribution Date. The final distribution in
retirement of Securities will be made only upon presentation and surrender of
the Securities at the office or agency designated by the Master Servicer for
such purpose, as specified in the final distribution notice to Securityholders.
ASSIGNMENT OF MORTGAGE CERTIFICATES
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Pursuant to the applicable Agreement for a Series of Securities 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 Securities 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 Securityholders in the Mortgage Certificates, the Depositor
will be required to repurchase the affected Mortgage Certificates at a price
equal to the principal balance thereof as of the date of purchase together with
accrued and unpaid interest thereon at the related pass-through rate to the
distribution date for such Mortgage Certificates or, in the case of a Series in
which an election has been made to treat the related Trust Fund as a REMIC, at
the lesser of the price set forth above, or the adjusted tax basis, as defined
in the Code, of such Mortgage Certificates. The Mortgage Certificates with
respect to a Series may also be subject to repurchase, in whole but not in part,
under the circumstances and in the manner described in the related Prospectus
Supplement. Any amounts received in respect of such repurchases will be
distributed to Securityholders 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 Securities, 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, either deliver the Securities
to the Depositor in exchange for the Mortgage Loans or apply the proceeds from
the sale of such Securities to the purchase price for the Mortgage Loans. If a
Series of Securities includes Notes, the Trust Fund will be pledged by the
Issuer to the Indenture Trustee as security for the Notes. Each Mortgage Loan
will be identified in a schedule appearing as an exhibit to the related
Agreement. Such schedule will include information as to the adjusted principal
balance of each Mortgage Loan as of the Cut-off Date, as well as information
respecting the Mortgage Rate, the currently scheduled monthly payment of
principal and interest, the maturity of the Mortgage Note and the Loan-to-Value
Ratio at origination.
In addition, the Depositor will, as to each Mortgage Loan that is not a
Cooperative Loan, deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) the Mortgage Note endorsed to the order of
the Trustee, the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will deliver a copy of such Mortgage together with its certificate
that the original of such Mortgage was delivered to such recording office) and,
unless otherwise specified in the related Prospectus Supplement, an assignment
of the Mortgage in recordable form. Assignments of the Mortgage Loans to the
Trustee will be recorded in the appropriate public office for real property
records, except in states where, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the Trustee's interest in the
Mortgage Loan against the claim of any subsequent transferee or any successor to
or creditor of the Depositor or the Originator of such Mortgage Loan.
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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, generally
within 60 days after receipt thereof, review and hold such documents in trust
for the benefit of the Securityholders. Unless otherwise specified in the
applicable Prospectus Supplement, if any such document is found to be defective
in any material respect, the Trustee will promptly notify the Master Servicer
and the Depositor, and the Master Servicer will notify the related Servicer. If
the Servicer cannot cure the defect within 60 days after notice is given to the
Master Servicer, the Servicer will be obligated either to substitute for the
related Mortgage Loan a Replacement Mortgage Loan or Loans, or to purchase
within 90 days of such notice the related Mortgage Loan from the Trustee at a
price equal to the principal balance thereof as of the date of purchase or, in
the case of a Series as to which an election has been made to treat the related
Trust Fund as a REMIC, at such other price as may be necessary to avoid a tax on
a prohibited transaction, as described in Section 860F(a) of the Code, in each
case together with accrued interest at the applicable Mortgage Rate to the first
day of the month following such repurchase, plus the amount of any unreimbursed
Advances made by the Master Servicer or the Servicer, as applicable, in respect
of such Mortgage Loan. The Master Servicer is obligated to enforce the
repurchase obligation of the Servicer, to the extent described above under "The
Trust Fund -- Mortgage Loan Program" and "-- Representations by Unaffiliated
Sellers; Repurchases." Unless otherwise specified in the applicable Prospectus
Supplement, this purchase obligation constitutes the sole remedy available to
the Securityholders 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 Securities, 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 Securityholders, 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 Securityholders 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 Securities, the Depositor, the
Master Servicer or the related Servicer, as the case may be, may deliver to the
Trustee Mortgage Loans ("Substitute Mortgage Loans") in substitution for any one
or more of the Mortgage Loans ("Deleted Mortgage Loans") initially included in
the Trust Fund but which do not conform in one or more respects to the
description thereof contained in the related Prospectus Supplement, or as to
which a breach of a representation or warranty is discovered, which breach
materially and adversely affects the interests of the Securityholders. 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 Agreement relating to a Series of Securities, the Master Servicer may make
certain representations and warranties to the Trustee in such 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
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under certain of the aforementioned insurance policies.
Unless otherwise specified in the applicable Prospectus Supplement, upon a
breach of any such representation or warranty that materially and adversely
affects the interests of the Securityholders 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 Securities 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
Securityholders 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 Agreement, the Master Servicer, either directly or
through Servicers, will service and administer the Mortgage Loans assigned to
the Trustee as more fully set forth below.
ASSIGNMENT OF CONTRACTS
The Depositor will cause the Contracts constituting the Contract Pool
to be assigned to the Trustee, together with principal and interest due on or
with respect to the Contracts after the Cut-off Date, but not including
principal and interest due on or before the Cut-off Date. If the Depositor is
unable to obtain a perfected security interest in a Contract prior to transfer
and assignment to the Trustee, the Unaffiliated Seller will be obligated to
repurchase such Contract. The Trustee, concurrently with such assignment, will
authenticate and deliver the Securities. If a Series of Securities includes
Notes, the Trust fund will be pledged by the Issuer to the Indenture Trustee as
security for the Notes. Each Contract will be identified in a schedule appearing
as an exhibit to the Agreement (the "Contract Schedule"). Unless otherwise
specified in the related Prospectus Supplement, the Contract Schedule will
specify, with respect to each Contract, among other things: the original
principal amount and the adjusted principal balance as of the close of business
on the Cut-off Date; the APR; the current scheduled monthly level payment of
principal and interest; and the maturity of the Contract.
In addition, the Depositor, as to each Contract, will deliver or cause
to be delivered to the Trustee, or, as specified in the related Prospectus
Supplement, the Custodian, the original Contract and copies of documents and
instruments related to each Contract and the security interest in the
Manufactured Home securing each Contract. In order to give notice of the right,
title and interest of the Certificateholders to the Contracts, the Depositor
will cause a UCC-1 financing statement to be executed by the Depositor
identifying the Trustee as the secured party and identifying all Contracts as
collateral. Unless otherwise specified in the related Prospectus Supplement, the
Contracts will not be stamped or otherwise marked to reflect their assignment
from the Depositor to the Trust Fund. Therefore, if a subsequent purchaser were
able to take physical possession of the Contracts without notice of such
assignment, the interest of the Certificateholders in the Contracts could be
defeated. See "Certain Legal Aspects of Mortgage Loans and Contracts -- The
Contracts."
The Trustee (or the Custodian) will review and hold such documents in
trust for the benefit of the Securityholders. 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
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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 APR, 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 Securityholders 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 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 Securities. 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 Securities. 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 Securities.
The only representations and warranties to be made for the benefit of
Securityholders 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 Securityholders in such Contract within 90 days (or
such other period specified in the related Prospectus Supplement) after notice
from the Master Servicer, such Unaffiliated Seller will be obligated to
repurchase such Contract at a price equal to, unless otherwise specified in the
related Prospectus Supplement, the principal balance thereof as of the date of
the repurchase or, in the case of a Series as to which an election has been made
to treat the related Trust Fund as a REMIC, at such other price as may be
necessary to avoid a tax on a prohibited transaction, as described in Section
860F(a) of the Code, in each case together with accrued and unpaid interest to
the first day of the month following repurchase at the related APR, plus the
amount of any unreimbursed Advances in respect of such Contract (the "Purchase
Price"). The Master Servicer will be required under the applicable Agreement to
enforce this obligation for the benefit of the Trustee and the Securityholders,
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 Securityholders or the Trustee for a breach of
representation by an Unaffiliated Seller.
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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."
PRE-FUNDING
If so specified in the related Prospectus Supplement, a portion of the
issuance proceeds of the Securities of a particular Series (such amount, the
"Pre-Funded Amount") will be deposited in an account (the "Pre-Funding Account")
to be established with the Trustee, which will be used to acquire additional
Mortgage Loans, Contracts or Mortgage Certificates from time to time during the
time period specified in the related Prospectus Supplement (the "Pre-Funding
Period"). Prior to the investment of the Pre-Funded Amount in additional
Mortgage Loans, Contracts or Mortgage Certificates, such Pre-Funded Amount may
be invested in one or more Eligible Investments. Except as otherwise provided in
the applicable Agreement, an "Eligible Investment" is any of the following, in
each case as determined at the time of the investment or contractual commitment
to invest therein (to the extent such investments would not require registration
of the Trust Fund as an investment company pursuant to the Investment Company
Act of 1940): (a) negotiable instruments or securities represented by
instruments in bearer or registered or book-entry form which evidence: (i)
obligations which have the benefit of the full faith and credit of the United
States of America, including depository receipts issued by a bank as custodian
with respect to any such instrument or security held by the custodian for the
benefit of the holder of such depository receipt, (ii) demand deposits or time
deposits in, or bankers' acceptances issued by, any depositary institution or
trust company incorporated under the laws of the United States of America or any
state thereof and subject to supervision and examination by Federal or state
banking or depositary institution authorities; provided that at the time of the
Trustee's investment or contractual commitment to invest therein, the
certificates of deposit or short-term deposits (if any) or long-term unsecured
debt obligations (other than such obligations whose rating is based on
collateral or on the credit of a Person other than such institution or trust
company) of such depositary institution or trust company has a credit rating in
the highest rating category from each Rating Agency, (iii) certificates of
deposit having a rating in the highest rating from each Rating Agency, or (iv)
investments in money market funds which are (or which are composed of
instruments or other investments which are) rated in the highest category from
each Rating Agency; (b) demand deposits in the name of the Trustee in any
depositary institution or trust company referred to in clause (a)(ii) above; (c)
commercial paper (having original or remaining maturities of no more than 270
days) having credit rating in the highest rating category from each Rating
Agency; (d) Eurodollar time deposits that are obligations of institutions whose
time deposits carry a credit rating in the highest rating category from each
Rating Agency; (e) repurchase agreements involving any Eligible Investment
described in any of clauses (a)(i),(a)(iii) or (d) above, so long as the other
party to the repurchase agreement has its long-term unsecured debt obligations
rated in the highest rating category from each Rating Agency; and (f) any other
investment with respect to which each Rating Agency rating such Securities
indicates will not result in the reduction or withdrawal of its then existing
rating of the Securities. Except as otherwise provided in the applicable
Agreement, any Eligible Investment must mature no later than the Business Day
prior to the next Distribution Date.
During any Pre-Funding Period, the Depositor will be obligated (subject
only to the availability thereof) to transfer to the related Trust Fund
additional Mortgage Loans, Contracts and/or Mortgage Certificates from time to
time during such Pre-Funding Period. Such additional Mortgage Loans or Contracts
will be required to satisfy certain eligibility criteria more fully set forth in
the related Prospectus Supplement which eligibility criteria will be consistent
with the eligibility criteria of the Mortgage Loans or Contracts included in the
Trust Fund as of the Closing Date subject to such exceptions as are expressly
stated in such Prospectus Supplement.
Although the specific parameters of the Pre-Funding Account with
respect to any issuance of Securities will be specified in the related
Prospectus Supplement, it is anticipated that: (a) the Pre-Funding Period will
not exceed 120 days from the related Closing Date, (b) that the additional loans
to be acquired during the Pre-Funding Period will be subject to the same
representations and warranties as the Mortgage Loans, Contracts and/or Mortgage
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Certificates included in the related Trust Fund on the Closing Date (although
additional criteria may also be required to be satisfied, as described in the
related Prospectus Supplement) and (c) that the Pre-Funded Amount will not
exceed 25% of the principal amount of the Securities issued pursuant to a
particular offering.
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
Agreement provides that, if for any reason the Master Servicer for such Series
of Securities is no longer the Master Servicer of the related Mortgage Loans or
Contracts, the Trustee or any successor master servicer must recognize the
Servicer's rights and obligations under such Servicing Agreement.
A Servicer may delegate its servicing obligations to third-party
servicers, but continue to act as Servicer under the related Servicing
Agreement. The Servicer will be required to perform the customary functions of a
servicer, including collection of payments from Mortgagors and Obligors and
remittance of such collections to the Master Servicer, maintenance of primary
mortgage, hazard insurance, FHA insurance and VA guarantees and filing and
settlement of claims thereunder, subject in certain cases to (a) the right of
the Master Servicer to approve in advance any such settlement; (b) maintenance
of escrow accounts of Mortgagors and Obligors for payment of taxes, insurance,
and other items required to be paid by the Mortgagor pursuant to terms of the
related Mortgage Loan or the Obligor pursuant to the related Contract; (c)
processing of assumptions or substitutions; (d) attempting to cure
delinquencies; (e) supervising foreclosures or repossessions; (f) inspection and
management of Mortgaged Properties, Cooperative Dwellings or Manufactured Homes
under certain circumstances; and (g) maintaining accounting records relating to
the Mortgage Loans and Contracts. A Servicer will also be obligated to make
Advances in respect of delinquent installments of principal and interest on
Mortgage Loans and Contracts (as described more fully below under "-- Payments
on Mortgage Loans" and "-- Payments on Contracts"), and in respect of certain
taxes and insurance premiums not paid on a timely basis by Mortgagors and
Obligors.
As compensation for its servicing duties, a Servicer will be entitled
to amounts from payments with respect to the Mortgage Loans and Contracts
serviced by it. The Servicer will also be entitled to collect and retain, as
part of its servicing compensation, certain fees and late charges provided in
the Mortgage Note or related instruments. The Servicer will be reimbursed by the
Master Servicer for certain expenditures that it makes, generally to the same
extent that the Master Servicer would be reimbursed under the applicable
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 Agreement. Upon termination of a Servicing Agreement,
the Master Servicer or Trustee
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may act as servicer of the related Mortgage Loans or Contracts or the Master
Servicer may 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 related
Agreement with respect to a Series will provide that any such amendment or new
agreement may not be inconsistent with or violate such Agreement.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, unless otherwise specified in the Prospectus
Supplement with respect to a Series of Securities, establish and maintain a
separate account or accounts in the name of the applicable Trustee (the
"Certificate Account"), which must be maintained with a depository institution
and in a manner acceptable to the Rating Agency rating the Securities of a
Series. If a Series of Securities includes Notes, the Master Servicer may
establish and maintain a separate account or accounts in the name of the
applicable Trustee (the "Collection Account") into which amounts received in
respect of the Trust Assets are required to be deposited and a separate account
or accounts in the name of the applicable Trustee from which distributions in
respect of the Notes (the "Note Distribution Account") and/or the Certificates
(the "Certificate Distribution Account") may be made. The Collection Account,
Note Distribution Account and Certificate Distribution Account must be
established with a depositary institution and in a manner acceptable to the
Rating Agencies rating the Securities of such Series. For ease of reference,
references in this Prospectus to the Certificate Account shall be deemed to
refer to the Collection Account, Note Distribution Account and Certificate
Distribution Account, as applicable.
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 Securityholders 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 Securities of the related Series, and that is otherwise acceptable to
the Master Servicer. Unless otherwise specified in the related Prospectus
Supplement, the Servicer will be required to deposit into the Servicing Account
on a daily basis all amounts enumerated in the following paragraph in respect of
the Mortgage Loans received by the Servicer, less its servicing compensation. On
the date specified in the Servicing Agreement, the Servicer shall remit to the
Master Servicer all funds held in the Servicing Account with respect to each
Mortgage Loan. The Servicer will also be required to advance any monthly
installment of principal and interest that was not timely received, less its
servicing fee, provided that, unless otherwise specified in the related
Prospectus Supplement, such requirement shall only apply to the extent such
Servicer determines in good faith any such advance will be recoverable out of
Insurance Proceeds, proceeds of the liquidation of the related Mortgage Loans or
otherwise.
The Certificate Account may be maintained with a depository
institution that is an affiliate of the Master Servicer. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer will deposit
in the Certificate Account for each Series of Securities on a daily basis the
following payments and collections received or
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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 Securities and any title, hazard or other insurance policy
covering any of the Mortgage Loans included in the related Mortgage
Pool (to the extent such proceeds are not applied to the restoration of
the related property or released to the Mortgagor in accordance with
customary servicing procedures) (collectively, "Insurance Proceeds") or
any Alternative Credit Support established in lieu of any such
insurance and described in the applicable Prospectus Supplement; and
(B) all other cash amounts received and retained in connection with the
liquidation of defaulted Mortgage Loans, by foreclosure or otherwise,
other than Insurance Proceeds, payments under the Letter of Credit or
proceeds of any Alternative Credit Support, if any, with respect to
such Series ("Liquidation Proceeds"), net of expenses of liquidation,
unpaid servicing compensation with respect to such Mortgage Loans and
unreimbursed or unrecoverable Advances made by the Servicers of the
related Mortgage Loans;
(iv) all payments under the Letter of Credit, if any, with
respect to such Series;
(v) all amounts required to be deposited therein from the
Reserve Fund, if any, for such Series;
(vi) any Advances made by a Servicer or the Master Servicer
(as described herein under "--Advances");
(vii) any Buy-Down Funds (and, if applicable, investment earnings
thereon) required to be deposited in the Certificate Account, as
described below; and
(viii) all proceeds of any Mortgage Loan repurchased by the Master
Servicer, the Depositor, any Servicer or any Unaffiliated Seller (as
described under "The Trust Fund -- Mortgage Loan Program," "--
Representations by Unaffiliated Sellers; Repurchases" or "-- Assignment
of Mortgage Loans" above) or repurchased by the Depositor (as described
under "-- Termination" below).
With respect to each Buy-Down Loan, if so specified in the related
Prospectus Supplement, the Master Servicer or the related Servicer will deposit
the Buy-Down Funds with respect thereto in a custodial account complying with
the requirements set forth above for the Certificate Account, which, unless
otherwise specified in the related Prospectus Supplement, may be an
interest-bearing account. The amount of such required deposits, together with
investment earnings thereon at the rate specified in the applicable Prospectus
Supplement, will provide sufficient funds to support the full monthly payments
due on such Buy-Down Loan on a level debt service basis. Neither the Master
Servicer nor the Depositor will be obligated to add to the Buy-Down Fund should
investment earnings prove insufficient to maintain the scheduled level of
payments on the Buy-Down Loans. To the extent that any such insufficiency is not
recoverable from the Mortgagor under the terms of the related Mortgage Note,
distributions to Securityholders 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.
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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 Securities -- Payments on Mortgage Loans" will be
established in the name of the Trustee.
Except as otherwise provided in the related Prospectus Supplement,
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;
(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 related Agreement to be
deposited in the Certificate Account;
(vi) all amounts received from Credit Support provided with
respect to a Series of Securities;
(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
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(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 Securities will be registered in the name of the Trustee so that all
distributions thereon will be made directly to the Trustee. The related
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
Securityholders 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 Securityholders that it is not obligated to pursue any such available
remedies unless adequate indemnity for its legal fees and expenses is provided
by such Securityholders.
DISTRIBUTIONS ON SECURITIES
On each Distribution Date with respect to a Series of Securities 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 Securityholders of
record on the applicable Record Date. Such distributions shall occur in the
manner described herein under "-- Description of the Securities -- Distributions
of Principal and Interest" and in the related Prospectus Supplement. If so
specified in the applicable Prospectus Supplement, the Master Servicer will
withdraw from the applicable Certificate Account funds on deposit therein and
distribute them to the Trustee. Such funds shall consist of the aggregate of all
previously undistributed payments on account of principal (including principal
prepayments, if any) and interest received after the Cut-off Date and on or
prior to the 20th day (or if such day is not a business day, the next preceding
business day) of the month of such distribution or such other day as may be
specified in the related Prospectus Supplement (in either case the
"Determination Date"), except:
(i) all payments that were due on or before the Cut-off Date;
(ii) all principal prepayments received during the month of
distribution and all payments of interest representing interest for the
month of distribution or any portion thereof;
(iii) all payments which represent early receipt (other than
prepayments) of scheduled payments of principal and interest due on a
date or dates subsequent to the first day of the month of distribution;
(iv) amounts received on particular Mortgage Loans or Contracts as
late payments of principal or interest and respecting which the Master
Servicer has made an unreimbursed Advance;
(v) amounts representing reimbursement for other Advances which
the Master Servicer has determined to be otherwise nonrecoverable and
amounts representing reimbursement for certain losses and expenses
incurred or Advances made by the Master Servicer and discussed below;
and
(vi) that portion of each collection of interest on a particular
Mortgage Loan in such Mortgage Pool or on a particular Contract in such
Contract Pool that represents (A) servicing compensation to the Master
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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 Securities -- 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 Securities, 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 Securities 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 Securities 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 Securityholders, 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. Unless otherwise provided in the Prospectus Supplement, the
Certificate Account established pursuant to the 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 Securities 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 Securities, one or more Classes of Multi-Class Securities 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 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 Securities of such Classes or
Subclasses may be less than the sum of (i) the interest scheduled to be
distributed to holders of the Securities of such Classes or Subclasses and (ii)
the amount to be distributed in reduction of Stated Principal Balance or such
Securities 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 SECURITYHOLDERS
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 Securityholders 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 Security, as to (i)
through (iii) or (iv) through (vi) below, as applicable):
(i) to each holder of a Security, 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 Security, 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 Security, 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 Securityholders 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 Securities 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 Securities, if any,
outstanding and the amount of any accrued interest added to the
Compound Value of such Compound Interest Securities on such
Distribution Date;
(vi) to each holder of a Compound Interest Security (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 Securities with respect to such Distribution
Date and added to the Compound Value of such Compound Interest
Security; and
(c) the Stated Principal Balance of such Class or
Subclass of Compound Interest Securities after giving effect
to the addition thereto of all interest accrued thereon;
(vii) in the case of a series of Securities with a variable
Interest Rate, the Interest 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
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(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
Securityholders on the Distribution Date;
(ix) in the case of a Series of Securities 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 Securityholders 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 Securityholders 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
Securityholder 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 Securityholder to prepare
its tax return, as applicable, for such calendar year or, in the event such
person was a Securityholder 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 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
related 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
Securityholders, rather than to guarantee or insure against losses. Any such
Advances are reimbursable to the Servicer or Master Servicer out of related
recoveries on the Mortgage Loans respecting which such amounts were advanced. In
addition, such Advances are reimbursable from cash in the Reserve Fund, the
Servicing or Certificate Accounts to the extent that the Servicer or the Master
Servicer, as the case may be, shall determine that any such Advances previously
made are not ultimately recoverable. The Servicers and the Master Servicer
generally will also be obligated to make advances in respect of certain taxes
and insurance premiums not paid by Mortgagors or Obligors on a timely basis and,
to the extent deemed recoverable, foreclosure costs, including reasonable
attorney's fees. Funds so advanced are reimbursable out of recoveries on the
related Mortgage Loans. This right of reimbursement for any Advance will be
prior to the rights of the Securityholders 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 in connection with full or partial
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prepayments, liquidations, defaults and repurchases of the Mortgage Loans or
Contracts. Any such Advances will not be reimbursable to the Servicers or the
Master Servicer.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through the Servicers, as the case may
be, will make reasonable efforts to collect all payments called for under the
Mortgage Loans or Contracts and will, consistent with the applicable 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, if so provided in the related Prospectus Supplement 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 applicable Servicing Agreement, the Master Servicer, either
directly or through Servicers, to the extent permitted by law, may establish and
maintain an escrow account (the "Escrow Account") in which Mortgages or Obligors
will be required to deposit amounts sufficient to pay taxes, assessments,
mortgage and hazard insurance premiums and other comparable items. This
obligation may be satisfied by the provision of insurance coverage against loss
occasioned by the failure to escrow insurance premiums rather than causing such
escrows to be made. Withdrawals from the Escrow Account may be made to effect
timely payment of taxes, assessments, mortgage and hazard insurance, to refund
to Mortgagors or Obligors amounts determined to be overages, to pay interest to
Mortgagors or Obligors on balances in the Escrow Account, if required, and to
clear and terminate such account. The Master Servicer will be responsible for
the administration of each Escrow Account and will be obliged to make advances
to such accounts when a deficiency exists therein. Alternatively, in lieu of
establishing an Escrow Account, the Servicer may procure a performance bond or
other form of insurance coverage, in an amount acceptable to the Rating Agency
rating the related Series of Securities, 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 to cause to be maintained
for each Mortgage Loan or Contract that it services (and the Master Servicer
will be required to maintain for each Mortgage Loan or Contract serviced by it
directly) a policy of standard hazard insurance (a "Standard Hazard Insurance
Policy") covering the Mortgaged Property underlying such Mortgage Loan or
Manufactured Home underlying such Contract in an amount at least equal to the
maximum insurable value or the improvements securing such Mortgage Loan or
Contract or the principal balance of such Mortgage Loan or Contract, whichever
is less. Each Servicer or the Master Servicer, as the case may be, shall also
maintain on property acquired upon foreclosure, or deed in lieu of foreclosure,
of any Mortgage Loan or Contract, a Standard Hazard Insurance Policy in an
amount that is at least equal to the maximum insurable value of the improvements
that are a part of the Mortgaged Property or Manufactured Home. Any amounts
collected by the Servicer or the Master Servicer under any such policies (other
than amounts to be applied to the restoration or repair of the Mortgaged
Property or Manufactured Home or released to the borrower in accordance with
normal servicing procedures) shall be deposited in the related Servicing Account
for deposit in the Certificate Account or, in the case
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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 Securityholders, be added to the
amount owing under the Mortgage Loan or Contract, notwithstanding that the terms
of the Mortgage Loan or Contract may so permit. Such cost shall be recoverable
by the Servicer only by withdrawal of funds from the Servicing Account or by the
Master Servicer only by withdrawal from the Certificate Account, as described in
the applicable Servicing Agreement. No earthquake or other additional insurance
is to be required of any borrower or maintained on property acquired in respect
of a Mortgage Loan or Contract, other than pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance. When the Mortgaged Property or Manufactured Home is
located at the time of origination of the Mortgage Loan or Contract in a
federally designated flood area, the related Servicer (or the Master Servicer,
in the case of each Mortgage Loan or Contract serviced by it directly) will
cause flood insurance to be maintained, to the extent available, in those areas
where flood insurance is required under the National Flood Insurance Act of
1968, as amended.
The Depositor will not require that a standard hazard or flood
insurance policy be maintained on the Cooperative Dwelling relating to any
Cooperative Loan. Generally, the cooperative corporation itself is responsible
for maintenance of hazard insurance for the property owned by the cooperative
and the tenant-stockholders of that cooperative do not maintain individual
hazard insurance policies. To the extent, however, that a Cooperative and the
related borrower on a Cooperative Loan do not maintain such insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the
restoration of damaged property, any damage to such borrower's Cooperative
Dwelling or such Cooperative's building could significantly reduce the value of
the collateral securing such Cooperative Loan to the extent not covered by other
credit support.
The applicable 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 residential properties have
historically appreciated in value over time, in the event of partial loss,
hazard insurance proceeds may be insufficient to fully restore the damaged
Mortgaged Property or Manufactured Home. See "Description of Insurance --
Special Hazard Insurance Policies" for a description of the limited protection
afforded by a Special Hazard Insurance Policy against losses occasioned by
certain hazards that are otherwise uninsured against as well as against losses
caused by the application of the coinsurance provisions contained in the
Standard Hazard Insurance Policies.
SPECIAL HAZARD INSURANCE
If so specified in the related Prospectus Supplement, the Master
Servicer will be required to exercise its best reasonable efforts to maintain
the Special Hazard Insurance Policy, if any, with respect to a Series of
Securities 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
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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 Securities in effect throughout the term of
the applicable Agreement, unless coverage thereunder has been exhausted through
payment of claims, and will pay the premiums for such Pool Insurance Policy on a
timely basis. In the event that the Pool Insurer ceases to be a qualified
insurer because it is not qualified to transact a mortgage guaranty insurance
business under the laws of the state of its principal place of business or any
other state which has jurisdiction over the Pool Insurer in connection with the
Pool Insurance Policy, or if the Pool Insurance Policy is cancelled or
terminated for any reason (other than the exhaustion of total policy coverage),
the Master Servicer will exercise its best reasonable efforts to obtain a
replacement policy of pool insurance comparable to the Pool Insurance Policy and
may obtain, under the circumstances described above with respect to the Special
Hazard Insurance Policy, a replacement policy with reduced coverage. In the
event the Pool Insurer ceases to be a qualified insurer because it is not
approved as an insurer by FHLMC, FNMA or any successors thereto, the Master
Servicer will agree to review, not less often than monthly, the financial
condition of the Pool Insurer with a view towards determining whether recoveries
under the Pool Insurance Policy are jeopardized and, if so, will exercise its
best reasonable efforts to obtain from another qualified insurer a replacement
insurance policy under the above-stated limitations. Certain characteristics of
the Pool Insurance Policy are described under "Description of Insurance -- Pool
Insurance Policies."
PRIMARY MORTGAGE INSURANCE
To the extent specified in the related Prospectus Supplement, the
Master Servicer will be required to keep in force and effect for each Mortgage
Loan secured by Single Family Property serviced by it directly, and each
Servicer of a Mortgage Loan secured by Single Family Property will be required
to keep in full force and effect with respect to each such Mortgage Loan
serviced by it, in each case to the extent required by the underwriting
standards of the Depositor, a Primary Mortgage Insurance Policy issued by a
qualified insurer (the "Primary Mortgage Insurer") with regard to each Mortgage
Loan for which such coverage is required pursuant to the applicable Servicing
Agreement and 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
Securities that is required to be kept in force under the applicable Agreement
or 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 Securities.
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 Securities in full force and effect throughout
the term of the applicable 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 Securities, provided that such cancellation or reduction does not
adversely affect the then current rating of such Series. See "Description of
Insurance -- Mortgagor Bankruptcy Bond."
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PRESENTATION OF CLAIMS
The Master Servicer, on behalf of itself, the Trustee and the
Securityholders, 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
Securityholders, 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 Securityholders on liquidation of the
Mortgage Loan or Contract after reimbursement of the expenses incurred by the
Servicer or the Master Servicer, as the case may be, and (ii) that such expenses
will be recoverable through proceeds of the sale of the Mortgaged Property or
proceeds of any related Pool Insurance Policy, any related Primary Mortgage
Insurance Policy or otherwise.
If recovery under a Pool Insurance Policy or any related Primary
Mortgage Insurance Policy is not available because the related Servicer or the
Master Servicer has been unable to make the above determinations or otherwise,
the Servicer or the Master Servicer is nevertheless obligated to follow such
normal practices and procedures as are deemed necessary or advisable to realize
upon the defaulted Mortgage Loan. If the proceeds of any liquidation of the
Mortgaged Property or Manufactured Home are less than the principal balance of
the defaulted Mortgage Loan or Contract, respectively, plus interest accrued
thereon at the Mortgage 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
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
Mortgage Rate or APR, as the case may be, 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 applicable Agreement with respect to
Securities representing interests in or secured by a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the borrower, such
Servicer or the Master Servicer, as the case may be, will, to the extent it has
knowledge of such conveyance, exercise its rights to accelerate the maturity of
such Mortgage Loan under any "due-on-sale" clause applicable thereto, if any,
unless it reasonably believes that such enforcement is not exercisable under
applicable law or regulations or if such exercise would result in loss of
insurance coverage with respect to such Mortgage Loan. In either case, where the
due-on-sale clause will not be exercised, the Servicer or the Master Servicer is
authorized to take or enter into an assumption and modification agreement from
or with the person to whom such Mortgaged
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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 applicable 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
Securityholders after reimbursement to itself for such expenses and (ii) that
such expenses will be recoverable to it either through Liquidation Proceeds,
Insurance Proceeds, payments under the Letter of Credit, or amounts in the
Reserve Fund, if any, with respect to the related Series, or otherwise.
Any prospective purchaser of a Cooperative Dwelling will generally be
required to obtain the approval of the board of directors of the related
Cooperative before purchasing the shares and acquiring rights under the
proprietary lease or occupancy agreement securing the Cooperative Loan. See
"Certain Legal Aspects of the Mortgage Loans and Contracts -- The Mortgage Loans
- -- Foreclosure" herein. This approval is usually based on the purchaser's income
and net worth and numerous other factors. Although the Cooperative's approval is
unlikely to be unreasonably withheld or delayed, the necessity of acquiring such
approval could limit the number of potential purchasers for those shares and
otherwise limit the Trust Fund's ability to sell and realize the value of those
shares.
The market value of any Multifamily Property obtained in foreclosure or
by deed in lieu of foreclosure will be based substantially on the operating
income obtained from renting the dwelling units. Since a default on a Mortgage
Loan secured by Multifamily Property is likely to have occurred because
operating income, net of expenses, is insufficient to make debt service payments
on the related Mortgage Loan, it can be anticipated that the market value of
such property will be less than was anticipated when such Mortgage Loan was
originated. To the extent that the equity in the property does not absorb the
loss in market value and such loss is not covered by other credit support, a
loss may be experienced by the related Trust Fund. With respect to Multifamily
Property consisting of an apartment building owned by a Cooperative, the
Cooperative's ability to meet debt service obligations on the Mortgage Loan, as
well as all other operating expenses, will be dependent in large part on the
receipt of maintenance payments from the tenant- stockholders, as well as any
rental income from units or commercial areas the Cooperative might control.
Unanticipated expenditures may in some cases have to be paid by special
assessments of the tenant-stockholders. The Cooperative's ability to pay the
principal amount of the Mortgage Loan at maturity may depend on its ability to
refinance the Mortgage Loan. The Depositor, the Unaffiliated Seller and the
Master Servicer will have no obligation to provide refinancing for any such
Mortgage Loan.
ENFORCEMENT OF "DUE-ON-SALE" CLAUSES; REALIZATION UPON DEFAULTED CONTRACTS
Each applicable Agreement and Servicing Agreement with respect to
Securities representing interests in or secured by 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
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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 Securityholders, 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 applicable 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 applicable Agreement for a Series of Securities, the
Depositor or the person or entity specified in the related Prospectus Supplement
and any Master Servicer will be entitled to receive an amount described in such
Prospectus Supplement. 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.
The Servicers and the Master Servicer, unless otherwise specified in
the related Prospectus Supplement, will pay from their servicing compensation
certain expenses incurred in connection with the servicing of the Mortgage Loans
or Contracts, including, without limitation, payment of the Insurance Policy
premiums and, in the case of the Master Servicer, fees or other amounts payable
for any Alternative Credit Support, payment of the fees and disbursements of the
Trustee (and any custodian selected by the Trustee), the Note Register, 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 applicable Agreement. In addition, the Master Servicer will be
entitled to reimbursement of expenses incurred in enforcing the obligations of
Servicers and Unaffiliated Sellers under certain limited circumstances.
As set forth in the preceding section, the Servicers and the Master
Servicer will be entitled to reimbursement for certain expenses incurred by them
in connection with the liquidation of defaulted Mortgage Loans or Contracts. The
related Trust Fund will suffer no loss by reason of such expenses to the extent
claims are fully paid under the Letter of Credit, if any, the related insurance
policies, from amounts in the Reserve Fund or under any applicable Alternative
Credit Support described in a Prospectus Supplement. In the event, however, that
claims are either not made or fully paid under such Letter of Credit, Insurance
Policies or Alternative Credit Support, or if coverage thereunder has ceased, or
if amounts in the Reserve Fund are not sufficient to fully pay such losses, the
related Trust Fund will suffer a loss to the extent that the proceeds of the
liquidation proceedings, after reimbursement of the expenses of the Servicers or
the Master Servicer, as the case may be, are less than the principal balance of
the related Mortgage Loan or Contract. In addition, the Servicers and the Master
Servicer will
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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
Securityholders 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 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 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 applicable Agreement or Servicing Agreement,
an Officer's Certificate stating that (i) a review of the activities of the
Master Servicer and the Servicers during the preceding calendar year and of its
performance under such Agreement or 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 such Agreement or 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 Agreement and/or the Servicing Agreements, except for such
exceptions as such firm believes it is required to report.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE DEPOSITOR AND THE TRUSTEE AND
THE INDENTURE TRUSTEE
The Master Servicer under each 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 an 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 applicable 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 such Agreement.
The Trustee under each Pooling and Servicing Agreement or 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.
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The Trustee may resign at any time from its obligations and duties
under the 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 Trust
Agreement.
The Indenture Trustee under the Indenture will be named in the
applicable Prospectus Supplement. The commercial bank or trust company serving
as Indenture Trustee may have normal banking relationships with the Depositor
and/or its affiliates and with the Master Servicer and/or its affiliates.
The Indenture Trustee may resign from its obligations under the
Indenture at any time, in which event a successor trustee will be appointed. In
addition, the Depositor may remove the Indenture Trustee if the Indenture
Trustee ceases to be eligible to act as Indenture Trustee under the Indenture or
if the Indenture Trustee becomes insolvent, at which time the Depositor will
become obligated to appoint a successor Indenture Trustee. Unless otherwise
specified in the related Prospectus Supplement, the Indenture Trustee may also
be removed at any time by the holders of Notes evidencing voting rights
aggregating not less than 50% of the voting rights evidenced by the Notes 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.
Each Pooling and Servicing Agreement and Trust Agreement will also
provide that neither the Depositor nor the Master Servicer nor any director,
officer, employee or agent of the Depositor or the Master Servicer or the
Trustee, or any responsible officers of the Trustee will be under any liability
to the Certificateholders, for the taking of any action or for refraining from
the taking of any action in good faith pursuant to the Pooling and Servicing
Agreement, or for errors in judgment; provided, however, that none of the
Depositor, the Master Servicer or the Trustee nor any such person will be
protected against, in the case of the Master Servicer and the Depositor, any
breach of representations or warranties made by them, and in the case of the
Master Servicer, the Depositor and the Trustee, against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of its duties or by reason of reckless disregard of its
obligations and duties thereunder. Each Pooling and Servicing Agreement and
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 Securityholders thereunder. In such event, the
legal expenses and costs of such action and any liability resulting therefrom
will be expenses, costs and liabilities of the Trust Fund, and the Master
Servicer or the Depositor, as the case may be, will be entitled to be reimbursed
therefor out of the Certificate Account.
DEFICIENCY EVENT
To the extent a deficiency event is specified in the Prospectus
Supplement, a deficiency event (a "Deficiency Event") with respect to the
Securities of each Series may be defined in the applicable Agreement as being
the inability of the Trustee to distribute to holders of one or more Classes of
Securities of such Series,
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in accordance with the terms thereof and the 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.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such 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 Securities in accordance with the priorities as to distributions of
principal and interest set forth in such Securities will be sufficient to make
distributions of interest at the applicable Interest Rates and to distribute in
full the principal balance of each such Security on or before the latest Final
Distribution Date of any outstanding Securities of such Series.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such 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 Securities, which opinion or report will be conclusive evidence as to such
sufficiency. Pending the making of any such determination, distributions on the
Securities shall continue to be made in accordance with their terms.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such Prospectus Supplement, in the
event that the Trustee makes a positive determination, the Trustee will apply
all amounts received in respect of the related Trust Fund (after payment of fees
and expenses of the Trustee and accountants for the Trust Fund) to distributions
on the Securities of such Series in accordance with their terms, except that
such distributions shall be made on each Distribution Date or such other more
frequent dates specified in the related Prospectus Supplement and without regard
to the amount of principal that would otherwise be distributable on the related
Distribution Date. Under certain circumstances following such positive
determination, the Trustee may resume making distributions on such Securities
expressly in accordance with their terms.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such Prospectus Supplement, if the
Trustee is unable to make the positive determination described above, the
applicable 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 Securities of such Series or on all Senior Securities
of such Series pro rata, without regard to the priorities as to distribution of
principal set forth in such Securities, and such Securities will, to the extent
permitted by applicable law and specified in the related Prospectus Statement,
accrue interest at the highest Interest Rate borne by any Security or Securities
with the same credit rating by the Rating Agencies 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 Securities of that Class. In such event, the
holders of a majority in outstanding principal balance of such Securities may
direct the Trustee to sell the related Trust Fund, any such direction being
irrevocable and binding upon the holders of all Securities 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
Except as otherwise provided in the related Prospectus Supplement,
Events of Default under the related Pooling and Servicing Agreement or Sale and
Servicing 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 applicable Agreement which failure
shall continue for the number of
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days specified in the related Prospectus Supplement or any breach of any
representation and warranty made by the Master Servicer or the Servicer, if
applicable, which continues unremedied for the number of days specified in the
related Prospectus Supplement 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 Securities by
the Rating Agency rating such Securities because the existing or prospective
financial condition or mortgage loan servicing capability of the Master Servicer
is insufficient to maintain such rating.
Unless otherwise specified in the related Prospectus Supplement, Events
of Default under the Indenture for each Series of Notes include: (i) a default
of five days or more in the payment of any principal of or interest on any Note
of such Series; (ii) failure to perform any other covenant of the Depositor or
the Trust Fund in the Indenture which continues for a period of thirty days
after notice thereof is given in accordance with the procedures described in the
related Prospectus Supplement; (iii) any representation or warranty made by the
Depositor or the Trust Fund in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith with respect to or
affecting such Series having been incorrect in a material respect as of the time
made, and such breach is not cured within thirty days after notice thereof is
given in accordance with the procedures described in the related Prospectus
Supplement; (iv) certain events of bankruptcy, insolvency, receivership or
liquidation of the Depositor or the Trust Fund; or (v) any other Event of
Default provided with respect to Notes of that Series.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Indenture Trustee or the
Noteholders of a majority of the then aggregate outstanding amount of the Notes
of such Series may declare the principal amount of all the Notes of such Series
to be due and payable immediately. Such declaration may, under certain
circumstances, be rescinded and annulled by the Noteholders of a majority in
aggregate outstanding amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Indenture
Trustee may, in its discretion, notwithstanding such acceleration, elect to
maintain possession of the collateral securing the Notes of such Series and to
continue to apply distributions on such collateral as if there had been no
declaration of acceleration if such collateral continues to provide sufficient
funds for the payment of principal of and interest on the Notes of such Series
as they would have become due if there had not been such a declaration. In
addition, the Indenture Trustee may not sell or otherwise liquidate the
collateral securing the Notes of a Series following an Event of Default other
than a default in the payment of any principal or interest on any Note of such
Series for thirty days or more, unless (a) the Noteholders of 100% of the then
aggregate outstanding amount of the Notes of such Series consent to such sale,
(b) the proceeds of such sale or liquidation are sufficient to pay in full the
principal of and accrued interest due and unpaid on the outstanding Notes of
such Series at the date of such sale or (c) the Indenture Trustee determines
that such collateral would not be sufficient on an ongoing basis to make all
payments on such Notes as such payments would have become due if such Notes had
not been declared due and payable, and the Indenture Trustee obtains the consent
of the Holders of 66 2/3% of the then aggregate outstanding amount of the Notes
of such Series.
In the event that the Indenture Trustee liquidates the collateral in
connection with an Event of Default involving a default for thirty days or more
in the payment of principal of or interest on the Notes of a Series, the
Indenture provides that the Indenture Trustee will have a prior lien on the
proceeds of any such liquidation for unpaid fees and expenses. As a result, upon
the occurrence of such an Event of Default, the amount available for
distribution to the Noteholders may be less than would otherwise be the case.
However, the Indenture Trustee may not institute a proceeding for the
enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
Unless otherwise specified in the related Prospectus Supplement, in the
event the principal of the Notes of a Series is declared due and payable, as
described above, the Noteholders of any such Notes issued at a discount from par
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may be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Except as otherwise provided in the related Prospectus Supplement, so
long as an Event of Default with respect to a Series of Securities remains
unremedied, the Depositor, the Trustee or the holders of Notes of such Series
(or, if no Notes are issued as part of such Series, Certificate) evidencing not
less than 25% of the principal amount of such Securities of such Series may
terminate all of the rights and obligations of the Master Servicer under the
applicable Agreement and/or 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 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 applicable Agreement.
AMENDMENT
Except as otherwise provided in the related Prospectus Supplement, the
Pooling and Servicing Agreement or Sale and Servicing Agreement, as applicable,
for each Series of Securities may be amended by the Depositor, the Master
Servicer and the Trustee, without the consent of the Securityholders, (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 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
Securityholder of the related Series. Except as otherwise provided in the
related Prospectus Supplement, the Pooling and Servicing Agreement or Sale and
Servicing Agreement, as applicable, for each Series of Securities may also be
amended by the Depositor, the Master Servicer and the Trustee with the consent
of holders of Securities evidencing not less than 66 2/3% of the aggregate
outstanding principal amount of the Securities of such Series, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of such Agreement or of modifying in any manner the rights of the
Securityholders; 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 Security without the consent of the holder of
such Security, (ii) adversely affect in any material respect the interests of
the holders of a Class or Subclass of the Senior Securities, 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 Securities 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 Securities of a Series in a
manner other than that set forth in (i) above without the consent of the holders
of Subordinated Securities evidencing not less than 66 2/3% of such Class or
Subclass or (iv) reduce the aforesaid percentage of the Securities, the holders
of which are required to consent to such amendment, without the consent of the
holders of the Class affected thereby.
The 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 Trust Agreement for each Series may also be amended
by the Trustee and the Depositor with the consent of the Holders of Securities
evidencing Percentage Interests aggregating not less than 66 2/3% of each Class
of the Securities 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
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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 Securities the
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all Securities of such Series then outstanding.
TERMINATION
Except as otherwise provided in the related Prospectus Supplement, the
obligations created by the Pooling and Servicing Agreement or Sale and Servicing
Agreement, as applicable, for a Series of Securities 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
Securityholders of all amounts held by the Master Servicer and required to be
paid to them pursuant to the applicable Agreement. The obligations created by
the 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 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 Securities, the Master Servicer will give written notice of
termination of the applicable Agreement of each Securityholder, and the final
distribution will be made only upon surrender and cancellation of the Securities
at an office or agency specified in the notice of termination.
If so provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement or Sale and Servicing Agreement for each Series of
Securities 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
applicable 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 Securities 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.
The Indenture will be discharged with respect to a Series of Notes
(except with respect to certain continuing rights specified in the Indenture)
upon the delivery to the Indenture Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Indenture
Trustee of funds sufficient for the payment in full of all the Notes of such
Series.
CREDIT SUPPORT
Credit support for a Series of Securities may be provided by one or
more Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Securities (which may, if so specified in the related Prospectus Supplement, be
issued in notional amounts), the issuance of subordinated Classes or Subclasses
of Notes, 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
Securities.
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LETTERS OF CREDIT
The Letters of Credit, if any, with respect to a Series of Securities
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 Securities 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 Securities. 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
Securities will expire a specified number of 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 Securities -- Termination."
Unless otherwise specified in the applicable Prospectus Supplement,
under the applicable Agreement and/or 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 Securityholders, in the manner specified in the related Prospectus
Supplement, on such Distribution Date, except to the extent of any unreimbursed
Advances, servicing compensation due to the Servicers and the Master Servicer
and other amounts payable to the Depositor or the person or entity named in the
applicable Prospectus Supplement therefrom.
If at any time the L/C Bank makes a payment in the amount of the full
outstanding principal balance and accrued interest on a Liquidating Loan, it
will be entitled to receive an assignment by the Trustee of such Liquidating
Loan, and the L/C Bank will thereafter own such Liquidating Loan free of any
further obligation to the Trustee or the Securityholders 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 Securities 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 Securityholders
(in the priority specified in the related Prospectus Supplement) will thereafter
bear all risks of loss resulting from default by Mortgagors or Obligors
(including losses not covered by insurance or Alternative Credit Support), and
must look primarily to the value of the properties securing defaulted Mortgage
Loans or Contracts for recovery of the outstanding principal and unpaid
interest.
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In the event that a Subordinated Class or Subclass of a Series of
Securities 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 SECURITIES
To the extent specified in the Prospectus Supplement with respect to a
Series of Securities, credit support may be provided by the subordination of the
rights of the holders of one or more Classes or Subclasses of Securities to
receive distributions with respect to the Mortgage Loans or Mortgage
Certificates 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 Securityholders or holders of one or
more Classes or Subclasses of Subordinated Securities of such Series to receive
such distributions, to the extent of the applicable Subordinated Amount or as
otherwise specified in the related Prospectus Supplement. In such a case, credit
support may also be provided by the establishment of a Reserve Fund, as
described below. Except as otherwise provided in the related Prospectus
Supplement, the Subordinated Amount, as described below, will be reduced by an
amount equal to Aggregate Losses. Aggregate Losses are defined in the related
Agreement for any given period as the aggregate amount of delinquencies, losses
and other deficiencies in the amounts due to the holders of the Securities 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 Securities of such Series
("payment deficiencies"), but excluding any payments of interest on any amounts
originally due to the holders of the Securities of a Class or Subclass to which
the applicable Class or Subclass of Subordinated Securities 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 Securityholders 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 Securities with respect to which credit
support will be provided by one or more Classes or Subclasses of Subordinated
Securities will set forth the Subordinated Amount for such Series and/or the
manner by which one or more Classes or Subclasses of Securities may be
subordinated to other Classes or Subclasses or Securities. 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.
In addition, if so specified in the related Prospectus Supplement, if a
Series of Securities includes Notes, one more Classes or Subclasses of Notes may
be subordinated to another Class or Subclasses of Notes and may be entitled to
receive disproportionate amounts of distributions in respect of principal and
all the Certificates of such Series will be subordinated to all the Notes.
SHIFTING INTEREST
If specified in the Prospectus Supplement for a Series of Securities
for which credit enhancement is provided by shifting interest as described
herein, the rights of the holders of the Subordinated Securities of a Series to
receive distributions with respect to the Mortgage Loans, Mortgage Certificates
or Contracts in the related Trust Fund or Subsidiary Trust will be subordinated
to such right of the holders of the Senior Securities 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
Securities 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
Securities against losses due to mortgagor defaults.
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The protection afforded to the holders of Senior Securities of a Series
by the shifting interest subordination feature will be effected by distributing
to the holders of the Senior Securities 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 Securities while increasing the
respective interest of the Subordinated Securities in the Mortgage Pool or
Contract Pool. Increasing the respective interest of the Subordinated Securities
relative to that of the Senior Securities is intended to preserve the
availability of the benefits of the subordination provided by the Subordinated
Securities.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a Series of
Securities, the related 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 Securities having the benefit of an interest rate or currency rate
swap, cap or floor 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 Securities also will set forth certain information relating to
the corporate status, ownership and credit quality of the counterparty or
counterparties to such swap agreement in accordance with applicable rules and
regulations of the Commission.
RESERVE FUND
If so specified in the related Prospectus Supplement, credit support
with respect to one or more Classes or Subclasses of Securities of a Series may
be provided by the establishment and maintenance with the Trustee for such
Series of Securities, 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. Except as otherwise provided in the related
Prospectus Supplement, following the initial issuance of the Securities 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 the applicable Class or
Subclasses of Subordinated Securities and deposit such amounts in the Reserve
Fund. After the amounts in the Reserve Fund for a Series first equal or exceed
the applicable Required Reserve, the Master Servicer will retain such
distributions and deposit so much of such amounts in the Reserve Fund as may be
necessary, after the application of such distributions to amounts due and unpaid
on the Securities or on the Securities of such Series to which the applicable
Class or Subclass of Subordinated Securities are subordinated and the
reimbursement of unreimbursed Advances and liquidation expenses, to maintain the
Reserve Fund at the Required Reserve. Except as otherwise provided in the
related Prospectus Supplement, the balance in the Reserve Fund in excess of the
Required Reserve shall be paid to the applicable Class or Subclass of
Subordinated Securities, 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.
Except as otherwise provided 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 Securityholders of the Classes or
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Subclasses specified in the related Prospectus Supplement until withdrawn from
the Reserve Fund and transferred to the Certificate Account as described below.
Except as otherwise provided in the related Prospectus Supplement, if on any
Distribution Date the amount in the Certificate Account available to be applied
to distributions on the applicable Senior Securities 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 Securityholders (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 such Senior Securityholders (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 Securityholders on such Distribution Date to the
Required Distribution; provided, however, that unless specified in the related
Prospectus Supplement no 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 Securityholders. 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
applicable Subordinated Securityholders. Unless otherwise specified in the
related Prospectus Supplement, whenever the Reserve Fund is less than the
Required Reserve, holders of the Subordinated Securities of the applicable Class
or Subclass will not receive any distributions with respect to the Mortgage
Loans, Mortgage Certificates or Contracts other than amounts attributable to
interest on the Mortgage Loans, Mortgage Certificates 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. Except
as otherwise provided in the related Prospectus Supplement, whether or not the
amount of the Reserve Fund exceeds the Required Reserve on any Distribution
Date, the holders of the Subordinated Securities of the applicable Class or
Subclass are entitled to receive from the Certificate Account their share of the
proceeds of any Mortgage Loan, Mortgage Certificates 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. Except as otherwise provided in the related
Prospectus Supplement, 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 applicable Senior
Securities 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 Securities 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 Mortgage Rate
or APR, as applicable, to the extent that sufficient funds in the
Certificate Account are not available therefor.
Except as otherwise provided in the related Prospectus Supplement,
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 Securities, 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 Agreement and/or Indenture 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 Securities in accordance with
their respective interests in the Reserve Fund in the priority
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specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, investment income in the Reserve Fund is not
available for distribution to the holders of the Senior Securities of such
Series or otherwise subject to any claims or rights of the holders of the
applicable Class or Subclass of Senior Securities. Eligible investments for
monies deposited in the Reserve Fund will be specified in the applicable
Agreement and/or Indenture for a Series of Securities for which a Reserve Fund
is established and in some instances will be limited to investments acceptable
to the Rating Agency rating the Securities of such Series from time to time as
being consistent with its outstanding rating of such Securities. 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 applicable
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 Securities of such Series and the availability of amounts in the Reserve
Fund for distributions on such Securities 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.
SECURITY GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, Security
Guarantee Insurance, if any, with respect to a Series of Securities may be
provided by one or more insurance companies. Such Security Guarantee Insurance
will guarantee, with respect to one or more Classes of Securities of the related
Series, timely distributions of interest and full distributions of principal on
the basis of a schedule of principal distributions set forth in or determined in
the manner specified in the related Prospectus Supplement. If so specified, in
the related Prospectus Supplement, the Security Guarantee Insurance will also
guarantee against any payment made to a Securities which is subsequently
recovered as a "voidable preference" payment under the Bankruptcy Code. A copy
of the Security Guarantee Insurance for a Series, if any, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be filed with the
Commission within 15 days of issuance of the Securities of the related Series.
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 applicable Agreement and/or Servicing 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 applicable 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 any Class or
Subclass of Securities 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 such
Securities or to deposit and maintain with the Trustee cash in the amount
specified in the applicable Prospectus Supplement.
DESCRIPTION OF INSURANCE
To the extent that the applicable Prospectus Supplement does not
expressly provide for a form of credit support specified above or for
Alternative Credit Support in lieu of some or all of the insurance mentioned
below, the following paragraphs on insurance shall apply with respect to the
Mortgage Loans included in the related Trust Fund. Unless otherwise specified in
the related Prospectus Supplement, each Manufactured Home that secures a
Contract will be covered by a standard hazard insurance policy and other
insurance policies to the extent described in the related Prospectus Supplement.
Any material changes in such insurance from the description that follows or the
description of any Alternative Credit Support will be set forth in the
applicable Prospectus Supplement.
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PRIMARY MORTGAGE INSURANCE POLICIES
To the extent specified in the related Prospectus Supplement, each
Servicing Agreement will require the Servicer to cause a Primary Mortgage
Insurance Policy to be maintained in full force and effect with respect to each
Mortgage Loan that is secured by a Single Family Property covered by the
Servicing Agreement requiring such insurance and to act on behalf of the Insured
with respect to all actions required to be taken by the Insured under each such
Primary Mortgage Insurance Policy. Any primary mortgage insurance or primary
credit insurance policies relating to the Contracts underlying a Series of
Securities 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
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Insured to assign specified rights to the Primary Mortgage Insurer are not
thereby impaired or the specified rights of the Primary Mortgage Insurer are not
thereby adversely affected.
Unless otherwise specified in the related Prospectus Supplement, the
Primary Mortgage Insurer will be required to pay to the Insured either: (1) the
insured percentage of the Loss; or (2) at its option under certain of the
Primary Mortgage Insurance Policies, the sum of the delinquent monthly payments
plus any advances made by the Insured, both to the date of the claim payment,
and thereafter, monthly payments in the amount that would have become due under
the Mortgage Loan if it had not been discharged plus any advances made by the
Insured until the earlier of (A) the date the Mortgage Loan would have been
discharged in full if the default had not occurred or (B) an approved sale. Any
rents or other payments collected or received by the Insured which are derived
from or are in any way related to the Mortgaged Property will be deducted from
any claim payment.
FHA INSURANCE AND VA GUARANTEES
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under the National Housing Act, as
amended, and the United States Housing Act of 1937, as amended. Any FHA
Insurance or VA Guarantees relating to Contracts underlying a Series of
Securities 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
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the date of assignment, to the date of payment of the claim, in each case at the
same interest rate as the applicable HUD debenture interest rate as described
above.
The maximum guarantee that may be issued by the VA under a VA Loan is
50% of the principal amount of the VA Loan if the principal amount of the
Mortgage Loan is $45,000 or less, the lesser of $36,000 and 40% if the principal
amount of the VA Loan if the principal amount of such VA Loan is greater than
$45,000 but less than or equal to $144,000, and the lesser of $46,000 and 25% of
the principal amount of the Mortgage Loan if the principal amount of the
Mortgage Loan is greater than $144,000. The liability on the guarantee is
reduced or increased pro rata with any reduction or increase in the amount of
indebtedness, but in no event will the amount payable on the guarantee exceed
the amount of the original guarantee. The VA may, at its option and without
regard to the guarantee, make full payment to a mortgage holder of unsatisfied
indebtedness on a Mortgage upon its assignment to the VA.
With respect to a defaulted VA Loan, the Servicer is, absent
exceptional circumstances, authorized to announce its intention to foreclose
only when the default has continued for three months. Generally, a claim for the
guarantee is submitted after liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the VA
Loan originally guaranteed applied to indebtedness outstanding as of the
applicable date of computation specified in the VA regulations. Payments under
the guarantee will be equal to the unpaid principal amount of the VA Loan,
interest accrued on the unpaid balance of the VA Loan to the appropriate date of
computation and limited expenses of the mortgagee, but in each case only to the
extent that such amounts have not been recovered through liquidation of the
Mortgaged Property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
STANDARD HAZARD INSURANCE POLICIES ON MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, any
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
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cooperative do not maintain individual hazard insurance policies. To the extent,
however, that a Cooperative and the related borrower on a Cooperative Loan do
not maintain such insurance or do not maintain adequate coverage or any
insurance proceeds are not applied to the restoration of damaged property, any
damage to such borrower's Cooperative Dwelling or such Cooperative's building
could significantly reduce the value of the collateral securing such Cooperative
Loan to the extent not covered by other credit support.
Any losses incurred with respect to Mortgage Loans due to uninsured
risks (including earthquakes, mudflows and, with respect to Mortgaged Properties
located other than in HUD designated flood areas, floods) or insufficient hazard
insurance proceeds and any hazard losses incurred with respect to Cooperative
Loans could affect distributions to the Certificateholders.
With respect to Mortgage Loans secured by Multifamily Property, certain
additional insurance policies may be required with respect to the Multifamily
Property; for example, general liability insurance for bodily injury and
property damage, steam boiler coverage where a steam boiler or other pressure
vessel is in operation, and rent loss insurance to cover income losses following
damage or destruction of the Mortgaged Property. The related Prospectus
Supplement will specify the required types and amounts of additional insurance
that may be required in connection with Mortgage Loans secured by Multifamily
Property and will describe the general terms of such insurance and conditions to
payment thereunder.
STANDARD HAZARD INSURANCE POLICIES ON THE MANUFACTURED HOMES
The terms of the applicable Pooling and Servicing Agreement or Sale and
Servicing Agreement for each Series 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 use 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
Securities 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 Securities 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. The Prospectus Supplement will contain such financial
information regarding the Pool Insurer as may be required by the rules and
regulations of the Commission.
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 Securityholders of the related Series on
liquidation of the Mortgage Loan, after reimbursement of the expenses of the
Master Servicer or the Servicer, as the case may be, and (B) that such expenses
will be recoverable by it through payments under the Letter of Credit, if any,
with respect to such Series, Liquidation Proceeds, Insurance Proceeds,
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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 of clause (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 Securities -- Assignment of Mortgage Loans," 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
Securityholders 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
Securityholders 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" and "--
Representations by Unaffiliated Sellers; Repurchases" and "Description of the
Securities -- Assignment of Mortgage Loans."
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Securities 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 Securities 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 Securities -- 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 Securities. Any Special Hazard Insurance Policies for a
Contract Pool underlying a Series of Securities will be described in the related
Prospectus Supplement. The Special Hazard Insurance Policy for the Mortgage Pool
underlying the Securities 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 Securities
- -- 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 applicable Agreement and/or Servicing Agreement will
require the Master Servicer to maintain the Special Hazard Insurance Policy in
full force and effect throughout the term of the Agreement. If a Pool Insurance
Policy is required to be maintained pursuant to the 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 Agreement
and/or 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
Securities will be covered under a Mortgagor Bankruptcy Bond (or any other
instrument that will not result in a downgrading of the rating of the Securities
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 Securities 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 Securities may be reduced as long as any such
reduction will not result in a reduction of the outstanding rating of the
Securities of such Series by the Rating Agency rating such Series.
CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing conditional sales contracts and
installment loan agreements which are general in nature. Because such legal
aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the
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security for the Mortgage Loans or Contracts is situated. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the Mortgage Loans and Contracts.
THE MORTGAGE LOANS
GENERAL
The Mortgage Loans (other than the Cooperative Loans) comprising or
underlying the Trust Assets for a Series will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the state
in which the underlying property is located. The filing of a mortgage, deed of
trust or deed to secure debt creates a lien or title interest upon the real
property covered by such instrument and represents the security for the
repayment of an obligation that is customarily evidenced by a promissory note.
It is not prior to the lien for real estate taxes and assessments or other
charges imposed under governmental police powers. Priority with respect to such
instruments depends on their terms, the knowledge of the parties to the mortgage
and generally on the order of recording with the applicable state, county or
municipal office. There are two parties to a mortgage: the mortgagor, who is the
borrower and homeowner, and the mortgagee, who is the lender. In a mortgage
state, the mortgagor delivers to the mortgagee a note or bond evidencing the
loan and the mortgage. Although a deed of trust is similar to a mortgage, a deed
of trust has three parties: the borrower-homeowner called the trustor (similar
to a mortgagor) a lender called the beneficiary (similar to a mortgagee) and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the loan. The
trustee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by the express provisions of the deed of trust or
mortgage, applicable law and, in some cases, with respect to the deed of trust,
the directions of the beneficiary.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming. After the completion of a judicial foreclosure proceeding, the
court may issue a judgment of foreclosure and appoint a receiver or other
officer to conduct the sale of the property. In some states, mortgages may also
be foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Though a deed of trust may also be foreclosed by judicial action,
foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property upon a default by the borrower under the terms
of the note or deed of trust. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest in the real property, including any junior lienholders. If
the loan is not reinstated within any applicable cure period, a notice of sale
must be posted in a public place and, in most states, published for a specified
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest of record in the property.
In some states, the borrower-trustor has the right to reinstate the
loan at any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of a number of factors, including the
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difficulty a potential buyer at the sale would have in determining the exact
status of title and the fact that the physical condition of the property may
have deteriorated during the foreclosure proceedings, it is uncommon for a third
party to purchase the property at the foreclosure sale. Rather, it is common for
the lender to purchase the property from the trustee or receiver for a credit
bid less than or equal to the unpaid principal amount of the note, accrued and
unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss may be reduced by the receipt of mortgage
insurance proceeds.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of
Securities, 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
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promissory note and secured by a security interest in the occupancy agreement or
proprietary lease and in the related cooperative shares. The lender takes
possession of the share certificate and a counterpart of the proprietary lease
or occupancy agreement, and a financing statement covering the proprietary lease
or occupancy agreement and the cooperative shares is filed in the appropriate
state and local offices to perfect the lender's interest in its collateral.
Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of cooperative shares. See "-- Realizing upon
Cooperative Loan Security" below.
TAX ASPECTS OF COOPERATIVE LOANS
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of
the Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed 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-
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stockholder, which the lender generally cannot restrict and does not monitor,
could reduce the value of the collateral below the outstanding principal balance
of the cooperative loan and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event the lender
succeeds to the tenant-shareholder's shares and proprietary lease or occupancy
agreement as the result of realizing upon the collateral for a cooperative loan,
the lender must obtain the approval or consent of the cooperative as required by
the proprietary lease before transferring the cooperative shares or assigning
the proprietary lease. Such approval or consent is usually based on the
prospective purchaser's income and net worth, among other factors, and may
significantly reduce the number of potential purchasers, which could limit the
ability of the lender to sell and realize upon the value of the collateral.
Generally, the lender is not limited in any rights it may have to dispossess the
tenant-shareholders.
The terms of the Cooperative Loans do not require either the Mortgagor
or the Cooperative to obtain title insurance of any type. Consequently, the
existence of any prior liens or other imperfections of title also may adversely
affect the marketability of the Cooperative Dwelling in the event of
foreclosure.
In New York, lenders generally realize upon the pledged shares and
proprietary lease or occupancy agreement given to secure a cooperative loan by
public sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those shares.
Article 9 of the UCC requires that a sale be conducted in a "commercially
reasonable" manner. Whether a sale has been conducted in a "commercially
reasonable" manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the sale. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "-- Anti- Deficiency Legislation
and Other Limitations on Lenders" below.
In the case of foreclosure on a Multifamily Property that was converted
from a rental building to a building owned by a cooperative housing corporation
under a non-eviction plan, some states require that a purchaser at a foreclosure
sale take the property subject to rent control and rent stabilization laws which
apply to certain tenants who elected to remain in the building but not to
purchase shares in the cooperative when the building was so converted. Any such
restrictions could adversely affect the number of potential purchasers for and
the value of such property.
RIGHTS OF REDEMPTION
In some states, after a sale pursuant to a deed of trust or foreclosure
of a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to a sale following
judicial foreclosure, and not a sale pursuant to a non-judicial power of sale.
In most states where the right of redemption is available, statutory redemption
may occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a statutory right of redemption is to diminish the ability of the lender to sell
the foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser from the lender subsequent to foreclosure or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to retain the property and pay the expenses of ownership until
the redemption period has run.
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ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or a
non-judicial sale under a deed of trust. A deficiency judgment is a personal
judgment against the former borrower equal in most cases to the difference
between the amount due to the lender and the net amount realized upon the
foreclosure sale. Other statutes prohibit a deficiency judgment where the loan
proceeds were used to purchase a dwelling occupied by the borrower.
Some state statutes may require the beneficiary or mortgagee to exhaust
the security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, 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 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.
"DUE-ON-SALE" CLAUSES
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of the
maturity of a loan if the borrower transfers its interest in the property. The
enforceability of these clauses has been subject of legislation or litigation in
many states, and in some cases the enforceability of these clauses was limited
or denied. However, the Garn-St Germain Depository Institutions Act of 1982 (the
"Garn-St Germain Act") preempts state constitutional, statutory and case law
that prohibits the enforcement of due- on-sale clauses and permits lenders to
enforce these clauses in accordance with their terms, subject to certain limited
exceptions. The Garn-St Germain Act does "encourage" lenders to permit
assumption of loans at the original rate of interest or at some other rate less
than the average of the original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in
which a mortgage lender covered by the Garn-St Germain Act may not exercise a
due-on- sale clause, notwithstanding the fact that a transfer of the property
may have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of prepayment penalty upon the acceleration of a loan pursuant to
a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by a
new home buyer rather than being paid off, which may have an impact upon the
average life of the Mortgage Loans and the number of Mortgage Loans which may be
outstanding until maturity.
ENFORCEABILITY OF CERTAIN PROVISIONS
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. State and federal statutes or
regulations may also limit a lender's right to collect a prepayment penalty when
the prepayment is caused by the lender's acceleration of the loan pursuant to a
due-on-sale clause. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. Under
the Servicing Agreements and the applicable Agreement, late charges and
prepayment fees (to the extent permitted by law and not waived by the Servicers)
will be retained by the Servicers or Master Servicer as additional servicing
compensation.
Courts have imposed general equitable principles upon foreclosure.
These equitable principles are generally designed to relieve the borrower from
the legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and sometimes expensive actions to determine the causes
for the borrower's default and the likelihood that the borrower
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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
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, a secured party which takes a deed in lieu of
foreclosure or purchases a mortgaged property at a foreclosure sale may become
liable in certain circumstances for the costs of remedial action ("Cleanup
Costs") if hazardous wastes or hazardous substances have been released or
disposed of on the property. Such Cleanup Costs may be substantial. It is
possible that such costs could become a liability of the Trust Fund and reduce
the amounts otherwise distributable to the Securityholders if a Mortgaged
Property securing a Mortgage Loan became the property of the Trust Fund in
certain circumstances and if such Cleanup Costs were incurred.
Except as otherwise specified in the related Prospectus Supplement,
each Unaffiliated Seller will represent, as of the date of delivery of the
related Series of Securities, that to the best of its knowledge no Mortgaged
Property secured by Multifamily Property is subject to an environmental hazard
that would have to be eliminated under applicable law before the sale of, or
which could otherwise affect the marketability of, such Mortgaged Property or
which would subject the owner or operator of such Mortgaged Property or a lender
secured by such Mortgaged Property to liability under law, and that there are no
liens which relate to the existence of any clean-up of a hazardous substance
(and to the best of its knowledge no circumstances are existing that under law
would give rise to any such lien) affecting the Mortgaged Property which are or
may be liens prior to or on a parity with the lien of the related mortgage. The
applicable Agreement and/or 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.
THE CONTRACTS
GENERAL
As a result of the Depositor's assignment of the Contract to the
Trustee, the Certificateholders will succeed collectively to all of the rights
(including the right to receive payment on the Contracts) and will assume
certain obligations of the Depositor. Each Contract evidences both (a) the
obligation of the Obligor to repay the loan evidenced thereby and (b) the grant
of a security interest in the Manufactured Home to secure repayment of such
loan. Certain aspects of both features of the Contracts are described more fully
below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code in effect in the states in which the Manufactured Homes
initially were registered. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to perfection of a security interest in chattel
paper. Under the applicable Agreement and/or Servicing Agreement, the Master
Servicer or the Depositor, as the case may be, will transfer physical possession
of the Contracts to the Trustee or Indenture Trustee, or their respective
custodian, as the case may be. 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 or the Indenture
Trustee's security interest in the Contracts, as the case may be. Unless
otherwise specified in the related Prospectus Supplement, the Contracts will
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not be stamped or marked otherwise to reflect their assignment from the
Depositor to the Trustee or their pledge to the Indenture Trustee. Therefore, if
a subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment or pledge, the respective Trustees' interest
in the Contracts could be defeated.
SECURITY INTERESTS IN THE MANUFACTURED HOMES
The law governing perfection of a security interest in a Manufactured
Home varies from state to state. Security interests in manufactured homes may be
perfected either by notation of the secured party's lien on the certificate of
title or by delivery of the required documents and payment of a fee to the state
motor vehicle authority, depending on state law. In some nontitle states,
perfection pursuant to the provisions of the UCC is required. The lender or
Master Servicer may effect such notation or delivery of the required documents
and fees, and obtain possession of the certificate of title, as appropriate
under the laws of the state in which any 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 Securityholders 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 Securities 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 Securityholders 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 and, if a Series of
Securities includes Notes, such security interest will be pledged to the
Indenture Trustee on behalf of the Noteholders. Unless otherwise specified in
the related Prospectus Supplement, neither the Depositor nor the Trustee or
Indenture Trustee will amend the certificates of title to identify the Trustee
or the Indenture Trustee, as applicable, 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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Securityholders 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 and pledged to the
Noteholders, if any, 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 applicable Securityholders as the new secured party on the
certificate of title that, through fraud or negligence, the security interest of
the Securityholders 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 Indenture Trustee, or the
Master Servicer as custodian for the Trustee and/or Indenture 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 applicable Trustee would receive notice of surrender
if the security interest in the Manufactured Home is noted on the certificate of
title. Accordingly, the Trustee and Indenture 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 Indenture Trustee, or the Master
Servicer as custodian for the Trustee or Indenture 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 applicable
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 applicable 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, Indenture Trustee or
Securityholders 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
applicable Agreement.
ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES
The Master Servicer on behalf of the Trustee or the Indenture Trustee,
to the extent required by the related Agreement and/or Indenture, may take
action to enforce the applicable Trustee's security interest with respect to
Contracts in default by repossession and resale of the Manufactured Homes
securing such Defaulted Contracts. Except in Louisiana, so long as the
Manufactured Home has not become subject to the real estate law, a creditor can
repossess a Manufactured Home securing a Contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a Contract must give the
debtor a number of days notice, which varies from 10 to 30 days depending on the
state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit so that the debtor may
redeem at or before such resale. In the event of such repossession and resale of
a Manufactured Home, the Trustee and/or Indenture Trustee
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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.
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,
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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 Agreement will represent that all of the Contracts comply with
applicable usury laws.
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
Securities. Stroock & Stroock & Lavan LLP, New York, New York, or other counsel
to the Depositor specified in the related Prospectus Supplement, 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 Stroock & Stroock & Lavan
LLP's, or such other counsel's advice with respect to material federal income
tax issues. As used hereinafter in "Certain Federal Income Tax Consequences,"
"Mortgage Loans" shall include Mortgage Certificates and Contracts and "Mortgage
Pool" shall include "Contract Pool." The following discussion does not purport
to discuss all federal income tax consequences that may be applicable to
particular categories of investors, some of which may be subject to special
rules. Further, the authorities on which this discussion are based are subject
to change or differing interpretation, which change or differing interpretation
could apply retroactively. This discussion does not address the state or local
tax consequences of the purchase, ownership and disposition of such Securities.
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 Securities offered hereunder.
The following discussion addresses securities of two general types: (i)
certificates and/or notes ("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 and/or
notes ("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, Stroock & Stroock & Lavan LLP, New York, New York, or such other
counsel specified in the related Prospectus Supplement will deliver their
opinion generally to the effect that, assuming that (i) a REMIC election is made
timely in the required form, (ii) there is ongoing compliance with all
provisions of the related Pooling and Servicing Agreement, (iii) certain
representations set forth in the Pooling and Servicing Agreement are true and
(iv) there is continued compliance with applicable provisions of the Code, as it
may be amended from time to time, and applicable Treasury regulations issued
thereunder, such REMIC Mortgage Pool will qualify as a REMIC and the classes of
interests offered will be considered to be "regular interests" or "residual
interests" in that REMIC Mortgage Pool within the meaning of the REMIC
Provisions.
Holders of REMIC Certificates ("REMIC Certificateholders") should be
aware that, if an entity electing to be treated as a REMIC fails to comply with
one or more of the ongoing requirements of the Code for REMIC status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In such event, an entity electing to be treated as
a REMIC may be taxable as a separate corporation under Treasury regulations, and
the REMIC Certificates issued by such entity may not be accorded the status
described below under the heading "-- Characterization of Investments in REMIC
Certificates." In the case of an inadvertent termination of REMIC status, the
Code provides the Treasury Department with authority to issue regulations
providing relief. Any such relief, however, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the REMIC's
income for the period of time in which the requirements for REMIC status are not
satisfied.
Among the ongoing requirements in order to qualify for REMIC treatment
is that substantially all of the assets of the Trust Fund (as of the close of
the third calendar month beginning after the creation of the REMIC and
continually thereafter) must consist of only "qualified mortgages" and
"permitted investments." In order to be a "qualified mortgage" or to support
treatment of a certificate of participation therein as a "qualified mortgage",
an obligation must be principally secured by an interest in real property. The
REMIC Regulations treat an obligation secured by manufactured housing qualifying
as a single family residence under Code Section 25(e)(10) as an obligation
secured by real property, without regard to the treatment of the obligation or
the property under state law. Under Code Section 25(e)(10), a single family
residence includes any manufactured home that has a minimum of 400 square feet
of living space and a minimum width in excess of 102 inches and that is of a
kind customarily used at a fixed location.
B. CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES
In general, REMIC Certificates are not treated for federal income tax
purposes as ownership interests in the assets of a REMIC Mortgage Pool. However,
(i) REMIC Certificates held by a domestic building and loan association will
constitute a "regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) in the same proportion that the assets of the
REMIC Mortgage Pool underlying such Certificates ("Assets") would be treated as
"loans secured by an interest in real property" within the meaning of Code
Section 7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C)(i) through (x); and (ii) REMIC Certificates held by a real estate
investment trust ("REIT") will constitute "real estate assets" within the
meaning of Code Section 856(c)(5)(A), and any amount includible in gross income
on the REMIC Certificates will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Code Section 856(c)(3)(B) in the same proportion that, for both purposes, the
Assets and income of the REMIC would be treated as "interests in real property"
as defined in Code Section 856(c)(6)(C) (or, as provided in the Committee
Report, as "real estate assets" as defined in Code Section 856(c)(6)(B)) and as
"interest on obligations secured by mortgages on real property or on interests
in real property", respectively. See, in this regard, "-- Non-REMIC Trust Funds
- -- Characterization of Investments in Trust Certificates -- Buydown Mortgage
Loans," below. Moreover, if 95% or more of the Assets qualify for any of the
foregoing treatments, the REMIC Certificates
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(and income thereon) will qualify for the corresponding status in their
entirety. Investors should be aware that the investment of amounts in any
Reserve Fund or GPM Fund in non-qualifying assets would, and holding property
acquired by foreclosure pending sale might, reduce the amount of the REMIC
Certificates that would qualify for the foregoing treatment. The REMIC
Regulations provide that payments on Mortgage Loans held pending distribution
are considered part of the Mortgage Loans for purposes of Code Section
856(c)(5)(A); it is unclear whether such collected payments would be so treated
for purposes of Code Section 7701(a)(19)(C)(v), but there appears to be no
reason why analogous treatment should not be given to such collected payments
under that provision. The determination as to the percentage of the REMIC's
assets (or income) that will constitute assets (or income) described in the
foregoing Sections of the Code will be made with respect to each calendar
quarter based on the average adjusted basis (or average amount of income) of
each category of the assets held (or income accrued) by the REMIC during such
calendar quarter. The REMIC will report those determinations to
Certificateholders in the manner and at the times required by applicable
Treasury regulations. The Prospectus Supplement or the related Current Report on
Form 8-K for each Series of REMIC Certificates will describe the Assets as of
the Cut-off Date. REMIC Certificates held by certain financial institutions will
constitute an "evidence of indebtedness" within the meaning of Code Section
582(c)(1); in addition, regular interests in any other REMIC acquired by a REMIC
in accordance with the requirements of Code Section 860G(a)(3) or Section
860G(a)(4) will be treated as "qualified mortgages" within the meaning of Code
Section 860D(a)(4).
For purposes of characterizing an investment in REMIC Certificates, a
Contract secured by a Manufactured Home qualifying as a "single family
residence" under Code Section 25(e)(10) will constitute (i) a "real estate
asset" within the meaning of Code Section 856 and (ii) an asset described in
Code Section 7701(a)(19)(C). With respect to the Contracts included in a Trust
Fund that makes an election to be treated as a REMIC, each Unaffiliated Seller
will represent and warrant that each of the Manufactured Homes securing such
Contracts meets the definition of a "single family residence."
C. TIERED REMIC STRUCTURES
For certain Series of Certificates, two or more separate elections may
be made to treat designated portions of the related Trust Fund as REMICs
("Tiered REMICs") for federal income tax purposes. Upon the issuance of any such
series of Certificates, Stroock & Stroock & Lavan LLP, or such other counsel
specified in the related Prospectus Supplement will deliver its opinion
generally to the effect that, assuming compliance with all provisions of the
related Pooling and Servicing Agreement, the Tiered REMICs will each qualify as
a REMIC and the REMIC Certificates issued by the Tiered REMICs will be
considered to evidence ownership of REMIC Regular Certificates or REMIC Residual
Certificates in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Code Section 856(c)(5)(A), and
assets described in Code Section 7701(a)(19)(C), and whether the income on such
Certificates is interest described in Code Section 856(c)(3)(B), the Tiered
REMICs will be treated as one REMIC.
D. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
Except as otherwise stated in this discussion, the REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC Mortgage Pool and not as ownership interests in the REMIC
Mortgage Pool or its Assets. In general, interest, original issue discount and
market discount paid or accrued on a REMIC Regular Certificate will be treated
as ordinary income to the holder of such REMIC Regular Certificate.
Distributions in reduction of the stated redemption price at maturity of the
REMIC Regular Certificate will be treated as a return of capital to the extent
of such holder's basis in such REMIC Regular Certificate. Holders of REMIC
Regular Certificates that otherwise report income under a cash method of
accounting will be required to report income with respect to REMIC Regular
Certificates under an accrual method.
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1. ORIGINAL ISSUE DISCOUNT
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Code Section 1273(a). Any holders of REMIC
Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with a constant yield method that takes into account the compounding
of interest, in advance of the receipt of the cash attributable to such income.
The Master Servicer will report annually (or more frequently if required) to the
Internal Revenue Service ("IRS") and to Certificateholders such information with
respect to the original issue discount accruing on the REMIC Regular
Certificates as may be required under Code Section 6049 and the regulations
thereunder. See "-- Reporting and Other Administrative Matters of REMICs" below.
Rules governing original issue discount are set forth in Code Sections
1271 through 1273 and 1275 and in the OID Regulations. Code Section 1272(a)(6)
provides special original issue discount rules applicable to REMIC Regular
Certificates.
Code Section 1272(a)(6) requires that a mortgage prepayment assumption
("Prepayment Assumption") be used in computing the accrual of original issue
discount on REMIC Regular Certificates, and for certain other federal income tax
purposes. The Prepayment Assumption is to be determined in the manner prescribed
in Treasury regulations. To date, no such regulations have been promulgated. The
Committee Report indicates that the regulations will provide that the Prepayment
Assumption, if any, used with respect to a particular transaction must be the
same as that used by the parties in pricing the transaction. The Master Servicer
will use a Prepayment Assumption in reporting original issue discount that is
consistent with this standard. However, neither the Depositor nor the Master
Servicer makes any representation that the Mortgage Loans will in fact prepay at
the rate reflected in the Prepayment Assumption or at any other rate. Each
investor must make its own decision as to the appropriate prepayment assumption
to be used in deciding whether or not to purchase any of the REMIC Regular
Certificates. The Prospectus Supplement with respect to a Series of REMIC
Certificates will disclose the Prepayment Assumption to be used in reporting
original issue discount, if any, and for certain other federal income tax
purposes.
The total amount of original issue discount on a REMIC Regular
Certificate is the excess of the "stated redemption price at maturity" of the
REMIC Regular Certificate over its "issue price." Except as discussed in the
following two paragraphs, in general, the issue price of a particular class of
REMIC Regular Certificates 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 REMIC Regular 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
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a rate whose variations can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Certificate is denominated. Such a rate remains qualified even though it is
multiplied by a fixed, positive multiple greater than 0.65 but not exceeding
1.35, increased or decreased by a fixed rate, or both. Certain combinations of
rates constitute a single qualified floating rate, including (i) interest stated
at a fixed rate for an initial period of less than one year followed by a
qualified floating rate if the value of the floating rate at the Closing Date is
intended to approximate the fixed rate, and (ii) two or more qualified floating
rates that can reasonably be expected to have approximately the same values
throughout the term of the Certificate. A combination of such rates is
conclusively presumed to be a single floating rate if the values of all rates on
the Closing Date are within 0.25 percentage points of each other. A variable
rate that is subject to an interest rate cap, floor, governor or similar
restriction on rate adjustment may be a qualified floating rate only if such
restriction is fixed throughout the term of the instrument, or is not reasonably
expected as of the Closing Date to cause the yield on the debt instrument to
differ significantly from the expected yield absent the restriction. Final
regulations issued on June 11, 1996 define an "objective rate" as a rate
determined using a single fixed formula and based on objective financial
information or economic information. However, an objective rate does not include
a rate based on information that is in the control of the issuer or that is
unique to the circumstances of a related party. A combination of interest stated
at a fixed rate for an initial period of less than one year followed by an
objective rate is treated as a single objective rate if the value of the
objective rate at the Closing Date is intended to approximate the fixed rate;
such a combination of rates is conclusively presumed to be a single objective
rate if the objective rate on the Closing Date does not differ from the fixed
rate by more than 0.25 percentage points. The qualified stated interest payable
with respect to certain variable rate debt instruments not bearing stated
interest at a Single Variable Rate is discussed below under "-- Variable Rate
Certificates." Under the foregoing rules, some of the payments of interest on a
Certificate bearing a fixed rate of interest for an initial 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 REMIC Regular
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 -- 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 qualified floating rate (disregarding permissible rate caps,
floors, governors and similar restrictions such as are described above).
Purchasers of REMIC Regular Certificates bearing a variable rate of
interest should be aware that there is uncertainty concerning the application of
Code Section 1272(a)(6) and the OID Regulations to such Certificates. In the
absence of other authority, the Master Servicer intends to be guided by the
provisions of the OID Regulations governing variable rate debt instruments in
adapting the provisions of Code Section 1272(a)(6) to such Certificates for the
purpose of preparing reports furnished to Certificateholders. The effect of the
application of such provisions generally will be to cause Certificateholders
holding Certificates bearing interest at a Single Variable Rate to take into
account for each period an amount corresponding approximately to the sum of (i)
the qualified stated interest
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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. Since the Treasury regulations, issued in
final form on June 11, 1996, applicable to instruments having contingent
payments (the "1996 Contingent Debt Regulations") are not applicable to
instruments that are subject to Code Section 1272(a)(6), 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 "-- Original Issue Discount"), will
recognize market discount upon receipt of each payment of principal. In
particular, such a holder will generally be required to allocate each payment of
principal on a REMIC Regular Certificate first to accrued market discount, and
to recognize ordinary income to the extent such principal payment does not
exceed the aggregate amount of accrued market discount on such REMIC Regular
Certificate not previously included in income. Such market discount must be
included in income in addition to any original issue discount includible in
income with respect to such REMIC Regular Certificate.
A Certificateholder may elect to include market discount in income
currently as it accrues, rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
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
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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, unless the IRS consents of the revocation.
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 Tax Reform Act of 1986 (the "1986 Act") grants authority to the
Treasury Department to issue regulations providing for the method for accruing
market discount of more than a de minimis amount on debt instruments, the
principal of which is payable in more than one installment. Until such time as
regulations are issued by the Treasury Department, certain rules described in
the Committee Report might apply. Under those rules, the holder of a bond
purchased with more than de minimis market discount may elect to accrue such
market discount either on the basis of a constant yield method or on the basis
of the appropriate proportionate method described below. Under the proportionate
method for obligations issued with original issue discount, the amount of market
discount that accrues during a period is equal to the product of (i) the total
remaining market discount, multiplied by (ii) a fraction, the numerator of which
is the original issue discount accruing during the period and the denominator of
which is the total remaining original issue discount at the beginning of the
period. Under the proportionate method for obligations issued without original
issue discount, the amount of market discount that accrues during a period is
equal to the product of (i) the total remaining market discount, multiplied by
(ii) a fraction, the numerator of which is the amount of stated interest paid
during the accrual period and the denominator of which is the total amount of
stated interest remaining to be paid at the beginning of the period. The
Prepayment Assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount under any
of the above methods. Because the regulations referred to in this paragraph have
not been issued, it is not possible to predict what effect such regulations
might have on the tax treatment of a REMIC Regular Certificate purchased at a
discount in the secondary market.
Further, a purchaser generally will be required to treat a portion of
any gain on sale or exchange of a REMIC Regular Certificate as ordinary income
to the extent of the market discount accrued to the date of disposition under
one of the foregoing methods, less any accrued market discount previously
reported as ordinary income. Such purchaser also may be required to defer a
portion of its interest deductions for the taxable year attributable to any
indebtedness incurred or continued to purchase or carry such REMIC Regular
Certificate. Any such deferred interest expense is, in general, allowed as a
deduction not later than the year in which the related market discount income is
recognized. If such holder elects to include market discount in income currently
as it accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will not
apply.
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A REMIC Regular Certificate purchased at a cost (not including payment
for accrued qualified stated interest) greater than its remaining stated
redemption price at maturity will be considered to be purchased at a premium.
The holder of such a REMIC Regular Certificate may elect to amortize such
premium under the constant yield method. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the Certificateholder
as having made the election to amortize premium generally, as described above.
The Committee Report indicates a Congressional intent that the same rules that
will apply to accrual of market discount on installment obligations will also
apply in amortizing bond premium under Code Section 171 on installment
obligations such as the REMIC Regular Certificates.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations (the "Proposed Premium Regulations") on the 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 would
not apply to a bond that is subject to Code Section 1272(a)(6). 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 will apply to all the Certificateholder's debt instruments
held on or after the first day of that taxable year. It cannot be predicted at
this time whether the Proposed Premium Regulations will become effective or
what, if any, modifications will be made to them prior to their becoming
effective.
3. TREATMENT OF SUBORDINATED SECURITIES
As described above under "Credit Support -- Subordinated Certificates,"
certain Series of Securities may contain one or more Classes or Subclasses of
Subordinated Securities. Holders of Subordinated Securities will be required to
report income with respect to such Securities 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 Securityholder of a Subordinated Security in any period
could significantly exceed the amount of cash distributed to such Securityholder
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 Security.
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 Security. Special rules are applicable to banks
and thrift institutions, including rules regarding reserves for bad debts.
Holders of Subordinated Securities should consult their own tax advisers
regarding the appropriate timing, character and amount of any loss sustained
with respect to Subordinated Securities.
E. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
1. GENERAL
An owner of a REMIC Residual Certificate ("Residual Owner") generally
will be required to report its daily portion of the taxable income or, subject
to the limitation described below in "-- 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
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allocating to each day in the calendar quarter, using a 30 days per month/90
days per quarter/360 days per year counting convention, its ratable portion of
the taxable income or net loss of the REMIC Mortgage Pool for such quarter, and
by allocating the daily portions among the Residual Owners (on such day) in
accordance with their percentage of ownership interests on such day. Any amount
included in the gross income of, or allowed as a loss to, any Residual Owner by
virtue of the rule referred to in this paragraph will be treated as ordinary
income or loss. Purchasers of REMIC Residual Certificates should be aware that
taxable income from such Certificates may exceed cash distributions with respect
thereto in any taxable year. For example, if the Mortgage Loans are acquired by
a REMIC at a discount, then the holder of a residual interest may recognize
income without corresponding cash distributions. This result could occur because
a payment produces recognition by the REMIC of discount on the Mortgage Loan
while all or a portion of such payment could be used in whole or in part to make
principal payments on REMIC Regular Certificates issued without substantial
discount. Taxable income may also be greater in earlier years as a result of the
fact that interest expense deductions, expressed as a percentage of the
outstanding principal amount of the REMIC Regular Certificates, will increase
over time as the lower yielding sequences of Certificates are paid, whereas
interest income with respect to any given Mortgage Loan will remain constant
over time as a percentage of the outstanding principal amount of that loan.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such Certificate will be taken into account
in determining the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or according
to some other method. Because of the uncertainty concerning the treatment of
such payments, holders of REMIC Residual Certificates should consult their tax
advisers concerning the treatment of such payments for income tax purposes.
2. TAXABLE INCOME OR NET LOSS OF THE REMIC TRUST FUND
The taxable income or net loss of the REMIC Mortgage Pool will reflect
a netting of income from the Mortgage Loans, any cancellation of indebtedness
income due to the allocation of Realized Losses to REMIC Regular Certificates,
and the deductions and losses allowed to the REMIC Mortgage Pool. Such taxable
income or net loss for a given calendar quarter will be determined in the same
manner as for an individual having the calendar year as his taxable year and
using the accrual method of accounting, with certain modifications. The first
modification is that a deduction will be allowed for accruals of interest
(including original issue discount) on the REMIC Regular Certificates. Second,
market discount equal to the excess of any Mortgage Loan's adjusted issue price
(as determined above 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.
Sixth, net income from foreclosure property is reduced by the amount of tax on
net income from foreclosure property. 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.
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3. BASIS RULES AND DISTRIBUTIONS
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not
be included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC Residual
Certificate. Such distribution will reduce the adjusted basis of such interest,
but not below zero. To the extent a distribution exceeds the adjusted basis of
the REMIC Residual Certificate, it will be treated as gain from the sale of the
REMIC Residual Certificate. See "-- Sales of REMIC Certificates" below. The
adjusted basis of a REMIC Residual Certificate is equal to the amount paid for
such REMIC Residual Certificate, increased by amounts included in the income of
the Residual Owner and decreased by distributions and by net losses taken into
account with respect to such interest.
A Residual Owner is not allowed to take into account any net loss for
any calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Certificate.
The effect of these basis and distribution rules is that a Residual
Owner may not amortize its basis in a REMIC Residual Certificate, but may only
recover its basis through distributions, through the deduction of any net losses
of the REMIC Mortgage Pool or upon the sale of its REMIC Residual Certificate.
See "-- Sales of REMIC Certificates" below. The Residual Owner does, however,
receive reduced taxable income over the life of the REMIC because the REMIC's
basis in the underlying REMIC Mortgage Pool includes the fair market value of
the REMIC Regular Certificates and REMIC Residual Certificates.
4. EXCESS INCLUSIONS
Any "excess inclusions" with respect to a REMIC Residual Certificate
are subject to certain special tax rules. With respect to a Residual Owner, the
excess inclusion for any calendar quarter is defined as the excess (if any) of
the daily portions of taxable income over the sum of the "daily accruals" for
each day during such quarter that such REMIC Residual Certificate was held by
such Residual Owner. The daily accruals are determined by allocating to each day
during a calendar quarter its ratable portion of the product of the "adjusted
issue price" of the REMIC Residual Certificate at the beginning of the calendar
quarter and 120% 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" below. The
Small Business Job Protection Act of 1996 ("SBJPA of 1996") has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC Residual Certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to REMIC Residual
Certificates continuously held by thrift institutions since November 1, 1995.
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In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Owner. First, alternative minimum taxable income for a Residual Owner
is determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Owner's
alternative minimum taxable income for a taxable year cannot be less than the
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deduction must be computed without regard to any excess
inclusions. These rules are effective for taxable years beginning after December
31, 1986, unless a Residual Owner elects to have such rules apply only to
taxable years beginning after August 20, 1996.
In the case of any REMIC Residual Certificates held by a REIT, the
aggregate excess inclusions with respect to such REMIC Residual Certificates,
reduced (but not below zero) by the real estate investment trust taxable income
(within the meaning of Code Section 857(b)(2), excluding any net capital gain),
will be allocated among the shareholders of such trust in proportion to the
dividends received by such shareholders from such trust, and any amount so
allocated will be treated as an excess inclusion with respect to a REMIC
Residual Certificate as if held directly by such shareholder.
5. NONECONOMIC REMIC RESIDUAL CERTIFICATES
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless, at the time of
its transfer and based on the Prepayment Assumption and any required or
permitted clean up calls or required liquidation provided for in the REMIC's
organizational documents, (1) the present value of the expected future
distributions (discounted using the AFR) on the REMIC Residual Certificate
equals at least the product of the present value of the anticipated excess
inclusions and the highest tax rate applicable to corporations for the year of
the transfer, and (2) the transferor reasonably expects that the transferee will
receive distributions with respect to the REMIC Residual Certificate at or after
the time the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. Accordingly, all transfers of REMIC
Residual Certificates that may constitute noneconomic residual interests will be
subject to certain restrictions under the terms of the related Pooling and
Servicing Agreement that are intended to reduce the possibility of any such
transfer being disregarded. Such restrictions will require each party to a
transfer to provide an affidavit that no purpose of such transfer is to impede
the assessment or collection of tax, including certain representations as to the
financial condition of the prospective transferee. Prior to purchasing a REMIC
Residual Certificate, prospective purchasers should consider the possibility
that a purported transfer of such REMIC Residual Certificate by such a purchaser
to another purchaser at some future date may be disregarded in accordance with
the above-described rules, which would result in the retention of tax liability
by such purchaser. The applicable Prospectus Supplement will disclose whether
offered REMIC Residual Certificates may be considered "noneconomic" residual
interests under the REMIC Regulations; provided, however, that any disclosure
that a REMIC Residual Certificate will or will not be considered "noneconomic"
will be based upon certain assumptions, and the Depositor will make no
representation that a REMIC Residual Certificate will not be considered
"noneconomic" for purposes of the above-described rules or that a REMIC Residual
Owner will receive distributions calculated pursuant to such assumptions. See
"-- Foreign Investors in REMIC Certificates" below for additional restrictions
applicable to transfers of certain REMIC Residual Certificates to foreign
persons.
6. TAX-EXEMPT INVESTORS
Tax-exempt organizations (including employee benefit plans) that are
subject to tax on unrelated business taxable income (as defined in Code Section
511) will be subject to tax on any excess inclusions attributed to them as
owners of Residual Certificates. Excess inclusion income associated with a
Residual Certificate may significantly exceed cash distributions with respect
thereto. See "-- Excess Inclusions" above.
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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" below.
7. REAL ESTATE INVESTMENT TRUSTS
If the applicable Prospectus Supplement so provides, a Mortgage Pool
may hold Mortgage Loans bearing interest based wholly or partially on Mortgagor
profits, Mortgaged Property appreciation, or similar contingencies. Such
interest, if earned directly by a REIT, would be subject to the limitations of
Code Sections 856(f) and 856(j). Treasury regulations treat a REIT holding a
REMIC Residual Certificate for a principal purpose of avoiding such Code
provisions as receiving directly the income of the REMIC Mortgage Pool, hence
potentially jeopardizing its qualification for taxation as a REIT and exposing
such income to taxation as a prohibited transaction at a 100% rate.
8. MARK-TO-MARKET RULES
Code Section 475 generally requires that securities dealers include
securities in inventory at their fair market value, recognizing gain or loss as
if the securities were sold at the end of each tax year. Treasury regulations
provide that, for purposes of this mark-to-market requirement, a REMIC Residual
Certificate acquired on or after January 4, 1995 is not treated as a security
and thus may not be marked to market.
F. SALES OF REMIC CERTIFICATES
If a REMIC Certificate is sold, the seller will recognize gain or loss
equal to the difference between the amount realized on the sale and its adjusted
basis in the REMIC Certificate. The adjusted basis of a REMIC Regular
Certificate generally will equal the cost of such REMIC Regular Certificate to
the seller, increased by any original issue discount or market discount included
in the seller's gross income with respect to such REMIC Regular Certificate and
reduced by premium amortization deductions and distributions previously received
by the seller of amounts included in the stated redemption price at maturity of
such REMIC Regular Certificate. The adjusted basis of a REMIC Residual
Certificate will be determined as described under "-- Taxation of Owners of
REMIC Residual Certificates -- Basis Rules and Distributions." Gain from the
disposition of a REMIC Regular Certificate that might otherwise be treated as a
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in such holder's income had income accrued at a rate equal to 110% of
the AFR as of the date of purchase over (ii) the amount actually includible in
such holder's income. Except as otherwise provided under "-- Taxation of Owners
of REMIC Regular Certificates -- Market Discount and Premium" and under Code
Section 582(c), any additional gain or any loss on the sale or exchange of a
REMIC Certificate will be capital gain or loss, provided such REMIC Certificate
is held as a capital asset (generally, property held for investment) within the
meaning of Code Section 1221. The Code currently provides for a top marginal tax
rate of 39.6% for individuals while maintaining a maximum marginal rate for the
long- term capital gains of individuals at 28%. There is no such rate
differential for corporations. In addition, the distinction between a capital
gain or loss and ordinary income or loss remains relevant for other purposes,
including limitations on the use of capital losses to offset ordinary income.
All or a portion of any gain from the sale of a REMIC Certificate that
might otherwise be capital gain may be treated as ordinary income (i) if such
Certificate is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
holder's net investment in the conversion transaction at 120% of the appropriate
applicable Federal rate under Code Section 1274(d) in effect at the time the
taxpayer entered into the transaction reduced by any amount treated as ordinary
income with respect to any prior disposition or other termination of a position
that was held as part of such transaction, or (ii) in the case of a noncorporate
taxpayer that has made an election under Code Section 163(d)(4) to have net
capital gains taxed as investment income at ordinary income rates.
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If a Residual Owner sells a REMIC Residual Certificate at a loss, the
loss will not be recognized if, within six months before or after the sale of
the REMIC Residual Certificate, such Residual Owner purchases another residual
in any REMIC or any interest in a taxable mortgage pool (as defined in Code
Section 7701(i)) comparable to a residual interest in a REMIC. Such disallowed
loss will be allowed upon the sale of the other residual interest (or comparable
interest) if the rule referred to in the preceding sentence does not apply to
that sale. While the Committee Report states that this rule may be modified by
Treasury regulations, the REMIC Regulations do not address this issue and it is
not clear whether any such modification will in fact be implemented or, if
implemented, what its precise nature or effective date would be.
The 1988 Act makes transfers of a REMIC Residual Certificate to certain
"disqualified organizations" subject to an additional tax on the transferor in
an amount equal to the maximum corporate tax rate applied to the present value
(using a discount rate equal to the AFR) of the total anticipated excess
inclusions with respect to such residual interest for the periods after the
transfer. For this purpose, "disqualified organizations" includes the United
States, any state or political subdivision of a state, any foreign government or
international organization or any agency or instrumentality of any of the
foregoing; any tax-exempt entity (other than a Code Section 521 cooperative)
which is not subject to the tax on unrelated business income; and any rural
electrical or telephone cooperative. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred and
must be based on events that have occurred up to the time of such transfer, the
Prepayment Assumption, and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. The tax
generally is imposed on the transferor of the REMIC Residual Certificate, except
that it is imposed on an agent for a disqualified organization if the transfer
occurs through such agent. The Pooling and Servicing Agreement requires, as a
prerequisite to any transfer of a Residual Certificate, the delivery to the
Trustee of an affidavit of the transferee to the effect that it is not a
disqualified organization and contains other provisions designed to render any
attempted transfer of a Residual Certificate to a disqualified organization
void.
In addition, if a "pass-through entity" includes in income excess
inclusions with respect to a REMIC Residual Certificate, and a disqualified
organization is the record holder of an interest in such entity at any time
during any taxable year of such entity, then a tax will be imposed on such
entity equal to the product of (i) the amount of excess inclusions on the REMIC
Residual Certificate for such taxable year that are allocable to the interest in
the pass-through entity held by such disqualified organization and (ii) the
highest marginal federal income tax rate imposed on corporations. A pass-
through entity will not be subject to this tax for any period, however, if the
record holder of an interest in such entity furnishes to such entity (i) such
holder's social security number and a statement under penalties of perjury that
such social security number is that of the record holder or (ii) a statement
under penalty of perjury that such record holder is not a disqualified
organization. For these purposes, a "pass-through entity" means any regulated
investment company, REIT, trust, partnership or certain other entities described
in Code Section 860E(e)(6). In addition, a person holding an interest in a
pass-through entity as a nominee for another person shall, with respect to such
interest, be treated as a pass-through entity.
G. PASS-THROUGH OF SERVICING FEES
The general rule is that Residual Owners take into account taxable
income or net loss of the related REMIC Mortgage Pool. Under that rule,
servicing compensation of the Master Servicer and the subservicers (if any) will
be allocated to the holders of the REMIC Residual Certificates, and therefore
will not affect the income or deductions of holders of REMIC Regular
Certificates. However, in the case of a "single-class REMIC," such expenses and
an equivalent amount of additional gross income will be allocated among all
holders of REMIC Regular Certificates and REMIC Residual Certificates for
purposes of the limitations on the deductibility of certain miscellaneous
itemized deductions by individuals contained in Code Sections 56(b)(1) and 67.
Generally, any holder of a REMIC Residual Certificate and any holder of a REMIC
Residual Certificate issued by a "single-class REMIC" who is an individual,
estate or trust (including such a person that holds an interest in a
pass-through entity holding such a REMIC Certificate) will be able to deduct
such expenses in determining regular taxable income only to the extent that such
expenses together with certain other miscellaneous itemized deductions of such
individual, estate or trust exceed 2% of adjusted gross income; such a holder
may not deduct such expenses to any extent in determining
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liability for alternative minimum tax. Accordingly, REMIC Residual Certificates,
and REMIC Regular Certificates receiving an allocation of servicing
compensation, may not be appropriate investments for individuals, estates or
trusts, and such persons should carefully consult with their own tax advisers
regarding the advisability of an investment in such Certificates.
A "single-class REMIC" is a REMIC that either (i) would be treated as
an investment trust under the provisions of Treasury Regulation Section
301.7701- 4(c) in the absence of a REMIC election, or (ii) is substantially
similar to such an investment trust and is structured with the principal purpose
of avoiding the allocation of investment expenses to holders of REMIC Regular
Certificates. The Depositor intends (subject to certain exceptions which, if
applicable, will be stated in the applicable Prospectus Supplement) to treat
each REMIC Mortgage Pool as other than a "single-class REMIC," consequently
allocating servicing compensation expenses and related income amounts entirely
to REMIC Residual Certificates and in no part to REMIC Regular Certificates.
H. PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES
The Code imposes a tax on REMIC Mortgage Pools equal to 100% of the net
income derived from "prohibited transactions." In general, a prohibited
transaction means the disposition of a Mortgage Loan other than pursuant to
certain specified exceptions, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the REMIC Certificates. The Code also imposes a 100% tax on the
value of any contribution of assets to the REMIC after the "startup day" (the
day on which the regular and residual interests are issued), other than pursuant
to specified exceptions, and subjects "net income from foreclosure property" to
tax at the highest corporate rate. It is not anticipated that a REMIC Mortgage
Pool will engage in any such transactions or receive any such income.
I. TERMINATION OF A REMIC TRUST FUND
In general, no special tax consequences will apply to a holder of a
REMIC Regular Certificate upon the termination of the REMIC Mortgage Pool by
virtue of the final payment or liquidation of the last Mortgage Loan remaining
in the REMIC Mortgage Pool. If a Residual Owner's adjusted basis in its REMIC
Residual Certificate at the time such termination occurs exceeds the amount of
cash distributed to such Residual Owner in liquidation of its interest, then,
although the matter is not entirely free from doubt, it appears that the
Residual Owner would be entitled to a loss (which could be a capital loss) equal
to the amount of such excess.
J. REPORTING AND OTHER ADMINISTRATIVE MATTERS OF REMICS
Reporting of interest income, including any original issue discount,
with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. Certain holders of REMIC
Regular Certificates who are generally exempt from information reporting on debt
instruments, such as corporations, banks, registered securities or commodities
brokers, real estate investment trusts, registered investment companies, common
trust funds, charitable remainder annuity trusts and unitrusts, will be provided
interest and original issue discount income information and the information set
forth in the following paragraph upon request in accordance with the
requirements of the Treasury regulations. The information must be provided by
the later of 30 days after the end of the quarter for which the information was
requested, or two weeks after the receipt of the request. The REMIC Mortgage
Pool must also comply with rules requiring the face of a REMIC Certificate
issued at more than a de minimis discount to disclose the amount of 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
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have, it appears that this provision will only require information pertaining to
the appropriate proportionate method of accruing market discount.
The responsibility for complying with the foregoing reporting rules
will be borne by the Master Servicer.
For purposes of the administrative provisions of the Code, REMIC Pools
will be treated as partnerships and the holders of Residual Certificates will be
treated as partners. The Master Servicer will file federal income tax
information returns on behalf of the related REMIC Pool, and will be designated
as agent for and will act on behalf of the "tax matters person" with respect to
the REMIC Pool in all respects.
As agent for the tax matters person, the Master Servicer will, subject
to certain notice requirements and various restrictions and limitations,
generally have the authority to act on behalf of the REMIC and the Residual
Owners in connection with the administrative and judicial review of items of
income, deduction, gain or loss of the REMIC Mortgage Pool, as well as the REMIC
Mortgage Pool's classification. Residual Owners will generally be required to
report such REMIC Mortgage Pool items consistently with their treatment on the
REMIC Mortgage Pool's federal income tax information return and may in some
circumstances be bound by a settlement agreement between the Master Servicer, as
agent for the tax matters person, and the IRS concerning any such REMIC Mortgage
Pool item. Adjustments made to the REMIC Mortgage Pool tax return may require a
Residual Owner to make corresponding adjustments on its return, and an audit of
the REMIC Mortgage Pool's tax return, or the adjustments resulting from such an
audit, could result in an audit of a Residual Owner's return.
K. BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES
Payments of interest and principal on REMIC Regular Certificates, as
well as payment of proceeds from the sale of REMIC Certificates, may be subject
to the "backup withholding tax" under Code Section 3406 at a rate of 31% if
recipients of such payments fail to furnish to the payor certain information,
including their taxpayer identification numbers, or otherwise fail to establish
an exemption from such tax. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of payments that is required to supply information but
that does not do so in the manner required.
L. FOREIGN INVESTORS IN REMIC CERTIFICATES
1. REMIC REGULAR CERTIFICATES
Except as qualified below, payments made on a REMIC Regular Certificate
to a REMIC Regular Certificateholder that is not a U.S. Person, as hereinafter
defined (a "non-U.S. Person"), or to a person acting on behalf of such a
Certificateholder, generally will be exempt from U.S. federal income and
withholding taxes, provided that (a) the holder of the Certificate is not
subject to U.S. tax as a result of a connection to the United States other than
ownership of such Certificate, (b) the holder of such Certificate signs a
statement under penalties of perjury that certifies that such holder is a non-
U.S. Person, and provides the name and address of such holder, and (c) the last
U.S. Person in the chain of payment to the holder receives such statement from
such holder or a financial institution holding on its behalf and does not have
actual knowledge that such statement is false. If the holder does not qualify
for exemption, distributions of interest, including distributions in respect of
accrued original issue discount, to such holder may be subject to a withholding
tax rate of 30%, 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, an estate
that is subject to U.S. federal income tax regardless of the source of its
income, or a trust other than a "foreign trust," as defined in Code Section
7701(a)(31).
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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% 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 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% but is subject to reduction under any tax treaty applicable to the
Residual Owner. However, there is no exemption from withholding tax nor may the
rate of such tax be reduced, under a tax treaty or otherwise, with respect to
any distribution of income that is an excess inclusion. Although no regulations
have been proposed or adopted addressing withholding on residual interests held
by non-U.S. Persons, the provisions of the REMIC Regulations, described below,
relating to the transfer of residual interests to non-U.S. Persons can be read
as implying that withholding with respect to excess inclusion income is to be
determined by reference to the amount of the accrued excess inclusion income
rather than to the amount of cash distributions. If the IRS were successfully to
assert such a position, cash distributions on Residual Certificates held by
non-U.S. Persons could be subject to withholding at rates as high as 100%,
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% 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% 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
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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.
M. STATE AND LOCAL TAXATION
Many states do not automatically conform to changes in the federal
income tax laws. Consequently, a REMIC Mortgage Pool that would not qualify as a
fixed investment trust for federal income tax purposes may be characterized as a
corporation, a partnership, or some other entity for purposes of state income
tax law. Such characterization could result in entity level income or franchise
taxation of the REMIC Mortgage Pool formed in, owning mortgages or property in,
or having servicing activity performed in a state without conforming REMIC
provisions in its income or franchise tax law. Further, REMIC Regular
Certificateholders resident in non-conforming states may have their ownership of
REMIC Regular Certificates characterized as an interest other than debt of the
REMIC such as stock or a partnership interest. Investors are advised to consult
their tax advisers concerning the state and local income tax consequences of
their purchase and ownership of REMIC Regular Certificates.
III. NON-REMIC TRUST FUNDS
The discussion that follows relates only to Non-REMIC Trust Funds that
have not issued Trust Certificates structured as debt for federal income tax
purposes and that are not intended to be treated as partnerships for federal
income tax purposes. For a discussion of Trust Certificates in a Non-REMIC Trust
Fund which have been structured as debt for federal income tax purposes, see
below under "IV. Characterization of the Trust Certificates as Indebtedness."
For a discussion of Trust Certificates and Notes in a Non-REMIC Trust Fund which
is intended to be treated as a partnership for federal income tax purposes, see
below under "V. Tax Characterization as a Partnership."
A. CLASSIFICATION OF TRUST FUNDS
With respect to each series of Trust Certificates Stroock & Stroock &
Lavan LLP, or such other counsel specified in the related Prospectus Supplement
will deliver their opinion to the effect that the arrangements pursuant to which
such Trust Fund will be administered and such Trust Certificates will be issued
will not be classified as an association taxable as a corporation and that each
such Trust Fund will be classified as a trust whose taxation will be governed by
the provisions of subpart E, Part I of subchapter J of the Code.
B. CHARACTERIZATION OF INVESTMENTS IN TRUST CERTIFICATES
1. TRUST FRACTIONAL CERTIFICATES
In the case of Trust Fractional Certificates, counsel to the Depositor
will deliver an opinion that, in general (and subject to the discussion below of
Contracts and under "-- Buydown Mortgage Loans"), (i) Trust Fractional
Certificates held by a thrift institution taxed as a "domestic building and loan
association" will represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701 (a)(19)(C)(v); (ii) Trust
Fractional Certificates held by a REIT will represent "real estate assets"
within the meaning of Code Section 856(c)(5)(A) and interest on Trust Fractional
Certificates will be considered "interest on obligations secured by mortgages on
real property or on interests in real property" within the meaning of Code
Section 856(c)(3)(B); and (iii) Trust Fractional Certificates acquired by a
REMIC in accordance with the requirements of Code Section 860G(a)(3)(A)(i) and
(ii) or
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Section 860G(a)(4)(B) will be treated as "qualified mortgages" within the
meaning of Code Section 860D(a)(4). In the case of a Trust Fractional
Certificate evidencing interests in Contracts, such Certificates will qualify
for the treatment described in (i) through (iii) of the preceding sentence only
to the extent of the fraction of such Certificate corresponding to the fraction
of the Contract Pool that consists of Contracts that would receive such
treatment if held directly by the Trust Fractional Certificateholder.
2. TRUST INTEREST CERTIFICATES
With respect to each Series of Certificates, Stroock & Stroock & Lavan
LLP, or such other counsel specified in the related Prospectus Supplement will
advise the Depositor that in their opinion, based on the legislative history, a
REMIC that acquires a Trust Interest Certificate in accordance with the
requirements of Code Section 860G(a)(3) or Section 860G(a)(4) will be treated as
owning a "Qualified Mortgage" within the meaning of Code Section 860(G)(a)(3).
Although there appears to be no policy reason not to accord to Trust
Interest Certificates the treatment described above for Trust Fractional
Certificates, there is no authority addressing such characterization for
instruments similar to Trust Interest Certificates. Consequently, it is unclear
to what extent, if any, (1) a Trust Interest Certificate owned by a "domestic
building and loan association" within the meaning of Code Section 7701(a)(19)
will be considered to represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v); or (2) a REIT
which owns a Trust Interest Certificate will be considered to own "real estate
assets" within the meaning of Code Section 856(c)(5)(A), and interest income
thereon will be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B). Prospective
purchasers to which such characterization of an investment in Trust Interest
Certificates is material should consult their own tax advisers regarding whether
the Trust Interest Certificates, and the income therefrom, will be so
characterized.
3. BUYDOWN MORTGAGE LOANS
It is contemplated that the assets of certain Trust Funds may include
Buydown Mortgage Loans. The characterization of an investment in Buydown
Mortgage Loans will depend upon the precise terms of the related Buydown
Agreement. There are no directly applicable precedents with respect to the
federal income tax treatment or the characterization of investments in Buydown
Mortgage Loans. Accordingly, holders of Trust Certificates should consult their
own tax advisers with respect to characterization of investments in Trust Funds
that include Buydown Mortgage Loans.
Although the matter is not entirely free from doubt, the portion of a
Trust Certificate representing an interest in Buydown Mortgage Loans may be
considered to represent an investment in "loans . . . secured by an interest in
real property" within the meaning of Code Section 7701(a)(19)(C)(v) to the
extent the outstanding principal balance of the Buydown Mortgage Loans exceeds
the amount held from time to time in the Buydown Fund. It is also possible that
the entire interest in Buydown Mortgage Loans may be so considered, because the
fair market value of the real property securing each Buydown Mortgage Loan will
exceed the amount of such loan at the time it is made.
For similar reasons, the portion of such Trust Certificate representing
an interest in Buydown Mortgage Loans may be considered to represent "real
estate assets" within the meaning of Code Section 856(c)(5)(A). Purchasers and
their tax advisers are advised to review Section 1.856-5(c)(1)(i) of the
Treasury regulations, which specifies that if a mortgage loan is secured by both
real property and by other property and the value of the real property alone
equals or exceeds the amount of the loan, then all interest income will be
treated as "interest on obligations secured by mortgages on real property"
within the meaning of Code Section 856(c)(3)(B).
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C. TAXATION OF OWNERS OF TRUST FRACTIONAL CERTIFICATES
Each holder of a Trust Fractional Certificate (a "Trust Fractional
Certificateholder") will be treated as the owner of an undivided percentage
interest in the principal of, and possibly a different undivided percentage
interest in the interest portion of, each of the Trust Funds included in a
Mortgage Pool. Accordingly, each Trust Fractional Certificateholder must report
on its federal income tax return its allocable share of income from its
interests, as described below, at the same time and in the same manner as if it
had held directly interests in the Mortgage Loans and received directly its
share of the payments on such Mortgage Loans. Because those fractional interests
having differing undivided percentage interests in principal and interest
represent interests in "stripped bonds" or "stripped coupons" within the meaning
of Code Section 1286, such interests would be considered to be newly issued debt
instruments, and thus to have no market discount or premium, and the amount of
original issue discount may differ from the amount of original issue discount on
the Mortgage Loans and the amount includible in income on account of a Trust
Fractional Certificate may differ significantly from the amount payable thereon
from payments of interest on the Mortgage Loans. Each Trust Fractional
Certificateholder may report and deduct its allocable share of the servicing and
related fees and expenses paid to or retained by the Company at the same time,
to the same extent, and in the same manner as such items would have been
reported and deducted had it held directly interests in the Mortgage Loans and
paid directly its share of the servicing and related fees and expenses. A holder
of a Trust Fractional Certificate who is an individual, estate or trust will be
allowed a deduction for servicing fees in determining its regular tax liability
only to the extent that the aggregate of such holder's miscellaneous itemized
deductions exceeds two percent of such holder's adjusted gross income, and will
be allowed no deduction for such fees in determining its liability for
alternative minimum tax. Amounts received by Trust Fractional Certificateholders
in lieu of amounts due with respect to any Mortgage Loan but not received by the
Depositor from the Mortgagor will be treated for federal income tax purposes as
having the same character as the payments which they replace.
Purchasers of Trust Fractional Certificates identified in the
applicable Prospectus Supplement as representing interests in Stripped Mortgage
Loans should read the material under the headings "-- Application of Stripped
Bond Rules," "-- Market Discount and Premium" and "-- Allocation of Purchase
Price" for a discussion of particular rules applicable to their Certificates. A
"Stripped Mortgage Loan" means a Mortgage Loan having a Retained Yield (as that
term is defined below) or a Mortgage Loan included in a Trust Fund having either
Trust Interest Certificates or more than one class of Trust Fractional
Certificates or identified in the Prospectus Supplement as related to a Class of
Trust Certificates identified as representing interests in Stripped Mortgage
Loans.
Purchasers of Trust Fractional Certificates identified in the
applicable Prospectus Supplement as representing interests in Unstripped
Mortgage Loans should read the material under the headings "-- Treatment of
Unstripped Certificates", "-- Market Discount and Premium", and "-- Allocation
of Purchase Price" for a discussion of particular rules applicable to their
Certificates. However, the IRS has indicated that under some circumstances it
will view a portion of servicing and related fees and expenses paid to or
retained by the Master Servicer or sub-servicers as an interest in the Mortgage
Loans, essentially equivalent to that portion of interest payable with respect
to each Mortgage Loan that is retained by the Depositor ("Retained Yield"). If
such a view were sustained with respect to a particular Trust Fund, such
purchasers would be subject to the rules set forth under "-- Application of
Stripped Bond Rules" rather than those under "-- Treatment of Unstripped
Certificates." The Depositor does not expect any servicing compensation payable
to the Master Servicer, as described under "Description of the Securities --
Servicing Compensation and Payment of Expenses," 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, Stroock & Stroock & Lavan LLP, or
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such other counsel specified in the related Prospectus Supplement 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." The yield to maturity of a
Trust Fractional Certificateholder's interest in the Stripped Mortgage Loans
will be calculated taking account of the price at which the holder purchased the
Certificate and the holder's share of the payments of principal and interest to
be made thereon. Although the provisions of the Code and the OID Regulations do
not directly address the treatment of instruments similar to Trust Fractional
Certificates, in reporting to Trust Fractional Certificateholders the Trustee
intends to treat such Certificates as a single obligation with payments
corresponding to the aggregate of the payments allocable thereto from each of
the Mortgage Loans, and to determine the amount of original issue discount on
such Certificates accordingly. See "-- Aggregate Reporting."
Under Treasury regulations, original issue discount so determined with
respect to a particular Stripped Mortgage Loan may be considered to be zero
under the de minimis rule described above, in which case it is treated as market
discount. See "-- REMIC Trust Funds -- Taxation of Owners of REMIC Regular
Certificates-- Original Issue Discount." Those regulations also provide that
original issue discount so determined with respect to a particular Stripped
Mortgage Loan will be treated as market discount if the rate of interest on the
Stripped Mortgage Loan, including a reasonable Servicing Fee, is no more than
one percentage point less than the unstripped rate of interest. See "-- Market
Discount and Premium." The Trustee intends to apply the foregoing de minimis and
market discount rules on an aggregate poolwide basis, although it is possible
that investors may be required to apply them on a loan by loan basis. The loan
by loan information required for such application of those rules may not be
available. See "-- Aggregate Reporting."
Subsequent purchasers of the Certificates may be required to include
"original issue discount" in an amount computed using the price at which such
subsequent purchaser purchased the Certificates. Further, such 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
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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 stripped mortgage loans ("Unstripped Mortgage Loans") will
be treated as wholly owned by the Trust Fractional Certificateholders of a Trust
Fund. Trust Fractional Certificateholders using the cash method of accounting
must take into account their pro rata shares of original issue discount as it
accrues and qualified stated interest (as described in "-- REMIC Trust funds --
Taxation of Owners of REMIC Regular Certificates -- Original Issue Discount")
from Unstripped Mortgage Loans as and when collected by the Trustee. Trust
Fractional Certificateholders using an accrual method of accounting must take
into account their pro rata shares of qualified stated interest from Unstripped
Mortgage Loans as it accrues or is received by the Trustee, whichever is
earlier.
Code Sections 1272 through 1273 and 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 approximately 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 by the OID Regulations. For a description of the
general method of calculating the amount of original issue discount see "--
REMIC Trust Funds --
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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 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 "-- REMIC Trust Funds -- 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 among each of the Mortgage Loans (on
the basis of their relative fair market values). 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
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discount to take account of the allocable portion of the actual purchase price
of the Certificate. In that event, no additional deduction for the amortization
of premium would be allowed. It is possible that the IRS may take the position
that the application of the Stripped Bond Rules to the Stripped Mortgage Loans
should be adjusted so as not to take account of any premium allocable to a
Stripped Mortgage Loan originated on or before September 27, 1985. Any such
premium would then be subject to the provisions of the Code relating to the
amortization of bond premium, including the limitations described in the
preceding paragraph on the amortization of premium allocable to Mortgage Loans
originated on or before September 27, 1985.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations (the "Proposed Premium Regulations") on the amortization of bond
premium. The Proposed Premium Regulations describe the constant yield method
under which such premium is amortized and provide that the resulting offset to
interest income can be taken into account only as a Certificateholder takes the
corresponding interest income into account under such holder's regular
accounting method. In the case of instruments that may be called or repaid prior
to maturity, the Proposed Premium Regulations provide that the premium is
calculated by assuming that the issuer will exercise or not exercise its
redemption rights in the manner that maximizes the Certificateholder's yield and
the Certificateholder will exercise or not exercise its option in a manner that
maximizes the Certificateholder's yield. The Proposed Premium Regulations are
proposed to be effective for debt instruments acquired on or after the date 60
days after the date final regulations are published in the Federal Register.
However, if a Certificateholder elects to amortize bond premium for the taxable
year containing such effective date, the Proposed Premium Regulations would
apply to all the Certificateholder's debt instruments held on or after the first
day of that taxable year. It cannot be predicted at this time whether the
Proposed Premium Regulations will become effective or what, if any,
modifications will be made to them prior to their becoming effective.
4. ALLOCATION OF PURCHASE PRICE
As noted above, a purchaser of a Trust Fractional Certificate relating
to Unstripped Mortgage Loans will be required to allocate the purchase price
thereof to the undivided interest it acquires in each of the Mortgage Loans, in
proportion to the respective fair market values of the portions of such Mortgage
Loans included in the Trust Fund at the time the Certificate is purchased. The
Depositor believes that it may be reasonable to make such allocation in
proportion to the respective principal balances of the Mortgage Loans, where the
interests in the Mortgage Loans represented by a Trust Fractional Certificate
have a common remittance rate and other common characteristics, and otherwise so
as to produce a common yield for each interest in a Mortgage Loan, provided the
Mortgage Loans are not so diverse as to evoke differing prepayment expectations.
However, if there is any significant variation in interest rates among the
Mortgage Loans, a disproportionate allocation of the purchase price taking
account of prepayment expectations may be required.
D. TAXATION OF OWNERS OF TRUST INTEREST CERTIFICATES
With respect to each Series of Certificates, Stroock & Stroock & Lavan
LLP, or such other counsel specified in the related Prospectus Supplement 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
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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, Stroock & Stroock & Lavan LLP, or such other counsel specified
in the related Prospectus Supplement 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." 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 payments allocable
thereto from each of the Mortgage Loans. See "Aggregate Reporting" below.
Alternatively, Trust Interest Certificateholders may be required by the
IRS to treat each scheduled payment on each Stripped Interest (or their
interests in all scheduled payments from each of the Stripped Interests) as a
separate obligation for purposes of allocating purchase price and computing
original issue discount.
The tax treatment of the Trust Interest Certificates with respect to
the application of the original issue discount provisions of the Code is
currently unclear. However, the Trustee intends to treat each Trust Interest
Certificate as a single debt instrument issued on the day it is purchased for
purposes of calculating any original issue discount. Original issue discount
with respect to a Trust Interest Certificate must be included in ordinary gross
income for federal income tax purposes as it accrues in accordance with a
constant yield method that takes into account the compounding of interest and
such accrual of income may be in advance of the receipt of any cash attributable
to such income. In general, the rules for accruing original issue discount set
forth above in "-- REMIC Trust Funds -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" apply; however there is no authority
permitting Trust Interest Certificateholders to take into account the Prepayment
Assumption in computing original issue discount accruals. See "-- Prepayments"
below. For purposes of applying the original issue discount provisions of the
Code, the issue price used in reporting original issue discount with respect to
a Trust Interest Certificate will be the purchase price paid by each holder
thereof and the stated redemption price at maturity may include the aggregate
amount of all payments to be made with respect to the Trust Interest Certificate
whether or not denominated as interest. The amount of original issue discount
with respect to a Trust Interest Certificate may be treated as zero under the
original issue discount de minimis rules described above.
Aggregate Reporting. The Trustee intends in reporting information
relating to original issue discount to Certificateholders to provide such
information on an aggregate poolwide basis. Applicable law is unclear, however,
and it is possible that investors may be required to compute original issue
discount either on a Mortgage Loan by Mortgage Loan basis or on a payment by
payment basis taking account of an allocation of their basis in the Certificates
among the interests in the various Mortgage Loans represented by such
Certificates according to their respective fair market values. The effect of an
aggregate computation for the inclusion of original issue discount in income may
be to defer the recognition of losses due to early prepayments relative to a
computation on a Mortgage by Mortgage basis. Investors should be aware that it
may not be possible to reconstruct after the fact sufficient mortgage by
mortgage information should a computation on that basis be required by the IRS.
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Because the treatment of the Trust Interest Certificates under current
law and the potential application of the 1996 Contingent Debt Regulations are
both complicated and uncertain, Trust Interest Certificateholders should consult
their tax advisers to determine the proper method of reporting amounts received
or accrued on Trust Interest Certificates.
E. PREPAYMENTS
The 1986 Act contains a provision requiring original issue discount on
certain obligations issued after December 31, 1986 to be calculated taking into
account a prepayment assumption and requiring such discount to be taken into
income on the basis of a constant yield to assumed maturity taking account of
actual prepayments. The proper treatment of interests, such as the Trust
Fractional Certificates and the Trust Interest Certificates, in debt instruments
that are subject to prepayment is unclear. Legislation that has been proposed
but not yet enacted would extend the rules contained in the 1986 Act to any pool
of debt instruments the payments on which may be accelerated by reason of
prepayments. Trust Fractional Certificateholders and Trust Interest
Certificateholders should consult their tax advisers as to the proper reporting
of income from Trust Fractional Certificates and Trust Interest Certificates, as
the case may be, in the light of the possibility of prepayment and, with respect
to the Trust Interest Certificates, as to the possible application of the 1996
Contingent Debt Regulations.
F. SALES OF TRUST CERTIFICATES
If a Certificate is sold, gain or loss will be recognized by the holder
thereof in an amount equal to the difference between the amount realized on the
sale and the Certificateholder's adjusted tax basis in the Certificate. Such tax
basis will equal the Certificateholder's cost for the Certificate, increased by
any original issue or market discount with respect to the interest in the
Mortgage Loans represented by such Certificate previously included in income,
and decreased by any deduction previously allowed for premium and by the amount
of payments, other than payments of qualified stated interest, previously
received with respect to such Certificate. The portion of any such gain
attributable to accrued market discount not previously included in income will
be ordinary income, as will gain attributable to a Certificate which is part of
a "conversion transaction" or which the holder elects to treat as ordinary. See
"-- REMIC Trust Funds -- Sales of REMIC Certificates" above. Any remaining gain
or any loss will be capital gain or loss if the Certificate was held as a
capital asset except to the extent that code Section 582(c) applies to such gain
or loss.
G. TRUST REPORTING
The Master Servicer will furnish to each holder of a Trust Fractional
Certificate with each distribution a statement setting forth the amount of such
distribution allocable to principal on the underlying Mortgage Loans and to
interest thereon at the Interest Rate. In addition, the Master Servicer will
furnish, within a reasonable time after the end of each calendar year, to each
holder of a Trust Certificate who was such a holder at any time during such
year, information regarding the amount of servicing compensation received by the
Master Servicer and sub-servicer (if any) and such other customary factual
information as the Master Servicer deems necessary or desirable to enable
holders of Trust Certificates to prepare their tax returns.
H. BACK-UP WITHHOLDING
In general, the rules described in "REMIC Trust Funds -- Back-up
Withholding with respect to REMIC Certificates" will also apply to Trust
Certificates.
I. FOREIGN CERTIFICATEHOLDERS
Payments in respect of interest or original issue discount (including
amounts attributable to servicing fees) on the Mortgage Loans to a
Certificateholder who is not a citizen or resident of the United States, a
corporation or other entity organized in or under the laws of the United States
or of any State thereof, or a United States estate or
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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 Mortgage Loans 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 Mortgage Loans were issued after July 18, 1984. This withholding tax
may be reduced or eliminated by an applicable tax treaty. Notwithstanding the
foregoing, if any such payments are effectively connected with a United States
trade or business conducted by the Certificateholder, they will be subject to
regular United States income tax and, in the case of a corporation, to a
possible branch profits tax, but will ordinarily be exempt from United States
withholding tax provided that applicable documentation requirements are met.
Holders of Trust Certificates should be aware that proposed Treasury
Regulations were issued on April 15, 1996 which, if adopted in final form, could
affect the United States taxation of foreign investors in Trust Certificates.
For further discussion of those proposed regulations, see "-- REMIC Trust Funds
- -- Foreign Investors in REMIC Certificates" above.
J. STATE AND LOCAL TAXATION
In addition to the federal income tax consequences described above,
potential investors should consider the state income tax consequences of the
acquisition, ownership, and disposition of the Securities. 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
Securities.
IV. CHARACTERIZATION OF THE TRUST CERTIFICATES AS INDEBTEDNESS
A. CHARACTERIZATION OF INVESTMENTS IN TRUST CERTIFICATES
With respect to each Series of Trust Certificates that have been
structured as debt for federal income tax purposes, Stroock & Stroock & Lavan
LLP or such other counsel specified in the related Prospectus Supplement will
deliver their opinion to the effect that the Trust Certificates will be treated
as debt instruments for federal income tax purposes as of such date rather than
as ownership interests in the Trust Fund.
The Depositor, each Unaffiliated Seller and the Certificateholders will
express in the Agreement their intent that, for applicable tax purposes, the
Trust Certificates will be indebtedness secured by the Mortgage Loans. The
Depositor, each Unaffiliated Seller and each Certificateholder, by its
acceptance and acquisition of a beneficial interest in a Trust Certificate, will
have agreed to treat the Trust Certificates as indebtedness for federal income
tax purposes. However, because different criteria are used to determine the
non-tax accounting characterization of a securitization transaction, the
transaction will be treated as a sale of an interest in the Mortgage Loans for
financial accounting purposes.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the IRS and the courts have set forth several factors
to be taken into account in determining whether the substance of a transaction
is a sale of property or a secured loan, the primary factor in making this
determination is whether the transferee has assumed the risk of loss or other
economic burdens relating to the property and has obtained the benefits of
ownership thereof. Stroock & Stroock & Lavan LLP has analyzed and relied on
several factors in reaching its opinion that the weight of the benefits and
burdens of ownership of the Mortgage Loans has been retained by the Depositor or
an Unaffiliated Seller and has not been transferred to the Certificateholders.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Stroock & Stroock & Lavan LLP
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has advised that the rationale of those cases will not apply to this
transaction, because the form of the transaction as reflected in the operative
provisions of the documents either accords with the characterization of the
Trust Certificates as debt or otherwise makes the rationale of those cases
inapplicable to this situation.
B. TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
Assuming that the Certificateholders are holders of debt obligations
for federal income tax purposes, the Trust Certificates generally will be
taxable as debt. The stated interest thereon will be taxable to a
Certificateholder as ordinary interest income when received or accrued in
accordance with such Certificateholder's method of tax accounting. Under the OID
Regulations, a holder of a debt instrument issued with a de minimis amount of
original issue discount must include such original issue discount in income, on
a pro rata basis, as principal payments are made on the debt instrument. A
subsequent purchaser who buys a Trust Certificate for more or less than its
principal amount will generally be subject, respectively, to the premium
amortization or market discount rules of the Code.
A holder of a Trust Certificate that has a fixed maturity date
of not more than one year from the issue date of such Trust Certificate (a
"Short-Term Certificate") may be subject to special rules. An accrual basis
holder of a Short-Term Certificate (and certain cash method holders, including
regulated investment companies, as set forth in Code Section 1281) generally
would be required to report interest income as interest accrues on a
straight-line basis over the term of each interest period. Other cash basis
holders of a Short-Term Certificate would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Certificate). However, a cash basis holder of a
Short-Term Certificate reporting interest income as it is paid may be required
to defer a portion of any interest expense otherwise deductible on indebtedness
incurred to purchase or carry the Short-Term Certificate until the taxable
disposition of the Short-Term Certificate. A cash basis taxpayer may elect under
Code Section 1281 to accrue interest income on all nongovernment debt
obligations with a term of one year or less, in which case the taxpayer would
include interest on a Short-Term Certificate in income as it accrues, but would
not be subject to the interest expense deferral rule referred to in the
preceding sentence. Certain special rules apply if a Short-Term Certificate is
purchased for more or less than its principal amount.
While it is not anticipated that the Trust Certificates will be issued
at a greater than de minimis discount, it is possible that the Trust
Certificates could nevertheless be deemed to have been issued with original
issue discount if interest with respect to the Trust Certificates were not
treated as "unconditionally payable" under the OID Regulations. In such event,
all of the taxable income to be recognized with respect to the Trust
Certificates would be includible in income of Certificateholders as original
issue discount, but would not be includible again when the interest is actually
received.
C. POSSIBLE CLASSIFICATION AS A PARTNERSHIP OR ASSOCIATION TAXABLE AS A
CORPORATION
The opinion of Stroock & Stroock & Lavan LLP is not binding on the
courts or the IRS. It is possible that the IRS could assert that, for federal
income tax purposes, the transaction contemplated with respect to the
Certificates constitutes a sale of the Mortgage Loans (or an interest therein)
to the Certificateholders and that the proper classification of the legal
relationship between the Depositor, any Unaffiliated Seller and the
Certificateholders resulting from this transaction is that of a partnership, a
publicly traded partnership taxable as a corporation, or an association taxable
as a corporation. Since Stroock & Stroock & Lavan LLP has advised that the Trust
Certificates will be treated as indebtedness in the hands of the
Certificateholders for federal income tax purposes, neither the Depositor nor
any Unaffiliated Seller will attempt to comply with federal income tax reporting
requirements applicable to partnerships or corporations.
If it were determined that this transaction created an entity
classified as a corporation (including a publicly traded partnership taxable as
a corporation), the Trust Fund would be subject to federal income tax at
corporate income tax rates on the income it derives from the Mortgage Loans,
which would reduce the amounts available for distribution to the
Certificateholders. Cash distributions to the Certificateholders generally would
be treated as dividends for federal income tax purposes to the extent of such
corporation's earnings and profits.
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If the transaction were treated as creating a partnership, the
partnership itself would not be subject to federal income tax (unless it were to
be characterized as a publicly traded partnership taxable as a corporation);
rather, each partner (including each Certificateholder) would be taxed
individually on their respective distributive shares of the partnership's
income, gain, loss, deductions and credits. The amount and timing of items of
income and deductions of the Certificateholders could differ if the Certificates
were held to constitute partnership interests rather than indebtedness. Assuming
that all of the provisions of the Agreement, as in effect on the date of the
issuance, are complied with, it is the opinion of Stroock & Stroock & Lavan LLP
that the Trust Fund will not be treated as either an association taxable as a
corporation or a partnership taxable as a corporation.
D. POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701(i) of the Code provides that any entity
(or a portion of an entity) that is a "taxable mortgage pool" will be classified
as a taxable corporation and will not be permitted to file a consolidated
federal income tax return with another corporation. Any entity (or a portion of
any entity) will be a taxable mortgage pool if (i) it is not a REMIC (or, after
September 1, 1997, a FASIT), (ii) substantially all of its assets consist of
debt instruments, more than 50% of which are real estate mortgages, (iii) the
entity is the obligor under debt obligations with two or more maturities, and
(iv) under the terms of the entity's debt obligations (or an underlying
arrangement), payments on such debt obligations bear a relationship to the debt
instruments held by the entity.
Assuming that all of the provisions of the Agreement, as in effect on
the date of issuance, are complied with, Stroock & Stroock & Lavan LLP is of the
opinion that the arrangement created by the Agreement will not be a taxable
mortgage pool under Section 7701(i) of the Code because only one class of
indebtedness secured by the Mortgage Loans is being issued.
The opinion of Stroock & Stroock & Lavan LLP is not binding on the
courts or the IRS. If the IRS were to contend successfully (or future
regulations were to provide) that the arrangement created by the Agreement is a
taxable mortgage pool, such arrangement would be subject to federal corporate
income tax on its taxable income generated by ownership of the Mortgage Loans.
Such a tax might reduce amounts available for distributions to
Certificateholders. The amount of such a tax would depend upon whether
distributions to Certificateholders would be deductible as interest expense in
computing the taxable income of such an arrangement as a taxable mortgage pool.
E. FOREIGN INVESTORS
In general, subject to certain exceptions, interest (including original
issue discount) paid on a Trust Certificate to a nonresident alien individual,
foreign corporation or other non-United States person is not subject to United
States federal income tax, provided that such interest is not effectively
connected with a trade or business of the recipient in the United States and the
Certificateholder provides the required certification of foreign status.
If the interests of the Certificateholders were deemed to be
partnership interests, the partnership would be required, on a quarterly basis,
to pay withholding tax equal to the product, for each foreign partner, of such
foreign partner's distributive share of "effectively connected" income of the
partnership multiplied by the highest United States rate of tax applicable to
that foreign partner. In addition, such foreign partner, if a corporation or
association taxable as a corporation, could be subject to branch profits tax.
Each non-foreign partner would be required to certify to the partnership that it
is not a foreign person. The tax withheld from each foreign partner would be
credited against such foreign partner's United States federal income tax
liability.
If the Trust Fund were taxable as a corporation, distributions to
foreign persons, to the extent treated as dividends, would generally be subject
to withholding at the rate of 30%, unless such rate were reduced by an
applicable tax treaty.
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F. BACKUP WITHHOLDING
Certain Certificateholders may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Trust Certificates if the
Certificateholder, upon issuance, fails to supply the Trustee or his broker with
his taxpayer identification number, furnishes an incorrect taxpayer
identification number, fails to report interest, dividends, or other "reportable
payments" (as defined in the Code) properly, or, under certain circumstances,
fails to provide the Trustee or his broker with a certificate statement, under
penalties of perjury, that he is not subject to backup withholding.
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (and original issue
discount accrued, if any) on the Trust Certificates (and the amount of interest
withheld for federal income taxes, if any) for each calendar year, except as to
exempt holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their status
as nonresidents). As long as the only "Certificateholder" of record is Cede, as
nominee for DTC, Certificateholders and the IRS will receive tax and other
information including the amount of interest paid on the Trust Certificates from
other persons holding Trust Certificates directly or indirectly through DTC,
rather than from the Trustee. (The Trustee, however, will respond to requests
for necessary information to enable such other persons to complete their
reports.) Each non-exempt Certificateholder will be required to provide, under
penalties of perjury, a certificate on IRS Form W-9 containing his or her name,
address, correct federal taxpayer identification number and a statement that he
or she is not subject to backup withholding. Should a non-exempt
Certificateholder fail to provide the required certification, 31% of the
interest (and principal) otherwise payable to the Certificateholder will be
required to be withheld and remitted to the IRS as a credit against the
Certificateholder's federal income tax liability.
G. SALE OR OTHER DISPOSITION
If a Certificateholder sells a Trust Certificate, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the Certificateholder's adjusted tax basis in the Trust
Certificate. The adjusted tax basis of a Trust Certificate to a particular
Certificateholder will equal the holder's cost for the Trust Certificate,
increased by any market discount, acquisition discount, original issue discount
and gain previously included by such Certificateholder in income with respect to
the Trust Certificate and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously received
by such Certificateholder with respect to such Trust Certificate. Any such gain
or loss will generally be capital gain or loss if the Trust Certificate was held
as a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income.
Capital losses generally may be used only to offset capital gains.
H. STATE AND LOCAL TAXATION
In addition to the federal income tax consequences described above,
potential investors should consider the state income tax consequences of the
acquisition. ownership, and disposition of the Trust 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 Trust
Certificates.
V. TAX CHARACTERIZATION AS A PARTNERSHIP
Stroock & Stroock & Lavan LLP, or such other counsel specified in the
related Prospectus Supplement, will deliver its opinion for an Issuer which is
intended to be a partnership for federal income tax purposes, as specified in
the related Prospectus Supplement, generally to the effect that the Issuer will
not be an association (or publicly traded partnership) taxable as
a corporation for federal income tax purposes. This opinion will be based on the
assumption that the terms of the Trust Agreement and related documents will be
complied with, and on counsel's conclusion that the nature of the income of the
Issuer will exempt it from the rule that certain publicly traded partnerships
are taxable as
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corporations or such rule is otherwise inapplicable to the Issuer, so that the
Issuer will not be characterized as a publicly traded partnership taxable as a
corporation.
Certain entities classified as "taxable mortgage pools" are subject to
corporate level tax on their net income. A "taxable mortgage pool" is generally
defined as an entity that meets the following requirements: (i) the entity is
not a REMIC (or, after September 1, 1997, a FASIT), (ii) substantially all of
the assets of the entity are debt obligations, and more than 50 percent of such
debt obligations consists of real estate mortgages (or interests therein), (iii)
the entity is the obligor under debt obligations with two or more maturities,
and (iv) payments on the debt obligations on which the entity is the obligor
bear a relationship to the payments on the debt obligations which the entity
holds as assets. With respect to requirement (iii), the Code authorizes the
Internal Revenue Service to provide by regulations that equity interests may be
treated as debt for purposes of determining whether there are two or more
maturities. If the Issuer were treated as a taxable mortgage pool, it would be
ineligible to file consolidated returns with any other corporation and could be
liable for corporate tax. Treasury regulations do not provide for the
recharacterization of equity as debt for purposes of determining whether an
entity has issued debt with two maturities, except in the case of transactions
structured to avoid the taxable mortgage pool rules. Stroock & Stroock & Lavan
LLP, or such other counsel specified in the related Prospectus Supplement, will
deliver its opinion for an Issuer which is intended to be a partnership for
federal income tax purposes, as specified in the related Prospectus Supplement,
generally to the effect that the Issuer will not be a taxable mortgage pool.
This opinion will be based on the assumption that the terms of the Trust
Agreement and related documents will be complied with, and on counsel's
conclusion that either the number of classes of debt obligations issued be the
Issuer, or the nature of the assets held by the Issuer, will exempt the Issuer
from treatment as a taxable mortgage pool.
If the Issuer were taxable as a corporation for federal income tax
purposes, the Issuer would be subject to corporate income tax on its taxable
income. The Issuer's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Issuer. In additions, all distributions to
the Certificateholders would be taxable as dividends.
A. TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP
1. TREATMENT OF THE NOTES AS INDEBTEDNESS
The Issuer will agree, and the Noteholders will agree by their purchase
of Notes, to treat the Notes as debt for federal income tax purposes. Except as
otherwise provided in the related Prospectus Supplement, Stroock & Stroock &
Lavan LLP, or such other counsel specified in the related Prospectus Supplement,
will advise the Depositor that in its opinion the Notes will be classified as
debt for federal income tax purposes.
2. POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES
If, contrary to the opinion of counsel, the IRS successfully asserted
that one or more of the Notes did not represent debt for federal income tax
purposes, the Notes might be treated as equity interests in the Issuer. If so
treated, the Issuer might be taxable as a corporation with the adverse
consequences described above (and the taxable corporation would not be able to
reduce its taxable income by deductions for interest expense on Notes
recharacterized as equity). Alternatively, the Issuer might be treated as a
publicly traded partnership that would not be taxable as a corporation because
it would meet certain qualifying income tests. Nonetheless, treatment of the
Notes as equity interests in such a publicly traded partnership could have
adverse tax consequences to certain holders. For example, income to foreign
holders generally would be subject to United States federal income tax and
United States federal income tax return filing and withholding requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of the Issuer's expenses.
3. INTEREST INCOME ON THE NOTES
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The stated interest on the Notes will be taxable to a Noteholder as
ordinary income when received or accrued in accordance with such Noteholder's
method of tax accounting. It is not anticipated that the Notes will be issued
with original issue discount within the meaning of Section 1273 of the Code. A
subsequent holder who purchases a Note at a discount that exceeds a statutorily
defined de minimis amount will be subject to the "market discount" rules of the
Code, and a holder who purchases a Note at a premium will be subject to the
premium amortization rules of the Code.
4. SALE OR OTHER DISPOSITION
If a Noteholder sells a Note, the holder will recognize gain or loss in
an amount equal to the difference between the amount realized on the sale and
the holder's adjusted tax basis in the Note. The adjusted tax basis of a Note to
a particular Noteholder will equal the holder's cost for the Note, increased by
any original issue discount (if any), market discount and gain previously
included by such Noteholder in income with respect to the Note and decreased by
the amount of bond premium (if any) previously amortized and by the amount of
principal payments previously received by such Noteholder with respect to such
Note. Subject to the rules of the Code concerning market discount on the Notes,
any such gain or loss generally will be capital gain or loss if the Note was
held as a capital asset. Capital losses generally may be deducted only to the
extent the Noteholder has capital gains for the taxable year, although under
certain circumstances non-corporate Noteholders can deduct losses in excess of
available capital gains.
5. FOREIGN HOLDERS
If interest paid (or accrued) to a Noteholder who is a nonresident
alien, foreign corporation or other non-United States person (a "foreign
person") is not effectively connected with the conduct of a trade or business
within the United States by the foreign person, the interest generally will be
considered "portfolio interest," and generally will not be subject to United
States Federal income tax and withholding tax, if the foreign person (i) is not
actually or constructively a "10 percent shareholder" of the Trust or the
Depositor (including a holder of 10% of the outstanding Certificates) or a
"controlled foreign corporation" with respect to which the Trust or the
Depositor is a "related person" within the meaning of the Code and (ii) provides
the person otherwise required to withhold United States tax with an appropriate
statement, signed under penalties of perjury, certifying that the beneficial
owner of the Note is a foreign person and providing the foreign person's name
and address. If the information provided in the statement changes, the foreign
person must so inform the person otherwise required to withhold United States
tax within 30 days of such change. The statement generally must be provided in
the year a payment occurs (prior to such payment) or in either of the two
preceding years. If a Note is held through a securities clearing organization or
certain other financial institutions, the organization or institution may
provide a signed statement to the withholding agent. However, in that case, the
signed statement must be accompanies by a Form W-8 or substitute form provided
by the foreign person that owns the Note. If such interest in not portfolio
interest, then it will be subject to United States federal income and
withholding tax at a rate of 30%, unless reduced or eliminated pursuant to an
applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign individual is not present in the United States for 183 days
or more in the taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States federal income tax on the
interest, gain or income at regular federal income tax rates. In addition, if
the foreign person is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty (as
modified by the branch profits tax rules).
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Proposed Treasury regulations, which would be effective with respect to
payments made after December 31, 1997 if adopted in their current form, would
provide alternative certification requirements and means for obtaining the
exemption from federal income and withholding tax.
6. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trust will be required to report annually to the IRS, and to each
Noteholder of record, the amount of interest paid on the Notes (and the amount
of interest withheld for federal income taxes, if any) for each calendar year,
except as to exempt holders (generally, holders that are corporations,
tax-exempt organizations, qualified pension and profit-sharing trusts,
individual retirement accounts, or nonresident aliens who provide certification
as to their status as nonresidents). Accordingly, each holder (other than exempt
holders who are not subject to the reporting requirements) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold
31% of the amount otherwise payable to the holder, and remit the withheld amount
to the IRS, as a credit against the holder's federal income tax liability.
B. TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
1. TREATMENT OF THE ISSUER AS A PARTNERSHIP
In the case of an Issuer intended to qualify as a partnership for
federal income tax purposes, the Issuer and the Depositor will agree, and the
Certificateholders will agree by their purchase of Certificates, to treat the
Issuer as a partnership for purposes of United States federal and state income
tax, franchise tax and any other tax measured in whole or in part by income,
with the assets of the partnership being the assets held by the Issuer, the
partners of the partnership being the Certificateholders, and the Notes, if any,
being debt of the partnership. However, the proper characterization of the
arrangement involving the Issuer, the Certificates, the Notes, the Issuer and
the Servicer is not clear because there is no authority on transactions closely
comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Issuer. Generally, provided the
Certificates are issued at or close to face value, any such characterization
would not result in materially adverse tax consequences to Certificateholders as
compared to the consequences from treatment of the Certificates as equity in a
partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
2. PARTNERSHIP TAXATION
As a partnership, the Issuer will not be subject to federal income tax.
Rather, each Certificateholder will be required to separately take into account
such holder's allocated share of income, gains, losses, deductions and credits
of the Issuer. The Issuer's income will consist primarily of interest and
finance charges earned on the Mortgage Loans (including appropriate adjustments
for market discount, original issue discount and bond premium) and any gain upon
collection or disposition of Mortgage Loans. The Issuer's deductions will
consist primarily of interest and original issue discount accruing with respect
to the Notes, servicing and other fees, and losses or deductions upon collection
or disposition of Mortgage Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Issuer for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Interest Rate for such month and interest on
amounts previously due on the Certificates but not yet distributed; (ii) any
Issuer income attributable to discount on the Mortgage Loans that corresponds to
any excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for
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such month; and (iv) any other amounts of income payable to the
Certificateholders for such month. Such allocation will be reduced by any
amortization by the Issuer of premium on Mortgage Loans that corresponds to any
excess of the issue price of Certificates over their principal amount. All
remaining taxable income of the Issuer will be allocated to the Depositor. Based
on the economic arrangement of the parties, this approach for allocating Issuer
income should be permissible under applicable Treasury regulations, although no
assurance can be given that the IRS would not require a greater amount of income
to be allocated to Certificateholders. Moreover, even under the foregoing method
of allocation, Certificateholders may be allocated income equal to the entire
Interest Rate plus the other items described above even though the Issuer might
not have sufficient cash to make current cash distributions of such amount.
Thus, cash basis holders will in effect be required to report income from the
Certificates on the accrual basis and Certificateholders may become liable for
taxes on Issuer income even if they have not received cash from the Issuer to
pay such taxes. In addition, because tax allocations and tax reporting will be
done on a uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Issuer.
If Notes are also issued, some or all of the taxable income allocated
to a Certificateholder that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
An individual taxpayer's share of expenses of the Issuer (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Issuer.
The Issuer intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Mortgage Loan, the
Issuer might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
3. DISCOUNT AND PREMIUM
It is believed that the Mortgage Loans were not issued with original
issue discount and, therefore, the Trust should not have original issue discount
income. However, the purchase price paid by the Issuer for the Mortgage Loans
may be greater or less than the remaining principal balance of the Mortgage
Loans at the time of purchase. If so, the Mortgage Loan will have been acquired
at a premium or discount, as the case may be. (As indicated above, the Issuer
will make this calculation on an aggregate basis, but might be required to
recompute it on a Mortgage Loan by Mortgage Loan basis.)
If the Issuer acquires the Mortgage Loans at a market discount or
premium, the Issuer will elect to include any such discount in income currently
as it accrues over the life of the Mortgage Loans or to offset any such premium
against interest income on the Mortgage Loans. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
4. SECTION 708 TERMINATION
Under Section 708 of the Code, the Issuer will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in the Issuer are sold or exchanged within a 12-month period. If such
a termination occurs, the partnership will be considered to transfer its assets
and liabilities to a new partnership in exchange for interests in that new
partnership, which it would then be treated as transferring to its partners. The
Issuer will not comply with certain technical requirements that might apply when
such a constructive termination occurs. As a result, the Issuer may be subject
to certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Issuer might not be able to
comply due to lack of data.
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5. DISPOSITION OF CERTIFICATES
Generally, capital gain or loss will be recognized on a sale of
Certificates in an amount equal to the difference between the amount realized
and the seller's tax basis in the Certificates sold. A Certificateholder's tax
basis in a Certificate will generally equal the holder's cost increased by the
holder's share of Issuer income (includible in income) and decreased by any
distributions received with respect to such Certificate. In addition, both the
tax basis in the Certificates and the amount realized on a sale of a Certificate
would include the holder's share of the Notes and other liabilities of the
Issuer. A holder acquiring Certificates at different prices may be required to
maintain a single aggregate adjusted tax basis in such Certificates, and, upon
sale or other disposition of some of the Certificates, allocate a portion of
such aggregate tax basis to the Certificates sold (rather than maintaining a
separate tax basis in each Certificate for purposes of computing gain or loss on
a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Mortgage Loans would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Issuer does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Issuer will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
6. ALLOCATIONS BETWEEN DEPOSITORS AND TRANSFEREES
In general, the Issuer's taxable income and losses will be determined
monthly and the tax items for a particular calendar month will be apportioned
among the Certificateholders in proportion to the principal amount of
Certificates owned by them as of the close of the last day of such month. As a
result, a holder purchasing Certificates may be allocated tax items (which will
affect its tax liability and tax basis) attributable to periods before the
actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations and federal tax counsel is unable to opine on the matter. If a
monthly convention is not allowed (or only applies to transfers of less than all
of the partner's interest), taxable income or losses of the Issuer might be
reallocated among the Certificateholders. The Issuer's method of allocation
between transferors and transferees may be revised to conform to a method
permitted by future regulations.
7. SECTION 754 ELECTION
In the event that a Certificateholder sells its Certificates at a
profit (loss), the purchasing Certificateholder will have a higher (lower) basis
in the Certificates than the selling Certificateholder had. The tax basis of the
Issuer's assets will not be adjusted to reflect that higher (or lower) basis
unless the Issuer were to file an election under Section 754 of the Code. In
order to avoid the administrative complexities that would be involved in keeping
accurate accounting records, as well as potentially onerous information
reporting requirements, the Issuer currently does not intend to make such
election. As a result, Certificateholders might be allocated a greater or lesser
amount of Issuer income than would be appropriate based on their own purchase
price for Certificates.
8. ADMINISTRATIVE MATTERS
The Trustee is required to keep or have kept complete and accurate
books of the Issuer. Such books will be maintained for financial reporting and
tax purposes on an accrual basis and the fiscal year of the Issuer will be the
calendar year. The Trustee will file a partnership information return (IRS Form
1065) with the IRS for each taxable year of the Issuer and will report each
Certificateholder's allocable share of items of Issuer income and expense to
holders and the IRS on Schedule K-1. The Issuer will provide the Schedule K-1
information to nominees that fail to
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provide the Issuer with the information statement described below and such
nominees will be required to forward such information to the beneficial owners
of the Certificates. Generally, holders must file tax returns that are
consistent with the information return filed by the Issuer or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Issuer
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Issuer information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Issuer. The information referred to above for any
calendar year must be furnished to the Issuer on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Issuer
with the information described above may be subject to penalties.
The Depositor will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Issuer by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Issuer. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Issuer.
9. TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS
It is not clear and federal tax counsel is unable to opine whether the
Issuer would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-United
States persons because there is no clear authority dealing with that issue under
facts substantially similar to those described herein. Although it is not
expected that the Issuer would be engaged in a trade or business in the United
States for such purposes, the Issuer will withhold as if it were so engaged in
order to protect the Issuer from possible adverse consequences of a failure to
withhold. The Issuer expects to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders pursuant to Section 1446 of the
Code, as if such income were effectively connected to a United States trade or
business, at a rate of 35% for foreign holders that are taxable as corporations
and 39.6% for all other foreign holders. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the Issuer to change its withholding procedures.
If the trust is engaged in a United States trade or business, each
foreign holder might be required to file a United States individual or corporate
income tax return (including, in the case of a corporation, the branch profits
tax) on its share of the Issuer's income. A foreign holder generally would be
entitled to file with the IRS a claim for refund with respect to taxes withheld
by the Issuer taking the position that no taxes were due because the Issuer was
not engaged in a United States trade or business. However, interest payments
made (or accrued) to a Certificateholder who is a foreign person generally will
be considered guaranteed payments to the extent such payments are determined
without regard to the income of the Issuer, and for that reason or because of
the nature of the assets of the Issuer probably will not be considered
"portfolio interest." As a result, even if the Issuer was not considered to be
engaged in a United States trade or business, Certificateholders will be subject
to United States federal income tax which must be withheld at a rate of 30%,
unless reduced or eliminated pursuant to an applicable treaty. A foreign holder
would be entitled to claim a refund for such withheld tax, taking the position
that the interest was portfolio interest and therefore not subject to United
States tax. However, the IRS may disagree and no assurance can be given as to
the appropriate
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amount of tax liability. As a result, each potential foreign Certificateholder
should consult its tax advisor as to whether an interest in a Certificate is an
unsuitable investment.
10. BACKUP WITHHOLDING
Distributions made on the Certificates and proceeds from the sale of
the Certificates will be subject to a "backup" withholding tax of 31% if, in
general, the Certificateholder fails to comply with certain identification
procedures, unless the holder is an exempt recipient under applicable provisions
of the Code.
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 Securities 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. Fiduciaries
should also consider ERISA's prohibition on improper delegation of control over,
or responsibility for, plan assets.
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 Securities 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 or any entity
whose underlying assets include plan assets by reason of a plan or account
investing in such entity, including an insurance company general account
(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 Securities of
the applicable Series, an investment in Securities of that Series by or with
"plan assets" of a Plan might constitute or give rise to a prohibited
transaction under ERISA or Section 4975 of the Code, unless a statutory or
administrative exemption applies. Violation of the prohibited transaction rules
could result in the imposition of excise taxes and/or other penalties under
ERISA and/or Section 4975 of the Code.
FINAL PLAN ASSETS REGULATION
The United States Department of Labor ("DOL") has issued a final
regulation (the "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 Securityholder 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
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"plan assets"). Because the availability of this exemption to any Trust Fund
depends upon the identity of the Securityholders of the applicable Series at any
time, there can be no assurance that any Series or Class of Securities will
qualify for this exemption.
PROHIBITED TRANSACTION CLASS EXEMPTIONS APPLICABLE TO CERTIFICATES
Prohibited Transaction Class Exemption 83-1 (Class Exemption for
Certain Transactions Involving Mortgage Pool Investment Trusts) ("PTCE 83-1")
permits, subject to certain conditions, certain transactions involving the
creation, maintenance and termination of certain residential mortgage pools and
the acquisition and holding of certain residential mortgage pool pass-through
Certificates by Plans, regardless of whether (a) the mortgage pool is exempt
from "plan asset" treatment or (b) the transactions would otherwise be
prohibited under ERISA or Section 4975 of the Code. A Series of Certificates
will be an "Exempt Series" if the general conditions (described below) of PTCE
83-1 are satisfied, and if the applicable Series of Certificates evidences
ownership interests in Trust Assets which do not include Mortgage Certificates,
Cooperative Loans, Mortgage Loans secured by cooperative buildings, Mortgage
Loans secured by Multifamily Property, or Contracts (collectively "Nonexempt
Assets"). An investment by a Plan in Certificates of an Exempt Series (1) will
be exempt from the prohibitions of Section 406(a) of ERISA (relating generally
to Plan transactions involving Parties in Interest who are not fiduciaries) if
the Plan purchases the Certificates at no more than fair market value, and (2)
will be exempt from the prohibitions of Sections 406(b) (1) and (2) of ERISA
(relating generally to Plan transactions with fiduciaries) if, in addition, (i)
the purchase is approved by an independent fiduciary, (ii) no sales commission
is paid to the Depositor as Mortgage Pool sponsor, (iii) the Plan does not
purchase more than 25% of the Certificates of that Series and (iv) at least 50%
of the Certificates of that Series is purchased by persons independent of the
Depositor, the Trustee and the Insurer, as applicable. It does not appear that
PTCE 83-1 applies to a Series of Certificates with respect to which the Trust
Assets include Nonexempt Assets (a "Nonexempt Series"). See "The Trust Fund --
The Mortgage Pools" and "-- The Contract Pools." Accordingly, it appears that
PTCE 83-1 will not exempt Plans that acquire Certificates of a Nonexempt Series
from the prohibited transaction rules of ERISA and Section 4975 of the
Code.
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
Securities" 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.
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If an Exempt Series of Certificates is subdivided into two or more
Classes or Subclasses which are entitled to disproportionate allocations of the
principal and interest payments on the Mortgage Loans held by the applicable
Trust Fund, the availability of the exemption afforded by PTCE 83-1 may be
adversely affected, as described in the applicable Prospectus Supplement.
Moreover, if the Certificateholders of any Class or Subclass of Certificates are
entitled to pass-through payment of principal (but no or only nominal interest)
or interest (but no or only nominal principal), it appears that PTCE 83-1 will
not exempt Plans which acquire Certificates of that Class or Subclass from the
prohibited transaction rules of ERISA and Section 4975 of the Code.
If an Exempt Series of Certificates includes a Class of Subordinated
Certificates, PTCE 83-1 will not provide an exemption from the prohibited
transaction rules of ERISA for Plans that acquire such Subordinated
Certificates.
UNDERWRITER'S PROHIBITED TRANSACTION EXEMPTION'S APPLICABLE TO CERTIFICATES
Credit Suisse First Boston Corporation ("First Boston") is the
recipient of a final prohibited transaction exemption, 54 Fed. Reg. 42597 (Oct.
17, 1989) (the "Underwriter's PTE" or "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 include (i) obligations which bear interest or are
purchased at a discount and which are secured by (A) single-family residential,
multifamily residential or commercial real property (including obligations
secured by leasehold interests on commercial real property) or (B) shares issued
by a cooperative housing association; (ii) "guaranteed governmental mortgage
pool certificates" (as defined in the Plan Assets Regulation) and (iii)
undivided fractional interests in the above.
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 Credit Rating
Co. or Fitch Investors Service, L.P., and (2) purchased by
investors other than Plans, for at least one year prior to a
Plan's acquisition of Certificates in reliance upon the
Underwriter's PTE;
(c) at the time of such acquisition, the Class of
Certificates acquired by the Plan has received a rating in one
of the rating categories referred to in condition (b) above;
(d) the Trustee is not an affiliate of any member of
the Restricted Group (as defined below);
(e) the 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;
(f) the Plan is an "accredited investor" (as defined
in Rule 501(a)(1) of Regulation D under the Securities Act);
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(g) 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
(h) 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").
On May 23, 1997, the DOL published in the Federal Register a proposed amendment
to the Underwriter's PTE which will extend exemptive relief to certain mortgage-
backed and asset-backed securities transactions using pre-funding accounts for
trusts issuing pass-through certificates. With respect to the Certificates, the
amendment will generally allow a portion of the mortgages or receivables
("Loans") supporting payments to Certificateholders and having a principal
amount equal to no more than 25% of the total principal amount of the
Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ("Pre-Funding Period"), instead of requiring
that all such Loans be either identified or transferred on or before the Closing
Date. The relief, when granted as a final exemption, will be effective for
transactions occurring on or after May 23, 1997, provided that the following
conditions are met:
(1) The ratio of the amount allocated to the Pre-Funding Account to the
total principal amount of the Certificates being offered ("Pre-Funding Limit")
must not exceed twenty-five percent (25%).
(2) All Loans transferred after the Closing Date ("Additional Loans") must
meet the same terms and conditions for eligibility as the original Loans used to
create the Trust, which terms and conditions have been approved by the Rating
Agency.
(3) The transfer of such Additional Loans to the Trust during the Pre-
Funding Period must not result in the Certificates receiving a lower credit
rating from the Rating Agency upon termination of the Pre-Funding Period than
the rating that was obtained at the time of the initial issuance of the
Certificates by the Trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate (the "average interest rate") for all of the
Loans in the Trust at the end of the Pre-Funding Period must not be more than
100 basis points lower than the average interest rate for the Loans which were
transferred to the Trust on the Closing Date.
(5) Either: (i) the characteristics of the Additional Loans must be
monitored by an insurer or other credit support provider which is independent of
the Depositor; or (ii) an independent accountant retained by the Depositor must
provide the Depositor with a letter (with copies provided to the Rating Agency,
the Underwriter and the Trustee) stating whether or not the characteristics of
the Additional Loans conform to the characteristics described in the Prospectus,
Prospectus Supplement, Private Placement Memorandum ("Offering Documents")
and/or Pooling and Servicing Agreement ("Pooling Agreement"). In preparing such
letter, the independent accountant must use the same type of procedures as were
applicable to the Loans which were transferred as of the Closing Date.
(6) The Pre-Funding Period must end no later than three months or 90 days
after the Closing Date or earlier, in certain circumstances, if the amount on
deposit in the Pre-Funding Account is reduced below the minimum level specified
in the Pooling Agreement or an event of default occurs under the Pooling
Agreement.
(7) Amounts transferred to any Pre-Funding Account and/or Capitalized
Interest Account used in connection with the pre-funding may be invested only in
investments which are permitted by the Rating Agency and (i) are direct
obligations of, or obligations fully guaranteed as to timely payment of
principal and interest by, the United States or any agency or instrumentality
thereof (provided that such obligations are backed by the full faith and credit
of the United States); or (ii) have been rated (or the obligor has been rated)
in one of the three highest generic rating categories by the Rating Agency
("Permitted Investments").
(8) The Offering Documents must describe: (i) any Pre-Funding Account
and/or Capitalized Interest Account used in connection with a Pre-Funding
Account; (ii) the duration of the Pre-Funding Period; (iii) the percentage
and/or dollar amount of the Pre-Funding Limit for the Trust; and (iv) that the
amounts remaining in the Pre-Funding Account at the end of the Pre-Funding
Period will be remitted to Certificateholders as repayments of principal.
(9) The Pooling and Servicing Agreement must describe the Permitted
Investments for the Pre-Funding Account and Capitalized Interest Account and, if
not disclosed in the Offering Documents, the terms and conditions for
eligibility of the Additional Loans.
The Underwriter believes that all of the conditions for exemptive relief under
the proposed amendment to the Underwriter's PTE with respect to pre-funding will
be satisfied. Therefore, if the relief granted under the final amendment
conforms to that proposed by the DOL, such relief would be applicable
retroactively to the Closing Date. Although there can be no assurance that the
final amendment will be adopted, or if adopted, that it will be identical to
that proposed, the Underwriter does not anticipate that any changes will be made
which would adversely affect the applicability of the Underwriter's PTE to the
purchase, transfer or holding of the Certificates by or on behalf of a Plan.
However, any Plan investor who proposes to acquire Certificates in reliance upon
the Underwriter's PTE should consult with its counsel and make its own
determination as to the applicability of the Underwriter's PTE and the
advisability of investing in Certificates in reliance upon the proposed pre-
funding amendment.
Whether all of the conditions in the Underwriter's PTE (in addition to,
and including those, relating to pre-funding) will be satisfied as to
Certificates or any particular Class will depend upon the relevant facts and
circumstances existing at the time the Plan acquires Certificates of that Class.
Any Plan investor who proposes to use "plan assets" of a Plan to acquire
Certificates in reliance upon the Underwriter's PTE should determine whether the
Plan satisfies all of the applicable conditions and consult with its counsel
regarding other factors that may affect the applicability of the Underwriter's
PTE.
GENERAL ERISA CONSIDERATIONS RELATING TO SECURITIES
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 conditions
(described briefly above) of PTCE 83-1 have been satisfied; (b) whether the
Underwriter's PTE is applicable; (c) whether any other prohibited transaction
exemption (if required) is available
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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.
If for any reason neither PTCE 83-1 nor the Underwriter's PTE do 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 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), PTCE 84-14 (Class Exemption for
Plan Asset Transactions Determined by Independent Qualified Professional Asset
Managers), PTCE 95-60 (Class Exemption for Certain Transactions Involving
Insurance Company General Accounts) or PTCE 96-23 (Class Exemption for Plan
Asset Transactions Performed by In-house Asset Managers)(collectively, the
"Investor Based Exemptions"). There can be no assurance that any of these
Investor Based Exemptions will apply with respect to any particular Plan
Certificateholder or, even if it were to apply, that such exemption would apply
to all transactions involving the applicable Trust Fund. Any person who is a
fiduciary by reason of his or her authority to invest "plan assets" of any Plan
(a "Plan investor") and who is considering the use of "plan assets" of any Plan
to purchase of the offered Certificates should consult with its counsel with
respect to the potential applicability of ERISA and the Code to such
investments, and should determine on its own whether PTCE 83-1, the
Underwriter's PTE 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.
Subordinated Certificates are not available for purchase by or with
"plan assets" of any Plan, other than a governmental or church plan which is not
subject to ERISA or Section 4975 of the Code (as described above), and any
acquisition of subordinated Certificates by, on behalf of or with "plan assets"
of any such Plan will be treated as null and void for all purposes.
ERISA CONSIDERATIONS RELATING TO THE NOTES
Under the Plan Assets Regulation, the assets of the Trust would be
treated as plan assets of a Plan for the purposes of ERISA and the Code only if
the Plan acquires an "Equity Interest" in the Trust and none of the exceptions
contained in the Plan Assets Regulation is applicable. An equity interest is
defined under the Plan Assets Regulation as an interest other than an instrument
which is treated as indebtedness under applicable local law and which has no
substantial equity features. Assuming that a Class of Notes is treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation, then such Class of Notes will be eligible for purchase by Plans.
However, without regard to whether a Class of Notes is treated as an "equity
interest" for such purposes, the acquisition or holding of Notes by or on behalf
of a Plan could be considered to give rise to a prohibited transaction if the
Trust or any of its affiliates is or becomes a party in interest or disqualified
person with respect to such Plan, or in the event that a Note is purchased in
the secondary market and such purchase constitutes a sale or exchange between a
Plan and a party in interest or disqualified person with respect to such Plan.
There can be no assurance that the Trust or any of its affiliates will not be or
become a party in interest or a disqualified person with respect to a Plan that
acquires Notes. However, one or more of the Investor Based Exemptions described
above may apply to any potential prohibited transactions arising as a
consequence of the acquisition, holding and transfer of the Notes.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO
PURCHASE SECURITIES 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 SECURITIES.
LEGAL INVESTMENT
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The applicable Prospectus Supplement for a Series of Securities will
specify whether a Class or Subclass of such Securities, 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
Securities 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 Securities), except under limited circumstances.
All depository institutions considering an investment in the Securities
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 Certificates" (including securities such as certain Series,
Classes or Subclasses of the Securities), 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 Securities,
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 Securities issued in
book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain Classes of Securities as "mortgage
related securities," no representation is made as to the proper characterization
of the Securities for legal investment purposes, financial institution
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regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase Securities under applicable legal investment restrictions.
The uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Securities) may adversely affect the liquidity of the Securities.
Investors should consult their own legal advisers in determining
whether and to what extent such Securities constitute legal investments for such
investors.
PLAN OF DISTRIBUTION
Each Series of Securities 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 Securities will set forth the terms of the offering of such Series or Class
of Securities 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 Securities will be
determined.
Unless otherwise specified in the Prospectus Supplement, the
Underwriters will be obligated to purchase all of the Securities of a Series
described in the Prospectus Supplement with respect to such Series if any such
Securities are purchased. The Securities 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 the Underwriters or other persons acting as the Depositor's agents to
solicit offers by certain institutions to purchase the Securities 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 Securities 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 Securities 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 Securities 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
Securities for whom they may act as agents.
The place and time of delivery for each Series of Securities 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
Underwriters after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriters act as principal. Sales will be made at negotiated prices
determined at the time of sales.
LEGAL MATTERS
-128-
<PAGE>
Certain legal matters in connection with the Securities offered hereby
will be passed upon for the Depositor and for the Underwriters by Stroock &
Stroock & Lavan LLP, New York, New York, or such other counsel specified in the
related Prospectus Supplement.
-129-
<PAGE>
INDEX OF TERMS
Page
Accrual Distribution Amount.........................
Advances............................................
AFR.................................................
Agreement...........................................
Alternative Credit Support..........................
Approved Sale.......................................
APR.................................................
ARM Loans...........................................
Asset Value.........................................
Assets..............................................
Buy-Down Fund.......................................
Buy-Down Loans......................................
Cede................................................
Certificate Account.................................
Certificate Principal Balance.......................
Certificateholders..................................
Securities..........................................
Class...............................................
Cleanup Costs.......................................
Closed-End Loans....................................
Closed Loans........................................
Closing Date........................................
Code................................................
Collection Account..................................
Contract Loan-to-Value Ratio........................
Contract Pool.......................................
Contract Schedule...................................
Contracts...........................................
Converted Mortgage Loan.............................
Cooperative.........................................
Cooperative Dwelling................................
Cooperative Loans...................................
Credit Suisse First Boston Corporation's PTE........
Custodial Account...................................
Custodial Agreement.................................
Custodian...........................................
Cut-off Date........................................
Deferred Interest...................................
Definitive Securities...............................
Deficiency Event....................................
Deleted Contract....................................
Deleted Mortgage Certificates.......................
Deleted Mortgage Loans..............................
Depositor...........................................
Determination Date..................................
Discount Security...................................
Distribution Date...................................
DOL.................................................
DTC -- Depository Trust Company.....................
-130-
<PAGE>
Due Date............................................
Due Period..........................................
Eligible Investment.................................
Escrow Account......................................
ERISA...............................................
ERISA Plans.........................................
Exempt Series.......................................
FBSC................................................
FHA.................................................
FHA Experience......................................
FHA Loans...........................................
First Boston........................................
Garn-St Germain Act.................................
GPM Fund............................................
GPM Loans...........................................
Home Equity Loans...................................
Indenture...........................................
Indenture Trustee...................................
Initial Deposit.....................................
Insurance Proceeds..................................
Insured.............................................
Insured Series......................................
Interest Coupon.....................................
Interest Distribution...............................
Interest Rate.......................................
Interest Weighted Class.............................
Interest Weighted Subclass..........................
IRS.................................................
L/C Bank............................................
L/C Percentage......................................
Letter of Credit....................................
Liquidating Loan....................................
Liquidation Proceeds................................
Loan-to-Value Ratio.................................
Loss................................................
Manufactured Home...................................
Master Servicer.....................................
Mortgage Certificates...............................
Mortgage Loans......................................
Mortgage Notes......................................
Mortgage Pool.......................................
Mortgage Rates......................................
Mortgaged Property..................................
Mortgagor...........................................
Mortgagor Bankruptcy Bond...........................
Multi-Class Securities..............................
Multifamily Property................................
Multiple Variable Rate..............................
1988 Act............................................
1986 Act............................................
1996 Contingent Debt Regulations....................
1996 Proposed Regulations...........................
Nonexempt Assets....................................
-131-
<PAGE>
Nonexempt Series....................................
non-U.S. Person.....................................
Notes...............................................
Noteholders.........................................
Obligor.............................................
OID Regulations.....................................
Original Value......................................
Originator..........................................
Other Pools.........................................
Parties in Interest.................................
Percentage Interest.................................
Performance Bond....................................
Plan Assets Regulation..............................
Plans...............................................
Policy Statement....................................
Pool Insurance Policy...............................
Pool Insurer........................................
Pooling and Servicing Agreement.....................
Pre-Funded Amount...................................
Pre-Funding Account.................................
Pre-Funding Period..................................
Premium Security....................................
Prepayment Assumption...............................
Primary Insurer.....................................
Primary Mortgage Insurance Policy...................
Primary Mortgage Insurer............................
Principal Distribution..............................
Principal Prepayments...............................
Principal Weighted Class............................
Principal Weighted Subclass.........................
Proposed Premium Regulations........................
PTCE 83-1...........................................
Purchase Price......................................
Rating Agency.......................................
Record Date.........................................
Reference Agreement.................................
REIT................................................
REMIC...............................................
REMIC Certificateholders............................
REMIC Certificates..................................
REMIC Mortgage Pool.................................
REMIC Provisions....................................
REMIC Regulations...................................
REMIC Regular Certificate...........................
REMIC Residual Certificate..........................
Required Reserve....................................
Reserve Fund........................................
Residual Certificates...............................
Residual Owner......................................
Restricted Group....................................
Retained Yield......................................
Revolving Credit Line Loans.........................
Sale and Servicing Agreement........................
-132-
<PAGE>
Securities..........................................
Securities Act......................................
Security Guarantee Insurance........................
Securityholder......................................
Senior Securities...................................
Senior Class........................................
Senior Prepayment Percentage........................
Senior Subclass.....................................
Series..............................................
Servicemen's Readjustment Act.......................
Servicer............................................
Servicing Account...................................
Servicing Agreement.................................
Single-Class REMIC..................................
Single Family Property..............................
Single Variable Rate................................
SMMEA...............................................
SBJPA -- of 1996....................................
SPA.................................................
Special Distributions...............................
Special Hazard Insurance Policy.....................
Standard Hazard Insurance Policy....................
Standard Terms......................................
Stated Principal Balance............................
Stated Principal Distribution Amount................
Stripped Bond Rules.................................
Stripped Interest...................................
Stripped Mortgage Loan..............................
Subclass............................................
Subordinated Amount.................................
Subordinated Securities.............................
Subordinated Class..................................
Subordinated Pool...................................
Subordinated Subclass...............................
Substitute Contract.................................
Substitute Mortgage Certificates....................
Substitute Mortgage Loans...........................
Thrift Institutions.................................
Tiered REMICS.......................................
Title V.............................................
Trust...............................................
Trust Assets........................................
Trust Agreement.....................................
Trust Certificates..................................
Trustee.............................................
Trust Fractional Certificateholder..................
Trust Fractional Certificate........................
Trust Fund..........................................
Trust Interest Certificate..........................
Trust Interest Certificateholder....................
Unaffiliated Sellers................................
Underwriters........................................
UCC.................................................
-133-
<PAGE>
Unstripped Mortgage Loans...........................
U. S. Person........................................
VA..................................................
VA Loans............................................
-134-
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
[Version A]
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
ABS Mortgage Pass-Through Certificates, Series
% Pass-Through Rate
Principal and interest payable on the 25th day
of each month, beginning , 19
-----------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF CREDIT
SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. NEITHER
THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
The ABS Mortgage Pass-Through Certificate, Series (the "Certificates") offered
hereby evidence undivided fractional interests in a trust to be created by
Credit Suisse First Boston Mortgage Securities Corp. (the "Depositor") on or
about , 199 (the "Trust"). The Trust property will consist of a pool of
[conventional] [fixed-rate] [mortgage loans and] [mortgage participation
certificates evidencing participation interests in such mortgage loans and
meeting the requirements of the nationally recognized rating agency or agencies
rating the Certificates (collectively, the "Rating Agency") for a rating in one
of the two highest rating categories of such Rating Agency] (the "Mortgage
Loans") and certain related property to be conveyed to the Trust by the
Depositor (the "Trust Fund"). The Mortgage Loans will be transferred to the
Trust, pursuant to a Pooling and Servicing Agreement (as defined herein), dated
as of , 19 , by the Depositor in exchange for the Certificates and are more
fully described in this Prospectus Supplement and in the accompanying
Prospectus. The Certificates offered by this Prospectus Supplement constitute a
separate series of the Certificates being offered by the Depositor from time to
time pursuant to its Prospectus dated , 199 , which accompanies this Prospectus
Supplement and of which this Prospectus Supplement forms a part. The Prospectus
contains important information regarding this offering that is not contained
herein, and prospective investors are urged to read the Prospectus and this
Prospectus Supplement in full.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for the
Certificates [but [is] [are] under no obligation to do so]. There can be no
assurance that a secondary market will develop, or if it does develop, that it
will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Certain Federal Income Tax Consequences"
in the Prospectus.]
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the factors set forth under Risk Factors
on page S-6 of this Prospectus Supplement.
Prospective investors should condisider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- ---------------------------------------------------------
<S> <C> <C> <C>
Per Certificate % % %
- ---------------------------------------------------------
Total $ $ $
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
(1)Plus accrued interest, if any, at the applicable rate from , 19 .
(2)Before deduction of expenses payable by the Depositor estimated at $ .
-----------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [their] [its] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be ready for delivery on or about
, 19 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
This Prospectus Supplement does not contain complete information about the
Certificates offered hereby. Additional information is contained in the
Prospectus, and purchasers are urged to read both this Prospectus Supplement
and the Prospectus in full. Sales of the Certificates may not be consummated
unless the purchaser has received both this Prospectus Supplement and the
Prospectus.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
Until , 19 , all dealers effecting transactions in the Certificates,
whether or not participating in this distribution, may be required to deliver
a Prospectus Supplement and a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will file reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information filed
by the Trust can be inspected and copied at the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C., and at the Commission's
regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such information can be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ ABS Mortgage Pass-Through Certificates, Series
, % Pass-Through Rate (the "Certificates").
AMOUNT.................... $ (Approximate: subject to a permitted
variance of up to 5%).
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities
Corp. (the "Depositor").
MASTER SERVICER...........
DENOMINATIONS............. The minimum denomination of a Certificate (a
"Single Certificate") will initially represent
approximately $ aggregate principal amount
of Mortgage Loans.
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
INTEREST.................. Passed through monthly at the rate of % per annum
(the "Pass-Through Rate"), on the day of each
month (each, a "Distribution Date") commencing
, 19 .
PRINCIPAL (INCLUDING Passed through monthly on the Distribution Date,
PREPAYMENTS).............. commencing , 19 .
MORTGAGE POOL............. The Mortgage Pool will consist of [fixed rate],
fully-amortizing, [level-payment] mortgage loans
[and mortgage participation certificates
evidencing participation interests in such
mortgage loans that meet the requirements of the
nationally recognized rating agency or agencies
rating the Certificates (collectively the "Rating
Agency") for a rating in one of the two highest
rating categories of such Rating Agency] secured
by mortgages on one- to four-family residential
properties [located in the states of , and
(the "Mortgage Loans").] All Mortgage Loans
will have original maturities of at least [15 but
no more than 30] years. See "Description of the
Mortgage Pool and the Underlying Properties"
herein.
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
[LETTER OF CREDIT......... The maximum liability of [ ] under an
irrevocable standby letter of credit for the
Mortgage Pool (the "Letter of Credit"), net of
unreimbursed payments thereunder, will be no more
than [10%] of the initial aggregate principal
balance of the Mortgage Pool (the "Letter of
Credit Percentage"). The maximum amount available
to be paid under the Letter of Credit will be
determined in accordance with the Pooling and
Servicing Agreement referred to herein. The
duration of coverage and the amount of frequency
of any reduction in coverage will be in compliance
with the requirements established by the Rating
Agency, in order to obtain a rating in one of the
two highest rating categories of such Rating
Agency. The amount available under the Letter of
Credit shall be reduced by the amount of
unreimbursed payments thereunder. See "Description
of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
S-3
<PAGE>
[POOL INSURANCE POLICY.... [Neither the Certificates nor the Mortgage Loans
will be insured or guaranteed by any governmental
agency.] Subject to the limitations described
herein, a pool insurance policy for certain of the
Mortgage Loans (the "Pool Insurance Policy") will
cover losses due to default on such Mortgage Loans
in an initial amount of not less than [5%] of the
aggregate principal balance as of the Cut-off Date
of all Mortgage Loans that are not covered as to
their entire outstanding principal balance by
primary policies of mortgage guaranty insurance.
The Pool Insurance Policy will be subject to the
limitations described under "Description of
Insurance--the Pool Insurance Policy" in the
Prospectus.]
HAZARD INSURANCE (AND
SPECIAL HAZARD INSURANCE All of the Mortgage Loans will be covered by
POLICY.................... standard hazard insurance policies insuring
against losses due to various causes, including
fire, lightning and windstorm. [An insurance
policy (the "Special Hazard Insurance Policy")
will cover losses with respect to the Mortgage
Loans that result from certain other physical
risks that are not otherwise insured against
(including earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited in scope
and will cover losses in an initial amount equal
to the greater of % of the aggregate principal
balance of the Mortgage Loans or times the unpaid
principal balance of the largest Mortgage Loan.]
Any hazard losses not covered by [either] standard
hazard insurance policies [or the Special Hazard
Insurance Policy] will not be insured against and
[, to the extent that the amount available under
the Letter of Credit or any alternative method of
credit support is exhausted,] will be borne by
holders of the Certificates (the
"Certificateholders"). The hazard insurance
policies [and the Special Hazard Insurance Policy]
will be subject to the limitations described under
"Description of Insurance--Hazard Insurance" [and
"--Special Hazard Insurance Policies"] in the
Prospectus.
[MORTGAGOR BANKRUPTCY The Depositor will obtain a bond or similar form of
BOND...................... insurance coverage (the "Mortgagor Bankruptcy
Bond"), providing coverage against losses that
result from proceedings with respect to obligors
under the Mortgage Loans (the "Mortgagors") under
the federal Bankruptcy Code. See "Description of
the Certificates--Mortgagor Bankruptcy Bond"
herein and "Description of Insurance--The
Mortgagor Bankruptcy Bond" in the Prospectus.]
[OPTIONAL TERMINATION..... The Depositor may, at its option, repurchase from
the Trust all Mortgage Loans remaining outstanding
at such time as the aggregate unpaid principal
balance of such Mortgage Loans is less than [10%]
of the aggregate principal balance of the Mortgage
Loans on the Cut-off Date. The repurchase price
will equal the aggregate unpaid principal balance
of such Mortgage Loans together with accrued
interest thereon at the Pass-Through Rate through
the last day of the month during which such
repurchase occurs, plus the appraised value of any
property acquired in respect thereof. [Any such
repurchase
S-4
<PAGE>
will be effected in compliance with the
requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986 (the "Code") so as
to constitute a "qualifying liquidation"
thereunder.]. See "Description of the
Certificates--Termination; Repurchase of
Certificates in the Prospectus."]
ADVANCES..................
The Servicers of the Mortgage Loans (and the Master
Servicer, with respect to each Mortgage Loan that
it services directly and otherwise, to the extent
the related Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans under
certain circumstances. See "Description of the
Certificates--Advances" in the Prospectus.
TRUSTEE................... . See
"Description of the Certificates--Trustee" herein.
CERTIFICATE RATING........ It is a condition of issuance that the Certificates
be rated in one of the two highest rating
categories of the Rating Agency.
ERISA CONSIDERATIONS......
See "ERISA Considerations" in the Prospectus [and
herein].
LEGAL INVESTMENT.......... The Certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the "Enhancement
Act"), and, as such, are legal investments for
certain entities to the extent provided in the
Enhancement Act. See "Legal Investment" in the
Prospectus.
TAX ASPECTS............... [Because an amount not treated as servicing
compensation will be paid to , the "stripped-bond"
rules of the Internal Revenue Code of 1986 should
apply.]
The Depositor [intends] [does not intend] to make
an election to treat the Trust as a Real Estate
Mortgage Investment Conduit (a "REMIC"), pursuant
to the Internal Revenue Code of 1986. See "Certain
Federal Income Tax Consequences--General";
["-- REMIC Trust Funds"] ["--Non-REMIC Trust
Funds"] in the Prospectus. Purchasers of
Certificates should see "Certain Federal Income Tax
Consequences ["--REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates"]
["--Non-REMIC Trust Funds"--Taxation of Owners of
Trust Fractional Certificates" and "--Taxation of
Owners of Trust Fractional Certificates
["--Application of Stripped Bond Rules"]
[--Treatment of Unstripped Certificates"]] in the
Prospectus for discussions of certain tax
considerations particular to the Certificates.*
- --------
* If the Prospectus Supplement for a Series of Certificates provides that
Stroock & Stroock & Lavan LLP will pass upon the material federal income tax
consequences of the Certificates for the Depositor, then such Prospectus
Supplement will contain tax disclosure substantially similar to the disclosure
set forth in Version E under "Summary of Terms--Tax Aspects" and "Certain
Federal Income Tax Consequences."
S-5
<PAGE>
[RISK FACTORS]
[Description of Risk Factors to be added as appropriate]
DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING PROPERTIES
The Mortgage Pool will consist of Mortgage Loans evidenced by mortgage notes
with aggregate unpaid principal balances outstanding as of the Cut-off Date,
after deducting payments of principal due on such date, of approximately
$ . This amount is subject to a permitted upward and downward variance of
up to %. The Mortgage Pool will consist of -year, [fixed-rate], fully-
amortizing, [level-payment] Mortgage Loans, as more fully described in the
Prospectus.
The weighted average interest rate (individually, a "Mortgage Rate") of the
Mortgage Loans as of the Cut-off Date will be at least % but no more than
%. All Mortgage Loans will have Mortgage Rates of at least % but no more
than %. The weighted average maturity of the Mortgage Loans, as of the Cut-
off Date, will be at least years but no more than years. All Mortgage
Loans will have original maturities of at least but no more than
years. None of the Mortgage Loans will have been originated prior to or after
, 19 . None of the Mortgage Loans will have a scheduled maturity later
than .
The Mortgage Loans will have the following characteristics as of the Cut-off
Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated before
, 19 , and no more than % of the Mortgage Loans will have been
originated before , 19 . See "Certain Federal Income Tax
Consequences--Mortgage Pools," "--Taxation of Owners of Trust Fractional
Certificates" and "--Market Discount and Premium" in the Prospectus for
information regarding such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value ratios
at origination in excess of 80%, and no Mortgage Loan will have had a loan-
to-value ratio at origination in excess of 95%.
All the Mortgage Loans with loan-to-value ratios at origination in excess
of 80% will be covered by a policy of private mortgage insurance until the
outstanding principal balance is reduced to 75% of the Original Value.
At least % of the Mortgage Loans will be secured by Mortgages on
single-family dwellings.
No more than % of the Mortgage Loans will be secured by Mortgages on
condominiums and row houses.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided, and no
more than % of the outstanding principal balance of any such Mortgage
Loan will be represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be GPM Loans.
At least % of the Mortgage Loans will be secured by an owner-occupied
Mortgaged Property. Such determination will have been made on the basis of
a representation by the Mortgagor at the time of origination of the
Mortgage Loan that such Mortgagor then intended to occupy the underlying
property or, in the absence of such a representation, various factors
indicating that the underlying property is owner-occupied.
S-6
<PAGE>
No more than [5%] of the Mortgage Loans will be secured by Mortgages on
properties located in any one zip code or project.
The Mortgage Loans will be secured by Mortgages on properties located in
the states of .
Specific information with respect to the Mortgage Loans will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in
a Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of the
Certificates.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms"), as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, , as master servicer (the
"Master Servicer"), and , as trustee (the
"Trustee"), a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement forms a part. Reference is made
to the accompanying Prospectus for important additional information regarding
the terms and conditions of the Pooling and Servicing Agreement and the
Certificates. Each of the Certificates at the time of issuance will qualify as
a "mortgage related security" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office specified in the notice to
Certificateholders of such final distribution.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained by the Trustee at the office or agency of the Master
Servicer maintained for that purpose in New York, New York. Certificates
surrendered to the Trustee for registration of transfer or exchange must be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee. No service charge will be made for any registration of transfer or
exchange of Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required. Such office or agency is currently
located at .
TRUSTEE
The Trustee for the Certificates will be
, a bank organized and existing under the laws of the
with its principal office located at ,
.
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation in
. The Master Servicer is a FNMA/FHLMC approved seller-servicer based in
. As of , the Master Servicer serviced, for other investors and
for its own account, approximately mortgage loans
S-7
<PAGE>
with an aggregate principal balance in excess of $ . The Master Servicer
conducts operations through FHA approved branch offices in .
The Master Servicer originated approximately $ in mortgage loans in
19 . The Master Servicer's consolidated stockholders' equity as of was
approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances," in an amount acceptable to the nationally recognized
statistical rating organization or organizations rating the Certificates
(collectively, the "Rating Agency").
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Mortgage Loan, equal to
the excess of each interest payment on a Mortgage Loan over the Pass-Through
Rate, less [(a)] any servicing compensation payable to the Servicer of such
Mortgage Loan under the terms of the agreement with the Master Servicer
pursuant to which such Mortgage Loan is serviced (the "Servicing Agreement")
(including such compensation paid to the Master Servicer as the direct
servicer of a Mortgage Loan for which there is no Servicer) [.] [, and (b) the
amount payable to the Depositor, as described below.] [Pursuant to the Pooling
and Servicing Agreement, on each Distribution Date, the Master Servicer will
remit to [the Depositor] in respect of each interest payment on a Mortgage
Loan an amount equal to % of the outstanding principal balance of such
Mortgage Loan before giving effect to any payments due on the preceding Due
Date.] The Master Servicer will be permitted to withdraw from the Certificate
Account, in respect of each interest payment on a Mortgage Loan, an amount
equal to % of the outstanding principal balance of such Mortgage Loan,
before giving effect to any payments due on the preceding Due Date. See
"Description of the Certificates--Servicing and Other Compensation and Payment
of Expenses" in the Prospectus for information regarding other possible
compensation to the Master Servicer and the Servicers. The Servicers and the
Master Servicer will pay all expenses incurred in connection with their
responsibilities under the Servicing Agreements and the Pooling and Servicing
Agreement (subject to limited reimbursement as described in the Prospectus),
including, without limitation, the various items of expense enumerated in the
Prospectus.
Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation might be
characterized as an ownership interest in the interest payments on the
Mortgage Loans ("Retained Yield") for federal income tax purposes, by reason
of the extent to which either the weighted average Mortgage Rate, or the
stated interest rates on the Mortgage Loans exceeds the Pass-Through Rate, and
the tax consequences to them of such a characterization. In this regard, there
are no authoritative guidelines for federal income tax purposes as to either
the maximum amount of servicing compensation that may be considered reasonable
in the context of this or similar transactions or whether the reasonableness
of servicing compensation should be determined on a weighted average or loan-
by-loan basis. [The Depositor intends to treat % of such servicing
compensation and % of the amount payable to it described above as Retained
Yield for federal income tax purposes in reports to the Certificateholders and
to the Internal Revenue Service.] See "Certain Federal Income Tax
Consequences--Mortgage Pools" and "--Taxation of Owners of Trust Fractional
Certificates" in the Prospectus for information regarding the characterization
of servicing compensation [and the amounts payable to the Depositor].
S-8
<PAGE>
[TERMINATION; REPURCHASE OF MORTGAGE LOANS
The Pooling and Servicing Agreement provides that the Depositor may purchase
from the Trust all Mortgage Loans remaining in the Mortgage Pool and thereby
effect early retirement of the Certificates, provided that the aggregate
unpaid balances of the Mortgage Loans at the time of such repurchase is less
than [10%] of the aggregate principal balance of the Mortgage Loans on the
Cut-off Date. The purchase price for any such optional repurchases shall be
equal to the outstanding principal balance of such Mortgage Loans, together
with accrued interest at the Pass-Through Rate to the first day of the month
following such repurchase plus the appraised value of any acquired property
with respect to the Mortgage Loans. [Any such repurchase will be effected in
compliance with the requirements of Section 86OF(a)(iv) of the Code in order
to constitute a "qualifying liquidation" thereunder.] In no event will the
Trust continue beyond the expiration of 21 years from the death of the last
survivor of the persons named in the Pooling and Servicing Agreement.]
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
[10%] of the aggregate principal balance of the Mortgage Loans on the Cut-off
Date. The duration of coverage and the amount and frequency of any reduction
in coverage will be in compliance with the requirements established by the
Rating Agency rating the Certificates, in order to obtain a rating in one of
the two highest rating categories of the Rating Agency. The precise amount of
coverage under the Letter of Credit and the duration and frequency of
reduction of such coverage will be set forth in the Current Report on Form 8-K
referred to above. See "Description of the Certificates--Credit Support--The
Letter of Credit" in the Prospectus.]
[THE POOL INSURANCE POLICY
Subject to the limitations described under "Description of Insurance--Pool
Insurance Policy" in the Prospectus, the Pool Insurance Policy will cover
losses by reason of default on the Mortgage Loans that are not covered as to
their entire outstanding principal balances by primary mortgage insurance, in
an amount equal to % of the aggregate principal balance of such Mortgage
Loans on the Cut-off Date.
The Pool Insurance Policy will be issued by , a corporation (the
"Pool Insurer"), which is engaged principally in the business of insuring
mortgage loans on residential properties against default in payment by the
Mortgagor. At , 19 , the Pool Insurer had insurance in force in the form
of primary policies covering approximately $ billion of residential
mortgages. At such date, the Pool Insurer had total assets of approximately
$ million, capital and surplus aggregating $ million and statutory
contingency reserves of $ million, resulting in total policyholders'
reserves of $ million.
The information set forth above has been provided by the Pool Insurer. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
[THE SPECIAL HAZARD INSURANCE POLICY
The Special Hazard Insurance Policy will cover certain risks not otherwise
insured against under hazard insurance policies, subject to the limitations
described in the Prospectus, and will be issued by , a corporation
(the "Special Hazard Insurer"). Claims under such policy will be limited to
% of the aggregate principal balance of the Mortgage Loans or times the
principal balance of the Mortgage Loan with the highest outstanding principal
balance at the Cut-off Date, whichever is greater. At , 19 , the Special
Hazard Insurer had total assets of approximately $ million and total
policyholders' surplus of $ million. The claims-paying ability of the
Special Hazard Insurer is presently rated by the Rating Agency. In accordance
with standard rating agency practice, the Rating Agency may, at any time,
revise or withdraw such rating.
S-9
<PAGE>
The information set forth above has been provided by the Special Hazard
Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
[MORTGAGOR BANKRUPTCY BOND
The Depositor will obtain a bond or similar form of insurance coverage (the
"Mortgage Bankruptcy Bond") for proceedings with respect to Mortgagors under
the federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled payments
of principal and interest on a Mortgage Loan or a reduction by such court of
the principal amount of a Mortgage Loan and will cover certain unpaid interest
on the amount of such a principal reduction from the date of the filing of a
bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy Bond
will be $ plus the greater of (i) % of the aggregate principal balances
of the Mortgage Loans secured by second residences and investor-owned
residences or (ii) times the largest principal balance of any such
Mortgage Loan. The coverage provided by the Mortgagor Bankruptcy Bond will be
reduced by payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by , a
corporation. At December 31, 19 , had admitted assets of approximately
$ and total policyholders' surplus of approximately $ .
The information set forth above concerning has been provided by it.
The Depositor makes no representation as to the accuracy or completeness of
such information.]
CERTIFICATE RATING
It is a condition to the issuance of the Certificates that they be rated in
one of the two highest categories of the Rating Agency prior to issuance.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase from the Depositor [all] [the
following respective principal amounts] of the Certificates:
[UNDERWRITER
<TABLE>
<S> <C>
Credit Suisse First Boston Corporation...... ................ $
-----------
Total.................................................... $ ]
===========
</TABLE>
S-10
<PAGE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Certificates to the public initially at
the public offering prices set forth on the cover page of this Prospectus
Supplement, and [through the Representative,] to certain dealers at such
prices less the following concessions and that the Underwriter[s] and such
dealers may allow the following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
-------------------- --------------------
<S> <C> <C>
% %
</TABLE>
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by _________________________________________________________.
The material federal income tax consequences of the Certificates will be passed
upon for the Depositor by _____________________________________________________.
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates
of the Depositor, which will have acquired such Mortgage Loans from time to
time in privately negotiated transactions.
S-11
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED ,
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
[Version B]
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
ABS Mortgage Pass-Through Certificates, Class A, Series
Principal and interest payable on the 25th day
of each month, beginning , 19
-----------
Class A-1 % of principal payments on the Mortgage Loans; % of interest
payments at an % pass-through rate on the Mortgage Loans (the "Pass-Through
Rate") (Interest at an % annual rate on unpaid Class A-1 principal amount)
Class A-2 No principal payments on the Mortgage Loans; % of interest
payments at an % Pass-Through Rate on the Mortgage Loans (Interest at an %
annual rate on unpaid Class A-2 notional amount)
The ABS Mortgage Pass-Through Certificates (the "Certificates") will be
composed of two classes (each, a "Class"), entitled Conduit Mortgage Pass-
Through Certificates, Class A (the "Class A Certificates"), and Conduit Mortgage
Pass-Through Certificates, Class B (the "Class B Certificates"). The Class A
Certificates offered hereby will be divided into two subclasses (each, a
"Subclass") entitled Class A-1 (the "Class A-1 Certificates") and Class A-2 (the
"Class A-2 Certificates") and will evidence undivided percentage ownership
interests in a trust (the "Trust") composed of [conventional] [fixed-rate] [one-
to four-family residential mortgage loans,] [mortgage loans secured by
multifamily residential rental properties consisting of five or more dwelling
units or apartment buildings owned by cooperative housing corporations,] [loans
made to finance the purchase of certain rights relating to cooperatively owned
properties secured by a pledge of shares of a cooperative corporation and an
assignment of a proprietary lease or occupancy agreement on a cooperative
dwelling ("Cooperative Loans"),] [and mortgage participation certificates
evidencing participation interests in such loans and meeting the requirements of
the nationally recognized rating agency or agencies rating the certificates
(collectively, the "Rating Agency") for a rating in one of the two highest
rating categories of such Rating Agency] (the "Mortgage Loans") and certain
related property to be conveyed to the Trust by the Depositor (the "Trust
Fund"). The Mortgage Loans will be transferred to the Trust, pursuant to a
Pooling and Servicing Agreement (as defined herein) dated as of , 199 , by
Credit Suisse First Boston Mortgage Securities Corp. ( the "Depositor") in
exchange for the Certificates and are more fully described in this Prospectus
Supplement and in the accompanying Prospectus.
The Class A-1 Certificates evidence ownership of % of each principal
payment on the Mortgage Loans and % of each interest payment on the Mortgage
Loans (representing interest at a rate of % per annum on the unpaid principal
amount of the Class A-1 Certificates). The Class A-2 Certificates evidence
ownership of % of each interest payment at the Pass-Through Rate on the
Mortgage Loans (representing interest at a rate of % per annum on the unpaid
notional amount of the Class A-2 Certificates). The rights of the Class B
Certificateholders to receive distributions with respect to the Mortgage Loans
will be subordinated to the rights of the Class A Certificateholders to the
extent described herein and in the Prospectus.
[The Depositor intends to offer the Class B Certificates to sophisticated
institutional investors from time to time in transactions not requiring
registration under the Securities Act of 1933. The rights of the Class B
Certificateholders to receive distributions with respect to the Mortgage Loans
will be subordinated to the rights of the Class A Certificateholders to the
extent described herein and in the Prospectus.]
The Certificates do not represent an obligation of or interest in Credit
Suisse First Boston Mortgage Securities Corp. or any affiliate thereof. Neither
the Certificates nor the underlying mortgage loans are insured or guaranteed by
any governmental agency or instrumentality.
The Mortgage Loans may be prepaid at any time without penalty. [A lower rate
of principal prepayments than anticipated would negatively affect the total
return to investors in Class A-1 Certificates, which are being offered at a
discount to their principal amount.] Yields on the Class A-2 Certificates will
be extremely sensitive to the prepayment experience on the Mortgage Loans, and
prospective investors in such Certificates should fully consider the associated
risks, including the risk that such investors, in circumstances of higher than
anticipated prepayment, could fail to fully recoup their initial investment.
See "The Mortgage Pool," "Yield Considerations" and "Maturity and Prepayment
Considerations" in this Prospectus Supplement.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for the
Class A Certificates [but [is] [are] under no obligation to do so]. There can
be no assurance that a secondary market will develop or, if it does develop,
that it will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Certain Federal Income Tax Consequences"
in the Prospectus.]
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER RISK
FACTORS ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER ERISA
CONSIDERATIONS HEREIN AND IN THE ACCOMPANYING PROSPECTUS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Certificate % % %
- ----------------------------------------------------------------------
Per Class A-2 Certificate % % %
- ----------------------------------------------------------------------
Total $ $ $
- ----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deducting expenses payable by the Depositor estimated at $ .
-----------
The Class A Certificates are offered by the [several] Underwriter[s] when, as
and if issued and accepted by the Underwriter[s] and subject to [its] [their]
right to reject orders in whole or in part. It is expected that the Class A
Certificates, in definitive fully registered form, will be ready for delivery
on or about , 19 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES
OFFERED HEREBY MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATIONS, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
----------------
UNTIL , 19 , ALL DEALERS AFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
ADDITIONAL INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street,, Suite 1400, Illinois 60661, and Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of such information can be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Capitalized terms used in this Prospectus Supplement and not
otherwise defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ ABS Mortgage Pass-Through Certificates, Class
A, Series (the "Class A Certificates").
$ Original Principal Amount Class A-1
Certificates (approximate).
No Original Principal Amount A-2 Certificates.
The Class A-1 Certificates represent undivided
percentage interests in approximately % of each
principal payment on the Mortgage Loans (the
"Principal Distribution") and undivided percentage
interests in approximately % of each interest
payment at the Pass- Through Rate on the Mortgage
Loans (the "Interest Distribution") (representing
interest at a rate of % per annum on the unpaid
principal amount of the Class A-1 Certificates).
The individual percentage interest (the
"Percentage Interest") of any Class A-1
Certificate will be equal to the percentage
obtained by dividing the original principal amount
of such Class A-1 Certificate by the aggregate
original principal amount of all Class A-1
Certificates ($ ).
The Class A-2 Certificates represent Percentage
Interests in approximately % of the Interest
Distribution (representing interest at a rate of
% per annum on the unpaid notional amount of the
Class A-2 Certificates). The Class A Certificates
will not receive distributions of principal with
respect to the Mortgage Loans. The Percentage
Interest of any Class A-2 Certificate will be
equal to the percentage obtained by dividing the
original notional amount of such Class A-2
Certificate by the aggregate original notional
amount of all Class A-2 Certificates
(approximately $ ). The notional amount of
the Class A-2 Certificates is equal to the
aggregate unpaid principal amount of the Class A
Certificates, but is used solely for purposes of
determining interest payments and certain other
rights of holders of the Class A-2 Certificates
and does not represent any interest in such
principal payments.
The Class A Certificates represent in the aggregate
an approximate % undivided interest in the Trust
Fund. The remaining approximate % undivided
interest in the Trust Fund is evidenced by the
Class B Certificates, which are subordinated in
certain respects to the Class A Certificates, as
more fully described herein and in the Prospectus.
[The Class B Certificates are not being offered
hereby, and may be retained by the Depositor or
sold by the Depositor at any time to one or more
sophisticated institutional investors in privately
negotiated transactions not requiring registration
under the Securities Act of 1933.]
S-3
<PAGE>
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities Corp.
(the "Depositor").
MASTER SERVICER...........
CUT-OFF DATE..............
, 19 .
DELIVERY DATE............. On or about , 19 .
DENOMINATIONS............. The minimum denomination of a Class A-1 Certificate
will represent approximately $ aggregate
principal balance of the Mortgage Loans on the
Cut-off Date. The minimum denomination of a Class
A-2 Certificate will represent approximately
$ notional amount.
INTEREST.................. Passed through monthly, on the day of each
month (each, a "Distribution Date") commencing
, 19 . The Pass-Through Rate on the
Mortgage Loans is % per annum. See "Description
of the Certificates" in the Prospectus.
PRINCIPAL (INCLUDING
PREPAYMENTS)............. Passed through monthly on the Distribution Date,
commencing on , 19 . See "Description of the
Certificates" in the Prospectus.
MORTGAGE POOL............. The Mortgage Pool will consist of [fixed rate,]
[fully-amortizing,] [level-payment] mortgage loans
secured by Mortgages on [one- to four-family
residential properties, loans (the "Cooperative
Loans") made to finance the purchase of certain
rights relating to cooperatively owned properties
secured by a pledge of shares of a cooperative
corporation (the "Cooperative") and an assignment
of a proprietary lease or occupancy agreement on a
cooperative dwelling (a "Cooperative Dwelling"
and, together with one- to four-family residential
properties, "Single Family Property"), or mortgage
loans secured by multifamily residential rental
properties consisting of five or more dwelling
units or apartment buildings owned by cooperative
housing corporations ("Multifamily Property")]
[located in the states of , and ] [and
mortgage participation certificates evidencing
participation interests in such loans that meet
the requirements of the nationally recognized
rated agency or agencies rating the certificates
(collectively, the "Rating Agency") for a rating
in one of the two highest rating categories of
such Rating Agency] (the "Mortgage Loans"). All
Mortgage Loans will have original maturities of at
least but not more than years. See "Description
of the Mortgage Pool and the Underlying
Properties" herein.*
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in manufactured housing conditional sales
contracts and installment loan agreements ("Contracts"), the disclosure to be
set forth will be substantially similar to the disclosure set forth in
Version E under "Summary of Terms--Contract Pool."
S-4
<PAGE>
CLASS B CERTIFICATES...... The rights of the Class B Certificateholders to
receive distributions with respect to the Mortgage
Loans are subordinated to the rights of the Class
A Certificateholders to receive such distributions
to the extent of the Subordinated Amount described
below. This subordination is intended to enhance
the likelihood of regular receipt by Class A
Certificateholders of the full amount of scheduled
payments of principal and interest and to decrease
the likelihood that the Class A Certificateholders
will experience losses. The extent of such
subordination (the "Subordinated Amount") will be
determined as follows: on the Cut-off Date and on
each anniversary of the Cut-off Date until ,
the Subordinated Amount will equal [ ]% of the
original aggregate principal balance of the
Mortgage Loans less the amount of "Aggregate
Losses" (as defined in the Prospectus) since the
Cut-off Date through the last day of the month
preceding such anniversary date; from the
anniversary of the Cut-off Date, the Subordinated
Amount will gradually decline in accordance with a
schedule set forth in the Pooling and Servicing
Agreement.
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
RESERVE FUND..............
The protection afforded to the Class A
Certificateholders from the subordination feature
described above will be effected both by the
preferential right of the Class A
Certificateholders to receive current
distributions with respect to the Mortgage Loans
(to the extent of the Subordinated Amount) and by
the establishment of a reserve (the "Reserve
Fund"). The Reserve Fund is not included in the
Trust Fund. The Reserve Fund will be created by
the Depositor and shall be funded by the retention
of all of the scheduled distributions of principal
otherwise distributable to the Class B
Certificateholders on each Distribution Date until
the Reserve Fund reaches an amount (the "Required
Reserve") that will equal [; thereafter, the
Reserve Fund must be maintained at the following
levels: ]. See "Description of the
Certificates--Subordinated Certificates" and "--
Reserve Fund" in the Prospectus.
[OPTIONAL TERMINATION..... The Depositor may, at its opinion, repurchase from
the Trust all Mortgage Loans remaining outstanding
[at such time as the aggregate unpaid principal
balance of such Mortgage Loans is less than 10% of
the aggregate principal balance of the Mortgage
Loans on the Cut-off Date]. The repurchase price
will equal [the aggregate unpaid principal balance
of such Mortgage Loans, together with accrued
interest thereon at the Pass-Through Rate through
the last day of the month during which such
repurchase occurs plus the appraised value of any
property with respect thereof]. [Any such
termination will be effected in compliance with
the requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986, so as to constitute
a "qualifying liquidation" thereunder.] See
"Description of the Certificates--Termination;
Repurchase of Certificates" in the Prospectus.]
S-5
<PAGE>
ADVANCES.................. The Servicers of the Mortgage Loans (and the Master
Servicer, with respect to each Mortgage Loan that
it services directly and otherwise, to the extent
the related Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans under
certain circumstances. See "Description of
Certificates-- Advances" in the Prospectus.
TRUSTEE...................
. See "Description of the Certificates--
Trustee" herein.
CERTIFICATE RATING........ It is a condition of issuance of the Class A
Certificates that they be rated in one of the two
highest rating categories of the Rating Agency
prior to issuance. See "Rating" herein.
LEGAL INVESTMENT.......... The Class A Certificates constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act"), and, as such, are legal
investments for certain entities to the extent
provided in the Enhancement Act. See "Legal
Investment" in the Prospectus.
ERISA CONSIDERATIONS...... See "ERISA Considerations" in the Prospectus [and
herein].
TAX ASPECTS............... See "Certain Federal Income Tax Consequences--
General"; ["--REMIC Trust Funds"] ["--Non-REMIC
Trust Funds"] in the prospectus. Purchasers
of Class A-1 Certificates should see "Certain
Federal Income Tax Consequences ["--REMIC Trust
Funds--Taxation of Owners of REMIC Regular
Certificates"] ["--Non-REMIC Trust Funds--Taxation
of Owners of Trust Fractional Certificates" and
"-- Taxation of Owners of Trust Fractional
Certificates ["--Application of Stripped Bond
Rules"]] in the Prospectus for discussions of
certain tax considerations particular to the Class
A-1 Certificates. Purchasers of Class A-2
Certificates should see "Certain Federal Income Tax
Consequences ["--REMIC Trust Funds--Taxation of
Owners of REMIC Residual Certificates"]["--Non
REMIC Trust Funds--Taxation of Owners of Trust
Interest Certificates"] in the Prospectus for
discussions of certain tax considerations
particular to the Class A-2 Certificate.*
- --------
* If the Prospectus Supplement for a Series of Certificates provides that
Stroock & Stroock & Lavan LLP will pass upon the material federal income tax
consequences of the Certificates for the Depositor, then such Prospectus
Supplement will contain tax disclosure substantially similar to the disclosure
set forth in Version E under "Summary of Terms--Tax Aspects" and "Certain
Federal Income Tax Consequences."
S-6
<PAGE>
[RISK FACTOR]
[Description of Risk Factors to be added as appropriate)
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING PROPERTIES*
The Mortgage Pool will consist of Mortgage Loans evidenced by notes with
aggregate unpaid principal balances outstanding as of the Cut-off Date, after
deducting payments of principal due on such date, of approximately $ . The
amount is subject to a permitted upward and downward variance of up to %.
The Mortgage Pool will consist of -year, [fixed-] rate, fully-amortizing,
[level-payment] Mortgage Loans, as more fully described in the Prospectus.
The weighted average interest rate of the Mortgage Loans as of the Cut-off
Date will be at least % but no more than %. All Mortgage Loans will have
interest rates of at least % but no more than %. The weighted average
maturity of the Mortgage Loans, as of the Cut-off Date, will be at least
years but no more than years. All Mortgage Loans will have original
maturities of at least but no more than years. None of the Mortgage
Loans will have been originated prior to or after 19 . None of
the Mortgage Loans will have a scheduled maturity later than .
The Mortgage Loans will have the following characteristics as of the Cut-off
Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated before
, 19 . See "Certain Federal Income Tax Consequences--Mortgage
Pools." "--Taxation of Owners of Trust Fractional Certificates" and "--
Market Discount and Premium" in the Prospectus for information regarding
such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value ratios
at origination in excess of 80%, and no Mortgage Loan will have had a loan-
to-value ratio at origination in excess of [95%].
All of the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of private mortgage insurance
until the outstanding principal balance is reduced to 75% of the Original
Value.
[ % of the Mortgage Loans will be secured by Mortgages on single-family
dwellings] [ % of the Mortgage Loans will be secured by Multifamily
Property][ % of the Mortgage Loans will be secured by a pledge of shares
of a Cooperative and an assignment of a proprietary lease or occupancy
agreement on a Cooperative Dwelling.]
No more than % of the Mortgage Loans will be secured by Mortgages on
condominiums and row houses.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided and no
more than % of the principal balance of any such Mortgage Loan will be
represented by Buy-Down Funds.
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Description of the Contract Pool."
S-7
<PAGE>
No more than %, by aggregate principal balance, of the Mortgage Loans
will be GPM Loans.
At least % of the Mortgage Loans will be secured by an owner-occupied
Mortgaged Property. Such determination will have been made on the basis of
a representation by the Mortgagor at the time of origination of the
Mortgage Loan that he then intended to occupy the underlying property or,
in the absence of such a representation, various factors indicating that
such underlying property is owner-occupied.
No more than [ ]% of the Mortgage Loans will be secured by Mortgages on
properties located in any one zip code or project.
The Mortgage Loans will be secured by Mortgages on properties located in the
states of .
Specific information with respect to the Mortgage Loans will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in
a Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of the
Certificates.
YIELD CONSIDERATIONS
PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS
The rate of principal payments on the Class A Certificate, the aggregate
amount of each interest payment on the Class A-1 Certificates and Class A-2
Certificates and the yield to maturity of the Class A-1 and Class A-2
Certificates will correspond directly to the rate of payments of principal on
the Mortgage Loans (including, for this purpose, scheduled amortization,
payments resulting from liquidation due to default, casualty, condemnation and
the like and repurchases by the Servicers under the circumstances described
herein and in the Prospectus). The rate of principal payments on pools of
mortgages or loans are influenced by a variety of economic, geographic, social
and other factors. In general, however, if prevailing interest rates fall
significantly below the interest rates on the Mortgage Loans, the Mortgage
Loans are likely to be subject to higher prepayment rates than if prevailing
rates remain at or above the interest rates on the Mortgage Loans. The rate of
payment of principal may also be affected by any repurchase of the Mortgage
Loans by the Servicers. See "Termination; Repurchase of Mortgage Loans" herein
and "Description of the Certificates--Assignment of Mortgage Loans" in the
Prospectus. In any such event, the repurchase price would be passed through to
Certificateholders as a prepayment of principal. See "Maturity and Prepayment
Considerations" in the Prospectus.
[[All] [ %] of the Mortgage Loans contain "due-on-sale" provisions.
Consequently, acceleration of mortgage payments as a result of transfers of
the related mortgaged property will affect the level of prepayments on the
Mortgage Loans. In addition, Mortgagors may prepay the Mortgage Loans at any
time without penalty.]
[As the Class A-1 Certificates are being offered at discounts from their
original principal amounts, if the purchaser of a Class A-1 Certificate
calculates its anticipated yield to maturity based on an assumed rate of
payment of principal that is faster than that actually received on the
Mortgage Loans, its actual yield to maturity will be lower than that so
calculated.] Conversely, since the Class A-2 Certificates are being offered
without any original principal amount, if the purchaser of a Class A-2
Certificate calculates its anticipated yield to maturity based on an assumed
rate of payment of principal that is slower than that actually received on the
Mortgage Loans, its actual yield to maturity will be lower than that so
calculated. In either case, the converse would be true.
S-8
<PAGE>
The timing of changes in the rate of prepayments of the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal on the Mortgage
Loans the greater the effect on an investor's yield to maturity. As a result,
the effect on an investor's yield of principal payments occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Certificates may not be offset by a
subsequent like reduction (or increase) in the rate of principal payments.
[BECAUSE THE CLASS A-1 CERTIFICATES ARE BEING OFFERED AT A DISCOUNT FROM
THEIR ORIGINAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY ON SUCH CERTIFICATES
WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS.]
BECAUSE THE CLASS A-2 CERTIFICATES ARE BEING OFFERED WITHOUT ANY PRINCIPAL
AMOUNT, THE YIELD TO MATURITY ON THE CLASS A-2 CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS AND MAY FLUCTUATE
SIGNIFICANTLY FROM TIME TO TIME. PROSPECTIVE INVESTORS IN THE CLASS A-2
CERTIFICATES SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK
THAT IF THE RATE OF PAYMENT IS RAPID SUCH INVESTORS MAY NOT FULLY RECOUP THEIR
INITIAL INVESTMENT.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of new
mortgage loans. SPA assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgage loans in the first month of
life of the mortgage loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, SPA assumes a
constant prepayment rate of 6% per annum. SPA does not purport to be either a
historical description of the prepayment experience of any pool of mortgage
loans, or of the Mortgage Loans in the Mortgage Pool.
The following table illustrates, in general, the effect of prepayment rates
on the timing and amount of distributions on the Class A Certificates and
their resulting weighted average lives. The table does not purport to
represent the anticipated rate of prepayment on the Mortgage Loans or the
resulting anticipated rate of distributions on the Class A Certificates.
The table sets for the projected annual aggregate distributions that would
be made on the Class A-1 and Class A-2 Certificates, and their resulting
weighted average lives, based on various assumed percentages of SPA. The
column headed "0%" assumes that no Mortgage Loans are prepaid before maturity.
The columns headed " %", " %" and " %" assume that prepayments are made at
the specified percentages of SPA. It has been assumed in preparing the table
that (i) all of the Mortgage Loans have identical payment provisions, (ii) the
original term to maturity of each Mortgage Loan was [ ] years, (iii) all
Mortgage Loans are prepaid at the indicated percentage of SPA for the life of
the Certificates, (iv) the weighted average remaining term to maturity of the
Mortgage Loan is years, (v) the interest rate on each Mortgage Loan is
0. % in excess of the Pass-Through Rate, and (vi) the Mortgage Loans are not
repurchased at the option of the Depositor.
S-9
<PAGE>
PROJECTED ANNUAL AGGREGATE DISTRIBUTIONS ON THE CLASS A CERTIFICATES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES
------------------------------- -------------------------------
YEAR ENDING 0% SPA % SPA % SPA % SPA 0% SPA % SPA % SPA % SPA
----------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $ $ $
------- ------- ------- ------- ------- ------- ------- -------
Total distributions..... $ $ $ $ $ $ $ $
Weighted average life
(years)(1).............
</TABLE>
- --------
(1) The weighted average life of the Class A-2 Certificates, which is assumed
to be equal to the weighted average life of the Class A-1 Certificates, is
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results
and (iii) dividing the sum by the total principal distributions on the
Certificates.
The characteristics of the Mortgage Loans will not correspond exactly to
those assumed in preparing the statistics above. The annual cash flows on the
Class A Certificates will therefore differ from those set forth above even if
all the Mortgage Loans prepay monthly at the related assumed percentage of
SPA. In addition, it is not likely that any Mortgage Loan will prepay at a
constant rate until maturity or that all of the Mortgage Loans will prepay at
the same rate and the timing of changes in the rate of prepayments may
significantly affect the total cash flow received by a holder of a Class A
Certificate.
The Depositor makes no representation that the Mortgage Loans will prepay in
the manner or at any of the rates assumed in the table set forth above. Each
prospective investor must make its own decision as to the appropriate
prepayment assumption to be used in deciding whether or not to purchase the
Class A Certificates.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depository, , as master servicer (the
"Master Servicer"), and , as trustee (the "Trustee"), a form of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part. Reference is made to the accompanying
Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Certificates. The
Percentage Interest evidenced by each Class A-1 Certificate will be determined
by dividing the original principal amount of such Class A-1 Certificate by the
aggregate original principal amount of all Class A-1 Certificates. The
Percentage Interest evidenced by each Class A-2 Certificate will be determined
by dividing the original notional amount of such Class A-2 Certificate by the
aggregate original notional amount of all Class A-2 Certificates. The Class A
Certificates will be issued only in fully registered form in denominations of
$ and integral multiples thereof.
The Master Servicer will allocate each month's distributions of principal
and interest on the Mortgage Loans at the Pass-Through Rate as follows: % of
the monthly Principal Distribution and % of the Interest Distribution will
be allocated to the Holders of the Class A-1 Certificates (such sum being the
"Class
S-10
<PAGE>
A-1 Distribution Amount"); % of the Interest Distribution will be allocated
to the Holders of the Class A-2 Certificates (such sum being the "Class A-2
Distribution Amount"). Holders of Class A-2 Certificates will not receive
distributions of principal with respect to the Mortgage Loans. On each
Distribution Date, the Master Servicer will distribute to each Holder of a
Class A Certificate an amount equal to the Certificateholder's Percentage
Interest evidenced by the Class A Certificate in the Class A-1 or the Class A-
2 Distribution Amount, as the case may be. The remaining distribution will be
made to the Holders of the Class B Certificates, as more fully set forth
below. Such distributions will be made to Certificateholders of record on the
Record Date for such Distribution Date.
On each Distribution Date, the Master Servicer will distribute to the Class
A Certificateholders, in the manner set forth above, an amount (the "Required
Distribution") equal to the sum of:
(i) the aggregate undivided interest evidenced by all Class A
Certificates (such aggregate undivided interest being the sum of the
aggregate interests evidenced by the Class A Certificates in the Principal
Distribution and the Interest Distribution) (the "Senior Interest") in: (a)
until such time as the Subordinated Amount is reduced to zero, all
scheduled payments of principal and interest (including any advances
thereof), adjusted to the applicable Pass-Through Rate, which payments
became due on the due date to which such Distribution Date relates (the
"Due Date"), whether or not such payments are actually received; and (b)
after the Subordinated Amount is reduced to zero, all payments of principal
and interest, adjusted to the applicable Pass-Through Rate due on such Due
Date or due, but not previously received, since the time the Subordinated
Amount was reduced to zero, but only to the extent such payments are
actually received or advanced prior to the Determination Date;
(ii) the Senior Interest in all principal prepayments received during the
month prior to the month of distribution and, interest at the Pass-Through
Rate to the end of the month in which such principal prepayments occur;
(iii) the Senior Interest in the sum of (a) the outstanding principal
balance of each Mortgage Loan or property acquired in respect thereof that
was repurchased pursuant to the Pooling and Servicing Agreement or
liquidated or foreclosed during the monthly period ending on the day prior
to the Due Date to which such distribution relates, calculated as of the
date each such Mortgage Loan was repurchased, liquidated or foreclosed, and
(b) accrued but unpaid interest on such principal balance, adjusted to the
Pass-Through Rate, to the first day of the month following the month of
such repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders to the extent that there are sufficient eligible funds
available for distribution to such Class A Certificateholders on a
Distribution Date. Funds eligible for such purpose with respect to each
Distribution Date shall be as set forth in the Prospectus under "Payments on
Mortgage Loans."
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited
therein from the Reserve Fund and any Advances by the Servicers or the Master
Servicer) are not sufficient to make the full distribution of the Required
Distribution on any Distribution Date, the Master Servicer shall distribute on
such Distribution Date to the Class A Certificateholders the amount of funds
eligible for distribution to such Class A Certificateholders. If, on any
Distribution Date, prior to the time the Subordinated Amount has been reduced
to zero, the Class A Certificateholders do not receive the Required
Distribution, the Holders of the Class B Certificates will not receive any
distributions on such Distribution Date. Any amounts in the Certificate
Account after the Required Distribution is made to the Class A
Certificateholders will be paid to the holders of the Class B Certificates.
Holders of the Class B Certificates will not be required to refund any amounts
that have previously been properly distributed to them directly from the
Certificate Account, regardless of whether there are sufficient funds on such
Distribution Date to make a full distribution to the Class A
Certificateholders. The subordination of distributions allocable to Holders of
the Class B Certificates is limited to the Subordinated Amount, which will
decrease over time as more fully set forth in the Pooling and Servicing
Agreement, and such subordination will apply on any Distribution Date only to
then current distributions allocable to the Class B Certificateholders.
S-11
<PAGE>
Distributions to Holders of Class A and Class B Certificates will be made on
a pro rata basis, in accordance with the aggregate Percentage Interests of
each Class held by each Certificateholder of the related Class.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder, provided, however, that the final distribution in
retirement of the Class A Certificates will be made only upon presentation and
surrender of the Class A Certificates at the office or agency specified in the
notice of Certificateholders of such final distribution.
The Class A Certificates will be transferable and exchangeable on a
Certificate Register to be maintained at the office or agency of the Master
Servicer maintained for the purpose in New York, New York. Class A
Certificates surrendered to the Trustee for registration of transfer or
exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Class A Certificates, but payment of a
sum sufficient to cover any tax or other governmental charge may be required.
Such office or agency is currently located at .
TRUSTEE
The Trustee for the Certificates will be , a bank organized and
existing under the laws of the with its
principal office located at .
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operations in
. The Master Servicer is a FNMA/FHLMC approved seller-servicer based in
. As of , the Master Servicer serviced, for other investors and
for its own account, approximately mortgage loans with an aggregate principal
balance in excess of $ . The Master Servicer conducts operations through
FHA approved branch offices in . The Master Servicer originated
approximately $ in mortgage loans in 19 . The Master Servicer's
consolidated stockholder's equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
The Master Servicer will obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond")
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances" in an amount and form acceptable to the nationally
recognized statistical rating organization or organizations rating the Class A
Certificates (collectively, the "Rating Agency").
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Mortgage Loan, equal to
the excess of each interest payment on a Mortgage Loan over the Pass-Through
Rate, less [(a)] any servicing compensation payable to the Servicer of such
Mortgage Loan under the terms of the agreement with the Master Servicer
pursuant to which such Mortgage Loan is serviced (the "Servicing Agreement")
(including such compensation paid to the Master Servicer as the direct
servicer of a Mortgage Loan for which there is no Servicer)[.] [, and (b) the
amount payable to the Depositor, as directed below.] [Pursuant to the Pooling
and Servicing Agreement, on each Distribution Date, the Master Servicer will
remit to [the Depositor] in respect of each interest payment on a Mortgage
Loan an amount equal to % of the
S-12
<PAGE>
outstanding principal balance of such Mortgage Loan, before giving effect to
any payments due on the preceding Due Date.] The Master Servicer will be
permitted to withdraw from the Certificate Account, in respect of each
interest payment on a Mortgage Loan, an amount equal to % of the outstanding
principal balance of such Mortgage Loan, before giving effect to any payments
due on the preceding Due Date. See "Description of the Certificates--Servicing
and Other Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Master Service and
the Servicers. The Servicers and the Master Servicer will pay all expenses
incurred in connection with their responsibilities under the Servicing
Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus.
Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation and amounts payable
to Depositor might be characterized as an ownership interest in the interest
payments on the Mortgage Loans ("Retained Yield") for federal income tax
purposes, by reason of the extent to which either the weighted average
Mortgage Rate, or the stated interest rates on the Mortgage Loans exceeds the
Pass-Through Rate, and the tax consequences to them of such a
characterization. In this regard, there are no authoritative guidelines for
federal income tax purposes as to either the maximum amount of servicing
compensation that may be considered reasonable in the context of this or
similar transactions or whether the reasonableness of servicing compensation
should be determined on a weighted averaged or loan-by-loan basis. [The
Depositor intends to treat % of such servicing compensation and % of the
amount payable to it described above as Retained Yield for federal income tax
purposes in reports to the Certificateholders and to the Internal Revenue
Service.] See "Certain Federal Income Tax Consequences--Mortgage Pools" and
"--Taxation of Owners of Trust Fractional Certificates" in the Prospectus for
information regarding the characterization of servicing compensation [and the
amounts payable to the Depositor].
[TERMINATION; REPURCHASE OF MORTGAGE LOANS
The Pooling and Servicing Agreement provides that the Depositor may purchase
from the Trust all Mortgage Loans remaining in the Mortgage Pool and thereby
effect early retirement of the Certificates, provided that [the aggregate
unpaid balances of the Mortgage Loans at the time of such repurchase is less
than [10]% of the aggregate principal balance of the Mortgage Loans on the
Cut-off Date]. The purchase price for any such repurchase [will be the
outstanding principal balance of such Mortgage Loans together with accrued and
unpaid interest at the Pass-Through Rate to the last day of the month of such
repurchase, plus the appraiser value of any property acquired in respect
thereof.] [Any such repurchase will be effected in compliance with the
requirements of Section 860F(a)(iv) of the Code in order to constitute a
"qualifying liquidation" thereunder.] In no event will the Trust continue
beyond the expiration of 21 years from the death of the last survivor of the
persons named in the Pooling and Servicing Agreement.]
RATING
It is a condition to the issuance of the Class A Certificates that they be
rated " " by the Rating Agency. Such rating addresses the likelihood that
the holders of the Class A Certificates will receive payments required under
the Pooling and Servicing Agreement. In assigning such a rating, to mortgage
pass-through certificates, the Rating Agency takes into consideration the
credit quality of mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on such mortgage pool is adequate to make required
payments on such certificates. Such rating does not, however, represent an
assessment of the likelihood that principal prepayments will be made by
mortgagors or the degree to which such payments might differ from that
originally anticipated. As a result, holders of the Class A Certificates might
suffer a lower than anticipated yield, and holders of the Class A-2
Certificates might fail, in circumstances of extreme prepayment, to recoup
their original investment.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
S-13
<PAGE>
[ERISA CONSIDERATIONS]*
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA Considerations--
Prohibited Transaction Class Exemption" in the Prospectus), a Class A
Certificate of an Exempt Series must entitle its holder to pass-through
payments of both principal and interest on the Mortgage Loans. Because holders
of Class A-2 Certificates are only entitled to pass-through payments of
interest (but not principal). PTCE 83-1 will not exempt Plans which acquire
the Class A-2 Certificates from the prohibited transaction rules of ERISA. Any
Plan fiduciary who proposes to cause a Plan to purchase Class A Certificates
should consult with its counsel with respect to the potential consequences
under ERISA and the Code of the Plan's acquisition and ownership of Class A
Certificates. However, the other PTCE's or the Underwriter's PTE may be
applicable. See "ERISA Considerations--Prohibited Transaction Class Exemption"
in the Prospectus.
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
[UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
------------ ------------ ------------ -----------
<S> <C> <C> <C>
Credit Suisse First Boston Corporation........ $ $ $
Total.......................... $ $ $ ]
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Class A Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Class A Certificates to the public
initially at the public offering prices set forth on the cover page of this
Prospectus Supplement [, and through the Representative,] to certain dealers
at such prices less the following concessions and that the Underwriter[s] and
such dealers may allow the following discounts on sales to certain other
dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
-------------------- --------------------
<S> <C> <C>
Class A-1....................... % %
Class A-2....................... % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
[If and to the extent required by applicable law or regulations, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"ERISA Considerations" or in the Prospectus under "ERISA Considerations."
S-14
<PAGE>
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by _________________________________________________________.
The material federal income tax consequences of the Class A Certificates
will be passed upon for the Depositor by _______________________________.*
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates
of the Depositor, which will have acquired such Mortgage Loans from time to
time in the open market or in privately negotiated transactions.
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Legal Matters."
S-15
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
[UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
- -------------------------------- ---------------- ---------------- ------------
<S> <C> <C> <C>
Credit Suisse First Boston
Corporation ................... $ $ $
Total ....................... $ $ $ ]
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Class A Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Class A Certificates to the public
initially at the public offering prices set forth on the cover page of this
Prospectus Supplement [, and through the Representative,] to certain dealers
at such prices less the following concessions and that the Underwriter[s] and
such dealers may allow the following discounts on sales to certain other
dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
-------------------- --------------------
<S> <C> <C>
Class A-1 .... % %
Class A-2 .... % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor
and for the Underwriter[s] by [Cadwalader, Wickersham & Taft,] [Stroock &
Stroock & Lavan LLP,] New York, New York. The material federal income tax
consequences of the Class A Certificates will be passed upon for the Depositor
by [Cadwalader, Wickersham & Taft] [Stroock & Stroock & Lavan LLP].*
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired
in privately negotiated transactions by the Depositor from one or more
affiliates of the Depositor, which will have acquired such Mortgage Loans
from time to time in the open market or in privately negotiated transactions.
- ------------
* If the Series of Certificates offered pursuant to this Version B
Prospectus Supplement evidences interests in Contracts, the
disclosure to be set forth will be substantially similar to the
disclosure set forth in Version E under "Legal Matters."
S-16
VERSION B
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
[Version C]
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
ABS Mortgage Pass-Through Certificates, [Class A], Series
$[Variable Rate] [ %] Class A-1 Certificates $ % Class A-3 Certificates
$[Variable Rate] [ %] Class A-2 Certificates $ % Class A-4 Certificates
-----------
The [Class A] Certificates (the "Certificates") offered hereby evidence
ownership interests in a trust to be created by Credit Suisse First Boston
Mortgage Securities Corp. (the "Depositor") on or about , 199 (the "Trust").
The Trust property will consist of a pool of [conventional] [fixed rate]
[mortgage loans and] [mortgage participation certificates, evidencing
participation interests in such mortgage loans and meeting the requirements of
the nationally recognized rating agency or agencies rating the [Class A]
Certificates (collectively, the "Rating Agency") for a rating in one of the two
highest rating categories of such Rating Agency] (the "Mortgage Loans") and
certain related property to be conveyed to the Trust by the Depositor (the
"Trust Fund"). The Mortgage Loans will be transferred to the Trust, pursuant to
a Pooling and Servicing Agreement (as defined herein), dated as of ,
199 , by the Depositor in exchange for the Certificates and are more fully
described in the Prospectus Supplement and in the accompanying Prospectus.
Interest on the Class A-1, Class A-2 and Class A-3 Certificates, at the rate
of interest set forth above for each such Class, will be distributed [monthly]
on each Distribution Date, commencing , 199 . Distributions of interest on
the Class A-4 Certificates will commence after distributions in reduction of
Stated Principal Balance (as defined herein) of the Class A-3 Certificates have
reduced Stated Principal Balance of such Class to zero. Prior to that time,
interest will accrue on the Class A-4 Certificates and the amount so accrued
will be added to the Stated Principal Balance thereof on each Distribution
Date. Distributions in reduction of Stated Principal Balance of the
Certificates of each Class will be made on a pro rata basis among the
Certificates of such Class, in the order of their respective Final Scheduled
Distribution Dates (as defined herein), so that no distribution in reduction of
Stated Principal Balance of any Certificate will be made until the Stated
Principal Balance of each Class of Certificates having a prior Final Scheduled
Distribution Date has been reduced to zero.
Scheduled distributions on the Mortgage Loans included in the Mortgage Pool,
together with certain other funds, as set forth more fully herein, will be
sufficient to make timely distributions of interest and distributions in
reduction of Stated Principal Balance on the [Class A] Certificates and to
reduce the Stated Principal Balance thereof to zero not later than the Final
Scheduled Distribution Dates set forth herein. However, the actual final
distribution on the [Class A] Certificates could occur significantly earlier
than the Final Scheduled Distribution Dates set forth herein. The [Class A]
Certificates will be subject to Special Distributions under the circumstances
specified herein. [The Depositor intends to offer the Class B Certificates (as
defined herein) to sophisticated institutional investors in transactions not
requiring registration under the Securities Act of 1933. The rights of the
Class B Certificateholders to receive distributions with respect to the
Mortgage Loans will be subordinated to the rights of the Class A
Certificateholders to the extent described herein and in the Prospectus.]
The Underwriter[s] [do[es] not] intend to make a secondary market for the
[Class A] Certificates [but [is] [are] under no obligation to do so]. There can
be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Certain Federal Income Tax Consequences"
in the Prospectus.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF FIRST
BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the factors set forth under Risk Factors
on page S-12 of this Prospectus Supplement.
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Final
Scheduled Proceeds to the
Distribution Price to Underwriting Depositor
Interest Rate Date (1) Public (2) Discount (2)(3)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Class A-1
Certificate (4) % % %
- ---------------------------------------------------------------------------------
Per Class A-2
Certificate (4) % % %
- ---------------------------------------------------------------------------------
Per Class A-3
Certificate % % %
- ---------------------------------------------------------------------------------
Per Class A-4
Certificate % % %
- ---------------------------------------------------------------------------------
Total % % %
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
(1) These dates are calculated assuming, among other things, that there are no
prepayments on the Mortgage Loans in the Mortgage Pool and that the
characteristics of such Mortgage Loans are as described under "Description
of the Trust Fund--The Mortgage Pool" herein.
(2) Plus accrued interest, if any, at the applicable rate from , 199 .
(3) Before deduction of expenses payable by the Depositor estimated at $ .
(4) The Class A-1 Certificates will bear interest at the per annum rate of %
through , 19 , and thereafter at a variable per annum rate of % above
the arithmetic mean of the London interbank offered rates for [ ] month
Eurodollar deposits ("LIBOR"), determined as set forth herein, subject to a
maximum interest rate of %.
(5) The Class A-2 Certificates will bear interest at the per annum rate of %
through , 19 , and thereafter at a variable per annum rate equal to [ % -
( X LIBOR), determined as set forth herein, subject to a minimum interest
rate of %.]
-----------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [its] [their] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be ready for delivery on or about
199 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES OFFERED HEREBY MAY NOT
BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER[S] MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ ABS Mortgage Pass-Through Certificates, [Class
A] Series (the "[Class A] Certificates").
$[Variable] [%] Class A-1 Certificates.
$[Variable] [%] Class A-2 Certificates.
$ % Class A-3 Certificates.
$ % Class A-4 Certificates.
[The Class A-1 and Class A-2 Certificates are
Variable Rate Certificates. The Class A-3 and
Class A-4 Certificates are Fixed Interest Rate
Certificates, as described herein.]
[The Class A-4 Certificates are Compound Interest
Certificates for the purposes of this Prospectus
Supplement.]
[The Class A Certificates represent in the
aggregate an approximate % undivided interest in
the Trust Fund. The remaining approximate %
undivided interest in the Trust Fund is
represented by the Class B Certificates, which are
subordinated in certain respects to the Class A
Certificates, as more fully described herein and
in the Prospectus. [The Class B Certificates are
not being offered hereby, and may be retained by
the Depositor or sold by the Depositor at any time
to one or more sophisticated institutional
investors in privately negotiated transactions not
requiring registration under the Securities Act of
1933.]]
DENOMINATIONS AND RECORD
DATES.................... The [Class A] Certificates will be issued in fully
registered form in minimum denominations of $
and integral multiples of $ in excess of such
amount. [The Record Date for each regular
distribution on the [Class A] Certificates is the
close of business on the [last] day [of the
[second] month] immediately preceding the
applicable Distribution Date.] [The Record Date
for each regular distribution on the Variable Rate
certificates is the close of business on the th
day of the month in which the applicable
Distribution Date occurs. The Record Date for each
regular distribution on the Fixed Rate
Certificates is the close of business on the th
day of the month immediately preceding the month
in which the applicable Distribution Date occurs.]
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities Corp.
(the "Depositor").
MASTER SERVICER...........
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
INTEREST DISTRIBUTIONS....
[Interest will be distributed on [the th day of
each month] [each , , and ] (each, a
"Distribution Date") on the Stated Principal
S-3
<PAGE>
Balance (as defined herein) of the Certificates at
the applicable rate of interest specified on the
cover page hereof (the "Interest Rate") for the
Class A-1, Class A-2 and Class A-3 Certificates,
commencing , 19 .] [Interest will be
distributed on the Class A-1 Certificates at the
per annum rate of % through , 19 , and
thereafter at a variable per annum rate of %
above LIBOR, determined as set forth herein,
subject to a maximum interest rate of %.
Interest will be distributed on the Class A-2
Certificates at the per annum rate of % through
, 19 , and thereafter at a variable per
annum rate equal to % - ( x LIBOR),
determined as set forth herein, subject to a
minimum interest rate of %. Interest will be
distributed on the Class A-3 and Class A-4
Certificates (the "Fixed Rate Certificates") at
the respective per annum rates specified on the
cover page hereof.] [Interest distributable on the
Certificates will accrue from the [first day of
the month preceding the] prior Distribution Date
(or from , 19 in the case of the First
Distribution Date) through the last day of the
[second] month preceding the then current
Distribution Date.] [Interest will accrue on the
Variable Rate Certificates from the preceding
Distribution Date (or from , 19 in the case of
the first Distribution Date) through the day
preceding each Distribution Date. Interest will
accrue on the Fixed Rate Certificates from the
th day of the month preceding the month in which
the prior Distribution Date occurred (or from ,
19 in the case of the first Distribution Date)
through the th day of the month preceding the
month in which the current Distribution Date
occurs.] Distributions of interest on the Class A-
4 Certificates will commence after distributions
in reduction of Stated Principal Balance of the
Class A-3 Certificates have reduced the Stated
Principal Balance of such Class to zero. Prior to
that time, interest will accrue on the Class A-4
Certificates and the amount so accrued will be
added to the Stated Principal Balance thereof on
each Distribution Date. See "Description of the
Certificates--Distributions of Interest" herein.
[The distribution of interest on the Class A-3
Certificates (and the addition of accrued interest
to the Stated Principal Balance of the Class A-4
Certificates prior to the reduction of the Stated
Principal Balance of the Class A-3 Certificates to
zero) one month after the date to which interest
accrues thereon and the calculation of accrued
interest on such Certificates based on the
assumption that distributions in reduction of
Stated Principal Balance are made one month prior
to the date on which such distributions actually
are made will reduce the effective yield to the
holders of the Class A-3 Certificates from that
which would be the case if interest distributable
on such Certificates on a Distribution Date were
to accrue to such Distribution Date. See
"Description of the [Class A] Certificates--
Distributions of Interest [on the Class A
Certificates]" herein.]
S-4
<PAGE>
DISTRIBUTIONS IN
REDUCTION OF STATED The Stated Principal Balance of a [Class A]
PRINCIPAL BALANCE........ Certificate at any time represents the maximum
specified dollar amount (exclusive of interest at
the related Interest Rate) to which the holder
thereof is entitled from the cash flow on the
Mortgage Loans comprising the Mortgage Pool and
will decline to the extent distributions in
reduction of Stated Principal Balance are received
by such holder. The Initial Stated Principal
Balance of each Class of Certificates is set forth
on the cover of this Prospectus Supplement.
Allocation of distributions in reduction of Stated
Principal Balance will be made to the [Subc]
[C]lasses of the [Class A] Certificates in the
order of their respective Final Scheduled
Distribution Dates, so that no distribution in
reduction of Stated Principal Balance will be made
to any [Subc] [C]lass of [Class A] Certificates
until distributions in reduction of Stated
Principal Balance made to each [Subc] [C]lass of
[Class A] Certificates having a prior Final
Scheduled Distribution Date have reduced the
Stated Principal Balance of such [Subc] [C]lass to
zero.
Distributions in reduction of Stated Principal
Balance on the [Class A] Certificates will be made
on each Distribution Date on which such
distributions are due in an aggregate amount equal
to the sum of (i) the amount of interest accrued
on the Class A-4 Certificates from the [first day
of the month preceding the prior] Distribution
Date (or from , 19 in the case of the first
Distribution Date) through the last day of the
[second] month preceding the then current
Distribution Date but not then distributable (the
"Accrual Distribution Amount"), (ii) the [Class A]
Stated Principal Distribution Amount (as described
below) [and (iii) % of Excess Cash Flow (as
defined herein)]. The [Class A] Stated Principal
Distribution Amount with respect to a Distribution
Date equals the amount, if any, by which the
aggregate Stated Principal Balance of the [Class
A] Certificates (before taking into account the
amount of interest accrued on the Class A-4
Certificates to be added to the Stated Principal
Balance thereof on such Distribution Date) exceeds
the Asset Value, as defined herein, of the
Mortgage Loans comprising the Mortgage Pool as of
the Business Day prior to such Distribution Date.
For purposes of determining the Stated Principal
Distribution Amount, the Asset Value of the
Mortgage Loans comprising the Mortgage Pool will
be reduced by taking into account [the Senior
Interest (as defined herein) in] all distributions
of principal thereof (including prepayments)
received or due to be received by the Trustee or
its nominee during the period (a "Due Period")
ending on the Business Day prior to such
Distribution Date. See "Description of the [Class
A] Certificates--Distributions in Reduction of
Stated Principal Balance" herein.
FINAL SCHEDULED
DISTRIBUTION DATE........ Class A-1 Certificates .
Class A-2 Certificates .
S-5
<PAGE>
Class A-3 Certificates .
Class A-4 Certificates .
The Final Scheduled Distribution Date for each
[Subc][C]lass of [Class A] Certificates is the
latest date on which the Stated Principal Balance
of all the Certificates of such [Subc] [C]lass
will have been reduced to zero, and is calculated
by assuming, among other things, that (i)
scheduled interest and principal payments (with no
prepayments) on the Mortgage Loans comprising the
Mortgage Pool are timely received and (ii) such
amounts are reinvested at an assumed reinvestment
rate of % per annum to , 19 , % per annum
from , 19 to , 19 and % per annum
thereafter (the "Assumed Reinvestment Rate").
Since the rate of distributions in reduction of
Stated Principal Balance of each [Subc] [C]lass of
[Class A] Certificates will depend on the rate of
payment (including prepayments) on the principal
of the Mortgage Loans, the actual final
distribution of any [Subc] [C]lass of [Class A]
Certificates could occur significantly earlier
than its Final Scheduled Distribution Date. The
rate of payments on the Mortgage Loans will depend
on their particular characteristics, as well as on
prevailing interest rates from time to time and
other economic factors, and no assurance can be
given as to the actual payment experience of the
Mortgage Loans. See "Yield Considerations" herein.
[SPECIAL DISTRIBUTIONS....
The [Class A] Certificates may receive special
distributions in reduction of Stated Principal
Balance ("Special Distributions") on the first day
of any month, other than a month in which a
Distribution Date occurs, if, as a result of
principal prepayments on the Mortgage Loans
comprising the Mortgage Pool and/or low
reinvestment yields, the Trustee determines, based
on assumptions specified in the Pooling and
Servicing Agreement, that interest requirements on
any portion of the [Class A] Certificates would
not be met. The amount of any such Special
Distribution would not exceed the amount of
distributions in reduction of Stated Principal
Balance of the [Class A] Certificates that would
otherwise be required to be made on the next
Distribution Date. As a result, a Special
Distribution on the [Class A] Certificates would
not result in a distribution to [Class A]
Certificateholders more than two months earlier
than the Distribution Date on which such
distribution would otherwise have been received.
The [Class A] Certificates will be redeemable in
the same priority and manner as distributions in
reduction of Stated Principal Balance are made on
a Distribution Date. See "Description of the
[Class A] Certificates--Special Distributions"
herein.]
[OPTIONAL TERMINATION..... On any Distribution Date on or after the [later] of
or the date on which the Stated Principal Balance
of the [Class A-3] Certificates has been reduced
to zero, the Depositor will have the right to
repurchase, in whole, but not in part, the
Mortgage Loans comprising the Mortgage Pool.
Additionally, on any Distribution Date on which
the aggregate principal amount of the Mortgage
Loans comprising the Mortgage
S-6
<PAGE>
Pool is less than [10%] of the initial aggregate
principal amount of such Mortgage Loans, the
Depositor will have the right to repurchase, in
whole, but not in part, such Mortgage Loans. Any
such repurchase will be made at a purchase price
equal to [the aggregate principal amount of such
Mortgage Loans plus accrued interest thereon to
the last day of the month of such repurchase,
together with the appraised value of any property
acquired in respect of such Mortgage Loans]. Any
such termination will be effected in compliance
with the requirements of Section 860F(a) (iv) of
the Internal Revenue Code of 1986 (the "Code") so
as to constitute a "qualifying liquidation"
thereunder. The proceeds of any such repurchase
will be treated as a distribution on the Mortgage
Loans for purposes of distributions to the
Certificateholders. In no event will the Trust
continue beyond the expiration of 21 years from
the death of the last survivor of the person named
in the Pooling and Servicing Agreement. See
"Description of the [Class A] Certificates--
Optional Termination" herein.]
TRUST FUND................ The Certificates evidence ownership interest in the
Trust Fund, the assets of which will consist of
the following:
A. MORTGAGE POOL......... The Mortgage Pool will consist of [fixed-rate,]
fully amortizing, [level-payment] mortgage loans
[and mortgage participation certificates
evidencing participation interests in such
mortgage loans that meet the requirements of the
nationally recognized rating agency or agencies
rating the Certificates (collectively, the "Rating
Agency") for a rating in one of the two highest
rating categories of such Rating Agency] secured
by mortgages on one- to four-family residential
properties located in the states of , and
(the "Mortgage Loans"). All Mortgage
Loans will have original maturities of at least
[15] but no more than [40] years. See "Description
of the Trust Fund--The Mortgage Pool" herein.*
B. CERTIFICATE ACCOUNT... There will be deposited in an account (the
"Certificate Account") to be established with the
Trustee all distributions on or with respect to
the Mortgage Loans comprising the Mortgage Pool,
together with reinvestment income thereon [, the
amount of cash initially deposited therein by the
Depositor, and any amounts withdrawn from any
Reserve Fund, GPM Fund or Buy-Down Fund (as
described below)]. Funds on deposit in the
Certificate Account will be available to make
distributions in reduction of Stated Principal
Balance and distributions of interest on the
[Class A] Certificates on each Distribution Date.
See "Description of the Trust Fund--Certificate
Account" herein.
- --------
* If the Series of Certificates offered pursuant to the Version C Prospectus
Supplement evidences interest in manufactured housing conditional sales
contracts and installment loan agreements ("Contracts"), the disclosure to be
set forth will be substantially similar to the disclosure set forth in
Version E under "Summary of Terms--Contract Pool."
S-7
<PAGE>
[C. BUY-DOWN FUND........ The Depositor will deliver to the Trustee cash, a
letter of credit or a guaranteed investment
contract to fund the Buy-Down Fund for the [Class
A] Certificates. The Assumed Reinvestment Rate for
the Buy-Down Fund will be the same as that of the
Certificate Account. The Trustee may withdraw
excess funds in the Buy-Down Fund on any
Distribution Date. See "Description of the Trust
Fund--Buy-Down Fund" herein.]
[D. GPM FUND............. The Depositor will deliver to the Trustee cash, a
letter of credit or a guaranteed investment
contract to fund the GPM Fund for the [Class A]
Certificates. The Assumed Reinvestment Rate for
the GPM Fund will be the same as that of the
Certificate Account. The Trustee may withdraw
excess funds in the GPM on any Distribution Date.
See "Description of the Trust Fund--GPM Fund"
herein.
[E. REINVESTMENT All amounts on deposit in the Certificate Account
AGREEMENT................ [and the GPM and Buy-Down Funds] will be
reinvested with by the Trustee pursuant
to a guaranteed investment contract (the
"Reinvestment Agreement") at a rate of % per
annum. See "Description of the Trust Fund--
Reinvestment Agreement" herein.]
[F. LETTER OF CREDIT..... The maximum liability of [ ] under an irrevocable
standby letter of credit, for the Mortgage Pool
(the "Letter of Credit"), net of unreimbursed
payments thereunder, will be no more than [10%] of
the initial aggregate principal balance of the
Mortgage Pool (the "Letter of Credit Percentage").
The maximum amount available to be paid under the
Letter of Credit will be determined in accordance
with the Pooling and Servicing Agreement referred
to herein. The duration of coverage and the amount
and frequency of any reduction in coverage will be
in compliance with the requirements for a rating
in one of the two highest rating categories of the
Rating Agency. The amount available under the
Letter of Credit shall be reduced by the amount of
unreimbursed payments thereunder. See "Description
of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
[G. [POOL INSURANCE [Neither the Certificates nor the Mortgage Loans
POLICY................... will be insured or guaranteed by any governmental
agency.] Subject to the limitations described
herein, a pool insurance policy for certain of the
Mortgage Loans (the "Pool Insurance Policy"), will
cover losses due to default on such Mortgage Loans
in an initial amount of not less than [5%] of the
aggregate principal balance as of the first day of
the month of the creation of the Trust (the "Cut-
off Date") of all Mortgage Loans that are not
covered as to their entire outstanding principal
balance by primary policies of mortgage guaranty
insurance. See "Description of the Trust Fund--The
Pool Insurance Policy" herein. The Pool Insurance
Policy will be subject to the limitations
described under "Description of Insurance--the
Pool Insurance Policy" in the Prospectus.]
S-8
<PAGE>
[H. HAZARD INSURANCE
[AND SPECIAL HAZARD
INSURANCE POLICY]........
All of the Mortgage Loans will be covered by
standard hazard insurance policies insuring
against losses due to various causes, including
fire, lightning and windstorm. [An insurance
policy (the "Special Hazard Insurance Policy")
will cover losses with respect to the Mortgage
Loans that result from certain other physical
risks that are not otherwise insured against
(including earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited in scope
and will cover losses in an initial amount equal
to the greater of % of the aggregate principal
balance of the Mortgage Loans or times the unpaid
principal balance of the largest Mortgage Loan.]
Any hazard losses not covered by [either] standard
hazard insurance policies [or the Special Hazard
Insurance Policy] will not be insured against and
[, to the extent that the amount available under
the Letter of Credit or any alternative method of
credit support is exhausted,] will be borne by the
Certificateholders. See "Description of the Trust
Fund--The Special Hazard Insurance Policy" herein.
The hazard insurance policies [and the Special
Hazard Insurance Policy] will be subject to the
limitations described under "Description of
Insurance--Hazard Insurance" and "--Special Hazard
Insurance Policies"] in the Prospectus.
[I. MORTGAGOR BANKRUPTCY
BOND.................... The Depositor will obtain a bond or similar form of
insurance coverage (the "Mortgagor Bankruptcy
Bond"), providing coverage against losses that
result from proceedings with respect to obligors
under the Mortgage Loans (the "Mortgagor") under
the federal Bankruptcy Code. See "Description of
the Trust Fund--Mortgagor Bankruptcy Bond" herein
and "Description of Insurance--The Mortgagor
Bankruptcy Bond" in the Prospectus.]
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
[CLASS B CERTIFICATES..... The rights of the Class B Certificateholders to
receive distributions with respect to the Mortgage
Loans are subordinated to the right of the Class A
Certificateholders to receive such distributions
to the extent of the Subordinated Amount described
below. This subordination is intended to enhance
the likelihood of regular receipt by Class A
Certificateholders of the full amount of scheduled
distributions of interest and distributions in
reduction of Stated Principal Balance and to
decrease the likelihood that the Class A
Certificateholders will experience losses. The
extent of such subordination (the "Subordinated
Amount") will be determined as follows: on the
Cut-off Date and on each anniversary of the Cut-
off Date until , the Subordinated Amount
will equal % of the original aggregate principal
balance of the Mortgage Loans less the amount of
"Aggregate Losses" (as defined in the Prospectus)
since the Cut-off Date through the last day of the
month preceding such anniversary date; from the
th anniversary of the Cut-off Date onward, the
Subordinated Amount will gradually decline in
accordance with a schedule set forth in the
Pooling and Servicing Agreement.]
S-9
<PAGE>
The protection afforded to the Class A
[RESERVE FUND............. Certificateholders from the subordination feature
described above will be effected both by the
preferential right of the Class A
Certificateholders to receive current
distributions with respect to the Mortgage Loans
(to the extent of the Subordinated Amount) and by
the establishment of a reserve (the "Reserve
Fund"). The Reserve Fund is not included in the
Trust Fund. The Reserve Fund will be created by
the Depositor and shall be funded by the retention
of all of the scheduled distributions of principal
of the Mortgage Loans otherwise distributable to
the Class B Certificateholders on each
Distribution Date until the Reserve Fund reaches
an amount (the "Required Reserve") that will equal
[; thereafter, the Reserve Fund must be
maintained at the following levels: ]. See
"Description of the Certificates--Subordinated
Certificates" and "--Reserve Fund" in the
Prospectus.]
MASTER SERVICING AND
SERVICING AGREEMENTS..... The Depositor will enter into a Master Servicing
Agreement with , which will have entered into
Servicing Agreements with various entities (each a
"Servicer") with respect to the servicing of the
Mortgage Loans. Among other things, the Servicers
and the Master Servicer are obligated under
certain circumstances to make advances with
respect to the Mortgage Loans, to purchase any
Mortgage Loans for which mortgage insurance
coverage is denied on the grounds of fraud or
misrepresentation and to purchase certain Mortgage
Loans with respect to which a breach of a
representation or warranty has occurred. The
Depositor will assign to the Trustee its rights
under the Master Servicing Agreement and the
Servicing Agreements with respect to the
Certificates.
ADVANCES.................. Any Servicer of the Mortgage Loans (and the Master
Servicer, with respect to each Mortgage Loan that
it services directly and otherwise, to the extent
the applicable Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans under
certain circumstances. See "Description of the
Certificates--Advances" in the Prospectus.
SUBSTITUTION OF MORTGAGE
LOANS..................... Within three months following the date of the
issuance of the Certificates, the Depositor may
deliver to the Trustee Mortgage Loans in
substitution for any one or more of the Mortgage
Loans initially included in the Trust Fund but
which do not conform in one or more respects to
the description thereof contained in this
Prospectus Supplement or in the Current Report on
Form 8-K referred to herein. See "The Mortgage
Pool--Substitution of Mortgage Loans" in the
Prospectus.
RESIDUAL CERTIFICATES..... Upon the issuance of the Certificates, [the
Depositor will retain] an interest in the Mortgage
Pool [that] will be represented by a class of
certificates (the "Residual Certificates") that
the Depositor will designate as "residual
interests" under Section 860G(a)(2) of the
Internal Revenue Code of 1986 (the "Code"). The
Residual Certificates will represent the right to
receive distributions
S-10
<PAGE>
equal to % of the Excess Cash Flow, if any, with
respect to each Distribution Date. In addition, at
such time as the Stated Principal Balance of the
Class A-4 Certificates has been reduced to zero
[and all amounts distributable to the Class B
Certificateholders have been paid], the holder or
holders of the Residual Certificates will be the
sole owners of the Mortgage Pool and will have
sole rights with respect to the Mortgage Loans and
the Mortgage Pool. The Residual Certificates are
not being offered hereby. [The Depositor may, but
need not, sell some or all of such Residual
Certificates after the date of issuance of the
Certificates to sophisticated institutional
investors in transactions not requiring
registration under the Securities Act of 1933.]
TRUSTEE................... . See
"Description of the [Class A] Certificates--
Trustee" herein.
LEGAL INVESTMENT.......... The [Class A] Certificates constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act"), and, as such, are legal
investments for certain entities to the extent
provided in the Enhancement Act. See "Legal
Investment" in the Prospectus.
CERTIFICATE RATING........ It is a condition of issuance that the [Class A]
Certificates be rated in one of the two highest
rating categories of the Rating Agency prior to
issuance.
ERISA LIMITATIONS.........
See "ERISA Considerations" in the Prospectus.
TAX ASPECTS............... See "Certain Federal Income Tax Consequences--
General"; "--REMIC Trust Funds" in the prospectus.
Purchasers of Certificates of Classes A-1, A-2, A-
3, A-4, and B should see "Certain Federal Income
Tax Consequences--REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates" in the
prospectus for discussions of certain tax
considerations particular to such Certificates.*
- --------
* If the Prospectus Supplement for a Series of Certificates provides that
Stroock & Stroock & Lavan LLP will pass upon the material federal income tax
consequences of the Certificates for the Depositor, then such Prospectus
Supplement will contain tax disclosure substantially similar to the disclosure
set forth in Version E under "Summary of Terms--Tax Aspects" and "Certain
Federal Income Tax Consequences."
S-11
<PAGE>
[RISK FACTORS]
[Description of Risk Factors to be added as appropriate]
DESCRIPTION OF THE TRUST FUND
THE MORTGAGE POOL*
The Mortgage Pool will consist of Mortgage Loans evidenced by mortgage notes
with aggregate unpaid principal balances outstanding as of the first day of
the month of the creation of the Trust (the "Cut-off Date"), after deducting
payments of principal due on such date, of approximately $ . This amount is
subject to a permitted upward and downward variance of up to %. [The Mortgage
Pool will consist of -year, [fixed-rate], fully-amortizing, [level-payment]
Mortgage Loans, as more fully described in the Prospectus.]
The weighted average interest rate (individually, a "Mortgage Rate") of the
Mortgage Loans as of the Cut-off Date will be at least % but no more than %.
All Mortgage Loans will have Mortgage Rates of at least % but no more than
%. The weighted average maturity of the Mortgage Loans, as of the Cut-off
Date, will be at least years but no more than years. All Mortgage Loans
will have original maturities of at least but no more than years. None
of the Mortgage Loans will have been originated prior to or after
, 19 . None of the Mortgage Loans will have a scheduled maturity later
than .
The Mortgage Loans will have the following characteristics as of the Cut-off
Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated before
July 18, 1984, and no more than % of the Mortgage Loans will have been
originated before September 27, 1985. See "Certain Federal Income Tax
Consequences--Mortgage Pools," "--Taxation of Owners of Trust Fractional
Certificates," and "--Market Discount and Premium" in the Prospectus for
information regarding such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value ratios
at origination in excess of [80]%, and no Mortgage Loan will have had a
loan-to-value ratio at origination in excess of 95%.
All of the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of primary mortgage insurance
until the outstanding principal balance is reduced to 75% of the Original
Value.
At least % of the Mortgage Loans will be secured by mortgages on one-
family dwellings.
No more than % of the Mortgage Loans will be secured by Mortgages on
condominiums and row houses.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided, and no
more than % of the principal balance of any such Mortgage Loan will be
represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be GPM Loans.
- --------
* If the Series of Certificates offered pursuant to this Version C Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Description of the Contract Pool."
S-12
<PAGE>
At least % of the Mortgage Loans will be secured by a Mortgage on an
owner-occupied Mortgaged Property. Such determination will have been made
on the basis of a representation by the Mortgagor at the time of
origination of the Mortgage Loan that such Mortgagor then intended to
occupy the underlying property or, in the absence of such a representation,
on the basis of various factors indicating that the underlying property is
owner-occupied.
No more than [5%] of the Mortgage Loans will be secured by Mortgages on
properties located in any one zip code or project.
The Mortgage Loans will be secured by Mortgages on properties located in
the states of .
Specific information with respect to the Mortgage Loans will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in
a Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of the
Certificates.
CERTIFICATE ACCOUNT
There will be deposited in an account (the "Certificate Account") to be
established with the Trustee all distributions on or with respect to the
Mortgage Loans comprising the Mortgage Pool, together with reinvestment income
thereon. [Until such time as the Subordinated Amount is reduced to zero,][f]
[F]unds on deposit in the Certificate Account will be available to make
distributions in reduction of Stated Principal Balance and distributions of
interest on the Certificates on each Distribution Date, as more fully set
forth herein. [Any funds remaining in the Certificate Account after making
required distributions to holders of the Class A Certificates will be
distributed [to the holders of the Class B Certificates.] Any amounts
remaining in the Certificate Account [after making required distributions on
the Class B Certificates] will be distributed to the holders of the Residual
Certificates.
[BUY-DOWN FUND
The Depositor will deliver cash, a letter of credit or a guaranteed
investment contract to the Trustee to fund the Buy-Down Fund for the [Class A]
Certificates. [The Senior Interest in] Buy-Down Mortgage Loans not valued
solely on the basis of the scheduled monthly payments required of the
Mortgagor will be valued by taking into account funds available from the Buy-
Down Fund and reinvestment income thereon at the same Assumed Reinvestment
Rate as that of the Certificate Account.
The Trustee may withdraw excess funds from the Buy-Down Fund on any
Distribution Date. Any amounts so withdrawn shall be distributed [first, to
restore the amount in the Reserve Fund to the Required Reserve, and then to
the holders of the Class B Certificates to the extent of any deficiency in
scheduled distributions on such Class B Certificates on such Distribution
Date. Any amounts remaining will be distributed] to the holders of the
Residual Certificates.]
[GPM FUND
To the extent that [the Senior Interest in] a Mortgage Loan providing for
payments during a portion of its term that are less than the actual amounts of
principal and interest payable thereon (a "GPM Loan") is valued on the basis
of its maximum principal balance, rather than on the basis of scheduled
payments by the Mortgagor, the Depositor will deliver cash, a letter of credit
or a guaranteed investment contract to fund the GPM Fund for the [Class A]
Certificates. The Assumed Reinvestment Rate for the GPM Fund is the same as
that of the Certificate Account.
S-13
<PAGE>
The Trustee may withdraw excess funds from the GPM Fund on any Distribution
Date. Any amounts so withdrawn shall be distributed [first, to restore the
amount in the Reserve Fund to the Required Reserve, and then to the holders of
the Class B Certificates to the extent of any deficiency in scheduled
distributions on such Class B Certificates on such Distribution Date. Any
amounts remaining will be distributed] to the holders of the Residual
Certificates.]
[REINVESTMENT AGREEMENT
All amounts on deposit in the Certificate Account [, the Buy-Down Fund and
the GPM Fund] will be reinvested with by the Trustee pursuant to a
guaranteed investment contract (the "Reinvestment Agreement") at a rate of %
per annum.]
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of unreimbursed
payments thereunder, for the Certificates will be no more than % of the
aggregate principal balance of the Mortgage Loans on the Cut-off Date. The
duration of coverage and the amount and frequency of any reduction in coverage
will be in compliance with the requirements established by the Rating Agency
rating the Certificates in order to obtain a rating in one of the two highest
ratings categories of the Rating Agency. The precise amount of coverage under
the Letter of Credit and the duration and frequency of reduction of such
coverage will be set forth in the Current Report on Form 8-K referred to
above. See "Description of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
[THE POOL INSURANCE POLICY
Subject to the limitations described under "Description of Insurance--Pool
Insurance Policy" in the Prospectus, the Pool Insurance Policy will cover
losses by reason of default on the Mortgage Loans that are not covered as to
their entire outstanding principal balances by primary mortgage insurance, in
an amount equal to % of the aggregate principal balance of such Mortgage
Loans on the Cut-off Date.
The Pool Insurance Policy will be issued by , a corporation (the
"Pool Insurer"), which is engaged principally in the business of insuring
mortgage loans on residential properties against default in payment by the
Mortgagor. At , 19 , the Pool Insurer had insurance in force in the form of
primary policies covering approximately $ billion of residential mortgages.
At such date, the Pool Insurer had total assets of approximately $ million,
capital and surplus aggregating $ million and statutory contingency reserves
of $ million, resulting in total policyholders' reserves of $ million. The
claims-paying ability of the Pool Insurer is currently rated by . In
accordance with standard rating agency practice, may, at any time,
revise or withdraw such rating.
The information set forth above has been provided by the Pool Insurer. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
[THE SPECIAL HAZARD INSURANCE POLICY
The Special Hazard Insurance Policy will cover certain risks not otherwise
insured against under hazard insurance policies, subject to the limitations
described in the Prospectus, and will be issued by a corporation (the
"Special Hazard Insurer"). Claims under such policy will be limited to % of
the aggregate principal balance of the Mortgage Loans or twice the principal
balance of the Mortgage Loan with the highest outstanding principal balance at
the Cut-off Date, whichever is greater. At , 19 , the Special Hazard
Insurer had total assets of approximately $ million and total policyholders'
surplus of $ . The claims-paying ability of the Special Hazard Insurer is
presently rated by . In accordance with standard rating agency
practice, may, at any time, revise or withdraw such rating.
The information set forth above has been provided by the Special Hazard
Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
S-14
<PAGE>
[MORTGAGOR BANKRUPTCY BOND
The Depositor will obtain a bond or similar form of insurance coverage (the
"Mortgagor Bankruptcy Bond") for proceedings with respect to Mortgagors under
the federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled
payments of principal and interest on a Mortgage Loan or a reduction by such
court of the principal amount of a Mortgage Loan and will cover certain unpaid
interest on the amount of such a principal reduction from the date of the
filing of a bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy Bond
will be $ plus the greater of (i) % of the aggregate principal balances of
the Mortgage Loans secured by second residences and investor-owned residences
or (ii) times the largest principal balance of any such Mortgage Loan. The
coverage provided by the Mortgagor Bankruptcy Bond will be reduced by
payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by , a corporation. At
December 31, 19 , had admitted assets of approximately $ and total
policyholders' surplus of approximately $ .
The information set forth above concerning has been provided by it. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
YIELD CONSIDERATIONS
Principal payments on mortgage loans may be in the form of scheduled
amortization payments or prepayments (for this purpose, the term "prepayment"
includes prepayments and liquidation due to default or other dispositions of
the loans). Prepayments on the Mortgage Loans comprising the Mortgage Pool
will be passed through to the Trustee, as the assignee of the Mortgage Loans,
and such prepayments will be [available to be] applied to distributions in
reduction of States Principal Balance on the [Class A] Certificates [, as more
fully set forth herein]. Prepayments on mortgage loans are commonly measured
by a prepayment standard or model. The model used in this Prospectus
Supplement, the Standard Prepayment Assumption ("SPA"), represents an assumed
rate of prepayment each month relative to the outstanding principal balance of
a pool of mortgage loans. A prepayment assumption of 100% SPA assumes
prepayment rates of 0.2% per annum of the then outstanding principal balance
of such mortgage loans in the first month of the life of the mortgage loans
and an additional 0.2% per annum in each month thereafter until the 30th
month. Beginning in the 30th month and in each month thereafter during the
life of the mortgage loans. 100% SPA assumes a constant prepayment rate of 6%
per annum each month. As used in the table set forth below " % SPA" assumes
prepayment rates equal to % of 100% SPA; " % SPA" assumes prepayment rates
equal to % of 100% SPA; and " % SPA" assumes prepayment rates equal to % of
100% SPA. SPA does not purport to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool
of mortgage loans.
The rate of principal prepayments on pools of mortgage loans is influenced
by a variety of economic, geographic, social and other factors, including the
level of mortgage interest rates and the rate at which homeowners sell their
homes or default on their mortgages. In general, however, if prevailing
interest rates fall significantly below the interest rates on the Mortgage
Loans comprising the Mortgage Pool, the Certificates are likely to be subject
to higher prepayment rates than if prevailing rates remain at or above the
interest rates on the Mortgage Loans comprising the Mortgage Pool. In
addition, as homeowners move or default on their mortgages, their houses are
generally sold and the mortgages prepaid. As the rate of distributions in
reduction of Stated Principal Balance of each [Subc] [C]lass of [Class A]
Certificates will depend on the rate of payment (including prepayments) of the
Mortgage Loans comprising the Mortgage Pool, the actual final distribution
made on any [Subc] [C]lass of [Class A] Certificates is likely to occur
earlier than its Final Scheduled Distribution Date.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar in reduction of the principal of such
security will be distributed to the investor. The weighted average life of a
[Class A] Certificate is determined by (i) multiplying the amount of each
distribution in reduction of
S-15
<PAGE>
Stated Principal Balance by the number of years from the date of issuance of
the [Class A] Certificate to the related Distribution Date, (ii) summing the
results and (iii) dividing the sum by the total distributions in reduction of
Stated Principal Balance made on the Class A Certificate [, including, in the
case of a Class A-4 Certificate, any interest accrued and added to the Stated
Principal Balance of such Certificate].
The table set forth below has been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Mortgage Pool. The table assumes, among other things, that each Mortgage Loan
comprising the Mortgage Pool has a remaining term to maturity of years,
bears interest at a rate of % per annum and has payments of principal that
are timely received. There may be discrepancies between the characteristics of
the Mortgage Loans actually included in the Mortgage Pool and the
characteristics of the Mortgage Loans expected to be so included. Any such
discrepancy may have an effect on the percentages of Initial Stated Principal
Balance outstanding set forth in the table (and the weighted average lives of
each Class [Subclass] of the [Class A] Certificates. In addition, to the
extent that the Mortgage Loans that actually are included in the Mortgage Pool
have characteristics that differ from those assumed in the following table,
the Stated Principal Balance of any Class [Subclass] of the [Class A]
Certificates will be reduced to zero earlier or later than indicated by the
table.
Variations in actual prepayment experience and the balance of mortgage loans
that prepay may increase or decrease the percentages of initial Stated
Principal Balance and the weighted average lives shown in the following table.
Such variation may occur even if the average prepayment experience of all such
Mortgage Loans equals the indicated levels of SPA.
Based on the foregoing assumptions, [including an assumed interest rate of
% on the Class A-1 Certificates and an assumed interest rate of % on the
Class A-2 Certificates,] the following table indicates the projected weighted
average life of each [Subc] [C]lass of [Class A] Certificates and sets forth
the percentages of the initial Stated Principal Balance of each [Subc] [C]lass
of [Class A] Certificates that would be outstanding after each of the dates
shown at various percentages of SPA.
PERCENTAGE OF INITIAL STATED PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING
PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF
SPA 1 SPA 1 SPA 1 SPA 1
------------------- ------------------- ------------------- -------------------
PAYMENT DATE 0% % % % 0% % % % 0% % % % 0% % % %
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Original Balance
, 1996................
, 1997................
, 1998................
, 1999................
, 2000................
, 2001................
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING
PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF
SPA 1 SPA 1 SPA 1 SPA 1
------------------- ------------------- ------------------- -------------------
PAYMENT DATE 0% % % % 0% % % % 0% % % % 0% % % %
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
, 2002................
, 2003................
, 2004................
, 2005................
, 2006................
, 2007................
, 2008................
, 2009................
, 2010................
, 2011................
, 2012................
, 2013................
, 2014................
, 2015................
, 2016................
Weighted average life
(years)................
</TABLE>
- --------
(1) The table assumes, among other things, [at each level of SPA,] prepayment
of Mortgage Loans comprising the Mortgage Pool at the indicated rate and
Reinvestment Income at the Assumed Reinvestment Rate of % per annum [and
annual estimated administrative fees and expenses of approximately $ .]
DESCRIPTION OF THE [CLASS A] CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, , as master servicer (the
"Master Servicer"), and , as trustee (the "Trustee"), a form of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part. Reference is made to the accompanying
Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Certificates. Each
of the [Class A] Certificates at the time of issuance will qualify as a
"mortgage related security" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
Distribution of principal and interest as set forth above will be made by
the Trustee by check mailed to each Certificateholder entitled thereto at the
address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office or agency specified in the notice
to Certificateholders of such final distribution.
The [Class A] Certificates will be transferable and exchangeable on a
Certificate Register to be maintained by the Trustee at the office or agency
of the Master Servicer maintained for that purpose in New York, New York.
[Class A] Certificates surrendered to the Trustee for registration of transfer
or exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be
S-17
<PAGE>
made for any registration of transfer or exchange of [Class A] Certificates,
but payment of a sum sufficient to cover any tax or other governmental charge
may be required. Such office or agency of the Master Servicer is currently
located at . The Corporate Trust Office of the Trustee is currently
located at .
[DISTRIBUTIONS GENERALLY]
[On each Distribution Date, the Trustee will distribute to the Class A
Certificateholders, in the manner set forth below, an amount (the "Required
Distribution") equal to the sum of:
(i) the aggregate fractional undivided interest evidenced by all Class A
Certificates (the "Senior Interest") in: (a) until such time as the
Subordinated Amount is reduced to zero, all scheduled payments of principal
and interest (including any advances thereof), net of servicing fees and
other compensation payable to the Servicers and the Master Servicer, which
payments became due on the due date to which such Distribution Date relates
(the "Due Date"), whether or not such payments are actually received; and
(b) after the Subordinated Amount is reduced to zero, all payments of
principal and interest, net of servicing fees and other compensation
payable to the Servicers and the Master Servicer, but not previously
received, since the time the Subordinated Amount was reduced to zero, but
only to the extent such payments are actually received or advanced prior to
the Determination Date;
(ii) the Senior Interest in all principal prepayments received during the
month prior to the month of distribution and, interest to the last day of
the month in which such principal prepayments occur, net of servicing fees
and other compensation payable to the Servicers and the Master Servicer;
and
(iii) the Senior Interest in the sum of (a) the outstanding principal
balance of each Mortgage Loan or property acquired in respect thereof that
was repurchased pursuant to the Pooling and Servicing Agreement or
liquidated or foreclosed during the monthly period ending on the day prior
to the Due Date to which such distribution relates, calculated as of the
date of each such Mortgage Loan as repurchased, liquidated or foreclosed,
and (b) accrued but unpaid interest on such principal balance, net of
servicing fees and other compensation payable to the Servicers and the
Master Servicer, to the first day of the month following the month of such
repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders, in the manner set forth below, to the extent that there
are sufficient eligible funds available for distribution to such Class A
Certificateholders on a Distribution Date. Funds eligible for such purpose
with respect to each Distribution Date shall be as set forth in the Prospectus
under "Payments on Mortgage Loans."
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited
therein from the Reserve Funds and any Advances by the Servicers or the Master
Servicer) are not sufficient to make the Required Distribution on any
Distribution Date, the Trustee shall distribute on such Distribution Date to
the Class A Certificateholders the amount of funds eligible for distribution
to such Class A Certificateholders, in the manner set forth below. If, on any
Distribution Date, prior to the time the Subordinated Amount has been reduced
to zero, the Class A Certificateholders do not receive the Required
Distribution, the holders of the Class B Certificates will not receive any
distributions on such Distribution Date. Any amounts in the Certificate
Account after the Required Distribution is made to the Class A
Certificateholders will be distributed [first, to restore the amount in the
Reserve Fund to the Required Reserve, and then to the holders of the Class B
Certificates to the extent of any deficiency in the scheduled distribution to
such Certificateholders. Any excess will then be distributed to the holders of
the Residual Certificates, as set forth more fully below]. Holders of the
Class B Certificates [or the Residual Certificates] will not be required to
refund any amounts that have previously been properly distributed to them
directly from the Certificate Account, regardless of whether there are
sufficient funds on such Distribution Date to make a full distribution to the
Class A Certificateholders. The subordination of distributions allocable to
holders of the Class B Certificates is limited to the Subordinated Amount,
which will decrease over time as more fully set forth in the Pooling and
Servicing
S-18
<PAGE>
Agreement, and such subordination applies on any Distribution Date only to
then current distributions allocable to the Class B Certificateholders.
DISTRIBUTIONS OF INTEREST [ON THE CLASS CERTIFICATES]
The [Certificates of each Class] [Class A-3 Certificates and Class A-4
Certificates] will bear interest at the Interest Rates specified on the cover
page hereof. Interest on the Stated Principal Balance of the Class A-1 and
Class A-2 Certificates will accrue at the rates calculated as set forth
below.] Interest on the Class A-1 Certificates, Class A-2 Certificates and
Class A-3 Certificates will be distributable [monthly] on each Distribution
Date, commencing , 19 . [Interest distributable on the Certificates on a
Distribution Date will accrue from the [first day of the month preceding the]
prior Distribution Date (or from , 19 (the "Accrual Date") in the case of
the first Distribution Date) through the [last] day [of the [second] month]
preceding the then current Distribution Date. [Interest will accrue on the
Variable Rate Certificates from the preceding Distribution Date (or from ,
19 , in the case of the first Distribution Date) through the th day of the
month preceding each Distribution Date. Interest will accrue on the Fixed Rate
Certificates from the th day of the month [preceding the month] in which the
prior Distribution Date occurs (or from , 19 , in the case of the first
Distribution Date) through the th day of the month [preceding the month] in
which the current Distribution Date occurs.] Distributions of interest on the
Class A-4 Certificates will commence after distributions in reduction of
Stated Principal Balance of the Class A-3 Certificates have reduced the Stated
Principal Balance of such Class to zero. Prior to that time, interest will
accrue on the Class A-4 Certificates and the amount so accrued will be added
to the Stated Principal Balance thereof on each Distribution Date. [Interest
accrued on the [Subc] [C]lass of [Class A] Certificates currently receiving
distributions in reduction of Stated Principal Balance (and on the Class A-4
Certificates) during any period described above will be calculated on the
assumption that such distributions are made (and accrued interest added to the
Stated Principal Balance of the Class A-4 Certificates) on the [[first] day of
the month preceding] the next Distribution Date, and not on the Distribution
Date when actually made or added.
[Interest will accrue on the Class A-1 and Class A-2 Certificates through
, 19 at the rates of % and %, respectively. Commencing , 19 ,
interest will accrue on the Variable Rate Certificates at rates determined as
set forth below. For each interest accrual period other than the first
interest accrual period
--Interest will accrue on the Class A-1 Certificates at a per annum rate
of % above LIBOR, subject to a maximum interest rate of %.
--Interest will accrue on the Class A-2 Certificates at a per annum rate
equal to % - ( x LIBOR), subject to a minimum interest rate of %.
The rate at which interest will accrue on the Class A-2 Certificates will
thus vary inversely with changes in LIBOR. Interest will accrue on the Class
A-2 Certificates at the minimum rate of % whenever LIBOR is % or above, and
the maximum rate at which interest will accrue on the Class A-2 Certificates
will be % per annum, which would be the rate in effect if LIBOR were
determined to be %.
The following table illustrates the relationship between LIBOR rates and the
rate at which interest will accrue on the Class A-1 and Class A-2
Certificates.
<TABLE>
<CAPTION>
LIBOR CLASS A-1 CLASS A-2
----- ---------- ----------
<S> <C> <C>
% % %
% % %
% % %
</TABLE>
The [Trustee] will determine LIBOR for a given interest accrual period on
the second business day prior to the Distribution Date on which such interest
accrual period commences (an "Interest Rate Determination Date").
S-19
<PAGE>
For this purpose, a "business day" is any day on which banks in London and New
York City are open for the transaction of international business. Promptly
after each Interest Rate Determination Date, the Trustee will cause the
Interest Rates, the Stated Principal Balances of the Variable Rate
Certificates for the interest accrual period following such Determination
Date, and the amounts of interest payable on the Distribution Date following
such interest accrual period in respect of each $1,000 of such Stated
Principal Balance, to be published in an English language newspaper of general
circulation published each business day in New York City. The Stated Principal
Balances and the Interest Rates on the Variable Rate Certificates applicable
to the then current and the immediately preceding interest accrual periods may
be obtained by telephoning the Trustee at its Corporate Trust Office at.
The determination of the rates at which interest will accrue on the Variable
Rate Certificates after , 19 will be made in accordance with the following
provisions:
(i) On each Interest Rate Determination Date, the Trustee will
determine LIBOR on the basis of quotations [provided by [four]
Reference Banks as of 11:00 A.M. (London time) as such quotations
appear on the Reuters Screen LIBOR Page (as defined in the
International Swap Dealers Association, Inc. Code of Standard Wording,
Assumptions and Provisions for SWAPS, 1986 edition).] LIBOR as
determined by the Trustee is the arithmetic mean of such quotations
(rounded upward, if necessary, to the nearest multiple of of 1%).
(ii) If, on any Interest Rate Determination Date, at least two but
fewer than all of the Reference Banks provide quotations, LIBOR will be
determined in accordance with (i) above on the basis of the offered
quotations of those Reference Banks providing such quotations.
(iii) If, on any Interest Rate Determination Date, only one or none
of the Reference Banks provides such offered quotations, LIBOR will be
the higher of:
(a) LIBOR as determined on the previous Interest Rate
Determination Date; and
(b) the Reserve Interest Rate. The "Reserve Interest Rate" will be
the rate per annum (rounded upward as aforesaid) that the Trustee
determines to be either (x) the arithmetic mean of the offered
quotations that leading banks in New York City selected by the
Trustee (after consultation with the Depositor) are quoting on the
relevant Interest Rate Determination Date for [ ] month United
States dollar deposits to the principal London office of each of the
Reference Banks or those of them (being at least two in number) to
which such offered quotations are, in the opinion of the Trustee,
being so made or (y) in the event that the Trustee can determine no
such arithmetic mean, the arithmetic mean of the offered quotations
that leading banks in New York City selected by the Trustee (after
consultation with the Depositor) are quoting on such Interest Rate
Determination Date to leading European banks for [ ] month United
States dollar deposits; provided, however, that if the banks
selected as aforesaid by the Trustee are not quoting as mentioned
above, LIBOR for the next accrual period will be LIBOR as specified
in (a) above.
The rate at which interest will accrue on the Class A-1 Certificates will in
no event exceed % per annum, and the rate at which interest will accrue on
the Class A-2 Certificates will in no event be less than % per annum.
Each Reference Bank shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, shall not
control, be controlled by, or be under common control with, the Depositor and
shall have an established place of business in London.
[The distribution of interest on the [Class A] Certificates (and the
addition of accrued interest to the Stated Principal Balance of the Class A-4
Certificates prior to the reduction of the Stated Principal Balance of the
Class A-3 Certificates to zero) [30] days after the date to which interest
accrues thereon and the calculation of accrued
S-20
<PAGE>
interest on the Certificates based on the assumption that distributions in
reduction of Stated Principal Balance of the [Class A] Certificates are made
[one month] prior to the actual Distribution Date will reduce the effective
yield to holders of the [Class A] Certificates from that which would otherwise
be the case if interest distributable on the [Class A] Certificates (or added
to the Stated Principal Balance of the Class A-4 Certificates) on a
Distribution Date were to accrue to such Distribution Date.]
[The effective yield to the Class A-3 and Class A-4 Certificateholders will
be less than the yield that would otherwise be produced if interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) on a Distribution Date were to accrue
to such Distribution Date because (i) on the first Distribution Date, [ ]
months' interest is distributable on the Certificates (or to be added to the
Stated Principal Balance of the Class A-4 Certificates) even though [ ]
months will have elapsed from the date on which interest begins to accrue on
the Certificates and (ii) on each succeeding Distribution Date, the interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) is the interest accrued during the
period described above even though this accrual period ends [30] days prior to
such Distribution Date. In addition, during the first month of each interest
accrual period (other than the first such period) for the Class of
Certificates on which distributions in reduction of Stated Principal Balance
are being distributed, interest accrues on a principal balance that is less
than the Stated Principal Balance of such Class of Certificates, because
interest due on such Class on a Distribution Date is calculated on the Stated
Principal Balance of such Class since the preceding Distribution Date.]
DISTRIBUTIONS IN REDUCTION OF STATED PRINCIPAL BALANCE
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made on each Distribution Date on which distributions are
due in an aggregate amount equal to the sum of the Accrual Distribution Amount
and the Stated Principal Distribution Amount. For purposes of determining the
Stated Principal Distribution Amount, the Asset Value of the Mortgage Loans
comprising the Mortgage Pool will be reduced by taking into account [the
Senior Interest in] all distributions of principal thereof (including
prepayments) received or due to be received by the Trustee during the Due
Period prior to such Distribution Date.
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made first to the Class A-1 Certificates until the Stated
Principal Balance of the Class A-1 Certificates has been reduced to zero; next
to the Class A-2 Certificates until the Stated Principal Balance of the Class
A-2 Certificates has been reduced to zero; next to the Class A- 3 Certificates
until the Stated Principal Balance of the Class A-3 Certificates has been
reduced to zero; and then to the Class A-4 Certificates. Distributions in
reduction of Stated Principal Balance on [Certificates of a particular Class]
[Class A Certificates of a particular Subclass] will be made to the holder of
the Certificates of such [Class] [Subclass] either pro rata in the proportion
which the Stated Principal Balance of each Certificate of such [class]
[subclass] bears to the aggregate Stated Principal Balance of all the
Certificates of such [Class] [Subclass] or by random lot. Except as provided
herein, the Final Scheduled Distribution Date of each [Class] [Subclass] of
[Class A] Certificates has been determined based upon [the Senior Interest in]
scheduled payments of principal and interest on the Mortgage Loans comprising
the Mortgage Pool assuming no prepayments. Reinvestment Income at the Assumed
Reinvestment Rate, [and application of % of the Excess Cash Flow, as defined
herein, to the payment of Certificates.] The rate of prepayments on the
Mortgage Loans will depend on the prevailing level of interest rates and other
economic factors, and no assurance can be given as to the actual prepayment
rate of any Mortgage Loan.
The aggregate initial Asset Value of the Mortgage Loans comprising the
Mortgage Pool will be equal to at least 100% of the initial aggregate Stated
Principal Balance of the [Class A] Certificates.
The Asset Value of the Mortgage Loans comprising the Mortgage Pool will be
equal to the lesser of (a) the then present value of the [Senior Interest in
the] stream of remaining regularly scheduled monthly payments of principal and
interest on such Mortgage Loans [(after taking into account the applicable
portion of the Reserve Fund and the Buy-Down Fund)] together with Reinvestment
Income thereon from the assumed date of receipt of
S-21
<PAGE>
such payments to the next succeeding Distribution Date at the Assumed
Reinvestment Rate, discounted at the rate of % per annum with the same
frequency as distributions are made on the Certificates and (b) the product of
the Asset Value Cap calculated from time to time in the manner provided in the
Pooling and Servicing Agreement and the then outstanding principal balance of
such Mortgage Loan.
[ % of the Excess Cash Flow will be applied to the distributions on [Class
A] Certificates on each Distribution Date until such time that, even in the
event of excessive prepayments of the Mortgage Loans, sufficient funds will be
available to make distributions of interest on the [Class A] Certificates on
each succeeding Distribution Date. Thereafter, it will no longer be necessary
to provide for the possibility of a Special Distribution on the [Class A]
Certificates in respect of prepayments on such Mortgage Loans.]
On each Distribution Date, the distributions in reduction of Stated
Principal Balance on the [Class A] Certificates will be equal to the [Class A]
Stated Principal Distribution Amount. The [Class A] Stated Principal
Distribution Amount will be the amount by which (i) the Stated Principal
Balance of the [Class A] Certificates (before taking into account the amount
of interest accrued on the Class A-4 Certificates to be added to the Stated
Principal Balance thereof on the Distribution Date), exceeds (ii) the
aggregate Asset Value of the Mortgage Loans comprising the Mortgage Pool as of
such Distribution Date.
[In addition, % of the Excess Cash Flow from the Mortgage Loans comprising
the Mortgage Pool will be applied to the distributions of the [Class A]
Certificates on each Distribution Date until ]. Excess Cash Flow as of each
Distribution Date will be the amount, if any, by which (i) the [Senior
Interest in the] cash flow received from the Mortgage Loans and deposited in
the Certificate Account for the Certificates [and any amounts deposited in
such Certificate Account from any related Buy-Down Fund and GPM Fund on the
date of issuance of the Certificates], plus any Reinvestment Income thereon,
[together with any amounts otherwise distributable to the Class B
Certificateholders or in the Reserve Fund that are required to be distributed
to holders of the Class A Certificates] exceeds (ii) the sum of (a) the [Class
A] Stated Principal Distribution Amount on such Distribution Date and (b) all
interest accrued, whether or not then payable, on the Stated Principal Balance
of the [Class A] Certificates since the preceding Distribution Date, and (c)
any Special Distributions in reduction of Stated Principal Balance made since
the preceding Distribution Date (or since the date of issuance of the
Certificates in the case of the first Distribution Date). [On any Distribution
Date, Excess Cash Flow not so applied will be [distributed first to restore
the amount in the Reserve Fund to the Required Reserve, and then] to the
holders of the Class B Certificates to the extent of any current deficiency in
scheduled distributions to such Certificateholders on such Distribution Date.]
[Any excess will then be distributed to holders of the Residual Certificates.
Any Excess Cash Flow so distributed will not be available to make subsequent
distributions on the [Class A] Certificates.]
[SPECIAL DISTRIBUTIONS
The [Class A] Certificates may receive special distributions in reduction of
Stated Principal Balance ("Special Distributions") as a consequence of
principal prepayments on the Mortgage Loans comprising the Mortgage Pool
and/or low yields then available for reinvestment. The Trustee will be
required each month to determine, based on assumptions specified in the
Pooling and Servicing Agreement, the amount that will be available in the
Certificate Account for the distribution of interest that will have accrued on
such [Class A] Certificates (the "Available Interest Amount") through the
earlier of the last day of the month of determination or the last day of the
[second] month preceding the next Distribution Date (the earlier of such dates
being referred to as the "Available Interest Accrual Date"). If the Available
Interest Amount as so determined is less than the amount of interest that will
have accrued on such [Class A] Certificates to the Available Interest Accrual
Date, there will be distributed, on the first day of the month succeeding the
month of determination (the "Special Distribution Date"), the portion of the
Stated Principal Balance of the [Class A] Certificates that will cause the
Available Interest Amount to equal the amount of interest that will have
accrued to the Available Interest Accrual Date on the Certificates to be
outstanding immediately after such distribution. The amount of the Special
Distribution on the Certificates distributed on any Special Distribution Date
will not exceed the amount of
S-22
<PAGE>
distributions in reduction of Stated Principal Balance on such Certificates
that would otherwise be required to be made on the next Distribution Date.
The Trustee will notify each registered holder of [Class A] Certificates to
receive a Special Distribution by letter mailed at least five days prior to
the date set for such Special Distribution.]
[OPTIONAL TERMINATION
On any Distribution Date on or after the [later] of or the date on which
the Stated Principal Balance of the [Class A-3] Certificates has been reduced
to zero, the Depositor will have the right to repurchase, in whole, but not in
part, the Mortgage Loans comprising the Mortgage Pool. Additionally, on any
Distribution Date on which the aggregate principal amount of the Mortgage
Loans comprising the Mortgage Pool is less than [10]% of the initial aggregate
principal amount of such Mortgage Loans, the Depositor will have the right to
repurchase, in whole, but not in part, such Mortgage Loans. Any such
repurchase will be made at a purchase price equal to [the outstanding
principal balance of such Mortgage Loans, together with accrual and unpaid
interest thereon, net of servicing fees and other compensation, to the last
day of the month of such repurchase, plus the appraised value of any property
acquired in respect thereof]. Any such termination will be effected in
compliance with the requirements of Section 860F(a)(iv) of the Code so as to
constitute a "qualifying liquidation" thereunder. The proceeds of any such
repurchase will be treated as a distribution on the Mortgage Loans for
purposes of distributions to the Certificateholders. In no event will the
Trust continue beyond the expiration of 21 years from the death of the last
survivor of the persons named in the Pooling and Servicing Agreement.]
TRUSTEE
The Trustee for the Certificates will be
, a bank organized and existing under the laws of the
with its principal office located at ,
.
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation in
, . The Master Servicer may be an affiliate of the Depositor. The Master
Servicer is a FNMA/FHLMC approved seller-servicer based in . As of
, the Master Servicer serviced, for other investors and for its own
account, approximately mortgage loans with an aggregate principal balance in
excess of $ . The Master Servicer conducts operations through FHA approved
branch offices in . The Master Servicer originated approximately $ in
mortgage loans in 19 . The Master Servicer's consolidated stockholder's
equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances", in an amount acceptable to the Rating Agency.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
% of the outstanding principal balance of each Mortgage Loan in the Mortgage
Pool less [(a)] any servicing compensation to the servicer of each such
Mortgage Loan (the "Servicer") (including such compensation paid to the Master
Servicer as the direct Servicer of a Mortgage Loan for which there is no
Servicer) under the terms of an agreement with the Master Servicer pursuant to
which the Servicer services such Mortgage Loan (a "Servicing Agreement") [.]
S-23
<PAGE>
[, and (b) the amount payable to the Depositor, as described below.] [Pursuant
to the Pooling and Servicing Agreement, on each Distribution Date, the Master
Servicer will remit to [the Depositor] in respect of each interest payment on
a Mortgage Loan an amount equal to % of the outstanding principal balance of
such Mortgage Loan, before giving effect to any payments due on the preceding
Due Date.] The Master Servicer will be permitted to withdraw from the
Certificate Account, in respect of each interest payment on a Mortgage Loan,
an amount equal to % of the outstanding principal balance of such Mortgage
Loan, before giving effect to any payments due on the preceding Due Date.
Servicing compensation to the Servicers of the Mortgage Loans shall be payable
by withdrawal from the related Servicing Account (as defined in the
Prospectus) prior to deposit in the Certificate Account. In addition, each
Servicer (with respect to the Mortgage Loans serviced by it) and the Master
Servicer will be entitled to servicing compensation out of insurance proceeds
or liquidation proceeds. Additional servicing compensation in the form of
prepayment charges, assumption fees, late payment charges or otherwise shall
be retained by the Servicers and the Master Servicer to the extent not
required to be deposited in the Certificate Account. The Servicers and the
Master Servicer will pay all expenses incurred in connection with its
responsibilities under the Servicing Agreements and the Pooling and Servicing
Agreement (subject to limited reimbursement as described in the Prospectus),
including, without limitation, the various items of expense enumerated in the
Prospectus.
CERTIFICATE RATING
It is a condition to the issuance of the [Class A] Certificates that they be
rated in one of the two highest categories of the Rating Agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
Rating Agency.
[ERISA CONSIDERATIONS]*
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"ERISA Considerations."
S-24
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase the [entire] [following respective]
Stated Principal Balance of each [Subc] [C]lass of the [Class A] Certificates:
<TABLE>
<CAPTION>
[UNDERWRITERS CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Credit Suisse First Boston Corporation.. $ $ $ $
--- --- --- ----
$ $ $ $]
=== === === ====
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase all of the Certificates if
any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer each [Subc] [C]lass of the Certificates to
the public at the public offering prices set forth on the cover page of this
Prospectus Supplement and [through the Representative,] to certain dealers at
such prices less the following concessions and such dealers may allow the
following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
CONCESSION
(PERCENT DISCOUNT
OF (PERCENT OF
PRINCIPAL PRINCIPAL
AMOUNT) AMOUNT)
---------- -----------
<S> <C> <C>
Class A-1 Certificates................................... % %
Class A-2 Certificates................................... % %
Class A-3 Certificates................................... % %
Class A-4 Certificates................................... % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
The Depositor has agreed to indemnify the Underwriter[s] against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
LEGAL MATTERS*
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by .
The material federal income tax consequences of the Certificates will be passed
upon for the Depositor by .
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans
comprising the Mortgage Pool. All of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates
of the Depositor, which will have acquired such Mortgage Loans from time to
time in the open market or in privately negotiated transactions.
- --------
* If the Series of Certificates offered pursuant to this Version C Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Legal Matters."
S-25
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
[Version D]
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
ABS Mortgage Pass-Through Certificates, Series ("SPLITS")
Class -1 SPLITS
$ Original Principal Amount (Approximate)
100% of principal payments of the underlying Certificates
0% of interest payments on the underlying Certificates
Class -2 SPLITS
No Original Principal Amount
0% of principal payments on the underlying Certificates
Interest at % Annual Rate on Class -2 SPLITS notional amount
-----------
The ABS Mortgage Pass-Through Certificates, Series (the "SPLITS
Certificates"), offered hereby evidence undivided percentage ownership
interests in a trust (the "Trust") composed of Conventional Mortgage Pass-
Through Certificates, each having a pass-through rate of % (the "
Certificates"). The mortgage pool underlying the Certificates consists of
conventional one- to four-family residential mortgage loans originated and
serviced by and certain related property. The Certificates will be
transferred to the Trust, pursuant to a Deposit Trust Agreement dated as of
1, 199 , by Credit Suisse First Boston Mortgage Securities Corp. (the
"Depositor") in exchange for the SPLITS Certificates and are more fully
described in this Prospectus Supplement and in the accompanying Prospectus.
The SPLITS Certificates will be issued in two classes, Class -1 (the "Class
-1 Splits") and Class -2 (the "Class -2 SPLITS"). The Class -1 SPLITS
evidence ownership interests in all of the principal payments on the
Certificates. The Class -2 SPLITS evidence ownership interests in all of the
interest payments on the Certificates, net of a servicing fee as described
herein (the "Servicing Fee"). Interest distributions allocable to the Class -2
SPLITS will be passed through monthly at the annual rate of % (the "Annual
Rate") on the then aggregate outstanding notional amount of the Class -2
SPLITS. The notional amount is used solely for purposes of the determination of
interest payments and certain other rights and obligations of Holders of Class
-2 SPLITS and does not represent an interest in principal payments on the
Certificates.
Principal payments and interest at the Annual Rate will be distributed to the
holders of SPLITS Certificates ("Certificateholders" or "Holders") entitled
thereto on the [last] day of the month (or if such day is not a business day,
on the next business day) (the "Distribution Date"), or under the circumstances
described herein, on the Distribution Date in the next month. The first
distribution will be made on , 199 .
The SPLITS Certificates do not represent an obligation of or interest in
Credit Suisse First Boston Mortgage Securities Corp. or any affiliate thereof or
of , any affiliate thereof or any other governmental agency or
instrumentality.
There is currently no secondary market for the SPLITS Certificates and there
is no assurance that one will develop. The Underwriter[s] expect[s] to
establish a market in the SPLITS Certificates, but [is] [are] under no
obligation to do so. There is no assurance that a secondary market will
develop, or, if it does develop, that it will continue.
The yield to maturity on the SPLITS Certificates will depend on the rate of
principal payments (including prepayments) on the Certificates. The
mortgage loans underlying the Certificates are conventional loans and may
be prepaid at any time without penalty. A lower rate of principal than
anticipated would negatively affect the total return to investors in Class -1
SPLITS, which are being offered at a discount to their principal amount. The
yield to maturity on the Class -2 SPLITS will be extremely sensitive to the
rate of principal payments on the Certificates and may fluctuate
significantly from time to time. Investors should fully consider the associated
risks, including the risk that a rapid rate of principal payments could result
in the failure of investors in Class -2 SPLITS to recoup their initial
investment. See "Yield Considerations."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the factors set forth under Risk
Factors on page S-6 of this Prospectus Supplement.
Prospective investors should consider the limitations discussed under
ERISA Considerations herein and in the accompanying Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Depositor (2)
- -----------------------------------------------------------
<S> <C> <C> <C>
Per Class -1 SPLITS % % %
- -----------------------------------------------------------
Per Class -2 SPLITS %(3) % %(3)
- -----------------------------------------------------------
Total $ $ $
- -----------------------------------------------------------
</TABLE>
(1) Calculated as a percent of gross proceeds of the offering of each Class of
SPLITS Certificates.
(2) Before deduction of expenses payable by the Depositor estimated at $[ ].
(3) Plus accrued interest, if any, on the Class -2 SPLITS from 1, 199
(the "Cut-off Date").
-----------
The SPLITS Certificates are offered by the [several] Underwriter[s] when, as
and if issued and accepted by the Underwriter[s] and subject to [its] [their]
rights to reject orders in whole or in part. It is expected that the SPLITS
Certificates, in definitive, fully registered form, will be ready for delivery
on or about , 199 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SPLITS CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SPLITS CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
----------------
UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE SPLITS
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust, can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF THE TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
and not otherwise defined herein shall have the meanings given in the
Prospectus.
SECURITIES OFFERED........ ABS Mortgage Pass-Through Certificates, Series
(the "SPLITS Certificates").
$ original principal amount Class -1 SPITS
(approximate). No original Principal Amount -2
SPLITS. The Class -1 SPLITS represent an undivided
percentage ownership interest in 100% of the
monthly principal payments on the underlying
Certificates (the "Mortgage Certificates Principal
Distribution"). The Class -1 SPLITS do not
evidence an ownership interest in the monthly
interest payments on the underlying Certificates.
The Class -2 SPLITS represent an undivided
percentage ownership interest in 100% of the
monthly interest payment on the underlying
Certificates (the "Mortgage Certificate Interest
Certificate Interest Distribution"), net of the
Servicing Fee as described herein (such net rate
of interest on the Class -2 SPLITS then
outstanding notional amount being referred to
herein as the "Annual Rate"). The Annual Rate is
%. The notional amount for the -2 SPLITS is
equal to the unpaid principal balance of the
Certificates, but is used solely for purposes
of determining interest payments and certain other
rights and obligations of holders of Class -2
SPLITS and does not represent any interest in
principal payments.
The SPLITS Certificates will be issued pursuant to
a deposit trust agreement, dated as 1, 19
(the "Deposit Trust Agreement"), between
, as trustee (the
"Trustee") and Credit Suisse First Boston Mortgage
Securities Corp. (the "Depositor").
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities Corp.
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
DENOMINATIONS............. The Class -1 SPLITS will be offered in fully
registered form, in minimum denominations of $[
] original principal amount and multiples of $[
] in excess thereof. The Class -2 SPLITS will be
offered in fully registered form, in minimum
denominations of $[ ] original notional amount
and multiples of $[ ] in excess thereof.
PRINCIPAL................. The Class -1 SPLITS will receive all principal
payments on the Certificates (including
prepayments). The Class -2 SPLITS receive no
principal payments on the Certificates.
INTEREST.................. The Class -2 SPLITS will receive all interest
payments on the Certificates, after deduction of
the Servicing Fee, as described herein. The
Class -1 SPLITS will receive no interest payments
on the Certificates.
S-3
<PAGE>
DISTRIBUTION DATES........ Distributions on the Certificates that are
received by the Trustee and become cleared funds
in the hands of the Trustee prior to 1:00 p.m. on
the [last] day of each month following the
distribution date for the Certificates, or,
if such day is not a business day, on the next
business day will be distributed to
Certificateholders on such day (each, a
"Distribution Date"). Distributions on the
Certificates that are received by the Trustee and
become cleared funds in the hands of the Trustee
at or after 1:00 p.m. on any Distribution Date
will be distributed to Certificateholders on the
Distribution Date in the next month. Distributions
will be made only if, and to the extent that,
payments are made on the Certificates and
received by the Trustee. The first Distribution
Date will be , 19 . The Cut-off Date will be
, 19 .
MORTGAGE CERTIFICATES..... % Certificates will aggregate outstanding
principal balances of $[ ] as of the Cut-off
Date. See "The Certificate Pool".
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
SPLITS Certificates, see "Risk Factors" herein and
in the related Prospectus.
YIELD CONSIDERATIONS...... The rate of payment of principal of the Class -1
SPLITS, and the aggregate amount of each
distribution on and the yield to maturity of all
SPLITS Certificates, will depend on the rate of
payment of principal (including prepayments) of
the mortgage loans underlying the
Certificates. The mortgage loans underlying
the Certificates are conventional mortgage
loans and can be prepaid at any time without
penalty. The rate of payment of principal varies
significantly from time to time and between pools
of mortgage loans at any time and will be affected
by a variety of factors.
The yield to maturity on the Class -2 SPLITS, which
are being offered without any original principal
amount, is extremely sensitive to the rate of
payment of principal of the mortgage loans
underlying the Certificates and may fluctuate
significantly from time to time. Investors should
fully consider the associated risks, including the
risk that if the rate of principal payment is
rapid such investors may not recoup their initial
investment. See "Yield Considerations".
OPTIONAL TERMINATION...... The mortgage loans underlying the Certificates
are subject to repurchase at the option of at such
time as the outstanding principal balance of such
mortgage loans is less than 10% of their
outstanding principal balance as of . The
Depositor may, in the event such option is
exercised, or otherwise, at such time as the
outstanding principal balance of the
Certificates is less than 10% of their
aggregate principal balance as of the Cut-off Date
purchase the SPLITS Certificates, in whole, but
not in part, at the purchase price set forth
herein. See "Description of the
Certificates--Optional Termination" herein.
LEGAL INVESTMENT.......... The SPLITS Certificates constitute "mortgage-
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act (the "Enhancement
Act"), and, as such, are legal investments for
certain
S-4
<PAGE>
entities to the extent provided in the Enhancement
Act. See "Legal Investment" in the Prospectus.
TRUSTEE...................
. See
"Description of the Certificates--Trustee" herein.
CERTIFICATE RATING........ It is a condition of issuance of the SPLITS
Certificates that they be rated " " by the
Rating Agency prior to issuance. See "Rating"
herein.
ERISA CONSIDERATIONS...... See "ERISA Considerations" in the Prospectus.
TAX ASPECTS............... See "Certain Federal Income Tax Consequences--
General"; "--Non-REMIC Trust Funds" in the
Prospectus. Purchasers of Class A-1 Certificates
should see "Certain Federal Income Tax
Consequences--Non-REMIC Trust Funds--Taxation of
Owners of Trust Fractional Certificates" and "--
Taxation of Owners of Trust Fractional
Certificates--Application of Stripped Bond Rules"
in the Prospectus for discussions of certain tax
considerations particular to the Class A-1
Certificates. Purchasers of Class A-2 Certificates
should see "Certain Federal Income Tax
Consequences--Non-REMIC Trust Funds-- Taxation of
Owners of Trust Interest Certificates" in the
prospectus for discussions of certain tax
considerations particular to the Class A-2
Certificates.*
- --------
*If the Prospectus Supplement for a Series of Certificates provides that Stroock
& Stroock & Lavan LLP, New York, New York, will pass upon the material federal
income tax consequences of the Certificates for the Depositor, then such
Prospectus Supplement will contain tax disclosure substantially similar to the
disclosure set forth in Version E under "Summary of Terms--Tax Aspects" and
"Certain Federal Income Tax Consequences."
S-5
<PAGE>
[RISK FACTORS]
[Description of Risk Factors to be added as appropriate]
DESCRIPTION OF THE CERTIFICATES
THE CERTIFICATES
The Certificates are each proportionately based upon and backed by a pool of
conventional oneto four-family residential mortgage loans, originated and
serviced by , and certain related property conveyed to the trust by .
On the Closing Date, the Depositor will deliver to the Trustee Certificates
having an aggregate principal balance of $[ ] (subject to a permitted
variance of up to 5%) and pass-through rates of [ ]%. The mortgage loans
underlying such Certificates are expected to have a weighted average
coupon of approximately % per annum based upon actual information regarding
the coupon rates on the mortgage loans underlying the Certificates that the
Depositor anticipates delivering to the Trustee.
The Certificates are expected to have a weighted average remaining term
to maturity of approximately years based upon actual information regarding
the remaining terms to maturity of the mortgage loans underlying the
Certificates that the Depositor anticipates delivering to the Trustee.
Using such Certificates, the final payment thereon will not be later
than , .
The information presented in this section has been derived from the Current
Report on Form 8-K filed by with respect to the Certificates and
certain other publicly available statistical information regarding the
Certificates and is derived from the expected balances as of the Cut-off
Date of the mortgage loans underlying the Certificates, such balances
being estimated using the method customarily employed by the Depositor.
[Prospective investors should be aware that the Depositor may, in certain
unforeseeable circumstances, deliver to the Trustee Certificates having
characteristics different from those described herein.] Specific information
with respect to the Certificates will be forth in a Current Report on
Form 8-K that will be filed by the Depositor, on behalf of the Trust, with the
Securities and Exchange Commission within 15 days after the issuance of the
SPLITS Certificates. [Set forth additional information with respect to the
Certificates.] [A copy of the Prospectus with respect to the
Certificates will be made available to any registered holder of a SPLITS
Certificate upon written request of such Certificateholder directed to .]
YIELD CONSIDERATIONS
PREPAYMENT EXPERIENCE
Because principal payments on the mortgage loans underlying the Certificates
will be passed through to the holders of the Class -1 SPLITS and will reduce
the notional amount of the Class -2 SPLITS, the rate of payment of principal
of the Class -1 SPLITS and the aggregate amount of distributions on Class -1
SPLITS and Class -2 SPLITS will be directly related to the rate of payment of
principal of the mortgage loans underlying the Certificates. The rate of
principal payments on the underlying mortgage loans will in turn be affected
by the rate of principal prepayments thereon (including, for this purpose,
payments resulting from liquidations of the mortgage loans due to defaults,
casualties, condemnations or other dispositions). The mortgage loans are
conventional and can be prepaid at any time without penalty. Prepayments with
respect to the Certificates may also occur as a result of guaranty
payments and the optional repurchase provision on the Certificates.
Accordingly, the rate of prepayments on the underlying mortgage loans and rate
of payment of principal of the SPLITS Certificates will depend upon future
events and a variety of factors, and no assurance can be given as to either
such rate.
The yield to maturity of any SPLITS Certificates will be affected by the
rate of payment of principal of the Certificates. Specifically, as the
SPLITS Certificates belonging to Class -1 SPLITS are being offered at
significant discounts from their original principal amounts, if the purchaser
of a Class -1 SPLITS
S-6
<PAGE>
Certificates calculates its anticipated yield to maturity based on an assumed
rate of payment of principal that is faster than that actually received on the
Certificates, its actual yield to maturity will be lower than that so
calculated. Conversely, as the SPLITS Certificates belonging to Class -2
SPLITS are being offered without any original principal amount, if the
purchaser of a Class -2 SPLITS Certificate calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is slower than
that actually received on the Certificates, its actual yield to maturity
will be lower than that so calculated.
The timing of changes in the rate of prepayments on the mortgage loans under
the Certificates may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments is consistent with an
investor's expectation. In general, the earlier a prepayment of principal on
the mortgage loans underlying the Certificates the greater the effect on
an investor's yield to maturity. As a result, the effect on an investor's
yield of principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during the period immediately following the
issuance of the SPLITS Certificates may not be offset by a subsequent like
reduction (or increase) in the rate of principal payments.
[BECAUSE THE CLASS -1 SPLITS ARE BEING OFFERED AT A DISCOUNT FROM THEIR
ORIGINAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY THEREON WILL BE SENSITIVE TO
THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS UNDERLYING THE
CERTIFICATES.]
BECAUSE THE CLASS -2 SPLITS ARE BEING OFFERED WITHOUT ANY PRINCIPAL AMOUNT,
THE YIELD TO MATURITY ON THE CLASS -2 SPLITS WILL BE EXTREMELY SENSITIVE TO
PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS UNDERLYING THE CERTIFICATES AND
MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. PROSPECTIVE INVESTORS IN THE
CLASS -2 SPLITS SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK
THAT IF THE RATE OF PAYMENT IS RAPID SUCH INVESTORS MAY NOT FULLY RECOUP THEIR
INITIAL INVESTMENT.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of new
mortgage loans. SPA assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgage loans in the first month of the
life of the mortgage loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, SPA assumes a
constant prepayment rate of 6% per annum. SPA does not purport to be either a
historical description of the prepayment experience of any pool of mortgage
loans, or of the Mortgage Loans in the Mortgage Pool.
The following table illustrates, in general, the effect of prepayment rates
on the timing and amount of distributions on each Class of SPLITS Certificates
and their resulting weighted average lives. The table does not purport to
represent the anticipated rate of prepayment on the mortgage loans underlying
the Certificates or the resulting anticipated rate of distributions of
each Class of the SPLITS Certificates.
The table sets forth the projected annual aggregate distributions that would
be made on the Class -1 and Class -2 SPLITS Certificates, and their resulting
weighted average lives, based on various assumed percentages of SPA. The
column headed "0%" assumes that no mortgage loans underlying the
Certificates are prepaid before maturity. The columns headed " %", " %"
and " %" assume that prepayments are made at the specified percentages of SPA.
It has been assumed in preparing the table that (i) the Certificates consist
of $ principal amount of % Certificates, (ii) the mortgage loans underlying
the Certificates have the characteristics described above in "Description of
the Certificates," (iii) all mortgage loans are prepaid at the indicated
percentage of SPA for the life of the Certificates, (iv) the weighted average
remaining term to maturity of the mortgage loans is years, (v) the interest
rate on each mortgage loan is . % in excess of the pass-through rate on
the related Certificate, and (vi) the Certificates are not repurchased at
the option of or the SPLITS Certificates are not repurchased at the
option of Depositor.
S-7
<PAGE>
PROJECTED ANNUAL AGGREGATE DISTRIBUTIONS ON THE SPLITS CERTIFICATES (THOUSANDS
OF DOLLARS)
<TABLE>
<CAPTION>
CLASS -1 SPLITS CLASS -2 SPLITS
------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDING 0% SPA % SPA % SPA % SPA 0% SPA % SPA % SPA % SPA
- ----------- ------ ----- ----- ----- ------ ----- ----- -----
$ $ $ $ $ $ $ $
------ ----- ----- ----- ------ ----- ----- -----
Total distributions.......... $ $ $ $ $ $ $ $
Weighted average life
(years)(1)...................
</TABLE>
- --------
(1) The weighted average of life of the Class -2 SPLITS which is assumed to be
equal to the weighted average life of the Class -1 SPLITS, is determined
by (i) multiplying the amount of each assumed principal distribution by
the number of years from the date of issuance of the SPLITS Certificates
to the related Distribution Date, (ii) summing the results and (iii)
dividing the sum by the total principal distributions on the SPLITS
Certificates.
The characteristics of the mortgage loans underlying the Certificates, will
not correspond exactly to those assumed in preparing the statistics above. The
total cash flows of the Class -2 SPLITS will therefore differ from those set
forth above even if all of the mortgage loans prepay monthly at the related
assumed prepayment rate. In addition, it is not likely that any mortgage loan
will repay at a constant rate until maturity or that all of the mortgage loans
will prepay at the same rate, and the timing of changes in the rate of
prepayments may significantly affect the total cash flow received by Holder of
a Class -2 SPLITS Certificate.
The Depositor makes no representation that the mortgage loans will prepay in
the manner or at any of the rates assumed in the table set forth above. Each
investor must make his own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase any of the
SPLITS.
The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social,
legal and other factors and has fluctuated considerably in recent years. See
"Yield Considerations" in the Prospectus. In addition, the rate of principal
prepayments on the mortgage loans underlying the Certificates may differ
among pools of mortgage loans at any time because of specific factors relating
to the mortgage loans in the particular pool, including, among other things,
the age of the loans, the interest rates on the loans, the terms to stated and
remaining maturity of the loans, the geographic locations of the properties
securing the loans, the extent of the mortgagors' equity in real property
securing the loans, changes in mortgagors' housing needs, job transfers,
unemployment and servicing decisions.
Generally, however, if prevailing interest rates vary significantly from the
interest rates on the mortgage loans underlying the Certificates, the
Certificates are likely to be subject to higher or lower prepayment rates
than if prevailing rates remain at or near the interest rates on the mortgage
loans underlying the Certificates. In general, if prevailing interest
rates fall significantly below the interest rates on the mortgage loans
underlying the Certificates, the Certificates are likely to be
subject to higher prepayment rates than if prevailing rates remain at or above
the interest rates on the mortgage loans underlying Certificates.
Conversely, if interest rates rise above the interest rates on the mortgage
loans underlying the Certificates, the rate of prepayment would be
expected to decrease.
S-8
<PAGE>
The Depositor believes that the historical payment experience on such
securities is not necessarily indicative of the future payment experience on
the mortgage loans underlying the Certificates. Since the rate of
principal payments (including prepayments) on such mortgage loans will
significantly affect the yield to maturity on the SPLITS Certificates,
prospective investors are urged to consult their investment advisors as to
both the anticipated rate of future principal payments (including prepayments)
on the underlying mortgage loans and the suitability of the SPLITS
Certificates to their investment objectives.
PAYMENT DELAY
The effective yield to Certificateholders will be lower than the yield
otherwise produced by the Annual Rate and purchase price since the monthly
distributions on the Certificates will not be paid to the Holders until
on or after the [last] day of the month next succeeding the month of accrual.
See "Pooling and Servicing Agreement" in the Prospectus. To the extent that a
monthly distribution on a Certificate does not become cleared funds in
the hands of the Trustee prior to 1:00 p.m. on the Distribution Date in the
month such distribution is required to be made by the issuer of such
Certificates, the effective yield to the Certificateholders will be
further reduced since such distribution will not be paid to the Holders until
the Distribution Date in the next succeeding month. See "Description of the
SPLITS Certificates."
DESCRIPTION OF THE SPLITS CERTIFICATES
GENERAL
The SPLITS Certificates will be issued pursuant to a deposit trust
agreement, dated as of , 19 (the "Deposit Trust Agreement"), between
, as trustee (the "Trustee"), and the
Depositor. Pursuant to the Deposit Trust Agreement, the Depositor will
transfer the Certificates to the Trustee in exchange for the SPLITS
Certificates on or about , 19 (the "Delivery Date"). The
Certificates will be registered in the name of the Trustee and payments
on the Certificates will be made directly to the Trustee.
The SPLITS Certificates are to be issued in two classes. Class -1 SPLITS
Certificates (the "Class -1 SPLITS") and Class -2 SPLITS Certificates (the
"Class -2 SPLITS"). The Class -1 SPLITS evidence the Holders' beneficial
ownership of an undivided interest in all of the principal payments of the
Certificates. The Class -2 SPLITS evidence the Holders' beneficial
ownership of an undivided interest in all of the interest payments on the
Certificates after deduction of the Servicing Fee (as defined herein).
Payments of interest on the Class -2 SPLITS will be passed through monthly to
Holders thereof at a % Annual Rate on the outstanding notional amount of such
SPLITS Certificates as of the month preceding the month in which the related
distribution of interest is to be made.
The outstanding principal amount or notional amount, as the case may be, of
each Class of SPLITS Certificates for any month will be equal to the aggregate
outstanding principal balance of the Certificates for that month. The
notional amount is used solely for purposes of the determination of interest
payments and certain other rights and obligations of Holders of Class -2
SPLITS, and Holders of Class -2 SPLITS shall not have any interest in, or be
entitled to any payment with respect to, principal payments on the
Certificates. The aggregate original principal amount of the Class -1
SPLITS and the aggregate original notional amount of the Class -2 SPLITS will
each be $ at the Cut-off Date.
Each Class -1 SPLITS Certificate will evidence a Percentage Interest in the
monthly distributions of principal of the Certificates. Each Class -2
SPLITS Certificate will evidence a Percentage Interest in the monthly
distributions of interest on the Certificates, net of the Servicing Fee.
The Percentage Interest evidenced by each SPLITS Certificate will be
determined by dividing the denomination of such SPLITS Certificate by the
aggregate denominations of all SPLITS Certificates of the same Class. On each
Distribution Date, the Trustee will distribute to each Holder of a SPLITS
Certificate of a Class an amount equal to the product
S-9
<PAGE>
of such Certificateholder's Percentage Interest evidenced by such SPLITS
Certificate and the interest of such Class in the Mortgage Certificate
Principal Distribution or the Mortgage Certificate Interest Distribution, as
applicable.
The SPLITS Certificates will be issued only in fully registered form. The
Class -1 SPLITS will be issued in minimum denominations of $ and multiples
of $ in excess thereof. The Class -2 SPLITS will be issued in minimum
denominations of $ and multiples of $ in excess thereof.
Principal and interest at a % pass-through rate in respect of the
Certificates is required to be paid by the issuer of the Certificates by
check mailed directly to the registered holder thereof on the day of each
month. Payments of principal and interest will be collected by the Trustee and
held in a segregated non-interest-bearing trust account in the name of and for
the benefit of the Trust. Distributions on the Certificates that are
received by the Trustee and become cleared funds in the hands of the Trustee
prior to 1:00 p.m. on the day of the month or, if such a day is not a
business day, on the next business day, will be distributed to
Certificateholders on such day (each, a "Distribution Date"). Distributions on
the Certificates that are received by the Trustee and become cleared
funds in the hands of the Trustee at or after 1:00 p.m. on any Distribution
Date will be distributed to the Certificateholders on the Distribution Date in
the next month. In each case the distribution will be made to the Holders of
record of the SPLITS Certificates on the close of business on the last
business day of the month preceding the month in which such distribution is
made (the "Record Date"). The first Distribution Date will be , 19 .
Distribution of principal and interest as set forth above will be made by the
Trustee by check mailed to each Certificateholder entitled thereto at the
address appearing in the Certificate Register to be maintained with the
Trustee or, at the request of a Certificateholder, by wire transfer to the
account of such Certificateholder; provided, however, that the final
distribution in retirement of a SPLITS Certificate will be made only upon
presentation and surrender of the SPLITS Certificate at the office of the
Trustee specified in the notice to Certificateholders of such final
distribution. Wire transfers will be made at the expense of Certificateholders
requesting such wire transfers by deducting a wire transfer fee from the
related transfer.
The SPLITS Certificates will be transferable and exchangeable on the
Certificate Register at the office or agency of the Trustee maintained for
that purpose in the City of New York. SPLITS Certificates surrendered to the
Trustee for registration of transfer or exchange must be accompanied by a
written instrument of transfer in form satisfactory to the Trustee. No service
charge will be made for any registration of transfer or exchange of SPLITS
Certificates, but payment of a sum sufficient to cover any tax or other
governmental charge may be required. Such office or agency is currently
located at .
TRUSTEE
The Trustee for the Certificates will be
, a bank organized and existing under the laws of
with its principal office located at
.
SERVICING FEE
The Deposit Trust Agreement provides for a servicing fee (the "Servicing
Fee") in an amount equal to % of each interest distribution on the
Certificates. The Servicing Fee will be deducted by the Trustee prior to
making any payment of interest to Holders of the Class -2 SPLITS.
OPTIONAL TERMINATION
The Deposit Trust Agreement provides that the Depositor may purchase SPLITS
Certificates at such time as (i) the mortgage loans underlying the
Certificates are repurchased by , or (ii) the aggregate unpaid
principal balance of the Certificates is less than [10]% of the aggregate
unpaid principal balance of the Certificates as of the Cut-off Date.
S-10
<PAGE>
In such event the Class -1 SPLITS will be repurchased at % of their
outstanding principal amount and the Class -2 SPLITS will be repurchased at %
of their outstanding notional amount, in each case, as of the date of such
repurchase. In no event will the Trust continue beyond the expiration of 21
years from the death of the last survivor of the persons named in the Deposit
Trust Agreement.
RATING
It is a condition to the issuance of the SPLITS Certificates that they be
rated " " by the Rating Agency. Such rating addresses the likelihood that
the holders of the SPLITS Certificates will receive payments required under
the Deposit Trust Agreement. In assigning such a rating to mortgage pass-
through certificates, the Ratng Agency takes into consideration the credit
quality of the mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on such mortgage pool is adequate to make required
payments on such certificates. Such rating does not, however, represent an
assessment of the likelihood that principal prepayments will be made by
mortgagors or the degree to which such payments might differ from that
originally anticipated. As a result, holders of the SPLITS Certificates might
suffer a lower than anticipated yield, and holders of the Class -2 SPLITS
might fail, in circumstances of extreme prepayment, to recoup their original
investment.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
S-11
<PAGE>
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA--Prohibited
Transaction Class Exemption" in the Prospectus), a certificate of an Exempt
Series must entitle its holder to pass-through payments of both principal and
interest on the Mortgage Loans. Because holders of Class -1 or Class -2
Certificates are only entitled to pass-through payments of principal (but not
interest) or interest (but not principal), PTCE 83-1 will not exempt Plans
that acquire the Class -1 or Class -2 Certificates from the prohibited
transaction rules of ERISA. Any Plan fiduciary who proposes to cause a Plan
to purchase Class -1 or Class -2 Certificates should consult with its
counsel with respect to the potential consequences under ERISA and the Code
of the Plan's acquisition and ownership of such Certificates. However, one of
the other PTCE's or the Underwriter's PTE may be applicable. See "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus.
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Class SPLITS:
CLASS -1 CLASS -2
[UNDERWRITER SPLITS SPLITS TOTAL
- -------------------------------- ------------ ------------ ---------
Credit Suisse First Boston Corporation ... $ $ $
Total ......................... $ $ $ ]
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the SPLITS Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] prospose[s] to offer each Class of the SPLITS Certificates to
the public initially at the public offering prices set forth on the cover
page of this Prospectus Supplement [, and through the Representative,] to
certain dealers at such prices less the following concessions and that the
Underwriter[s] and such dealers may allow the following discounts on sales to
certain other dealers:
CONCESSION DISCOUNT
(PERCENT OF (PERCENT OF
GROSS GROSS
PROCEEDS) PROCEEDS)
------------- -------------
Class -1 SPLITS ... % %
Class -2 SPLITS ... % %
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
S-12
VERSION D
<PAGE>
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
All of the Certificates will be acquired in a privately negotiated
transaction by the Depositor from CS First Boston Corporation on terms
substantially similar to those that the Depositor would obtain in an arm's
length transaction. CS First Boston Corporation will have acquired such
Certificates in a privately negotiated transaction.
LEGAL MATTERS
The legality of the SPLITS Certificates will be passed upon for the Depositor
and for the Underwriter[s] by ____________________________________________ and
the material federal income tax consequences of the SPLITS Certificates will be
passed upon for the Depositor by _____________________________________________.
USE OF PROCEEDS
The Depositor will apply substantially all of the net proceeds of the
offering of the SPLITS Certificates towards the simultaneous purchase of the
Certificates underlying the SPLITS Certificates.
S-13
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
[Version E]
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
ABS Manufactured Housing Contract Pass-Through Certificates, Series %
Pass-Through Rate
Principal and interest payable on the th day of each month, beginning ,
19
-----------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF CREDIT
SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP. OR ANY AFFILIATE THEREOF. [NEITHER
THE CERTIFICATES NOR THE UNDERLYING CONTRACTS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.]
-----------
The ABS Manufactured Housing Contract Pass-Through Certificates, Series,
% Pass-Through Rate (the "Certificates") offered hereby evidence undivided
fractional interests in a trust to be created by Credit Suisse First Boston
Mortgage Securities Corp. (the "Depositor") on or about , 199 (the "Trust").
The Trust property will consist of a pool of [conventional] [FHA Insured] [VA-
guaranteed] [fixed-rate] [variable-rate] manufactured housing conditional sales
contracts and installment loan agreements (the "Contracts") and certain related
property to be conveyed to the Trust by the Depositor (the "Trust Fund"). The
Contracts will be transferred to the Trust, pursuant to a Pooling and Servicing
Agreement (as defined herein), dated as of , 199 , by the Depositor in exchange
for the Certificates and are more fully described in this Prospectus Supplement
and in the accompanying Prospectus. The Certificates offered by this Prospectus
Supplement constitute a separate series of the Certificates being offered by the
Depositor from time to time pursuant to its Prospectus dated , 199 , which
accompanies this Prospectus Supplement and of which this Prospectus Supplement
forms a part. The Prospectus contains important information regarding this
offering that is not contained herein, and prospective investors are urged to
read the Prospectus and this Prospectus Supplement in full.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for the
Certificates [but [is] [are] under no obligation to do so]. There can be no
assurance that a secondary market will develop, or if it does develop, that it
will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Certain Federal Income Tax Consequences"
in the Prospectus.]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the factors set forth under Risk Factors
on Page S-7 of this Prospectus Supplement.
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- ---------------------------------------------------------
<S> <C> <C> <C>
Per Certificate % % %
- ---------------------------------------------------------
Total $ $ $
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deduction of expenses payable by the Depositor estimated at $ .
-----------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [their] [its] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be ready for delivery on or about ,
199 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19 .
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
UNTIL , 19 , ALL DEALERS AFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Trust can be inspected and copied at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
and at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED........ ABS Manufactured Housing Contract Pass-Through
Certificates, Series , % Pass-Through Rate (the
"Certificates").
PRINCIPAL AMOUNT.......... $ (approximate: subject to a permitted variance
of up to %).
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities Corp.
(the "Depositor").
MASTER SERVICER...........
DENOMINATIONS............. The minimum denomination of a Certificate (a
"Single Certificate") will initially represent
approximately $ aggregate principal amount of
Contracts (as hereinafter defined).
CUT-OFF DATE.............. , 19 .
DELIVERY DATE............. On or about , 19 .
INTEREST.................. Passed through monthly at the rate of % per annum
(the "Pass-Through Rate"), on the day of each
month (each, a "Distribution Date") commencing
, 19 to those persons in whose name the
Certificates are registered as of [the last
Business Day of the month preceding the
Distribution Date] (the "Record Date"). [The Pass-
Through Rate for each Contract will equal the
annual percentage rate (the "APR") then borne by
such Contract less a fee for the servicing of the
Contract (the "Servicing Fee") [, less a fee for
the Limited Guarantee (the "Limited Guarantee
Fee")] [and less the excess interest (the "Excess
Interest")], as described herein under
"Description of the Certificates--Servicing
Compensation, [Limited Guarantee Fee] and Payment
of Expenses."
PRINCIPAL (INCLUDING
PREPAYMENTS).............. Passed through monthly on the Distribution Date,
commencing , 19 .
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
CONTRACT POOL............. [Conventional] [FHA-insured] [VA-guaranteed] [fixed
rate] [variable rate] manufactured housing
conditional sales contracts and installment loan
agreements (collectively, the "Contracts") secured
by manufactured homes (as described herein) (the
"Manufactured Homes") [located in the states of
, and ]. The Contracts have been
originated [or acquired] by . See
"Description of the Contract Pool" herein.
[LIMITED GUARANTEE........ Subject to the limitations described below, the
Limited Guarantee will cover the difference
between the amount available for distribution to
the Certificateholders [including Advances] on any
[monthly] Distribution Date and the amount due the
Certificateholders on such Distribution Date to
the extent such shortfall is attributable to
delinquent payments by borrowers on the Contracts
(each, an "Obligor") and losses on Defaulted
Contracts (as hereinafter
S-3
<PAGE>
defined). The first $ of the Guarantee Amount,
as defined below, will consist of the general
guarantee obligation of . The obligation of
will be backed by the Standby Letter of
Credit issued by and confirmed by , (as
described below). The balance of the Guarantee
Amount consists of the Direct Letter of Credit
issued by and confirmed by , described
below (the Standby Letter of Credit and the Direct
Letter of Credit sometimes collectively are
referred to herein as the "Letters of Credit").
The amount of the Limited Guarantee (the
"Guarantee Amount") on the first Distribution Date
will be $ . Thereafter, the Guarantee Amount
available on any Distribution Date, . See "The
Limited Guarantee."]
The Standby Letter of Credit (the "Standby Letter
of Credit") is an irrevocable obligation
supporting the obligation of under the
Limited Guarantee. If does not make a payment
required of it under the Limited Guarantee, the
Trustee immediately will draw such amount under
the Standby Letter of Credit. If for any reason
does not honor a draw under the Standby
Letter of Credit, is obligated to honor the
Standby Letter of Credit.
The Direct Letter of Credit (the "Direct Letter of
Credit") will be an irrevocable direct pay letter
of credit and will be issued by and confirmed
by .
[The initial Letters of Credit will expire no
earlier than .] The Master Servicer will be
required to replace or renew the Letters of Credit
prior to their expiration until the Trust Fund is
terminated. In the event the Master Servicer does
not renew or replace a Letter of Credit, prior to
its expiration, the Trustee will draw under such
Letter of Credit an amount equal to the required
coverage of that Letter of Credit on such date and
will transfer such funds to a separate trust fund
(the "Limited Guarantee Fund"). Thereafter the
Trustee will draw upon such funds on each
Distribution Date if and to the extent draws would
have been required under the corresponding Letter
of Credit. The Letters of Credit will not be
available to support any obligations of the
Depositor, the Master Servicer or the Unaffiliated
Seller. See "The Limited Guarantee."]
[LETTER OF CREDIT......... The maximum liability of [ ] under an
irrevocable standby letter of credit for the
Contract Pool (the "Letter of Credit"), net of
unreimbursed payments thereunder, will be no more
than [ %] of the initial aggregate principal
balance of the Contract Pool (the "Letter of
Credit Percentage"). The maximum amount available
to be paid under the Letter of Credit will be
determined in accordance with the Pooling and
Servicing Agreement referred to herein. The
duration of coverage and the amount and frequency
of any reduction in coverage will be in compliance
with the requirements established by the Rating
Agency, in order to obtain a rating in one of the
two highest rating categories of such Rating
Agency. The amount available under the Letter of
Credit shall be reduced by the amount of
unreimbursed payments thereunder. See "Credit
Support--Letters of Credit" in the Prospectus.]
S-4
<PAGE>
HAZARD INSURANCE.......... All of the Contracts will be covered by standard
hazard insurance policies with respect to each
Manufactured Home in an amount at least equal to
[the lesser of its maximum insurable value or the
remaining principal balance on the related
Contract]. The standard hazard insurance policies,
at a minimum, will provide for fire, lightning,
windstorm and extended coverage on terms and
conditions customary in manufactured housing
hazard insurance policies. See "Description of the
Certificates--Hazard Insurance Policies" herein.
[OPTIONAL TERMINATION..... The [Depositor] may, at its option, repurchase from
the Trust all Contracts remaining outstanding at
such time as the aggregate unpaid principal
balance of such Contracts is less than [10%] of
the aggregate principal balance of the Contracts
on the Cut-off Date. The repurchase price will
equal the aggregate unpaid principal balance of
such Contracts together with accrued interest
thereon at the Pass-Through Rate through the last
day of the month during which such repurchase
occurs, plus the appraised value of any property
acquired in respect thereof. [Any such repurchase
will be effected in compliance with the
requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986 (the "Code") so as
to constitute a "qualifying liquidation"
thereunder.] See "Description of the
Certificates--Termination; Repurchase of
Certificates" herein.
ADVANCES.................. The Servicers of the Contracts (and the Master
Servicer, with respect to each Contract that it
services directly and otherwise, to the extent the
related Servicer does not do so) will be obligated
to advance delinquent installments of principal
and interest on the Contracts under certain
circumstances. See "Description of the
Certificates--Advances" in the Prospectus.
SECURITY INTERESTS AND
OTHER ASPECTS OF THE In connection with the transfer of the Contracts
CONTRACTS................. from the Depositor to the Trustee, the Depositor
has assigned the security interests in the
Manufactured Homes securing the Contracts to the
Trustee. The [Master Servicer] shall take such
steps as are necessary to perfect and maintain
perfection of such security interest in each
Manufactured Home and, to the extent such interest
is perfected, the Trustee will have a prior claim
over subsequent purchasers of the Manufactured
Home and holders of subsequently perfected
security interests. Under most state laws
Manufactured Homes constitute personal property,
and perfection of a security interest in the
Manufactured Home is obtained, depending on
applicable state law, either by noting the
security interest on the certificate of title for
the Manufactured Home or by filing a financing
statement under the Uniform Commercial Code. [The
certificates of title or Uniform Commercial Code
financing statements will not be amended to
identify the Trustee as the new secured party
because of the administrative burden and expense.]
In the absence of such an endorsement, the Trustee
may not have a perfected security interest in
Manufactured Homes registered in certain states.
In addition, if the Manufactured Home were
relocated to another state without
S-5
<PAGE>
reperfection of the security interest, or if the
Manufactured Home were to become attached to its
site and a determination were made that the
security interest was subject to real estate title
and recording laws, or as a result of fraud or
negligence, the Trustee could lose its prior
preferred security interest in a Manufactured
Home. Federal and state consumer protection laws
impose requirements upon creditors in connection
with extensions of credit and collections on
installment sales contracts, and certain of these
laws make an assignee of such a contract, such as
the Trustee, liable to the obligor thereon for any
violation by the lender. The [Master Servicer] has
agreed to repurchase any Contract as to which it
has failed to perfect a security interest in the
Manufactured Home securing such Contract, or as to
which a breach of federal or state laws exists if
such breach materially adversely affects the
Trustee's interest in the Contract, unless such
failure or breach has been cured within [90] days
from notice of such breach. See "Special
Considerations" herein and "Certain Legal Aspects
of the Mortgage Loans and Contracts--The
Contracts" in the Prospectus.
TRUSTEE...................
[ ]
CERTIFICATE RATING........ It is a condition of issuance that the Certificates
be rated in one of the two highest rating
categories of a nationally recognized statistical
rating agency (the "Rating Agency").
ERISA CONSIDERATIONS...... See "ERISA Considerations" [in the Prospectus] and
herein.
LEGAL INVESTMENT.......... The Certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the "Enhancement
Act"), and, as such, are legal investments for
certain entities to the extent provided in the
Enhancement Act. See "Legal Investment" in the
Prospectus.
TAX ASPECTS...............
The Depositor [intends] [does not intend] to make
an election to treat the Trust Fund as a Real
Estate Mortgage Investment Conduit (a "REMIC"),
pursuant to the Internal Revenue Code of 1986. See
["Certain Federal Income Tax Consequences--
General"; ["--REMIC Trust Funds"] ["--Contract
Pools"] in the Prospectus, ["Certain Federal
Income Tax Consequences" herein.
[The extent to which the Contracts, and therefore
the Class [ ] Certificates, will be treated as
"qualifying real property loans" for mutual
savings banks or domestic building and loan
associations, "loans . . . secured by an interest
in real property" for domestic building and loan
associations, and "real estate assets" for real
estate investment trusts depends on certain facts
and circumstances not within the knowledge of the
Depositor. See "Certain Federal Income Tax
Consequences" herein.]
S-6
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
1. General. An investment in the Certificates may be affected by, among
other things, a downturn in regional or local economic conditions. These
regional or local economic conditions are often volatile, and historically
have affected the delinquency, loan loss and repossession experience of the
Contracts. To the extent that losses on the Contracts are not covered by
[the Limited Guarantee] [the Letter of Credit] [or] applicable insurance
policies, if any, Certificateholders will bear all risk of loss resulting
from default by Obligors and must rely on the value of the Manufactured
Homes for recovery of the outstanding principal and unpaid interest of the
defaulted Contracts. See "The Trust Fund--The Contracts" in the Prospectus.
2. Limited Obligations. The Certificates will not represent an interest
in or obligation of the Depositor. The Certificates will not be insured or
guaranteed by [any government agency or instrumentality,] The First Boston
Corporation or any of its affiliates, including the Depositor, any Servicer
or the Master Servicer.
3. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Certificates or, if it does develop, that it will
provide the holders of the Certificates with liquidity of investment or
that it will remain for the term of the Certificates.
[4. [Limited Guarantee] [Letter of Credit]. The Certificates will be
secured in part by the [Limited Guarantee] [Letter of Credit]. The
[Guarantee Amount] [Letter of Credit Percentage] will be an amount
initially equal to and will decline hereafter [by the amount of
unreimbursed payments thereunder]. The [Limited Guarantee] [Letter of
Credit] will cover delinquent payments by Obligors and losses on defaulted
Contracts. Delinquency on the Contracts may be affected by local, regional
and economic considerations. If delinquency levels are high and the
[Guarantee Amount] [Letter of Credit Percentage] is reduced to zero, the
Certificateholders will bear all losses on the Contracts. See ["The Limited
Guarantee"] ["Letter of Credit"].
5. Prepayment Considerations. The prepayment experience on the Contracts
may affect the average life of the Certificates. Prepayments on the
Contracts may be influenced by a variety of economic, geographic, social
and other factors, including repossessions, aging, seasonality and interest
rates of the Contracts. Other factors affecting prepayment of Contracts
include changes in housing needs, job transfers, unemployment and servicing
decisions. See "Maturity and Prepayment Considerations" in the Prospectus.
6. Security Interests and Other Aspects of the Contracts. Each Contract
is secured by a security interest in a Manufactured Home. Perfection of
security interests in the Manufactured Homes and enforcement of rights to
realize upon the value of the Manufactured Homes as collateral for the
Contracts are subject to a number of federal and state laws, including the
Uniform Commercial Code as adopted in each state (except Louisiana) and
each state's certificate of title statutes, but generally not its real
estate laws. The steps necessary to perfect the security interest in a
Manufactured Home will vary from state to state. In addition, numerous
federal and state consumer protection laws impose requirements on lending
under conditional sales contracts and installment loan agreements such as
the Contracts, and the failure by the lender or seller of goods to comply
with such requirements could give rise to liabilities of assignees for
amounts due under such agreements and claims by such assignees may be
subject to set-off as a result of such lender's or seller's noncompliance.
These laws would apply to the Trustee as assignee of the Contracts.
Pursuant to the Pooling and Servicing Agreement, the seller will warrant
that each Contract complies with all requirements of law and will make
certain warranties relating to the validity, subsistence, perfection and
priority of the security interest in each Manufactured Home securing a
Contract. If the [Limited Guarantee or] [Letter of Credit Percentage]
insurance policies are exhausted and recovery of amounts due on the
Contracts is dependent on repossession and resale of Manufactured Homes
securing Contracts that are in
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default, certain other factors may limit the ability of the
Certificateholders to realize upon the Manufactured Homes or may limit the
amount realized to less than the amount due. See "Certain Legal Aspects of
the Mortgage Loans and Contracts--The Contracts" in the Prospectus.
[7. Louisiana Law. Any Contract secured by a Manufactured Home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the
UCC. Louisiana laws provide similar mechanisms for perfection and
enforcement of security interests in manufactured housing used as
collateral for an installment sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been affixed
permanently to real estate nevertheless will remain subject to the motor
vehicle registration laws unless the obligor and any holder of a security
interest in the property execute and file in the real estate records for
the parish in which the property is located a document converting the unit
into real property. A manufactured home that is converted into real
property, but then is removed from its site, can be converted back to
personal property governed by the motor vehicle registration laws if the
obligor executes and files various documents in the appropriate real estate
records and all mortgagees under real estate mortgages on the property and
the land to which it was affixed file releases with the motor vehicle
commissions.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary
consent of the obligor, executory process (repossession proceedings which
must be initiated through the courts but which involve minimal court
supervision) or a civil suit for possession. In connection with a voluntary
surrender, the obligor must be given a full release from liability for all
amounts due under the contract. In executory process repossessions, a
sheriff's sale (without court supervision) is permitted, unless the owner
brings suit to enjoin the sale, and the lender is prohibited from seeking a
deficiency judgment against the obligor unless the lender obtained an
appraisal of the manufactured home prior to the sale and the property was
sold for at least two-thirds of its appraised value.]
DESCRIPTION OF THE CONTRACT POOL
The contract pool (the "Contract Pool") will consist of [conventional] [FHA-
insured] [VA-guaranteed] fixed rate manufactured housing conditional sales
contracts and installment loan agreements (collectively, the "Contracts")
having an [approximate] aggregate principal balance as of the Cut-off Date of
$ , secured by manufactured homes (the "Manufactured Homes"). The
Manufactured Homes will consist of manufactured homes within the meaning of 42
United States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which
is built on a permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air-conditioning, and electrical systems
contained therein; except that such term shall include any structure which
meets all the requirements of this paragraph except the size requirements and
with respect to which the manufacturer voluntarily files a certification
required by the Secretary of Housing and Urban Development and complies with
the standards established under this chapter."
The weighted average annualized percentage rate (individually, an "APR") of
the Contracts as of the Cut-off Date will be at least % but no more than %.
All Contracts will have APRs of at least % but no more than %. The weighted
average maturity of the Contracts, as of the Cut-off Date, will be at least
years but no more than years. All Contracts will have original maturities
of at least years but no more than years. None of the Contracts will
have been originated prior to or after , 19 . None of the Contracts will
have a scheduled maturity later than .
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The Contracts will have the following characteristics as of the Cut-off Date
(expressed as a percentage of the outstanding aggregate principal balances of
the Contracts having such characteristics relative to the outstanding
aggregate principal balances of all Contracts):
Approximately % of the Contracts are secured by Manufactured Homes which
were new at the time the related Contract was originated and approximately
% of the Contracts are secured by Manufactured Homes which were used at
the time the related Contract was originated.
At least % of the Contracts will be Contracts each having outstanding
principal balances of less than $ .
No more than % of the Contracts will be Contracts each having
outstanding principal balances of more than $ .
No more than % of the Contracts will have had loan-to-value ratios at
origination (based on the retail sales prices of the unit or % of the
manufacturer's invoice price, if less, plus taxes, license fees and
insurance premiums in the case of a new Manufactured Home, or based on the
lesser of the total delivered sales price or the appraised value of the
unit, including taxes, fees and insurance, in the case of a used
Manufactured Home) in excess of %, and the Contracts have a weighted
average loan to value ratio as of the Cut-off Date of %.
The Contracts will be secured by Manufactured Homes located in the states
of . No more than [5]% of the Contracts will be secured by
Manufactured Homes located in any one five digit zip code or project.
[At the date of issuance of the Certificates, no Contract in the Contract
Pool was more than 30 days delinquent.]
[Description of the underwriting policies for conventional Contracts to
be provided.]
Specific information with respect to the Contracts will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Contracts
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Contracts: years of origination, types
of dwellings on the underlying properties, the sizes of Contracts and
distribution of Contracts by APR, and will be set forth in a Current Report on
Form 8-K that will be filed with the Securities and Exchange Commission by the
Depositor within 15 days after the issuance of the Certificates.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, to be dated as of the Cut-off Date (the "Pooling and Servicing
Agreement") among the Depositor, , as master servicer (the "Master
Servicer"), and , as trustee (the "Trustee"), a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement forms a part. Reference is made to the accompanying Prospectus for
important additional information regarding the terms and conditions of the
Pooling and Servicing Agreement and the Certificates. Each of the Certificates
at the time of issuance will qualify as a "mortgage related security" within
the meaning of the Secondary Mortgage Market Enhancement Act of 1984.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder, provided, however, that the final distribution in
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retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office specified in the notice to
Certificateholders of such final distribution.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained by the Trustee at the office or agency of the Master
Servicer maintained for that purpose in New York, New York. Certificates
surrendered to the Trustee for registration of transfer or exchange must be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee. No service charge will be made for any registration of transfer or
exchange of Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required. Such office or agency is currently
located at , .
CONVEYANCE OF CONTRACTS
On the date of issuance of the Certificates, the Depositor will transfer,
assign, set over and otherwise convey to the Trustee all right, title and
interest of the Depositor in the Contracts, including all principal and
interest received on or with respect to the Contracts (other than receipts of
principal and interest due on the Contracts before the Cut-off Date), and all
rights under the hazard insurance policies on the related Manufactured Homes.
The Contracts will be described on a schedule attached to the Pooling and
Servicing Agreement (the "Contract Schedule"). The Contract Schedule will
include the amount of monthly payments due on each Contract as of the date of
issuance of the Certificates, the APR on each Contract and the maturity date
of each Contract. Prior to the conveyance of the Contracts to the Trustee, the
Depositor will cause to be reviewed all the Contract files, including the
certificates of title to, or other evidence of a perfected security interest
in, the Manufactured Homes, confirming the accuracy of the Contract Schedule
delivered to the Trustee.
[The Trustee, itself or through a custodian, will hold, on behalf of the
Certificateholders, the original Contracts and copies of documents and
instruments relating to each Contract and the security interest in the
Manufactured Home relating to each Contract.] In addition, in order to give
notice of the Trustee's right, title and interest in and to the Contracts,
[the Master Servicer, on behalf of] the Depositor, will deliver to the Trustee
a UCC-1 financing statement identifying the Trustee as the secured party and
identifying all the Contracts as collateral. The [Master Servicer] will file
such statement in the appropriate offices in the appropriate states. [The
Contracts will not be stamped or otherwise marked to reflect their assignment
from the Company to the Trustee. If a subsequent purchaser were able to take
physical possession of the Contracts without notice of such assignment, the
Trustee's interest in the Contracts could be defeated.] See "Certain Legal
Aspects of the Mortgage Loans and Contracts--The Contracts" in the Prospectus.
TRUSTEE
The Trustee for the Certificates will be .
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation in .
The Master Servicer is [an FHA approved seller-servicer] based in . As of
, the Master Servicer serviced, for other investors and for its own
account, approximately mortgage loans with an aggregate principal balance
in excess of $ . The Master Servicer conducts operations through FHA
approved branch offices in . The Master Servicer originated approximately
$ in mortgage loans in 19 . The Master Servicer's consolidated
stockholders' equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
[The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its
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capacity as Master Servicer and guaranteeing the performance, among other
things, of the obligations of the Master Servicer to purchase certain
Contracts and to make advances, as described in the Prospectus under
"Description of the Certificates--Assignment of Contracts" and "--Advances,"
in an amount acceptable to the nationally recognized statistical rating
organization or organizations rating the Certificates (collectively, the
"Rating Agency").
SERVICING COMPENSATION [, LIMITED GUARANTEE FEE] AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Contract, equal to the
excess of each interest payment on a Contract over the Pass-Through Rate, less
[(a)] any servicing compensation payable to the Servicer of such Contract
under the terms of the agreement with the Master Servicer pursuant to which
such Contract is serviced (the "Servicing Agreement") (including such
compensation paid to the Master Servicer as the direct servicer of a Contract
for which there is no Servicer)[.] [, and (b) the amount payable to the
[Depositor,] [Master Servicer], as described below] [.] [, and (c) the Limited
Guarantee Fee.] [Pursuant to the Pooling and Servicing Agreement, on each
Distribution Date, the Master Servicer will remit to [the Depositor] in
respect of each interest payment on a Contract an amount equal to % of the
outstanding principal balance of such Contract before giving effect to any
payments due on the preceding Due Date.] [The Master Servicer will be
permitted to withdraw from the Certificate Account, in respect of each
interest payment on a Contract, an amount equal to % of the outstanding
principal balance of such Contract before giving effect to any payments due on
the preceding Due Date.] See "Description of the Certificates--Servicing and
Other Compensation and Payment of Expenses" in the Prospectus for information
regarding other possible compensation to the Master Servicer and the
Servicers. The Servicers and the Master Servicer will pay all expenses
incurred in connection with their responsibilities under the Servicing
Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus.
[Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation might be
characterized as an ownership interest in the interest payments on the
Contracts ("Retained Yield") for federal income tax purposes, by reason of the
extent to which either the weighted average APR, or the stated interest rates
on the Contracts exceeds the Pass-Through Rate, and the tax consequences to
them of such a characterization. In this regard, there are no authoritative
guidelines for federal income tax purposes as to either the maximum amount of
servicing compensation that may be considered reasonable in the context of
this or similar transactions or whether the reasonableness of servicing
compensation should be determined on a weighted average or contract by
contract basis. [The Depositor intends to treat % of such servicing
compensation and % of the amount payable to it described above as Retained
Yield for federal income tax purposes in reports to the Certificateholders and
to the Internal Revenue Service.] See "Certain Federal Income Tax
Consequences--[ ] in the Prospectus for information regarding the
characterization of servicing compensation [and the amounts payable to the
Depositor].
[TERMINATION; REPURCHASE OF CONTRACTS
The Pooling and Servicing Agreement provides that the [Depositor] [Master
Servicer] may purchase from the Trust all Contracts remaining in the Contract
Pool and thereby effect early retirement of the Certificates, provided that
the aggregate unpaid balances of the Contracts at the time of such repurchase
is less than [10%] of the aggregate principal balance of the Contracts on the
Cut-off Date. The purchase price for any such optional repurchases shall be
equal to the outstanding principal balance of such Contracts, together with
accrued interest at the Pass-Through Rate to the first day of the month
following such repurchase plus the appraised value of any acquired property
with respect to the Contracts. [Any such repurchase will be effected in
compliance with the requirements of Section 860F(a)(iv) of the Code in order
to constitute a "qualifying liquidation" thereunder.] In no event will the
Trust continue beyond the expiration of 21 years from the death of the last
survivor of the persons named in the Pooling and Servicing Agreement.]
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INSURANCE
[FHA Insurance and VA Guarantee
% and % of the Contracts, respectively (by aggregate principal balance
as of Cut-Off Date) are subject to FHA insurance and VA guarantees. See
"Description of Insurance" in the Prospectus.]
[Primary Credit Insurance Policies
To be provided.]
[Pool Insurance Policies
To be provided.]
Hazard Insurance Policies
The Master Servicer will cause to be maintained one or more standard hazard
insurance policies with respect to each Manufactured Home in an amount at
least equal to the lesser of its maximum insurable value or the principal
amount due from the Obligor under the related Contract. Such standard hazard
insurance policies, will, at a minimum, provide fire and extended coverage on
terms and conditions customary in manufactured housing hazard insurance
policies. If a Manufactured Home, at the origination of the related Contract,
was located within a federally designated flood area, the Master Servicer also
will cause flood insurance to be maintained in an amount equal to the lesser
of the amounts described above or the maximum amount available for such
Manufactured Home under the federal flood insurance program.
All amounts collected by the Master Servicer under a standard hazard
insurance policy will be applied either to the restoration or repair of the
Manufactured Home or against the unpaid principal balance of the related
Contract upon foreclosure and repossession of the Manufactured Home, after
reimbursing the Master Servicer for amounts previously advanced by it for such
purposes. The Master Servicer may satisfy its obligation to cause the
maintenance of standard hazard and flood insurance policies by maintaining a
blanket policy insuring against hazard and flood losses on all the
Manufactured Homes. Such blanket policy may contain a deductible clause, in
which case the Master Servicer will be required to deposit in the Certificate
Account any amount deducted in connection with insurance claims on repossessed
Manufactured Homes.
[THE LIMITED GUARANTEE
General
If amounts available in the Certificate Account [(following any Advances by
the Master Servicer)] for distribution to the Certificateholders is less than
the amount due to them as a result of defaulted Contracts and delinquent
payments of principal of and interest on the Contracts, the Limited Guarantee
will be available, to the extent of the Guarantee Amount, to fund such
shortfall. The Guarantee Amount on the first Distribution Date will equal
$ . Thereafter, the Guarantee Amount on any Distribution Date will equal
[$ less amounts previously paid with respect to the Limited Guarantee].
$ of the initial Guarantee Amount will be covered by the general payment
obligation of , which obligation will be supported by the Standby Letter
of Credit (described below). The balance of the initial Guarantee Amount will
be covered by the Direct Letter of Credit.
Amounts required to be paid under the Limited Guarantee will be paid first
by under its general payment obligation (or pursuant to the Standby
Letter of Credit) and after such obligation is exhausted, from the Direct
Letter of Credit. If the Guarantee Amount is reduced to zero, the
Certificateholders will bear all losses on the Contracts. As a result,
Certificateholders may be subject to delays in payments of monthly principal
and interest as a result of delinquent payments by Obligors. In the event of a
repossession and resale by the Master
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Servicer (as Servicer on behalf of the Trustee) of a Manufactured Home
securing a Contract in default, the Trust Fund may not recover the entire
amount of principal and interest due on such Contract. See "The Trust Fund--
The Contracts" and "Certain Legal Aspects of the Mortgage Loans and Contracts"
in the Prospectus.]
Standby Letter of Credit
The Standby Letter of Credit will be an irrevocable standby letter of credit
supporting the payment and repurchase obligations of . The Standby Letter
of Credit will be obtained initially from , and will terminate on .
will confirm the Standby Letter of Credit issued by , meaning that if
for any reason does not honor a draw upon a Standby Letter of Credit,
will be obligated to honor such draw. The amount of the Standby Letter of
Credit on the Closing Date shall be $ . On each subsequent Distribution
Date, the requisite amount of the renewed Standby Letter of Credit or
replacement Standby Letter of Credit shall be the amount of 's obligation
under the Limited Guarantee on the immediately preceding Distribution Date.
Direct Letter of Credit
The Direct Letter of Credit will be an irrevocable direct pay letter of
credit obtained initially from and will be confirmed by . The Direct
Letter of Credit will terminate on . The initial requisite amount of the
Direct Letter of Credit shall be $ and subsequently, the requisite amount
shall be .
Maintenance of Letters of Credit
The Letters of Credit will provide that, if the institution issuing such
Letter of Credit (the "L/C Bank") does not intend to renew such Letter of
Credit, it must give notice thereof to the Master Servicer and the Trustee at
least 45 days prior to the expiration of such Letter of Credit. The Master
Servicer must then obtain a replacement Letter of Credit. If, immediately
prior to the expiration of the Letter of Credit, the Master Servicer has not
obtained a replacement Letter of Credit issued or confirmed by a L/C Bank
which is a qualified bank (an institution whose unsecured long-term debt (or,
in the case of the principal bank in a bank holding company system, the
unsecured long-term debt of such bank or the bank holding company) has a
rating satisfactory to the Rating Agency for the maintenance of the " "
rating of the Certificates, the Trustee shall draw under such expiring Letter
of Credit an amount equal to the 's obligation under the Limited
Guarantee, in the case of the Standby Letter of Credit, or the difference
between the Guarantee Amount and the 's obligation under the Limited
Guarantee, in the case of the Direct Letter of Credit. The amounts so drawn
will be deposited in a separate trust fund (the "Limited Guarantee Fund") and
will be available on each Distribution Date if and to the extent that draws
would have been required under the Standby Letter of Credit or the Direct
Letter of Credit, as the case may be. The funds in the Limited Guarantee Fund
remain the property of the issuer of such Letter of Credit, subject to the
right of the Master Servicer to make withdrawals. Upon termination of the
Pooling and Servicing Agreement, any funds remaining in the Limited Guarantee
Fund will be paid to the issuer of such Letter of Credit. In addition, any
recoveries of delinquent payments previously advanced pursuant to the draws
under a Letter of Credit, and any recoveries in defaulted Contracts whose
repurchase price was deposited in the Certificate Account pursuant to a draw
on a Letter of Credit, will be repaid to the L/C Bank if the Letter of Credit
will be reinstated by such amount, or else will be deposited in the Limited
Guarantee Fund. In the event of insolvency of the L/C Bank, the amount
available to the Trust Fund under the Letter of Credit or from the Limited
Guarantee Fund, as the case may be, may be reduced.
In the event that the L/C Bank that issued or confirmed the Letter of Credit
ceases to be a qualified bank, the Master Servicer will use its best efforts
to obtain a substitute Letter of Credit issued or confirmed by a qualified
bank. If a substitute Letter of Credit issued or confirmed by a qualified bank
has not been obtained in 30 days, the Trustee will draw down the requisite
amount under such Letter of Credit and deposit such funds in the Limited
Guarantee Fund.]
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[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
[ %] of the aggregate principal balance of the Contracts on the Cut-off Date.
The duration of coverage and the amount and frequency of any reduction in
coverage will be in compliance with the requirements established by the Rating
Agency rating the Certificates, in order to obtain a rating in one of the two
highest rating categories of the Rating Agency. The precise amount of coverage
under the Letter of Credit and the duration and frequency of reduction of such
coverage will be set forth in the Current Report on Form 8-K referred to
above. See "Description of the Certificates--Credit Support--The Letter of
Credit" in the Prospectus.]
It is a condition to the issuance of the Certificates that they be rated in
one of the two highest categories of the Rating Agency prior to issuance.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
[ERISA CONSIDERATIONS
The acquisition of a Certificate by an employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (a
"Plan") could result in prohibited transactions or other violations of the
fiduciary responsibility provisions of ERISA and section 4975 of the Internal
Revenue Code of 1986 (the "Code") if by virtue of such acquisition, assets
held by the Trust were deemed to be assets of the Plan. [The United States
Department of Labor ("DOL") published final regulations concerning whether or
not the assets of a Plan will be deemed to include any of the underlying
assets of an entity, for purposes of the fiduciary responsibility provisions
of ERISA, when a Plan acquires an equity interest in such entity. The final
regulations state that the assets of a Plan which acquires an equity interest
will not include any of the underlying assets of the entity if the class of
equity interests in question are (1) held by 100 or more investors independent
of the issuer and of each other, (2) freely transferable, and (3) sold as part
of an offering pursuant to an effective registration statement under the
Securities Act of 1933, and then timely registered under section 12(b) or
12(g) of the Securities Exchange Act of 1934. It is expected that the
Certificates will meet the criteria of the regulations: The Underwriter[s]
expect[s] (although no assurances can be given) that the Certificates will be
held by at least 100 independent investors at the conclusion of the offering
made by this Prospectus; there are no restrictions imposed on the transfer of
the Certificates; and the seller intends to cause the registration
requirements to be satisfied.] In addition, even if the Plan's assets are
deemed to include the Contracts, certain exemptions from the prohibited
transaction rules could be applicable, depending in part upon the type and
circumstances of the Plan fiduciary making the decision to acquire a
Certificate. Included among these exemptions are DOL Prohibited Transaction
Exemptions 84-14 (Class Exemption for Plan Asset Transaction Determined by
Independent Qualified Professional Asset Managers), 80-51 (Class Exemption for
Certain Transactions Involving Bank Collective Investment Funds) and 78-19
(Class Exemption for Certain Transactions Involving Insurance Company Pooled
Separate Accounts).
Employee benefit plans which are governmental plans (as defined in section
3(32) of ERISA), and certain church plans (as defined in section 3(33) of
ERISA), are not subject to ERISA requirements.
Any Plan fiduciary considering the purchase of Certificates should consult
its tax and/or legal advisors regarding these and other issues and their
potential consequences.]
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UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase from the Depositor [all] [the
following respective principal amounts] of the Certificates:
[UNDERWRITER
- -------------------
Credit Suisse First Boston ...................... $
--------
Total ............................................ $ ]
========
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Certificates to the public initially
at the public offering prices set forth on the cover page of this Prospectus
Supplement, and [through the Representative,] to certain dealers at such
prices less the following concessions and that the Underwriter[s] and such
dealers may allow the following discounts on sales to certain other dealers:
CONCESSION (PERCENT OF DISCOUNT (PERCENT OF
PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
------------------------ ------------------------
% %
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by ________________________, New York, New York. The material
federal income tax consequences of the Certificates will be passed upon for the
Depositor by ____________________________________________________________.
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Contracts underlying
the Certificates. Certain of the Contracts will be acquired in privately
negotiated transactions by the Depositor from one or more affiliates of the
Depositor, which will have acquired such Contracts from time to time in
privately negotiated transactions.
S-15
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 19
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
[Version F]
$ (Approximate)
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
ABS Mortgage Pass-Through Certificates, Series , [Class A]
Adjustable Pass-Through Rate
[ Master Servicer ]
-----------
The ABS Mortgage Pass-Through Certificates, Series will be comprised
of Class A Certificates and [one] [two] subclass[es] [(not offered hereby)] of
Class B Certificates (collectively, the "Certificates"). The Certificates, will
represent interests in the Master Trust Fund which will hold an interest in a
pool (the "Mortgage Pool") of adjustable rate, [conventional] mortgage loans
secured by [first mortgages or deeds of trust] [liens] on [one-to-four-unit
residential properties] [cooperative loans evidenced by promissory notes
secured by a lien on shares in cooperative housing corporations and on the
related proprietary leases] (the "Mortgage Loans") [originated] [acquired] by
("Master Servicer"), and certain other property held in trust for the benefit
of the Certificateholders. [ ] will act as Master Servicer.
The Class A Certificates will evidence an initial interest of approximately
% in the Mortgage Loans. The remaining interest in the Mortgage Loans will be
evidenced by the Class B Certificates, which are subordinate to the
Certificates to the extent described herein and in the Prospectus. See
"Description of the Certificates--Distributions" and "--Subordination of the
Class B Certificates; Shifting Interest Credit Enhancement" herein and "Credit
Support--Subordinated Certificates" in the Prospectus.
Principal and interest on the Certificates are distributable on the [25th]
day of each month commencing (each, a "Distribution Date"). After an
initial period, the Mortgage Rate on each Mortgage Loan will adjust [semi-
annually] to a rate equal to the Index (as defined below) plus the fixed
percentage applicable to such Mortgage Loan (the "Gross Margin"), subject to
the interest rate limitations applicable to the Mortgage Loans and the other
provisions set forth herein. The Class A Certificateholders will be entitled to
receive interest on the Class A Principal Balance (as defined herein) at the
Pass-Through Rate. The Pass-Through Rate will equal the weighted average of the
Subsidiary Pass-Through Rates. The initial Pass-Through Rate is approximately
%. The Subsidiary Pass-Through Rate with respect to each Mortgage Loan prior
to its first Adjustment Date (as defined herein) will equal the Mortgage Rate
less . On and after its first Adjustment Date, the Subsidiary Pass-Through
Rate with respect to each Mortgage Loan will equal the [description of index,
e.g. monthly weighted average cost of funds for member institutions of the 11th
District of the Federal Home Loan Bank System, as published by the Federal Home
Loan Bank of San Francisco] (the "Index") plus basis points (the "Pass-
Through Margin") but not more than the lesser of the Periodic Mortgage Rate Cap
(as defined herein) less the Servicing Fee Rate, or the Maximum Subsidiary
Pass-Through Rate (as defined herein).
There is currently no secondary market for the Class A Certificates. There
can be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
An election will be made to treat the assets of the Subsidiary Trust Fund (as
defined herein) as a real estate mortgage investment conduit ("REMIC") for
purposes of federal income taxation (the "Subsidiary REMIC"). An election will
also be made to treat the assets represented by the "regular interests" in the
Subsidiary REMIC constituting a separate trust fund (the "Master Trust Fund")
as a separate REMIC (the "Master REMIC"). See "Certain Federal Income Tax
Consequences" herein.
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN CREDIT
SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., [MASTER SERVICER] OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should consider the factors set forth under Risk Factors
on Page S-9 of this Prospectus Supplement.
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
[The Certificates will initially be delivered by the Depositor to in
exchange for the Mortgage Loans to be deposited by the Depositor into the
Subsidiary Trust Fund. The Class A Certificates may be sold or pledged by ,
directly or through one or more underwriters, from time to time at varying
prices to be determined at the time of such sale or pledge.] [The
Underwriter[s] propose[s] to offer the Class A Certificates from time to time
for sale in negotiated transactions or otherwise, at prices determined at the
time of sale.] See "Plan of Distribution" herein. Expenses attributable to
issuance of the Class A Certificates, estimated to be approximatley $ will
be paid by [the Master Servicer] [the Depositor]. [The Depositor] will be paid
a fee by of $ in connection with the transaction.
[The Class A Certificates are offered by the [several] Underwriter[s] when,
as and if issued and accepted by the Underwriter[s] and subject to [its]
[their] right to reject orders in whole or in part. It is expected that the
Class A Certificates, in definitive fully registered form, will be ready for
delivery on or about , 199 .]
The Certificates, when, as and if issued by the Depositor, are expected to be
available for delivery in New York, New York on or about , 199 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
The Date of this Prospectus Supplement is , 19 .
<PAGE>
The Class A Certificates offered hereby constitute a separate series of
Conduit Mortgage and Manufactured Housing Contract Pass-Through Certificates
being offered by CS First Boston Mortgage Securities Corp. from time to time
pursuant to its Prospectus dated . This Prospectus Supplement does not
contain complete information about the offering of the Class A Certificates.
Additional information is contained in the Prospectus, and purchasers are
urged to read both this Prospectus Supplement and the Prospectus in full. Sale
of the Class A Certificates may not be consummated unless the purchaser has
received both this Prospectus Supplement and the Prospectus.
[Until , no offerings of the Class A Certificates may be made by except
pursuant to this Prospectus Supplement and the Prospectus, as supplemented as
of the date of such offering. After such date, no offerings of the Class A
Certificates will be made pursuant to this Prospectus Supplement and
Prospectus.
[Until , all dealers effecting transactions in the Class A Certificates,
whether or not participating in this distribution, may be required to deliver
a Prospectus Supplement and a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriter and with respect to their unsold allotments or
subscriptions.]
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
----------------
AVAILABLE INFORMATION
The Master Trust Fund will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, the Depositor, on behalf of the Master Fund, will file
periodic reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports will not contain audited financial
information with respect to the Master Trust Fund. Such reports and other
information filed by the Depositor on behalf of the Master Trust Fund can be
inspected and copied at the Public Reference Room of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such information can be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-2
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
and not defined shall have the meanings ascribed thereto in the Prospectus.
SECURITIES OFFERED........ $ ABS Mortgage Pass-Through Certificates,
Series , [Class A,] Adjustable Pass-Through Rate
(the "Class A Certificates").
DEPOSITOR................. Credit Suisse First Boston Mortgage Securities Corp.
MASTER SERVICER...........
CUT-OFF DATE..............
DELIVERY DATE............. On or about .
DESCRIPTION OF THE Two Classes of Certificates evidencing fractional
CERTIFICATES.............. interests in a Trust Fund (the "Master Trust
Fund") consisting of the Subsidiary Regular
Interests (as defined herein) which in the
aggregate generally represent an interest in (i)
all amounts distributable with respect to the
Mortgage Loans, (ii) amounts held in the
Certificate Account, (iii) any property which
secured a Mortgage Loan and is acquired by
foreclosure or deed in lieu of foreclosure, and
(iv) certain other related property, as more fully
described herein and in the Prospectus. The Class
A Certificates initially evidence in the aggregate
an interest in the Mortgage Loans (the "Class A
Percentage") of approximately %. The remaining
interest in the Mortgage Loans will be represented
by the Class B Certificates, [which will consist
of two subclasses, Class B-l (the "Class B-l
Certificates") and Class B-2 (the "Class B-2
Certificates") together,] the "Class B
Certificates"). [The Class B-l Certificates will
initially evidence an approximate % interest in
the Mortgage Loans ("the Class B-1 Percentage")
and the Class B-2 Certificates will initially
evidence an approximate % interest in the
Mortgage Loans (the "Class B-2 Percentage")
(together,] [the "Subordinate Percentage"). The
Class B Certificates will be subordinated in
certain respects to the Class A Certificates, as
more fully described herein. The Class A
Percentage, [and] the Class B[-1 Percentage and
the Class B-2 Percentage] will vary, as described
herein.
The Class A Certificates and the Class B
Certificates are collectively referred to herein
as the "Certificates." The Class A Certificates
represent the Senior Certificates and the Class B
Certificates represent the Subordinate
Certificates, both as described in the
accompanying Prospectus. Only the Class A
Certificates are being offered hereby.
THE INDEX................. [Description e.g., the monthly weighted average
cost of funds for member institutions of the 11th
District of the Federal Home Loan Bank System as
published by the Federal Home Loan Bank of San
Francisco. The Index published in
(reflecting the
S-3
<PAGE>
related weighted average cost of funds for
) was %.]
THE MORTGAGE LOANS........ The Mortgage Pool will consist of adjustable rate,
[conventional] mortgage loans [originated]
[acquired] by [the Master Servicer] and secured by
first mortgages or deeds of trust on one- to four-
family residential properties. All Mortgage Loans
will have maturities of at least 15 but no more
than 30 years and are secured by properties
located in . [All Mortgage Loans with a Loan-
to-Value Ratio greater than 80% will have private
mortgage insurance.] See "Description of the
Mortgage Pool and Underlying Mortgage Properties"
herein.
PRINCIPAL (INCLUDING Passed through monthly on the Distribution Date
PREPAYMENTS).............. commencing . On each Distribution Date the
Class A Certificateholders are entitled to receive
as payments of principal, in addition to the Class
A Percentage of all scheduled payments on account
of principal, the Class A Prepayment Percentage of
both principal prepayments in part and principal
prepayments in full received by the Master
Servicer with respect to such Mortgage Loans
during the preceding calendar month ("Principal
Prepayments"). See "Description of the
Certificates--Subordination of the Class B
Certificates; Shifting Interest Credit
Enhancement" herein.
INTEREST.................. Interest accrued on each Mortgage Loan will be
passed through to Certificateholders on the
Distribution Date occurring in the month in which
the Due Date (as defined herein) occurs,
commencing , at the Pass-Through Rate. The
Pass-Through Rate will equal the weighted average
of the Subsidiary Pass-Through Rates. The initial
Pass-Through Rate is equal to approximately % per
annum. Prior to the first Adjustment Date after
the Cut-off Date for a Mortgage Loan, the
Subsidiary Pass-Through Rate with respect to such
Mortgage Loan will equal the Mortgage Rate less
. On and after the first Adjustment Date for a
Mortgage Loan, the Subsidiary Pass-Through Rate
with respect to each Mortgage Loan will equal the
Index applicable to such Mortgage Loan plus
basis points (the "Pass-Through Margin"), subject
to the limitation that the Subsidiary Pass-Through
Rate shall not exceed the lesser of the Periodic
Mortgage Rate Cap less the Servicing Fee Rate or
the Maximum Subsidiary Pass-Through Rate. The
Maximum Subsidiary Pass-Through Rates will range
from % to % per annum. The Maximum Subsidiary
Pass-Through Rate with respect to a particular
Mortgage Loan is equal to the Maximum Mortgage
Rate for such Mortgage Loan minus the Servicing
Fee Rate. The weighted average Maximum Subsidiary
Pass-Through Rate as of the Cut-off Date will be
approximately % per annum. Following an initial
period of months, during which the rate of
interest on each Mortgage Loan (the "Mortgage
Rate") is fixed, the Mortgage Rate on each
Mortgage Loan will be adjusted [monthly] [semi-
annually] [annually] on the adjustment dates (each
such date, an "Adjustment Date") specified in the
related mortgage note (each such note, a
S-4
<PAGE>
"Mortgage Note") to equal the sum of the Index and
a fixed percentage amount (a "Gross Margin") [,
subject to a semi-annual periodic mortgage rate
cap (the "Periodic Mortgage Rate Cap") and a
maximum rate at which interest may accrue (the
"Maximum Mortgage Rate"), as described more fully
herein]. Each Mortgage Loan will have been
originated with an initial Mortgage Rate below the
sum of the applicable Index and Gross Margin for
such Mortgage Loan (the "Initial Mortgage Rate")
and % of the Mortgage Loans as of the Cut-off
Date are expected to be accruing interest at their
Initial Mortgage Rates.] As of the Cut-off Date,
the Mortgage Loans will bear interest at Mortgage
Rates which range from % to % per annum. The
Gross Margins for the Mortgage Loans range as of
the Cut-off Date from to basis points. The
weighted average Gross Margin for the Mortgage
Loans as of the Cut-off Date will be approximately
basis points. [The Periodic Mortgage Rate Cap
for each Mortgage Loan is the Mortgage Rate in
effect immediately prior to any Adjustment Date
plus or minus basis points. The Maximum
Mortgage Rate will range from % to % per annum.]
The weighted average Maximum Mortgage Rate as of
the Cut-off Date will be % per annum. See
"Description of the Mortgage Pool and the
Underlying Mortgaged Properties" herein.
When a Mortgage Loan is prepaid, in whole or in
part, between scheduled payment dates, the
Mortgagor pays interest on the amount prepaid only
to the date of prepayment and not thereafter. This
generally reduces the aggregate amount of interest
which would otherwise be distributed to the Class
A and Class B Certificateholders. To mitigate any
such reduction in yield, [amounts otherwise
payable as the Servicing Fee (as defined herein)
for the period during which any such Principal
Prepayment was made will be reduced by] [to the
extent funds that interest on the Mortgage Loans
exceeds the Subsidiary Pass-Through Rate less the
Servicing Fee Rate for the period during which any
such prepayment is made, the Pooling and Servicing
Agreement provides that] such amount, if any, as
may be necessary to assure that the distributions
made to the Class A and Class B Certificateholders
on the related Distribution Date include an amount
equal to a full month's interest with respect to
each prepaid Mortgage Loan at the applicable
Subsidiary Pass-Through Rate will be paid to the
Master Trust Fund. See "Description of the
Certificates--Distributions" herein.
RISK FACTORS.............. For discussion of risk factors that should be
considered with respect to an investment in the
Certificates, see "Risk Factors" herein and in the
related Prospectus.
SUBORDINATION OF THE
CLASS B CERTIFICATES;
SHIFTING INTEREST CREDIT
ENHANCEMENT..............
The rights of the Class B Certificateholders to
receive distributions with respect to the Mortgage
Loans are subordinated to such rights of the Class
A Certificateholders to the extent of the
Subordinated Amount described below. This
subordination feature is intended to enhance the
likelihood of regular receipt by the holders of
the Class A Certificates of the full amount of the
scheduled monthly payments of principal and
interest due them with respect to the Mortgage
Loans and to protect the Class A
Certificateholders against losses.
S-5
<PAGE>
As of each Determination Date, the Subordinated
Amount will equal the Class B Principal Balance
(as defined herein) on such date reduced by the
excess of Aggregate Losses (as defined herein)
over cumulative Realized Losses (as defined
herein) borne by the Class B Certificateholders as
of such date, if any. This subordination feature
is intended to enhance the likelihood of regular
receipt by the holders of the Class A Certificates
of the full amount of the scheduled monthly
payments of principal and interest due them with
respect to the Mortgage Loans and to protect the
Class A Certificateholders against losses.
However, in certain circumstances, the
Subordinated Amount could be depleted and payment
deficiencies could result. If, on any Distribution
Date when the Subordinated Amount is greater than
zero, the aggregate amount of payments received
from the Mortgagors on the Mortgage Loans and any
Advances (as defined herein) do not provide
sufficient funds to make full distributions to the
Class A Certificateholders, the amount of the
payment deficiency, plus interest thereon at the
applicable Subsidiary Pass-Through Rate, to the
extent of the Subordinated Amount, will be added
to the amount such Class A Certificateholders are
entitled to receive on the next Distribution Date.
The extent to which the Class A Certificateholders
and the Class B Certificateholders bear Realized
Losses, and, in addition, Special Hazard Realized
Losses, is described herein. See "Description of
the Certificates--Subordination of the Class B
Certificates; Shifting Interest Credit
Enhancement" herein.
The protection afforded to the holders of the Class
A Certificates will be effected (i) by the
preferential right of such holders to receive the
amounts of principal and interest otherwise
distributable to the Class B Certificateholders on
each Distribution Date with respect to the
Mortgage Loans out of available funds on deposit
on such date in the Certificate Account, and (ii)
by distributing to the Class A Certificateholders
a disproportionately greater percentage (the
"Class A Prepayment Percentage") of Principal
Prepayments (as hereinafter defined) and other
payments with respect to the Mortgage Loans. The
Class A Prepayment Percentage will decline from
100% after provided certain criteria
respecting the Mortgage Pool are met. See
"Description of the Certificates--Subordination of
the Class B Certificates; Shifting Interest Credit
Enhancement" herein.
SERVICING FEE............. will act as Master Servicer of the Mortgage
Loans [and will enter into a Servicing Agreement
on the Delivery Date pursuant to which will
subservice the Mortgage Loans]. will receive
a servicing fee (the "Servicing Fee") as
compensation for its services which is calculated
monthly and equals a fixed percentage on the
principal balance of each Mortgage Loan (the
"Servicing Fee Rate"). The Servicing Fee Rate
equals basis points. See "Description of the
Mortgage Pool and Underlying Mortgaged
Properties--Servicing and Sub-Servicing" and
S-6
<PAGE>
"Description of the Certificates--Servicing
Compensation and Payment of Expenses" herein.
ADVANCES.................. The Master Servicer will be obligated to advance
cash (the "Advances") to the Subsidiary Trust Fund
for distribution in an amount equal to delinquent
installments of principal and interest to the
extent that the Master Servicer determines such
Advances will be recoverable from future payments
and collections on the Mortgage Loans or
otherwise. See "Description of the Certificates--
Advances" in the Prospectus.
DENOMINATIONS............. The minimum denomination of a Class A Certificate
(a "Single Certificate") will initially represent
$ of the Cut-off Date Principal Balance,
provided that one Certificate may be issued in
such lesser amount as is required so that the
Class A Certificateholders in the aggregate equal
the Class A Principal Balance (as defined herein).
OPTIONAL TERMINATION...... The holder of the Subsidiary Residual Interest has
the option to purchase all of the Mortgage Loans
in the Subsidiary Trust Fund, and thereby effect
termination of the Subsidiary Trust Fund and the
Master Trust Fund, on any Distribution Date on
which the aggregate principal balance of the
Mortgage Loans remaining in the Subsidiary Trust
Fund is less than % of the Cut-off Date Principal
Balance. Additionally, the holder of the Class B[-
2] Certificate has the option to purchase all the
Subsidiary Regular Interests (as defined herein)
in the Master Trust Fund. Either of the above
purchases would effect early retirement of the
Class A and Class B Certificates. See "Description
of the Certificates--Optional Termination" herein
and "Description of the Certificates--Termination"
in the Prospectus.
TAX ASPECTS............... An election will be made to treat the assets of the
Subsidiary Trust Fund as a REMIC (the "Subsidiary
REMIC") for federal income tax purposes. As
further specified in the Pooling and Servicing
Agreement, Mortgage Loan interest (net of the
Servicing Fee) in excess of the Subsidiary Pass-
Through Rate and certain payments received by the
Trustee in excess of the principal balance of the
Mortgage Loans will comprise the residual interest
in the Subsidiary REMIC (the "Subsidiary Residual
Interest"). The regular interests in the
Subsidiary REMIC in the aggregate will encompass
the rights to all other amounts distributable with
respect to the Mortgage Loans and certain related
property (the "Subsidiary Regular Interests"). An
election will be made to treat the assets of the
Master Trust Fund (which consists of the
Subsidiary Regular Interests) as a REMIC (the
"Master REMIC"). The Class A Certificates [and
Class B-l Certificates] will be regular interests
in the Master REMIC. The Class B[-2] Certificate
will be the residual interest in the Master REMIC.
[The Class A Certificates will be issued with
original issue discount for federal income tax
purposes. The prepayment assumption that will be
used by the Master Servicer in determining the
rate of accrual of
S-7
<PAGE>
original issue discount for federal income tax
purposes is a Standard Prepayment Assumption of
%. No representation is made that the Mortgage
Loans will prepay at that rate or at any other
rate.]
The Class A Certificates will be treated as
"qualifying real property loans" under Section
593(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), "loans secured by interests
in real property" under Section 7701(a)(19)(C) of
the Code and "real estate assets" under Section
856(c) of the Code, generally in the same
proportion that the assets in the Subsidiary REMIC
would be so treated. In addition, interest on the
Class A Certificates will be treated as "interest
on obligations secured by mortgages on real
property" under Section 856(c) of the Code,
generally to the extent that such Class A
Certificates are treated as "real estate assets"
under Section 856(c) of the Code.
For further information regarding the federal
income tax consequences of investing in the Class
A Certificates, see "Certain Federal Income Tax
Consequences" herein and in the Prospectus.*
LEGAL INVESTMENT.......... The Class A Certificates constitute "mortgage-
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act") for so long as they are rated
as described herein, and, as such, are legal
investments for certain entities to the extent
provided in the Enhancement Act. See "Legal
Investment" herein and in the Prospectus.
ERISA CONSIDERATIONS...... See "ERISA Considerations" herein and in the
Prospectus.
TRUSTEE...................
CERTIFICATE RATING........ It is a condition of issuance that the Class A
Certificates be rated at least " " by . See
"Rating" herein.
- --------
* If the Prospectus Supplement for a Series of Certificates provides that
Stroock & Stroock & Lavan LLP will pass upon the material federal income tax
consequences of the Certificates for the Depositor, then such Prospectus
Supplement will contain tax disclosure substantially similar to the disclosure
set forth in Version E under "Summary of Terms--Tax Aspects" and "Certain
Federal Income Tax Consequences."
S-8
<PAGE>
[RISK FACTORS]
[Description of Risk Factors to be added as appropriate]
DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES(1)
GENERAL
The Mortgage Pool consists of all of the ownership interest held by the
Subsidiary Trust Fund in Mortgage Loans evidenced by adjustable rate
promissory notes (the "Mortgage Notes") having an aggregate principal balance
at the Cut-off Date of $ . The Mortgage Notes are secured by first trust
deeds or mortgages on properties consisting primarily of detached single
family residential properties with the remaining properties consisting of
units of FNMA or FHLMC eligible condominiums and units in planned unit
developments (the "Mortgaged Properties"). All of the Mortgage Loans were
originated by . All of the Mortgage Loans were originated under one of
two origination programs, one of which is a limited documentation program that
relies primarily upon appraisals and credit reports and the other of which
generally conform to FNMA and FHLMC underwriting guidelines. The Mortgage
Loans have the additional characteristics described below and in the
Prospectus. See "The Mortgage Pools" in the Prospectus.
The Depositor will purchase the Mortgage Loans from and will cause such
Mortgage Loans to be assigned to the Trustee. See "The Trust Fund--Mortgage
Loan Program" in the Prospectus. will act as the master servicer (the
"Master Servicer") for the Mortgage Loans pursuant to the Standard Terms and
Provisions of Pooling and Servicing and Reference Agreement, dated as of
(the "Pooling and Servicing Agreement"), among the Depositor, the Master
Servicer and , as trustee (the "Trustee"). The Mortgage Loans will be
serviced by the Servicer pursuant to a Servicing Agreement with the Master
Servicer, and the Servicer will receive a fee for such services specified in
such Servicing Agreement; provided, however, that the Master Servicer will
remain liable for its servicing obligations under the Pooling and Servicing
Agreement as if the Master Servicer alone were servicing such Mortgage Loans.
See "The Trust Fund--The Mortgage Pools" in the Prospectus and "--Servicing
and Sub-Servicing" herein.
Each Mortgage Loan has a Mortgage Rate subject to [monthly] [semi-annual]
[annual] adjustment on the first day of the month specified in the related
Mortgage Note and on the first day of every month thereafter (each such date,
an "Adjustment Date"), to equal the sum of (i) the Index as most recently
[made available by the Federal Home Loan Bank of San Francisco (the "FHLB")]
on the day days, as specified for the particular Mortgage Note, prior to the
Adjustment Date and (ii) the applicable Gross Margin[; provided, however, that
any increase or decrease on any Adjustment Date will be limited by the
Periodic Mortgage Rate Cap, and in no event will the Mortgage Rate be greater
than the Maximum Mortgage Rate]. The Index applicable on a Rate Adjustment
Date is the Index available days prior to the Adjustment Date. Effective
with the first payment due on a Mortgage Loan after each related Adjustment
Date, the monthly payment will be adjusted to an amount which will fully
amortize the outstanding principal balance of the Mortgage Loan in
substantially equal payments over its remaining term, and pay interest at the
Mortgage Rate as so adjusted. [All] of the Mortgage Loans were
- --------
(1) The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as it was constituted
at the close of business on the Cut-off Date, after deducting the
scheduled principal payments due on or before such date. Prior to the
issuance of the Certificates, Mortgage Loans may be removed from the
Mortgage Pool if, as a result of delinquencies or otherwise, the Depositor
deems such removal necessary or desirable. Other Mortgage Loans may be
included in the Mortgage Pool in lieu of the Mortgage Loans so replaced.
In addition, under certain circumstances the Depositor or the Master
Servicer may substitute Mortgage Loans for those in the Trust Fund. See
"Description of the Certificate--Substitution of Mortgage Loans" herein
and "Description of the Certificates--Assignment of Mortgage Loans" in the
Prospectus. The Depositor believes that the information set forth herein
with respect to the Mortgage Pool is representative of the characteristics
of such Mortgage Pool as it will be constituted at the time the
Certificates are issued, although the range Mortgage Rates and maturities
and certain other characteristics of the Mortgage Loans in the Mortgage
Pool may vary in non-material respects from those set forth herein as a
result of such deletions, repurchases or substitutions.
S-9
<PAGE>
originated with a Mortgage Rate below the sum of the applicable Index and
Gross Margin (the "Initial Mortgage Rate") applicable for an initial period of
months from the date of origination and % of the Mortgage Loans as of the
Cut-off Date will bear interest at their Initial Mortgage Rates. The weighted
average number of months from the Cut-off Date to the first Adjustment Date
for the Mortgage Loans is approximately months. [Due to the application of the
Periodic Mortgage Rate Caps (even assuming no increase in the applicable Index
from the date of origination to the Adjustment Date) or the Maximum Mortgage
Rate, the Mortgage Rate on any Mortgage Loan, as adjusted on any Adjustment
Date, may be less than the sum of the then applicable Index and Gross Margin,
subject to rounding.] If the Index becomes unpublished or is otherwise
unavailable, the Master Servicer will select (or cause to be selected) an
alternative index for Mortgage Loans based upon comparable information in
compliance with applicable federal laws.
The Mortgage Loans were originated in . All of the Mortgage Loans will
have [monthly] payments due on [the first day of each month] (each a "Due
Date"). At origination, of the Mortgage Loans had terms to stated maturity
of 30 years. The latest date on which any Mortgage Loan will mature is. All
Mortgage Loans had Periodic Mortgage Rate Caps equal to basis points. The
Maximum Mortgage Rates range from % to % and the weighted average Maximum
Mortgage Rate is approximately % as of the Cut-off Date.
[Mortgage Loans that are expected to constitute approximately % of the
Initial Principal Balance of the Mortgage Pool as of the Cut-off Date will
have Mortgage Rates that will be convertible from an adjustable to a fixed
Mortgage Rate at the option of the mortgagor upon certain conditions on the
[when convertible] after origination of the related Mortgage Loan. In
determining the fixed rate applicable to a Mortgage Loan eligible for
conversion, the Master Servicer, acting on behalf of the Trustee, will. To the
extent the applicable rate is not available, the Master Servicer will quote a
fixed rate based upon comparable information. In order to be eligible to
convert the applicable Mortgage Rate on such a Mortgage Loan from an
adjustable to a fixed Mortgage Rate, the mortgagor must complete and submit to
the Master Servicer certain conversion documents and a loan modification
agreement, pay the applicable conversion fee and not be in default under the
Mortgage Note or the security documents related to such Mortgage Loan. Upon
conversion, the monthly payments of principal and interest on such Mortgage
Loan will be adjusted to provide for fully amortizing, level monthly payments
until maturity. [Should interest rates decline so that the fixed Mortgage Rate
applicable upon conversion is significantly lower than the prevailing
adjustable Mortgage Rate, due to the application of Interest Rate Caps, or is
significantly lower than the applicable Maximum Mortgage Rate on such Mortgage
Loan, mortgagors may have a significant incentive to effect a conversion.] See
"Description of the Certificates--Purchase of Converted Mortgage Loans"
herein.
The Mortgage Loans have the following characteristics (information provided
as of the Cut-off Date unless otherwise indicated):*
- --------
* The information presented in tabular form may be presented in paragraph
form, or ranges for such information may be provided.
S-10
<PAGE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
PROPERTY TYPES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Single family detached................................. $ . %
Condominium............................................
Planned Unit Developments..............................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
CURRENT LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
CURRENT LOAN AMOUNTS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
Up to $100,000......................................... $ . %
$100,001--150,000......................................
150,001--200,000.......................................
200,001--250,000.......................................
250,001--300,000.......................................
300,001--350,000.......................................
350,001--400,000.......................................
400,001--450,000.......................................
Over $450,001..........................................
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The largest current loan amount is $ and the smallest current loan
amount is $ .
(2) The average outstanding principal balance is $ .
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LOAN-TO-VALUE RATIOS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
70.00% or less......................................... $ . %
70.01% to 75.00%.......................................
75.01% to 80.00%.......................................
80.01% to 85.00%.......................................
85.01% to 90.00%....................................... .
---- ----- ------
Total(1)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The weighted average loan-to-value ratios of the Mortgage Loans, based on
the principal amount at origination and the principal amount as of the
Cut-off Date, respectively, and the lesser of the appraised value at
origination and the purchase price paid by the Mortgagor, was % and %,
respectively.
S-11
<PAGE>
CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MORTGAGE RATES(1) LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
. % or less........................................ $ . %
. % or less........................................
. % or less........................................ .
. % or less........................................ .
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) With respect to % of the Mortgage Pool Balance, the Mortgage Rate is the
original Mortgage Rate and does not reflect application of the Index.
(2) The weighted average Mortgage Rate is approximately % per annum.
MORTGAGE LOAN GROSS MARGINS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
GROSS MARGINS LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%..................................................... $ . %
.....................................................
.....................................................
.....................................................
.....................................................
---- ----- ------
Total(1)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The weighted average Gross Margin is approximately per annum.
MONTH IN WHICH NEXT ADJUSTMENT DATE FALLS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
MONTH(1) LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
..................................................... $ . %
.....................................................
.....................................................
.....................................................
.....................................................
---- ----- ------
Total(2)............................................. $ 100.00%
==== ===== ======
</TABLE>
- --------
(1) The adjusted Mortgage Rate will be reflected in payments received by
Certificateholders on the 25th day of the month following the month in
which the Adjustment Date occurs.
(2) The weighted average number of months to the initial Adjustment Date is
months.
S-12
<PAGE>
LIFETIME MORTGAGE RATE CAPS
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
LIFETIME MORTGAGE RATE CAP LOANS BALANCES BALANCE
- ------------------------------------------------------ ----- --------- --------
<S> <C> <C> <C>
%................................................... $ . %
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
---- ----- ------
Total............................................... $ 100.00%
==== ===== ======
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
YEAR LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
S-13
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NO. MORTGAGE
OF AGGREGATE POOL
STATES LOANS BALANCES BALANCE
- ------------------------------------------------------- ----- --------- --------
<S> <C> <C> <C>
%.................................................... $ . %
....................................................
....................................................
....................................................
....................................................
....................................................
---- ----- ------
Total................................................ $ 100.00%
==== ===== ======
</TABLE>
[Mortgage Loans for which the loan-to-value ratio at origination was greater
than 80% either (1) will be insured as to payment default for the amount in
excess of 75% of the principal balance by a Primary Mortgage Insurance Policy
until the principal balance of such Mortgage Loan is reduced below 80% of the
lesser of the appraised value at origination or the purchase price of the
Mortgaged Property, or (2) will be covered by a [DESCRIPTION OF ALTERNATIVE].]
Approximately % of the Mortgage Loans were made to refinance the related
Mortgaged Properties and approximately % of the Mortgage Loans have been made
to purchase the related Mortgaged Properties. Approximately % of the Mortgage
Loans will be secured by Mortgaged Properties represented to the originator in
the related loan application to be the primary residence of the mortgagor at
the time of origination. % of the Mortgage Loans are secured by Mortgaged
Properties which were second homes of the mortgagor at the time of origination
based on representations of the Mortgagor. % of the Mortgage Loans were made
to finance the purchase of homes represented by the mortgagor to have been
acquired for investment purposes.
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent in scheduled payments of principal and interest by more than 30
days and no Mortgage Loan will have been, as of the Cut-off Date, more than 30
days delinquent in scheduled payments of principal and interest more than once
in the previous year.
THE INDEX
[DESCRIPTION OF APPLICABLE INDEX, e.g., The Index is currently published by
the FHLB on or about the last working day of each month and is designed to
represent the monthly weighted average cost of funds for savings institutions
in the 11th District of the Federal Home Loan Bank System (Arizona, California
and Nevada) for the month prior to publication. The Index is computed by the
FHLB for each month by dividing the cost of funds (interest paid during the
month by 11th District savings institutions on savings, advances and other
borrowings) by the average of the total amount of those funds outstanding at
the end of the month and the prior month and annualizing and adjusting the
result to reflect the actual number of days in the particular month. If
necessary, before these calculations are made, the component figures are
adjusted by the FHLB to neutralize the effect of events such as member
institutions leaving the 11th District or acquiring institutions outside the
11th District. The Index has been reported each month since August 1981.]
[The Index reflects the interest costs paid on all types of funds held by
11th District member institutions. The Index is weighted to reflect the
relative amount of each type of funds held at the end of the relevant month.
There are three major components of funds of 11th District institutions: (1)
savings deposits, (2) FHLB advances, and (3) all other borrowings, such as
reverse repurchase agreements and mortgage-backed bonds. Unlike most other
interest rate measures, the Index does not necessarily reflect current market
rates, since the component funds represent a variety of maturities whose costs
may react in different ways to changing conditions.]
S-14
<PAGE>
[A number of factors affect the performance of the Index which may cause the
Index to move in a manner different from indices tied to specific interest
rates, such as United States Treasury Bills or LIBOR. Because of the various
maturities of the liabilities upon which the Index is based, the Index may not
necessarily reflect the average prevailing market interest rates on new
liabilities of similar maturities. Additionally, the Index may not necessarily
move in the same direction as market interest rates at all times, since as
longer term deposits or borrowings mature and are renewed at prevailing market
interest rates, the Index is influenced by the differential between the prior
and the new rates on those deposits or borrowings. Moreover, as stated above,
the Index is designed to represent the average cost of funds for 11th District
savings institutions for the month prior to the month in which the Index is
published. In addition, such movement of the Index, as compared to other
indices tied to specific interest rates, may be affected by changes instituted
by the FHLB in the method used to calculate the Index. Information Bulletins
announcing the Index may be obtained by contacting the FHLB.]
[The following table sets forth the Index published in each month (with
respect to the 11th District cost of funds in the prior month) for the four
most recent calendar years and for 19 .
<TABLE>
<CAPTION>
19 19 19 19 19
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January........................................... % % % % %
February..........................................
March.............................................
April.............................................
May...............................................
June..............................................
July..............................................
August............................................
September.........................................
October...........................................
November..........................................
December..........................................
</TABLE>
[MASTER SERVICER]
is a , which was founded in . At had consolidated assets
of $ billion and regulatory capital of $ million. As of , had
executive offices in and savings branches located .
is subject to comprehensive regulation, examination and supervision by
the [FHLBB and the FSLIC,] which regulation is intended primarily for the
benefit of depositors. [Deposits at are insured by the FSLIC up to
$100,000 for each insured account holder, the maximum permitted by law.]
executive offices are located at and its telephone number at that
address is .
Loan Portfolio. [Description.]
Loan Transactions. primary lending is [description.]. has
concentrated its efforts on .
The following table sets forth certain information with respect to loan
originations, loan purchases and sales, and repayment experience during the
periods indicated.
S-15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Loans receivable at beginning of period..........................
Loans originated.................................................
Loans purchased..................................................
Loans obtained in Equitable acquisition..........................
Loans sold.......................................................
Loan repayments..................................................
Other............................................................
---- ---- ----
Net loan activity................................................
---- ---- ----
Loan receivable at end of period.................................
==== ==== ====
</TABLE>
Loan Underwriting. has adopted written, nondiscriminatory underwriting
standards for use in originating and purchasing residential mortgage loans.
has represented to the Depositor that its underwriting standards are in
substantial conformity with standards set up by the FNMA and the FHLMC, which
conformity facilitates sales of such loans in the secondary market. A detailed
loan application is obtained or reviewed to determine the borrower's ability
to repay, and confirmation of the more significant information is obtained
through the use of credit reports, financial statements and verifications. An
appraisal of the property, conducted by an appraiser meeting the
qualifications set forth in FHLBB guidelines, is required to determine the
adequacy of the collateral. also requires that a survey be conducted and
title insurance be obtained, insuring the priority of its mortgage lien, and,
for loans with a loan-to-value ratio of 80% or more, that private mortgage
insurance be obtained if available. All loan applications must be reviewed by
underwriters to ensure that guidelines are met. Such guidelines are approved
by Board of Directors. has represented to the Depositor that each
Mortgage Loan meets the credit, appraisal and underwriting standards
established by and described above.
[Approximately % of the Mortgage Loans were originated under the limited
documentation program of . has represented that each of the Mortgage
Loans originated under a limited documentation program satisfies the standards
established and followed by for originating and acquiring mortgage loans
under its limited documentation program. Under the program, does not
evaluate the borrower's assets-to-liabilities ratio, but did verify the
borrower's income and availability of funds for down payment, and relies
primarily on a credit report on the borrower (which is required to be
favorable) and at least one appraisal as evidence of the value of the property
securing the loan. The limited documentation program was not available
for loans secured by condominiums and was available only for owner-occupied
primary residences. Under such program, loan-to-value ratios were limited to
% for loans under $ and to % for loans under $ , except that for
loans in certain locations and having certain characteristics, lower maximum
loan-to-value ratios were established.
Loan Portfolio Qualify. In accordance with the requirements of the
Competitive Equality Banking Act of 1987 (the "CEBA"), the FHLBB in December
1987 adopted amendments to its classification of assets regulation. Prior to
December 1987, to monitor an insured institution's asset quality the FHLBB
defined certain assets of savings institutions as scheduled items and
established certain operating restrictions based upon ratios relating to such
assets. The regulation as amended eliminates entirely the "scheduled items"
classification, but retains the existing classification categories of
substandard, doubtful and loss, while altering the effects of the respective
classifications with respect to valuation allowance requirements and minimum
regulatory capital requirements. Specific loss reserves are no longer required
for assets classified as doubtful and institutions are required to charge off
or set aside loss reserves for 100% of the amount of any asset, or portion of
an asset, classified as a loss. The amended regulation requires institutions
to classify their own assets and to establish prudent general allowances for
loan losses, subject to examiner review. Greater examiner discretion,
consistent with the asset classification practices of the banking regulatory
agencies, is permitted by the amended regulation.
S-16
<PAGE>
The amended regulation also requires institutions to establish loss reserves
for off-balance-sheet items when loss becomes probable and estimable.
One measure of an institution's asset quality is the level of non-performing
loans in its portfolio. Non-performing loans consist of (i) non-accrual loans,
(ii) loans that are 90 or more days contractually past due as to interest or
principal but that are well-secured and in the process of collection or
renewal in the normal course of business, and (iii) loans that have been
renegotiated to provide a deferral of interest or principal because of a
deterioration in the financial condition of the borrower ("restructured
loans"). generally places conventional mortgage loans on non-accrual
status when more than 90 days past due. Where the underlying collateral is a
"home" (as defined in the Rules and Regulations for the Federal Home Loan Bank
System), the loan is placed on non-accrual status when the amount of interest
receivable plus all loan balances secured by the home exceeds 90% of the
appraised value of the security property, provided there is a reasonable
expectation of interest collection.
The following table sets forth information regarding the non-performing
loans as of the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
19 19 19
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual loans............................................. $ $ $
Accruing loans 90 days or more past due.......................
Restructured loans............................................
</TABLE>
Loan Servicing. The following table sets forth the dollar amounts of
conventional mortgage loans serviced by for itself and other lenders at the
dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
19 19 19
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Conventional mortgage loans.............................
</TABLE>
Loss and Delinquency Experience. The following table sets forth the
delinquency and foreclosure experience of residential conventional mortgage
loans in the mortgage loan portfolio serviced by and other entities at
the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------
19 19 19 19
----------------- ----------------- ----------------- -----------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
OF OF TOTAL OF OF TOTAL OF OF TOTAL OF OF TOTAL
LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS
------ ---------- ------ ---------- ------ ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conventional mortgage
loans delinquent for:
60-89 days.............. $ $ $ $
90 days and over........
In foreclosure..........
Total................. $ $ $ $
</TABLE>
The allowance for loan losses is maintained at an amount management deems
adequate to cover estimated losses. In determining the level to be maintained,
management considers factors such as current economic trends in specific
geographic areas, historical loss experience, borrowers' ability to repay and
repayment performance and estimated collateral values, as well as
considerations such as the availability of indemnifications, mortgage
insurance and seller-provided recourse.
S-17
<PAGE>
The statistics shown above represent the loss experience for the total
conventional mortgage loan portfolio (including residential and commercial
loans) for each of the periods presented, whereas the aggregate loss
experience on the Mortgage Loans will depend on the results obtained over the
life of the Mortgage Pool.
SERVICING [AND SUB-SERVICING]
The Mortgage Loans will be serviced in accordance with procedures as
described generally in the accompanying Prospectus under the heading
"Description of the Certificates--Servicing by Unaffiliated Sellers." [ ,
as Master Servicer, will enter into a Servicing Agreement with (the
"Servicer") pursuant to which the Servicer will sub-service the Mortgage
Loans. acquired the Mortgage Loans from the Servicer. The Servicer has
serviced the Mortgage Loans since their origination. The Servicing Agreement
can be terminated without cause, but in such event or a successor master
servicer would be required to pay a fee to the Servicer or sell the Servicer's
interest in the Servicing Agreement in an auction proceeding upon termination.
may determine to terminate the Servicer and to service the Mortgage Loans
itself or through other sub-servicers who may be affiliates of .]
[The Servicing Agreement provides for servicing compensation equal to a rate
of basis points per annum on the outstanding principal balance of % of the
Mortgage Pool. In addition, the Servicer is entitled to retain certain late
payment fees, assumption fees and conversion fees related to the Mortgage
Loans. The Servicing Agreement does not require the Servicer to make Advances
or to pay any amount from its servicing compensation with respect to interest
on Principal Prepayments on Mortgage Loans.]
Except as described below, when any Mortgaged Property is conveyed by the
Mortgagor, the Master Servicer generally will enforce, and will cause any
Servicer to enforce, any due-on-sale clause contained in the Mortgage Loan, to
the extent permitted under applicable law and governmental regulations.
Acceleration of Mortgage Loans as a result of enforcement of such due-on-sale
provisions in connection with transfers of the related Mortgaged Properties
will affect the level of prepayments on the Mortgage Loans, thereby affecting
the weighted average life of the related Class A Certificates. See "Maturity
and Prepayment Considerations" in the Prospectus.
All of the Mortgage Loans include a rider to the Mortgage providing that
assumption of the remaining unpaid principal balance of the Mortgage Loan will
be permitted if the borrower provides information required to evaluate the
creditworthiness of the proposed transferee and the transferee is determined
to be creditworthy. In connection with such assumption, a reasonable fee may
be charged as a condition to the loan assumption and any such fee collected in
connection with a Mortgage Loan in the Subsidiary Trust Fund will be retained
by [or the Servicer]. The assumption of Mortgage Loans by buyers of the
related Mortgaged Properties may also affect the level of prepayments on the
Mortgage Loans, thereby affecting the weighted average life of the Class A
Certificates.
INSURANCE
A Standard Hazard Insurance Policy will be maintained with respect to each
Mortgage Loan in an amount equal to the maximum insurable value of the
improvements securing such Mortgage Loan or the principal balance of such
Mortgage Loan, whichever is less. See "Description of Insurance--Standard
Hazard Insurance Policies" in the Prospectus. [No Mortgage Pool Insurance
Policy, Special Hazard Insurance Policy or Mortgagor Bankruptcy Insurance will
be maintained with respect to the Mortgage Pool, nor will any Mortgage Loan
included in the Mortgage Pool be subject to FHA Insurance or a VA Guaranty.]
S-18
<PAGE>
YIELD CONSIDERATIONS
The effective yield to holders of the Class A Certificates will depend upon,
among other things, the price at which the Class A Certificates are purchased
and the amount and rate at which principal, including both scheduled and
unscheduled payments thereof, is paid to Class A Certificateholders.
The rate of principal payments on the Class A Certificates, the aggregate
amount of each monthly interest payment on the Class A Certificates and the
yield to maturity of the Class A Certificates will be directly related to the
rate of payments of principal on the Mortgage Loans. Principal payments on the
Mortgage Loans may be in the form of scheduled principal payments or
prepayments (for this purpose, the term "prepayment" includes payments
resulting from optional prepayments by the Mortgagors, refinancings,
liquidation of the Mortgage Loans due to defaults, casualties, condemnations
or the like and repurchases by the Depositor or the Master Servicer, as the
case may be). Any such prepayments will result in distributions to
Certificateholders of amounts which would otherwise be distributed over the
remaining term of the Mortgage Loans. In general, the prepayment rate may be
influenced by a number of economic, geographic, social and other factors,
including general economic conditions and homeowner mobility. Other factors
affecting prepayment of mortgage loans include changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions.
The Mortgage Loans may be prepaid by the Mortgagors at any time without
payment of any prepayment fee or penalty. As described herein under
"Description of the Certificates--Subordination of the Class B Certificates;
Shifting Interest Credit Enhancement," all or a disproportionately large
percentage of principal prepayments on the Mortgage Loans will be distributed
to the holders of the Class A Certificates during at least the first fourteen
years after the Cut-off Date. In general, defaults on Mortgage Loans are
expected to occur with greater frequency in their early years, although little
data is available with respect to the rate of default on adjustable rate
Mortgage loans. Increases in the monthly payments on the Mortgage Loans in
excess of those assumed in underwriting such Mortgage Loans may result in a
default rate higher than that on conventional mortgage loans with fixed
mortgage rates. Prepayments, liquidations and purchases of the Mortgage Loans
will result in distributions to Certificateholders of amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans. Since
the rate of payment of principal on the Mortgage Loans will depend on future
events and a variety of factors (as described more fully herein and in the
Prospectus under "Yield Considerations" and "Maturity and Prepayment
Considerations"), no assurance can be given as to such rate or the rate of
principal prepayments.
[Mortgage Loans that are expected to constitute approximately % of the
initial aggregate principal balance of the Mortgage Loans as of the Cut-off
Date will provide that the mortgagor may, during a specified period of time,
convert the adjustable rate of the related Mortgage Loan to a fixed rate. The
conversion option may be exercised during periods of rising interest rates as
mortgagors attempt to limit their risk of higher rates. If mortgagors were to
exercise their conversion rights in such an interest rate environment, a
purchase of the Mortgage Loan by the Master Servicer would have the same
effect on Certificateholders as a prepayment at a time when prepayments
generally would not be expected. The availability of fixed rate mortgage loans
at competitive interest rates during periods of falling interest rates may
also encourage mortgagors to exercise the conversion option. The convertible
ARM loan is a relatively new type of mortgage loan, so there can be no
certainty as to the rate at which conversions will take place or as to the
rate of prepayments in stable or changing interest rate environments. The
Master Servicer is obligated to purchase Converted Mortgage Loans.
Consequently, the exercise of the conversion option by mortgagors will
generally result in prepayment of principal with respect to the Mortgage
Pool.]
[The rate at which mortgagors exercise their conversion rights and the
resulting purchase of Converted Mortgage Loans by the Master Servicer will
affect the rate of payment of principal, and hence the effective yield on the
Class A Certificates. The purchase price paid will be passed through to the
Certificateholders as principal in the month following the month of such
purchase. The effective yield on the Class A Certificates also will be
S-19
<PAGE>
affected by the failure of the Master Servicer to purchase Converted Mortgage
Loans and the resulting retention of fixed rate Mortgage Loans in the Mortgage
Pool. See "Description of the Certificates--Purchase of Converted Mortgage
Loans" herein.]
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments experienced over time is consistent with an
investor's expectations. In general, the earlier a prepayment of principal on
the Mortgage Loans, the greater will be the effect on the investor's yield to
maturity. As a result, the effect on an investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the
Certificates would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
All of the Mortgage Loans comprising the Mortgage Pool are adjustable rate
mortgage loans. The yield to maturity of the Class A Certificates will be
affected by the Mortgage Rates on the Mortgage Loans as they adjust from time
to time. The Depositor is not aware of any publicly available statistics
relating to the principal prepayment experience of adjustable rate mortgage
loans over an extended period of time, and the Depositor's experience with
respect to adjustable rate mortgage loans is insufficient to draw any
conclusions with respect to the expected prepayment rates on the Mortgage
Loans comprising the Mortgage Pool. The rate of payments (including
prepayments) on adjustable rate mortgage loans has fluctuated in recent years.
As is the case with conventional fixed-rate mortgage loans, adjustable rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment. For example, if prevailing mortgage rates
fell significantly below the then current Mortgage Rates on the Mortgage Loans
or significantly below the Maximum Mortgage Rates on the Mortgage Loans, the
rate of prepayment would be expected to increase due to the availability of
fixed-rate mortgage loans at competitive interest rates, which may encourage
Mortgagors to refinance the Mortgage Loans in order to obtain a lower fixed
interest rate. Conversely, if prevailing mortgage rates rose significantly
above the then current Mortgage Rates on the Mortgage Loans, the rate of
prepayment on the Mortgage Loans would be expected to decrease.
[The Mortgage Rates on the Mortgage Loans will adjust semi-annually
(although not on the same Adjustment Dates) and such semi-annual increases and
decreases in the Mortgage Rates on the Mortgage Loans will be limited by the
Periodic Mortgage Rate Cap and Maximum Mortgage Rates applicable to the
Mortgage Loans. In addition, such Mortgage Rates will be based on the Index
(which may not rise and fall consistently with interest rates on other types
of adjustable rate residential mortgage loans) plus the Gross Margin for the
Mortgage Loans (which may be different from then current margins on
residential mortgage loans). As a result, the Mortgage Rates on the Mortgage
Loans at any time may not equal the prevailing rates for similar adjustable
rate mortgage loans, and the rate of prepayment may be lower or higher than
would otherwise be anticipated. See "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.]
In addition, if on any Distribution Date, after taking into account any
Advances, amounts otherwise distributable to the Subsidiary Residual
Certificateholder and permitted withdrawals from the Certificate Account,
there are not sufficient funds to pay the principal and interest on the Class
A Certificates, the amount of the resulting shortfall, and in the case of
interest shortfalls, interest at the applicable Pass-Through Rate, will be
added to the amount the Class A Certificateholders are entitled to receive on
the next Distribution Date. See "Description of the Certificates--
Distributions" herein. If any shortfalls occur, the weighted average life of
the Class A Certificates will be increased over that which would result had
such shortfalls not occurred.
The after-tax yield to Certificateholders may be affected by lags between
the time interest income accrues to the Certificateholders and the time the
related income is received. See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.
The effective yield to the holders of Class A Certificates will be lower
than the yield otherwise produced by the Pass-Through Rate and purchase price
because monthly interest will not be payable to such holders until the
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25th day (or if such day is not a Business Day, then on the next succeeding
Business Day) of the month following the month in which interest accrues on
the Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates offered hereby will be issued pursuant to the Pooling and
Servicing Agreement, a form of which has been filed as an exhibit to the
Registration Statement. Reference is made to the Prospectus for additional
information regarding the terms and conditions of the Pooling and Servicing
Agreement. The following summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the
provisions of the Pooling and Servicing Agreement. When particular provisions
or terms used in the Pooling and Servicing Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by
reference.
The Class A Certificates will be transferable and exchangeable at the office
of the Trustee located at . No service charge will be made for any
registration of transfer or exchange of the Class A Certificates on the
Certificate Register maintained by the Trustee, but the Trustee may require
the payment of a sum sufficient to cover any related tax or other governmental
charge. There is at present no market for the Class A Certificates and there
can be no assurance that a secondary market will develop or that if it does
develop, it will continue. Fluctuating market interest rates may affect the
market value of the Class A Certificates.
DISTRIBUTIONS
Distributions of principal and interest on the Certificates will be made on
the [25th] day of each month, or, if such day is not a Business Day, the next
succeeding Business Day (each a "Distribution Date"), beginning , to the
persons in whose names the Certificates are registered at the close of
business on the last day of the month preceding the month in which payment is
made (the "Record Date"). Certain calculations with respect to the
Certificates will be made on the [15th] day of each month, or if such day is
not a Business Day, the next succeeding Business Day (the "Determination
Date").
Principal received on each Mortgage Loan will be passed through monthly as
described below on the Distribution Date occurring in the month in which the
Due Date occurs. Principal prepayments received during the period from the
first day of any month to the last day of such month ( a "Prepayment Period")
will be passed through on the Distribution Date occurring in the month
following receipt. When a Mortgage Loan is prepaid, in whole or in part,
between scheduled payment dates. the Mortgagor pays interest on the amount
prepaid only to the date of prepayment and not thereafter. The Master Servicer
is not required to pay any part of its servicing compensation to assure that
distributions made to Certificateholders on the related Distribution Date
include an amount equal to one full month's interest at the applicable
Subsidiary Pass-Through Rate.
Interest received by the Subsidiary Trust Fund on each Mortgage Loan will be
passed through monthly on the Distribution Date occurring in the month in
which the Due Date occurs, at the Subsidiary Pass-Through Rate for such
Mortgage Loan. The Pass-Through Rate will equal the weighted average of the
Subsidiary Pass-Through Rates for the Mortgage Loans. Prior to the first
Adjustment Date with respect to each Mortgage Loan that occurs after the Cut-
off Date, the Subsidiary Pass-Through Rate for such Mortgage Loan will equal
the Initial Mortgage Rate less . Thereafter, the Subsidiary Pass-Through
Rate with respect to each Mortgage Loan will equal the Index applicable to
each Mortgage Loan plus basis points (the "Pass-Through Margin") subject to
the limitation that the Subsidiary Pass-Through Rate shall not exceed the
lesser of the Periodic Mortgage Rate Cap less the Servicing Fee Rate and the
Maximum Subsidiary Pass-Through Rate. The Maximum Subsidiary Pass-Through Rate
with respect to a Mortgage Loan shall equal the Maximum Mortgage Rate for such
Mortgage Loan minus the Servicing Fee Rate. The Master Servicer will receive a
servicing fee (the "Servicing Fee") as compensation for the servicing of each
Mortgage Loan which is calculated monthly and equals a fixed percentage
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of the principal balance of the Mortgage Loan (the "Servicing Fee Rate").
[Prior to the first Adjustment Date with respect to a Mortgage Loan that
occurs after the Cut-off Date, the Servicing Fee Rate will be basis points
for such Mortgage Loan. Subsequent to the first Adjustment Date with respect
to a Mortgage Loan that occurs after the Cut-off Date, t][T]he Servicing Fee
Rate shall equal basis points. See "Description of the Mortgage Pool and
the Underlying Mortgaged Properties" above and "Servicing Compensation and
Payment of Expenses" below. The amount of interest on each Mortgage Loan
available to be distributed on each Distribution Date may be expected to
change, among other reasons, as the Mortgage Rate and the Subsidiary Pass-
Through Rate vary with the Index and as the Mortgage Rate reaches the Periodic
Mortgage Rate Cap and the Maximum Mortgage Rate (which will not be the same
for all Mortgage Loans).
The Master Servicer will deposit in the Certificate Account the payments and
collections described in "Description of the Certificates--Payments on
Mortgage Loans" in the Prospectus.
On each Distribution Date, the amount required to be distributed to the
Class A Certificateholders will equal the lesser of the Class A Distribution
Amount and the Master Trust Fund Aggregate Distribution.
The "Class A Distribution Amount" means generally, as of any Distribution
Date, an amount equal to the sum of: (a) one month's interest at the Pass-
Through Rate on the Class A Certificate Principal Balance as of such
Distribution Date; (b) the outstanding balance of all previously due and
unpaid Interest Shortfalls (as defined below) owed to the Class A
Certificateholders with accrued interest thereon at the Pass-Through Rate; (c)
the outstanding balance of all previously due and unpaid Principal Shortfalls
(as defined below) owed to the Class A Certificateholders; (d) the Class A
Percentage of each scheduled payment of principal due on the preceding Due
Date on the Mortgage Loans; (e) the Class A Prepayment Percentage of any
Principal Prepayments received during the related Prepayment Period on the
Mortgage Loans; (f) with respect to Mortgage Loans which became Liquidated
Loans during the related Prepayment Period, the Class A Percentage of the
aggregate principal balance of such Mortgage Loans, net of certain related
unreimbursed advances with respect thereto; (g) the Class A Percentage of any
insurance proceeds received during the related Prepayment Period, net of
certain related unreimbursed advances with respect thereto; and (h) with
respect to Mortgage Loans purchased by the Master Servicer pursuant to the
Pooling and Servicing Agreement during the related Prepayment Period, the
Class A Percentage of the aggregate principal Balances of such Mortgage Loans,
net of certain related unreimbursed advances with respect thereto.
At any time when the Subordinated Amount is equal to zero, the amount
calculated under clauses (a) through (h) above shall not include any amount in
respect of Monthly Payments due on Mortgage Loans which were not actually
received (but shall include payments from funds attributable to advances by
the Master Servicer).
The "Master Trust Fund Aggregate Distribution" shall mean, on any
Distribution Date, the sum of all amounts distributed with respect to the
Subsidiary Regular Interests, as described below.
On each Distribution Date the aggregate amount required to be distributed to
the holders of the Subsidiary Regular Interests is equal to the lesser of (x)
the Subsidiary Trust Fund Regular Distribution and (y) the sum of (i) one
month's interest at the Subsidiary Pass-Through Rate on the principal balance
of each Mortgage Loan, (ii) each payment of the principal due on the related
Due Date on each Mortgage Loan, (iii) any delinquent Mortgagor payment of
principal and interest on such Mortgage Loan received prior to the related
Determination Date, after adjustment of the interest portion of such payment
to the related Subsidiary Pass-Through Rate and deduction of unreimbursed
advances by the Master Servicer with respect to the preceding delinquent
payment, (iv) for each Mortgage Loan which was the subject of a Principal
Prepayment during the related Prepayment Period, the amount of such Principal
Prepayment, (v) for each Mortgage Loan which became a Liquidated Loan during
the related Prepayment Period, the principal balance of such Mortgage Loan,
net of certain unreimbursed advances by the Master Servicer, (vi) with respect
to any Mortgage Loan purchased by the Master Servicer pursuant to the
Agreement, the principal balance of such Mortgage Loan net of certain
unreimbursed advances by the Master Servicer, and (vii) amounts representing
insurance proceeds with respect to a Mortgage Loan.
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<PAGE>
The "Subsidiary Trust Fund Regular Distribution" means, generally, as of any
Distribution Date, an amount equal to the amount on deposit in the Certificate
Account as of the close of business on the related Determination Date except:
(a) amounts received on particular Mortgage Loans as late payments or other
recoveries of principal or interest (including Liquidation Proceeds, insurance
proceeds, and condemnation awards) and respecting which the Master Servicer
previously made an unreimbursed Advance of such amounts; (b) amounts
representing reimbursement for certain losses and expenses incurred by the
Master Servicer, as described in the Pooling and Servicing Agreement; (c) all
amounts representing scheduled monthly payments due after the immediately
preceding Due Date; (d) all Principal Prepayments (and interest thereon),
Liquidation Proceeds, insurance proceeds, condemnation awards and repurchase
proceeds received after the related Prepayment Period, including payments of
interest representing interest accrued after the last day of the related Due
Period; (e) all income from Eligible Investments held in the Certificate
Account for the account of the Master Servicer; and (f) certain amounts
distributable to the holder of the Subsidiary Residual Interest pursuant to
the Pooling and Servicing Agreement.
The "Class A Certificate Principal Balance" on any Distribution Date will
equal the portion of the unpaid principal balance of the Mortgage Loans
evidenced by the Class A Certificates as of the Cut-off Date (the "Initial
Class A Certificate Principal Balance") less the sum of payments or recoveries
of, or with respect to, principal of the Mortgage Loans previously distributed
to the Class A Certificateholders and any Realized Losses (as defined below)
including, subject to certain limitations. Special Hazard Realized Losses (as
defined below) previously allocated to the Class A Certificates. The Initial
Class A Certificate Principal Balance is expected to be approximately $ .
See "--Subordination of the Class B Certificates; Shifting Interest Credit
Enhancement" herein.
The "Class B Principal Balance" on any Distribution Date will equal the
Scheduled Principal Balance (as defined below) of the Mortgage Loans minus the
Class A Certificate Principal Balance.
The "Scheduled Principal Balance" of the Mortgage Loans as of the time of
any determination will equal the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, after application of any scheduled principal
payments due on or before the Cut-off Date, whether or not received, reduced
by the principal portion of all scheduled payments of principal and interest
due on or before the date of determination, whether or not received, and by
all Principal Prepayments distributed to Certificateholders on or before the
date of determination, and further reduced by Realized Losses (as defined
below) with respect to the Mortgage Loans that have been allocated to one or
more classes of Certificates on or before the date of determination.
The "Class A Percentage" shall mean, as to any Distribution Date, the lesser
of 100% and the percentage obtained by dividing the Class A Certificate
Principal Balance by the Scheduled Principal Balance. The "Class A Prepayment
Percentage" shall initially be 100% and shall decline thereafter as provided
under "Subordination of the Class B Certificates; Shifting Interest Credit
Enhancement."
"Interest Shortfall" shall mean, as to any Distribution Date, any excess of
the amount computed pursuant to clause (a) of the term "Class A Distribution
Amount" over the amount of interest distributed to the Class A
Certificateholders on such Distribution Date. "Principal Shortfall" shall
mean, as to any Distribution Date the excess of the sum of the amounts
computed pursuant to clauses (a) through (h) of the term "Class A Distribution
Amount" over the amounts distributed to the Class A Certificateholders (the
"Shortfall"), less the Interest Shortfall.
All distributions will be made by or on behalf of the Trustee to the persons
in whose names the Certificates are registered at the close of business on
each Record Date, which will be the last Business Day of the month preceding
the month in which the related Distribution Date occurs. Such distributions
shall be made either (i) by check mailed to the address of each
Certificateholder as it appears in the Certificate Register or (ii) to any
holder of Certificates having an initial principal balance in excess of
$5,000,000, by wire transfer in immediately available funds to the account of
such Certificateholder specified in writing to the Trustee.
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<PAGE>
[On the sixth day of any month or the next succeeding Business Day, the
Master Servicer or the Trustee will provide upon request the Class A
Certificate Principal Balance after giving effect to monthly payments due on
the immediately preceding Due Date.]
SUBORDINATION OF THE CLASS B CERTIFICATES; SHIFTING INTEREST CREDIT
ENHANCEMENT
The rights of the Class B Certificateholders to receive certain
distributions with respect to the Mortgage Loans are subordinate to such
rights of the Class A Certificateholders to the extent of the Subordinated
Amount. As of each Determination Date, the Subordinated Amount will equal the
Class B Principal Balance on such date, reduced by the excess, if any, of
Aggregate Losses over cumulative Realized Losses borne by the Class B
Certificateholders.
Realized Losses shall not be allocated to the Class A Certificates until
after such time as the allocation of such Realized Losses to the Class B
Certificates has reduced the Class B Principal Balance to zero. At such time,
Realized Losses shall be allocated to the Class A Certificates, pro rata among
such Certificates in proportion to their outstanding Class A Certificate
Principal Balances immediately prior to the relevant Distribution Date.
[Notwithstanding the above, Special Hazard Realized Losses shall be allocated
first to the Class B Certificates only until such time as Special Hazard
Realized Losses equal the Special Hazard Subordination Amount, which will be
% of the Cut-off Date Principal Balance. Thereafter, Special Hazard Realized
Losses shall be allocated to the Class A Certificates and the Class B
Certificates, pro rata among such Certificates in proportion to their
outstanding Principal Balances immediately prior to the relevant Distribution
Date.] Any allocation of Realized Losses (or Special Hazard Realized Losses]
to a Class A Certificate or a Class B Certificate on a Distribution Date shall
be made by reducing the Principal Balance thereof by the amount so allocated,
which allocation shall be deemed to have occurred on such Distribution Date.
[Any allocation to the Class B Certificates of a Realized Loss or a Special
Hazard Realized Loss prior to reducing the Special Hazard Subordination Amount
to zero shall have the effect of increasing the Class A Percentage of future
payments of principal on the Mortgage Loans and thereby decreasing the
Subordinate Percentage of such payments of principal.]
"Realized Loss" is defined in the Pooling and Servicing Agreement (i) with
respect to any Liquidated Loan, as the excess of the outstanding principal
balance of such Liquidated Loan over the Liquidation Proceeds, if any,
received in connection with such Liquidated Loan, after application of all
withdrawals permitted to be made by the Master Servicer pursuant to the
Pooling and Servicing Agreement, (ii) with respect to any Mortgage Loan which
has become subject to a valuation by a court of competent jurisdiction of the
Mortgaged Property in an amount less than the then outstanding indebtedness
under the Mortgage Loan, which valuation results from a proceeding under the
United States Bankruptcy Code, as amended from time to time (11 U.S.C.) (a
"Deficient Valuation"), as the excess of the outstanding principal balance of
such Mortgage Loan over the principal amount as reduced in the Deficient
Valuation, or (iii) with respect to any Mortgage Loan purchased by the Master
Servicer or the Depositor pursuant to the Pooling and Servicing Agreement, as
the excess, if any, of 100% of the principal balance of such Mortgage Loan,
together with accrued and unpaid interest at the applicable Subsidiary Pass-
Through Rate to the first day of the month following the month of such
purchase, giving effect to the amount of any unreimbursed Advances made by the
Master Servicer with respect to such Mortgage Loan, over the purchase price
for such Mortgage Loan as the same may be reduced pursuant to an Opinion of
Counsel to prevent such amount from being taxed to the Trust Fund as a
"prohibited transaction", as defined in Section 860F(a)(2) of the Code.
Realized losses may result from, among other things, Special Hazard Realized
Losses. ["Special Hazard Realized Loss" means with respect to any Mortgage
Loan finally liquidated in connection with any physical damage not covered
under a Standard Hazard Insurance Policy or a flood insurance policy, other
than normal wear and tear or other circumstances set forth in the Pooling and
Servicing Agreement an amount equal to the unpaid principal balance of the
Mortgage Loan as of the date of such liquidation, together with interest at
the applicable Mortgage Rate, less the applicable Servicing Fee, from the Due
Date as to which interest was last paid to the Due Date next succeeding such
liquidation, less the proceeds, if any, received in connection with such
liquidation after application of all withdrawals from the Certificate Account
by the Master Servicer permitted pursuant to the Pooling and Servicing
Agreement.]
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<PAGE>
"Liquidated Loan" means a Mortgage Loan which, as of the close of business
on the Business Day next preceding the Due Date, has been liquidated through
deed in lieu of foreclosure, sale in foreclosure, trustee's sale or other
realization as provided by applicable law of real property subject to the
related Mortgage and any security agreements or with respect to which payment
under related private mortgage insurance or hazard insurance and/or from any
public or governmental authority on account of a taking or condemnation of any
such property has been received.
The protection afforded to the Class A Certificateholders will be effected
by the preferential right of the Class A Certificateholders to receive the
amount of principal and interest otherwise available for distribution to the
Class B Certificateholders on each Distribution Date out of available funds on
deposit in the distribution account for the Master Trust Fund and by
distributing to the Class A Certificateholders a disproportionately greater
percentage of Principal Prepayments received by the Master Trust Fund from the
Certificate Account, to the extent described herein (the "Class A Prepayment
Percentage"). This disproportionate distribution will have the effect of
accelerating the amortization of the Class A Certificates while increasing the
respective interest in the Mortgage Loans evidenced by the Class B
Certificates. Increasing the respective interest of the Class B Certificates
relative to that of the Class A Certificates is intended to preserve the
availability of the subordination provided by the Class B Certificates.
The Class A Prepayment Percentage for any Distribution Date occurring before
or in will, except as provided below, equal 100%. The Class A Prepayment
Percentage for any Distribution Date occurring subsequent to will be
determined as follows: (a) for any Distribution Date occurring subsequent to
and before or in , the Class A Prepayment Percentage will equal the
Class A Percentage plus % of the Subordinate Percentage for such Distribution
Date, except that prior to the Distribution Date next succeeding the first
Distribution Date, if any, after . , as of which the Step-down
Criteria are satisfied, the Class A Prepayment Percentage will be 100%; (b)
for any Distribution Date occurring subsequent to and before or in , the
Class A Prepayment Percentage will equal the Class A Percentage plus % of the
Subordinate Percentage for such Distribution Date, except that prior to the
Distribution Date next succeeding the first Distribution Date, if any, after
as of which the Step-down Criteria are satisfied, the Class A Prepayment
Percentage will be the Class A Prepayment Percentage in effect in ; (c)
for any Distribution Date occurring subsequent to and before or in , the
Class A Prepayment Percentage will equal the Class A Percentage plus % of the
Subordinate Percentage for such Distribution Date, except that prior to the
Distribution Date next succeeding the first Distribution Date, if any, after
as of which the Step-down Criteria are satisfied, the Class A Prepayment
Percentage will be the Class A Prepayment Percentage in effect in ; (d)
for any Distribution Date occurring subsequent to and before or in ,
the Class A Prepayment Percentage will equal the Class A Percentage plus % of
the Subordinated Percentage for such Distribution Date, except that prior to
the Distribution Date next succeeding the first Distribution Date, if any,
after as of which the Step-down Criteria are satisfied, the Class A
Prepayment Percentage will be the Class A Prepayment Percentage in effect in
; and (e) for any Distribution Date occurring subsequent to , the
Class A Prepayment Percentage will equal the Class A Percentage as of such
Distribution Date except that prior to the Distribution Date next succeeding
the first Distribution Date, if any, after as of which the Step-down
Criteria are satisfied, the Class A Prepayment Percentage will be the Class A
Prepayment Percentage in effect in . The foregoing is subject to the
following: (i) if on any Distribution Date the distribution of all Principal
Prepayments received in the prior month to the holders of the Class A
Certificates would reduce the outstanding Class A Certificate Principal
Balance below zero, the Class A Prepayment Percentage for such Distribution
Date will be limited to the percentage necessary to reduce the Class A
Principal Certificate Balance to zero and thereafter the Class A Percentage
shall be zero; and (ii) if the Class A Percentage on any Distribution Date is
greater than the initial Class A Percentage, the Class A Prepayment Percentage
for such Distribution Date shall be 100%.
The Step-down Criteria shall be met as of any Distribution Date in the 12
months commencing subsequent to February of the year specified in the table
below provided that as of such Distribution Date (a) no more than one time
during the preceding months have the principal balances of outstanding
Mortgage Loans days or
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more delinquent (including loans in foreclosure and the book value of owned
real estate) exceeded % of the Scheduled Principal Balance at such time, and
(b) cumulative Advances deemed to be nonrecoverable as a percentage of the
principal amount of the Class B Certificates as of the Cut-off Date (the
"Subordinated Amount") do not exceed the amounts in the following table:
<TABLE>
<CAPTION>
CUMULATIVE
NON-RECOVERABLE
ADVANCES AS A
PERCENTAGE OF THE
YEAR SUBORDINATED AMOUNT
--------------------------------------------------------- -------------------
<S> <C>
....................................................... %
.......................................................
.......................................................
.......................................................
or thereafter............................................
</TABLE>
The definition of "Step-down Criteria" may be amended by the Depositor and
the Trustee, with prior written notice of such amendment to the Rating Agency,
in a manner that will not result in the lowering or withdrawal of the then
current rating of the Class A Certificates. Such amendment shall not require
the consent of any Certificateholder.
[PURCHASE OF CONVERTED MORTGAGE LOANS
The Pooling and Servicing Agreement provides that is obligated to
purchase from the Subsidiary Trust Fund any Convened Mortgage Loan in the
month following the month in which the related mortgagor exercises the
conversion option, for a price equal to the lesser of (a) 100% of the unpaid
principal balance of such Mortgage Loan, and (b) the Subsidiary Trust Fund's
adjusted federal income tax basis on the date such Mortgage Loan is to be
purchased, in each case plus accrued interest, if any, at the applicable
Subsidiary Pass-Through Rate in effect immediately prior to such conversion to
the last day of the month in which such Mortgage Loan became a Converted
Mortgage Loan, net of the applicable amounts due to the Master Servicer with
respect to that Mortgage Loan. will be obligated to deposit the amount of
the purchase price in the Certificate Account for distribution on the
Distribution Date in the month following the month of such conversion.
In the event defaults upon its obligation to repurchase any Converted
Mortgage Loan, the Trustee may attempt to sell the Mortgage Loan for the price
which was to be paid by the Master Servicer. A Converted Mortgage Loan will
remain in the Trust as a Mortgage Loan with a fixed Mortgage Rate unless and
until purchased by the Master Servicer or otherwise sold in accordance with
the Pooling and Servicing Agreement. So long as serves as Master
Servicer, the failure of the Master Servicer to repurchase a Converted
Mortgage Loan, after notice, is an Event of Default under the Pooling and
Servicing Agreement. The Trustee and a successor master servicer under the
Pooling and Servicing Agreement will not have any obligation to purchase any
Converted Mortgage Loan.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee payable to the Master Servicer will be payable out of each
interest payment on a Mortgage Loan and will be an adjustable amount equal to
one month's interest (or in the case of any payment of interest which
accompanies a Principal Prepayment made by the Mortgagor, interest for the
number of days covered by such payment of interest) at the applicable
Servicing Fee Rate on the principal balance of such Mortgage Loan. The
Servicing Fee Rate is not the same for each Mortgage Loan. The Servicing Fee
Rate is basis points. The Master Servicer will be permitted to retain or
withdraw from the Certificate Account, in respect of each interest payment
received on a Mortgage Loan, the Servicing Fee with respect to such Mortgage
Loan, calculated on the basis of the same principal amount and period
respecting which the interest payment is computed. In addition, , as
holder of the Subsidiary Residual Interest Certificate, will receive an amount
equal to (i) with respect to each Mortgage Loan, the principal balance of such
Mortgage Loan times the
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<PAGE>
difference, if any, between the Mortgage Rate (net of the Servicing Fee) and
the Subsidiary Pass-Through Rate, [less such amount as may be necessary to
assure that the distributions made to the Subsidiary Regular Certificateholder
on the related Distribution Date include an amount equal to one full month's
interest at the applicable Subsidiary Pass-Through Rate], and (ii) gains, if
any, arising from sale of Mortgaged Property acquired as a result of
foreclosure in respect of a Mortgage Loan or arising from a repurchase
pursuant to an optional termination. See "Certain Federal Income Tax
Consequences" in the Prospectus. See "Description of the Certificates--
Servicing Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Master Servicer.
The Master Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
any amounts payable to the Servicer or any other sub-servicer, the fees and
expenses of the Trustee and the other various items of expense enumerated in
the Prospectus.
[ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH PREPAID MORTGAGE LOANS
When a Mortgage Loan is prepaid, in whole or in part, between schedule
payment dates, the Mortgagor pays interest on the amount prepaid only to the
date of prepayment and not thereafter. As a result, the aggregate amount of
interest which would otherwise be distributed to Certificateholders may be
reduced. To mitigate this reduction in yield, the Pooling and Servicing
Agreement provides that with respect to any such Principal Prepayment, the
Servicing Fee otherwise payable to the Master Servicer will be reduced in such
amount, if any, as may be necessary to assure that the distributions made to
Certificateholders on the related Distribution Date include an amount equal to
one full month's interest at the applicable Subsidiary Pass-Through Rate for
such Mortgage Loan. Thus, so long as there are sufficient funds otherwise
payable from the Servicing Fee on each Distribution Date, Certificateholders
will always receive a full month's interest with respect to any such principal
prepayments. See "Distributions" above.]
THE TRUSTEE
, a banking association, will act as Trustee for the Certificates
pursuant to the Pooling and Servicing Agreement. The Trustee's principal
executive offices are located at , and its telephone number is ( ) .
REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
Under certain circumstances, the Master Servicer may be required to
repurchase one or more Mortgage Loans from the Subsidiary Trust Fund.
Generally, the repurchase obligation arises when the documentation with
respect to a Mortgage Loan is discovered to be materially defective or when a
breach of a representation or warranty is discovered, which breach materially
and adversely affects the interests of Certificateholders. See "Description of
the Certificates--Assignment of Mortgage Loans" in the Prospectus.
In the event of a repurchase of a Mortgage Loan, the repurchase price would
be equal to the sum of the outstanding principal balance of such Mortgage Loan
on the date of repurchase plus interest accrued thereon at the Subsidiary
Pass-Through Rate to the first day of the month following the month in which
such repurchase is effected; provided, however, that if such repurchase at the
price so determined would result in net income to the Subsidiary Trust Fund
that would be subject to tax as income derived from a "prohibited
transaction," as defined in Section 860F(a)(2) of the Code, or would otherwise
subject the Subsidiary Trust Fund to tax, then, notwithstanding the foregoing.
the repurchase price for such Mortgage Loan shall be the maximum amount such
that the repurchase would not result in such tax, as evidenced by an Opinion
of Counsel, in form and substance satisfactory to the Trustee, which shall be
delivered in the event of any such reduction.
Within a period of three months, or in the case of a "defective obligation"
within the meaning of Section 860(G)(a)(4)(B) of the Code, within two years
from the Delivery Date of the Certificates, the Depositor or the
S-27
<PAGE>
Master Servicer may, instead of repurchasing a Mortgage Loan required to be
repurchased pursuant to the Pooling and Servicing Agreement, deliver a
mortgage loan (a "Replacement Mortgage Loan") in substitution for any Mortgage
Loan that would otherwise have been repurchased (a "Deleted Mortgage Loan").
Generally, the repurchase obligation arises when the documentation with
respect to a Mortgage Loan is discovered to be materially defective or when a
breach of a representation or warranty is discovered, which breach materially
and adversely affects the interests of Certificateholders. See "Description of
the Certificates--Assignment of Mortgage Loans" in the Prospectus.
To the extent that the Depositor or the Master Servicer, as the case may be,
elects to deliver a Replacement Mortgage Loan for a Mortgage Loan it would
otherwise be obligated to repurchase, such Replacement Mortgage Loan must, on
the date of such substitution: (a) have an outstanding principal balance,
after deduction of payments due in the month of substitution, not in excess of
the principal balance of the Deleted Mortgage Loan; (b) have a Maximum
Mortgage Rate no lower than (and not more than 1% per annum higher than) the
Maximum Mortgage Rate of the Deleted Mortgage Loan; (c) have the same Index,
Gross Margin, Periodic Mortgage Rate Cap and frequency of Adjustment Dates as
those of the Deleted Mortgage Loan; (d) be accruing interest at a rate no
lower than and have the same Payment Adjustment Date as the Payment Adjustment
Date of the Deleted Mortgage Loan; (e) have a Loan-to-Value Ratio no higher
than that of the Deleted Mortgage Loan; (f) have a term to maturity no greater
than (and not more than one year less than) that of the Deleted Mortgage Loan;
and (g) comply with each representation and warranty with respect to Mortgage
Loans in the Pooling and Servicing Agreement. Upon any such substitution, the
Depositor or the Master Servicer, as the case may be, will deliver the
Mortgage File relating to the Replacement Mortgage Loan to the Trustee and the
Trustee will release the Deleted Mortgage Loan (or any property acquired in
respect thereof) from the Subsidiary Trust Fund.
For any month in which a Replacement Mortgage Loan is substituted for any
Deleted Mortgage Loan, the Master Servicer will determine the amount, if any,
by which the aggregate principal balance of all such Replacement Mortgage
Loans as of the date of substitution is less than the aggregate principal
balance of all such Deleted Mortgage Loans (after application of the scheduled
principal portion of the monthly payments due in such month). The amount of
any such shortage shall be deposited by the Depositor or the Master Servicer,
as the case may be, from its own funds into the Certificate Account in the
month of substitution, without any reimbursement therefor, and will be
distributed to Certificateholders on the Distribution Date in the month
following such substitution. See "Description of the Certificates--
Distributions on Certificates" in the Prospectus.
VOTING RIGHTS
At any time that any Class A Certificates or Class B Certificates are
outstanding, the voting rights of a Class A Certificate or Class B Certificate
are obtained by dividing the then outstanding principal balance of such
Certificate by the aggregate principal balances at such time of all the Class
A Certificates and Class B Certificates.
[OPTIONAL TERMINATION
The Pooling and Servicing Agreement provides that the holder of the
Subsidiary Residual Interest Certificate, at its option, may purchase from the
Subsidiary Trust Fund all Mortgage Loans remaining in the Mortgage Pool and
all property acquired in respect of a Mortgage Loan, provided that the
aggregate unpaid balance of the Mortgage Loans at the time of any such
repurchase is less than % of the Cut-off Date Principal Balance.
Additionally, the holder of the Class B[-2] Certificate, at its option, may
purchase from the Master Trust Fund all Subsidiary Regular Interests remaining
in the Master Trust Fund and all other property in such Trust Fund, provided
that the Subsidiary Regular Interests at the time of any such repurchase
represent interests in less than % of the Cut-off Date Principal Balance of
the Mortgage Loans. The purchase price for any such repurchase will be 100% of
the unpaid principal balance of each Mortgage Loan or Subsidiary Regular
Interest, as the case may be, together with accrued and unpaid interest with
respect to each Mortgage Loan through the last day of the month of such
repurchase. Any property acquired in respect of a Mortgage Loan and remaining
in
S-28
<PAGE>
the applicable Trust Fund at the time such optional termination is effected
will be purchased at its appraised value. Either of the above purchases would
thereby effect early retirement of the Class A Certificates.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
REMIC ELECTION
An election will be made to treat the assets of the Subsidiary Trust Fund as
a REMIC (the "Subsidiary REMIC") for federal income tax purposes. Amounts (i)
with respect to each Mortgage Loan equal to the principal balance of such
Mortgage Loan times the difference, if any, between the Mortgage Rate (net of
the Servicing Fee) and the Subsidiary Pass-Through Rate and (ii) representing
gains, if any, arising from the sale of Mortgaged Property acquired as a
result of foreclosure in respect of a Mortgage Loan or arising from a
repurchase pursuant to an optional termination will comprise the residual
interest in the Subsidiary REMIC. The regular interests in the Subsidiary
REMIC in the aggregate will encompass the rights to all other amounts
distributable with respect to the Mortgage Loans. An election will be made to
treat as a REMIC (the "Master REMIC") the Master Trust Fund comprised of the
regular interests in the Subsidiary REMIC. The Class A [and B-l] Certificates
will represent the regular interests in the Master REMIC. initially will
retain the residual interests in both the Master REMIC and the Subsidiary
REMIC. See "Certain Federal Income Tax Consequences" in the Prospectus. The
Internal Revenue Service has issued permitting REMICs to issue regular interests
bearing variable rates based on (i) certain fixed formulas using an objective
interest index or (ii) a weighted average of the interest rates of the
"qualified mortgages" held by the REMIC.
[ORIGINAL ISSUE DISCOUNT
The Class A Certificates may be issued with original issue discount.
Although no rulings or regulations have been issued by the Internal Revenue
Service clarifying the application of the statutory provisions requiring the
use of a prepayment assumption for the accrual of original issue discount on
REMIC regular interests to variable rate regular interests and the matter is,
therefore, not entirely certain, it appears likely that the rules of the Code
relating to original issue discount would be applied to include in income as
original issue discount any excess of the stated redemption price at maturity
over the issue price of the Class A Certificate as if such Certificate would
bear interest in each period after the first Distribution Date at a rate
determined as if the Index were to remain constant over the life of such
Certificate at its value as of the Closing Date (or possibly as of the date of
pricing of the Certificates). Applying that assumption would effectively
convert such Class A Certificate to a debt instrument having an initial fixed
rate followed by a higher rate in subsequent periods to which the rules
described in the Prospectus under the heading "Certain Federal Income Tax
Consequences--REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" could be applied for purposes of
determining the portion of the excess of the stated redemption price at
maturity of a Class A Certificate over the issue price of such Certificate
that accrues each day. In addition to the daily accrual of the discount
described above, each Class A Certificateholder will be required to accrue,
and include in income daily, the stated interest on each Class A Certificate
to the extent not included in the stated redemption price at maturity. For a
more detailed discussion of the accrual of original issue discount, see
"Certain Federal Income Tax Consequences--REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates" in the Prospectus.]
Absent clarification in the regulations, the Master Servicer intends to
report original issue discount to the Internal Revenue Service and to
Certificateholders in the manner described above, using a prepayment
assumption that is a Standard Prepayment Assumption ("SPA") of %. A
prepayment assumption of 100% of SPA assumes a prepayment rate of 0.2% per
annum of the then outstanding principal balance of such mortgage loans in the
first month of the lives increased by 0.2% per annum each month thereafter
until the thirtieth such month. Beginning in the thirtieth month and in each
month thereafter during the lives of the mortgage loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum. No representation is made that the
Mortgage Loans will prepay at this rate or any other rate.
S-29
<PAGE>
LEGAL INVESTMENT
The Class A Certificates will constitute, for so long as they are rated as
described below, "mortgage-related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the "Enhancement Act"), and, as such,
will be legal investments for certain entities to the extent provided in the
Enhancement Act. Such investments, however, will be subject to general
regulatory considerations governing investment practices under state and
federal law. Institutions whose investment activities are subject to review by
certain regulatory authorities may be, or may become, subject to restrictions,
which may be retroactively imposed by such regulatory authorities, on the
investment by such institutions in certain mortgage-related securities.
Investors should consult their own legal advisors to determine whether, and to
what extent, the Class A Certificates may be purchased by such investors. See
"Legal Investment" in the Prospectus.
RATING
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated at least " " by . (" "). Securities rated " " by
are " ."
[The ratings of Moody's on mortgage pass-through Certificates address the
likelihood of the receipt by certificateholders of all distributions on the
underlying mortgage loans. Moody's rating opinions address the structural,
legal, issuer and tax-related aspects associated with the Certificates,
including the nature of the underlying mortgage loans. Moody's ratings on
pass-through Certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors (including, in the case of the Class A
Certificates, prepayments resulting from the repurchase of Converted Mortgage
Loans) or of the degree to which such payments might differ from that
originally anticipated. Moody's rating of the Class A Certificates will not
represent any assessment of the Master Servicer's ability to repurchase
Converted Mortgage Loans. The rating does not address the possibility that
Certificateholders might suffer a lower than anticipated yield.]
ERISA CONSIDERATIONS*
[A fiduciary of any employee benefit plan and certain other retirement plans
and arrangements (including individual retirement accounts, and annuities,
Keogh plans, and collective investment funds in which such funds, accounts,
annuities or arrangements are invested) that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the Code
should carefully review with legal advisors whether the purchase or holding of
Certificates could give rise to a transaction that is prohibited or not
otherwise permissible either under ERISA or the Code. See "ERISA
Considerations" in the Prospectus.]
PLAN OF DISTRIBUTION
[The Master Servicer has agreed, pursuant to the Purchase Agreement dated
(the "Purchase Agreement"), to pay the Depositor a fee of $ in connection
with the exchange of the Certificates and the residual interest in the
Subsidiary REMIC for the Mortgage Loans. The Depositor will sell the
Certificates and such residual interest to the Master Servicer in exchange for
the Mortgage Loans subject to the terms and conditions set forth in the
Purchase Agreement. Pursuant to the Purchase Agreement, the Depositor or its
affiliates have certain preferential rights in connection with resales of the
Class A Certificates.]
[ may be deemed, by virtue of the exchange, to be an "Underwriter"
within the meaning of the Securities Act of 1933 in connection with reoffers
and sales by of the Class A Certificates. Until , such reoffers and
sales by Master Servicer will be made pursuant to this Prospectus Supplement
and the
- --------
* [Note: If the Series of Certificates offered pursuant to this Version F
Prospectus Supplement evidences interests in Contracts, the disclosure to be
set forth will be substantially similar to the disclosure set forth in
Version E under "ERISA Considerations" or in the Prospectus under "ERISA
Considerations."]
S-30
<PAGE>
Prospectus, as amended and supplemented as of the date of such reoffering.
After such date, this Prospectus Supplement and Prospectus may not be used in
connection with such reoffers and sales. The Depositor has been advised by
that such reoffers and sales may be made by from time to time in
negotiated transactions or otherwise at varying prices determined at the time
of sale, and may be made to or through one or more Underwriters, agents or
dealers, including, without limitation, the Depositor or one of its
affiliates, who may receive compensation in the form of underwriting
discounts, concessions or commissions.]
[The Purchase Agreement provides that will indemnify the Depositor and
its affiliates against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute to payments the Depositor and its
affiliates, as the case may be required to make in respect thereof.]
[The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse First Boston Corporation, an affiliate of
the Depositor[, is acting as Representative.] The [Underwriter[s] named below[
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amounts[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
- ----------------------------------------------- ------------ ------------ -----
<S> <C> <C> <C>
Credit Suisse First Boston Corporation......... $ $ $
Total........................................ $ $ $ ]
</TABLE>
[The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Class A Certificates if any are purchased.]
The Underwriter[s] [[has] [have] advised the Depositor that the
Underwriter[s] propose[s] to offer the Class A Certificates from time to time
for sale in one or more negotiated transactions or otherwise at prices to be
determined at the time of sale. The Underwriter[s] may effect such
transactions by selling the Class A Certificates to or through dealers and
such dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter[s] and any purchasers of the
Class A Certificates for whom they may act as agent.
The Underwriter[s] and any dealers that participate with the Underwriter[s]
in the distribution of the Certificates may be deemed to be underwriters, and
any discounts or commissions received by them and any profit on the resale of
Class A Certificates by them may be deemed to be underwriting discounts or
commissions, under the Securities Act of 1933, as amended (the "Act").
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
[The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933 or to
contribute to payments the Underwriter[s] may be required to make in respect
thereof.]
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and for
the Underwriter[s] by _________________________________________________________.
The material federal income tax consequences of the Class A Certificates will be
passed upon for the Depositor by ______________________________________________.
S-31
<PAGE>
USE OF PROCEEDS
[The Certificates are being initially sold and delivered by the Depositor to
in exchange for the Mortgage Loans to be deposited by the Depositor in
the Subsidiary Trust Fund. Other than its fee in connection with such exchange
the Depositor will receive no other proceeds from the sale of the
Certificates. may subsequently sell the Certificates in one or more
transactions. It is expected that will use the proceeds of such sale for
general corporate purposes. See "Plan of Distribution" herein.
[The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more
affiliates.
S-32
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws
of any State.
SUBJECT TO COMPLETION, DATED , 19
PROSPECTUS SUPPLEMENT
(To Prospectus Dated December __ [VERSION G]
$________________ (APPROXIMATE)
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
Depositor
Adjustable Rate ABS Mortgage Pass-Through Certificates, Series
Class A-1 Certificates
___________________
The Adjustable Rate ABS Mortgage Pass-Through Certificates, Series
(the "Certificates") will be comprised of three classes of certificates: Class
A-1, Class IO and Class R. Only the Class A-1 Certificates are offered hereby.
The Certificates evidence 100% of the beneficial ownership interest in a trust
fund (the "Trust Fund") to be created by Credit Suisse First Boston Mortgage
Securities Corp. (the "Depositor"), the assets of which will consist primarily
of (a) classes (or portions of classes) of mortgage pass-through certificates
(the "Mortgage Certificates"), each of which is part of one of series of
mortgage pass-through certificates initially sold by the Resolution Trust
Corporation and acquired by the Depositor in the secondary market, (b) a
Reserve Fund and (c) a Yield Support Agreement provided by . The
Certificates will be issued pursuant to a Pooling Trust Agreement (the
"Pooling Agreement") among the Depositor, as Certificate
Administrator and , as Trustee. See "Description of the
Certificates."
As more fully described herein, commencing with a rate of ______% per annum,
interest will accrue on the Class A-1 Certificates at a per annum rate 0.30% in
excess of the London interbank offered rate for three-month U.S. dollar deposits
("LIBOR"),determined quarterly as set forth herein ("LIBOR"). The amount of
interest accrued on the Class A-1 Certificates will be reduced by the amount of
certain prepayment interest shortfalls and deferred interest as described herein
under "Description of Certificates--Interest." Interest generally will be paid
quarterly, to the extent funds are available therefor as described herein on the
25th day of each February, May, August and November or, any such day is not a
business day on the next succeeding business day, beginning in ;
provided, however, that if all distributions on the Mortgage Certificates due on
such day have not been received prior to 1:00 p.m. (New York time) on such day,
distributions will be made on the next succeeding business day. Each such date
is referred to as a "Distribution Date." See "Summary of Terms--Distribution
Date" and "Description on the Certificates" herein.
Principal payments on the Class A-1 Certificates will be made on each
Distribution Date to the extent funds are available therefor, as described
herein, until the Class A-1 Certificates are paid in full. See "Description of
the Certificates--Distributions of Interest and Principal."
PROSPECTIVE INVESTORS IN THE CERTIFICATES SHOULD CONSIDER THE FACTORS DISCUSSED
UNDER "RISK FACTORS" IN THIS PROSPECTUS SUPPLEMENT ON PAGE S-17.
(COVER CONTINUED ON NEXT PAGE)
THE CLASS A-1 CERTIFICATES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF CS
FIRST BOSTON MORTGAGE SECURITIES CORP., THE TRUSTEE, THE CERTIFICATE
ADMINISTRATOR OR ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES NOR THE
UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY OR BY ANY OTHER PARTY.
____________________
THE CLASS A-1 CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER ERISA
CONSIDERATIONS HEREIN AND IN THE ACCOMPANYING PROSPECTUS.
____________________
The Class A-1 Certificates will be offered by Credit Suisse First Boston
Corporation ("First Boston") from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor from the sale of the Class A-1 Certificates are
anticipated to be approximately $_____________, plus accrued interest thereon at
the Certificate Rate from , but before deducting expenses payable by the
Depositor, estimated to be $ ___________.
The Class A-1 Certificates are offered by First Boston when, as and if delivered
to and accepted by First Boston, subject to prior sale, withdrawal or
modification of the offer without notice, the approval of counsel and other
conditions. It is expected that the Class A-1 Certificates will be delivered
only through the same day funds settlement system of the Depository Trust
Company on or about .
CREDIT SUISSE FIRST BOSTON
________________________________________________________________________________
The date of this Prospectus Supplement is [ ], 19
<PAGE>
On or about the Distribution Date occurring in and on each
succeeding Distribution Date until successful, the Trustee will attempt to sell
the Mortgage Certificates at auction for a price which, together with amounts on
deposit in the Reserve Fund, is at least equal to the then-outstanding Principal
Balance of the Class A-1 Certificates, plus interest accrued and unpaid thereon.
The proceeds of any such sale of the Mortgage Certificates, together with funds
on deposit in the Reserve Fund (to the extent needed), will be used to retire
the Class A-1 Certificates.
Prospective investors should consider:
. The yield on the Class A-1 Certificates will be sensitive to, among
other things, the rate and timing of principal payments on the
Mortgage Certificates (which likely will be different for different
Mortgage Certificates) and the level of LIBOR.
. As described under "Special Consideration--Basis Risk" and "Yield
and Prepayment Considerations--Basis Risk; LIBOR" herein, under some
prepayment and interest rate scenarios, an investor may not receive
all interest accrued on the Class A-1 Certificates with respect to
one or more Distribution Dates on such Distribution Dates, or in
certain cases, prior to the retirement of the Class A-1
Certificates.
The Class A-1 Certificates will be issued only in book-entry form, and the
purchasers thereof will not be entitled to receive definitive certificates
except in the limited circumstances set forth herein. The Class A-1
Certificates will be registered in the name of Cede & Co., as nominee of The
Depository Trust Company, which will be the "holder" or "Certificateholder" of
such Certificates, as such terms are used herein. See "Description of the
Certificates" herein.
The Class A-1 Certificates may not be an appropriate investment for
individual investors. There is currently no secondary market for the Class A-1
Certificates and there can be no assurance that a secondary market will develop
or, if it does develop, that it will provide Certificateholders with liquidity
of investment at any particular time or for the life of the Class A-1
Certificates. First Boston intends to act as a market maker in the Class A-1
Certificates, subject to applicable provisions of federal and state securities
laws and other regulatory requirements, but is under no obligation to do so and
any such market making may be discontinued at any time. There can be no
assurance that any investor will be able to sell a Class A-1 Certificate at a
price which is equal to or greater than the price at which such Certificate was
purchased.
An election will be made to treat the portion of the Trust Fund consisting
of the Mortgage Certificates as a real estate mortgage investment conduit (the
"REMIC") for federal income tax purposes. As described more fully herein and in
the Prospectus, the payments on the Class A-1 Certificates which are derived
from the Mortgage Certificates and the Class IO Certificates will constitute
"regular interests" in the REMIC and the Class R Certificate will constitute the
"residual interest" in the REMIC. See "Summary Information--Federal Income Tax
Status" and "Federal Income Tax Considerations" herein and "Certain Federal
Income Tax Consequences" in the Prospectus.
The Class A-1 Certificates represent one Class of a separate Series of
Certificates which Class is being offered by the Depositor pursuant to the
Prospectus dated accompanying this Prospectus Supplement.
The Prospectus shall not be considered complete without this Prospectus
Supplement and any prospective investor shall not purchase any Certificate
offered hereby unless it shall have received both the Prospectus and this
Prospectus Supplement. The Prospectus contains important information regarding
this offering which is not contained herein, and prospective investors are urged
to read the Prospectus and this Prospectus Supplement in full.
____________________
UNTIL ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A-1
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
S-2
VERSION G
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and
in the Prospectus. Capitalized terms used herein and not defined shall have
the meaning given in the Prospectus or the Pooling Agreement, as
applicable. See "Index of Significant Prospectus Supplement Definitions"
herein and "Index of Significant Definitions" in the Prospectus.
Securities Offered $________ (approximate) initial Principal
Balance of Adjustable Rate ABS Mortgage
Pass-Through Certificates, Series ,
Class A-1, evidencing a class of "regular
interests" in the REMIC.
Other Securities Adjustable Rate Conduit Mortgage Pass-Through
Certificates, Series , Class IO,
evidencing a class of "regular interests" in
the REMIC, and the Class R Certificate,
evidencing the "residual interest" in the
REMIC. The Class IO Certificates and the
Class R Certificate are not offered hereby.
The Class A-1, Class IO and Class R
Certificates are referred to collectively
herein as the "Certificates."
Forms of Certificates;
Denominations The Class A-1 Certificates will be issued as
Book-Entry Certificates, through the
facilities of The Depository Trust Company.
See "Description of the Certificates--Book-
Entry Form" herein. The Class A-1
Certificates will be issued, maintained and
transferred in book-entry form only in minimum
denominations of $1,000 initial principal
balance and integral multiples of $1,000
initial principal balance in excess thereof.
Depositor Credit Suisse First Boston Mortgage Securities
Corp.
Certificate Administrator Certain administrative functions with
respect
to the Certificates will be performed by
Trustee
Cut-off Date (after giving effect to
distributions on the Mortgage Certificates on
such date).
S-3
VERSION G
<PAGE>
Closing Date On or about .
Final Scheduled
Distribution Date _______, 20__. The Final Scheduled
Distribution Date has been set to coincide
with the Distribution Date succeeding the
latest maturity date of any Mortgage Loan in
any Underlying Mortgage Pool.
The Trust Fund The Class A-1 Certificates evidence interests
in a trust fund (the "Trust Fund"), the assets
of which will consist primarily of (a)
classes (or portions of classes) of mortgage
pass-through certificates (the "Mortgage
Certificates"), each of which is part of one
of series of mortgage pass-through
certificates initially sold by the Resolution
Trust Corporation and which were acquired by
the Depositor in the secondary market, (b) a
Reserve Fund and (c) a Yield Support Agreement
provided by See "--The Reserve
Fund" and "--The Yield Support Agreement"
below. The Trust Fund will be established and
the Certificates will be issued pursuant to a
Pooling Trust Agreement (the "Pooling
Agreement"), dated as of .
See "Description of the Certificates--General"
herein.
Risk Factors For discussion of risk factors that should be
considered with respect to an investment in
the Certificates, see "Risk Factors" herein
and in the related Prospectus.
Distribution Date Distributions on the Certificates will be made
quarterly on the 25th day of each February,
May, August and November, beginning in
February , or, if any such day is not a
business day, the following business day;
provided, however, that if the Trustee has not
received all distributions on the Mortgage
Certificates due on or before such day prior
to 1:00 p.m. New York time on such day,
payments on the Certificates will be made on
the next succeeding business day. Each such
day, a "Distribution Date."
Record Date The "Record Date" for each Distribution Date
will be the close of business on the last
business day of the month preceding the month
in which such Distribution Date occurs.
Distributions on
Certificates Interest Distributions. The amount of
interest payable on the Class A-1 Certificates
on each Distribution
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Date (the "Interest Accrual Amount") will be
equal to the interest accrued at the
applicable rate of interest from the 25th day
of the third month preceding the month in
which such Distribution Date occurs through
the 24th of the month in which such
Distribution Date occurs (each, an "Interest
Accrual Period"). If Interest Available Funds
(as defined herein) with respect to a
Distribution Date are insufficient to pay the
Interest Accrual Amount on such date, any
shortfall in the amount paid on account of
interest on such date will be carried forward
to succeeding Distribution Dates and will bear
interest until paid at the Class A-1 Pass-
Through Rate in effect from time to time.
Payments received on the Mortgage Certificates
on account of interest will be distributed on
each Distribution Date first to pay to the
holders of the Class A-1 Certificates their
respective Interest Accrual Amounts, next to
pay to holders of the Class A-1 Certificates
interest due them with respect to prior
Distribution Dates that remains unpaid
(together with interest on such amounts), and
then to pay current interest and any overdue
interest to the Certificate Administrator for
deposit into the Reserve Fund in respect of
the Class IO Certificates, all as more fully
set forth herein under "Description of the
Certificates--Distributions on the
Certificates." DUE TO THE FACTORS DISCUSSED
UNDER "SPECIAL CONSIDERATIONS -- BASIS RISK,"
INTEREST AVAILABLE FUNDS MAY NOT ALWAYS BE
SUFFICIENT TO PAY THE HOLDERS OF THE CLASS A-1
CERTIFICATES THEIR FULL INTEREST ACCRUAL
AMOUNTS ON EACH DISTRIBUTION DATE.
The Interest Accrual Amount for the Class A-1
Certificates on each Distribution Date will
equal the product of (i) one-fourth of the
Class A-1 Pass-Through Rate for such
Distribution Date and (ii) the outstanding
Principal Balance thereof (subject to
reduction in respect of Deferred Interest and
Nonsupported Interest Shortfalls incurred with
respect to the Mortgage Loans underlying the
Mortgage Certificates). The Interest Accrual
Amount for the Class IO Certificates on each
Distribution Date will equal the product of
(i) one-
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fourth of the Class IO Pass-Through Rate for
such Distribution Date and (ii) the
outstanding Principal Balance of the Class A-1
Certificates, subject to reduction in respect
of Deferred Interest and Nonsupported Interest
Shortfalls.
The "Class A-1 Pass-Through Rate" during the
initial Interest Accrual Period will be __%
per annum. During each succeeding Interest
Accrual Period, the Class A-1 Pass-Through
Rate will be 0.30% in excess of the arithmetic
mean of the London interbank offered rate
quotations for three-month Eurodollar deposits
("LIBOR") on the second business day prior to
the first day of such Interest Accrual Period
(each, a "Reset Date"), determined as
described herein under "Description of the
Certificates -- Determination of LIBOR."
During each Interest Accrual Period the "Class
IO Pass-Through Rate" will be a variable rate
equal to the excess, if any, of (X) the
weighted average of the Weighted Average
Mortgage Certificate Pass-Through Rate, for
each of the Underlying Series Distribution
Dates that occurs in the "collection Period"
related to such Interest Accrual Period
(determined as described herein) (such
weighted average, the "Quarterly Mortgage
Certificate Pass-Through Rate") over (Y) the
Class A-1 Pass-Through Rate for such Interest
Accrual Period. The "Weighted Average
Mortgage Certificate Pass-Through Rate" with
respect to any Underlying Series Distribution
Date will be equal to the weighted average of
the pass-through rates of the Mortgage
Certificates applicable to such Underlying
Series Distribution Date, weighted on the
basis of the outstanding principal balances
thereof prior to distributions on such
Underlying Series Distribution Date. The
Weighted Average Mortgage Certificate Pass-
Through Rate with respect to the Underlying
Series Distribution Date in is
expected to be approximately ____%. The
"Collection Period" with respect to each
Distribution Date is the period commencing on
the day after the previous Distribution Date
(or, in the
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case of the first Collection Period, on
November 26, 1995) and ending on such
Distribution Date.
Interest on the Certificates will be calculated
on the basis of actual days elapsed in a 360-
day year.
Principal Distributions. Distributions in
respect of principal on the Class A-1
Certificates will be made on each Distribution
Date in an amount equal to the sum of all
amounts distributed in respect of principal on
the Mortgage Certificates during the
Collection Period ending on such Distribution
Date.
Reserve Fund On the Closing Date, the Depositor will deposit
or cause to be deposited into an account (the
"Reserve Fund") maintained by the Certificate
Administrator, (a) cash in the amount of $
million, and (b) the Class IO Certificates.
All distributions on the Class IO Certificates
will be made to the Certificate Administrator
for deposit into the Reserve Fund. Amounts on
deposit in the Reserve Fund from time to time
will be available on each Distribution Date to
be paid to holders of the Class A-1
Certificates to the extent that distributions
on account of interest received on the
Mortgage Certificates in the related
Collection Period are insufficient to pay such
holders, Interest Accrual Amount for such date
together with any overdue interest. NO
ASSURANCE CAN BE GIVEN THAT AMOUNTS ON DEPOSIT
IN THE RESERVE FUND FROM TIME TO TIME WILL,
TOGETHER WITH THE BALANCE OF INTEREST
AVAILABLE FUNDS ON ANY DISTRIBUTION DATE, BE
SUFFICIENT TO ALLOW FULL DISTRIBUTIONS IN
RESPECT OF INTEREST ON THE CLASS A-1
CERTIFICATES ON SUCH DISTRIBUTION DATE. The
Reserve Fund will be an asset of the Trust
Fund, but will not be an asset of the REMIC.
See "Description of the Certificates --
Reserve Fund" herein.
The Yield Support
Agreement On the Closing Date, the Trustee, acting on
behalf of the holders of the Class A-1
Certificates, will enter into a yield support
agreement (the "Yield Support Agreement") with
, a __________ corporation (the
"Yield Support Counterparty").
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Pursuant to the terms of the Yield Support
Agreement, in the event that LIBOR on any
Reset Date (determined as described herein
under "Description of Certificates--
Determination of LIBOR") exceeds a rate equal
to LIBOR as set with respect to the first
Distribution Date plus 2.0% (the "Strike
Rate"), the Yield Support Counterparty will be
obligated to pay to the Certificate
Administrator, for the benefit of the holders
of the Class A-1 Certificates, on the
Distribution Date related to the Interest
Accrual Period following such Reset Date, an
amount equal to the product of (x) the
difference between LIBOR at such Reset Date
(determined as described above) and the Strike
Rate and (y) Principal Balance of the Class A-
1 Certificates outstanding prior to
distributions on such Distribution Date.
Amounts paid by the Yield Support Counterparty
on any Distribution Date will be available to
make distributions in respect of interest on
the Class A-1 Certificates and, to the extent
not required for such distributions, will be
paid to the Certificate Administrator for
deposit into the Reserve Fund. NO ASSURANCE
CAN BE GIVEN THAT AMOUNTS PAID BY THE YIELD
SUPPORT COUNTERPARTY ON ANY DISTRIBUTION DATE
WILL, TOGETHER WITH THE BALANCE OF THE
INTEREST AVAILABLE FUNDS FOR SUCH DISTRIBUTION
DATE, BE SUFFICIENT TO ALLOW FULL
DISTRIBUTIONS IN RESPECT OF INTEREST ON THE
CLASS A-1 CERTIFICATES ON SUCH DISTRIBUTION
DATE OR ON ANY FUTURE DISTRIBUTION DATES.
The Yield Support Agreement will terminate upon
the reduction of the Principal Balance of the
Class A-1 Certificates to zero.
The Yield Support Agreement also may be
terminated by the Trustee under the
circumstances described herein under
"Description of the Certificates -- The Yield
Support Agreement -- Termination."
Mandatory Auction Prior to the Distribution Date occurring in
, the Trustee will cause the
Certificate Administrator to hold an auction
(the "Auction") for the sale of the Mortgage
Certificates. If the highest bid, together
with amounts on deposit in the Reserve
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Fund, is at least equal to the then
outstanding Principal Balance of the Class A-1
Certificates, together with interest accrued
and unpaid thereon through such Distribution
Date, the Trustees will sell the Mortgage
Certificates and pay in full the Class A-1
Certificates on . If no
sufficient bid is obtained, the Trustee will
continue to hold the Mortgage Certificates and
the Certificate Administrator will continue to
make required distributions of interest and
principal on the Class A-1 Certificates. The
auction procedure will be repeated with
respect to each succeeding Distribution Date
until a sufficiently high bid is obtained.
Optional Repurchase of
the Mortgage Certificates The beneficial owner of the Class IO
Certificates will have the option to purchase
the Mortgage Certificates from the Trust Fund
on any Distribution Date on which the Mortgage
Certificate Balance is equal to 5% or less of
the original Mortgage Certificate Balance.
See "The Pooling Agreement -- Termination"
herein.
[Expense Fund The Depositor will deposit in an account
established by the Trustee with the
Certificate Administrator (the "Expense Fund")
on the Closing Date cash in an amount
necessary to meet the requirements of each
Rating Agency. Funds on deposit in the
Expense Fund will be used to pay amounts owing
to the Trustee pursuant to the Pooling
Agreement and the fees of the Certificate
Administrator. Funds on deposit in the
Expense Fund will not be available to make
payments on the Certificates.]
Ratings It is a condition of the issuance of the
Certificates that the Class A-1 Certificates
be rated at least "Aaa" by Moody's Investors
Service, Inc. ("Moody's") and "AAA" by
Standard & Poor's ("S&P").
THE RATINGS OF THE RATING AGENCIES DO NOT
ADDRESS THE LIKELIHOOD OF PAYMENT OF INTEREST
ON THE CLASS A-1 CERTIFICATES AT A RATE IN
EXCESS OF THE QUARTERLY MORTGAGE CERTIFICATE
PASS-THROUGH RATE.
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The ratings of Moody's and S&P on mortgage
securities address the likelihood of the
receipt by the holders thereof of all
distributions of principal and interest to
which such holders are entitled (except as set
forth in the preceding paragraph). There is
no assurance that such ratings will continue
for any period of time or that they will not
be revised or withdrawn entirely by such
rating agency if, in its judgment,
circumstances so warrant. A revision or
withdrawal of such ratings may have an adverse
effect on the market price of the Class A-1
Certificates. A security rating is not a
recommendation to buy, sell or hold
securities.
The Depositor has not requested a rating on the
Class A-1 Certificates from any other rating
agency, although data with respect to the
Mortgage Loans and Mortgage Certificates may
have been provided to other agencies solely
for their informational purposes. There can
be no assurance that if a rating is assigned
to the Class A-1 Certificates by any other
rating agency, such rating will be as high as
that assigned by Moody's and S&P. See
"Rating."
Mortgage Certificates The assets of the REMIC will consist
primarily of classes (or a portion of such
classes) of senior mortgage pass-through
certificates (the "Mortgage Certificates"),
each of which is a part of one of separate
series of mortgage pass-through certificates
sold by the Resolution Trust Corporation
("RTC") (each an "Underlying Series"),
identified in the following table.
--------------------------------------------------------------
UNDERLYING SERIES
--------------------------------------------------------------
Series Designation Classes of Mortgage Certificates
------------------------ --------------------------------
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
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--------------------------------------------------------------
Each of the Mortgage Certificates evidences a
senior interest in a mortgage pool (each, an
"Underlying Mortgage Pool") previously formed
by the RTC. Payments on each Class of
Mortgage Certificates will be made on the 25th
day of each month (or if such day is not a
business day, the succeeding business day)
(each, an "Underlying Series Distribution
Date") primarily from amounts received in
respect of the mortgage loans that constitute
the corpus of the related Underlying Mortgage
Pool (in the aggregate, the "Mortgage Loans").
Such amounts, together, with any payments
under the Yield Support Agreement and payments
from the Reserve Fund, are the sole source of
payments on the Class A-1 Certificates. As of
the Underlying Series Distribution Date in
, after giving effect to
distributions and principal balance reductions
on such date, the Mortgage Certificates had
characteristics approximately as set forth
under "The Mortgage Certificates."
The Mortgage Loans The Mortgage Loans are contained in separate
pools of adjustable interest rate,
conventional, residential first mortgage loans
having characteristics approximately as set
forth in the table entitled "Selected Mortgage
Loan Data" under "Description of the Mortgage
Loans." The interest rate on each Mortgage
Loan is subject to adjustment periodically (as
specified in the related mortgage note) to a
rate equal to the sum (subject to rounding) of
(i) a specified index and (ii) an individual
gross margin, subject to certain limitations.
For
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approximately $______ by principal balance
as of the Cut-Off Date of the Mortgage Loans,
the index used is the monthly weighted average
cost of funds for member institutions of the
Eleventh District of the Federal Home Loan
Bank System, as published by the Federal Home
Loan Bank of San Francisco ("COFI"). Such
Mortgage Loans are referred to herein as "COFI
Mortgage Loans." For the remaining Mortgage
Loans, the index generally used is the weekly
average yield on U.S. Treasury securities
adjusted to a constant maturity ("CMT") of one
year or the weekly auction average
(investment) rate on U.S. Treasury Bills with
a six-month maturity ("CBE"), each as
published by the Federal Reserve Board in
Statistical Release H.15 (519), or a
comparable release. Some of the Mortgage
Loans use a CMT yield of two, three or five
years. Such Mortgage Loans using CMT or CBE
are referred to herein as "CMT Mortgage
Loans."
The Mortgage Loans are subject to overall
maximum interest rates. Some of the Mortgage
Loans are also subject to a minimum interest
rate. Some of the Mortgage Loans are subject
to negative amortization.
Some of the Mortgage Loans have mortgage
interest rates that may be converted to fixed
interest rates at the option of the mortgagor.
Upon conversion to a fixed rate, such Mortgage
Loans generally are required to be purchased
by the servicer of the related Underlying
Mortgage Pool. See "Description of the
Mortgage Loans" and "Yield and Prepayment
Considerations."
Optional Repurchase of Mortgage Loans. The
Underlying Mortgage Pool with respect to each
Mortgage Certificate is subject to special
termination a "Special Termination" at such
time as the aggregate outstanding principal
balance of all the mortgage loans underlying
all the mortgage certificates of the related
Underlying Series is equal to or less than 25%
of the initial aggregate principal balance of
such mortgage loans. See "The
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Mortgage Certificates--Special Termination"
herein. In addition, the Mortgage Loan
Servicer with respect to each Underlying
Series has the option to repurchase the
Mortgage Loans from the related Underlying
Mortgage Pool at such time as the aggregate
scheduled principal balance thereof is reduced
to less than 10% of the original aggregate
principal balance thereof. See "The Mortgage
Certificates--Optional Termination" herein.
Any such repurchase will accelerate the rate
at which principal payments are made on the
Class A-1 Certificates.
Certain Prepayment and
Yield Considerations NO INVESTMENT SHOULD BE MADE IN THE CLASS A-1
CERTIFICATES UNLESS AN INVESTOR HAS CONSIDERED
CAREFULLY THE ASSOCIATED RISKS OF INVESTING IN
SUCH CLASS A-1 CERTIFICATES AS DISCUSSED BELOW
AND UNDER "SPECIAL CONSIDERATIONS" AND "YIELD
AND PREPAYMENT CONSIDERATIONS" HEREIN.
Prepayments and Excess Cash. The rate of
principal payments on the Class A-1
Certificates will be affected by the rate of
principal payments on the Mortgage Loans
(including, for this purpose, prepayments,
which may include amounts received by virtue
of condemnation, insurance or foreclosure) and
by the application of Excess Cash to the
principal balance of the Mortgage
Certificates. If a Class A-1 Certificate is
purchased at a discount from its initial
principal amount by a purchaser that
calculates its anticipated yield to maturity
based on an assumed rate of payment of
principal that is faster than that actually
experienced on the Mortgage Loans, the actual
yield to maturity will be lower than that so
calculated. Conversely, if a Certificate is
purchased at a premium by a purchaser that
calculates its anticipated yield to maturity
based on an assumed rate of payment of
principal that is slower than that actually
experienced on the Mortgage Loans, the actual
yield to maturity will be lower than that so
calculated.
Timing of Payments. The timing and amount of
payments, including prepayments, on the
Mortgage
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<PAGE>
Loans may significantly affect an investor's
yield. In general, the earlier a prepayment of
principal on the Mortgage Loans, the greater
will be the effect on an investor's yield to
maturity. As a result, the effect on an
investor's yield of principal prepayments
occurring at a rate higher (or lower) than the
rate anticipated by the investor during the
period immediately following the issuance of
the Class A-1 Certificates will not be offset
by a subsequent like reduction (or increase)
in the rate of principal prepayments.
Basis Risk; LIBOR. The interest rate payable to
the Holders of the Class A-1 Certificates is
based on LIBOR. However, the Mortgage Loans
bear interest at adjustable rates based on
various indices. LIBOR and such various
indices may respond to different economic and
market factors, and there is no necessary
correspondence between them. THERE CAN BE NO
ASSURANCE THAT FUNDS AVAILABLE IN THE RESERVE
FUND OR PAYMENTS UNDER THE YIELD SUPPORT
AGREEMENT WILL BE SUFFICIENT TO MAKE UP ANY
AMOUNT BY WHICH THE INTEREST COLLECTED ON THE
MORTGAGE CERTIFICATES IS LESS THAN THE
INTEREST ACCRUAL AMOUNT OF THE CLASS A-1
CERTIFICATES.
Auction Risk. There can be no assurance that
the Trustee will, on or on
any date thereafter, be able to sell the
Mortgage Certificates for a price sufficient
(together with amounts on deposit in the
Reserve Fund) to allow the Class A-1
Certificates to be paid in full. Therefore,
there can be no assurance that the Class A-1
Certificates will be retired on
.
See "Special Considerations" and "Yield and
Prepayment Considerations" herein for a fuller
discussion of the factors affecting the yield
to maturity of the Class A-1 Certificates.
Liquidity The Underwriter may, from time to time, buy and
sell Class A-1 Certificates, but is not
obligated to do so. There is currently no
secondary market for the Class A-1
Certificates, and there can be no assurance
that one will develop. There is no assurance
that any
S-14
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<PAGE>
such market, if established, will continue.
Each Certificateholder will receive monthly
reports pertaining to the Class A-1
Certificates and the Mortgage Certificates.
There are a limited number of sources which
provide certain information about mortgage-
backed securities in the secondary market;
however, there can be no assurance that any of
these sources will provide information about
the Class A-1 Certificates or the Mortgage
Certificates. Investors should consider the
effect of limited information on the liquidity
of the Class A-1 Certificates.
Federal Income Tax Status [An election will be made to treat the Trust
Fund, and the Trust Fund will qualify, as a
REMIC for federal income tax purposes. The
Class A-1 and Class IO Certificates will
constitute "regular interests" in the REMIC
and generally will be treated as newly
originated debt instruments for federal income
tax purposes. The Class R Certificates will
constitute the sole class of "residual
interests" in the REMIC. [The Class A-1 and
Class IO Certificates will be considered to be
issued with original issue discount in an
amount equal to the excess of all
distributions of principal and interest
expected to be received thereon over their
respective issue prices (including accrued
interest).]
The Prepayment Assumption (as defined in the
Prospectus) that will be used in determining
the rate of accrual of original issue discount
for federal income tax purposes is based on an
18% constant prepayment rate ("CPR"). See
"Yield and Prepayment Considerations" in this
Prospectus Supplement. No representation is
made as to the rate at which the Mortgage
Certificates will prepay.
See "Certain Federal Income Tax Consequences --
Federal Income Tax Consequences for REMIC
Certificates" in the Prospectus.
ERISA Considerations A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code"), or a
governmental plan subject to any
S-15
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<PAGE>
federal, state or local law ("Similar Law")
which is, to a material extent, similar to the
foregoing provisions of ERISA or the Code
(collectively, a "Plan"), should carefully
review with its legal advisors whether the
purchase or holding of Class A-1 Certificates
could give rise to a transaction prohibited or
not otherwise permissible under ERISA, the
Code or Similar Law. See "ERISA
Considerations" in this Prospectus Supplement
and in the Prospectus.
Legal Investment The Class A-1 Certificates will constitute
"mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA") so long as they are rated in
one of the two highest rating categories by at
least one nationally recognized statistical
rating organization. As such, the Class A-1
Certificates are legal investments for certain
entities to the extent provided in SMMEA.
However, there are regulatory requirements and
considerations applicable to regulated
financial institutions and restrictions on the
ability of such institutions to invest in
certain types of mortgage related securities.
Prospective purchasers of the Class A-1
Certificates should consult their own legal,
tax and accounting advisors in determining the
suitability of and consequences to them of the
purchase, ownership and disposition of the
Class A-1 Certificates. See "Legal
Investment" in this Prospectus Supplement.
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<PAGE>
RISK FACTORS
Prospective investors should consider the following factors in
connection with a purchase of the Class A-1 Certificates.
1. Troubled Originators. The Mortgage Loans in each Underlying
Mortgage Pool were originated or purchased by one or more depository
institutions (each a "Depository Institution") for which the Resolution
Trust Corporation ("RTC") was appointed as conservator or receiver or from
which the RTC acquired the Mortgage Loans. Each of such Depository
Institutions was either insolvent and in the process of liquidation or in
serious financial difficulty and being operated under a conservatorship
with a significant likelihood of subsequently being placed in receivership
and liquidated. It is possible that the financial difficulties experienced
by certain Depository Institutions may have adversely affected either or
both of (i) the standards and procedures by which the Mortgage Loans were
originated by such Depository Institutions or, if purchased from another
originator, the standards and procedures by which the Depository
Institutions selected such Mortgage Loans for purchase and reviewed them
prior to purchase and (ii) the manner in which such Mortgage Loans were
serviced prior to assumption of servicing responsibilities by the servicer
of the related Mortgage Certificates. The RTC, usually acting in its
capacity as conservator or receiver of a Depository Institution, made
certain representations and warranties regarding the Mortgage Loans and is
obligated to repurchase or replace or provide indemnification to the
Trustee and the holders of the related Underlying Series with respect to
Mortgage Loans as to which there is a breach of such representations and
warranties. The RTC, acting in its corporate capacity guaranteed the
obligations incurred in connection with such representations and
warranties. There can be no assurance, however, that such remedy will
apply to all problems that may arise with respect to a Mortgage Loan by
reason of the financial difficulties experienced by the related Depository
Institution.
2. Limited Information; Incomplete Mortgage Files. In preparing
the information regarding the Mortgage Certificates and the Mortgage Loans
contained in this Prospectus Supplement, the Depositor has relied upon
information provided by the RTC in the Prospectus Supplements applicable to
each Underlying Series and on information as to each such series
subsequently provided by the various servicers of the Mortgage
Certificates. The Depositor is unable to verify such information and there
can be no assurance of its accuracy or completeness or the accuracy or
completeness of the information presented herein which is derived from
information provided by the RTC and such servicers. Information available
to the RTC and disclosed in the Prospectus Supplement with respect to an
Underlying Mortgage Pool generally was derived solely from the records of
one or more Depository Institutions without independent review. In many
cases, the information available to the RTC concerning the Depository
Institutions did not permit the RTC to determine fully the origination,
credit appraisal and underwriting practices of such institution or the
manner of servicing of the Mortgage Loans. In many Depository Institutions
the mortgage files were incomplete, and did not contain original notes,
appraisal information, or information regarding whether the mortgaged
properties were owner-occupied, whether there had been modifications,
waivers or
S-17
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<PAGE>
amendments with respect to such Mortgage Loans or whether such Mortgage
Loans otherwise had terms inconsistent with information used by the RTC to
prepare related disclosure (which disclosure has been relied on, in part,
by the Depositor, in preparing this Prospectus Supplement). If there are a
large number of Mortgage Loans in any given Underlying Mortgage Pool which
the RTC is obligated to replace or repurchase, the average life and yield
on the related Mortgage Certificates could be adversely affected.
3. General. An investment in certificates (such as the Class A-
1 Certificates) evidencing interests in mortgage loans may be affected,
among other things, by a decline in real estate values or a decline in
mortgage market rates. Recently such declines in real estate values have
been experienced in several significant market areas within the United
States. If relevant residential real estate markets should experience an
overall decline in property values such that the outstanding balances of
the Mortgage Loans in a particular Underlying Mortgage Pool become equal to
or greater than the value of the related mortgaged properties, the actual
rates of delinquencies, foreclosures and losses could be higher than those
now generally experienced in the mortgage lending industry. To the extent
that such losses are not covered by the classes of certificates which are
subordinate to the Mortgage Certificates from that pool and the cash
available in the related Underlying Reserve Funds, holders of the Class A-1
certificates will bear all risk of loss resulting from default by
mortgagors and will have to depend primarily on the value of the mortgaged
properties for recovery of the outstanding principal and unpaid interest of
the defaulted Mortgage Loans.
4. Limited Obligations. The Certificates will not represent an
interest in or obligation of the Depositor, the Trustee, the Certificate
Administrator, the RTC or any of the Depository Institutions. The
Certificates will not be insured or guaranteed by any government agency or
instrumentality. With respect to the Mortgage Certificates, however, the
RTC, acting in its corporate capacity, has guaranteed the obligation of the
RTC, acting in its capacity as receiver or conservator of the various
Depository Institutions, pursuant to its representations and warranties, to
repurchase Mortgage Loans or to indemnify against loss under certain
circumstances.
5. Basis Risk. The interest rate payable to the holders of the
Class A-1 Certificates is based on LIBOR. However, the underlying Mortgage
Loans bear interest based on various indices (the "Indices") calculated at
various frequencies. LIBOR and the Indices respond to different economic
and market factors, and there is no necessary correspondence between them.
Thus, it is possible, for example, that LIBOR may rise during periods in
which the Indices are stable or are falling or that, even if both LIBOR and
the Indices rise during the same period, LIBOR may rise much more sharply
than the Indices. THERE CAN BE NO ASSURANCE THAT FUNDS AVAILABLE IN THE
RESERVE FUND OR PAYMENTS UNDER THE YIELD SUPPORT AGREEMENT WILL BE
SUFFICIENT TO MAKE UP ANY AMOUNT BY WHICH THE INTEREST COLLECTED ON THE
MORTGAGE CERTIFICATES IS LESS THAN THE INTEREST ACCRUAL AMOUNT OF THE CLASS
A-1 CERTIFICATES.
6. Limited Liquidity. There can be no assurance that a
secondary market will develop for the Class A-1 Certificates or, if it does
develop, that it will provide the
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holders with liquidity of investment or that it will continue for the term
of the Class A-1 Certificates.
7. Prepayment and Yield Considerations. The prepayment
experience on the Mortgage Loans will affect the average life of the Class
A-1 Certificates. Prepayments on the Mortgage Loans may be influenced by a
variety of economic, geographic, social and other factors, including the
difference between the interest rates on the Mortgage Loans and prevailing
mortgage interest rates. Other factors affecting prepayment of Mortgage
Loans include changes in housing needs, job transfers, unemployment and
servicing decisions. See "Yield and Prepayment Considerations-_______".
In addition, the yield on the Class A-1 Certificates will be sensitive to,
among other things, the level of LIBOR.
8. Co-op Loans. Many of the Underlying Mortgage Pools contain
Mortgage Loans made in connection with a purchase or refinancing of
cooperative apartments. Such loans ("Co-op Loans") are not secured by
liens on real estate. The "owner" of a cooperative apartment does not own
the real estate constituting the apartment, but owns shares of stock in a
corporation which holds title to the building in which the apartment is
located, and by virtue of owning such stock is entitled to a proprietary
lease to occupy the specific apartment (the "Lease"). Thus, a Co-op Loan
is a personal loan secured by a lien on the shares and assignment of the
Lease. If the borrower defaults on a Co-op Loan, the lender's remedies are
similar to the remedies which apply to a foreclosure of a mortgage or deed
of trust, in that the lender can foreclose the loan and assume "ownership"
of the apartment.
There are certain risks which arise as a result of the
cooperative form of ownership which differentiate Co-op Loans from other
types of Mortgage Loans. For example, the power of the board of directors
of most cooperative corporations to reject a proposed purchaser of a unit
owner's shares (and prevent the sale of an apartment) for any reason (other
than reasons based upon unlawful discrimination), or for no reason,
significantly reduces the universe of potential purchasers in the event of
a foreclosure. Moreover, cooperative apartment owners run a special risk
in buildings where the "sponsor" (i.e., the owner of the unsold shares in
the corporation) holds a significant number of unsold apartments that the
sponsor may go into default on a loan which is secured by a mortgage on the
building. In such event, the unit owners would be forced by special
assessment to make the payments on the delinquent loan or risk losing their
apartments in a foreclosure proceeding brought by the holder of the
mortgage on the building. Not only would the value attributable to the
right to occupy a particular apartment be adversely affected by the special
assessment, but the foreclosure of a mortgage on the building in which the
apartment is located could result in a total loss of the shareholder's
equity in the building (and a corresponding loss of the lender's security
for its Co-op Loan).
9. Geographic Concentration. [To be provided.]
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DESCRIPTION OF THE CLASS A-1 CERTIFICATES
GENERAL
The Adjustable Rate Conduit Mortgage Pass-Through Certificates Series
will include the following three classes: the Class A-1
Certificates, the Class IO Certificates and the Class R Certificates
(collectively, the "Certificates"). Only the Class A-1 Certificates are
offered hereby.
The Certificates evidence 100% of the beneficial ownership interest in
a trust fund (the "Trust Fund"), the assets of which will consist primarily
of (a) classes (or portions of classes) of mortgage pass-through
certificates (the "Mortgage Certificates"), each of which is part of one of
series of mortgage pass-through certificates initially sold by the
Resolution Trust Corporation and acquired by the Depositor in the secondary
market, (b) a Reserve Fund and (c) a Yield Support Agreement provided by
See "--The Reserve Fund" and "--The Yield Support Agreement"
below. The Trust Fund will be established and the Certificates will be
issued pursuant to a Pooling Trust Agreement (the "Pooling Agreement"),
dated as of among the Depositor, the Certificate
Administrator and the Trustee.
The Class A-1 Certificates will have the initial Principal Balance set
forth on the cover page hereof, subject to an upward or downward variance
of 5%.
The Class A-1 Certificates will be issued as Book-Entry Certificates
through the facilities of The Depository Trust Company. See "--Book-Entry
Form" below. The Class A-1 Certificates will be issued, maintained and
transferred only in minimum denominations of $1,000 initial principal
balance and integral multiples of $1,000 initial principal balance in
excess thereof. The "Record Date" for each distribution on the Class A-1
Certificates is , with respect to the initial Distribution
Date, and with respect to each subsequent Distribution Date, the last
business day of the calendar month immediately preceding the month in which
the applicable Distribution Date occurs. The undivided percentage interest
(the "Percentage Interest") represented by any Class A-1 Certificate will
be equal to the percentage obtained by dividing the initial Principal
Balance of such Class A-1 Certificate by the aggregate initial Principal
Balance of all Class A-1 Certificates.
DISTRIBUTIONS
Distributions on the Certificates will be made quarterly on the 25th
day of each February, May, August and November, beginning in February
or, if any such day is not a business day, the following business day;
provided, however that if the Certificate Administrator has not received
all distributions on the Mortgage Certificates due on or before such day,
prior to 1:00 p.m. New York time on such day, payments on the Certificates
will be made on the next succeeding business day (each such day, a
"Distribution Date"). Distributions to a holder of a Class A-1 Certificate
will be made on each Distribution Date in an amount equal to such holder's
Percentage Interest multiplied by the amount, if any, to be
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distributed to the Class A-1 Certificates. Distributions will be made on
each Distribution Date to holders of record on the related Record Date,
which, unless Definitive Certificates are issued under the circumstances
described below under "-- Book Entry Form", will be Cede & Co. as nominee
for DTC.
Interest Distributions. Distributions in respect of interest on each
Class of Certificates (other than the Class R Certificates) on each
Distribution Date will be made only up to the amount of the Interest
Available Funds for such Distribution Date. The amounts of interest that
will accrue during each Interest Accrual Period on each Class of
Certificates, after adjustment for any Non-Supported Interest Shortfalls
and any Deferred Interest (each as described below), are referred to herein
as the "Interest Accrual Amounts" thereof. The "Interest Accrual Period"
with respect to each Distribution Date is the period commencing on the 25th
day of the third month preceding the month in which such Distribution Date
occurs and ending on the 24th day of the month in which such Distribution
Date occurs.
The "Interest Accrual Amount" for the Class A-1 Certificates on each
Distribution Date will equal the product of (i) one-fourth of the Class A-1
Pass-Through Rate for such Distribution Date and (ii) the outstanding
Principal Balance thereof, subject to reduction in respect of Deferred
Interest and Nonsupported Interest Shortfalls incurred with respect to the
Mortgage Loans underlying the Mortgage Certificates. The Interest Accrual
Amount for the Class IO Certificates on each Distribution Date will equal
the product of (i) one-fourth of the Class IO Pass-Through Rate for such
Distribution Date and (ii) the outstanding Principal Balance of the Class
A-1 Certificates, subject to reduction in respect of Deferred Interest and
Nonsupported Interest Shortfalls. The Class R Certificates are not
entitled to distributions in respect of interest and, therefore, have no
Interest Accrual Amount.
"Interest Available Funds" with respect to any Distribution Date will
be equal to the sum of (a) all payments in respect of interest received by
the Certificate Administrator on the Mortgage Certificates during the
related Collection Period, (b) any payments made by the Yield Support
Counterparty on such Distribution Date under the Yield Support Agreement
and (c) all amounts on deposit in the Reserve Fund (up to the excess of the
Interest Accrual Amount of the Class A-1 Certificates over the amount
described in clauses (a) and (b) above). Interest Available Funds will be
distributed on each Distribution Date first to pay to the holders of the
Class A-1 Certificates their Interest Accrual Amounts, next to pay to
holders of the Class A-1 Certificates interest due them with respect to
prior Distribution Dates that remains unpaid (together with interest
thereon), and then to pay current interest and any overdue interest in
respect of the Class IO Certificates to the Certificate Administrator for
deposit into the Reserve Fund.
If Interest Available Funds with respect to a Distribution Date are
insufficient to pay the Interest Accrual Amount of the Class A-1
Certificates on such date, any shortfall in the amount paid in respect
thereof on such date will be carried forward to succeeding Distribution
Dates and will bear interest until paid at the Class A-1 Pass-Through Rate
in effect from time to time.
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The "Class A-1 Pass-Through Rate" during the initial Interest Accrual
Period will be __% per annum. During each succeeding Interest Accrual
Period, the Class A-1 Pass-Through Rate will be 0.30% in excess of the
arithmetic mean of the London interbank offered rate quotations for three-
month Eurodollar deposits ("LIBOR") on the second business day prior to the
first day of such Interest Accrual Period (each, a "Reset Date") determined
as described below under "-- Determination of LIBOR" below.
During each Interest Accrual Period the "Class IO Pass-Through Rate"
will be a variable rate equal to the excess, if any, of (X) the weighted
average of the Weighted Average Mortgage Certificate Pass-Through Rate for
each of the Underlying Series Distribution Dates that occurs during the
Collection Period related to such Interest Accrual Period (determined as
described herein) (such weighted average, the "Quarterly Mortgage
Certificate Pass-Through Rate") over (Y) the Class A-1 Pass-Through Rate
for such Interest Accrual Period. The "Weighted Average Mortgage
Certificate Pass-Through Rate" with respect to any Underlying Series
Distribution Date will be equal to the weighted average of the pass-through
rates of the Mortgage Certificates applicable to such Underlying Series
Distribution Date, weighted on the basis of the outstanding principal
balances of such classes prior to distributions on such Underlying Series
Distribution Date. The Weighted Average Mortgage Certificate Pass-Through
Rate with respect to the Underlying Series Distribution Date in
is expected to be approximately ____%. The "Collection Period" with
respect to a Distribution Date is the period commencing on the day after
the preceding Distribution Date (or, in the case of the first Collection
Period, on ) and ending on such Distribution Date.
Interest on the Certificates will be calculated on the basis of actual
days elapsed in a 360-day year.
Deferred Interest allocated to the Mortgage Certificates on each
Underlying Series Distribution Date occurring during the Collection Period
related to any Distribution Date (as reported on the remittance reports
relating to such Mortgage Certificates) will be allocated between the Class
A-1 Certificates and the Class IO Certificates on the related Distribution
Date, pro rata, based on the Interest Accrual Amounts of each thereof
(before reduction for such Deferred Interest). See "Description of the
Underlying Mortgage Loans -- __________" and "The Mortgage Certificates --
Distributions on the Mortgage Certificates." The amount of Deferred
Interest allocated in reduction of the Interest Accrual Amount of the Class
A-1 Certificates will be added to the Principal Balance of such Class as of
such Distribution Date.
Prepayment Interest Shortfalls allocated to the Mortgage Certificates
on each Underlying Series Distribution Date occurring during the Collection
Period related to any Distribution Date (as reported on the remittance
reports relating to such Mortgage Certificates) will be allocated between
the Class A-1 Certificates and the Class IO Certificates on the related
Distribution Date, pro rata, based on the Interest Accrual Amounts thereof
(before reduction for such interest shortfall on such Distribution Date).
See "The Mortgage Certificates -- Distributions on the Mortgage
Certificates" herein.
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The "Principal Balance" of the Class A-1 Certificates as of any
Distribution Date will be equal to the Mortgage Certificate Balance as of
the preceding Distribution Date. The "Mortgage Certificate Balance" as of
any Distribution Date will be equal to the sum of the Mortgage Certificate
Balances (after giving effect to all distributions and other principal
balance reductions on the Mortgage Certificates during the Collection
Period ending on such Distribution Date). Neither the Class IO
Certificates nor the Class R Certificates have any Principal Balance and,
therefore, neither is entitled to distributions in respect of principal.
DUE TO THE FACTORS DISCUSSED UNDER "SPECIAL CONSIDERATIONS -- BASIS
RISK," INTEREST AVAILABLE FUNDS MAY NOT ALWAYS BE SUFFICIENT TO PAY THE
HOLDERS OF THE CLASS A-1 CERTIFICATES THEIR FULL INTEREST ACCRUAL AMOUNTS
ON EACH DISTRIBUTION DATE.
Principal Distributions. Distributions in respect of principal on the
Class A-1 Certificates will be made on each Distribution Date in an amount
equal to the sum of all amounts distributed in respect of principal on the
Mortgage Certificates during the Collection Period ending on such
Distribution Date.
RESERVE FUND
The Pooling Agreement will require the Certificate Administrator to
establish a separate trust account, which it will hold for the benefit of
the Trustee on behalf of the holders of the Class A-1 Certificates (the
"Reserve Fund").
On the Closing Date, the Depositor will deposit or cause to be
deposited into the Reserve Fund, cash in the amount of . In
addition, the Depositor will cause the beneficial owners of the Class IO
Certificates to irrevocably pledge the Class IO Certificates to the Reserve
Fund, for the benefit of the beneficial owners of the Class A-1
Certificates. All distributions on the Class IO Certificates will be made
to the Certificate Administrator for deposit into the Reserve Fund.
Amounts on deposit in the Reserve Fund from time to time will be available
on each Distribution Date to be paid to holders of the Class A-1
Certificates to the extent that amounts described in clauses (a) and (b) of
the definition of Interest Available Funds are insufficient to pay such
holders' Interest Accrual Amount for such date together with any overdue
interest. The Reserve Fund will be an asset of the Trust Fund, but will not
be an asset of the REMIC. Amounts in the Reserve Fund will be invested in
"eligible assets," as defined in the Pooling Agreement, at the discretion
of the Certificate Administrator, provided each such investment matures no
later than the succeeding Distribution Date.
The Depositor will not have any obligation to deposit additional
monies in the Reserve Fund after the Closing Date.
NO ASSURANCE CAN BE GIVEN THAT AMOUNTS ON DEPOSIT IN THE RESERVE FUND
FROM TIME TO TIME WILL BE SUFFICIENT TO ALLOW FULL DISTRIBUTIONS IN RESPECT
OF INTEREST ON THE CLASS A-1 CERTIFICATES ON ANY DISTRIBUTION DATE.
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The following table, which was prepared on the basis of the
assumptions set forth below, illustrates the balances that would be
available in the Reserve Fund on the dates indicated under the various
scenarios stated.
[INSERT TABLE]
THE YIELD SUPPORT AGREEMENT
The following is a summary of certain features of the Yield Support
Agreement (as defined below).
General. On the Closing Date, the Trustee, acting on behalf of the
holders of the Class A-1 Certificates, will enter into a yield support
agreement (the "Yield Support Agreement") with , a __________
corporation, (the "Yield Support Counterparty"). The Yield Support
Agreement will be governed by and construed in accordance with the law of
the State of New York and will be documented on a standard form published
by the International Swap and Derivatives Association, Inc., as
supplemented by a schedule and a confirmation.
Payment Terms. Pursuant to the terms of the Yield Support Agreement,
in the event that LIBOR on any Reset Date (determined as described below
under "--Determination of LIBOR") exceeds a rate equal to LIBOR as set with
respect to the first Distribution Date plus 2.0% (the "Strike Rate"), the
Yield Support Counterparty will be obligated to pay to the Certificate
Administrator, for the benefit of the holders of the Class A-1
Certificates, on the Distribution Date related to the Interest Accrual
Period following such Reset Date, an amount equal to the product of (x) the
difference between LIBOR at such Reset Date (determined as described above)
and the Strike Rate and (y) amounts paid by the Yield Support Counterparty
on any Distribution Date will be available to make distributions in respect
of interest on the Class A-1 Certificates and, to the extent not required
for such distributions, will be paid to the Certificate Administrator for
deposit into the Reserve Fund.
NO ASSURANCE CAN BE GIVEN THAT AMOUNTS PAID BY THE YIELD SUPPORT
COUNTERPARTY ON ANY DISTRIBUTION DATE WILL BE SUFFICIENT, TOGETHER WITH THE
BALANCE OF THE INTEREST AVAILABLE FUNDS FOR SUCH DISTRIBUTION DATE, TO
ALLOW FULL DISTRIBUTIONS IN RESPECT OF INTEREST ON THE CLASS A-1
CERTIFICATES ON SUCH DISTRIBUTION DATE OR ON ANY FUTURE DISTRIBUTION DATES.
Termination. Unless earlier terminated as described below, the Yield
Support Agreement will terminate upon the reduction of the Principal
Balance of the Class A-1 Certificates to zero.
Pursuant to the Yield Support Agreement, certain events may occur in
respect of the Yield Support Counterparty that will give the Trustee the
right to terminate the Yield Support Agreement subject to the terms and
provisions thereof. The Trustee will have the right to terminate the Yield
Support Agreement if any of the following events occur:
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(i) the Yield Support Counterparty fails to make any payment due under
the Yield Support Agreement and such nonpayment continues for three
business days after notice from the Trustee;
(ii) the Yield Support Counterparty fails to perform or observe its
obligations under such Yield Support Agreement (other than its obligation
to make any payment due under such Yield Support Agreement) and such
failure continues for a period of 30 days after notice from the Trustee;
(iii) any representation made by the Yield Support Counterparty under
such Yield Support Agreement proves to have been incorrect or misleading in
any material respect as of the time it was made;
(iv) certain events of bankruptcy or insolvency occur with respect to
the Yield Support Counterparty;
(v) the Yield Support Counterparty undertakes certain mergers,
consolidations or transfers of its assets or is dissolved;
(vi) a withholding tax is imposed on payments by the Yield Support
Counterparty under such Yield Support Agreement; or
(vii) a change in law occurs after the Closing Date which makes it
unlawful for the Yield Support Counterparty to perform its obligations in
respect of the Yield Support Agreement.
Breakage Fee. If the Yield Support Agreement is terminated by the
Trustee, the market value of the Yield Support Agreement will be
established by the Trustee on the basis of market quotations of the cost to
the Trust Fund of entering into a replacement yield support agreement, in
accordance with the procedures set forth in the Yield Support Agreement
(such amount, the "Breakage Fee"). The Yield Support Counterparty will be
required to pay the Trustee, for the benefit of the holders of the Class A-
1 Certificates the amount of any Breakage Fee. Upon any such termination
of the Yield Support Agreement, the Trustee will distribute to the holders
of the Class A-1 Certificates, on a pro rata basis, any applicable Breakage
Fee paid by the Yield Support Counterparty.
The Yield Support Counterparty.
As of _______ ___, , the end of its most recent fiscal year, the
Yield Support Counterparty had total assets of approximately $_____
million, total liabilities of approximately $_____ million, and
Shareholders' equity of approximately $_____ million.
[The Yield Support Counterparty's outstanding senior unsecured
indebtedness has been rated [ ] by Moody's, [ ] by S&P, and [ ]
by Fitch Investors Service, L.P. ("Fitch").]
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Copies of the Yield Support Counterparty's annual reports are
available from _________________________ by contacting _____________ at
(612) ___________________.
The above information was provided by the Yield Support Counterparty.
MANDATORY AUCTION
Prior to the Distribution Date occurring in , the Trustee
will cause the Certificate Administrator, to hold an auction (the
"Auction") for the sale of the Mortgage Certificates.
If the highest bid obtained, together with amounts on deposit in the
Reserve Fund, is at least equal to the then outstanding Principal Balance
of the Class A-1 Certificates, together with interest accrued and unpaid
thereon through such Distribution Date, the trustee will sell the Mortgage
Certificates and pay in full the Class A-1 Certificates on
. If no sufficient bid is obtained, the Trustee will continue to hold
the Mortgage Certificates and the Certificate Administrator will continue
to make required distributions of interest and principal on the Class A-1
Certificates. The auction procedure will be repeated with respect to each
succeeding Distribution Date until a sufficiently high bid is obtained.
DETERMINATION OF LIBOR
On each Reset Date, the Certificate Administrator will determine
LIBOR for the succeeding Interest Accrual Period on the basis of the
offered LIBOR quotations of the Reference Banks, as such quotations are
provided to the Certificate Administrator as of 11:00 a.m. (London time) on
such Reset Date. As used in this section with respect to a Reset Date,
"business day" means a day on which banks are open for dealing in foreign
currency and exchange in London and New York City; "Reference Banks" means
four leading banks engaged in transactions in Eurodollar deposits in the
International Eurocurrency market (i) with an established place of business
in London, (ii) whose quotations appear on the Reuters Screen LIBO Page on
the Rate Determination Date in question and (iii) which have been
designated as such by the Certificate Administrator and are able and
willing to provide such quotations to the Certificate Administrator on each
Reset Date; and "Reuters Screen LIBO Page" means the display designated as
page "LIBO" on the Reuters Monitor Money Rates Service (or such other page
as may replace the LIBO page on that service for the purpose of displaying
London interbank offered rate quotations or major banks). If any Reference
Bank should be removed from the Reuters Screen LIBO Page or in any other
way fails to meet the qualifications of a Reference Bank, the Certificate
Administrator may, in its sole discretion, designate an alternative
Reference Bank.
On each Reset Date, LIBOR for the next Interest Accrual Period
will be established by the Certificate Administrator as follows:
(i) If on any Reset Date two or more of the Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual
Period will be the arithmetic
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mean of such offered quotations (rounding such arithmetic mean upwards
if necessary to the nearest whole multiple of 1/16%).
(ii) If on any Reset Date only one or none of the Reference Banks
provides such offered quotations, LIBOR for the next Interest Accrual
Period will be the higher of (x) LIBOR as determined on the previous
Reset Date or (y) the Reserve Interest Rate. The "Reserve Interest
Rate" will be the rate per annum which the Certificate Administrator
determines to be either (A) the arithmetic mean (rounding such
arithmetic mean upwards if necessary to the nearest whole multiple of
1/16%) of the one-month Eurodollar lending rate that New York City
banks selected by the Certificate Administrator are quoting, on the
relevant Reset Date, to the principal London offices of at least two
leading banks in the London interbank market or (B) in the event that
the Certificate Administrator can determine no such arithmetic mean,
the lowest one-month Eurodollar lending rate that the New York City
banks selected by the Certificate Administrator are quoting on such
Reset Date to leading European banks.
(iii) If on any Reset Date the Certificate Administrator is
required but is unable to determine the Reserve Interest Rate in the
manner provided in paragraph (ii) above, LIBOR for the next Interest
Accrual Period will be LIBOR as determined on the Previous Reset Date.
The establishment of LIBOR by the Certificate Administrator and
the Certificate Administrator's subsequent calculation of the rates of
interest applicable to the Class A-1 Certificates for the relevant Interest
Accrual Period (in the absence of manifest error) will be final and
binding. The Class A-1 Pass-Through Rate for any Interest Accrual Period
may be obtained by telephoning the Certificate Administrator at _________.
OPTIONAL REPURCHASE OF THE MORTGAGE CERTIFICATES
The beneficial owner of the Class IO Certificates will have the
option, but not the obligation, to purchase the Mortgage Certificates from
the Trust Fund on any Distribution Date on which the Mortgage Certificate
Balance is equal to 5% or less of the original Mortgage Certificate
Balance.
[EXPENSE FUND
The Depositor will deposit in an account established by the Trustee
with the Certificate Administrator (the "Expense Fund") on the Closing Date
cash in an amount necessary to meet the requirements of each Rating Agency.
Funds on deposit in the Expense Fund will be used to pay amounts owing to
the Trustee pursuant to the Pooling Agreement and the fees of the
Certificate Administrator. Funds on deposit in the Expense Fund will not
be available to make payments on the Certificates.]
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DENOMINATIONS
The Class A-1 Certificates will be issued in minimum denominations of
$1,000 initial principal balance and integral multiples of $1,000 initial
principal balance in excess thereof.
BOOK-ENTRY FORM
The Class A-1 Certificates initially will be represented by one
physical certificate registered in the name of Cede & Co. ("Cede"), as
nominee of DTC, which will be the "holder" or "Certificateholder" of such
Certificates, as such terms are used herein. No person acquiring an
interest in the Class A-1 Certificates (a "Beneficial Owner") will be
entitled to receive a Class A-1 Certificate in certificated form (a
"Definitive Certificate") representing such person's interest in the Class
A-1 Certificates, except as set forth below. Unless and until Definitive
Certificates are issued under the limited circumstances described herein,
all references to actions taken by Certificateholders or holders shall
refer to actions taken by DTC upon instructions from its DTC Participants
(as defined below), and all references herein to distributions, notices,
reports and statements to Certificateholders or holders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Class A-1 Certificates, as the case may be, for
distribution to Beneficial Owners in accordance with DTC procedures.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934,
as amended. DTC was created to hold securities for its participating
organizations ("DTC Participants") and to facilitate the clearance and
settlement of securities transactions among DTC Participants through
electronic book-entries, thereby eliminating the need for physical movement
of certificates. DTC Participants include securities brokers and dealers
(including the Underwriter), banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to
banks, brokers, dealers, trust companies and other institutions that clear
through or maintain a custodial relationship with a DTC Participant, either
directly or indirectly ("Indirect DTC Participants").
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make Class A-1
transfers of Class A-1 Certificates among DTC Participants on whose behalf
it acts with respect to the Class A-1 Certificates and to receive and
transmit distributions of principal of and interest on the Class A-1
Certificates. DTC Participants and Indirect DTC Participants with which
Beneficial Owners have accounts with respect to the Class A-1 Certificates
similarly are required to make Class A-1 transfers and receive and transmit
such payments on behalf of their respective Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell or otherwise transfer ownership
of, or other interests in, Class A-1 Certificates may do so only through
DTC Participants and Indirect DTC Participants. In addition, Beneficial
Owners will receive all distributions of principal and interest from the
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Master Servicer, or a paying agent on behalf of the Master Servicer,
through DTC Participants. DTC will forward such distributions to its DTC
Participants, which thereafter will forward them to Indirect DTC
Participants or Beneficial Owners. Beneficial Owners will not be
recognized by the Trustee, the Trust Administrator, the Master Servicer or
any paying agent as Certificateholders, as such term is used in the Pooling
and Servicing Agreement, and Beneficial Owners will be permitted to
exercise the rights of Certificateholders only indirectly through DTC and
its DTC Participants.
Because DTC can only act on behalf of DTC Participants, who in turn
act on behalf of Indirect DTC Participants and certain banks, the ability
of a Beneficial Owner to pledge Class A-1 Certificates to persons or
entities that do not participate in the DTC system, or to otherwise act
with respect to such Class A-1 Certificates, may be limited due to the lack
of a physical certificate for such Class A-1 Certificates. In addition,
under a Class A-1 format, Beneficial Owners may experience delays in their
receipt of payments, since distributions will be made by the Master
Servicer, or a paying agent on behalf of the Master Servicer, to Cede, as
nominee for DTC.
DTC has advised the Depositor that it will take any action permitted
to be taken by a Certificateholder under the Pooling Agreement only at the
direction of one or more DTC Participants to whose accounts with DTC the
Class A-1 Certificates are credited. Additionally, DTC has advised the
Depositor that it will take such actions with respect to specified voting
interests only at the direction of and on behalf of DTC Participants whose
holdings of Class A-1 Certificates evidence such specified voting
interests. DTC may take conflicting actions with respect to voting
interests to the extent that DTC Participants whose holdings of Class A-1
Certificates evidence such voting interests authorize divergent action.
Neither the Depositor, the Certificate Administrator nor the Trustee
will have any responsibility for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Class A-1
Certificates held by Cede, as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. In the event of the insolvency of DTC, a DTC Participant or an
indirect DTC Participant in whose name Class A-1 Certificates are
registered, the ability of the Beneficial Owners of such Class A-1
Certificates to obtain timely payment and, if the limits of applicable
insurance coverage by the Securities Investor Protection Corporation are
exceeded or if such coverage is otherwise unavailable, ultimate payment, of
amounts distributable with respect to such Class A-1 Certificates may be
impaired.
The Class A-1 Certificates will be converted to Definitive
Certificates and re-issued to Beneficial Owners or their nominees, rather
than to DTC or its nominee, only if (i) the Certificate Administrator is
advised that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the Class A-1 Certificates
and the Certificate Administrator is unable to locate a qualified
successor, (ii) the Certificate Administrator, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence
of a dismissal or resignation of the Certificate Administrator under the
Pooling Agreement, Beneficial Owners representing not less than 51% of the
voting interests
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of the outstanding Class A-1 Certificates advise the Trustee through DTC,
in writing, that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the Beneficial Owners' best interest.
Upon the occurrence of any event described in the immediately
preceding paragraph, the Certificate Administrator (or, if the Certificate
Administrator has been dismissed, the Trustee) will be required to notify
all Beneficial Owners through DTC Participants of the availability of
Definitive Certificates. Upon surrender by DTC of the physical
certificates representing the Class A-1 Certificates and receipt of
instructions for re-registration, the Certificate Administrator will
reissue the Class A-1 Certificates as Definitive Certificates to Beneficial
Owners.
TERMINATION
The Trust Fund will terminate upon the earlier of (a) the distribution
to holders of the Certificates of all amounts required to be distributed to
them pursuant to the Pooling Agreement and (b) the termination of the
Pooling Agreement.
CERTIFICATE ACCOUNT
All payments and collections in respect of the Mortgage Certificates
will be deposited in an account maintained by the Certificate Administrator
(the "Certificate Account") in the name of the Trustee with a depository
institution (which may be the Certificate Administrator) and in a manner
acceptable to each Rating Agency. See "Description of the Certificates --
Payments on the Mortgage Loans" and " -- Collection of Payments on Mortgage
Certificates" in the Prospectus.
ACTIONS IN RESPECT OF THE MORTGAGE CERTIFICATES
If at any time the Trustee, as the Mortgage Certificateholder, is
requested in such capacity to take any action or to give any consent,
approval or waiver, including without limitation in connection with an
amendment of an Underlying Pooling Agreement or if an event of default
occurs under an Underlying Pooling Agreement with respect to the Mortgage
Loan Servicer or the Mortgage Loan Trustee thereunder, the Pooling
Agreement provides that the Trustee, in its capacity as
certificateholder, may take action in connection with the enforcement of
any rights and remedies available to it in such capacity with respect
thereto, will promptly notify all of the holders of the Certificates and
will act only in accordance with written directions of holders of the
Certificates evidencing in excess of 50% of the Voting Rights.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by
holders of the Certificates evidencing a specified percentage of all
undivided interests in the Trust Fund may be taken by holders of the
Certificates entitled in the aggregate to such percentage of the Voting
Rights. At any time that any Certificates are outstanding, the "Voting
Rights" under
S-30
VERSION G
<PAGE>
the Pooling Agreement will be allocated 1% to the Class R Certificate, 1%
to the Class IO Certificate and the remainder to the Class A-1 Certificate.
CERTIFICATE ADMINISTRATOR
[To be provided.]
TRUSTEE
[To be provided.]
THE MORTGAGE CERTIFICATES
GENERAL
The description of the Mortgage Certificates contained in this
Prospectus Supplement is a general summary of certain characteristics of
the Mortgage Certificates and does not purport to be complete. Such
description is subject to, and is qualified in its entirety by reference
to, the actual terms and provisions of the Prospectuses and Prospectus
Supplements related to each of the Mortgage Certificates (collectively, the
"Underlying Disclosure Documents") and the Pooling and Servicing Agreements
relating to each of the Mortgage Certificates (collectively, the
"Underlying Pooling Agreements"). Copies of the Underlying Disclosure
Documents and the Underlying Pooling Agreements are available from First
Boston by calling ________ at (212) _________. Investors are urged to
obtain copies of such documents and read this Prospectus Supplement in
conjunction therewith.
The assets of the REMIC will consist primarily of classes (or
portions of classes) of senior mortgage pass-through certificates (the
"Mortgage Certificates"), each of which is a part of one of separate
series of mortgage pass-through certificates (each an "Underlying Series").
Each of the Mortgage Certificates was issued pursuant to a separate
Underlying Pooling Agreement, generally dated as of the first day of the
month of initial issuance of the related Underlying Series (as to each, the
"Underlying Series Cut-off Date"), generally among the RTC, the servicer or
master servicer of the related Mortgage Loans (each, a "Mortgage Loan
Servicer") and the trustee of the related Mortgage Certificates (each, a
"Mortgage Loan Trustee").
The Mortgage Certifictes were each issued on the dates set forth in
the following table for each such Mortgage Certificate, each in an offering
registered by the RTC under the Securities Act of 1933, as amended (the
"Securities Act").
S-31
VERSION G
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES DATE OF ISSUANCE
--------------------- ----------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
Each Underlying Series consists of multiple classes of mortgage pass-
through certificates representing interests in separate trusts (each, an
"Underlying Trust Fund"), previously formed by the RTC, each such
Underlying Trust Fund consisting, in part, of multiple mortgage pools.
Each of the Mortgage Certificates evidences a senior interest in a separate
mortgage pool (each, an "Underlying Mortgage Pool"), which is part of one
of the Underlying Trust Funds, consisting primarily of adjustable interest
rate, conventional, one- to four-family, residential first mortgage loans
(the "Mortgage Loans"), sold by the RTC to the related Mortgage Loan
Trustee for the benefit of holders of the certificates of the related
Underlying Series. Except as set forth in the following sentence, the
Underlying Series relating to each class of Mortgage Certificates includes
at least one class of certificates (as to each Underlying Series, the
"Related Subordinated Certificates") which represents an interest in the
same Underlying Mortgage Pool as such class of Mortgage Certificates and
which is subordinated to such class of Mortgage Certificates. With respect
to three Mortgage Certificates, which have an aggregate Mortgage
Certificate Principal Amount as of the Cut-off Date of $__________, the
principal balances of the Related Subordinated Certificates have been
reduced to zero.
S-32
VERSION G
<PAGE>
Each of the Mortgage Certificates has been assigned the ratings set
forth in the following table by the rating agencies identified therein:
RATINGS APPLICABLE TO MORTGAGE CERTIFICATES
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES MOODY'S S&P FITCH
--------------------- ------- ------ -----
<S> <C> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
-----------------------------------------
NR = Not Rated
Certain characteristics of the Mortgage Certificates are described
below. Certain of the information with respect to the Mortgage
Certificates has been derived from the original offering documents relating
to such Mortgage Certificates and from publicly available data and other
data available to the Depositor with respect thereto. IT SHOULD BE NOTED
THAT THERE MAY HAVE BEEN MATERIAL CHANGES IN FACTS AND CIRCUMSTANCES SINCE
THE DATES SUCH DOCUMENTS WERE PREPARED, INCLUDING, BUT NOT LIMITED TO,
CHANGES IN PREPAYMENT SPEEDS AND PREVAILING INTEREST RATES AND OTHER
ECONOMIC FACTORS, WHICH MAY LIMIT THE USEFULNESS OF, AND BE DIRECTLY
CONTRARY TO THE ASSUMPTIONS USED IN PREPARING, THE INFORMATION SET FORTH IN
SUCH DOCUMENTS.
The following table sets forth expected approximate characteristics of
the Mortgage Certificates based on remittance reports received with respect
to the Underlying Series Distribution Dates occurring in .
S-33
VERSION G
<PAGE>
SUMMARY DESCRIPTION OF THE MORTGAGE CERTIFICATES
(BASED ON THE REMITTANCE REPORTS)
<TABLE>
<CAPTION>
Class Current Weighted
Original Original Original % in Current Mortgage Current Current Average
Collateral Class % of Trust Collateral Certificate Class % of Net
Underlying Series Class Balance Balance Deal Fund Balance Balance Balance Deal Index Margin
- ----------------- ----- ---------- -------- -------- ----- ---------- ----------- ------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series [INSERT
Series TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
Totals/Weighted Averages
S-34
VERSION G
<PAGE>
On the Closing Date, the Principal Balance of the Class A-1
Certificates will equal the aggregate principal balance of the Mortgage
Certificates. In the event that any of the actual characteristics as of the
Cut-off Date of the Mortgage Certificates varies materially from those
described herein, revised information regarding the Mortgage Certificates
will be made available to purchasers of the Class A-1 Certificates on or
before the Closing Date.
DISTRIBUTIONS ON THE MORTGAGE CERTIFICATES
The following is a discussion of the characteristics of the Mortgage
Certificates in general. The precise characteristics of specific Mortgage
Certificates may vary from the general descriptions set forth below. There
are substantial variations among the Underlying Pooling Agreements for the
various Underlying Series. The following discussion does not purport to
describe with specificity the terms of any specific Underlying Pooling
Agreement, but is instead a general description of the major economic terms
of the Mortgage Certificates, with certain major variations from the general
descriptions with respect to certain Mortgage Certificates or groups of
Mortgage Certificates noted. Investors are urged to obtain the Underlying
Pooling Agreements and the Underlying Disclosure Documents from First Boston
and read such agreements in conjunction with this Prospectus Supplement.
Distributions of interest and in reduction of principal balance of each
class of Mortgage Certificates are made on the 25th day of each month or, if
such 25th day is not a business day, on the succeeding business day (each,
an "Underlying Series Distribution Date").
In general, for each Underlying Mortgage Pool, the related class of
Mortgage Certificates evidences, in the aggregate, the right to receive all
of the principal payments on the Mortgage Loans in such Underlying Mortgage
Pool, the right to receive the interest payments on such Mortgage Loans at
the applicable Mortgage Certificate Pass-Through Rate and, in some cases as
discussed below, the right to receive Excess Cash attributable to such
Mortgage Loans, in each case until the related Mortgage Certificate
Principal Amounts have been reduced to zero. However, the Series ,
Certificates and the Series Certificates (which
have an aggregate Mortgage Certificate Principal Amount as of the Cut-off
Date of $__________) evidence the right to receive, in addition to payments
in respect of interest and certain payments in respect of Excess Cash, only
their pro rata share (based on the principal balances of such Mortgage
Certificates and the Related Subordinated Certificates) of all of the
principal payments on the Mortgage Loans in the related Underlying Mortgage
Pools until the related Mortgage Certificate Principal Amounts have been
reduced to zero (rather than all such principal payments).
Distributions on each Mortgage Certificate (other than distributions in
respect of Excess Cash) will generally be made from the Mortgage Pool
Available Distribution Amount. For each Underlying Mortgage Pool, the
related "Mortgage Pool Available Distribution Amount" with respect to any
Underlying Series Distribution Date will equal the sum of: (i) all
previously undistributed amounts received before the related Determination
Date with respect to the Mortgage Loans in such Mortgage Pool and (ii) all
Advances made by the Mortgage Loan Servicer or the Mortgage Loan Trustee (or
amounts withdrawn from the related Reserve Fund in respect of
S-35
VERSION G
<PAGE>
delinquent mortgage loan payments), and any other payments required to be
made by the Mortgage Loan Servicer with respect to such Underlying Series
Distribution Date, less (x) the portion of the related Servicing Fee payable
to the Mortgage Loan Servicer and (y) all other amounts which are due or
reimbursable to the Mortgage Loan Servicer with respect to such Mortgage
Loans; provided, however, that the Mortgage Pool Available Distribution
Amount with respect to any Underlying Series Distribution Date shall not
include:
(a) Monthly Payments due on the related Mortgage Loans on a date
subsequent to the related Due Period;
(b) Principal Prepayments received after the related Prepayment
Period (together with any interest payments received with such
prepayments to the extent that they represent the payment of interest
accrued on the Mortgage Loans in the related Mortgage Pool for the
period subsequent to the related Prepayment Period); and
(c) liquidation proceeds, insurance proceeds and proceeds of the
sale of any Mortgage Loans in the related Mortgage Pool received after
the related Prepayment Period.
The due period (the "Due Period") related to each Underlying Series
Distribution Date commences on the second day of the month preceding the
month in which such Underlying Series Distribution Date occurs and ends on
the Due Date in the month of such Underlying Series Distribution Date. The
due date (the "Due Date") for any Mortgage Loan is the date in each month on
which its Monthly Payment is due. Generally, for each Underlying Series
Distribution Date, the prepayment period (the "Prepayment Period") is the
calendar month preceding the month in which such Underlying Series
Distribution Date occurs. With respect to certain Mortgage Loans, however,
the Prepayment Period with respect to each Underlying Series Distribution
Date is the period beginning on the Determination Date in the month
preceding the month in which such Underlying Series Distribution Date occurs
and ending on the day preceding the Determination Date in the month in which
such Underlying Series Distribution Date occurs. The Determination Date for
each Underlying Series is generally the 15th day (or if such day is not a
business day, the preceding business day) of the month in which the related
Underlying Series Distribution Date occurs.
INTEREST DISTRIBUTIONS
The "Mortgage Certificate Interest Distribution Amount" for any class
of Mortgage Certificates on any Underlying Series Distribution Date is
generally the amount of interest accrued during the preceding Mortgage
Certificate Interest Accrual Period for such class at the related Mortgage
Certificate Pass-Through Rate on the Mortgage Certificate Principal Amount
of such class immediately preceding such Underlying Series Distribution
Date, less any allocable Prepayment Interest Shortfall and allocable
Deferred Interest, each as described below. The "Mortgage Certificate
Interest Accrual Period" for any Underlying Series Distribution Date is
generally the preceding calendar month. Interest on the Mortgage
Certificates will be calculated on the basis of a 360-day year assumed to
consist of twelve 30-day months.
S-36
VERSION G
<PAGE>
The Mortgage Certificate Principal Amount with respect to any Mortgage
Certificate and any Underlying Series Distribution Date is equal to the
initial principal amount of such Mortgage Certificate plus (x) any Deferred
Interest allocated to such Mortgage Certificate and less (y) the amount of
any principal distributions previously made on such Mortgage Certificate.
With respect to each Mortgage Certificate Interest Accrual Period, the
Mortgage Certificate Pass-Through Rates will each be a variable rate per
annum equal to the weighted average of the Mortgage Interest Rates on each
of the Mortgage Loans in the related Mortgage Pool as in effect prior to the
Due Date in the Due Period immediately preceding the related Underlying
Series Distribution Date minus the amount set forth for such class in the
succeeding table (each such amount, the "Fee/Excess Rate"). The Fee/Excess
Rate with respect to each Mortgage Certificate generally represents amounts
retained to pay servicing fees, master servicing fees payable to the related
Mortgage Loan Servicer and, in some cases, amounts to be distributed as
Excess Cash.
<TABLE>
<CAPTION>
FEE/EXCESS RATES
---------------------------------------------
Mortgage Certificates Fee/Excess Rates
--------------------- ----------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
If either (x) an adjustment to the Mortgage Interest Rate on any
Interest Adjustment Date without a simultaneous adjustment of the Monthly
Payment or (y) the limitation on adjustments to Monthly Payments due to a
Payment Adjustment Cap or the graduated Monthly Payments of certain GPM
Loans causes the amount of interest accrued on the principal balance of a
Mortgage
S-37
VERSION G
<PAGE>
Loan during any period to exceed the related Monthly Payment, the payment of
such excess interest ("Deferred Interest") may be deferred and the amount
thereof added to the principal balance of such Mortgage Loan. To the extent
any Deferred Interest is added to the principal balance of the Mortgage
Loans in any Mortgage Pool, an allocable portion of such Deferred Interest
will reduce the interest payable to, and will be added to the Mortgage
Certificate Principal Amount of, the related Mortgage Certificates (such
allocable portion based upon the proportion that the interest payable on
such class of Mortgage Certificates bears to the total amount of interest
payable on all classes of certificates related to such Mortgage Pool).
The "Monthly Payment" is, with respect to any Mortgage Loan and any
month, the scheduled Monthly Payment of principal and interest, excluding
any Balloon Payment, on such Mortgage Loan which is either payable by a
borrower in such month under the related note, or in the case of Mortgage
Loans which have been discharged and the related mortgaged property is held
as part of the Underlying Trust Fund ("REO Property"), would otherwise have
been payable under the note relating to such REO Property. A "Balloon
Payment" is the final scheduled payment of principal and interest on a
Balloon Mortgage Loan.
When a borrower makes a full or partial prepayment of a Mortgage Loan
between Due Dates, the borrower pays interest on the amount prepaid only
from the last scheduled Due Date to the date of prepayment. In order to
mitigate any shortfall in interest resulting from such prepayments prior to
a scheduled Due Date, subject to certain limitations in the Underlying
Pooling Agreements, the portion of the servicing fee payable to the Mortgage
Loan Servicer (less a portion thereof reserved for payment of certain fees
and expenses) will be reduced by the amount necessary to provide the
interest payable on the related Mortgage Loans for the entire Prepayment
Period in which the prepayments occurred, adjusted to the Mortgage Interest
Rate less the applicable Servicing Fee. The following chart sets forth the
percentage, as to each Mortgage Certificate, at which the Servicing Fee
available to offset such interest shortfalls is calculated. To the extent
that reductions in the portion of the Servicing Fee payable to the related
Mortgage Loan Servicer are insufficient to offset such interest shortfalls,
the amount of such insufficiency (a "Prepayment Interest Shortfall"), will
be allocated to the classes of Mortgage Certificates in proportion to the
interest accrued thereon. The Servicing Fees payable to any Mortgage Loan
Servicer with respect to any Underlying Series will be available to offset
interest shortfalls relating to mortgage pools other than the Underlying
Mortgage Pools, and to the extent that such shortfalls occur with respect to
more than one mortgage pool relating to any Underlying Series on an
Underlying Series Distribution Date, such Servicing Fee will be allocated to
offset such interest shortfalls pro rata based on the amounts of the
interest shortfalls in each mortgage pool.
PRINCIPAL DISTRIBUTIONS
Distributions in reduction of the Mortgage Certificate Principal
Amounts of the Mortgage Certificates on each Underlying Series Distribution
Date are generally required to be made (subject to the availability of
funds) in an aggregate amount equal to the Pool Principal Distribution
Amount for the related Underlying Mortgage Pool on such Underlying Series
Distribution Date. However, with respect to the and
Certificates (which have an aggregate Mortgage
Certificate Principal Amount as of the
S-38
VERSION G
<PAGE>
Cut-off Date of $_________), distributions in reduction of the Mortgage
Certificate Principal Amounts thereof are required to be made (subject to
the availability of funds) in an amount equal to the pro rata share of each
such class of the related Pool Principal Distribution Amount for the related
Underlying Mortgage Pool on each Underlying Series Distribution Date. The
pro rata share of each such class will be determined by dividing the
principal balance of such class by the sum of the principal balance of such
class and the principal balances of the Related Subordinated Certificates.
With respect to such Mortgage Certificates, if certain levels of realized
losses are experienced in the related Mortgage Pools, the Related
Subordinated Certificates will not be entitled to distributions in respect
of prepayments on the related Mortgage Loans and all such prepayments will
be allocated to the Mortgage Certificates in reduction of their Mortgage
Certificate Principal Amounts.
The "Pool Principal Distribution Amount" for each Underlying Mortgage
Pool on any Underlying Series Distribution Date generally equals the sum of
(i) the principal component of all scheduled Monthly Payments due on each
Mortgage Loan in such Underlying Mortgage Pool in the preceding Due Period
(the "Scheduled Principal Distribution Amount"), (ii) the principal
component of each Balloon Payment received on any Balloon Mortgage Loan in
such Underlying Mortgage Pool during the related Due Period, (iii) the
scheduled principal balance of each Mortgage Loan in such Underlying
Mortgage Pool that either was sold or became a liquidated mortgage loan
during the related Prepayment Period, (iv) all full or partial principal
prepayments received on each Mortgage Loan in such Underlying Mortgage Pool
during the related Prepayment Period and (v) with respect to two of the
Mortgage Certificates, the Excess Cash, if any, related to such Underlying
Mortgage Pool.
CROSSOVER AMOUNTS
On each Underlying Series Distribution Date (other than with respect to
the Underlying Series relating to the Excess Cash Allocation Certificates)
following the retirement of all classes of certificates related to a
mortgage pool that is part of one of the Underlying Trust Funds, all
payments and other recoveries in respect of such mortgage pool ("Crossover
Amounts") will be applied to cover shortfalls in principal and interest on
the remaining certificates relating to the other mortgage pools that are
part of the same Underlying Trust Fund (which may include one or more
classes of Mortgage Certificates) on a pro rata basis in proportion to the
respective amount of such shortfalls.
Any remaining Crossover Amounts after the application thereof to cover
shortfalls will be allocated among the related mortgage pools, pro rata,
based on the aggregate principal balances of all classes of senior
certificates in the related mortgage pools, and applied on each Underlying
Series Distribution Date in reduction of the principal balances of each
class of senior certificates currently entitled to distribution of
principal.
EXCESS CASH
The "Excess Cash" in respect of any Underlying Mortgage Pool for any
Underlying Series Distribution Date is generally the excess, if any, of the
Mortgage Pool Available Distribution Amount (together, in the case of the
Excess Cash Preservation Certificates, with amount
S-39
VERSION G
<PAGE>
withdrawn from the related underlying Reserve Fund in respect of realized
losses) for such Underlying Mortgage Pool over the sum of (1) the Mortgage
Certificate Interest Distribution Amount for the related class of Mortgage
Certificates and the Related Subordinated Certificates, if any, and (2) the
amounts set forth in clauses (i) through (iv) of the definition of Pool
Principal Distribution Amount, as set forth above.
In the case of the two Mortgage Certificates described above under the
definition of Pool Principal Distribution Amount, Excess Cash in respect of
the related Mortgage Pools is distributed on each Underlying Series
Distribution Date to such Mortgage Certificates in reduction of their
Mortgage Certificate Principal Amounts. With respect to the remaining
Mortgage Certificates (the "Excess Cash Allocation Certificates"), Excess
Cash is not allocated exclusively to the related Mortgage Certificates.
Instead, the Underlying Pooling Agreements relating to such Mortgage
Certificates provide that Excess Cash will be distributed to one or more
classes of certificates related to such Underlying Series other than the
Mortgage Certificates (as described in greater detail in the related
Underlying Disclosure Documents) in some cases in respect of interest, in
some cases in respect of losses and other shortfalls and in some cases as
payments in reduction of principal amount in excess of the amount of
principal received in respect of the related mortgage loans, prior to being
distributed in reduction of the Mortgage Certificate Principal Amount of the
related Mortgage Certificates. The amount of Excess Cash distributed in
reduction of the Mortgage Certificate Principal Amount of a Mortgage
Certificate could have a significant effect on the weighted average life of
such Mortgage Certificate.
UNDERLYING SERIES RESERVE FUNDS
To increase the likelihood of full distributions of interest and
principal to holders of the certificates issued in each Underlying Series,
the RTC established with various collateral agents one or more reserve funds
with respect to each Underlying Series. The reserve funds relating to each
Underlying Series that are available to cover realized losses and, in some
cases, other shortfalls (such realized losses and other cover shortfalls,
"Covered Amounts") on the related Underlying Mortgage Pools are each
referred to herein as the "Underlying Series Reserve Fund" with respect to
each Underlying Series. Each Underlying Series Reserve Fund originally
consisted of an initial deposit by the RTC of securities, cash or other
property (the "Initial Deposits") equal in value to the amounts set forth in
the following table under the heading "Original Reserve Fund Balance". The
current values of the securities, cash and other property contained in each
of the Underlying Series Reserve Funds, as reported by the Mortgage Loan
Servicers, is set forth in the following table under the heading "Current
Reserve Fund Balance". Such Underlying Series Reserve Funds were
established pursuant to collateral security agreements (each, a "Collateral
Security Agreement") generally among the RTC, the related Mortgage Loan
Trustee and a collateral agent. The amounts held in each Underlying Series
Reserve Fund are required to be invested, at the direction of the RTC, in
certain permitted investments acceptable to the related rating agencies.
The earnings, if any, resulting from the investment of amounts held in the
Underlying Series Reserve Funds are remitted to the RTC.
S-40
VERSION G
<PAGE>
Amounts on deposit in the related Underlying Series Reserve Funds are
used to offset Covered Amounts relating to each Underlying Mortgage Pool
prior to the allocation of such amounts to the Related Subordinated
Certificates, if any. Each of the Underlying Series Reserve Funds is
available to cover not only Covered Amounts relating to the related
Underlying Mortgage Pools, but also other mortgage pools contained in the
same Underlying Trust Funds. The aggregate outstanding principal balances
of the mortgage loans not contained in the Underlying Mortgage Pools as to
which Covered Amounts will be covered by each of the Underlying Series
Reserve Funds is set forth in the following table under the heading "Balance
of Other Mortgage Loans Covered."
UNDERLYING SERIES RESERVE FUNDS
(BASED ON REMITTANCE REPORTS)
<TABLE>
<CAPTION>
BALANCE OF
ORIGINAL RESERVE CURRENT RESERVE OTHER MORTGAGE
MORTGAGE CERTIFICATES FUND BALANCE FUND BALANCE LOANS COVERED
- --------------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
With respect to two of the Mortgage Certificates (which have an
aggregate Mortgage Certificate Principal Amount as of the Cut-off Date of
$__________), the Mortgage Loan Trustee will effect a transfer of funds in
the related Underlying Series Reserve Fund, to the extent available, on each
Underlying Series Distribution Date to the extent that the Mortgage Pool
Available Distribution Amount for any Mortgage Pool and any allocable
Crossover Amounts are less than the related Mortgage Certificate Interest
Distribution Amount for the related class of Mortgage Certificates and the
amount of interest distributable to the Related Subordinated
S-41
VERSION G
<PAGE>
Certificates and Pool Principal Distribution Amount. With respect to six of
the Mortgage Certificates (which have an aggregate Mortgage Certificate
Principal Amount as of the Cut-Off Date of $ ), the Mortgage Loan Trustee
will be required to effect a transfer of funds in the related Underlying
Series Reserve Fund, to the extent available, on each Underlying Series
Distribution Date in an amount equal to any realized losses sustained with
respect to Mortgage Loans in the related Mortgage Pools in the related
Prepayment Period, only to the extent that any resulting shortfalls in the
related Mortgage Certificate Interest Distribution Amounts and related
Mortgage Certificate Principal Distribution Amounts are not covered out of
distributions in respect of Excess Cash on such Distribution Date. With
respect to the remaining Mortgage Certificates (the "Excess Cash
Preservation Certificates"), the Mortgage Loan Trustee will be required to
effect a transfer of funds in the related Underlying Series Reserve Fund, to
the extent available, on each Underlying Series Distribution Date in an
amount equal to any realized losses sustained with respect to Mortgage Loans
in the related Mortgage Pools in the related Prepayment Period.
<TABLE>
<CAPTION>
SERVICING FEES AVAILABLE
-------------------------------------------
TO OFFSET INTEREST SHORTFALLS
-------------------------------------------
Mortgage Certificates Available Fees
--------------------- --------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
If the funds available in any Underlying Series Reserve Fund on any
Underlying Series Distribution Date are insufficient to pay the full amounts
due with respect to all related classes of Certificates on such Underlying
Series Distribution Date, such funds will be paid to the holders of the
Mortgage Certificates and the senior certificates related to the other
mortgage pools covered by
S-42
VERSION G
<PAGE>
such Underlying Series Reserve Fund in proportion to the respective
shortfalls of each such class that would be caused by the insufficiency of
amounts available absent a transfer of funds from such Underlying Series
Reserve Fund.
None of the Underlying Series Reserve Funds have been allocated on a
pro rata basis among the related mortgage pools. Rather, distributions from
each Underlying Series Reserve Fund, to the extent of funds available
therein, will be made without regard to the order, frequency or magnitude of
the losses and other shortfalls on mortgage loans in each covered mortgage
pool. Disproportionate losses or delinquencies in the mortgage pools
covered by the Underlying Series Reserve Funds that are not Underlying
Mortgage Pools could deplete the coverage provided for the Mortgage
Certificates by such Underlying Series Reserve Funds. Consequently, an
Underlying Series Reserve Fund may be unavailable on an Underlying Series
Distribution Date to offset Covered Amounts with respect to a class of
Mortgage Certificates even though the amount of the losses and other
shortfalls experienced by the related Underlying Mortgage Pool may have been
proportionately less than that experienced by the other covered mortgage
pools.
The terms of each Collateral Security Agreement require the related
collateral agent to release funds in the related Underlying Series Reserve
Funds to the RTC under certain circumstances related to the delinquency and
loss experience of the related mortgage loans if the balance on deposit in
such Underlying Series Reserve Funds exceeds the "Reserve Fund Requirement"
as such term is variously defined in the related Collateral Security
Agreements and described in the related Underlying Disclosure Documents.
Each Collateral Security Agreement provides that, with the approval of
the related rating agencies, and at the option of the RTC, the related
Underlying Series Reserve Fund can be replaced, in whole or in part, with a
form of credit enhancement that is, or is invested in securities or
obligations, which are backed by the full faith and credit of the United
States of America.
SUBORDINATION
After the coverage provided to each of the Mortgage Certificates by the
related Underlying Reserve Funds has been depleted, additional coverage
against losses and other shortfalls on the related Mortgage Loans will be
provided to each class of Mortgage Certificates by the subordination of the
class or classes of Related Subordinated Certificates, if any. In general,
the protection afforded to the Mortgage Certificates by the subordination of
any Related Subordination Certificates will be effected in two ways: (i) by
the preferential right of the Mortgage Certificates to receive distributions
on any Underlying Series Distribution Date after the depletion of the
related Underlying Series Reserve Fund and (ii) by the allocation of losses
on the related Mortgage Loans first to such Related Subordinated
Certificates until the principal balances thereof have been reduced to zero
prior to the allocation of any such losses to the Mortgage Certificates.
The following table indicates the current aggregate principal balance of the
class or classes of Related Subordinated Certificates for each class of
Mortgage Certificates.
S-43
VERSION G
<PAGE>
BALANCES OF RELATED SUBORDINATED CERTIFICATES
(BASED ON REMITTANCE REPORTS)
<TABLE>
<CAPTION>
CURRENT AGGREGATE PRINCIPAL PERCENTAGE OF
BALANCE OF RELATED RELATED UNDERLYING
MORTGAGE CERTIFICATES SUBORDINATED CERTIFICATES MORTGAGE POOL
--------------------- --------------------------- ------------------
<S> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series [INSERT TABLE]
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
SPECIAL TERMINATION
With respect to each Underlying Series, subject to the limitations
imposed by the related Underlying Pooling Agreement, by no later than the
tenth business day after the first Underlying Series Distribution Date on
which the aggregate outstanding principal balance of all related classes of
certificates is less than 25% of the initial related aggregate principal
balance of such certificates, the related Mortgage Loan Trustee will solicit
bids for the related mortgage loans (including the Mortgage Loans contained
in the related Underlying Mortgage Pools) and any other property remaining
in the related Trust Fund. The related Mortgage Loan Trustee, however, will
not accept any bid for such mortgage loans and other property unless certain
minimum requirements are met, including that the proceeds distributable as a
result of such sale would be at least equal to 100% of the then outstanding
aggregate principal balance of all related classes of certificates plus
accrued interest thereon through the applicable Interest Accrual Period.
The sale of the mortgage loans and any other property in any Underlying
Trust Fund must be for an amount no less than fair market value. If the
proceeds from a proposed
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<PAGE>
sale of any mortgage loans and any other property remaining in any
Underlying Trust Fund would be insufficient to satisfy the requirements of
the two preceding sentences, the related Mortgage Loan Trustee will continue
to solicit bids as described above from time to time as it deems
appropriate, until a bid satisfying the requirements of the two preceding
sentences is received. The proceeds of such sale will be treated as a
prepayment of the mortgage loans for purposes of distributions to
Certificateholders. Any such sale will effect a termination of the related
Underlying Trust Fund and an early retirement of the related certificates
(including the related Mortgage Certificates). Any resulting distribution on
a class of Mortgage Certificates will increase the amount distributable on
the Class A-1 Certificates in respect of principal and will result in a
shortening in the weighted average life thereof. There can be no assurance
as to the timing of Special Terminations with respect to the Mortgage
Certificates. Such terminations could occur for none, for only some, or for
all of the Mortgage Certificates, and any such terminations could occur
prior to the Distribution Date on the Class A-1
Certificates.
OPTIONAL TERMINATION
With respect to each Underlying Series, any of the related Mortgage
Loan Servicers, any holder of a related residual certificate or the owner of
the assets pledged to any reserve fund (including the related Underlying
Reserve Fund) may effect an early termination of the related trust on any
Underlying Series Distribution Date after the date on which the aggregate
scheduled principal balance of the related mortgage loans is reduced to less
than 10% of the aggregate scheduled principal balance as of the related
Underlying Series Cut-Off Date, by purchasing all such mortgage loans at a
purchase price, payable in cash, equal to 100% of the aggregate unpaid
principal balance of such mortgage loans plus one month's interest thereon
at the applicable mortgage interest rate. The proceeds of such sale will be
treated as a prepayment of the mortgage loans for purposes of distributions
to certificateholders. Any such sale will effect a termination of the
related Underlying Trust Fund and an early retirement of the related
Certificates (including the related Mortgage Certificates). Any resulting
distribution on a class of Mortgage Certificates will increase the amount
distributable on the Class A-1 Certificates in respect of principal and will
result in a shortening in the weighted average life thereof.
ASSIGNMENT OF MORTGAGE LOANS AND WARRANTIES
At the time of issuance of each Underlying Series, the RTC caused the
mortgage loans in the related Underlying Trust Fund to be assigned to the
related Mortgage Loan Trustee, together with all principal and interest due
on or with respect to such mortgage loans, other than principal and interest
due on or before the related Underlying Series Cut-Off Date.
In addition, the RTC delivered to the related Mortgage Loan Trustee, as
to each related mortgage loan (to the extent such documents were available
to the RTC), (i) the related mortgage note, endorsed to the order of, or
assigned to, the related Mortgage Loan Trustee without recourse; (ii) a
mortgage and mortgage assignment meeting the requirements of the related
Underlying Pooling Agreement; (iii) a lender's title insurance policy or
attorney's opinion of title issued as of the date of origination of the
mortgage loan, or an officer's certificate to the effect that
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such policy or opinion was issued on such date and remains in full force and
effect; (iv) any insurance policies covering the mortgaged property,
including the primary mortgage insurance policy, to the extent required; and
(v) such other documents as may be described in the related Underlying
Pooling Agreement (such documents collectively, the "Mortgage Loan File").
The applicable Mortgage Loan Trustee is required to hold such documents for
each Underlying Series in trust for the benefit of all certificateholders of
such Underlying Series. In a substantial number of cases, some or all of the
documents described above were not delivered by the RTC to the related
Mortgage Loan Trustees as of the closing dates for the related Underlying
Series.
In the related Underlying Pooling Agreement for each Underlying Series,
the RTC represented and warranted, among other things, that: (i) the
information set forth in the schedule of Mortgage Loans appearing as an
exhibit to the related Underlying Pooling Agreement was correct in all
material respects; (ii) immediately prior to the sale and assignment of the
related mortgage loans to the applicable Mortgage Loan Trustee, the RTC had
good title to each mortgage loan; (iii) each mortgage loan, other than any
co-op loan, was covered by a title insurance policy or an attorney's opinion
of title and each such policy was in full force and effect; (iv) to the best
of the RTC's knowledge, each mortgaged property was free of material damage
and in good repair; (v) as of the date of issuance of the related
certificates, each mortgage constituted a valid first lien on the related
mortgaged property (subject only to (a) the lien of current real property
taxes and assessments, (b) covenants, conditions, and restrictions, rights
of way, easements, and other matters of public record as of the date of the
recording of such mortgage, such exceptions appearing of record and either
being acceptable to mortgage lending institutions generally or specifically
referred to in the related title insurance policy and which do not adversely
affect the value of the mortgaged property and (c) other matters to which
like properties are commonly subject that do not materially interfere with
the benefits of the security intended to be provided by the Mortgage); and
(vi) as of the date of initial issuance of the related certificates, there
were no delinquent taxes, assessments or other outstanding charges affecting
the mortgaged properties. In addition, the RTC represented and warranted in
each related Underlying Pooling Agreement, among other things, that, as of
the date of the initial issuance of the related certificates, all Monthly
Payments due on or prior to a date which was not longer, with respect to any
Underlying Series, than [four months] prior to the related Underlying Series
Cut-Off Date had been made. The sole remedy for any breach of the RTC's
representations and warranties contained in each related Underlying Pooling
Agreement or for defects in mortgage loan documents is the obligation of the
RTC to indemnify the related Underlying Trust Fund for losses realized on
mortgage loans as to which such breaches or defects occur if there is a
connection between such losses and such breaches or defects. Subject to
certain exceptions as set forth in the Underlying Disclosure Documents, the
RTC acting in its corporate capacity will guarantee such obligation of the
Seller. The proceeds of any such repurchase or indemnification will be
passed through to related certificateholders as liquidation proceeds.
PAYMENTS ON MORTGAGE LOANS; UNDERLYING SERIES CERTIFICATE ACCOUNT
The Underlying Pooling Agreement for each Underlying Series requires
the related Mortgage Loan Servicer to maintain a custodial account or
accounts (the "Underlying Series Certificate Account") in the name of the
related Mortgage Loan Trustee for the benefit of the
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related certificateholders. The amount at any time credited to the
Underlying Series Certificate Account is required to be fully insured to the
maximum coverage possible or be invested in Permitted Investments (as
defined in the Underlying Disclosure Documents) that mature, or are subject
to withdrawal or redemption, on or before the business day preceding the
next succeeding Underlying Series Distribution Date. The income from
Permitted Investments of funds in the Underlying Series Certificate Account
is generally paid to the related Mortgage Loan Servicer, and the risk of
loss of funds in the Underlying Series Certificate Account resulting from
such investments will be borne by the related Mortgage Loan Servicer. The
amount of each such loss will be required to be deposited by the related
Mortgage Loan Servicer in the Underlying Series Certificate Account
immediately as realized.
The Mortgage Loan Servicers are required to deposit in the related
Certificate Accounts amounts representing the following collections and
payments (other than in respect of principal of or interest on the related
mortgage loans due on or before the Underlying Series Cut-Off Date): (i)
all installments of principal and interest on the applicable mortgage loans
and any principal and/or interest required to be advanced by the related
Mortgage Loan Servicer that was due on the applicable Due Date net of
servicing fees due the related Mortgage Loan Servicer, Retained Yield, if
any, and certain other amounts specified in the applicable Underlying
Pooling Agreement; (ii) all amounts received in respect of such mortgage
loans representing late payments of principal and interest to the extent
such amounts were not previously advanced by the related Mortgage Loan
Servicer with respect to such mortgage loans, net of servicing fees due the
related Mortgage Loan Servicer; (iii) all principal prepayments (whether
full or partial) on such mortgage loans received; and (iv) any amounts
received by the related Mortgage Loan Servicer as insurance proceeds (to the
extent not applied to the repair or restoration of the Mortgaged Property)
or liquidation proceeds.
COLLECTION AND OTHER SERVICING PROCEDURES
The Mortgage Loan Servicers are required to make reasonable efforts to
collect all payments called for under the mortgage loans and are required,
consistent with the Underlying Pooling Agreements and any applicable
insurance policies, to follow such collection procedures as each deems
necessary or desirable. Consistent with the above, each Mortgage Loan
Servicer may, in its discretion, waive any prepayment, late payment or
assumption charge or penalty interest in connection with prepayment, late
payment or assumption of a mortgage loan or extend the due dates for
payments due on a mortgage note, provided that insurance coverage for such
mortgage loan will not be adversely affected.
ADVANCES
With respect to classes of Mortgage Certificates, the Mortgage Loan
Servicers are required under the related Underlying Pooling Agreement to
advance prior to each Underlying Series Distribution Date, from their own
funds or from funds held in the related Certificate Accounts for
distribution on a future Underlying Series Distribution Date, scheduled
installments of principal and interest due on a mortgage loan on the
preceding Due Date and not collected by such Mortgage Loan Servicer from the
related borrower (any such advance, an
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"Advance"). Each such Mortgage Loan Servicer will be obligated to make such
an advance to the extent that such Advances are, in its judgment, reasonably
recoverable from future payments and collections on the Mortgage Loan out of
Insurance Proceeds, Liquidation Proceeds or otherwise. Any advance
previously made by such Mortgage Loan Servicer is reimbursable to such
Mortgage Loan Servicer from funds in the Certificate Account to the extent
that such Mortgage Loan Servicer determines that such advance is not
ultimately recoverable from insurance proceeds, liquidation proceeds or
otherwise. With respect to each Mortgage Certificate, the related Mortgage
Loan Trustee will generally be obligated to make any required Advance if the
Mortgage Loan Servicer fails in its obligation to do so, to the extent
provided in the related Underlying Pooling Agreement.
With respect to the remaining classes of Mortgage Certificates,
neither the related Mortgage Loan Servicer nor the related Mortgage Loan
Trustee will be required to make Advances. The amount of any delinquent
Monthly Payments with respect to related Mortgage Loans is instead withdrawn
from the related Underlying Reserve Fund, to the extent funds are available,
in order to make full distributions on the related Mortgage Certificates and
Related Subordinated Certificates, if any.
MORTGAGE LOAN TRUSTEE AND COLLATERAL AGENT
[TO BE PROVIDED]
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DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
As of the Cut-Off Date, the Mortgage Certificates represented
approximately $_______ of the beneficial interest in separate Underlying
Mortgage Pools which, in turn, were comprised of mortgage loans having an
aggregate principal balance as of such date of approximately $____. The
Mortgage Loans in each Underlying Mortgage Pool are adjustable rate,
conventional, one-to-four family residential first mortgage loans having
characteristics approximately as set forth in the table below. The related
mortgaged properties include owner-occupied, vacation and investor-owned
properties, condominiums, cooperatives, and units in Planned Unit
Developments. With respect to some of the Mortgage Loans, the type of the
related mortgaged property was unknown as of the date of issuance of the
related Mortgage Certificates. [Attached to this Prospectus Supplement as
Appendix A are copies of the tables prepared and delivered to prospective
investors by the RTC in connection with the issuance of each class of the
Mortgage Certificates. Such information may not have been accurate when
prepared (See "Special Considerations--Troubled Originators" and "--Limited
Information" herein). The Depositor cannot assume the accuracy or
completeness of any information set forth in Appendix A, which is provided
solely for the convenience of investors who may not have ready access to the
RTC disclosure regarding the Mortgage Loans.] The information regarding the
Mortgage Loans set forth herein (including in the tables below) is based on
information contained in the Prospectuses and Prospectus Supplements of the
RTC relating to the offerings of the Mortgage Certificates and on
information provided by the Mortgage Loan Servicers, subsequent to the
issuance of the Mortgage Certificates. IT SHOULD BE NOTICED THAT THERE MAY
HAVE BEEN MATERIAL CHANGES IN FACTS AND CIRCUMSTANCES SINCE THE DATE SUCH
DOCUMENTS AND INFORMATION WERE PREPARED, INCLUDING, BUT NOT LIMITED TO,
CHANGES IN PREPAYMENT SPEEDS AND PREVAILING INTEREST RATES AND OTHER
ECONOMIC FACTORS, WHICH MAY LIMIT THE USEFULNESS OF, AND EVEN BE DIRECTLY
CONTRARY TO THE ASSUMPTIONS USED IN PREPARING SUCH INFORMATION AND
DOCUMENTS. Neither the Depositor nor the Certificate Administrator can
provide any assurances as to the accuracy or completeness of such
information.
SELECTED MORTGAGE LOAN DATA
[INSERT TABLES]
Interest Rate Adjustments. Each Mortgage Loan will bear interest at a
rate (the "Mortgage Interest Rate") which will adjust periodically, in
accordance with the terms of the related mortgage note, to a rate equal to
the then-current Index (as defined herein) plus the applicable fixed
percentage specified in the related mortgage note (the "Gross Margin").
Mortgage Loans for which COFI (as defined herein) is the Index are referred
to herein as "COFI Mortgage Loans." Mortgage Loans for which CMT or CBE
(each as defined herein) is the Index are referred to herein as "CMT
Mortgage Loans." The Mortgage Interest Rate for each Mortgage Loan
generally began to adjust on the first day of the month prior to the first
six-month or one-year anniversary of its first payment date and then
monthly, semi-annually or
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annually thereafter (each a "Rate Adjustment Date"). The interest rate on
all of the COFI Mortgage Loans adjusts monthly.
Generally, each Mortgage Loan is subject to an overall maximum interest
rate (the "Lifetime Cap"). For the Monthly COFI Mortgage Loans, the
Lifetime Cap ranges from 0% to 125% per annum. For the CMT Mortgage Loans,
the Lifetime Cap ranges from 0% to 125% per annum. Some of the Mortgage
Loans are subject to minimum interest rates. [In addition to the Lifetime
Cap, interest rate adjustments on the [CMT] Mortgage Loans generally limited
are to 1.00% in the case of semi-annual adjustments and 2.00% in the case of
annual adjustments.]
Effective with the first payment due on a Mortgage Loan after the
related Rate Adjustment Date, the monthly principal and interest payment
generally will be adjusted to an amount that will fully amortize the then-
outstanding principal balance of such Mortgage Loan over its remaining term
to stated maturity and that will be sufficient to pay interest at the
adjusted Mortgage Interest Rate. Therefore, any partial prepayments may
reduce the weighted average life of a Mortgage Loan but will not (except for
partial prepayments made in the final year of the original term of such
Mortgage Loan) cause the final payment on such Mortgage Loan to occur prior
to its stated maturity. An increase in the Mortgage Interest Rate on a
Mortgage Loan will result in a larger portion of each higher Monthly Payment
being allocated to interest and a smaller portion being allocated to
principal.
COFI, CMT AND CBE
The "Index" with respect to each COFI Mortgage Loan is the monthly
weighted average cost of funds for member institutions in the Eleventh
District of the Federal Home Loan Bank System, as published by the Federal
Home Loan Bank of San Francisco ("COFI"). The Index with respect to each
CMT Mortgage Loan generally is either (a) the weekly average yield on U.S.
Treasury securities adjusted to a constant maturity ("CMT") of one year or
(b) the weekly auction average (investment) rate on U.S. Treasury Bills with
a six-month maturity ("CBE"), each as published by the Federal Reserve Board
in Statistical Release H.15 (519) or any similar publication or, if not so
published, as reported by any Federal Reserve Bank or by any U.S. Government
department or agency and made available to the servicer as of a date which
is a number of days prior to each Rate Adjustment Date for such Mortgage
Loan. Some of the Mortgage Loans use a CMT index based on a 2, 3 or 5 year
maturity. In general, should the applicable Index not be published or
become otherwise unavailable, the servicer of the Mortgage Loan will select
a comparable alternative index over which it has no control and which is
readily verifiable.
The monthly averages of CMT and CBE in the tables below are not
necessarily indicative of CMT or CBE on any given date in the relevant month
since significant week-to-week fluctuations in any such Index may occur in
any month as well as over longer periods. In addition, such monthly
averages do not purport to be a prediction of the value of CMT or CBE on any
Rate Adjustment Date or for the lives of the Mortgage Loans.
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COFI. The following table sets forth COFI for each of the last six
calendar years or portions thereof, based on information reported by The
Federal Home Loan Bank of San Francisco ("FHLBSF");
MONTHLY COFI
<TABLE>
<CAPTION>
YEAR
---------------------------------------
Month(1) 19 19 19 19 19 19
-------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
____________________
(1) COFI reflects the weighted average cost of funds of the members of the
Eleventh District for the month indicated. It is usually announced by
the FHLBSF on the last working day of the month following the month in
which the cost of funds was incurred.
The FHLBSF publishes COFI in its monthly Information Bulletin. Any
individual may request regular receipt by mail of Information Bulletins by
writing the Federal Home Loan Bank of San Francisco's Marketing Department,
P.O. Box 7948, San Francisco, California 94120, or by calling (415) 616-
2610. COFI may also be obtained by calling the FHLBSF at (415) 616-2600.
COFI is designed to represent the monthly weighted average cost of
funds for savings institutions in Arizona, California and Nevada that are
member institutions of the Eleventh Federal Home Loan Bank District (the
"Eleventh District"). COFI for a particular month reflects the interest
costs paid on all types of funds held by Eleventh District member
institutions and is calculated by dividing the cost of funds by the average
of the total amount of those funds outstanding at the end of that month and
of the prior month and annualizing and adjusting the result to reflect the
actual number of days in the particular month. If necessary, before these
calculations are made, the component figures are adjusted by the FHLBSF to
neutralize the effect of events such as member institutions leaving the
Eleventh District or acquiring funds held at the end of the relevant month.
The major components of funds of Eleventh District member institutions are:
(i) savings deposits, (ii) time deposits, (iii) FHLBSF advances, (iv)
repurchase agreements and (v) all other borrowings. Because the component
funds represent a variety of maturities whose costs may react in different
ways to changing conditions, COFI does not necessarily reflect any
particular current market rate.
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<PAGE>
A number of factors affect the performance of COFI, which may cause it
to move in a manner different from indices tied to specific interest rates,
such as United States Treasury Bills or LIBOR. Because the liabilities upon
which COFI is based were issued at various times under various market
conditions and with various maturities, COFI may not necessarily reflect the
prevailing market interest rates on new liabilities of similar maturities.
Moreover, as stated above, COFI is designated to represent the average cost
of funds for Eleventh District savings institutions for the month prior to
the month in which it is due to be published. Additionally, COFI may not
necessarily move in the same direction as market interest rates at all
times, since as longer term deposits or borrowings mature and are renewed at
prevailing market interest rates, COFI is influenced by the differential
between the prior and the new rates on those deposits or borrowings. In
addition, movements of COFI, as compared to other indices tied to specific
interest rates, may be affected by changes instituted by the FHLBSF in the
method used to calculate COFI.
CMT AND CBE. The following table sets forth the monthly averages of
CMT and CBE for each of the last six calendar years or portions thereof,
based on information published in the Federal Reserve Board in Statistical
Release H.15 (519):
MONTHLY AVERAGES OF CMT
<TABLE>
<CAPTION>
Year
---------------------------------------
Month 19 19 19 19 19 19
----- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
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<PAGE>
MONTHLY AVERAGES OF CBE
<TABLE>
<CAPTION>
Year
---------------------------------------
Month 19 19 19 19 19 19
----- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
Convertible Mortgage Loans. Under the terms of certain of the Mortgage
Loans, the borrower has the option at certain times and under certain
conditions to convert the Mortgage Interest Rate to a fixed rate from a
variable rate based on the applicable Index (each such loan, a "Convertible
Mortgage Loan"). The option to convert to a fixed Mortgage Interest Rate
may be exercised by the borrower on the date or dates specified in the
related note. The borrower's option to convert to a fixed Mortgage Interest
Rate may have expired with respect to certain of the Convertible Mortgage
Loans. The conversion option typically may not be exercised if the borrower
is in default under the terms of the related note or mortgage. In most
cases, the Convertible Mortgage Loan may be converted to a fixed interest
rate loan with a Mortgage Interest Rate based upon FNMA's or FHLMC's
required net yield for the purchase of 15-year (for Mortgage Loans with
original repayment terms of 15 years or less) or 30-year (for Mortgage Loans
with original repayment terms of greater than 15 years) fixed-rate mortgage
loans, under 30-day or 60-day mandatory delivery commitments. In either
case, the fixed interest rate will be computed by adding a specified margin
to the applicable FNMA quotation or the applicable FHLMC quotation. Upon
conversion, the Monthly Payments of principal and interest generally will be
adjusted to provide for fully amortizing, level Monthly Payments until
maturity.
The Pooling and Servicing Agreements applicable to the Mortgage Loans
provide that the Mortgage Loan Servicers will be obligated to purchase any
Mortgage Loan as to which the borrower exercises the right to convert to a
fixed Mortgage Interest Rate for a price equal to 100% of the unpaid
principal balance of such Mortgage Loan plus unpaid accrued interest at the
applicable Mortgage Interest Rate. The Mortgage Loan Servicer's purchase
obligation is not insured or guaranteed by any person. The proceeds of any
such purchased converted Mortgage Loan will be treated as a prepayment and
will be passed through to the Trustee, as holder of the related Mortgage
Certificates. A converted Mortgage Loan bearing a fixed Mortgage Interest
Rate will remain in the Mortgage Pool until purchased or repaid. Any
failure to purchase a
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converted Mortgage Loan would cause the related Underlying Mortgage Pool to
include both fixed rate and adjustable rate Mortgage Loans.
Balloon Mortgage Loans. Certain of the Mortgage Loans are Balloon
Mortgage Loans. A "Balloon Mortgage Loan" is a Mortgage Loan that provided
on the date of origination for amortization on the basis of an amortization
schedule extending beyond its stated maturity with a disproportionate
Monthly Payment due on its stated maturity date equal to the remaining
principal balance of such Mortgage Loan. The ability of a borrower to repay
such a Balloon Mortgage Loan upon the maturity thereof frequently will
depend on the borrower's ability to refinance such Balloon Mortgage Loan,
which in turn will depend on a variety of factors, including the prevailing
level of Mortgage interest rates.
Negative Amortization Mortgage Loans. The Monthly Payment on a
Mortgage Loan is adjusted after an initial period and at periodic intervals
thereafter, all as specified in the related note (each, a "Payment Change
Date"), generally to an amount that would fully amortize the remaining
principal balance of the Mortgage Loan over its remaining amortization term
on a level-debt service basis, at the Mortgage Interest Rate in effect on
the related Payment Change Date. However, with respect to certain of the
Mortgage Loans, increases in the Monthly Payment may be limited by the terms
of the related note (the "Payment Adjustment Cap"), which generally provides
that no Monthly Payment may increase by more than a percentage, specified in
the related note, above the Monthly Payment in effect during the preceding
period. With respect to certain of the Mortgage Loans, application of the
Payment Adjustment Cap will be at the option of the borrower.
In addition, with respect to the COFI Mortgage Loans, as to which
interest rates adjust monthly, because the rate at which interest accrues
changes more frequently than payments adjust and because adjustment of
Monthly Payments on such Mortgage Loans may be subject to the various
limitations described above, the amount of interest accruing on the
remaining principal balance of such a Mortgage Loan at the applicable
Mortgage Interest Rate may exceed the amount of the interest portion of the
Monthly Payment. The resulting shortfall in the interest portion of the
related Monthly Payment will be added to the unpaid principal balance of the
related Mortgage Loan in the month during which any such shortfall occurs as
"Deferred Interest," resulting in negative amortization of the Mortgage
Loan. With respect to such Mortgage Loans negative amortization is
generally limited, however, such that the principal balance of the Mortgage
Loan cannot generally exceed the percentage of its original principal
balance specified in the applicable note. If the calculated Monthly Payment
would result in negative amortization exceeding the limit specified in the
related note, the borrower generally is required to pay as the Monthly
Payment until the next Payment Change Date an amount that would fully
amortize the remaining principal balance of the Mortgage Loan over its
remaining amortization term on a level-debt service basis without regard to
any limitations. As a result of such negative amortization, the final
payment at the end of the term of the related Mortgage Loan may be larger
than previous Monthly Payments under such Mortgage Loan.
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Non-Monthly Payment Loans. Certain of the Mortgage Loans may provide
for payments of principal at biweekly, quarterly, semiannual or annual
intervals, rather than at monthly intervals.
Graduated Payment Mortgage Loans. Certain of the Mortgage Loans may
provide for an initial period of Monthly Payments in an amount that would be
insufficient to fully amortize the principal balance of the Mortgage Loan
over its stated term, and that may be insufficient to pay accrued interest,
followed by scheduled increasing Monthly Payments prior to a date specified
in the related note. To the extent the amount of interest accruing on the
principal balance of such a Mortgage Loan at the applicable Mortgage
Interest Rate exceeds the Monthly Payment, such excess will be added to the
unpaid principal balance of the related Mortgage Loan, resulting in negative
amortization.
YIELD AND PREPAYMENT CONSIDERATIONS
Prepayments and Excess Cash. The rate of principal payments on the
Class A-1 Certificates will be affected by the rate of principal payments on
the Mortgage Loans (including, for this purpose, prepayments, which may
include amounts received by virtue of condemnation, insurance or
foreclosure) and by the application of Excess Cash to the principal balance
of the Mortgage Certificates.
Principal prepayments may be influenced by a variety of economic
geographic, demographic, social, tax, legal and other factors. In general,
if prevailing interest rates fall significantly below the interest rates on
the Mortgage Loans, the Mortgage Loans are likely to be subject to higher
prepayments than if prevailing rates remain at or above the interest rates
on such Mortgage Loans. Conversely, if prevailing interest rates rise above
the interest rates on such Mortgage Loans, the rate of prepayments would be
expected to decrease. Other factors affecting prepayment of the Mortgage
Loans include changes in borrowers' housing needs, job transfers,
unemployment, borrowers' net equity in the mortgaged properties and
servicing decisions.
All of the Mortgage Loans are adjustable rate mortgage loans ("ARMs").
The Depositor is not aware of any publicly available statistics that set
forth principal prepayment experience or prepayment forecasts of ARMs over
an extended period of time, the prepayment experience of the Mortgage
Certificates is insufficient to draw any conclusions with respect to the
expected prepayment rates of the Mortgage Loans. The rate of principal
prepayments with respect to ARMs has fluctuated in recent years. As is the
case with conventional fixed rate mortgage loans, ARMs may be subject to a
greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates fall significantly,
ARMs could be subject to higher prepayment rates than if prevailing interest
rates remain constant because the availability of fixed rate mortgage loans
at competitive interest rates may encourage mortgagors to refinance their
ARMs to "lock in" a lower fixed interest rate. No assurances can be given
as to the rate of prepayments on the Mortgage Loans in stable or changing
interest rate environments.
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<PAGE>
Excess Cash related to each of the Underlying Mortgage Pools will be
allocated in reduction of the Mortgage Underlying Certificate Principal
Balances of the Certificates in various ways. See "Description of the
Mortgage Certificates--Principal Distributions."
If a Class A-1 Certificate is purchased at a discount from its initial
principal amount by a purchaser that calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is faster
than that actually experienced on the Mortgage Loans, the actual yield to
maturity will be lower than that so calculated. Conversely, if a
Certificate is purchased at a premium by a purchaser that calculates its
anticipated yield to maturity based on an assumed rate of payment of
principal that is slower than that actually experienced on the Mortgage
Loans, the actual yield to maturity will be lower than that so calculated.
Timing of Payments. The timing of changes in the rate of prepayments
on the Mortgage Loans and the timing of distribution of Excess Cash may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal of the
Mortgage Loans or a distribution of Excess Cash, the greater the effect on
an investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the
issuance of the Certificates may not be offset by a subsequent like decrease
(or increase) in the rate of principal payments.
Basis Risk; LIBOR. The interest rate payable to the Holders of the
Class A-1 Certificates is based on LIBOR. However, the Mortgage Loans bear
interest at adjustable rates based on various indices. LIBOR and such
various indices may respond to different economic and market factors, and
there is no necessary correspondence between them. Thus, it is possible,
for example, that LIBOR may rise during periods in which the indices of the
Mortgage Loans are stable or are falling, or that even if both LIBOR and
such indices rise during the same period, LIBOR may rise much more rapidly
and sharply than the indices. THERE CAN BE NO ASSURANCE THAT FUNDS
AVAILABLE IN THE RESERVE FUND OR PAYMENTS UNDER THE YIELD SUPPORT AGREEMENT
WILL BE SUFFICIENT TO MAKE UP ANY AMOUNT BY WHICH THE INTEREST COLLECTED ON
THE MORTGAGE CERTIFICATES IS LESS THAN THE INTEREST ACCRUAL AMOUNT OF THE
CLASS A-1 CERTIFICATES.
Mortgage Certificates. The Trust Fund contains Mortgage Certificates
which were issued at different times, are backed by different pools of
Mortgage Loans, have different allocations of principal and interest and
payment priorities among various classes, and may perform differently in
various interest and prepayment rate environments. The performance
characteristics of the Class A-1 Certificates will reflect a combination of
the performance characteristics of the various Mortgage Certificates. As a
result, it will be difficult to predict the likely yield and payment
experience of the Mortgage Certificates.
Special Terminations. Each of the Underlying Mortgage Pools is subject
to termination as described under "Description of the Mortgage Certificates-
-Special Termination." Any such
S-56
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<PAGE>
termination may have the effect of decreasing the weighted average life of
the Class A-1 Certificates.
Auction Risk. There can be no assurances that the Trustee will, on
or on any date thereafter, be able to sell the Mortgage
Certificates for a price sufficient (together with amounts on deposit in the
Reserve Fund) to allow the Class A-1 Certificates to be paid in full.
[Reinvestment Risk. Investors should consider the risk that rapid
rates of prepayments on the Mortgage Loans, and therefore of principal
payments on the Certificates, may coincide with periods of low prevailing
interest rates. During such periods, the effective interest rates on
securities in which an investor may choose to reinvest amounts received as
principal payments on such investor's Certificate may be lower than the
Class A-1 Pass-Through Rate. Conversely, slow rates of prepayments on the
Mortgage Loans, and therefore of principal payments on the Class A-1
Certificates, may coincide with periods of high prevailing interest rates.
During such periods, the amount of principal payments available to an
investor for reinvestment at such high prevailing interest rates may be
relatively low.]
Convertible ARM Loans. As discussed above under "DESCRIPTION OF THE
MORTGAGE LOANS," borrowers under certain of the Mortgage Loans have the
option to convert the Mortgage Loan to a fixed rate loan. As previously
discussed, the related Mortgage Loan Servicers are obligated to purchase any
such Converted Mortgage Loans. Unless and until such a purchase is
effected, a Converted Mortgage Loan will stay in the Underlying Mortgage
Pool and the Mortgage Interest Rate will be fixed rather than based on an
Index. The yield on the Class A-1 Certificates may thus be adversely
affected. In addition, the purchase of a Converted Mortgage Loan may affect
the rate of principal payments on the Class A-1 Certificates and, as a
result, the yield on such Certificates.
WEIGHTED AVERAGE LIVES
The weighted average life of a security refers to the average amount of
time that will elapse from the date of its issuance until each dollar of
principal of such security will be distributed to the investor. The weighted
average life of a Class A-1 Certificate is determined by (a) multiplying the
amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date (or, in the case of the first
distribution, from ) to the next Distribution Date by the
number of years from the date of issuance to the second such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate
amount of the reductions in the principal balance of such Certificate
referred to in clause (a). The weighted average lives of the Class A-1
Certificates will be influenced by, among other factors, the rate at which
principal is paid on the Mortgage Loans.
CPR MODEL
Prepayments on mortgage loans are commonly measured relative to a
prepayment or model. The model used in this Prospectus Supplement, known as
a conditional or a constant prepayment rate ("CPR"), represents a rate of
payment of unscheduled principal on the
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<PAGE>
Mortgage Loans expressed as an annualized percentage of the outstanding
principal balance of the Mortgage Loans at the beginning of each period. CPR
does not purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage
loans, including the Mortgage Loans.
PRICING ASSUMPTION
The Class A-1 Certificates were structured assuming, a month other
things, a prepayment assumption of 18% CPR and LIBOR at a rate of ____%. The
assumptions as to prepayments and LIBOR to be used for pricing purposes for
the Class A-1 Certificates may vary as determined at the time of sale. The
actual rates of prepayments and the actual levels of LIBOR may vary
considerably from the rates used for any pricing assumption.
WEIGHTED AVERAGE LIFE, FINAL DISTRIBUTION DATE AND PRE-TAX YIELD TABLES
The following tables indicate the weighted average lives (in years),
the final Distribution Dates and the pre-tax yields to maturity (on a
corporate bond equivalent basis) of the Class A-1 Certificates, assuming
various percentages of CPR and various constant levels of LIBOR, among other
things.
For each of the following tables it was assumed that (i) The Mortgage
Certificates in the Trust Fund have the principal balances set forth on Table
__ on p. S-__ [adjusted, etc.]; (ii) each Mortgage Loan underlying a Mortgage
Certificate has a Mortgage Interest Rate as of the Cut Off Date, remaining
term to maturity and loan age equivalent to the weighted average mortgage
interest rate of such Mortgage Loans, the weighted average remaining term to
maturity and the weighted average loan age of such Mortgage Loans as of the
Cut Off Date, as reported in the applicable Remittance Reports prepared by the
servicers; (iii) the Mortgage Loans prepay at the percentages of CPR
indicated; (iv) all amounts due with respect to the Mortgage Loans are applied
to the payment of the Mortgage Certificates on the 25th of the month in
accordance with the applicable Prospectus and Prospectus Supplement of the
RTC; (v) for the first Interest Accrual Period, the Class A-1 Pass-Through
Rate is ____%; (vi) LIBOR with respect to each Interest Accrual Period after
the first is equal to the levels shown; (vii) the Closing Date is
___, 19 ; (viii) each quarterly distribution on the Class A-1 Certificates is
made on the 25th day of the relevant month, commencing on , ;
(ix) each month consists of 30 days; (x) funds on deposit in the Reserve Fund
earn interest at ____; and (xi) the Class A-1 Certificates are purchased at
par.
[INSERT TABLES]
The yields set forth in the above table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class A-1 Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed
purchase price of the Class A-1 Certificates indicated above and converting
such monthly rates to corporate bond equivalent rates. Such calculation does
not take into account variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as payments of
principal of and interest on the Class A-1 Certificates
S-58
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<PAGE>
and consequently does not purport to reflect the return of any investment in
the Class A-1 Certificates when such reinvestment rates are considered.
Listed below are historical values of Three-Month LIBOR since
___________:
<TABLE>
<CAPTION>
3 MONTH LIBOR
MONTHLY AVERAGES
YEAR
MONTH 19 19 19 19 19
-------------------------------------------
<S> <C> <C> <C> <C> <C>
January
February
March
April
May
June
July
August
September
October
November
December
</TABLE>
Historical LIBOR experience is not a predictor of future LIBOR
notes, which are influenced by numerous factors, the impact of
which cannot be predicted. The foregoing rates do not purport to
be a prediction of the value of LIBOR on any Reset Date or for the
lives of the Class A-1 Certificates.
ACTUAL EXPERIENCE WILL VARY FROM ASSUMPTIONS
Discrepancies will exist between the characteristics of the actual
underlying Mortgage Certificates and Mortgage Loans and the characteristics
assumed therefore in preparing the tables contained herein. To the extent
that the Mortgage Certificates and Mortgage Loans have characteristics which
differ from those assumed in preparing the tables, the Class A-1 Certificates
may mature earlier or later than indicated by the tables and the weighted
average lives and pre-tax yields may also differ. In addition, it is unlikely
that the Mortgage Loans will prepay at any constant rate or at the same rate,
or that LIBOR will remain constant at any level. The timing of changes in the
rate of prepayment and level of LIBOR may significantly affect the yield
realized by a holder of the Class A-1 Certificates. Under certain prepayment
and LIBOR scenarios, investors may not receive the full amount of their
investments.
S-59
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<PAGE>
THE MORTGAGE LOAN SERVICERS
The names of the Mortgage Loan Servicers related to each of the
Mortgage Certificates are set forth in the following table:
MORTGAGE LOAN SERVICERS
<TABLE>
<CAPTION>
MORTGAGE CERTIFICATES SERVICER
--------------------- ------------------------------------
<S> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
According to FHLMC and FNMA, each of the Mortgage Loan Servicers (other
than __________) is approved by such organizations to service residential
mortgage loans.
S-60
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[to be provided]
The preceding information with respect to the Mortgage Loan Servicers
was derived by the Depositor from publicly available information which the
Depositor believes to be reliable. However, the Depositor makes no
representations with respect thereto and assumes no responsibility for the
accuracy or completeness thereof.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust Fund as a REMIC for federal
income tax purposes. The Class A-1 and Class IO Certificates will be
designated as regular interests in the REMIC, and the Class R Certificate
will be designated as the residual interest in the REMIC.
The Class A-1 Certificates will be treated as "qualifying real property
loans" for mutual savings banks and domestic building and loan associations,
"regular or residual interests in a
S-61
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<PAGE>
REMIC" for domestic building and loan associations, and "real estate assets"
for real estate investment trusts, to the extent described in the
Prospectus.
The Class A-1 Certificates generally will be treated as newly
originated debt instruments for federal income tax purposes. Beneficial
Owners of the Class A-1 Certificates will be required to report income on
such Certificates in accordance with the accrual method of accounting.
It is anticipated that the Class A-1 Certificates will be issued [at a
premium] [with de minimis original issue discount] for federal income tax
purposes.
The Prepayment Assumption (as defined in the Prospectus) that the
Certificate Administrator intends to use in determining the rate of accrual
of original issue discount will be calculated using 18% CPR. No
representation is made as to the actual rate at which the Mortgage Loans
will prepay.
See "Certain Federal Income Tax Consequences -- General" and " -- REMIC
Trust Funds" in the Prospectus.
ERISA CONSIDERATIONS
The Department of Labor has granted to the Underwriter an
administrative exemption (the "Exemption") from certain of the prohibited
transaction rules of ERISA and certain related excise taxes imposed by the
Code with regard to the initial purchase, the holding and the subsequent
resale by ERISA Plans of certificates in pass-through trusts that meet the
conditions and requirements of the Exemption. The Exemption should apply to
the liquidation, holding, and resale of the Class A-1 Certificates by an
ERISA Plan, provided that specified conditions (certain of which are
described below) are met.
Among the conditions which must be satisfied for the Exemption to apply
to the acquisition by an ERISA Plan of the Class A-1 Certificates are the
following: (1) the acquisition of the Certificates by an ERISA Plan is on
terms (including the price for such Certificates) that are at least as
favorable to the ERISA Plan as they would be in an arm's-length transaction
with an unrelated party; (2) the rights and interests evidenced by the
Certificates acquired by the ERISA Plan are not subordinated to the rights
and interests evidenced by other certificates of the Trust; (3) the
Certificates acquired by the ERISA Plan have received a rating at the time
of such acquisition that is in one of the three highest generic rating
categories from any of S&P, Fitch, Duff & Phelps Credit Rating Co. or
Moody's Investors Service, Inc.; (4) the sum of all payments made to the
Underwriter in connection with the distribution of the Class A-1
Certificates represents not more than reasonable compensation for
underwriting such Certificates; and (5) the sum of all payments made to and
retained by the Certificate Administrator represents not more than
reasonable compensation for the Certificate Administrator's services under
the Pooling Agreement and reimbursement of the Certificate Administrator's
reasonable expenses in connection therewith.
S-62
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In addition, it is a condition that the ERISA Plan investing in the
Class A-1 Certificates be an "accredited investor" as defined in Rule
501(a)(1) of Regulation D of the Commission under the Securities Act.
The Exemption does not apply to the acquisition and holding of Class A-
1 Certificates by ERISA Plans sponsored by the Issuer, the Underwriter, the
Trustee, the Certificate Administrator, or any affiliate of such parties.
Moreover, the Exception provides relief from certain self-dealing/conflict
of interest prohibited transactions, only if, among other requirements (i)
an ERISA Plan's investment in the Class A-1 Certificates does not exceed 25%
of all of that Class outstanding at the time of the acquisition and (ii)
immediately after the acquisition, no more than 25% of the assets of an
ERISA Plan with respect to which the person who has discretionary authority
or renders advice are invested in certificates representing an interest in a
trust containing assets sold or serviced by the same person.
USE OF PROCEEDS
The proceeds from the sale of the Class A-1 Certificates (net of
expenses incurred in connection with the issuance of the Class A-1
Certificates) will be used by the Depositor to purchase the Mortgage
Certificates.
LEGAL INVESTMENT CONSIDERATIONS
The Class A-1 Certificates constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 (the
"SMMEA") so long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization. As such, the Class A-1 Certificates are legal investments for
certain entities to the extent provided in the SMMEA. However, institutions
subject to the jurisdiction of the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, the
National Credit Union Administration or state banking or insurance
authorities should review applicable rules, supervisory policies and
guidelines of these agencies before purchasing any of the Class A-1
Certificates, as such Certificates may be deemed to be unsuitable
investments under one or more of these rules, policies and guidelines and
certain restrictions may apply to investments in such Certificates. It
should also be noted that certain states recently have enacted, or have
proposed enacting, legislation limiting to varying extent the ability of
certain entities (in particular insurance companies) to invest in mortgage
related securities. The appropriate characterization of the Class A-1
Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase Class A-1
Certificates, may be subject to significant interpretive uncertainties.
Investors should consult with their own legal advisors in determining
whether and to what extent Class A-1 Certificates constitute legal
investments for such investors. See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
First Boston proposes to place the Class A-1 Certificates from time to
time in one or more negotiated transactions, or otherwise, at varying prices
to be determined in each case, at
S-63
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<PAGE>
the time of sale. The Class A-1 Certificates are offered subject to prior
sale and acceptance and to certain other conditions.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and the
Underwriter[s] by ____________________________________________________________.
RATINGS
It is a condition to the issuance of the Class A-1 Certificates that
such Certificates be rated at least "Aaa" by Moody's and at least "AAA" by
S&P. There is no assurance that such ratings will continue for any period
of time or that they will not be revised or withdrawn entirely by such
rating agency if, in its judgment, circumstances so warrant. A revision or
withdrawal of such ratings may have an adverse effect on the market price of
the Class A-1 Certificates. A security rating is not a recommendation to
buy, sell or hold securities.
THE RATINGS OF THE RATING AGENCIES DO NOT ADDRESS THE LIKELIHOOD OF
PAYMENT OF INTEREST ON THE CLASS A-1 CERTIFICATES AT A RATE IN EXCESS OF THE
QUARTERLY MORTGAGE CERTIFICATE PASS-THROUGH RATE.
The ratings of Moody's and S&P on mortgage pass-through certificates
address the likelihood of the receipt by holders hereof of all distributions
of principal and interest to which such holders are entitled (except as set
forth in the preceding paragraph).
Moody's and S&P's rating opinions address the structural, legal and
issuer aspects associated with the certificates, including the nature of the
underlying mortgage assets and the credit quality of the credit support
provider, if any. Moody's and S&P's ratings on pass-through certificates do
not represent any assessment of the likelihood that principal prepayments
may differ from those originally anticipated and consequently may adversely
affect the timing of such prepayments could have on an investor's
anticipated yield.
The Depositor has not requested a rating on the Certificates from any
other rating agency, although data with respect to the Mortgage Loans or the
Mortgage Certificates may have been provided to other agencies solely for
their informational purposes. There can be no assurance that if a rating is
assigned to the Class A-1 Certificates by any other rating agency, such
rating will be as high as that assigned by Moody's or S&P.
S-64
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<PAGE>
[INSERT INDEX]
S-65
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws
of any State.
SUBJECT TO COMPLETION, DATED , 19
PROSPECTUS SUPPLEMENT
(To Prospectus Dated December __ [VERSION H]
$________________ (APPROXIMATE)
ABS HOME EQUITY LOAN TRUST 199_
Home Equity Loan Asset-Backed Certificates, Series 199 -
Credit Suisse First Boston Mortgage Securities Corp.
Depositor
Each Home Equity Loan Asset-Backed Certificate, Series 199 -
(collectively, the "Certificates") will represent an undivided interest in the
ABS Home Equity Trust 199 - (the "Trust") to be formed pursuant to a Trust
Agreement among Credit Suisse First Boston Mortgage Securities Corp., as
Depositor, [ ], as Servicer, and [ ], as Trustee. The
property of the Trust will include certain home equity revolving credit line
loans (the "Mortgage Loans") secured primarily by second deeds of trust or
mortgages on residential properties that are primarily one- to four-family
properties, the collections in respect of such Mortgage Loans, and certain other
property relating to such Mortgage Loans, including the benefit of a [Letter of
Credit] [Surety Bond] as described more fully herein. The Servicer will service
the Mortgage Loans, and the Depositor initially will own the undivided interest
in the Trust not represented by the Certificates.
Interest at the [variable] rate described herein (the "Certificate
Rate") will be distributed on the [15th] day of each month, or, if such [15th]
day is not a business day, the next succeeding business day (each a
"Distribution Date"), commencing in [ ]. Principal will be distributed
on each Distribution Date commencing in [ ], or, in certain limited
circumstances, earlier, as more fully described herein.
[The Certificates initially will be represented by physical
certificates registered in the name of Cede & Co., the nominee of The Depository
Trust Company ("DTC"). The interests of the beneficial owners of the
Certificates ("Certificate Owners") will be represented by book-entries on the
records of DTC and participating members thereof. Definitive Certificates will
be available only under the limited circumstances described herein.]
There currently is no market for the Certificates offered hereby.
____________________ (the "Underwriter") intends to make a secondary market in
the Certificates but is under no obligation to do so. There can be no assurance
that a secondary market for the Certificates will develop or, if it does
develop, that it will continue.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE
INFORMATION SET FORTH IN "RISK FACTORS" BEGINNING ON PAGE S-9 HEREIN AND ON PAGE
19 IN THE PROSPECTUS.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR OR ANY AFFILIATE THEREOF.
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.
The Certificates will be purchased by the Underwriter from the
Depositor and will be offered by the Underwriter from time to time to the public
in negotiated prices or otherwise at varying prices to be determined at the time
of sale. The aggregate proceeds to the Depositor from the sale of the
Certificates are expected to be $ , before deducting expenses
payable by the Depositor, estimated to be $ .
The Certificates offered hereby are offered by the Underwriter,
subject to prior sale, to withdrawal, cancellation or modification of the offer
without notice, to delivery to and acceptance by the Underwriter and certain
further conditions. It is expected that delivery of the Certificates will be
made in [book-entry form through the facilities of The Depository Trust Company]
on or about , 199 .
_________________________
CREDIT SUISSE FIRST BOSTON
_________________, 199
Until ninety days after the date of this Prospectus Supplement, all
dealers effecting transactions in the Certificates, whether or not participating
in this distribution, may be required to deliver a Prospectus Supplement and
Prospectus. This is in addition to the obligation of dealers acting as
underwriters to deliver a Prospectus Supplement and Prospectus with respect to
their unsold allotments or subscriptions.
_________________________
The Certificates offered hereby constitute part of a separate Series
of Asset-Backed Certificates and are being offered by Depositor from time to
time pursuant to its Prospectus dated ________________. This Prospectus
Supplement does not contain complete information about the offering of the
Certificates. Additional information is contained in the Prospectus and
investors are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Certificates may not be consummated unless the purchaser
has received both this Prospectus Supplement and the Prospectus.
C-1
<PAGE>
SUMMARY OF TERMS
The following summary of certain pertinent information is qualified in
its entirety by reference to the detailed information appearing elsewhere in
this Prospectus Supplement and the accompanying Prospectus. Certain capitalized
terms used herein are defined elsewhere in the Prospectus Supplement or in the
Prospectus. Reference is made to the Glossary of Terms in the Prospectus for
the definitions of certain capitalized terms.
Trust....................... ABS Home Equity Loan Trust (the "Trust") will be
formed pursuant to a trust agreement to be dated as
of _______________, 199 (the "Agreement") among
Credit Suisse First Boston Mortgage Securities
Corp., as Depositor (the "Depositor"), [ ],
as servicer (together with any successor in such
capacity, the "Servicer"), and [ ], as
trustee (the "Trustee"). The property of the Trust
will include certain home equity loans (the
"Mortgage Loans") purchased by the Depositor either
directly or through its affiliates in the ordinary
course of its business [from _____________, the
originator of the Mortgage Loans (the "Bank")], and
secured primarily by second deeds of trust or
mortgages (the "Mortgages") on residential
properties that are primarily one- to four-family
properties (the "Mortgaged Properties"), the
collections in respect of such Mortgage Loans, the
Mortgages on the properties securing the Mortgage
Loans, including any properties acquired by
foreclosure or deed in lieu of foreclosure or
otherwise, the benefits of the [Letter of Credit]
[Surety Bond], rights under certain hazard
insurance policies covering the Mortgaged
Properties, and certain other property relating to
the Mortgage Loans, as described more fully herein.
The Trust property will include the principal
balances (the "Loan Balances") of the Mortgage
Loans upon their transfer to the Trust and any
additions to such Loan Balances due to new draws by
the borrowers ("Additional Balances") funded by the
[Bank] [Servicer] [Seller] [Depositor] under the
home equity lines of credit (the "HELOCs") relating
to the Mortgage Loans during the life of the Trust.
See "THE HELOCs" herein and "THE TRUST FUND" in the
Prospectus.
Securities Offered.......... Each of the Trust's Home Equity Loan Asset-Backed
Certificates offered hereby (the "Certificates")
represents an undivided interest in the Trust.
Each Certificate represents the right to receive
payments of interest at the [variable] rate
described below (the "Certificate Rate"), payable
monthly, and monthly payments of principal during
the Amortization Period, as defined herein, funded
from a percentage of the payments received with
respect to the Mortgage Loans or, in certain
circumstances, from draws on the [Letter of Credit]
[Surety Bond.] The aggregate undivided interest
(the "Investor Interest") in the Trust represented
by the Certificates will initially represent $
of principal (the
S-1
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<PAGE>
initial "Certificate Principal Balance"), which
will decline as principal is paid to the
Certificateholders during the Amortization Period,
except as otherwise provided herein. The Depositor
initially will hold the remaining undivided
interest (the "Depositor Interest") in the Trust
not represented by the Certificates. The
Certificates will be issued pursuant to the
Agreement. See "DESCRIPTION OF THE CERTIFICATES"
herein and in the Prospectus.
The Mortgage Loans.......... The Mortgage Loans arise under HELOCs and are
secured by deeds of trust or mortgages (which are
primarily second deeds of trust or mortgages) on
residential properties located primarily in [ ]
that are primarily one- to four-family
residential properties. As of ____________, 199
(the "Cut-off Date) the aggregate of the Loan
Balances of the Mortgage Loans was $ (the
"Cut-off Date Pool Balance"), of which
approximately % of the Mortgage Loans are
secured by properties located in [ ].
The remaining Mortgage Loans are secured by
properties located in states, with no single
state accounting for more than % of the Cut-
off Date Pool Balance. The combined loan-to-value
ratio of a Mortgage Loan, computed at the maximum
amount the borrower was permitted to draw down
under the HELOC (the "Credit Limit") and taking
into account the amounts of any related senior
mortgage loans (the "Combined Loan-to-Value
Ratio"), based upon a valuation (as described under
"THE HOME EQUITY LENDING PROGRAM") of the Mortgaged
Property obtained by the Bank at the time of
execution of the loan agreement governing such Home
Equity Credit Line, generally did not exceed %,
subject to exceptions deemed appropriate by the
Depositor. The weighted average Combined Loan-to-
Value Ratio of the Mortgage Loans, as described
under "THE HELOCs," was approximately % as of
the Cut-off Date. See "THE HOME EQUITY LENDING
PROGRAM -- Underwriting Procedures Relating to
HELOCs" herein.
Interest on each Mortgage Loan is payable monthly
and computed on the average daily outstanding Loan
Balance for each billing cycle at a variable rate
per annum (the "Loan Rate") equal at any time
(subject to minimum and maximum rates, as described
herein under "THE HOME EQUITY LENDING PROGRAM --
HELOC Terms," and further subject to applicable
usury limitations) to the sum of (i) the [prime
rate published in the "Money Rates" section of the
Wall Street Journal on the ___ calendar day of each
month (or, if no rate is published on the ___, then
on the next succeeding calendar day on which a
prime rate is published)] and (ii) a margin,
currently %. See "THE HELOCS" herein and
"CERTAIN LEGAL ASPECTS OF THE
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<PAGE>
MORTGAGE LOANS AND CONTRACTS - The Contracts
-- Applicability of Usury Laws" in the Prospectus.
Principal amounts may be drawn down by the
borrower under the HELOC from time to time,
subject to the borrower's Credit Limit. A
borrower may repay principal at any time. The
Cut-off Date Loan Balances of the Mortgage Loans
ranged from $0.00 to $ and averaged $ .
Credit Limits under the HELOCs as of the Cut-off
Date ranged from approximately $ to $
and averaged $ . Each HELOC was originated
in the period from _____ to __________, 199 , and,
as of the Cut-off Date, the weighted average loan
utilization rate was approximately %. See
"THE HOME EQUITY LENDING PROGRAM" and "THE HELOCS"
herein.
During the term of the Trust, all Additional
Balances will be property of the Trust. The
aggregate amount of the Loan Balances at any time
(the "Pool Balance") will fluctuate from day to day
because the amount of draws by borrowers and the
amount of principal payments will usually differ on
each day. Because the Depositor Interest
represents the interest in the Trust not
represented by the Certificates, the amount of the
Depositor Interest will fluctuate from day to day
as draws are made and principal is paid under the
Mortgage Loans.
The aggregate undivided interest in the Loan
Balances in the Trust evidenced by the Certificates
will never exceed the Certificate Principal Balance
regardless of the amount of the Pool Balance at any
time.
Denominations............... The Certificates will be offered for purchase in
denominations of [$1,000] and integral multiples
thereof. The interest evidenced by a Certificate
in the Certificateholders' undivided interest in
the Trust (the "Percentage Interest") will be equal
to the percentage derived by dividing the
denomination of such Certificate by the Initial
Certificate Principal Balance.
Registration of
Certificates................ [The Certificates will initially be represented by
physical certificates registered in the name of
Cede & Co. ("Cede"), as the nominee of The
Depository Trust Company ("DTC"). No person
acquiring a beneficial ownership interest in the
Certificates (a "Certificate Owner") will be
entitled to receive a definitive certificate
representing such person's interest, except in the
event that Definitive Certificates are issued under
the limited circumstances described herein. All
references herein to Certificateholders shall refer
to Certificate Owners, except as otherwise
specified herein. See "Description of the
Certificates -- Registration of Certificates."]
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Depositor................... Credit Suisse First Boston Mortgage Securities
Corp. The principal executive offices of the
Depositor are located at 11 Madison Avenue, New
York, New York 10010 (telephone (212) 325-2000).
See "THE DEPOSITOR" in the Prospectus.
Servicer.................... The Servicer of the Mortgage Loans will be [the
Bank] [ ] (the "Servicer"). The principal
executive offices of the Servicer are located at
_____________ (telephone (___) __________). See
"SERVICING OF MORTGAGE LOANS -- The Servicer"
herein.
Collections................. All collections on the Mortgage Loans will be
allocated by the Servicer in accordance with the
Loan Agreements between amounts collected in
respect of interest ("Interest Collections") and
amounts collected in respect of principal
("Principal Collections"). All such amounts will
then be allocated in accordance with the respective
interests of the Certificateholders and the
Depositor in such Interest Collections and
Principal Collections. The Servicer will generally
deposit net collections on the Mortgage Loans
allocable to the Investor Interest and
distributable to the Certificateholders in an
account established for such purpose under the
Agreement (the "Collection Account"). See
"DESCRIPTION OF THE CERTIFICATES -- Payments on
Mortgage Loans; Deposits to Collection Account"
herein and "DESCRIPTION OF THE CERTIFICATES --
Payments on Mortgage Loans" in the Prospectus.
Interest.................... Interest will be distributed monthly on the ___ day
of each month or, if such day is not a business
day, on the next succeeding business day (each, a
"Distribution Date"), commencing in ________, at
the Certificate Rate for the related Interest
Period (as defined below). The Certificate Rate
for a Distribution Date will equal [the arithmetic
mean of London Interbank offered quotations for
one-month Eurodollar deposits ("LIBOR") determined
as specified herein, as of the second London
business day prior to the immediately preceding
Distribution Date (or as of ___________, 199_, in
the case of the first Distribution Date) plus _____
basis points, subject to a maximum rate described
under "DESCRIPTION OF THE CERTIFICATES --
Distributions on the Certificates" herein] [___%
per annum]. Interest on the Certificates in
respect of any Distribution Date will accrue from
the preceding Distribution Date (or in the case of
the first Distribution Date, from the date of the
initial issuance of the Certificates (the "Closing
Date")) through the day preceding such Distribution
Date (each such period, an "Interest Period") on
the basis of the [actual number of days in the
Interest Period and a 360-day year]. Interest
payments
S-4
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<PAGE>
will be funded from the portion of the
Interest Collections collected during the
immediately preceding calendar month (or, in the
case of the initial Distribution Date, the period
from __________, 199_ through the last day of the
calendar month immediately preceding such
Distribution Date) (the "Collection Period")
allocable to the Investor Interest and, if
necessary, from draws on the [Letter of Credit]
[Surety Bond]. See "DESCRIPTION OF THE
CERTIFICATES" herein and "RISK FACTORS --
Limitations, Reduction and Substitution of Credit
Support" in the Prospectus.
Revolving Period............ In order to maintain the Certificate Principal
Balance at $___________ (except in certain limited
circumstances) for a period of approximately
______________ months from the first day of the
month in which the Certificates are issued or for
such shorter period as may result from the
occurrence of an Early Amortization Event, as
described herein (the "Revolving Period"),
Principal Collections allocable to the Investor
Interest will be paid to the Depositor rather than
the Certificateholders so that the
Certificateholders maintain the same Investor
Interest in the Trust. Unless earlier terminated
by the occurrence of an Early Amortization Event,
the Revolving Period will end on _________. See
"DESCRIPTION OF THE CERTIFICATES" herein.
Principal Payments;
Amortization Period......... Unless an Early Amortization Event shall have
earlier occurred, during the period beginning
____________ and ending when the Certificate
Principal Balance has been reduced to zero or when
the Trust otherwise terminates (the "Amortization
Period"), Principal Collections allocated to the
Investor Interest will no longer be paid to the
Depositor but instead will be distributed monthly
to the Certificateholders as provided herein on
each Distribution Date beginning with the
Distribution Date in the month following the month
in which the Amortization Period commences. See
"DESCRIPTION OF THE CERTIFICATES -- Early
Amortization Events" herein for a discussion of the
events which might lead to the early commencement
of the Amortization Period. During the
Amortization Period, the amount of Principal
Collections allocable to the Investor Interest (the
"Principal Allocation") will equal the ratio of the
Certificate Principal Balance to the Pool Balance,
in each case as of the end of the last day of the
Revolving Period (the "Investor Percentage" for
such period) multiplied by the Principal
Collections received during the related Collection
Period.
Allocations based upon the Investor Percentage
during the Amortization Period may result in
distributions of principal with respect to any
Collection Period to Certificate- holders in
S-5
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<PAGE>
amounts that are greater relative to the declining
balance of the Certificate Principal Balance than
would be the case if no fixed Investor Percentage
were used to determine the percentage of Principal
Collections distributed in respect of the Investor
Interest. See "DESCRIPTION OF THE CERTIFICATES --
Payments on Mortgage Loans; Deposits to Collection
Account" herein.
[Letter of Credit]
[Surety Bond]
Issuer.................... ______________ (the "[Letter of Credit] [Surety
Bond] Issuer"). See "THE [LETTER OF CREDIT]
[SURETY] BOND ISSUER" herein.
[Letter of Credit]
[Surety Bond].............. On the Closing Date, the [Letter of Credit] [Surety
Bond] Issuer will issue a [letter of credit]
[surety bond] (the "[Letter of Credit] [Surety
Bond]") in favor of the Trustee on behalf of the
Trust. In the event that, on any Distribution
Date, available amounts on deposit in the
Collection Account with respect to the preceding
Collection Period are insufficient to provide for
the payment of the amount required to be
distributed to the Certificateholders and the
Servicer on such Distribution Date, the Trustee
will draw on the [Letter of Credit] [Surety Bond],
to the extent of the [Letter of Credit] [Surety
Bond] Amount for such Distribution Date, in an
amount equal to such deficiency. On each
Distribution Date, any amounts remaining in the
Collection Account with respect to the preceding
Collection Period, after all other distributions
have been made as described above, will be
distributed to the [Letter of Credit] [Surety Bond]
Issuer. See "DESCRIPTION OF THE CERTIFICATES --
The [Letter of Credit] [Surety Bond]" and "--
Distributions on the Certificates" herein and "RISK
FACTORS Limitations, Reduction and Substitution of
Credit Support" and "CREDIT SUPPORT" in the
Prospectus.
[Letter of Credit]
[Surety Bond]
Amount..................... The amount available under the [Letter of Credit]
[Surety Bond] (the "[Letter of Credit] [Surety
Bond] Amount") for the initial Distribution Date
will be $__________. For each Distribution Date
thereafter, the [Letter of Credit] [Surety Bond]
Amount will equal the lesser of (i) ____% of the
Pool Balance as of the first day of the preceding
Collection Period (after giving effect to any
amounts distributed with respect to principal of
the Mortgage Loans on the Distribution Date
occurring in such preceding Collection Period) and
(ii) the [Letter of Credit] [Surety Bond] Amount as
of the first day of the preceding Collection
Period, minus any amounts drawn
-----
S-6
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<PAGE>
under the [Letter of Credit] [Surety Bond] during
such preceding Collection Period, plus any amounts
----
paid to the [Letter of Credit] [Surety Bond] Issuer
on the Distribution Date occurring in such
preceding Collection Period up to the amount of any
previous draws on the [Letter of Credit] [Surety
Bond].
Record Date................. The last day [of the month] preceding a
Distribution Date.
Servicing................... The Servicer will be responsible for servicing,
managing and making collections on the Mortgage
Loans. The Servicer will deposit collections
allocable to the Investor Interest into the
Collection Account as described herein. On the
_______ business day, but no later than the _______
calendar day, of each month (the "Determination
Date"), the Servicer will calculate, and instruct
the Trustee regarding, the amounts to be paid, as
described herein, with respect to the related
Collection Period to the Certificateholders. See
"DESCRIPTION OF THE CERTIFICATES -- Distributions
on the Certificates" herein. The Servicer will
receive a monthly servicing fee in the amount of
___% per annum (the "Servicing Fee Rate"), of the
related Pool Balance and certain other amounts, as
servicing compensation from the Trust. See
"SERVICING OF MORTGAGE LOANS -- Servicing
Compensation and Payment of Expenses" herein. In
certain limited circumstances, the Servicer may
resign or be removed, in which event either the
Trustee or a third-party servicer will be appointed
as successor Servicer. See "SERVICING OF THE LOANS
-- Certain Matters Regarding the Servicer" and "THE
TRUST AGREEMENT -- Events of Default" and "--Rights
Upon Events of Default" in the Prospectus.
Final Payment of
Principal;
Termination................. The Trust will terminate on the Distribution Date
following the earlier of (i) the reduction of the
Certificate Principal Balance to zero and after
which there is no unreimbursed Certificate
Principal Balance Loss Deduction Amount and (ii)
the final payment or other liquidation of the last
Mortgage Loan in the Trust. The Investor Interest
will be subject to optional retransfer to the
Depositor on any Distribution Date after the
Certificate Principal Balance is reduced to an
amount less than or equal to $____________ ([5]% of
the initial Certificate Principal Balance). The
retransfer price will be equal to the sum of the
outstanding Certificate Principal Balance and
accrued and unpaid interest thereon at the
Certificate Rate through the day preceding the
final Distribution Date. See "DESCRIPTION OF THE
CERTIFICATES -- Optional Termination" herein and
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<PAGE>
"DESCRIPTION OF THE CERTIFICATES -- Termination" in
the Prospectus.
Trustee..................... [______________] (the "Trustee") will act as
Trustee on behalf of the Certificateholders.
Mandatory Retransfer
of Certain Mortgage
Loans and Private
Securities.................. The Depositor will make certain representations and
warranties in the Agreement with respect to the
Mortgage Loans in its capacity as Depositor. If
the Depositor breaches certain of its
representations and warranties with respect to any
Mortgage Loan and such breach, materially and
adverse affects the interests of the Trust, the
Certificateholders or the [Letter of Credit]
[Surety Bond] Issuer and is not cured within the
specified period, the Mortgage Loan will be removed
from the Trust after the expiration of a specified
period from the date on which the Depositor becomes
aware or receives notices of such breach and will
be reassigned to the Depositor. See "DESCRIPTION
OF THE CERTIFICATES -- Assignment of Mortgage
Loans" herein.
Federal Tax
Considerations.............. [Special tax counsel to the Depositor is of the
opinion that, under existing law, the Certificates
are properly characterized as debt of the Depositor
for federal income tax purposes. Under the
Agreement, the Depositor and the Certificateholders
will agree to treat the Certificates as
indebtedness of the Depositor for federal, state
and local income and franchise tax purpose. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus for additional information concerning
the applicable federal income tax laws.]
ERISA Considerations........ A fiduciary of any employee benefit plan subject to
the Employee Retirement Income Security Act of
1974; as amended ("ERISA"), or the Code should
carefully review with its legal advisors whether
the purchase or holding of Certificates could give
rise to a transaction prohibited or not otherwise
permissible under ERISA or the Code. See "ERISA
CONSIDERATIONS" in the Prospectus.
Certificate Rating.......... It is a condition to the issuance of the
Certificates that they be rated in the [ ]
highest rating category by at least one nationally
recognized statistical rating organization (the
"Rating Agency"). See "RATING" herein.
S-8
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<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Certificates.
[Delinquent Mortgage Loans. The Trust will include Mortgage Loans
which are days or fewer delinquent. As of the Cut-off Date, the aggregate
Loan Balance of such delinquent Mortgage Loan was $ . [In addition, the
Mortgage Loans in all likelihood include obligations of borrowers who are or are
about to become bankrupt or insolvent.] If there are not sufficient funds from
Interest Collections allocated to the Investor Interest to cover the Liquidation
Loss Amount for any Collection Period and the [Letter of Credit] [Surety Bond]
Amount has been reduced to zero, the Certificate Principal Balance will be
reduced which (unless otherwise later reimbursed) would result in a reduction in
the aggregate amount of principal returned to the Certificateholders and in the
amount of Interest Collections allocable to the Investor Interest and available
to provide protection against defaults in subsequent Collection Periods.]
Prepayment Considerations. All of the Mortgage Loans may be prepaid in
whole or in part at any time without penalty. Home equity loans, such as the
Mortgage Loans, have been originated in significant volume only during the past
few years and neither the Depositor nor the Servicer is aware of any publicly
available studies or statistics on the rate of prepayment of such loans.
Generally, home equity loan are not viewed by borrowers as permanent financing.
Accordingly, the Mortgage Loans may experience a higher rate of prepayment than
traditional loans. The Trust's prepayment experience may be affected by a wide
variety of factors, including generally economic condition, interest rates, the
availability of alternative financing and homeowner mobility. In addition,
substantially all of the Mortgage Loans contain due-on-sale provisions and the
Servicer intends to enforce such provisions unless (i) such enforcement is not
permitted by applicable law or (ii) the Servicer, in a manner consistent with
reasonable commercial practice, permits the purchaser of the related Mortgaged
Property to assume the Mortgage Loans. To the extent permitted by applicable
law, such assumption will not relates the original borrower from its obligation
under any such Mortgage Loan.
[Servicer's Ability to Change the Terms of the HELOCs. The Servicer
may permit an increase in the Credit Limit under a HELOC if the new Credit Limit
under the HELOC, plus the outstanding principal balance of any related senior
loans, does not exceed (i) ___% (___% for a condominium, townhouse, duplex, or
vacation condo/house), if the market value of the Mortgaged Property is
$__________ or less, or ___% (___% for a condominium, townhouse, duplex, or
vacation condo/house), and if the market value of the Mortgaged Property exceeds
$_________, based upon an appraisal or the tax assessed value of the Mortgaged
Property at the time the increase was requested. An increase in the Credit
Limit under a HELOC in accordance with the previous sentence may be made without
the consent of the Trustee. Additional Balances arising under a Mortgage Loan
as a result of an increase in the Credit Limit will be treated the same as
Additional Balances arising under a Mortgage Loan for which there has been no
increase in the Credit Limit. In addition to such changes, the Servicer may
agree to other changes in the terms of a Loan Agreement, provided that such
changes (i) do not materially adversely affect the interest of the
Certificateholders, (ii) are consistent with prudent business practice, (iii)
are also being applied to the comparable segment of home equity credit lines
being held for the Servicer's own account, and (iv) do not change the terms of
the HELOC so as to change the terms for the amortization of principal. There
can be no assurance that changes in applicable law or the marketplace for home
equity loans or prudent business practice will not result in changes in the
terms of the Loan Agreements. The Servicer may also extend the period during
which draws under the HELOCs may be made.]
Legal Considerations. The Mortgage Loans are secured by deeds of trust
or mortgages (which generally are second deeds of trust or mortgages). With
respect to Mortgage Loans that are secured by first mortgages, the Servicer has
the power under certain circumstances to consent to a new mortgage lien on the
S-9
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<PAGE>
Mortgaged Property having priority over such Mortgage Loan. Mortgage Loans
secured by second mortgages are entitled to proceeds that remain from the sale
of the related Mortgage Property after any related senior mortgage loan and
prior statutory liens have been satisfied. In the event that such proceeds are
insufficient to satisfy such loans and prior liens in the aggregate [and the
[Letter of Credit] [Surety Bond] provider is unable to perform its obligations
under the [Letter of Credit] [Surety Bond] is exhausted] the Trust and,
accordingly, the Holders, bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment cannot be obtained or is not realized upon. See
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS" in the Prospectus.
In the event of a bankruptcy or insolvency of the Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or the
Holders from appointing a successor Servicer.
Book-Entry Securities. Issuance of the Certificates in book-entry form
may reduce the liquidity of such Certificates in the secondary trading market
since investors may be unwilling to purchase Certificates for which they cannot
obtain physical securities.
Since transactions in the Certificates can be effected only through
DTC, participating organizations, indirect participants and certain banks, the
ability of a Certificate Owner to pledge a Certificate to persons or entitles
that do not participate in the DTC, system or otherwise to take actions in
respect of such Certificates, may be limited due to lack of a physical security
representing the Certificates.
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Certificates since such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which will
thereafter credit them to the accounts of Certificate Owners either directly or
indirectly through indirect participants. See "DESCRIPTION OF THE CERTIFICATES-
- - Registration of Certificates" herein
[Taxation. In the opinion of special tax counsel to the Depositor, the
Certificates are properly characterized as debt of the Depositor for Federal
income tax purposes. If the IRS were to contend successfully that the
Certificates were not debt obligations of the Depositor for Federal income tax
purposes, the arrangement among the Depositor and the Certificateholders might
be classified for Federal income tax purposes as either a partnership or an
association taxable as a corporation that owns the Mortgage Loans. See "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.]
Certificate Rating. The rating of the Certificates will depend
primarily on assessment by the Rating Agencies of the Mortgage Loans [and upon
the claims-paying ability of the [Letter of Credit] [Surety Bond] provider].
[Any reduction in a rating assigned to the claims-paying ability of the [Letter
of Credit] [Surety Bond] provider below the rating initially given to the
Certificates may result in a reduction in the rating of the Certificates.] The
rating by the Rating Agencies of the Certificates is not a recommendation to
purchase, hold or sell the Certificates, inasmuch as such rating does not
comment as to the market price or suitability for a particular investor. There
is no assurance that the ratings will remain in place for any given period of
time or the ratings will not be lowered or withdrawn by the Rating Agencies. In
general, the ratings address credit risk and do not address the likelihood of
prepayments.
THE [LETTER OF CREDIT] [SURETY BOND] ISSUER
The following information with respect to ____________ ("___________")
has been furnished by ____________________.
[DESCRIPTION OF LC/SURETY ISSUER]
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THE HOME EQUITY LENDING PROGRAM
GENERAL
THE HELOCs were originated by ______________ (the "Bank") under its
home equity lending program. The Bank has offered variable-rate home equity
revolving credit lines since ______________. As of _________, __, the Bank
owned approximately $ million aggregate principal amount of outstanding
loans originated in the State of _______________ under home equity credit lines
(the "Bank's Portfolio").
UNDERWRITING PROCEDURES RELATING TO HELOCS
[Each revolving home equity line of credit is originated after a review
by the Bank in accordance with its established underwriting procedures, which
are intended to assess the applicant's ability to assume and repay such home
equity lines of credit and the adequacy of the real property which serves as
collateral for such home equity lines of credit. The maximum home equity line
of credit provided by the Bank is $_______.
Each applicant for a home equity line of credit is required to complete
an application which lists the applicant's assets, liabilities, income, credit
and employment history and other demographic and personal information. If
information in the loan application demonstrates that there is sufficient income
and equity to justify making a home equity line of credit, the Bank will conduct
a further credit investigation of the applicant. This investigation includes
(i) obtaining and reviewing an independent credit bureau report on the credit
history of the borrower in order to evaluate the borrower's ability to repay;
(ii) obtaining a verification of employment from the applicant's employer; (iii)
obtaining and reviewing pay stubs, income tax returns and/or W-2 forms in order
to verify the applicant's income; and (iv) in the case of all home equity lines
of credit originated with a Credit Limit in excess of $_________ or with any
Credit Limit, if originated after __________, obtaining a drive-by appraised
value (a "Drive-By Appraised Value") of the property to be mortgaged through an
independent frontal exterior inspection and neighborhood observation (a "Drive-
By Appraisal") of the property or, in the case of home equity lines of credit
originated prior to _________ in an amount of $_______ or less, making an
estimate of the value (the "Estimated Value") of the property to be mortgaged
through, (a) in the case of home equity lines of credit originated for such
properties located in the State of __________, the use of a formula that assumed
that the then current value of the property was equal to the amount the
applicant paid for the property together with appreciation of __% of the
purchase price for each year since the applicant purchased the property and (b)
in the case of home equity lines of credit originated for such properties
located in ___________, a property tax bill which reflected a 100% assessment on
the property.
Although no complete title search of the property to be mortgaged is
required, a bring-down to the date of origination of the home equity lines of
credit of the complete title search obtained by the borrower at the time of his
original purchase of the mortgaged property must be delivered.
The Bank calculates the maximum amount of the loan that the customer
may obtain by taking ___% (or, in the case of home equity lines of credit
originated prior to _______, __%) of the Drive-By Appraised Value or Estimated
Value, as the case may be, of the property and subtracting any outstanding
senior mortgage balance. Financial insurance premiums and fees are not
considered in the loan amount when making such computation.
Applications for loans exceeding the maximum amount calculated in the
preceding paragraph require regional manager approval. Overrides of other
criteria may be authorized by branch managers up to their lending limits. Among
the reasons that the Bank grants overrides are the existence of compensating
balances of the borrower in accounts held by the Bank (which balances will not
necessarily be available in the event of a default or
S-11
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<PAGE>
delinquency of any HELOC in the Pool) and relationships between the borrower and
the trust department of the Bank.
No information is available with respect to the portion of the home
equity lines of credit in the Bank's Portfolio as to which overrides of
underwriting criteria were granted.]
HELOC TERMS
[A borrower may access a home equity line of credit by writing a check
supplied by the Bank or through a check overdraft facility. On home equity
lines of credit originated prior to __________, __ in ______________ __, there
is no automatic termination of the draw-down period so long as the borrower is
not in default under the loan agreement. On all home equity lines of credit
originated in __________, and on home equity lines of credit originated after
_________, __ in __________ __, there is a ___ year draw down period on the
lines as long as the borrower is not in default under the loan agreement. Home
equity lines of credit bear interest at a variable rate which may change
monthly. Home equity lines of credit are subject to a maximum per annum
interest rate of ___ percentage points and to applicable usury limitations. See
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS -- The Contracts --
Applicability of Usury Laws" in the Prospectus. The monthly periodic rate on
the home equity revolving lines of credit is 1/12th of the annual percentage
rate (the "Loan Rate"), which is the sum of the Index Rate plus a spread (the
"Margin") of predominantly _____%.
Interest on a home equity line of credit is calculated at the Loan Rate
applied to the daily balance of the account for each day of the billing cycle.
A borrower is required to pay each month the amount of interest accrued on the
line during the previous month. There are no minimum principal payment
requirements for home equity lines of credit originated prior to _________, __
in __________. For all lines of credit originated in ________________ and lines
of credit originated after ____________, __ in ____________, principal
repayments vary depending on the option selected by the borrower. A borrower
who selects an "interest only" option has no minimum principal payment during
the first ten year draw period and thereafter has a minimum monthly principal
payment during the ten years following the draw period of 1/120th of the
principal amount outstanding on the last day of the ten year draw period. A
borrower who selects a "principal and interest" option has a minimum monthly
principal payment during the first ten year draw period of 1/200th of the
principal amount outstanding on the last day of the applicable billing cycle and
thereafter has a minimum monthly payment of 1/120th of the principal amount
outstanding on the last day of the draw period. Billing statements are mailed
monthly. The statement details all debits and credits and specifies the minimum
payment due and the available credit line. All payments are due ___ days after
the billing statement is issued.
The "Index Rate" is based on the "prime rate" published in the "Money
Rates" section of The Wall Street Journal on the applicable billing date for
-----------------------
each HELOC (or if such day is not a banking day in _________ or _______, on the
banking day immediately preceding such day), with charges becoming effective on
the first day of the next billing cycle.
If more than one prime rate is published, then the highest rate
published will be used. The Loan Agreements further provide that if publication
of the Index Rate is discontinued, the Bank will change the Index Rate upon
notification in accordance with such Loan Agreements. Except for any
amortization of principal which may occur as a result of the required monthly
minimum payments, there are no required payments of principal.
The Bank also offers a "fixed rate" loan option whereby a borrower may
repay all or a portion of the outstanding loan balance, in excess of $______, at
a fixed rate. If a borrower selects a "fixed rate" option the amount converted
will be treated as a principal payment on the line of credit and the available
line of credit will be reduced by the "fixed rate" option amount.
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<PAGE>
The Bank has the right under each HELOC originated prior to
_____________, with 30 days prior written notice of the amendment or longer
notice period if applicable in accordance with Federal and applicable
___________ law, to change any of its terms, including increasing the monthly
periodic rate or changing the Index Rate at any time. Unless otherwise
indicated in the notice, all such changes will apply to both new and outstanding
balances. For home equity lines of credit originated after __________, __, the
Bank may make changes preapproved by each individual obligor and changes that
are considered immaterial. Notwithstanding the foregoing, no change shall be
made to the terms of the HELOCs after ___________, __ unless, in connection with
such change, the Depositor delivers to the Trustee an opinion of counsel stating
that such change will not cause the Trust, or the arrangement by which the
Certificates are issued, to be classified as a taxable mortgage pool within the
meaning of Section 7701(i) of the Internal Revenue Code of 1986, as amended.
The Bank has the right to suspend or terminate the right to obtain
additional credit, or to require the borrower to pay the entire balance due plus
all other accrued but unpaid charges immediately, if the borrower fails to make
any required payment by the due date, if the borrower's original loan
application was fraudulent or contained a material misrepresentation or if the
borrower sells or transfers the mortgaged property or acts in any way which
adversely affects the lien of the mortgage or the maintenance of the property.
The Bank has the right to suspend the right to obtain additional credit or to
reduce a borrower's credit limit, if the value of the mortgaged property
declines significantly below its appraised value, if the Bank reasonably
believes the borrower will be unable to repay the line due to a material
financial change, if the borrower is in default under the loan agreement, if
government action either impairs the Bank's security interest or prevents it
from imposing the annual percentage rate, if a regulatory agency has notified
the Bank that continued advances would institute a unsafe and unsound practice
or if the maximum annual percentage is reached.]
SERVICING OF THE MORTGAGE LOANS
THE SERVICER
[The Servicer is a _____________________ [which is wholly owned by
___________________.
The Servicer conducts a general banking business throughout the
____________, and, with its subsidiaries, offers a broad array of commercial and
retail loan and deposit products and services, mortgage banking and brokerage
and investment services. At ____________, the Servicer had total assets of
approximately $____________ billion and total deposits of approximately
$_________ billion.
The principal executive offices of the Servicer are located at
_________________ (telephone (___) ___-____.]
SERVICING OF HELOCS
[Centralized controls and standards have been established by the
Servicer for the servicing and collection of home equity lines of credit.
Servicing includes, but is not limited to, post-origination loan processing,
customer service, remittance processing, collections and liquidations.
The collection process is initiated ten days after the payment due date
with the computer generation of a late notice. To make payment arrangements, a
collector attempts to contact the borrower when the home equity line of credit
is 15 to 30 days past due.
S-13
VERSION H
<PAGE>
During the period when an account is 45 to 60 days past due, a credit
bureau report is obtained, homeowner's insurance is verified, the status of
senior mortgages and property taxes is checked and a title search and "drive-by"
appraisal are ordered.
If arrangements have not been made to cure the delinquency within 61
days of the line becoming past due, drawing privileges are canceled. The line
is referred to outside counsel and is placed on a "non-accrual" status after 90
days of delinquency. All legal expenses are assessed to the account and become
the responsibility of the borrower. When it is determined by the Servicer that
there is no possibility of recovery from the mortgaged property or from other
leviable assets or wage attachments, the line is charged-off.
Reinstatement arrangements can be made up until the point of sale. Any
foreclosures initiated on a junior mortgage are subject to the senior mortgage
or mortgages and any outstanding property taxes. If the Servicer purchases the
property through the foreclosure action, the account is transferred to the
Servicer's REO Department which is maintained at _________. The REO Department
is responsible for maintaining and marketing the property.
The Servicer may not foreclose on the property securing a junior
mortgage loan unless the Servicer forecloses subject to any senior mortgages, in
which case the Servicer may pay the entire amount due on the senior mortgage to
the senior mortgagees at or prior to the foreclosure sale. If a senior mortgage
is in default after the Servicer has initiated its foreclosure action, the
Servicer may advance funds to keep senior mortgages current until such time as
the Servicer satisfies such senior mortgages. In the event that foreclosure
proceedings have been instituted on a senior mortgage prior to the initiation of
the Servicer's foreclosure action, the Servicer may either satisfy the senior
mortgage at the time of the foreclosure sale or take other action to protect the
Trust's interest in the related property.]
DELINQUENCY AND LOSS EXPERIENCE OF THE SERVICER'S PORTFOLIO
The following tables set forth the delinquency and loss experience for
each of the periods shown for the Servicer's portfolio of home equity lines of
credit. The Servicer believes that there have been no material trends or
anomalies in the historical delinquency and loss experience as represented in
the following tables. The information in the tables below has not been adjusted
to eliminate the effect of the growth in the size of the Servicer's portfolio
during the periods shown. Accordingly, loss and delinquency as percentages of
aggregate principal balance of such loans for each period may be higher than
those shown if a group of such loans were artificially isolated at a point in
time and the information showed the activity only in that isolated group. The
data presented in the following tables are for illustrative purposes only, and
there is no assurance that the delinquency and loss experience of the HELOCs
will be similar to that set forth below.
S-14
VERSION H
<PAGE>
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE (Dollars in Thousands)
As of As of December 31,
__________, 1995(1) ------------------------------------------------------------------------
1994 1993 1992
----------------------------- ------------------------- ----------------------- ----------------------
Number of Amount Number of Amount Number Amount Number Amount
Loans Loans of Loans of Loans
------------- --------- ----------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio Principal $ $ $ $
Outstanding at
Period End...............
Delinquency(1) $ $ $ $
30-59 Days...............
60-89 Days...............
90 or More Days(2)....... _____ _____ _____ _____ _____ _____ _____ _____
Total Delinquencies........ $ $ $ $
Total Delinquencies % % % % % % % %
as a Percentage
of the Portfolio
at Period End............
</TABLE>
- ---------------------------
(1) The period of delinquency is based on the number of days payments are
contractually past due for all loans other than mortgage loans previously
charged off.
(2) Includes mortgage loans in foreclosure and not charged off
<TABLE>
<CAPTION>
LOSS EXPERIENCE (Dollars in Thousands)
As of As of December 31,
__________, 1995(1) ------------------------------------------------------------------------
1994 1993 1992
----------------------------- ------------------------- ----------------------- ----------------------
Number of Amount Number of Amount Number Amount Number Amount
Loans Loans of Loans of Loans
------------- --------- ----------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio Principal $ $ $ $
Outstanding at
Period End...............
Gross Losses............... $ $ $ $
Recoveries................. $ $ $ $
Net Losses................. $ $ $ $
Net Losses as a $ $ $ $
Percentage of
Portfolio at
Period End...............
</TABLE>
- ---------------------------
(1) Net Losses equal total principal charged off less recoveries. The customary
policy of the Bank is to charge off mortgage loans in full that are 120
days past due unless foreclosure proceedings are planned or there are
indications that the account will be brought current. An account that is
not charged off because there are indications that payment is imminent
generally will be charged off after an additional 60 to 90 days if such
payment is not forthcoming.
(2) This percentage represents the ___-month period ended ___________, 1995
annualized and is not necessarily indicative of the results which may occur
for the full year.
S-15
VERSION H
<PAGE>
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation to be paid to the Servicer in respect of its
servicing activities relating to the Mortgage Loans will be paid to it from
Interest Collections at the time such collections are received or from amounts
drawn on the [Letter of Credit] [Surety Bond] and will be equal to ___% per
annum, (the "Servicing Fee Rate") of the Pool Balance. The Investor Percentage
of such servicing fee (the "Investor Servicing Fee") will be paid as described
under "DESCRIPTION OF THE CERTIFICATES -- Distributions on the Certificates --
Distribution of Interest Collections and Draw Amounts" herein. All assumption
fees, late payment charges and other fees and charges, to the extent collected
from borrowers, will be retained by the Servicer as additional servicing
compensation.
[The Servicer will pay certain ongoing expenses associated with the
Trust and incurred by it in connection with its responsibilities under the
Agreement, including, without limitation, payment of the fees and disbursements
of the Trustee, any custodian appointed by the Trustee, the Certificate
Registrar and any paying agent.] In addition, the Servicer will be entitled to
reimbursement for certain expenses incurred by it in connection with defaulted
Mortgage Loans and in connection with the restoration of Mortgaged Properties,
such right of reimbursement being prior to the rights of Certificateholders to
receive any related Liquidation Proceeds.
THE HELOCS
The Trust will be formed in accordance with the laws of the State of
New York pursuant to the Agreement. The Depositor will transfer the Mortgage
Loans to the Trust, without recourse, in exchange for the Certificates and a
certificate initially to be held by it representing the Depositor's interest in
the Trust (the "Depositor Certificate"). The property of the Trust will consist
of the Mortgage Loans, all proceeds of the Mortgage Loans, all monies on deposit
in the Collection Account and the Certificate Account, the Mortgages on the
properties securing the Mortgage Loans, including any properties acquired by
foreclosure or deed in lieu of foreclosure, the benefits of the [Letter of
Credit] [Surety Bond], and the proceeds on any insurance policies covering the
Mortgage Loans or Mortgaged Properties or any obligors on the Mortgages.
[Pursuant to the Agreement, the Depositor will be required to transfer Eligible
Additional Mortgage Loans (to the extent available) to the Trust, in order to
avoid the occurrence of an Early Amortization Event resulting from a decline in
the Depositor's Interest, and otherwise will be allowed to transfer Eligible
Additional Mortgage Loans to the Trust (subject to certain limitations and
conditions) from time to time. See "DESCRIPTION OF THE CERTIFICATES --
Transfers of Eligible Additional Mortgage Loans to the Trust" herein.] In
addition, the Depositor may, subject to certain limitations and conditions
specified in the Agreement, cause the retransfer from the Trust to it of certain
Mortgage Loans. See "DESCRIPTION OF THE CERTIFICATES -- Optional Retransfers of
Mortgage Loans to the Depositor" herein.
The Mortgage Loans to be transferred to the Trust (collectively, the
"Pool") are evidenced by loan agreements (each, a "Loan Agreement") secured by
credit line deeds of trust or mortgages (which are primarily second deeds of
trust or mortgages on Mortgaged Properties, approximately ___% of which are
located in ________ and approximately ___% of which are located in other states,
with no single state accounting for more than ___% of the Cut-off Date Pool
Balance[, and represent substantially all of the home equity credit lines
originated by the Bank which meet the criteria specified in the Agreement and
described below] (the "Mortgage Loans"). Because the Mortgage Loans include the
loans generated under substantially all the HELOCs and because the Loan Balances
will include all amounts payable by borrowers under such HELOCs, some of the
Mortgage Loans will be generated under recently solicited, unseasoned HELOCs
[and the Pool will include delinquent Mortgage Loans and may include obligations
of borrowers who are or are about to become bankrupt or insolvent]. Many of the
Mortgage Loans are less than the Credit Limit under the corresponding HELOC.
Additional Balances on such Mortgage
S-16
VERSION H
<PAGE>
Loans will be property of the Trust and will increase the Pool Balance. The
amount of the [Letter of Credit] [Surety Bond] was determined taking into
account, among other considerations, the nature of the HELOCs and the Mortgage
Loans.
Each Mortgage Loan included in the Pool was generated under a HELOC
that, as of the Cut-off Date, was an Eligible HELOC. An "Eligible HELOC" is
defined in the Agreement as any home equity credit line that: [selection
criteria of HELOCs to be added]. Each HELOC was originated between ________ and
the Cut-off Date [in the ordinary course of the Bank's home equity revolving
credit line loan program]. Subject to exceptions deemed appropriate by the
[Bank] as to individual HELOCs, the [Bank's] general policy was to require that
the Combined Loan-to-Value Ratio under the HELOC at the origination not exceed
80% of the market value of the Mortgaged Property, based upon an appraisal or
the tax assessed value of the Mortgaged Property at the time of the HELOC was
originated, as described under "THE HOME EQUITY LENDING PROGRAM" herein.
Substantially all of the Mortgaged Properties were one- to four-family
residential properties. As of the Cut-off Date, the weighted average loan
utilization rate was approximately ___%.
Set forth below is a description of certain additional characteristics
of the HELOC's as of the Cut-off Date:
S-17
VERSION H
<PAGE>
<TABLE>
<CAPTION>
LOAN POOL STATISTICS
CUT-OFF DATE LOAN BALANCES
Range of Number of % of Pool
Cut-Off Date Home Equity Aggregate Loan by Aggregate
Loan Balances Credit Lines Balances Loan Balances
- ------------- ------------ -------- -------------
<S> <C> <C> <C>
$ to $.............. $ %
$ to $..............
$ to $..............
$ to $..............
$ to $..............
$ to $..............
$ to $..............
$ to $..............
$ to $..............
$ to $..............
$ to $..............
$ to $..............
$ to $..............
$ to $..............
$ to $..............
Total........................ $ %
<CAPTION>
CUT-OFF DATE LOAN RATES
Range of Number of % of Pool
Cut-Off Date Home Equity Aggregate Loan by Aggregate
Loan Balances Credit Lines Balances Loan Balances
- ------------- ------------ -------- -------------
<S> <C> <C> <C>
$ to $.............. $ %
$ to $..............
$ to $..............
$ to $..............
$ to $..............
$ to $..............
Total........................ $ %
</TABLE>
S-18
VERSION H
<PAGE>
CUT-OFF DATE MARGIN RANGES -- PRIME INDEXED MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of % of Pool
Home Equity Aggregate Loan by Aggregate
Margin Credit Lines Balances Loan Balances
- ------ ------------ -------- -------------
<S> <C> <C> <C>
%.................... $ %
%....................
Total............... $ %
==========
</TABLE>
CREDIT LIMIT UTILIZATION RATES
<TABLE>
<CAPTION>
Range of Number of % of Pool
Credit Limit Home Equity Aggregate Loan by Aggregate
Utilization Rates Credit Lines Balances Loan Balances
- ----------------- ------------ -------- -------------
<S> <C> <C> <C>
0.00% to 5.00%............ $ %
5.01% to 10.00%...........
10.01% to 15.00%...........
15.01% to 20.00%...........
20.01% to 25.00%...........
25.01% to 30.00%...........
30.01% to 35.00%...........
35.01% to 40.00%...........
40.01% to 45.00%...........
45.01% to 50.00%...........
50.01% to 55.00%...........
55.01% to 60.00%...........
60.01% to 65.00%...........
65.01% to 70.00%...........
70.01% to 75.00%...........
75.01% to 80.00%...........
80.01% to 85.00%...........
85.01% to 90.00%...........
90.01% to 95.00%...........
95.01% to 100.00%.......... ___________ ___________ __________
Total.............. $ %
==========
</TABLE>
S-19
VERSION H
<PAGE>
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS/1/
Range of Number of % of Pool
Combined Loan-to- Home Equity Aggregate Loan by Aggregate
Value Ratios Credit Lines Balances Loan Balances
- ------------ ------------ -------- -------------
<S> <C> <C> <C>
0.00% to 5.00%............ $ %
5.01% to 10.00%...........
10.01% to 15.00%...........
15.01% to 20.00%...........
20.01% to 25.00%...........
25.01% to 30.00%...........
30.01% to 35.00%...........
35.01% to 40.00%...........
40.01% to 45.00%...........
45.01% to 50.00%...........
50.01% to 55.00%...........
55.01% to 60.00%...........
60.01% to 65.00%...........
65.01% to 70.00%...........
70.01% to 75.00%...........
75.01% to 80.00%...........
80.01% to 85.00%...........
85.01% and above........... ___________ ___________ ____________
Total............... $ %
============
</TABLE>
MORTGAGE LOAN INTEREST RATE FLOORS
<TABLE>
<CAPTION>
Number of % of Pool
Interest Home Equity Aggregate Loan by Aggregate
Rate Floors Credit Lines Balances Loan Balances
- ----------- ------------ -------- -------------
<S> <C> <C> <C>
None.......................
%....................
%.................... ____________ ___________ ____________
Total............... $ %
============
</TABLE>
- --------------
/1/ The information in this table is as of the Cut-Off Date.
S-20
VERSION H
<PAGE>
MORTGAGE LOAN INTEREST RATE CEILINGS
<TABLE>
<CAPTION>
Number of % of Pool
Interest Home Equity Aggregate Loan by Aggregate
Rate Ceilings Credit Lines Balances Loan Balances
- ------------- ------------ -------- -------------
<S> <C> <C> <C>
%....................
%....................
None....................... ____________ ___________ ____________
Total............... $ %
============
</TABLE>
PROPERTY USE OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of % of Pool
Home Equity Aggregate Loan by Aggregate
Property Use Credit Lines Balances Loan Balance
- ------------ ------------ -------- ------------
<S> <C> <C> <C>
Owner Occupied.............
Non-Owner Occupied.........
Unknown.................... ____________ ___________ ____________
Total............... $ 100%
============
</TABLE>
LIEN PRIORITY OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of % of Pool
Home Equity Aggregate Loan by Aggregate
Credit Lines Balances Loan Balances
------------ -------- -------------
<S> <C> <C> <C>
Lien Priority
- -------------
First Mortgage.............
Second Mortgage............
Third Mortgage.............
Unknown.................... ____________ ___________ ____________
Total............... $ 100%
============
</TABLE>
S-21
VERSION H
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of % of Pool
Home Equity Aggregate by Aggregate
State Credit Lines Loan Balances Loan Balances
- ----- ------------ ------------- -------------
<S> <C> <C> <C>
_______....................
_______.................... _____________ ___________ ____________
Total............... $ %
============
</TABLE>
PROPERTY TYPE OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of % of Pool
Home Equity Aggregate Loan by Aggregate
Number of Units Credit Lines Balances Loan Balances
- --------------- ------------ -------- -------------
<S> <C> <C> <C>
Single Family Detached.....
Single Family Attached.....
2-4 Family.................
Condominium................
Cooperative................
Unknown.................... _____________ ____________ ____________
Total............... $ 100%
============
</TABLE>
S-22
VERSION H
<PAGE>
ORIGINATION YEAR OF MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of % of Pool
Home Equity Aggregate by Aggregate
Origination Year Credit Lines Loan Balance Loan Balances
- ---------------- ------------ --------------- --------------
<S> <C> <C> <C>
1984.......................
1985.......................
1986.......................
1987.......................
1988.......................
1989.......................
1990.......................
1991.......................
1992....................... _____________ ____________ ___________
Total............... $ 100%
===========
</TABLE>
DAYS DELINQUENT AS OF CUT-OFF DATE
<TABLE>
<CAPTION>
Number of % of Pool
Home Equity Aggregate Loan by Aggregate
Days Delinquent Credit Lines Balance Loan Balances
- --------------- ------------ ------- -------------
<S> <C> <C> <C>
30-59......................
60-89...................... _____________ ____________ ___________
Total............... $ 100%
===========
</TABLE>
No assurance can be given that the values of the Mortgaged Properties as of
the dates of origination of the related HELOCs have remained or will remain
constant or have not declined. If the residential real estate market generally
or the residential real estate market in ____________ should experience an
overall decline in property values such that the outstanding Loan Balances under
the HELOCs, together with any senior financing of the Mortgaged Properties,
equal or exceed the delinquencies, foreclosures and losses could be higher than
those currently experienced in the mortgage lending industry in general. For
information concerning possible declines in value of the Mortgaged Properties,
see "RISK FACTORS -- Risks of the Trust Assets" in the Prospectus. In
addition, adverse economic conditions (which may or may not affect real property
values) may affect the timely payment by borrowers of scheduled payments under
the Mortgage Loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to the Pool. To the extent that such
losses are not covered by draws on the [Letter of Credit] [Surety Bond], they
will be borne by Holders of the Certificates.
The descriptions in this Prospectus Supplement of the Pool and the Mortgaged
Properties are based upon the Pool as it is expected to be constituted as of the
close of business on the Cut-off Date, as adjusted for the scheduled principal
and interest payments due on or before such date. Prior to the issuance of the
Certificates, Mortgage Loans may be removed from the Pool as a result of
prepayments, delinquencies, incomplete documentation, or otherwise if
S-23
VERSION H
<PAGE>
the Depositor deems such removal necessary or desirable. A limited number of
other mortgage loans may be included in the Pool prior to the issuance of the
Certificates, unless including such mortgage loans would materially alter the
characteristics of the Pool as described herein. The Depositor believes that the
information set forth herein will be representative of the characteristics of
the Pool as it will be constituted at the time the Certificates are issued,
although the range of Loan Rates and maturities and certain other
characteristics of the Mortgage Loans in the Pool may vary.
MATURITY AND PREPAYMENT CONSIDERATIONS
The Agreement provides that the Certificateholders will not receive
payments of principal until the Distribution Date on _____________ (i.e., the
---
first Distribution Date after the first Collection Period following the end of
the Revolving Period) or, if earlier, the Distribution Date in the month after
the first Collection Period of an Early Amortization Event. During the
Amortization Period, Certificateholders will be entitled to receive on each
Distribution Date the Investor Percentage described herein of the Principal
Collections received in the preceding Collection Period until the Certificate
Principal Balance is reduced to zero. Allocations of Principal Collections
based on the Investor Percentage (which is fixed for the Amortization Period to
equal the percentage derived from dividing the Certificate Principal Balance by
the Pool Balance, in each case at the end of the Revolving Period) may result in
distributions of principal to the Certificateholders greater than those that
would result from distributions of principal based upon the proportion that the
declining Certificate Principal Balance bears to the Pool Balance. [The
Agreement permits the Depositor, at its option, but subject to the satisfaction
of certain conditions specified in the Agreement, including the conditions
described herein, to remove Mortgage Loans from the Trust at any time during the
life of the Trust (including the Amortization Period), so long as the Pool
Balance after such removal is not less than the Pool Balance at the Closing
Date. The Depositor may also, under certain circumstances, add Eligible
Additional Mortgage Loans to the Trust. Such removals and additions may affect
the rate at which principal is distributed to Certificateholders. See
"DESCRIPTION OF THE CERTIFICATES -- Transfers of Eligible Additional Mortgage
Loans to the Trust" and "--Optional Retransfers of Mortgage Loans to the
Depositor."]
All of the Mortgage Loans may be prepaid without penalty in full or in
part at any time. The prepayment experience with respect to the Mortgage Loans
will affect the life of the Certificates.
The rate of prepayment on the Mortgage Loans cannot be predicted. Home
equity credit lines such as the Mortgage Loans have been originated in
significant volume only during the past few years and the Depositor is not aware
of any publicly available studies or statistics on the rate of prepayment of
such loans. Generally, home equity credit lines are not viewed by borrowers as
permanent financing. Accordingly, the Mortgage Loans may experience a higher
rate of prepayment than traditional first mortgage loans. On the other hand,
because the Mortgage Loans will amortize as described herein, the absence of
voluntary borrower prepayments could cause rates of principal payment to be
slower than, or similar to, those of traditional fully-amortizing first
mortgages. The prepayment experience of the Trust with respect to the Mortgage
Loans may be affected by a wide variety of factors, including general economic
conditions, economic conditions in ___________, prevailing interest rate levels,
the availability of alternative financing and homeowner mobility, the frequency
and amount of any future draws on the HELOCs and changes affecting the
deductibility for Federal income tax purposes of interest payments on home
equity credit lines. Substantially all of the Mortgage Loans contain "due-on-
sale" provisions, and the Servicer intends to enforce such provisions, unless
such enforcement is not permitted by applicable law. The enforcement of a "due-
on-sale" provision will have the same effect as a prepayment of the related
Mortgage Loan. See "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS -- 'Due-on-Sale'
Clauses" in the Prospectus. The yield to an investor who purchases the
Certificates in the secondary market at a price other than par will vary from
the anticipated yield if the actual rate of prepayment on the Mortgage Loans is
different than the rate anticipated by such investor at the time such
Certificates were purchased.
S-24
VERSION H
<PAGE>
Collections on the Mortgage Loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for such month or as high as the entire principal outstanding balance
plus accrued interest and the fees and charges thereon. It is possible that
borrowers may fail to make scheduled payments. Collections on the Mortgage
Loans may vary due to seasonal purchasing and payment habits of borrowers.
Because the Mortgage Loans have a variable interest rate and a fixed payment,
changes in underlying interest rates will vary the allocation of payments
between interest and principal.
No assurance can be given as to the level of prepayments that will be
experienced by the Trust and it can be expected that a portion of borrowers will
not prepay their Mortgage Loans to any significant degree. See "YIELD
CONSIDERATIONS" and "MATURITY AND PREPAYMENT CONSIDERATIONS" in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. A form of
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement and the Prospectus is a part. The following
summaries describe certain provisions of the 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 Agreement. Wherever particular
sections or defined terms of the Agreement are referred to, such sections or
defined terms are hereby incorporated herein by reference.
GENERAL
The Certificates will be issued in denominations of [$1,000] and
integral multiples thereof and will evidence specified undivided interests in
the Trust. [Definitive] Certificates[, if issued,] will be transferable and
exchangeable at the corporate trust office of the Trustee, which will initially
act as Certificate Registrar. See "--Registration of Certificates" below. No
service charge will be made for any registration of exchange or transfer of
Certificates, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge.
The outstanding principal amount of the Certificates ("Certificate
Principal Balance") will be equal to the initial principal amount of the
Certificates, minus the amount of principal payments paid to the
Certificateholders, and minus the amount of Certificate Principal Balance Loss
Deduction Amounts, if any, which have not been reimbursed as provided herein.
See "--Distributions on the Certificates" below. Each Certificate represents
the right to receive payments of interest at the Certificate Rate and payments
of principal during the Amortization Period funded from Interest Collections and
Principal Collections, respectively, allocated to the investor interest and
draws on the [Letter of Credit] [Surety Bond].
The Depositor initially will own the interest (the "Depositor
Interest") not represented by the Certificates. The Depositor Interest will
represent an undivided interest in the Trust, including the right to receive
certain percentages (the "Depositor Percentage") of Interest Collections and
Principal Collections. The initial amount of the Depositor Interest was
determined on the basis of, among other factors, the size required to absorb
reductions in the aggregate amount of Loan Balances in the Trust without causing
an Early Amortization Event, which would result in the early commencement of the
Amortization Period. There can be no assurance that the Depositor Interest will
be sufficient for such purpose. While the Depositor is obligated (subject to
certain conditions and limitations) to transfer Eligible Additional Mortgage
Loans (to the extent available) to the Trust, there can be no assurance that
sufficient Eligible Additional Mortgage Loans will be available.
During the Revolving Period, the Certificate Principal Balance will
remain constant except in certain limited circumstances. See "--Distributions
on the Certificates" below. The Pool Balance, however, will vary each day as
principal is paid on the Mortgage Loans, liquidation losses are incurred,
Additional Balances are drawn
S-25
VERSION H
<PAGE>
down by borrowers under the HELOCs, Mortgage Loans are retransferred to the
Depositor or Eligible Additional Mortgage Loans are transferred to the Trust.
Consequently, the amount of the Depositor Interest will fluctuate each day to
reflect the changes in the Pool Balance. During the Amortization Period, the
Certificate Principal Balance will decline as the Investor Percentage of
Principal Collections is distributed to the Certificateholders. As a result,
during the Amortization Period, the Depositor Interest may increase each month
to reflect the reductions in the Certificate Principal Balance but may change
each day to reflect the variations in the Pool Balance.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, the Depositor will
transfer to the Trust all of its right, title and interest in and to each
Mortgage Loan (including any Additional Balances arising in the future) conveyed
by it to the Trust, including all principal (including Net Liquidation Proceeds)
and interest received on or with respect to each such Mortgage Loan subsequent
to the Closing Date (other than any amounts received in respect of taxes,
insurance premiums, assessments and similar items, as provided in the Agreement)
plus the Investor Percentage of Interest Collections on the Mortgage Loans
during the period from the Cut-Off Date to the second business day preceding the
Closing Date, but not in excess of the amount needed to distribute the required
interest to Certificateholders on the first Distribution Date and to pay the
related Investor Servicing Fee. The Trustee, concurrently with such transfer,
will deliver the Certificates and the Depositor Interest to the Depositor. Each
HELOC under which a Mortgage Loan assigned to the Trust was generated will be
identified in a schedule appearing as an exhibit to the Agreement.
The Depositor will deliver the files containing, among other things,
the Loan Agreement, the Mortgage Note and the Mortgage relating to each Mortgage
Loan (the "Mortgage Files") to the Trustee (or a custodian on its behalf) on the
Closing Date. The Trustee (or a custodian on its behalf) will review each
Mortgage File within ________ days of receipt thereof. If any such document is
found not to have been executed or received or to be unrelated to the Mortgage
Loan or to have not been recorded as required by the Agreement, the Trustee (or
custodian on its behalf) will notify the Depositor, which shall have a period of
___ days after such notice to correct or cure such defect. If the defect cannot
be cured within the ____ day period, the Depositor will be obligated to accept
the retransfer of such Mortgage Loan from the Trust. Upon such retransfer, the
Loan Balance of such Mortgage Loan will be deducted from the Pool Balance, thus
reducing the amount of the Depositor Interest by the same amount. If the
deduction would cause the Depositor Interest to become less than zero, the
Depositor will be obligated to make a deposit in the Collection Account in the
amount ("Retransfer Deposit Amount") by which the Depositor Interest is less
than zero. Notwithstanding the foregoing, however, no such retransfer shall be
considered to have occurred unless such deposit is actually made. The
obligation of the Depositor to accept a retransfer of a defective Mortgage Loan
and, if applicable, pay the Retransfer Deposit Amount, is the sole remedy
regarding any defects in the Mortgage Files available to the Trustee or the
Certificateholders.
The Depositor will make certain representations and warranties as to
the accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan on the schedule of Mortgage Loans
appearing as an exhibit to the Agreement. In addition, the Bank will represent
and warrant that, among other things: [(i) each Mortgage Loan has been
generated under an eligible HELOC; (ii) at the time of transfer to the Trust,
the Depositor has transferred all of the Depositor's right, title and interest
in each Mortgage Loan, free of any lien (subject to certain exceptions); (iii)
each Mortgage Loan was generated under a HELOC that complied, at the time of
origination, in all material respects with applicable state and Federal laws;
and (iv) as of the date of origination of the related HELOC, the related
Mortgaged Property was covered by hazard insurance in an amount at least equal
to the lesser of (a) the maximum insurable value of the improvements thereon and
(b) the combined Credit Limit under the HELOC and the unpaid principal balance
of any mortgage loan senior thereto. Upon discovery of a breach of any such
representation and warranty which materially and adversely affects the interests
of the Trust, the Certificateholders or the [Letter of Credit] [Surety Bond]
Issuer in the related Mortgage Loan, the Depositor will have a period of ___
days after discovery or notice of the breach to effect a cure. If the breach
cannot be cured within the ___ day period, the Depositor will be obligated to
accept a retransfer of the Mortgage Loan from the Trust. The same
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procedure and limitations that are set forth in the preceding paragraph for the
retransfer of a Mortgage Loan respecting which there is a defect in the Mortgage
File will apply to the retransfer of a Mortgage Loan that is required to be
retransferred because of a breach of a representation or warranty in the
Agreement that materially and adversely affects the interests of the
Certificateholders.
Any Mortgage Loan required to be retransferred to the Depositor as
described in the preceding two paragraphs is referred to as a "Defective
Mortgage Loan."
The Depositor may, but is not obligated to, retransfer a Defective
Mortgage Loan to the Trust within ___ days of the transfer of such Defective
Mortgage Loan to the Depositor if all defects in respect of such Defective
Mortgage Loan have been cured and such Defective Mortgage Loan satisfies the
applicable representations and warranties in the Agreement at the time of such
retransfer to the Trust.
[TRANSFERS OF ELIGIBLE ADDITIONAL MORTGAGE LOANS TO THE TRUST
If, for each of five consecutive business days during the Revolving
Period, the Depositor Interest for each such date is less than 10% of the Pool
Balance, then not later than the first business day of the calendar month
beginning at least ten business days after such fifth business day thereafter
the Depositor will be obligated to transfer to the Trust Eligible Additional
Mortgage Loans (but only to the extent available in the [Depositor's] [Seller's]
[Bank's] portfolio), which may be generated under home equity credit lines in
any billing cycle, so that, after giving effect to such transfer, the Depositor
Interest will equal at least 10% of the Pool Balance on such date. An Eligible
Additional Mortgage Loan is a home equity loan that was originated under a HELOC
that, as of the date of notice by the Depositor to the Trustee, the Servicer and
the [Letter of Credit] [Surety Bond] Issuer of its transfer to the Trust (the
"Notice Date"), was an Eligible HELOC and that, as of the Notice Date, complies
with the representations and warranties described under "Assignment of Mortgage
Loans" above. The Depositor must satisfy the following conditions, among
others, in order to transfer Eligible Additional Mortgage Loans to the Trust:
(i) the Pool Balance, after giving effect to such transfer, will not exceed
$ ; (ii) the Mortgage Files for such Eligible Additional Mortgage Loans
shall have been delivered to the Trustee (or a custodian on its behalf); and
(iii) the Depositor shall have given notice of the proposed transfer to the
Rating Agency and the Rating Agency has not notified the Depositor in writing
prior to the transfer date that such transfer will result in a reduction or
withdrawal of its then-current rating for the Certificates.
In addition, the Depositor may, at its election, transfer Eligible
Additional Mortgage Loans subject to satisfaction of the conditions described
above.]
[OPTIONAL RETRANSFERS OF MORTGAGE LOANS TO THE DEPOSITOR
Subject to the conditions specified in the Agreement, the Depositor
may, at its option, require the retransfer of one or more Mortgage Loans (which
may have been generated under a HELOC in any billing cycle) from the Trust to it
on the last day of any Collection Period. The Pool Balance after giving effect
to such retransfer must not be less than the Pool Balance on the Closing Date.
The Depositor will be required to satisfy the following conditions, among
others: (i) the Depositor shall reasonably believe that such retransfer will
not cause an Early Amortization Event to occur; (ii) as of the fifth business
day prior to the proposed transfer, not more than 10% (based on Loan Balances)
of the Mortgage Loans (after giving effect to the proposed transfer) are
delinquent more than 30 days and the weighted average delinquency of all of the
Mortgage Loans (before and after giving effect to the proposed transfer) is not
more than 60 days; (iii) the Depositor shall have represented that no selection
procedures reasonably believed by the Depositor to be adverse to the interests
of the Certificateholders or the [Letter of Credit] [Surety Bond] Issuer were
used to select the Mortgage Loans to be removed; (iv) the Depositor shall have
received evidence satisfactory to it that the reassignment will not, as of the
date thereof, prevent the transfer of the Mortgage Loans (including any
Additional Balances) to the Trust from being recognized as a sale under
generally accepted
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accounting principles and shall have received no evidence that such reassignment
will, as of the date thereof, prevent such transfer from being recognized as a
sale for regulatory purposes; and (v) each Rating Agency shall have been
notified of the proposed retransfer and prior to the date of retransfer has not
notified the Depositor in writing that such retransfer would result in a
reduction or withdrawal of its then-current rating of the Certificates.]
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT
The Servicer will follow such collection procedures with respect to the
Mortgage Loans as it follows from time to time with respect to mortgage loans in
its servicing portfolio comparable to the Mortgage Loans. See "DESCRIPTION OF
THE CERTIFICATES -- Payments on Mortgage Loans" in the Prospectus.
The Servicer will establish and maintain a separate account in the name
of the Trustee for the benefit of the Certificateholders and the [Letter of
Credit] [Surety Bond] Issuer (the "Collection Account"). See "DESCRIPTION OF
THE CERTIFICATES -- Distributions on Certificates" in the Prospectus. [The
Collection Account will be established initially with the trust department of
the Trustee.] Funds in the Collection Account may be invested in Eligible
Investments maturing in general not later than the business day preceding the
next Distribution Date. Eligible Investments consist of certain investments
acceptable to each Rating Agency for a structured transaction having the rating
initially assigned to the Certificates. All net income and gain realized from
any such investment will be paid to the Servicer.
Investor Percentage and Depositor Percentage. Pursuant to the
Agreement, the Servicer will allocate between the Investor Interest and the
Depositor Interest all amounts (including any Net Liquidation Proceeds)
collected under the Mortgage Loans on account of interest ("Interest
Collections"), all amounts (including Net Liquidation Proceeds) collected under
the Mortgage Loans on account of principal ("Principal Collections") and the
amount of the unrecovered Loan Balance of any Defaulted Mortgage Loan at the end
of the Collection Period in which such Defaulted Mortgage Loan became a
Defaulted Mortgage Loan (the "Liquidation Loss Amount"). A "Defaulted Mortgage
Loan" is a Mortgage Loan that has been written off as uncollectible by the
Servicer. The Collection Period for a Distribution Date is the calendar month
preceding such Distribution Date or, in the case of the first Distribution Date,
the period from the Cut-off Date through the last day of the calendar month
preceding the month in which such Distribution Date occurs. The Servicer will
make each allocation by reference to the Investor Percentage and the Depositor
Percentage applicable in each case during a Collection Period.
For convenience, this Prospectus Supplement refers to the Investor
Percentage with respect to Interest Collections, Principal Collections and
Liquidation Loss Amounts as if the Investor Percentage were the same percentage
at all times in each case. The Investor Percentage may be a different
percentage for each Collection Period, and will vary primarily as a result of
changes in the Pool Balance.
The Investor Percentage will be calculated as follows:
Interest Collections and Liquidation Loss Amounts. When used with
respect to Interest Collections and Liquidation Loss Amounts at any time,
"Investor Percentage" means the percentage equivalent of a fraction the
numerator of which is the Certificate Principal Balance and the denominator of
which is the Pool Balance, in each case as of the end of the immediately
preceding Collection Period (or, in the case of the first Collection Period, as
of the Closing Date).
Principal Collections during the Revolving Period. When used with
respect to Principal Collections during the Revolving Period, "Investor
Percentage" means the percentage equivalent of a fraction the numerator of which
is the amount of the Certificate Principal Balance and the denominator of which
is the Pool Balance, in each case as of the end of the immediately preceding
Collection Period (or in the case of the first Collection Period, as of the
Closing Date).
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Principal Collections during the Amortization Period. When used with
respect to Principal Collections during the Amortization Period, "Investor
Percentage" means the percentage equivalent of a fraction the numerator of which
is the amount of the Certificate Principal Balance and the denominator of which
is the Pool Balance, in each case as of the end of the Revolving Period.
The Depositor Percentage will, in all cases, be equal to 100% minus the
applicable Investor Percentage.
As a result of the calculations described above, Interest Collections
in each Collection Period will be allocated to the Certificateholders based on
the relationship of the Certificate Principal Balance to the Pool Balance (which
may fluctuate from month to month). As described above, the Investor Percentage
applied when allocating Principal Collections is expected to vary from month to
month during the Revolving Period, because the Certificate Principal Balance as
a percentage of the Pool Balance will fluctuate from month to month. During
the Amortization Period, however, the amount of Principal Collections allocated
to the Investor Interest will be determined by reference to a fixed percentage
which will be equal to the Investor Percentage with respect to Principal
Collections on the last day of the Revolving Period.
Deposits in the Collection Account and Payments to the Depositor. On
the Closing Date, the Servicer will deposit in the Collection Account funds in
the amount of the Investor Percentage of Interest Collections on the Mortgage
Loans received during the period from the Cut-Off Date to the second business
day preceding the Closing Date, but not in excess of the amount needed to
distribute the required interest on the Certificates and the Investor Servicing
Fee to be distributed on the initial Distribution Date. On and after the
Closing Date, the Servicer will, subject to the following paragraph, deposit on
a daily basis within two business days following receipt thereof (i) during each
Collection Period in the Revolving Period, the Investor Percentage of Interest
Collections and (ii) during each Collection Period in the Amortization Period,
the Investor Percentage of all Interest Collections and Principal Collections.
The Servicer will pay to the Depositor within two business days of its receipt
thereof (i) during each Collection Period in the Revolving Period, the Depositor
Percentage of all Interest Collections and, if the Depositor Interest (after
giving effect to any transfers of Additional Balances or Eligible Additional
Mortgage Loans to the Trust on such day) is equal to or greater than zero, the
Depositor Percentage of all Principal Collections and the Investor Percentage of
all Principal Collections and (ii) during each Collection Period in the
Amortization Period, the Depositor Percentage of Interest Collections and, if
the Depositor Interest (after giving effect to any transfers of Additional
Balances or Eligible Additional Mortgage Loans to the Trust on such day) is
greater than zero, the Depositor Percentage of all Principal Collections.
The Trustee will establish and maintain a separate account (the
"Distribution Account"). On the business day preceding each Distribution Date
the Servicer will transfer amounts in the Collection Account for distribution to
Certificateholders to the Distribution Account.
The Trustee will deposit in the Distribution Account any amounts drawn
on the [Letter of Credit] [Surety Bond] as described below.
Any Principal Collections not paid to the Depositor because of the
limitations described above ("Unallocated Principal Collections"), will be
deposited and retained in the Collection Account for payment to the Depositor,
during the Revolving Period, if and when the Depositor Interest is greater than
zero and, during the Amortization Period, to the Certificateholders.
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DISTRIBUTIONS ON THE CERTIFICATES
Beginning with the Distribution Date occurring in _____________,
distributions on the Certificates will be made by the Trustee out of amounts on
deposit in the Distribution Account on each Distribution Date to the persons in
whose names such Certificates are registered at the close of business on the
[day prior to each Distribution Date] (the "Record Date"), except as provided in
"Registration of Certificates" below. The term "Distribution Date" means the
___ day of each month (or if such ___ day is not a business day the next
succeeding business day). Distributions will be made by check mailed (or upon
the request of a Certificateholder owning Certificates having denominations
aggregating at least $________, by wire transfer or otherwise) to the address of
the person entitled thereof [(which, in the case of Book-Entry Certificates,
will be DTC or its nominee)] as it appears on the Certificate Register in
amounts calculated as described herein on the _____ business day (but no later
than the _____ calendar day) of the month in which the related Distribution Date
occurs (the "Determination Date"). However, the final distribution in respect
of the Certificates will be made only upon presentation and surrender thereof at
the office or the agency of the Trustee specified in the notice to
Certificateholders of such final distribution.
Distributions of Interest Collections and Required Amounts. On each
Distribution Date, the Trustee, on behalf of the Trust, shall pay the following
amounts in the following order of priority to the following persons from the
Investor Interest of all Interest Collections collected during the related
Collection Period, together with the Required Amount, if any, drawn on the
[Letter of Credit] [Surety Bond] for such Distribution Date.
[(i) to the Certificateholders, interest at the Certificate Rate for
the Interest Period preceding such Distribution Date on the Certificate
Principal Balance outstanding immediately prior to such Distribution Date;
(ii) to the Certificateholders, any interest on the Certificates
accrued in accordance with clause (i) that has not been previously distributed
to Certificateholders plus, to the extent legally permissible, interest thereon
at the Certificate Rate applicable from time to time (an "Unpaid Interest
Shortfall");
(iii) to the Servicer, the Investor Servicing Fee for the related
Interest Period and all accrued and unpaid Investor Servicing Fees for previous
Interest Periods;
(iv) if such Distribution Date is in the Revolving Period, to the
Depositor, the Investor Percentage of the aggregate of all Liquidation Loss
Amounts incurred in the preceding Collection Period; provided that the Depositor
Interest (after giving effect to any transfers of Additional Balances and
Eligible Additional Mortgage Loans on such date and to the distribution of such
Liquidation Loans Amount) is equal to or greater than zero;
(v) if such Distribution Date is in the Amortization Period, to the
Certificateholders, the Investor Percentage of the aggregate of all Liquidation
Loss Amounts incurred in the preceding Collection Period;
(vi) to the Certificateholders, the aggregate of the amounts allocable
pursuant to clause (v) that were not previously distributed pursuant to such
clause (each such undistributed amount being referred to herein as a
"Certificate Principal Balance Loss Deduction Amount"); and
(vii) to the Certificateholders, accrued and unpaid interest on each
unreimbursed Certificate Principal Balance Loss Deduction Amount (such interest
being calculated at the Certificate Rate for each Interest Period during which
such unreimbursed amount was outstanding.]
Any amounts remaining in the Collection Account collected during or
with respect to the preceding Collection Period, after all other distributions
have been made, will be distributed to the [Letter of Credit] [Surety Bond]
Issuer.
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A Certificate Principal Balance Loss Deduction Amount represents a loss
of principal in respect of Defaulted Mortgage Loans allocable to the Investor
Interest and will arise when the Investor Percentage of Interest Collections and
the Required Amount are not sufficient to cover such loss, in accordance with
the priority of distributions described above. As described under "General"
above, any Certificate Principal Balance Loss Deduction Amounts which have not
been reimbursed, as provided herein, will reduce the Certificate Principal
Balance.
The Required Amount for each distribution Date will be the lesser of
(i) the [Letter of Credit] [Surety Bond] Amount and (ii) the amount, if any, by
which (a) the full amount distributable on such Distribution Date pursuant to
clauses (i) through (vii) above exceeds (b) the Investor Percentage of the
Interest Collections for the related Collection Period. The Required Amount
will be drawn on the [Letter of Credit] [Surety Bond].
Distributions of Principal. On each Distribution Date after the first
Collection Period in the Amortization Period, the Trustee will distribute to the
Certificateholders the Investor Percentage of Principal Collections received in
the preceding Collection Period. In addition, the Trustee will distribute to
Certificateholders on any Distribution Date during the Amortization Period any
Retransfer Deposit Amount (or draw on the [Letter of Credit] [Surety Bond] in
respect thereof) received in the preceding Collection Period and any Unallocated
Principal Collections then on deposit in the Distribution Account. The
aggregate distributions of principal to the Certificateholders will not exceed
the Initial Certificate Principal Balance.
[Calculation of Certificate Rate. With respect to the initial
Distribution Date, the Certificate Rate will equal __%. Thereafter, on each
Distribution Date, the Certificate Rate will be equal to LIBOR as of the second
London Business Day (as defined below) prior to the immediately preceding
Distribution Date plus ________ basis points. However, if the Certificate Rate
calculated as described in the preceding sentence for any such Distribution Date
is greater than the weighted average of the Net Loan Rates for the Mortgage
Loans for the preceding Collection Period, the Certificate Rate for any such
Distribution Date will be equal to the weighted average of the Net Loan Rates.
The Net Loan Rate for a Mortgage Loan is its Loan Rate less the Servicing Fee
Rate. Interest payable on any Distribution Date will accrue on the Certificates
from the preceding Distribution Date (or, in the case of the first Distribution
Date, from the Closing Date) through the day preceding such Distribution Date
(an "Interest Period"). All calculations of interest accrued on the
Certificates will be made on the basis of [the actual number of days in an
Interest Period and a year assumed to consist of 360 days.]
The term "Certificate Principal Balance" means (i) the original
principal amount of the Certificates less (ii) all amounts previously
distributed to Certificateholders under "-Distributions of Principal" above,
less (iii) the aggregate of all unreimbursed Certificate Principal Balance Loss
Deduction Amounts.
Calculation of LIBOR. "LIBOR" with respect to any Distribution Date
will be determined by the Trustee and will be equal to the offered rates for
deposits in United States dollars having a maturity of one month (the "Index
Maturity") commencing on the second London Business Day (as defined below) prior
to the previous Distribution Date, which appear on the Reuters Screen LIBO Page
as of approximately 11:00 A.M., London time, on such date of calculation. If at
least two such offered rates appear on the Reuters Screen LIBO Page, LIBOR will
be the arithmetic mean (rounded upwards, if necessary, to the nearest one-
sixteenth of a percent) of such offered rates. If fewer than two such quotations
appear, LIBOR with respect to such distribution Date will be determined at
approximately 11:00 A.M., London time, on such determination date on the basis
of the rate at which deposits in the United States dollars having the Index
Maturity are offered to prime banks in the London interbank market by four major
banks in the London interbank market selected by the Trustee and in a principal
amount equal to an amount of not less than U.S. $1,000,000 and that is
representative for a single transaction in such market at such time. The Trustee
will request the principal London office of each of such banks to provide a
quotation of its rate. If at least two such quotations are provided, LIBOR will
be the arithmetic mean (rounded upwards as aforesaid) of such quotations. If
fewer than two quotations are provided, LIBOR with respect to such Distribution
Date will be the arithmetic mean
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(rounded upwards as aforesaid) of the rates quoted at approximately 11:00 A.M.,
New York City time, on such determination date by three major banks in New York,
New York selected by the Trustee for loans in United States dollars to leading
European banks having the Index Maturity and in a principal amount equal to an
amount of not less than U.S. $1,000,000 and that is representative for a single
transaction in such market at such time; provided, however, that if the banks
selected as aforesaid by the Trustee are not quoting as mentioned in this
sentence, LIBOR in effect for the applicable period will be LIBOR in effect for
the previous period.]
[For purposes of calculating LIBOR, a "London Business Day" will be any
Business Day on which dealings in deposits in United States dollars are
transacted in the London interbank market and "Reuters Screen LIBO Page" will be
the display designated as page "LIBO" on the Reuters Monitor Money Rates Service
(or such other page as may replace the LIBO page on that service for the purpose
of displaying London interbank offered rates of major banks.)]
THE [LETTER OF CREDIT] [SURETY BOND]
On the Closing Date, the [Letter of Credit] [Surety Bond] Issuer will
issue the [Letter of Credit] [Surety Bond] in favor of the Trustee on behalf of
the Trust to support payments on the Certificates. On each Determination Date,
the Servicer will determine the amounts required to be drawn on the [Letter of
Credit] [Surety Bond], up to the [Letter of Credit] [Surety Bond] Amount, on the
related Distribution Date. On each Distribution Date, any amounts remaining in
the Collection Account with respect to the preceding Collection Period, after
all other distributions have been made as described above, will be distributed
to the [Letter of Credit] [Surety Bond] Issuer. See "Distributions on
Certificates" above.
The amount available under the [Letter of Credit] [Surety Bond] (the
"Letter of Credit] [Surety Bond] Amount") for the initial Distribution Date will
be $ . For each Distribution Date thereafter, the [Letter of Credit]
[Surety Bond] Amount will equal the lesser of (i) ___% of the Pool Balance as of
the first day of the preceding Collection Period (after giving effect to any
amounts distributed with respect to principal of the Mortgage Loans on the
Distribution Date occurring in such preceding Collection Period) and (ii) the
[Letter of Credit] [Surety Bond] Amount as of the first day of the preceding
Collection Period, minus any amounts drawn under the [Letter of Credit] [Surety
Bond] during such preceding Collection Period, plus any amounts paid to the
[Letter of Credit] [Surety Bond] Issuer on the Distribution Date occurring in
such preceding Collection Period up to the amount of any previous draws on the
[Letter of Credit] [Surety Bond].
EARLY AMORTIZATION EVENTS
As described above, the Revolving Period will continue until the close
of business on the last day of __________ unless an Early Amortization Event
occurs prior thereto. The term "Early Amortization Event" refers to any of the
following events:
[(a) failure on the part of the Servicer or the Depositor (i) to make
any payment or deposit on the date required under the Agreement within five
business days after such payment or deposit is required to be made, (ii) to
observe or perform in any material respect certain covenants of the Servicer or
the Depositor or (iii) to observe or perform in any material respect any other
covenants or agreements of the Servicer or the Depositor set forth in the
Agreement, which failure, in each case, materially and adversely affects the
interests of the Certificateholders and which, in the case of clause (iii),
continues unremedied for a period of 60 days after written notice and continues
to materially and adversely affect the interests of the Certificateholders for
such period;
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(b) any representation or warranty made by the Servicer or the
Depositor in the Agreement proves to have been incorrect in any material respect
when made, as a result of which the interests of the Certificateholders are
materially and adversely affected, which continues to be incorrect in any
material respect for a period of 60 days after written notice and which
continues to materially and adversely affect the interests of the
Certificateholders for such period; provided, however, that an Early
Amortization Event shall not be deemed to occur thereunder if the Depositor has
accepted retransfer of the related Mortgage Loan or all such Mortgage Loans, if
applicable, during such period (or such longer period (not to exceed an
additional 60 days) as the Trustee may specify) in accordance with the
provisions of the Agreement;
(c) the Trust becomes subject to registration as an investment company
under the Investment Company Act of 1940, as amended;
(d) if the Depositor fails to transfer to the Trust Eligible
Additional Mortgage Loans by the time it is required to do so;
(e) an Event of Default under the Trust Agreement (as described in the
Prospectus under "DESCRIPTION OF THE CERTIFICATES -- Rights Upon Event of
Default") occurs;
(f) the [Letter of Credit] [Surety Bond] Amount is less the % of
the Certificate Principal Balance; or
(g) if the average of the Investor Percentage of Interest Collections
for any three consecutive Collection Periods is less than the amounts to be
distributed to Certificateholders as set forth in subsections (i) through (vii)
under "Distributions on the Certificates -- Distributions of Interest
Collections and Required Amounts" above for the three Distribution Dates
relating to such Collection Periods.]
[In the case of any event described in clauses (a), (b) or (e), an
Early Amortization Event will be deemed to have occurred only if, after the
expiration of the applicable grace period, if any, described in such clauses,
either the Trustee or holders of Certificates evidencing Percentage Interests
aggregating more than 51% or the [Letter of Credit] [Surety Bond] Issuer (but
only if the [Letter of Credit] [Surety Bond] is outstanding or the [Letter of
Credit] [Surety Bond] Issuer has not been fully reimbursed for all amounts paid
to the Trust by the [Letter of Credit] [Surety Bond] Issuer), by written notice
to the Depositor and the Servicer (and to the Trustee if given by the
Certificateholders or the [Letter of Credit] [Surety Bond] Issuer) declare that
an Early Amortization Event has occurred as of the date of such notice. In the
case of any event described in clauses (c), (d) or (f), an Early Amortization
Event will be deemed to have occurred without any notice or other action on the
part of the Trustee or the Certificateholders or the [Letter of Credit] [Surety
Bond] Issuer immediately upon the occurrence of such event. On the date on
which an Early Amortization Event is deemed to have occurred, the Amortization
Period will commence. In such event, distributions of principal to the
Certificateholders will begin on the first Distribution Date following the month
in which the Early Amortization Event occurs. If, because of the occurrence of
an Early Amortization Event, the Amortization Period begins earlier than
____________, the date on which the Amortization Period is scheduled to
commence, Certificateholders will begin receiving distributions of principal
earlier than they would otherwise have been the case under the Agreement, which
may shorten the final maturity of the Certificates.]
OPTIONAL TERMINATION
The Depositor may effect a retransfer of the Certificateholders'
interest in each Mortgage Loan, and all property acquired in respect of any
Mortgage Loan, remaining in the Trust for an amount equal to the sum of the
Certificate Principal Balance plus accrued and unpaid interest thereon at the
applicable Certificate Rate through the day preceding the final Distribution
Date if the Certificate Principal Balance immediately prior to the final
Distribution Date is less than or equal to [5%] of the original Certificate
Principal Balance. The purchase price will
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be distributed to the Certificateholders in lieu of the amount that would
otherwise be distributed if such option were not exercised, which will be
applied as provided in the Agreement.
[REGISTRATION OF CERTIFICATES
The Certificates will initially be registered in the name of Cede, the
nominee of DTC. DTC is a limited-purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilities the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Certificate Owners who are not Participants but desire to purchase,
sell or otherwise transfer ownership of the Certificates may do so only through
Participants (unless and until Definitive Certificates are issued). In
addition, Certificate Owners will receive all distributions of principal of and
interest on the Certificates from the Trustee through Participants. Certificate
Owners will not receive or be entitled to receive certificates representing
their respective interests in the Certificates, except under the limited
circumstances described below.
Unless and until Definitive Certificates are issued, it is anticipated
that the only Certificateholder of the Certificates will be Cede, as nominee of
DTC, and Certificate Owners will not be Certificateholders as that term is used
in the Agreement. Certificate Owners are only permitted to exercise the rights
of Certificateholders indirectly through Participants.
While the Certificates are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required to make book-
entry transfers among Participants on whose behalf it acts with respect to the
Certificates and is required to receive and transmit distributions of principal
of and interest on the Certificates. Participants with whom Certificate Owners
have accounts with respect to Certificates are similarly required to make book-
entry transfers and receive and transmit such distributions on behalf of their
respective Certificate Owners. Accordingly, although Certificate Owners will
not possess certificates, the Rules provide a mechanism by which Certificate
Owners will receive distributions and will be able to transfer their interests.
Unless and until Definitive Certificates are issued, Certificate Owners
who are not Participants may transfer ownership of Certificates only through
Participants by instructing such Participants to transfer Certificates, by book-
entry transfer, through DTC for the account of the purchasers of such
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Certificates will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
respective Participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Certificates Owners.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
S-34
VERSION H
<PAGE>
Certificates will be issued in registered form to Certificate Owners,
or their nominees, rather than to DTC (such Certificates being referred to
herein as "Definitive Certificates"), only if (i) DTC or the Servicer advises
the Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to the Certificates and
the Servicer or the Trustee is unable to locate a qualified successor, (ii) the
Servicer, at its sole option, advises the Trustee in writing that it elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Servicing Termination, DTC, at the direction of Certificate Owners
owing Certificates evidencing Percentage Interests aggregating at least 51%,
advises the Trustee in writing that the continuation of a book-entry system
through DTC (or a successor thereto) to the exclusion of any physical
certificates being issued to Certificate Owners is no longer in the best
interests of Certificate Owners. Upon the issuance of Definitive Certificates
to Certificate Owners, such Certificates will be transferable directly (and not
exclusively on a book-entry basis) and registered holders will deal directly
with the Trustee with respect to transfers, notices and distributions. If
Definitive Certificates are issued, the Record Date may be changed to the last
day of the month immediately preceding the related Distribution Date.
DTC has advised the Servicer and the Trustee that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one or
more Participants to whose accounts with DTC the Certificates are credited. DTC
has advised the Servicer that DTC will take such action with respect to any
Percentage Interests of the Certificates only at the direction of and on behalf
of such Participants with respect to such Percentage Interests of the
Certificates. DTC may take actions, at the direction of the related
Participants, with respect to some Certificates which conflict with actions
taken with respect to other Certificates.]
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor towards the purchase of the Mortgage Loans. The
Mortgage Loans will have been acquired by the Depositor from _____________ in a
privately negotiated transaction.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Certificates will be
rated in the [highest] rating category of the Rating Agency, the Certificates
will not constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"), because most of the Mortgages
securing the Mortgage Loans are not first mortgages. Accordingly, many
institutions with legal authority to invest in comparably rated securities based
on first mortgage loans may not be legally authorized to invest in the
Certificates, which because they evidence interests in a pool that includes
junior mortgage loans are not "mortgage related securities" under SMMEA. See
"LEGAL INVESTMENT" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated ______________, and the Terms Agreement relating to the
Certificates, dated _____________ (collectively the "Underwriting Agreement"),
between the Depositor and Credit Suisse First Boston (the "Underwriter"), an
affiliate of the Depositor, the Depositor has agreed to sell to the Underwriter,
and the Underwriter has agreed to purchase from the Depositor, all of the
Certificates.
S-35
VERSION H
<PAGE>
The Underwriting Agreement provides that the Underwriter's obligations
thereunder are subject to certain conditions precedent, and that the Underwriter
will be obligated to purchase all of the Certificates if any are purchased.
The distribution of the Certificates by the Underwriter will be
effected from time to time in one or more negotiated transactions or otherwise
at varying prices to be determined at the time of sale. The Underwriter may
effect such transactions by selling the Certificates to or through dealers, and
such dealers may receive from the Underwriter compensation in the form of
underwriting discounts, concessions or commissions. The Underwriter and any
dealers that participate with the Underwriter in the distribution of the
Certificates may be deemed to be underwriters, and any discounts, commissions or
concessions received by them, and any profit on the resale of the Certificates
purchased by them, may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended (the "Act").
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter against certain civil liabilities, including liabilities under
the Act.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed
upon by Stroock & Stroock & Lavan LLP, New York, New York.
RATING
It is a condition to issuance that the Certificates be rated not lower
than _________ by Standard & Poor's Corporation and ________________ by Moody's
Investors Service Inc.
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the Mortgage Loans to which they are
entitled. The rating takes into consideration the characteristics of the
Mortgage Loans and the structural, legal and tax aspects associated with the
Certificates. The ratings on the Certificates do not, however, constitute
statements regarding the likelihood or frequency of prepayments on the Mortgage
Loans or the possibility that Certificateholders might realize a lower than
anticipated yield.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
S-36
VERSION H
<PAGE>
==================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OTHER THAN THE OFFERED SECURITIES OFFERED HEREBY,
NOR AN OFFER OF THE OFFERED SECURITIES IN ANY STATE OR
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD
BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE;
HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED,
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Summary................................................... S-
Risk Factors.............................................. S-
Description of the Mortgage Loans......................... S-
The Seller................................................ S-
Description of the Sale and Purchase Agreement............ S-
The Servicer.............................................. S-
Prepayment and Yield Considerations....................... S-
Description of the Certificates........................... S-
Servicing of the Mortgage Loans........................... S-
The Trustee............................................... S-
Certain Legal Aspects of the Mortgage Loans............... S-
The Certificate Insurance Policy and the Certificate Insurer S-
Certain Federal Income Tax Considerations................. S-
ERISA Considerations...................................... S-
Legal Investment.......................................... S-
Underwriting.............................................. S-
Report of Experts......................................... S-
Ratings................................................... S-
Legal Matters............................................. S-
Index of Significant Prospectus Supplement Definitions.... S-
Annex I................................................... I-1
PROSPECTUS
Prospectus Supplement.....................................
Additional Information....................................
Incorporation of Certain Information by Reference.........
Summary of Terms..........................................
Risk Factors..............................................
The Trust Fund............................................
The Depositor.............................................
Use of Proceeds...........................................
Maturity, Prepayment and Yield Considerations.............
Description of the Securities.............................
Credit Support............................................
Description of Insurance..................................
Certain Legal Aspects of the Mortgage Loans and Contracts.
Certain Federal Income Tax Consequences...................
ERISA Considerations......................................
Legal Investment..........................................
Plan of Distribution......................................
Legal Matters.............................................
Index of Terms............................................
===========================================================
===========================================================
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT, ALL DEALERS EFFECTING TRANSACTIONS IN THE
OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT
AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===========================================================
(SELLER)
$_________
Asset-Backed Certificates,
Series 199_-_
Credit Suisse First Boston Mortgage Securities Corp.
(Depositor)
PROSPECTUS SUPPLEMENT
LOGO
===========================================================
===========================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses except for the
registration and filing fees, are estimated.
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $303,030.30
Legal Fees and Expenses....................................... 750,000
Accounting Fees and Expenses.................................. 150,000
Trustee's Fees and Expenses (including counsel fees).......... 300,000
Printing and Engraving Fees................................... 350,000
Rating Agency Fees............................................ 850,000
Miscellaneous................................................. 200,000
-------------
Total.......................................................$2,903,030.00
============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article V of the Certificate of Incorporation of the Depositor and Article X
of the By-laws of the Depositor provide for the indemnification of the
officers and directors of the Depositor in certain circumstances. Reference is
made to Exhibit 3.1 of this Registration Statement for the complete text of
the Certificate of Incorporation and reference is made to Exhibit 3.2 of this
Registration Statement for the complete text of the By-laws.
The ultimate parent of the Depositor carries directors' and officers'
liability insurance that covers certain liabilities and expenses of the
Depositor's directors and officers.
For provisions regarding the indemnification of controlling persons,
directors and officers of the Depositor by Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, reference
is made to the proposed forms of Underwriting Agreement filed as Exhibits 1.1
and 1.2 to this Registration Statement.
II-1
<PAGE>
ITEM 16. EXHIBITS
(a) Financial Statements filed as part of the Registration Statement: none
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PG. NO.
------- ----------- -------
<C> <S> <C>
*1.1 --Forms of Underwriting Agreement (Mortgage Loans/Mortgage
Certificates)
*1.2 --Form of Underwriting Agreement (Contracts)
**3.1 --Restated Certificate of Incorporation of Depositor
**3.1.1 --Certificate of Amendment to the Certificate of
Incorporation of Depositor
*3.2 --By-laws of Depositor
*4.1 --Form of Standard Terms and Provisions of Pooling and
Servicing Mortgage Certificates)
*4.2 --Forms of Reference Agreement (Mortgage Loans/Mortgage
Certificates)
*4.3 --Form of Deposit Trust Agreement between Depositor and
Trustee
*4.4 --Form of Master Seller's Warranty and Servicing Agreement
*4.5 --Form of Standard Terms and Provisions of Pooling and
Servicing (Contracts)
*4.6 --Forms of Reference Agreement (Contracts)
*4.7 --Form of Standard Terms and Provisions of Pooling and
Servicing and Reference Agreement
*4.8 --Form of Pooling and Servicing Agreement (Mortgage Loans)
***4.9 --Form of Indenture
***4.10 --Form of Sale and Servicing Agreement
***4.11 --Form of Servicing Agreement
***5.1 --Opinion of Stroock & Stroock & Lavan LLP with respect to certain
matters involving the Certificates and Notes
***8.1 --Opinion of Stroock & Stroock & Lavan LLP as to tax matters
(included as part of Exhibit 5.1)
***23.1 --Consent of Stroock & Stroock & Lavan LLP (included as part of
Exhibit 5.1)
24.1 --Power of Attorney (included on Page II-6 of the Registration
Statement)
***25.1 --Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of the Indenture Trustee.
*28.1 --Form of Performance Bond
*28.2 --Form of Letter of Credit
*28.3 --Form of Primary Mortgage Insurance Policy
*28.4 --Form of Pool Insurance Policy
*28.5 --Form of Special Hazard Insurance Policy
*28.6 --Form of Mortgagor Bankruptcy Bond
</TABLE>
- --------
* As previously filed in connection with Registration Statement on Form S-11
(Registration No. 33-47579) and incorporated herein by reference.
** As previously filed in connection with Registration Statement on Form S-3
(Registration No. 333-21329) and incorporated herein by reference.
***Filed herewith.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) Undertaking pursuant to Rule 415.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) As to documents subsequently filed that are incorporated by reference:
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13 (a) or Section 15 (d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(d) As to Qualification of Trust Indentures under the Trust Indenture Act of
1939 for Delayed Offerings.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of New York, State of New York on the 22nd
day of July, 1997.
CREDIT SUISSE FIRST BOSTON MORTGAGE
SECURITIES CORP.
/s/ Scott J. Ulm
-------------------------------------
Scott J. Ulm
Chairman of the Board
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, Amendment No. 1 to
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ LAWRENCE A. SHELLEY * Director and July 22,
- ------------------------------------- President 1997
LAWRENCE A. SHELLEY (Principal
Executive Officer)
/s/ SCOTT J. ULM Director and July 22,
- ------------------------------------- Chairman of the 1997
SCOTT J. ULM Board
/s/ WILLIAM S. PITOFSKY * Director and July 22,
- ------------------------------------- Vice President 1997
WILLIAM S. PITOFSKY
/s/ STEWART W. DAUNAN * Director July 22,
- ------------------------------------- 1997
STEWART W. DAUNAN
/s/ DIANE MANNO * Treasurer (Principal July 22,
- ------------------------------------- Financial Officer) 1997
DIANE MANNO
/s/ THOMAS ZINGALLI * Vice President and July 22,
- ------------------------------------- Controller 1997
THOMAS ZINGALLI (Principal
Accounting Officer)
</TABLE>
* By: /s/ SCOTT J. ULM
--------------------
Scott J. Ulm
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT 4.9
HOME EQUITY LOAN TRUST 199_-__
Issuer
AND
INDENTURE TRUSTEE
------------------------------
INDENTURE
Dated as of ____________
------------------------------
HOME EQUITY LOAN TERM NOTES
HOME EQUITY LOAN ASSET BACKED VARIABLE FUNDING NOTES
______________________
<PAGE>
CROSS-REFERENCE TABLE/*/
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
(S) 310(a)(1) .......................... 3.02, 6.11
(a)(2) .......................... 6.11
(a)(3) .......................... 6.01(a) and (b)
(a)(4) .......................... Not Applicable
(a)(5) .......................... 6.11
(b) .......................... 6.11
(c) .......................... Not Applicable
(S) 311(a) .......................... 6.12
(b) .......................... 6.12
(c) .......................... Not Applicable
(S) 312(a) .......................... 7.01, 7.02(a)
(b) .......................... 7.02(b)
(c) .......................... 7.02(c)
(S) 313(a) .......................... 7.04
(b) .......................... 7.04
(c) .......................... 7.04
(d) .......................... 7.04
(S) 314(a)(1) .......................... 7.03(a)(i)
(a)(2) .......................... 7.03(a)(ii)
(a)(3) .......................... 7.03(a)(iii)
(a)(4) .......................... 3.10
(b)(1) .......................... 3.07(a)
(b)(2) .......................... 3.07(b)
(c)(1) .......................... 10.01(a) and (b)
(c)(2) .......................... 10.01(a) and (b)
(c)(3) .......................... Not Applicable
(d) .......................... 10.01(b)
(e) .......................... 10.01(a)
(f) .......................... Not Necessary
(S) 315(a) .......................... 6.01(b)
(b) .......................... 6.05
(c) .......................... 6.01(a)
(d) .......................... 6.01(c)
(d)(1) .......................... 6.01(c)(i) and 6.01(b)
- ----------
/*/ This Cross-Reference Table shall not, for any purpose be deemed to be part
of the Indenture.
<PAGE>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
(d)(2) .......................... 6.01(c)(ii)
(d)(3) .......................... 6.01(c)(iii)
(e) .......................... 6.13
(S) 316(a) .......................... 5.11 and 5.12
(b) .......................... 5.07
(c) .......................... 4.01(a)
(S) 317(a)(1) .......................... 5.03(b)
(a)(2) .......................... 5.03(d)(i)
(b) .......................... 3.03
(S) 318(a) .......................... 10.07
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I.
Definitions 1
1.01. Definitions................................................................ 1
1.02. Incorporation by Reference of Trust Indenture Act.......................... 2
1.03. Rules of Construction...................................................... 2
ARTICLE II.
Original Issuance of Notes
2.01. Form........................................................................ 3
2.02. Execution, Authentication and Delivery...................................... 3
ARTICLE III.
Covenants
3.01. Collection of Payments with respect to the Class A Ownership Interest....... 5
3.02. Maintenance of Office or Agency............................................. 5
3.03. Money for Payments To Be Held in Trust; Paying Agent........................ 5
3.04. Existence................................................................... 6
3.05. Payment of Principal and Interest; Defaulted Interest....................... 7
3.06. Protection of Trust Estate.................................................. 9
3.07. Opinions as to Trust Estate................................................. 9
3.08. Performance of Obligations; Servicing Agreement............................. 10
3.09. Negative Covenants.......................................................... 11
3.10. Annual Statement as to Compliance........................................... 11
3.11. Recording of Assignments.................................................... 12
3.12. Representations and Warranties Concerning Mortgage Loans.................... 12
3.13. Amendments to Servicing Agreement........................................... 12
3 14. Master Servicer as Agent and Bailee of the Class A Ownership Interest Holder 12
3.15. Investment Company Act...................................................... 12
3.16. Issuer May Consolidate, etc................................................. 12
3.17. Successor or Transferee..................................................... 14
3.18. No Other Business........................................................... 14
3.19. No Borrowing................................................................ 15
3 20. Guarantees, Loans, Advances and Other Liabilities........................... 15
3.21. Capital Expenditures........................................................ 15
3.22. [Reserved].................................................................. 15
3.23. Restricted Payments......................................................... 15
3.24. Notice of Events of Default................................................. 15
3 25. Further Instruments and Acts................................................ 15
3.26. Statements to Noteholders................................................... 15
3 27. Determination of Note Rate and Certificate Rate............................. 15
3.28. Payments under the Credit Enhancement Instrument............................ 16
3.29. Replacement Credit Enhancement Instrument................................... 16
ARTICLEI V.
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
The Notes; Satisfaction and Discharge of Indenture
4.01. The Notes: Increase of Maximum Variable Funding Balance: Additional Variable
Funding Notes.............................................................. 18
4.02. Registration of and Limitations on Transfer and Exchange of Notes; Appointment
of Certificate Registrar.................................................... 20
4.03. Mutilated. Destroyed Lost or Stolen Notes................................... 21
4.04. Persons Deemed Owners....................................................... 22
4.05. Cancellation................................................................ 22
4.06. Book-Entry Notes............................................................ 23
4.07. Notices to Depository....................................................... 23
4.08. Definitive Notes............................................................ 24
4 09. Tax Treatment............................................................... 24
4 10. Satisfaction and Discharge of Indenture..................................... 24
4.11. Application of Trust Money.................................................. 25
4.12. Subrogation and Cooperation................................................. 25
4.13. Repayment of Monies Held by Paying Agent.................................... 26
4.14. Temporary Notes............................................................. 26
ARTICLE V.
Default and Remedies
5.01. Events of Default........................................................... 28
5.02. Acceleration of Maturity: Rescission and Annulment.......................... 28
5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee... 29
5.04. Remedies, Priorities........................................................ 31
5.05. Optional Preservation of the Trust Estate................................... 32
5.06. Limitation of Suits......................................................... 33
5.07. Unconditional Rights of Noteholders To Receive Principal and Interest....... 33
5.08. Restoration of Rights and Remedies.......................................... 34
5.09. Rights and Remedies Cumulative.............................................. 34
5.10. Delay or Omission Not a Waiver.............................................. 34
5.11. Control by Noteholders...................................................... 34
5.12. Waiver of Past Defaults..................................................... 35
5.13. Undertaking for Costs....................................................... 35
5.14. Waiver of Stay or Extension Laws............................................ 35
5.15. Sale of Trust Estate........................................................ 36
5.16. Action on Notes............................................................. 37
5.17. Performance and Enforcement of Certain Obligations.......................... 37
ARTICLE VI.
The Indenture Trustee
6.01. Duties of Indenture Trustee................................................. 39
6.02. Rights of Indenture Trustee................................................. 40
6.03. Individual Rights of Indenture Trustee...................................... 40
6.04. Indenture Trustee's Disclaimer.............................................. 40
6.05. Notice of Event of Default.................................................. 41
6 06. Reports by Indenture Trustee to Holders..................................... 41
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
6.07. Compensation and Indemnity.................................................. 41
6.08. Replacement of Indenture Trustee............................................ 41
6.09. Successor Indenture Trustee by Merger....................................... 42
6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee........... 43
6.11. Eligibility; Disqualification............................................... 44
6.12. Preferential Collection of Claims Against Issuer............................ 44
6.13. Representation and Warranty................................................. 44
6.14. Directions to Indenture Trustee............................................. 45
6.15. No Consent to Certain Acts of Depositor..................................... 45
6.16. Indenture Trustee May Own Securities........................................ 45
ARTICLE VII.
Noteholders' Lists and Reports
7 01. Issuer To Furnish Indenture Trustee Names and Addresses of Noteholders...... 46
7.02. Preservation of information; Communications to Noteholders.................. 46
7.03. Reports by Issuer........................................................... 46
7.04. Reports by Indenture Trustee................................................ 47
ARTICLE VIII.
Accounts, Disbursements and Releases
8.01. Collection of Money......................................................... 48
8 02. Trust Accounts.............................................................. 48
8.03. Officer's Certificate....................................................... 49
8 04. Termination Upon Distribution to Noteholders................................ 49
8.05. Release of Trust Estate..................................................... 49
8.06. Surrender of Notes Upon Final Payment....................................... 50
ARTICLE IX.
Supplemental Indentures
9.01. Supplemental Indentures Without Consent of Noteholders...................... 51
9 02. Supplemental Indentures With Consent of Noteholders......................... 52
9.03. Execution of Supplemental Indentures........................................ 53
9.04. Effect of Supplemental Indenture............................................ 54
9 05. Conformity with Trust Indenture Act......................................... 54
9 06. Reference in Notes to Supplemental Indentures............................... 54
ARTICLE X.
Miscellaneous
10 01. Compliance Certificates and Opinions, etc.......................................55
10.02. Form of Documents Delivered to Indenture Trustee............................ 56
10.03. Acts of Noteholders......................................................... 57
10 04. Notices, etc., to Indenture Trustee. Issuer, Credit Enhancer and Rating
Agencies.................................................................... 58
10.05. Notices to Noteholders; Waiver.............................................. 58
</TABLE>
iii
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Section Page
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<S> <C> <C>
10.06. Alternate Payment and Notice Provisions..................................... 59
10.07. Conflict with Trust Indenture Act........................................... 59
10.08. Effect of Headings.......................................................... 59
10.09. Successors and Assigns...................................................... 60
10.10. Separability................................................................ 60
10.11. Benefits of Indenture....................................................... 60
10.12. Legal Holidays.............................................................. 60
10.13. GOVERNING LAW............................................................... 60
10.14. Counterparts................................................................ 60
10.15. Recording of Indenture...................................................... 60
10.16. Issuer Obligation........................................................... 60
10.17. No Petition................................................................. 61
10.18. Inspection.................................................................. 61
10.19. Authority of the Administrator.............................................. 61
</TABLE>
iv
<PAGE>
EXHIBITS
Exhibit A-1 -- Form of Term Notes
Exhibit A-2 -- Form of Variable Funding Notes
Exhibit B -- Form of Opinion to be delivered pursuant
to Section 4.01(b)(ii)
Exhibit C -- Form of Opinion to be delivered pursuant
to Section 4.01(b)(iii)
Exhibit D -- Investment Letter
Appendix A Definitions
i
<PAGE>
This Indenture. dated as of _________. between HOME EQUITY LOAN TRUST
199__ - ____, a Delaware business trust, as Issuer (the "Issuer"), and
____________________, a ___________________ as Indenture Trustee (the "Indenture
Trustee").
WlTNESSETH THAT:
Each party hereto agrees as follows for the benefit of the other party
and for the equal and ratable benefit of the Holders of the Issuer's Series
______ Asset Backed Term Notes and Asset Backed Variable Funding Notes,
(together the "Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing Date,
as trustee for the benefit of the Holders of the Notes, all of the Issuer's
right, title and interest in and to whether now existing or hereafter created
(a) the Class A Ownership Interest in ____________, a limited liability company
(the "199_-___ Trust LLC") created by the Depositor [under New York or Delaware
law], (b) all funds on deposit in the Funding Account. including all income from
the investment and reinvestment of funds therein, (c) all funds on deposit from
time to time in the Collection Account allocable to the Mortgage Loans excluding
any investment income from such funds; (d) all funds on deposit from time to
time in the Payment Account and in all proceeds thereof; (e) the Policy and (f)
all present and future claims, demands, causes and chooses in action in respect
of any or all of the foregoing and all payments on or under, and all proceeds of
every kind and nature whatsoever in respect of, any or all of the foregoing and
all payments on or under, and all proceeds of every kind and nature whatsoever
in the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, checks, deposit accounts, rights to payment of any and every kind,
and other forms of obligations and receivables, instruments and other property
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing (collectively, the "Trust Estate" or the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on. and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction. and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as trustee on behalf of the Holders of the
Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions hereof and agrees to perform its duties as
Indenture Trustee as required herein.
ARTICLE I.
Definitions
Section 1.01. Definitions. For all purposes of this Indenture.
except as otherwise expressly provided herein or unless the context otherwise
requires. capitalized terms not
<PAGE>
otherwise defined herein shall have the meanings assigned to such terms in the
Definitions attached hereto as Appendix A which is incorporated by reference
herein. All other capitalized terms used herein shall have the meanings
specified herein.
Section 1.02. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the Trust Indenture Act (the
"TIA"), the provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission
rule have the meaning assigned to them by such definitions.
Section 1.03. Rules of Construction. Unless the context otherwise
---------------------
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or
instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns.
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<PAGE>
ARTICLE II
Original Issuance of Notes
Section 2.01. Form. The Term Notes and the Variable Funding Notes,
----
in each case together with the Indenture Trustee's certificate of
authentication, shall be in substantially the forms set forth in Exhibits A-l
and A-2, respectively, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may, consistently herewith,
be determined by the officers executing such Notes, as evidenced by their
execution of the Notes. Any portion of the text of any Note may be set forth on
the reverse thereof, with an appropriate reference thereto on the face of the
Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes, as
evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibits A-1 and A-2 are
part of the terms of this Indenture.
Section 2.02. Execution, Authentication and Delivery. The Notes
--------------------------------------
shall be executed on behalf of the Issuer by any of its Authorized Officers.
The signature of any such Authorized Officer on the Notes may be manual or
facsimile
Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes
The Indenture Trustee shall upon Issuer Request authenticate and
deliver Term Notes for original issue in an aggregate initial principal amount
of $_________ and Variable Funding Notes for original issue in an aggregate
initial principal amount of zero. The Security Balance of the Variable Funding
Notes in the aggregate may not exceed the Maximum Variable Funding Balance. The
aggregate principal amount of Notes outstanding at any time may not exceed the
sum of $________ and the Security Balance of Additional Variable Funding Notes
issued pursuant to the terms of Section 4.01 hereof.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes and the Term Notes shall be issuable in
the minimum initial Security Balances of $100,000 and in integral multiples of
$1,000 in excess thereof.
Each Variable Funding Note shall be initially issued with a Security
Balance of $0 or, if applicable, with a Security Balance in the amount equal to
the Additional Balance Differential for the Collection Period related to the
Payment Date following the date of issuance of such Variable Funding Note
pursuant to Section 4.01(c).
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<PAGE>
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
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<PAGE>
ARTICLE III
Covenants
Section 3.01. Collection of Payments with respect to the Class A
--------------------------------------------------
Ownership Interest. The Indenture Trustee shall establish and maintain with
- ------------------
itself a trust account (the "Payment Account") in which the Indenture Trustee
shall, subject to the terms of this paragraph, deposit, on the same day as it is
received from the Master Servicer, each remittance received by the Indenture
Trustee with respect to the Class A Ownership Interest. The Indenture Trustee
shall make all payments of principal of and interest on the Notes, subject to
Section 3 03 as provided in Section 3 05 herein from monies on deposit in the
Payment Account.
Section 3.02. Maintenance of Office or Agency. The Issuer will
-------------------------------
maintain in the Borough of Manhattan, The City of New York, an office or agency
where, subject to satisfaction of conditions set forth herein. Notes may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may be
served. The Issuer hereby initially appoints the Indenture Trustee to serve as
its agent for the foregoing purposes. If at any time the Issuer shall fail to
maintain any such office or agency or shall fail to furnish the Indenture
Trustee with the address thereof, such surrenders, notices and demands may be
made or served at the Corporate Trust Office, and the Issuer hereby appoints the
Indenture Trustee as its agent to receive all such surrenders, notices and
demands.
Section 3.03. Money for Payments To Be Held in Trust; Paying Agent.
----------------------------------------------------
(a) As provided in Section 3 01, all payments of amounts due and
payable with respect to any Notes that are to be made from amounts withdrawn
from the Payment Account pursuant to Section 3 01 shall be made on behalf of the
Issuer by the Indenture Trustee or by the Paying Agent, and no amounts so
withdrawn from the Payment Account for payments of Notes shall be paid over to
the Issuer except as provided in this Section 3 03.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and pay such sums to such Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by the Issuer
of which it has actual knowledge in the making of any payment required to
be made with respect to the Notes;
-5-
<PAGE>
(iii) at any time during the continuance of any such default, upon
the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Notes if
at any time it ceases to meet the standards required to be met by a Paying
Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, by Issuer Request
direct any Paying Agent to pay to the Indenture Trustee all sums held in trust
by such Paying Agent, such sums to be held by the Indenture Trustee upon the
same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money held
by the Indenture Trustee or any Paying Agent in trust for the payment of any
amount due with respect to any Note and remaining unclaimed for one year after
such amount has become due and payable shall be discharged from such trust and
be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper published in the English language, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The
Indenture Trustee may also adopt and employ, at the expense and direction of the
Issuer, any other reasonable means of notification of such repayment (including,
but not limited to, mailing notice of such repayment to Holders whose Notes have
been called but have not been surrendered for redemption or whose right to or
interest in monies due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Holder).
Section 3.04. Existence. The Issuer will keep in full effect its
---------
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which such case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be
-6-
<PAGE>
necessary to protect the validity and enforceability of this Indenture, the
Notes, the Class A Ownership Interest and each other instrument or agreement
included in the Trust Estate.
Section 3.05. Payment of Principal and Interest; Defaulted Interest.
-----------------------------------------------------
(a) On each Payment Date from amounts on deposit in the Payment Account after
making (x) any deposit to the Funding Account pursuant to Section 8 02(b) and
(y) any deposits to the Payment Account pursuant to Section 8.02(c)(ii) and
Section 8.02(c)(i)(2), the Indenture Trustee shall pay to the Noteholders, the
Certificate Paying Agent, on behalf of the Certificateholders, and to other
Persons the amounts to which they are entitled as set forth below:
(i) The sum of (x) to the Noteholders the sum of (a) one month's
interest at the Note Rate on the Security Balances of Notes immediately
prior to such Payment Date and (b) any previously accrued and unpaid
interest for prior Payment Dates and (y} to the Certificate Paying Agent,
the Certificate Distribution Amount for such Payment Date;
(ii) if such Payment Date is after the Funding Period, to the
Noteholders and the Certificate Paying Agent as the case may be, as
principal on the Term Notes. Variable Funding Notes, and the Certificates,
the applicable Security Percentage of the Principal Collection Distribution
Amount and if such Payment Date is the first Payment Date following the end
of the Funding Period (if ending due to an Amortization Event) or the
Payment Date on which the Funding Period ends, to the Noteholders and
Certificate Paying Agent as principal on the Term Notes, Variable Funding
Notes. and Certificates the applicable Security Percentage of the amount
deposited from the Funding Account in respect of Security Principal
Collections;
(iii) to the Noteholders and the Certificate Paying Agent, as the
case may be, as principal on the Term Notes, Variable Funding Notes and the
Certificates, pro rata, based on the Security Balances from the amount
remaining on deposit in the Payment Account, up to the applicable Security
Percentage of Liquidation Loss Amounts for the related Collection Period;
(iv) to the Noteholders and the Certificate Paying Agent, as the
case may be, as principal on the Term Notes, Variable Funding Notes and the
Certificates, pro rata, based on the Security Balances from the amount
remaining on deposit in the Payment Account, up to the applicable Security
Percentage of Carryover Loss Amounts;
(v) to the Credit Enhancer, in the amount of the premium for the
Credit Enhancement Instrument and for any Additional Credit Enhancement
Instrument;
(vi) to the Credit Enhancer, to reimburse it for prior draws made on
the Credit Enhancement Instrument and on any Additional Credit Enhancement
Instrument (with interest thereon as provided in the Insurance Agreement);
(vii) to the Noteholders and the Certificate Paying Agent. as the
case may be, as principal on the Term Notes, Variable Funding Notes and the
Certificates, pro rata, based
-7-
<PAGE>
on the Security Balances from Security Interest Collections, up to the
Special Capital Distribution Amount for such Payment Date;
(viii) to the Credit Enhancer, any other amounts owed to the Credit
Enhancer pursuant to the Insurance Agreement;
(ix) {Reserved};
(x) to reimburse the Administrator for expenditures made on behalf
of the Issuer with respect to the performance of its duties under the
Indenture; and
(xi) any remaining amount, to the Certificate Paying Agent, on
behalf of the Designated Certificates.
provided, however, in the event that on a Payment Date a Credit Enhancer Default
shall have occurred and be continuing then the priorities of distributions
described above will be adjusted such that payments of the Certificate
Distribution Amount and all other amounts to be paid to the Certificate Paying
Agent will not be paid until the full amount of interest and principal in
accordance with clauses (i) (x) and (ii) through (iv) above that are due on the
Notes on such Payment Date have been paid and provided, further, that on the
Final Scheduled Payment Date or other final Payment Date, the amount to be paid
pursuant to clause (ii) above shall be equal to the Security Balances of the
Securities immediately prior to such Payment Date.
On each Payment Date, the Certificate Paying Agent shall deposit in the
Certificate Distribution Account all amounts it received pursuant to this
Section 3 05 for the purpose of distributing such funds to the
Certificateholders.
The amounts paid to Noteholders shall be paid to each Class in accordance
with the Class Percentage as set forth in paragraph (b) below. Interest will
accrue on the Notes during an Interest Period on the basis of the actual number
of days in such Interest Period and a year assumed to consist of 360 days.
[Any installment of interest or principal, if any, payable on any .Note or
Certificate that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, if such Holder holds Notes or Certificates of an
aggregate initial Principal Balance of at least $1,000,000, be paid to each
Holder of record on the preceding Record Date, by wire transfer to an account
specified in writing by such Holder reasonably satisfactory to the Indenture
Trustee as of the preceding Record Date or in all other cases or if no such
instructions have been delivered to the Indenture Trustee, by check to such
Noteholder mailed to such Holder's address as it appears in the Note Register
the amount required to be distributed to such Holder on such Payment Date
pursuant to such Holder's Securities; provided, however, that the Indenture
Trustee shall not pay to such Holders any amount required to be withheld from a
payment to such Holder by the Code.]
(b) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date for such Note as provided in the related form of
Note set forth in Exhibits A-l and A-2. All principal payments on each Class of
Notes shall be made to the Noteholders of such
-8-
<PAGE>
Class entitled thereto in accordance with the Percentage Interests represented
by such Notes. Upon notice to the Indenture Trustee by the Issuer, the Indenture
Trustee shall notify the Person in whose name a Note is registered at the close
of business on the Record Date preceding the Final Scheduled Payment Date or
other final Payment Date. Such notice shall be mailed no later than five
Business Days prior to such Final Scheduled Payment Date or other final Payment
Date and shall specify that payment of the principal amount and any interest due
with respect to such Note at the Final Scheduled Payment Date or other final
Payment Date will be payable only upon presentation and surrender of such Note
and shall specify the place where such Note may be presented and surrendered for
such final payment.
Section 3.06. Protection of Trust Estate.
--------------------------
(a) The Issuer will from time to time execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iii) cause the 199_-_ Trust LIC to enforce any of the .Mortgage
Loans; or
(iv) preserve and defend title to the Trust Estate and the rights of
the Indenture Trustee and the Noteholders in such Trust Estate against the
claims of all persons and parties.
(b) Except as otherwise provided in this Indenture, the Indenture Trustee
shall not remove any portion of the Trust Estate that consists of money or is
evidenced by an instrument, certificate or other writing from the jurisdiction
in which it was held at the date of the most recent Opinion of Counsel delivered
pursuant to Section 3 07 (or from the jurisdiction in which it was held as
described in the Opinion of Counsel delivered at the Closing Date pursuant to
Section 3.07(a), if no Opinion of Counsel has yet been delivered pursuant to
Section 3.07(b) unless the Trustee shall have first received an Opinion of
Counsel to the effect that the lien and security interest created by this
Indenture with respect to such property will continue to be maintained after
giving effect to such action or actions.
The Issuer hereby designates the Indenture Trustee its agent and attorney-
in-fact to execute any financing statement, continuation statement or other
instrument required to be executed pursuant to this Section 3.06.
Section 3.07. Opinions as to Trust Estate.
---------------------------
(a) On the Closing Date, the Issuer shall furnish to the Indenture
Trustee and the Owner Trustee an Opinion of Counsel either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording and filing of this Indenture, any indentures
-9-
<PAGE>
supplemental hereto, and any other requisite documents, and with respect to the
execution and filing of, any financing statements and continuation statements,
as are necessary to perfect and make effective the lien and security interest in
the Class A Ownership Interest and reciting the details of such action, or
stating that, in the opinion of such counsel, no such action is necessary to
make such lien and security interest effective.
(b) On or before _______ in each calendar year, beginning in _____,
the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel at the
expense of the Issuer either stating that, in the opinion of such counsel, such
action has been taken with respect to the recording, filing, re-recording and
refiling of this Indenture, any indentures supplemental hereto and any other
requisite documents and with respect to the execution and filing of any
financing statements and continuation statements as is necessary to maintain the
lien and security interest in the Class A Ownership Interest and reciting the
details of such action or stating that in the opinion of such counsel no such
action is necessary to maintain such lien and security interest. Such Opinion
of Counsel shall also describe the recording, filing, re-recording and refiling
of this Indenture, any indentures supplemental hereto and any other requisite
documents and the execution and filing of any financing statements and
continuation statements that will, in the opinion of such counsel, be required
to maintain the lien and security interest in the Class A Ownership Interest
until December 31 in the following calendar year.
Section 3.08. Performance of Obligations; Servicing Agreement.
-----------------------------------------------
(a) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in The Trust Estate.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Administrator to assist the Issuer in performing
its duties under this Indenture.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Class A
Ownership Interest or under any instrument included in the Trust Estate, or
which would result in the amendment, hypothecation, subordination, termination
or discharge of, or impair the validity or effectiveness of, any of the
documents relating to the Mortgage Loans or any such instrument, except such
actions as the Master Servicer is expressly permitted to take in the Servicing
Agreement. The Indenture Trustee, as pledgee of the Class A Ownership Interest,
shall be able to exercise the rights of the Class A Ownership Interest holder,
as managing member of the 199__-____ Trust LLC, to direct the actions of the
Master Servicer.
(d) The Issuer shall at all times retain an Administrator (approved by
the Credit Enhancer under the Administration Agreement) and may enter into
contracts with other Persons for the performance of the Issuer's obligations
hereunder, and performance of such obligations by such Persons shall be deemed
to be performance of such obligations by the Issuer.
-10-
<PAGE>
Section 3.09. Negative Covenants. So long as any Notes are
------------------
Outstanding, the Issuer shall not;
(i) except as expressly permitted by this Indenture, sell,
transfer, exchange or otherwise dispose of the Trust Estate, unless
directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the principal
or interest payable in respect of, the Notes (other than amounts properly
withheld from such payments under the Code) or asset any claim against any
present or former Noteholder by reason of the payment of the taxes levied
or assessed upon any part of the Trust Estate;
(iii) (A) permit the validity or effectiveness of this Indenture to
be impaired, or permit the lien of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any Person
to be released from any covenants or obligations with respect to the Notes
under this Indenture except as may be expressly permitted hereby. (B)
permit any lien, charge, excise, claim, security interest. mortgage or
other encumbrance (other than the lien of this Indenture) to be created on
or extend to or otherwise arise upon or burden the Trust Estate or any part
thereof or any interest therein or the proceeds thereof or (C) permit the
lien of this Indenture not to constitute a valid first priority security
interest in the Trust Estate; or
(iv) waive or impair, or fail to assert rights under, the Class A
Ownership Interest. or impair or cause to be impaired the Class A
Ownership's Interest in the 199_ _ Trust LLC or the 199_-_ Trust LLC's
interest in the Mortgage Loans. the Mortgage Loan Purchase Agreement or in
any Basic Document. if any such action would materially and adversely
affect the interests of the Noteholders.
Section 3.10. Annual Statement as to Compliance. The Issuer will
---------------------------------
deliver to the Indenture Trustee. within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year ______, an Officer's
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that:
(i) a review of the activities of the Issuer during such year and of
IRS performance under this Indenture has been made under such Authorized
Officers supervision: and
(ii) to the best of such Authorized Officer's knowledge, based on such
review. the Issuer has complied with all conditions and covenants under
this Indenture throughout such year, or, if there has been a default in its
compliance with any such condition or covenant, specifying each such
default known to such Authorized Officer and the nature and status thereof.
Section 3.11 Recording of Assignments. The Issuer shall cause the
------------------------
199_-_ Trust LLC to exercise its right under the Mortgage Loan Purchase
Agreement with respect to the obligation of the Seller to submit or cause to be
submitted for recording all Assignments of Mortgages on or
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<PAGE>
prior to with respect to the Initial Loans and within 60 days following the
related Deposit Date with respect to any Additional Loans.
Section 3.12. Representations and Warranties Concerning Mortgage
--------------------------------------------------
Loans. The Indenture Trustee, as pledgee of the Class A Ownership Interest, has
- -----
the benefit of the representations and warranties made by the Seller in Section
3. I(a) -.l Section 3.1(b) of the Mortgage Loan Purchase Agreement concerning
the Mortgage Loans and the right to enforce the remedies against the Seller
provided in such Section 3. I(a) or Section 3. I(b) to the same extent as though
such representations and warranties were made directly to the Indenture Trustee.
Section 3.13 Amendments to Servicing Agreement. The Issuer covenants
---------------------------------
with the Indenture Trustee that it will not enter into any amendment or
supplement to the Servicing Agreement in accordance with Section 8 01 of the
Servicing Agreement without the prior written consent of the Indenture Trustee
The Indenture Trustee. as pledgee of the Class A Ownership Interest. may, in its
discretion, decline to enter into or consent to any such supplement or amendment
if its own rights, duties or immunities shall be adversely affected.
Section 3 14. Master Servicer as Agent and Bailee of the Class A
--------------------------------------------------
Ownership Interest Holder. Solely for purposes of perfection under Section 9-
- -------------------------
305 of the Uniform Commercial Code or other similar applicable law, rule or
regulation of the state in which such property is held by the Master Servicer,
the Indenture Trustee hereby acknowledges that the Master Servicer is acting as
agent and Bailee of the Class A Ownership Interest holder in holding amounts on
deposit in the Collection Account pursuant to Section 3 02 of the Servicing
Agreement, as well as its agent and bailee in holding any Related Documents
released to the Master Servicer pursuant to Section 3.06(c) of the Servicing
Agreement. and any other items constituting a part of the Trust Estate which
from time to time come into the possession of the Master Servicer. It is
intended that, by the Master Servicer's acceptance of such agency pursuant to
Section 3 02 of the Servicing Agreement. the Trustee. as a secured party of the
Class A Ownership Interest, will be deemed to have possession of such Related
Documents, such monies and such other items for purposes of Section 9-305 of the
Uniform Commercial Code of the state in which such property is held by the
Master Servicers.
Section 3.15. Investment Company Act. The Issuer shall not become an
----------------------
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.15
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
Section 3.16. Issuer May Consolidate, etc.
---------------------------
(a) The Issuer shall not consolidate or merge with or into any
other Person, unless:
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<PAGE>
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state
or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the indenture
Trustee, in form reasonably satisfactory to the Indenture Trustee, the
due and punctual payment of the principal of an interest on all Notes
and to the Certificate Payment, on behalf of the Certificateholders
and the performance or observance of every agreement and covenant of
this Indenture on the part of the Issuer to be performed or observed,
all as provided herein;
(ii) immediately after giving effect to such transaction, no
Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer that
such transaction shall not cause the rating of the Notes [or the
Certificates] to be reduced. suspended withdrawn or to be considered
by either Rating Agency to be below investment grade without taking
into account the Credit Enhancement Instrument;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer any Noteholder or any Certificateholder;
(v) any action that is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee
an Officer's Certificate and an Opinion of Counsel each stating that
such consolidation or merger and such supplemental indenture comply
with this Article III and that all conditions precedent herein
provided for relating to such transaction have been complied with
(including any filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets. including those included in the Trust Estate, to any Person. unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any state, (B) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issue: to be performed or observed, all
as provided herein, (C) expressly agrees by means of such supplemental
indenture that all right, title and interest so conveyed or
transferred shall be subject and subordinate to the rights of Holders
of the Notes, (D) unless otherwise provided in such supplemental
indenture, expressly agrees to indemnify,
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defend and hold harmless the Issuer against and from any loss,
liability or expense arising under or related to this Indenture and
the Notes and (E) expressly agrees by means of such supplemental
indenture that such Person (or if a group of Persons, then one
specified Person) shall make all filings with the Commission and any
other appropriate Person) required by the Exchange Act in connection
with the Notes;
(ii) immediately after giving effect to such transaction. w
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer that
such transaction shall not cause the rating of the Notes or the
Certificates to be reduced, suspended or withdrawn;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer or any Noteholder;
(v) any action that is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee
an Officer's Certificate and an Opinion of Counsel each stating that
such conveyance or transfer and such supplemental indenture comply
with this Article III and Thai all conditions precedent herein
provided for relating to such transaction have been complied with
(including any filing required by the Exchange Act)
Section 3.17. Successor or Transferee.
------------------------
(a) Issuer in accordance with Section 3.16(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to. and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.161b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the pan
of the Issuer with respect to the Notes immediately upon the delivery of written
notice to the Indenture Trustee of such conveyance or transfer.
Section 3.18. No Other Business. The Issuer shall not engage in any
-----------------
business other than financing, purchasing, owning and selling and managing the
Class A Ownership Interest and the issuance of the Notes and Certificates in the
manner contemplated by this Indenture and the Basic Documents and all activities
incidental thereto.
Section 3.19. No Borrowing. The Issuer shall not issue, incur,
------------
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
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<PAGE>
Section 3.20. Guarantees, Loans, Advances and Other Liabilities.
-------------------------------------------------
Except as contemplated by this Indenture or the Basic Documents, the Issuer
shall not make any loan or advance or credit to, or guarantee (directly or
indirectly or by an instrument having the effect of assuring another's payment
or performance on any obligation or capability of so doing or otherwise),
endorse or otherwise become contingently liable, directly or indirectly, in
connection with the obligations, stocks or dividends of, or won, purchase,
repurchase or acquire (or agree contingently to do so) any stock, obligations,
assets or securities of, or any other interest in, or make any capital
contribution, to any other Person.
Section 3.21. Capital Expenditures. The Issuer shall not make any
--------------------
expenditure (by long term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.22. [Reserved]
Section 3.23. Restricted Payments. The Issuer shall not, directly or
-------------------
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security of (iii) set aside or
otherwise segregate any amounts for any such propose; provided, however, that
the Issuer may make, or cause to be made, (x) distributions to the Owner Trustee
and the Certificateholders as contemplated by, and to the extent funds are
available for such purpose under the Trust Agreement, (y) payments to the Master
Servicer pursuant to the terms of the Servicing Agreement and (z) payments to
the Indenture Trustee pursuant to Section 1(a)(ii) of the Administration
Agreement. The Issuer will not, directly or indirectly, make payments to or
distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
Section 3.24. Notice of Events of Default. The issuer shall give the
---------------------------
Indenture Trustee the Credit Enhancer and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.
Section 3 25. Further Instruments and Acts. Upon request of the
----------------------------
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
Section 3.26. Statements to Noteholders. The Indenture Trustee and
-------------------------
the Certificate Registrar shall forward by mail to each Noteholder and
Certificateholder, respectively, the Statement delivered to it pursuant to
Section 4 01 of the Servicing Agreement.
Section 3 27. Determination of Note Rate and Certificate Rate. On
-----------------------------------------------
the second LIBOR Business Day immediately preceding (i) the Closing Date in the
case of the first Interest Period and (ii) the first day of each succeeding
Interest Period, the Indenture Trustee shall determine LIBOR and the Note Rate
for such Interest Period and shall inform the Issuer, the Master Servicer and
the Depositor at their respective facsimile numbers given to the Indenture
Trustee in writing thereof.
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<PAGE>
Section 3.28. Payments under the Credit Enhancement Instrument.
------------------------------------------------
(a) On any Payment, other than a Dissolution payment Date, the
Indenture Trustee on behalf of the Noteholders, and in its capacity as
Certificate Paying Agent on behalf of the Certificateholders shall make a draw
on the Credit Enhancement Instrument in an amount if any equal to the sum of (x)
the amount by which the interest accrued at the Note Rate on the Security
Balance of the Notes exceeds the amount on deposit in the Payment Account
available to be distributed therefor on such Payment Date and (y) the Guaranteed
Principal Payment Amount (the "Credit Enhancement Draw Amount").
(b) The Indenture Trustee shall submit, if a Credit Enhancement Draw
Amount is specified in any Statement to Holders prepared by the Master Servicer
pursuant to Section 4.01 of the Servicing Agreement, the Notice for Payment (as
defined in the Credit Enhancement Instrument) in the amount of the Credit
Enhancement Draw Amount to the Credit Enhancer no later than 2:00 P.M., New York
City time, on the second Business Day prior to the applicable Payment Date.
Upon receipt of such Credit Enhancement Draw Amount in accordance with the terms
of the Credit Enhancement Instrument, the Indenture Trustee shall deposit such
Credit Enhancement Draw Amount in the Payment Account for distribution to
Holders (and the Certificate Paying Agent on behalf of the Certificates)
pursuant to Section 3.05.
In addition, a draw may be made under the Credit Enhancement
Instrument in respect of any Avoided Payment (as defined in and pursuant to the
terms and conditions of the Credit Enhancement) and the Indenture Trustee shall
submit a Notice for Payment with respect thereto together with the other
documents required to be delivered to the Credit Enhancer pursuant to the Credit
Enhancement Instrument in connection with a draw in respect of any Avoided
Payment.
(c) In the event that any Additional Credit Enhancement Instruments
are issued pursuant to Section 4.01 and Section 2.02(b) of the Insurance
Agreement, the Indenture Trustee shall be authorized to make draws thereon
subject to the terms and conditions therein.
Section 3.29. Replacement Credit Enhancement Instrument. In the event
of a Credit Enhancer Default or if the claims paying ability rating of the
Credit Enhancer is downgraded and such downgrade results in a downgrading of the
then current rating of the Securities (in each case, a "Replacement Event"), the
Issuer, at its expense, in accordance with and upon satisfaction of the
conditions set forth in the Credit Enhancement Instrument, including, without
limitation, payment in full of all amounts owed to the Credit Enhancer, may, but
shall not be required to, substitute a new surety bond or surety bonds for the
existing Credit Enhancement Instrument or may arrange for any other form of
credit enhancement; provided, however, that in each case the Notes shall be
rated no lower than the rating assigned by each Rating Agency to the Notes
immediately prior to such Replacement Event and the timing and mechanism for
drawing on such new credit enhancement shall be reasonably acceptable to the
Indenture Trustee and provided further that the premiums under the proposed
credit enhancement shall not exceed such premiums under the existing Credit
Enhancement Instrument. It shall be a condition to substitution of any new
credit enhancement that there be delivered to the Indenture Trustee (i) an
Opinion of Counsel, acceptable in form to the Indenture Trustee, from counsel to
the provider of such new credit enhancement with respect to the enforceability
thereof and such other matters as
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<PAGE>
the Indenture Trustee may require and (ii) an Opinion of Counsel to the effect
that such substitution would not (a) adversely affect in any material respect
the tax status of the Notes or (b) cause the Issuer to be subject to a tax at
the entity level. Upon receipt of the items referred to above and payment of all
amounts owing to the Credit Enhancer and the taking of physical possession of
the new credit enhancement, the Indenture Trustee shall, within five Business
Days following receipt of such items and such taking of physical possession,
deliver the replaced Credit Enhancement Instrument to the Credit Enhancer. In
the event of any such replacement the Issuer shall give written notice thereof
to the Rating Agencies.
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<PAGE>
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. The Notes: Increase of Maximum Variable Funding Balance
-------------------------------------------------------
Additional Variable Funding Notes.
- ---------------------------------
(a) The Term Notes shall be registered in the name of a nominee
designated by the Depository. Beneficial Owners will hold interests in the Term
Notes through the book-entry facilities of the Depository in minimum initial
Principal Balances of $1,000 and integral multiples of $1,000 in excess thereof.
The Capped Funding Notes will be issued as physical notes in fully registered
form in minimum initial Principal Balances of $10,000 and integral multiples of
$1,000 in excess thereof, together with any additional amount necessary to cover
the aggregate initial Principal Balance of the Capped Funding Notes surrendered
at the time of the initial denominational exchange thereof (with such initial
Principal Balance in each case being deemed to he the Principal Balance of the
Capped Funding Notes at the time of such initial denominational exchange
thereof).
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Term Notes for the
purposes of exercising the rights of Holders of Term Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Term Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the Term
Notes as to which they are the Beneficial Owners. Requests and directions from,
and votes of, the Depository as Holder of the Term Notes shall not be deemed
inconsistent if they are made with respect to different Beneficial Owners. The
Indenture Trustee may establish a reasonable record date in connection with
solicitations of consents from or voting by Noteholders and give notice to the
Depository of such record date. Without the consent of the Issuer and the
Indenture Trustee. No Term Note may be transferred by the Depository except to
a successor Depository that agrees to hold such Note for the account of the
Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Notes it
beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the
Issuer by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
(b) So long as no Amortization Event has occurred ,he Maximum Variable
Funding Balance on the Closing Date may be increased from time to time by an
aggregate amount not
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exceed $____________ and Additional Variable Funding Notes may be issued upon
satisfaction of the following conditions:
(i) the Indenture Trustee shall have received an Additional Credit
Enhancement Instrument pursuant to the terms and conditions of the
Insurance Agreement, including without limitation Section 2.02(B) thereof;
(ii) the Indenture Trustee shall have received an Opinion of
Counsel to the Credit Enhancer in the form attached hereto as Exhibit B;
(iii) the Indenture Trustee shall have received an Opinion of
Counsel in the form attached hereto as Exhibit C;
(iv) the Indenture Trustee shall have received the documents
specified in Section 10.01(a) (other than clause (iii) thereof).
The Security Balance of such Additional Variable Funding Notes in the aggregate
will reflect the sum of (i) the related Excess Additional Balance Differential
for each Collection Period from the Collection Period during which the
Additional Variable Funding Notes are issued until the new Maximum Variable
Funding Balance is reached. Notwithstanding the foregoing, the Security Balance
of each specific Additional Variable Funding Note will be limited to the Maximum
Individual Variable Funding Balance as provided in subsection (c) below.
The Additional Variable Funding Notes issued in connection with the first
increase in the Maximum Variable Funding Balance pursuant to this subsection
will bear the designation "A" (in addition to the numerical designation pursuant
to subsection (c) below) and any subsequent Additional Variable Funding Notes
issued in connection with any subsequent increases in the Maximum Variable
Funding Balance will bear alphabetical designations in the order of this
issuance.
Any Additional Variable Funding Notes shall be in the form of Exhibit A-2
hereof and for all purposes shall be Noes issued pursuant to this Indenture and
all references to Variable Funding Notes herein shall include Additional
Variable Funding Noes issued pursuant to this Section 4.01(b).
Upon the issuance of any Additional Variable Funding Notes the Issuer will
deliver written notice thereof to the Rating Agencies.
(c) Subject to the Maximum Variable Funding Balance at such time as the
Security Balance of any Variable Funding Note reaches the maximum Individual
Variable Funding Balance no subsequent amounts in respect of the Additional
balance Differential shall be added to the Security Balance of such Variable
Funding Note and instead a new Variable Funding Note shall be issued and
executed on behalf of the Issuer by the Owner Trustee, not in its individual
capacity but solely as Owner Trustee, authenticated by the Note Registrar and
delivered by the Indenture Trustee to or upon the order of the Issuer. All
subsequent amounts in respect of the Additional Balance Differential shall be
added to the Security Balance of such new Variable
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<PAGE>
Funding Note (subject to the Maximum Variable Funding Balance) until the
Security Balance thereof reaches the Maximum Individual Variable Funding
Balance.
The Variable Funding Note issued on the Closing Date shall bear the
Designation "1" and each new Variable Funding Note will bear sequential
numerical designations in the order of their issuance. One each Payment Date on
or after the end of the Revolving Period a new Variable Funding Note will be
issued on each Payment Date in a principal amount equal to the lesser of (a) the
Maximum Individual Variable Funding Balance and (b) the Additional Balance
Differential for such Payment Date, but in no event will the Principal Balance
of the Variable Funding Notes exceed the Maximum Variable Funding Balance
without satisfying the conditions of Section 4.01 hereof.
Section 4.02. Registration of and Limitations on Transfer and
-----------------------------------------------
Exchange of Notes; Appointment of Certificate Registrar. The Issuer shall
- -------------------------------------------------------
cause to be kept at its Corporate Trust Office a Note Register in which, subject
to such reasonable regulations as it may prescribe. the Note Registrar shall
provide for the registration of Notes and of transfers and exchanges of Notes as
herein provided.
Subject to the restrictions and limitations set forth below. upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the indenture Trustee shall execute and the Note Registrar shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes in authorized initial Security Balances
evidencing the same aggregate Percentage Interests.
No Variable Funding Note, other than and Capped Funding Notes, may be
transferred. Subject to the provision set forth below Capped Funding Notes may
be transferred, provided that with respect to the initial transfer thereof by
the Seller prior written notification of such transfer shall have been given to
the Rating Agencies and to the Credit Enhancer by the Seller along with an
Opinion of Counsel to the effect that such transfer will not constitute a
fraudulent conveyance under the laws of the relevant jurisdiction.
No transfer of a Capped Funding Note shall be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended. and any applicable state securities laws or is made in
accordance with said Act and laws. In the event of any such transfer. (i) unless
such transfer is made in reliance upon Rule 144A under the 1933 Act, the
Indenture Trustee or the Issuer may, require a written Opinion of Counsel (which
may be in-house counsel) acceptable to and in form and substance reasonably
satisfactory to the Indenture Trustee and the Issuer that such transfer may be
made pursuant to an exemption, describing the applicable exemption and the basis
therefor, from said Act and law or is being made pursuant to said Act and laws,
which Opinion of Counsel shall not be an expense of the Indenture Trustee or the
Issuer and (ii) the Indenture Trustee shall require the transferee to execute an
investment letter (in substantially the form attached hereto as Exhibit D)
acceptable to and in form and substance reasonably satisfactory to the Issuer
and the Indenture Trustee certifying to the Issuer and the Indenture Trustee the
facts surrounding such transfer, which investment letter shall not be an expense
of the Indenture Trustee or the Issuer. The Holder of a Variable Funding Note
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Indenture Trustee the Credit
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<PAGE>
Enhancer and Issuer against any liability that may result if the transfer is not
so exempt or is not made in accordance with such federal and state laws.
Notwithstanding the foregoing, the restriction of transfer specified in this
paragraph is not applicable to any Capped funding Notes that have been
registered under the Securities Act of 1933 pursuant to Section 2.4 of the
Mortgage Loan Purchase Agreement.
Subject to the foregoing. at the option of the Noteholders, Notes may
be exchanged for other Notes of like tenor or in, each case in authorized
initial Principal Balances evidencing the same aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the Corporate Trust Office of the
Note Registrar. With respect to any surrender of Capped Funding Notes for
exchange the new Notes delivered in exchange therefor will bear the designation
'Capped" in addition to any other. applicable designations. Whenever any Notes
are so surrendered for exchange. the Indenture Trustee shall execute and the
Note Registrar shall authenticate and deliver the Notes which the Noteholder
making the exchange is entitled to receive. Each Note presented or surrendered
for registration of transfer or exchange shall (if so required by the Note
Registrar) be duly endorsed by, or be accompanied by a written instrument of
transfer in form reasonably satisfactory to the Note Registrar duly executed by,
the Holder thereof or his attorney duly authorized in writing with such
signature guaranteed by a commercial bank or trust company located or having a
correspondent located in the city of New York. Notes delivered upon any such
transfer or exchange will evidence the same rights and privileges, and the Notes
surrendered.
No service charge shall be made for any registration of transfer or
exchange of Noes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
All Notes surrendered for registration of transfer, and exchange shall
be canceled by the Note Registrar and delivered to the Indenture Trustee for
subsequent destruction without liability on the part of either.
The Issuer hereby appoints ______________________________________ as
Certificate Registrar to keep at its Corporate Trust Office a Certificate
Register pursuant to Section 3.09 of the Trust Agreement in which, subject to
such reasonable regulations as it may prescribe, the Certificate Registrar shall
provide for the registration of Certificates and of transfers and exchanges
thereof pursuant to Section 3.05 of the Trust Agreement, ______________________
hereby accepts such appointment.
Section 4.03. Mutilated. Destroyed Lost or Stolen Notes. If (i) any
-----------------------------------------
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction. loss or theft o, any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then. in the absence of notice to the Issuer, the Note Registrar or
the Indenture Trustee that such Note has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8405 of the UCC are met. the
Issuer shall execute, and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, 2 replacement Note of the same Class; provided
however, that if any such destroyed, lost or stolen .Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, instead
of issuing a replacement Note the Issuer may pay such destroyed, lost or stolen
Note when so due or payable without surrender thereof. If, after the delivery of
such replacement Note or payment of a
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<PAGE>
destroyed, lost or stolen Note pursuant to the proviso to the preceding
sentence. a bona fide purchaser of the original Note in lieu of which such
replacement Note was issued presents for payment such original Note, the Issuer
and the Indenture Trustee shall be entitled to recover such replacement Note (or
such payment) from the Person to whom it was delivered or any Person taking such
replacement 'Note from such Person to whom such replacement Note was delivered
or any assignee of such Person, except a bona fide purchaser, and shall be
entitled to recover upon the security or indemnity provided therefor to the
extent of any loss, damage, cost or expense incurred by the Issuer or the
Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section 4 03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be impose in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of his Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 4.04. Persons Deemed Owners. Prior to due presentment for
---------------------
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue. and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
Section 4.05. Cancellation. All Notes surrendered for payment,
------------
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section 4.05. except as expressly
permitted by this Indenture. All canceled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they
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be destroyed or returned to It provided however, that such Issuer Request is
timely and the Notes have not been previously disposed of by the Indenture
Trustee.
Section 4.06. Book-Entry Notes The Term Notes. upon original
----------------
issuance, will be issued in the form of typewritten Notes representing the Book-
Entry Notes, to be delivered to The Depository Trust Company. the initial
Depository, by, or on behalf of, the Issuer Such Term Notes shall initially be
registered on the Note Register in the name of Cede & Co. the nominee of the
initial Depository. and no Beneficial Owner will receive a Definitive Note
representing such Beneficial Owner's interest in such Note except as provided in
Section 4.08. Unless and until definitive, fully registered Notes (the
Definitive Notes") have been issued to Beneficial Owners pursuant to Section
4.08:
(i) the provisions of this Section 4.06 shall be in full force and
effect
(ii) the Note Registrar and the Indenture Trustee shall be entitled
to deal with the Depository for all purposes of this Indenture (including
the payment of principal of and interest on the Notes and the giving of
instructions or directions hereunder) as the sole holder of the Term Notes.
and shall have no obligation to the Owners of Term Notes;
(iii) to the extent that the provisions of this Section 4.06
conflict with any other provisions of this Indenture, the provisions of
this Section 4.06 shall control:
(iv) the rights of Beneficial Owners shall be exercised only through
the Depository and shall be limited to those established by law and
agreements between such Owners of Term Notes and the Depository and/or the
Depository Participants Unless ! and until Definitive Term Notes are issued
pursuant to Section 4.08. the initial Depository will make book-entry
transfers among the Depository Participants and receive and transmit
payments of principal of and interest on the Notes to such Depository
Participants; and
(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Holders of Term Notes evidencing a
specified percentage of the Security Balances of the Term Notes. the
Depository shall be deemed to represent such percentage only to the extent
that it has received instructions to such effect from Beneficial Owners
and/or Depository Participants owning or representing, respectively, such
required percentage of the beneficial interest in the Term Notes and has
delivered such instructions to the Indenture Trustee
Section 4.07. Notices to Depository. Whenever a notice or other
---------------------
communication to the Term Note Holders is required under this Indenture, unless
and until Definitive Term Notes shall have been issued to Beneficial Owners
pursuant to Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Term Notes to the
Depository, and shall have no obligation to the Beneficial Owners
Section 4.08 Definitive Notes. If (i) the Administrator advises the
Indenture Trustee in writing that the Depository is no longer willing or able to
properly discharge its
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responsibilities with respect to the Term Notes and the Administrator is unable
to locate a qualified successor, (ii) the Administrator at its option advises
the Indenture Trustee in writing that it elects to terminate the book-entry
system through the Depository or (iii) after the occurrence of an Event of
Default, Owners of Term Notes representing beneficial, interests aggregating at
least a majority of the security Balances of the Term Notes advise the
Depository in writing that the continuation of a book-entry system through the
Depository is no longer in the best interests of the Beneficial Owners, then the
Depository shall notify all Beneficial Owners and the Indenture Trustee of the
occurrence of any such event and of the availability of Definitive Term Notes to
Beneficial Owners requesting the same Upon surrender to the Indenture Trustee of
the typewritten Term Notes representing the Book-Entry Notes by the Depository,
accompanied by registration instructions, the Issuer shall execute and the
Indenture Trustee shall authenticate the Definitive Term Notes in accordance
with the instructions of the Depository. None of the Issuer, the Note Registrar
or the Indenture Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on. and shall be protected in relying on.
such instructions Upon the issuance of Definitive Notes. the Indenture Trustee
shall recognize the Holders of the Definitive Notes as Noteholders.
Section 4 09. Tax Treatment. The Issuer has entered into this
-------------
Indenture, and the Notes will he issued, with the intention that. for federal,
state and local income. single business and franchise tax purposes, the Notes
will qualify as indebtedness of the Issuer. The Issuer. by entering into this
Indenture. and each Noteholder, by its acceptance of its None (and each
Beneficial Owner by its acceptance of an interest in the applicable Book-Entry
Note). agree to treat the Notes for federal. state and local income. single
business and franchise tax purposes as indebtedness of the Issuer.
Section 4 10. Satisfaction and Discharge of Indenture. This
---------------------------------------
Indenture shall cease to be of further effect with respect to the Notes except
as to (i) rights of registration of transfer and exchange, (ii) substitution of
mutilated. destroyed. lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal thereof and interest thereon, (iv) Sections 3 03,
3W, 306. 3.09. 3.16. 3 18 and 3 19. (v)the rights, obligations and immunities of
the Indenture Trustee hereunder (including the rights of the Indenture Trustee
under Section 6.07 b and the obligations of the Indenture Trustee under Section
4.11) and (vi) the rights of Noteholders as beneficiaries hereof with respect to
the property so deposited with the Indenture Trustee payable to all or any of
them. and the Indenture Trustee. on demand of and at the expense of the Issuer.
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have been
replaced or paid as provided in Section 4.03 and (ii) Notes for whose
payment money has theretofore been deposited in trust or segregated and
held in trust by the Issuer and thereafter repaid to the Issuer or
discharged from such trust. as provided in Section 3.03) have been
delivered to the Indenture Trustee for cancellation: or
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(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable.
b. will become due and payable at the Final Scheduled
Payment Date within one year, or
c. have been called for early redemption pursuant to
Section ..02.
and the issuer, in the case of a. or b. above. has irrevocably deposited or
cause to be irrevocably deposited with the Indenture Trustee cash or direct
obligations of or obligations guaranteed by the United States of America
(which will mature prior to the date such amounts are payable), in trust
for such purpose, in an amount; sufficient to pay and discharge the entire
indebtedness on such Notes and Certificates then outstanding not
theretofore delivered to the Indenture Trustee for cancellation when due on
the Final Scheduled Payment Date;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder and under the Insurance Agreement by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee and the
Credit Enhancer an Officer's Certificate, an Opinion of Counsel and each
meeting the applicable requirements of Section, 10.01 each stating that all
conditions precedent herein provided for relating to the satisfaction. and
discharge of this Indenture have been complied with and, if the Opinion of
Counsel relates to a deposit made in connection with Section 4.10(A)(2)b.
above, such opinion shall further be to the effect that such deposit will
not have any material adverse tax consequences the Issuer, any Noteholders
or any Certificateholders.
Section 4.11. Application of Trust Money. All monies deposited with
--------------------------
the Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent or
Certificate Paying Agent, as the Indenture Trustee may determine, to the Holders
of Securities, of all sums due and to become due thereon for principal and
interest; but such monies need not be segregated from other funds except to the
extent required herein or required by law.
Section 4.12. Subrogation and Cooperation. (a) The Issuer and the
---------------------------
Indenture Trustee acknowledge that (i) to the extent the Credit Enhancer makes
payments under the Credit Enhancement Instrument on account of principal of or
interest on the Notes, the Credit Enhancer will be fully subrogated to the
rights of such Holders to receive such principal and interest from the Issuer,
and (ii) the Credit Enhancer shall be paid such principal and interest but only
from the sources and in the manner provided herein and in the Insurance
Agreement for the payment of such principal and interest.
The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Credit Enhancer for action to preserve or enforce the
Credit Enhancer's rights or interest under
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this Indenture or the Insurance Agreement without limiting the rights of the
Noteholders as otherwise set forth in the Indenture, including, without
limitation, upon the occurrence and continuance of a default under the Insurance
Agreement, a request to take any one or more of the following actions:
(i) institute Proceedings for the collection of all amounts then
payable on the Notes, or under this Indenture in respect to the Notes and
all amounts payable under the Insurance Agreement enforce any judgment
obtained and collect from the Issuer monies adjudged due;
(ii) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private Sales called and
conducted in any manner permitted by law;
(iii) file or record all Assignments that have not previously been
recorded;
(iv) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture: and
(v) exercise any remedies of a secured party under the Uniform
Commercial Code and take any other appropriate action to protect and
enforce the rights and remedies of the Credit Enhancer hereunder.
Section 4.13. Repayment of Monies Held by Paying Agent. In
----------------------------------------
connection with the satisfaction and discharge of this Indenture with respect to
the Notes, all monies then held by any Administrator other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes shall.
upon demand of the Issuer. be paid to the Indenture Trustee to be held and
applied according to Section 3.05 and thereupon such Paying Agent shall be
released from all further liability with respect to such monies.
Section 4.14. Temporary Notes. Pending the preparation of any
---------------
Definitive Notes, the Issuer may execute and upon its written direction, the
Indenture Trustee may authenticate and make available for delivery, temporary
Notes that are printed, lithographed, typewritten, photocopied or otherwise
produced, in any denomination, substantially of -he tenor of the Definitive
Notes in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of the
Definitive Notes, the temporary Notes shall be exchangeable t-o; Definitive
Notes upon surrender of the temporary Notes at the office or agency of the
Indenture Trustee, without charge to the Holder. Upon surrender for cancellation
of any one or more temporary Notes, the Issuer shall execute and the indenture
Trustee shall authenticate and make available for delivery, in exchange
therefor, Definitive Notes of authorized denominations and of like tenor and
aggregate principal amount. Until so . exchanged, such temporary Notes shall in
all respects be entitled to the same benefits under this Indenture as Definitive
Notes.
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ARTICLE V.
Default and Remedies
Section 5.01. Events of Default. "Event of Default," wherever used
-----------------
herein, shall have the meaning provided in Article 1 provided, however, that no
Event of Default will occur under clause (i) or clause (ii) of the determination
of "Event of Default" if the Issuer fails to make payments of principal of and
interest on the Notes so long as the Credit Enhancer makes payments sufficient
therefore under the Credit Enhancement Instrument
The Issuer shall deliver to the Indenture Trustee and the Credit
Enhancer, within five days after learning of the occurrence of an Event of
Default, written notice in the form of an Officer's Certificate of any event
which with the giving of notice and the lapse of time would become an Event of
Default under clause (iii) of the definition of "Event of Default", its status
and what action the Issuer is taking or proposes to take with respect thereto
Section 5.02. Acceleration of Maturity: Rescission and Annulment. If
--------------------------------------------------
an Event of Default should occur and be continuing or if the Master Servicer
shall purchase ail of the Mortgage Loans pursuant to Section 8 08 of the
Servicing Agreement. then and in every such case the Indenture Trustee or the
Holders of Notes representing not less than a majority of the . Security
Balances of all Notes may declare the Notes to be immediately due and payable,
by a notice in writing to the Issuer (and to the Indenture Trustee if given by
Noteholders), and upon any such declaration the unpaid principal amount. of such
Class o' Notes. together with accrued o and unpaid interest thereon through the
date of acceleration, shall become immediately due and payable Unless the prior
written consent of the Credit Enhancer shall have been obtained by the Indenture
Trustee, the Payment Date upon which such accelerated payment is due and payable
shall not be a Payment Date under the Credit Enhancement Instrument and the
Indenture Trustee shall not be authorized under Section 3 29 to make a draw
therefor.
Section At any time after such declaration of acceleration of maturity
with respect to an Event of Default has been made and before a judgment or
decree for payment of the money due has been obtained by the Indenture Trustee
as hereinafter in this Article V provided, the Holders of Notes representing a
majority of the Security Balances Of all Notes, by written notice to the Issuer
and the Indenture Trustee, may waive the related Event of Default and rescind
and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture Trustee a
sum sufficient to pay
(A) all payments of principal of and interest on the Notes and all
other amounts that would then be due hereunder or upon the Notes if the
Event of Default giving rise to such acceleration had not occurred and
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(B) all sums paid or advanced by the Indenture Trustee hereunder
and the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee credits agents and counsel; and
(ii) all Events of Default, other than the nonpayment of the
principal of !he Notes that has become due solely by such acceleration.
have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any right
consequent thereto.
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Indenture Trustee.
- -----------------
(a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable. and such default
continues for a period of five days, or (ii) default is made i.. the payment of
the principal of or any installment of the principal of any Note when the same
becomes due and payable, the Issue shall, upon demand of the Indenture Trustee.
pay to it, for the benefit of the Holders of Notes and of the Credit Enhancer,
the whole amount then due and payable on the Notes for principal and interest,
with interest upon the overdue principal. and in addition thereto such further
amount as shall be sufficient to cover the costs and expenses of collection.
including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and its agents and counsel
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 10 17 hereof may institute a
Proceeding for the collection of the sums so due and unpaid. and may prosecute
such Proceeding to judgment or final decree and may enforce the same against the
Issuer or other obligor upon the Notes and collect in the manner provided by law
out of the property of the Issuer or other obligor the Notes, wherever situated,
the monies adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing. the Indenture
Trustee subject to the provisions of Section 10.17 hereof may. as more
particularly provided in Section 5.04, in its discretion, proceed to protect and
enforce its rights and the rights of the Noteholders and the Credit Enhancer, by
such appropriate Proceedings as the Indenture Trustee shall deem most effective
to protect and enforce any such rights. whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy or legal or
equitable right vested in the Indenture Trustee by this Indenture or by law
(d) In case there shall be pending. relative to the Issuer Of any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Trust Estate, Proceedings under Title 11 of the United States
Code or any other applicable federal or state bankruptcy, insolvency o; other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization. liquidator, sequestrator or similar official shall have been
appointed for or taken
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<PAGE>
possession of the Issuer or its property or such other obligor or Person, or !a
case of any other comparable judicial Proceedings relative to the Issuer or
other obligor upon the Notes, or to the creditors or property of the Issuer or
such other obligor, the Indenture Trustee, irrespective of whether the
principals of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether - the Indenture Trustee
shall have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to file
such other papers or documents as may be necessary or advisable in order to
have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee and each predecessor
Indenture Trustee, and their respective agents, attorneys and counsel and
for reimbursement of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each predecessor Indenture
Trustee, except as a result of negligence or bad faith) and of the
Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote
on behalf of the Holders of Notes in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;
(iii) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders and of the Indenture Trustee on
their behalf: and
(iv) to file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Indenture
Trustee or the Holders of Notes allowed in any judicial proceedings
relative to the Issuer, its creditors and its property;
and any trustee, receiver. liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders. to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made. by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall' be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any Note
holder- m any such proceeding except, as aforesaid, to vote for the election of
a trustee in bankruptcy or similar Person,
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(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Term Notes or the Variable Funding Notes,
as applicable.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any :Noteholder a party to any such Proceedings.
Section 5.04. Remedies, Priorities. (a) If an Event of Default
shall have occurred and be continuing. the Indenture Trustee subject to the
,provisions of Section 10.17 hereof may do, one or more of the following
(subject to Section 5.05):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the Notes
or under this Indenture with respect thereto, whether by declaration or
otherwise, and all amounts payable under the Insurance Agreement. enforce
any judgment obtained and collect from the Issuer and any other obligor
upon such Notes monies adjudged due:
(ii) institute Proceedings from time to time tier the complete or
partial foreclosure of this Indenture with respect to the Trust Estate;
(iii) exercise any remedies of a secured party under the UCC and
take any other appropriate action to protect and enforce the rights and
remedies of the Indenture Trustee, the Holders of the Notes and the Credit
Enhancer; and
(iv) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, unless (A) the
Indenture Trustee obtains the consent of the Holders of 100% of the aggregate
Principal Balances of the Notes and the Credit Enhancer, which consent will not
be unreasonably withheld, (B) the proceeds of such sale or liquidation
distributable to Holders are sufficient to discharge in full all amounts then
due and unpaid upon the Notes for principal and interest and to reimburse the
Credit Enhancer for any amounts drawn under the Credit Enhancement Instrument
and any other amounts due the Credit Enhancer under a the Insurance Agreement or
(C) the Indenture Trustee determines that the Class A Ownership Interest will,
not continue to provide sufficient funds for the payment of principal of and
interest on the Notes as they would have become due if the Notes had not been
declared due and payable, and the Indenture Trustee obtains the consent of the
Credit Enhancer, which consent will not be unreasonably withheld, and of the
Holders of a majority of the aggregate Principal Balances the
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Notes. In determining such sufficiency or insufficiency with respect to clause
(B) and (C'), the Indenture Trustee may, but need not. obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Estate for such purpose. Notwithstanding the foregoing,
so long as an Event of Servicer Termination has not occurred, any Sale of the
Trust Estate shall be made subject to the continued Servicing of the Mortgage
Loans by the Master Servicer as provided in the Servicing Agreement.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for amounts due under Section 6.07;
SECOND: to each Class of Noteholders for amounts due and unpaid on the
related Class Notes for interest and to each Noteholder of such Class
in each case, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Class of Notes for
interest from amounts available in the Trust Estate for such
Noteholders:
THIRD: to Holders of each Class of Notes for amounts due and unpaid on
the related Class of Notes for principal. from amounts available in
the Trust Estate for such Noteholders, and to each Noteholder of such
Class in each case ratably, without preference or priority of any
kind. according to the amounts due and payable on such Class of Notes
for principal, until the Security Balances of each Class of Notes is
reduced to zero;
FOURTH: to the Issuer for amounts required to be distributed to the
Certificateholders in respect of interest and principal pursuant to
the Trust Agreement:
FIFTH: To the payment of ail amounts due and owing to the Credit
Enhancer under the Insurance Agreement;
SIXTH: to the Issuer for amounts due under Article V111 of the Trust
Agreement; and
SEVENTH: to the payment of the remainder, if any to the Issuer or any
other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5,04. At least 15 days before
such record date, the f Indenture Trustee shall mail to each Noteholder a notice
that states the record date, the payment date and the amount to be paid.
Section 5.05. Optional Preservation of the Trust Estate. If the Notes
-----------------------------------------
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not,
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elect to take and maintain possession of the Trust Estate. It is the desire of
the parties hereto and the Noteholders that there be at all times sufficient
funds for the payment of principal of and interest on the Notes and other
obligations of the Issuer including payment the Credit Enhancer, and the
Indenture Trustee shall take such desire into account when determining whether
or not to take and maintain possession of the Trust Estate. In determining
whether to take and maintain possession of the Trust Estate, the Indenture
Trustee may, but need not, obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose.
Section 5.06. Limitation of Suits. No Holder of any Note shall have
-------------------
any right to institute any Proceeding, judicial or otherwise this Indenture, or
for the appointment of a receiver or trustee, or for any other remedy hereunder,
unless and subject to the provisions of Section 10.17 hereof:
(i) such Holder has previously given written notice to the
Indenture Trustee of a continuing Event of Default:
(ii) the Holders o, not less than 25% of the Security Balances of
the Notes have made written request to the Indenture Trustee to institute
such Proceeding in respect of such Event of Default in its own name as
Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture Trustee
reasonable indemnity against the costs. expenses and liabilities to be
incurred in complying with such request:
(iv) the Indenture Trustee for 60 days after its receipt of such
notice. request and offer of indemnity has failed to institute such
Proceedings, and
(v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60-day period by the Holders of
a majority of the Security Balances of the Notes.
It is understood and intended that; no one or more Holders of ,Notes shall have
any right in any manner whatever by virtue of. or by availing of, any provision
of this Indenture to affect disturb or prejudice the rights of any other Holders
of Notes or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Security Balances of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
Section 5.07. Unconditional Rights of Noteholders To Receive
----------------------------------------------
Principal and Interest. Notwithstanding any other provisions in this
- ----------------------
indenture. the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest, if any, on
such .Note on or after the respective due dates thereof expressed in such Note
or in this
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Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.08. Restoration of Rights and Remedies. If the Indenture
----------------------------------
Trustee or any Noteholder has instituted any Proceeding to enforce any right of
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder. then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.
Section 5.09. Rights and Remedies Cumulative. No right or remedy
------------------------------
herein conferred upon or reserved to the Indenture Trustee or to the Noteholders
in intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. Delay or Omission Not a Waiver. No delay or omission
------------------------------
of the Indenture Trustee or any Holder of any Note to exercise any right or
remedy accruing upon any Event of Default shall impair any such right or remedy
or constitute a waiver of any such Event o Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee or to the Noteholder may be exercised from time to time, and as often as
may be deemed expedient, by the Indenture Trustee or by the Noteholders, as the
case may be.
Section 5.11 Control by Noteholders. The Holders of a majority of
----------------------
the Security Balances of Notes shall have the right to direct the time, method
and place of conducting any Proceeding for any remedy available to the indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee; provided that.
(i) such direction shall not be in conflict with any rule of law
or with this Indenture;
(ii) subject to the express terms of Section 5.04, any direction to
the Indenture Trustee to sell or liquidate the Trust Estate shall be by
Holders of Notes representing not less than 100% of the Security Balances
of Notes;
(iii) if the conditions set forth in Section 5.05 have been
satisfied and the Indenture Trustee elects to retain the Trust Estate
pursuant to such Section, then any direction to the Indenture Trustee by
Holders of Notes representing less than 100% of the Security Balances of
Notes to sell or liquidate the Trust Estate shall be of no force and
effect; and
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(iv) the Indenture Trustee may take any other action deemed proper
by the Indenture Trustee that is not inconsistent with such direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of
any Noteholders not consenting to such action.
Section 5.12. Waiver of Past Defaults. Prior to the declaration of
-----------------------
the acceleration of the maturity of the Notes as provided in Section 5.02,
shareholder of Notes of not less than a majority of the Security Balances of the
Notes may waive any past Event of Default and its consequences except an Event
of Default (a) with respect to payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note or (c) the
waiver of which would materially and adversely affect the interests of the
Credit Enhancer or modify its obligation under the Credit Enhancement
Instrument. In the case of any such waiver. the Issuer, the Indenture Trustee
and the Holders of the Notes shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Event of Default or impair; any right consequent thereto.
Upon any such waiver. any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder s acceptance thereof shall be
deemed to have agreed. that X any court may in its discretion require, m any
suit for the enforcement of any right or remedy under ;his Indenture. or in any
suit against the Indenture Trustee for any action taken. suffered or omitted by
it as Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee. (b) any suit instituted by any Noteholder, or group of
Noteholders. in each case holding in the aggregate more than 10% of the Security
Balances of the Notes or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture.
Section 5.14. Waiver of Stay or Extension Laws. The Issuer covenants
--------------------------------
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
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Section 5.15. Sale of Trust Estate.
--------------------
(a) The power to effect any sale or other disposition (a "Sale") of
any portion of the Trust Estate pursuant to Section 5.04 is expressly subject to
the provisions of Section 5.05 and this Section 5.15. The power to effect any
such Sale shall not be exhausted by any one or more Sales as to any portion of
the Trust Estate remaining unsold, but shall continue unimpaired until the
entire Trust Estate shall have been sold or all amounts payable on the Notes and
under this Indenture and under the Insurance Agreement shall have been paid. The
Indenture Trustee may from time to time postpone any public Sale by public
announcement made at the time and place of such Sale. The Indenture Trustee
hereby expressly waives its right to any amount fixed by law as compensation for
any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the
Trust Estate, or any portion thereof, unless
(1) the Holders of all Notes and the Credit Enhancer consent to or
direct the Indenture Trustee to make, such Sale. or
(2) the proceeds of such Sale would be not less than the entire
amount which would be payable to the Noteholders under the Notes and the
Credit Enhancer in respect of amounts drawn under the Credit Enhancement
Instrument and any other amounts due the Credit Enhancer under the
Insurance Agreement. in full payment thereof in accordance with Section
5.02. on the Payment Date next succeeding the date of such Sale. or
(3) The Indenture Trustee determines, in its sole discretion, that
the conditions for retention of the Trust Estate set forth in Sec[ion 5.05
cannot be satisfied (in making any such determination. the Indenture
Trustee may rely upon an opinion of an Independent investment banking firm
obtained and delivered as provided in Section 5.05). and the Credit
Enhancer consents to such Sale. which consent will not be unreasonably
withheld and the Holders representing at least 66-21370 of the Security
Balances of the Notes consent to such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).
(c) Unless the Holders and the Credit Enhancer have otherwise consented or
directed the Indenture Trustee. at any public Sale of all or any portion of :he
Trust Estate at which a minimum bid equal to or greater than the amount
described in paragraph (2) of subsection (b) of this Section 5.15 has not been
established by the Indenture Trustee and no Person bids an amount equal to or
greater than such amount. the Indenture Trustee shall bid an amount at least
$1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the Trust Estate
(1) any Holder or Holders of Notes may bid for and with the consent of
the Credit Enhancer purchase the property offered for sale, and upon
compliance with the
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terms of sale may hold, retain and possess and dispose of such property,
without further accountability, and may, in paving the purchase money
therefor, deliver any Notes or claims for interest thereon in lieu of cash
up to the amount which shall, upon distribution of the net proceeds of
such sale, be payable thereon, and such Notes, in case the amounts so
payable thereon shall be less than the amount due thereon, shall be
returned to the Holders thereof after being appropriately stamped to show
such partial payment;
(2) the Indenture Trustee may bid for and acquire the property offered
for Sale in connection with any Sale thereof, and. subject to any
requirements of, and to the extent permitted by. applicable law in
connection therewith, may purchase all or any portion of the Trust Estate
in a private sale. and, in lieu of paying cash therefor, may make
settlement for the purchase price by crediting the gross Sale price against
the sum of (A) the amount which would be distributable to the Holders of
the Notes and Holders of Certificates and amounts owing to the Credit
Enhancer as a result of such Sale in accordance with Section 5.04(b) on the
Payment Date next succeeding the date of such Sale and (B) the expenses of
the Sale and of any Proceedings in connection therewith which are
reimbursable to it, without being required to produce the Notes in order to
complete any such Sale or in order for the net Sale price to be credited
against such Notes, and any property so acquired by the Indenture Trustee
shall be held and dealt with by it in accordance with the provisions of
this Indenture:
(3) the Indenture Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
Trust Estate in connection with a Sale thereof:
(4) the Indenture Trustee is hereby irrevocably appointed the agent and
attorney-in-fact of the Issuer to transfer and convey its interest in any
portion of the Trust Estate in connection with a Sale thereof. and to take
ail action necessary to effect such Sale: and
(5) no purchaser or .transferee at such a Sale shall be bound to
ascertain the Indenture Trustee's authority. inquire into the satisfaction
of any conditions precedent or see to the application of any monies.
Section 5.16. Action on Notes. The Indenture Trustee's right to seek
---------------
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate
or upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.04(b).
Section 5.17. Performance and Enforcement of Certain Obligations.
--------------------------------------------------
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<PAGE>
(a) Promptly following a request from the Indenture Trustee to do so
and at the Administrator's expense, the Issuer in its capacity as holder of the
Class A Ownership Interest. shall take all such lawful action as the Indenture
Trustee may request to cause the 199- Trust LLC to compel or secure the
performance and observance by the Seller and the Master Servicer. as applicable,
of each of their obligations to the Issuer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement, and to exercise
any and all rights, remedies, powers and privileges lawfully available to the
Issuer under or in connection with the Mortgage Loan Purchase Agreement and the
Servicing Agreement to the extent and in the manner directed by the Indenture
Trustee, as pledgee of the Class A Ownership Interest, including the
transmission of notices of default on the part of the Seller or the Master
Servicer thereunder and the institution of legal or administrative actions or
proceedings to compel or secure performance by the Seller or the Master Servicer
of each of their obligations under the Mortgage Loan Purchase Agreement and the
Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee, as pledgee of the Class A Ownership Interest, subject to the
rights of the Credit Enhancer under the Servicing Agreement may, and at the
direction (which direction shall be in writing or by telephone (confirmed in
writing promptly thereafter)) of the Holders of 66-2/3% of the Security e
Balances of the Notes shall. exercise all rights, remedies, powers, privileges
and claims of the Issuer against the Seller or the Master Servicer under or in
connection with the Mortgage Loan Purchase Agreement and the Servicing
Agreement. including the right or power to take any action to compel or secure
performance or observance by the Seller or the Master Servicer, as the case may
be, of each of their obligations to the Issuer thereunder and to give any
consent, request, notice, direction. approval. extension or waiver under the
Mortgage Loan Purchase Agreement and the Servicing Agreements as the case may
be, and any right of the Issuer to take such action shall not be suspended.
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ARTICLE VI
The Indenture Trustee
Section 6.01. Duties of Indenture Trustee. (a) If an Event of Default
---------------------------
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of' care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture against
the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct. except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Indenture Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it (A) pursuant to Section 5.11 or (B) from the
Credit Enhancer, which it is entitled to give under any of the Basic
Documents.
(d) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(e) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Trust Agreement.
(f) No provision of this Indenture shall require the Indenture Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to
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<PAGE>
believe that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Indenture Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
Section 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee
---------------------------
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys or a custodian or nominee, and the Indenture Trustee shall not be
responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent. attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct. negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
Section 6.03. Individual Rights of Indenture Trustee. The Indenture
--------------------------------------
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Administrator, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
Section 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee
------------------------------
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
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<PAGE>
Section 6.05. Notice of Event of Default. If an Event of Default
------------------------
occurs and is continuing and if it is known to a Responsible Officer of the
Indenture Trustee, the Indenture Trustee shall give notice thereof to the Credit
Enhancer. The Trustee shall mail to each Noteholder notice of the Event of
Default within 90 days after it occurs. Except in the case of an Event of
Default in payment of principal of or interest on any Note, the Indenture
Trustee may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the
interests of Noteholders.
Section 6 06. Reports by Indenture Trustee to Holders. The Indenture
---------------------------------------
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns. In
addition, upon the Issuer's written request, the Indenture Trustee shall
promptly furnish information reasonably requested by the Issuer that is
reasonably available to the Indenture Trustee to enable the Issuer to perform
its federal and state income tax reporting obligations.
Section 6.07. Compensation and Indemnity. The Issuer shall or shall
--------------------------
cause the Administrator to pay to the Indenture Trustee on each Payment Date
reasonable compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the .Administrator to reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection. in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Issuer shall or shall cause the Administrator to
indemnify the Indenture Trustee against any and all loss, liability or expense
(including attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties hereunder. The Indenture
Trustee shall notify the issuer and the Administrator promptly of any claim for
which it may seek indemnity. Failure by the Indenture Trustee to so notify the
Issuer and the Administrator shall not relieve the Issuer or the Administrator
of its obligations hereunder. The Issuer shall or shall cause the Administrator
to defend any such claim, and the Indenture Trustee may have separate counsel
and the Issuer shall or shall cause the Administrator to pay the fees and
expenses of such counsel. Neither the Issuer nor the Administrator need
reimburse any expense or indemnify against any loss, liability or expense
incurred by the Indenture Trustee through the Indenture Trustee's own willful
misconduct, negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
specified in Section 5.01(iv) or (v) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. Replacement of Indenture Trustee. No resignation or
--------------------------------
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture
Trustee may resign at any time by so notifying the Issuer and the Credit
Enhancer. The Holders of a majority of Security Balances of the Notes may
remove the
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Indenture Trustee by so notifying the Indenture Trustee and the Credit Enhancer
and may appoint a successor Indenture Trustee. The Issuer shall remove the
Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists in
the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days after
the retiring Indenture Trustee resigns or is removed, the retiring Indenture
Trustee, the Issuer or the Holders of a majority of Security Balances of the
Notes may petition any court of competent jurisdiction for the appointment of a
successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any Noteholder
may petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to this
Section, the Issuer's and the Administrator's obligations under Section 6 07
shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. Successor Indenture Trustee by Merger. If the
-------------------------------------
Indenture Trustee consolidates with, merges or converts into, or transfers all
or substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
provided, that such corporation or banking association shall be otherwise
qualified and eligible under Section 6.11. The Indenture Trustee shall provide
the Rating Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt
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the certificate of authentication of any predecessor trustee, and deliver such
Notes so authenticated; and in case at that time any of the Notes shall not have
been authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture
---------------------------------------------------------
Trustee. (a) Notwithstanding any other provisions of this Indenture, at any
- -------
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust Estate, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Indenture Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6 08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon and
exercised or performed by the Indenture Trustee and such separate trustee
or co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Indenture
Trustee joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be performed
the Indenture Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust Estate or any portion thereof
in any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the resignation
of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and co-
trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately,
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as may be provided therein, subject to all the provisions of this Indenture,
specifically including every provision of this Indenture relating to the conduct
of, affecting the liability of, or affording protection to, the Indenture
Trustee. Every such instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or co-
trustee shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. Eligibility; Disqualification. The Indenture Trustee
-----------------------------
shall at all times satisfy the requirements of TIA (S) 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least [$50,000,000] as
set forth in its most recent published annual report of condition and it or its
parent shall have a long-tern debt rating of [Baa3] or better by [Moody's]. The
Indenture Trustee shall comply with TIA (S) 310(b), including the optional
provision permitted by the second sentence of TIA (S) 310(b)(9); provided.
however, that there shall be excluded from the operation of TIA (S) 310(b)(1)
any indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA (S)
310(b)(1) are met.
Section 6.12. Preferential Collection of Claims Against Issuer. The
------------------------------------------------
Indenture Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA (S) 311(a) to the extent indicated.
Section 6.13. Representation and Warranty. The Indenture Trustee
---------------------------
hereby represents that:
(i) The Indenture Trustee is duly organized and validly
existing as a corporation in good standing under the laws of the State of
_______________, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is presently conducted.
(ii) The Indenture Trustee has the power and authority to
execute and deliver this Indenture and to carry out its terms; and the
execution, delivery and performance of this Indenture have been duly
authorized by the Indenture Trustee by all necessary corporate action.
(iii) The consummation of the transactions contemplated by
this Indenture and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or bylaws of the Indenture Trustee or any
agreement or other instrument to which the Indenture Trustee is a party or
by which it is bound.
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(iv) To the Indenture Trustee's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Indenture Trustee or its
properties: (A) asserting the invalidity of this Indenture (B} seeking to
prevent the consummation of any of the transactions contemplated by this
Indenture or (C) seeking any determination or ruling that might materially
and adversely affect the performance by the Indenture Trustee of its
obligations under, or the validity or enforceability of, this Indenture.
Section 6.14. Directions to Indenture Trustee. The Indenture Trustee
-------------------------------
is hereby directed:
(a) to accept the pledge of the Class A Ownership Interest and hold
the assets of the Trust in trust for the Noteholders;
(b) to issue, execute and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
Section 6.15. No Consent to Certain Acts of Depositor. The Indenture
---------------------------------------
Trustee shall not consent to any action proposed to be taken by the Depositor
pursuant to Article EIGHTH or Article ELEVENTH of the Depositor's Restated
Certificate of Incorporation.
Section 6.16. Indenture Trustee May Own Securities. The Indenture
------------------------------------
Trustee, in its individual or any other capacity may become the owner or pledgee
of Securities with the same rights it would have if it were not Indenture
Trustee.
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ARTICLE VII
Noteholders' Lists and Reports
Section 7 01. Issuer To Furnish Indenture Trustee Names and Addresses
-------------------------------------------------------
of Noteholders. The Issuer will furnish or cause to be furnished to the
- --------------
Indenture Trustee (a) not more than five days after each Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee and the Credit Enhancer may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Note Registrar, no such list shall be required to be furnished.
Section 7.02. Preservation of information; Communications to
----------------------------------------------
Noteholders. (a) The Indenture Trustee shall preserve, in as current a form as
- -----------
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.01 upon receipt
of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA (S) 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall
have the protection of TIA (S) 312(c).
Section 7.03. Reports by Issuer. (a) The Issuer shall:
-----------------
(i) file with the Indenture Trustee, within 15 days after the
Issuer is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) that the Issuer may be
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act;
(ii) file with the Indenture Trustee, and the Commission in
accordance with rules and regulations prescribed from time to time by the
Commission such additional information, documents and reports with respect
to compliance by the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such rules and
regulations; and
(iii) supply to the Indenture Trustee (and the Indenture Trustee
shall transmit by mail to all Noteholders described in TIA (S) 313(c)) such
summaries of any information. documents and reports required to be filed by
the Issuer pursuant to clauses (i) and (ii) of this Section 7.03(a) and by
rules and regulations prescribed from time to time by the Commission.
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(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. Reports by Indenture Trustee. If required by TIA (S)
----------------------------
313(a), within 60 days after each January 1 beginning with January 1, 1996, the
Indenture Trustee shall mail to each Noteholder as required by TIA (S) 313(c)
and to the Credit Enhancer a brief report dated as of such date that complies
with TIA (S) 313(a). The Indenture Trustee also shall comply with TIA (S)
313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Term Notes are listed. The Issuer shall notify the
Indenture Trustee if and when the Term Notes are listed on any stock exchange.
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ARTICLE VIII
Accounts, Disbursements and Releases
Section 8.01. Collection of Money. Except as otherwise expressly
-------------------
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The
Indenture Trustee shall apply all such money received by it as provided in this
Indenture. Except as otherwise expressly provided in this Indenture, if any
default occurs in the making of any payment or performance under any agreement
or instrument that is part of the Trust Estate, the Indenture Trustee may take
such action as may be appropriate to enforce such payment or performance,
including the institution and prosecution of appropriate Proceedings. Any such
action shall be without prejudice to any right to claim a Default or Event of
Default under this Indenture and any right to proceed thereafter as provided in
Article V.
Section 8 02. Trust Accounts. (a) On or prior to the Closing Date,
--------------
the Issuer shall cause the Indenture Trustee to establish and maintain, in the
name of the Indenture Trustee, for the benefit of the Noteholders and the
Certificate Paying Agent, on behalf of the Certificateholders and the Credit
Enhancer, the Payment Account as provided in Section 3.01 of this Indenture.
(b) All monies deposited from time to time in the Payment Account
pursuant to the Servicing Agreement and all deposits therein pursuant to this
Indenture are for the benefit of the Noteholders and the Certificate Paying
Agent, on behalf of the Certificateholders and all investments made with such
monies including all income or other gain from such investments are for the
benefit of the Master Servicer as provided by the Servicing Agreement.
On each Payment Date during the Funding Period the Indenture Trustee
shall withdraw Net Principal Collections from the Payment Account and deposit
Net Principal Collections to the Funding Account
On each Payment Date, the Indenture Trustee shall distribute all
amounts on deposit in the Payment Account (after giving effect to the withdrawal
referred to in the preceding paragraph) to Noteholders in respect of the Notes
and in its capacity as Certificate Paying Agent to Certificateholders in the
order of priority set forth in Section 3.05 (except as otherwise provided in
Section 5.04(b).
The Master Servicer may direct the Indenture Trustee to invest any
funds in the Payment Account in Eligible Investments maturing no later than the
Business Day preceding each Payment Date and shall not be sold or disposed of
prior to the maturity. Unless otherwise instructed by the Master Servicer, the
Indenture Trustee shall invest all funds in the Payment Account in Eligible
Investments.
(c) On or before the Closing Date the Issuer shall open, at the
Corporate Trust Office, an account which shall be the "Funding Account". The
Master Servicer may direct the Indenture
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Trustee to invest any funds in the Funding Account in Eligible Investments
maturing no later than the Business Day preceding each Payment Date and shall
not be sold or disposed of prior to the maturity. Unless otherwise instructed by
the Master Servicer, the Indenture Trustee shall invest all funds in the Payment
Account in its Corporate Trust Short Term Investment Fund so long as it is an
Eligible Investment. During the Funding Period, any amounts received by the
Indenture Trustee in respect of Net Principal Collections for deposit in the
Funding Account, together with any Eligible Investments in which such monies are
or will be invested or reinvested during the term of the Notes, shall be held by
the Indenture Trustee in the Funding Account as part of the Trust Estate,
subject to disbursement and withdrawal as herein provided: Amounts on deposit in
the Funding Account in respect of Net Principal Collections may be withdrawn on
each Deposit Date and (1) paid to the Issuer in payment for Additional Loans by
the deposit of such amount to the Collection Account and (2) at the end of the
Funding Period any amounts remaining in the Funding Account after the withdrawal
called for by clause (1) shall be deposited in the Payment Account to be
included in the payment of principal on the Payment Date that is the last day of
the Funding Period.
(d) (i) Any investment in the institution with which the Funding
Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Funding Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Notes and the Certificates) and shall not
be sold or disposed of prior to maturity.
Section 8.03. Officer's Certificate. The Indenture Trustee shall
---------------------
receive at least [seven] days notice when requested by the Issuer to take any
action pursuant to Section 8.05(a), accompanied by copies of any instruments to
be executed, and the Indenture Trustee shall also require, as a condition to
such action, an Officer's Certificate, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with.
Section 8 04. Termination Upon Distribution to Noteholders. This
--------------------------------------------
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, Certificate Paying Agent, on behalf of the Certificateholders and
the Indenture Trustee of all amounts required to be distributed pursuant to
Article III; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
Section 8.05. Release of Trust Estate. (a) Subject to the payment of
-----------------------
its fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property from
the lien of this Indenture, or convey the Indenture Trustee's interest in the
same, in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Indenture Trustee as provided in Article VIII hereunder shall be bound to
ascertain the Indenture Trustee's
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authority, inquire into the satisfaction of any conditions precedent, or see to
the application of any monies.
(b) The Indenture Trustee shall, at such time as (i) there are no
Notes Outstanding, (ii) all sums due the Indenture Trustee pursuant to this
Indenture have been paid, and (iii) all sums due the Credit Enhancer have been
paid, release any remaining portion of the Trust Estate that secured the Notes
from the lien of this Indenture.
[(c) The Indenture Trustee shall release property from the lien of
this Indenture pursuant to this Section 8.05 only upon receipt of a request from
the Issuer accompanied by an [Officers' Certificate], [an Opinion of Counsel,]
and a letter from the Credit Enhancer, stating that the Credit Enhancer has no
objection to such request from the Issuer.]
Section 8.06. Surrender of Notes Upon Final Payment. By acceptance
-------------------------------------
of any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
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ARTICLE IX
Supplemental Indentures
Section 9.01. Supplemental Indentures Without Consent of Noteholders.
------------------------------------------------------
(a) Without the consent of the Holders of any Notes but with the consent of the
Credit Enhancer and prior notice to the Rating Agencies and the Credit Enhancer,
the Issuer and the Indenture Trustee, when authorized by an Issuer Request, at
any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure, convey
and confirm unto the Indenture Trustee any property subject or required to
be subjected to the lien of this Indenture, or to subject to the lien of
this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein and
in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit of
the Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(iv) to convey, transfer, assign. mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be inconsistent
with any other provision herein or in any supplemental indenture;
(vi) to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental indenture;
provided, that such action shall not materially and adversely affect the
interests of the Holders of the Notes;
(vii) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes and
to add to or change any of the provisions of this Indenture as shall be
necessary to facilitate the administration of the trusts hereunder by more
than one trustee, pursuant to the requirements of Article VI; or
(viii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the qualification
of this Indenture under the TIA or under any similar federal statute
hereafter enacted and to add to this Indenture such other provisions as may
be expressly required by the TIA; provided, however, that no such indenture
-------- -------
supplements shall be entered into unless the Indenture Trustee shall have
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received an Opinion of Counsel that entering into such indenture supplement
will not have any material adverse tax consequences to the Noteholders.
The Indenture Trustee is hereby authorized to join in the execution of any
such supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with the consent of the Credit Enhancer and prior notice to the Rating Agencies
and the Credit Enhancer, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel, (i)
adversely affect in any material respect the interests of any Noteholder or (ii)
cause the Issuer to be subject to an entity level tax.
Section 9 02. Supplemental Indentures With Consent of Noteholders.
---------------------------------------------------
The Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and, with the written consent of
the Credit Enhancer and with the consent of the Holders of not less than a
majority of the Security Balances of each Class of Notes affected thereby, by
Act of such Holders delivered to the Issuer and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each Note
affected thereby:
(i) change the date of payment of any installment of principal of
or interest on any Note, or reduce the principal amount thereof or the
interest rate thereon, change the provisions of this Indenture relating to
the application of collections on, or the proceeds of the sale of, the
Trust Estate to payment of principal of or interest on the Notes, or change
any place of payment where, or the coin or currency in which, any Note or
the interest thereon is payable, or impair the right to institute suit for
the enforcement of the provisions of this Indenture requiring the
application of funds available therefor, as provided in Article V, to the
payment of any such amount due on the Notes on or after the respective due
dates thereof;
(ii) reduce the percentage of the Security Balances of the Notes,
the consent of the Holders of which is required for any such supplemental
indenture, or the consent of the Holders of which is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding" or modify or alter the exception in
the definition of the term "Holder";
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(vi) reduce the percentage of the Security Balances of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell or
liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section 9 02 except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified or
waived without the consent of the Holder of each Note affected thereby;
(vi) modify any of the provisions of this Indenture in such manner
as to affect the calculation of the amount of any payment of interest or
principal due on any Note on any Payment Date (including the calculation of
any of the individual components of such calculation); or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as otherwise permitted or contemplated herein,
terminate the lien of this Indenture on any property at any time subject
hereto or deprive the Holder of any Note of the security provided by the
lien of this Indenture; and provided, further, that such action shall not,
as evidenced by an Opinion of Counsel, cause the Issuer to be subject to an
entity level tax.
The Indenture Trustee may in its discretion determine whether or not any
Notes would be affected by any supplemental indenture and any such determination
shall be conclusive upon the Holders of all Notes, whether theretofore or
thereafter authenticated and delivered hereunder. The Indenture Trustee shall
not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of any
supplemental indenture pursuant to this Section 9.02, the Indenture Trustee
shall mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
Section 9.03. Execution of Supplemental Indentures. In executing,
------------------------------------
or permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
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Section 9.04. Effect of Supplemental Indenture. Upon the execution
--------------------------------
of any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9 05. Conformity with Trust Indenture Act. Every amendment
-----------------------------------
of this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9 06. Reference in Notes to Supplemental Indentures. Notes
---------------------------------------------
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX; may, and if required by the Indenture Trustee
shall, bear a notation in form approved by the Indenture Trustee as to any
matter provided for in such supplemental indenture. If the Issuer or the
Indenture Trustee shall so determine, new Notes so modified as to conform, in
the opinion of the Indenture Trustee and the Issuer, to any such supplemental
indenture may be prepared and executed by the Issuer and authenticated and
delivered by the Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
Miscellaneous
Section 10 01. Compliance Certificates and Opinions, etc. (a) Upon
-----------------------------------------
any application or request by the Issuer to the Indenture Trustee to take any
action under any provision of this Indenture, the Issuer shall furnish to the
Indenture Trustee and to the Credit Enhancer (i) an Officer's Certificate
stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and (ii) an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any have been complied with, except that, in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture. No additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in .his Indenture shall include:
(1) a statement that each signatory of such certificate or opinion has
read or has caused to be read such covenant or condition and the
definitions herein .relating hereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based:
(3) a statement that. in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not
such covenant or condition has been complied with:
(4) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with; and
(5) if the Signer of such Certificate or Opinion is required to be
Independent, the Statement required by the definition of the term
"Independent".
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to, be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 10.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Issuer
of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters
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described in clause (i) above, the Issuer shall also deliver to the Indenture
Trustee an Independent Certificate as to the same matters, if the fair value to
the Issuer of the securities to be so deposited and of all other such securities
made the basis of any such withdrawal or release since the commencement of the
then-current fiscal year of the Issuer, as set forth in the certificates
delivered pursuant to clause (i) above and this clause (ii) is 10% or more of
the Security Balances of the Notes. but such a certificate need not be furnished
with respect to any securities so deposited if the fair value thereof to the
Issuer as set forth in the related Officer's Certificate is less than 525,000 or
less than one percent of the Security Balances of the Notes.
(iii) Whenever any property or securities are to be released from the
lieu of this Indenture, the Issuer shall also furnish to the Indenture Trustee
an Officer's Certificate certifying or stating the opinion of each person
signing such certificate as to the fair value (within 90 days of such release)
of the property or securities proposed to be released and stating that in the
opinion of such person the proposed release will not impair the security under
this, Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (iii) above, the Issuer shall also
furnish to the Indenture Trustee an Independent Certificate as to the same
matters if the fair value of the property or securities and of all other
property other than property as contemplated by clause (v) below or securities
released from the lien of this Indenture since the commencement of the then-
current calendar year, as set forth in the certificates required by clause (iii)
above and this clause (iv), equals 10% or more of the Security Balances of the
Notes, but such certificate need not be furnished in the case of any release of
property or securities if the fair value thereof as set forth in the related
Officer's Certificate is less than $25,000 or less than one percent of the then
Security Balances of the Notes.
(v) Notwithstanding any provision of this Indenture, the Issuer may.
without compliance with the requirements of the other provisions of this Section
10 01, (A) collect, sell or otherwise dispose of the Class A Ownership Interest
as and to the extent permitted or required by the Basic Documents or (B) make
cash payments out of the Payment Account as and to the extent permitted or
required by the Basic Documents [, so long as the Issuer shall deliver to the
Indenture Trustee every six months, commencing _____________, an Officer's
Certificate of the Issuer stating that all the dispositions of Collateral
described in clauses (A) or (B) above that occurred during the preceding six
calendar months were in the ordinary course of the Issuer's, business and that
the proceeds thereof were applied in accordance with the Basic Documents].
Section 10.02. Form of Documents Delivered to Indenture Trustee. In
------------------------------------------------
any case where several matters are required to be certified by, or covered by an
opinion of. any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but, one such Person may
certify or give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.
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Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such of officer knows. or in the
exercise of reasonable care should know, that the certificate Of opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer
or Opinion of Counsel may be based. insofar as it relates to factual matters,
upon a certificate or opinion of, or representation by. an officer or officers
of the Seller, the Issuer or the Administrator, stating that the information
with respect to such factual matters is in the possession of the Seller, the
Issuer or the Administrator, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications. requests. consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, he consolidated and
form one instrument
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be). of the
facts and ! opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy or any statement or opinion contained in any such document as provided
in Article VI.
Section 10.03. Acts of Noteholders. (a) Any request, demand,
-------------------
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in an
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Indenture Trustee, and, where it
is hereby expressly required, to the Issuer. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01) conclusive in favor of the Indenture Trustee and
the Issuer, if made in the manner provided in this Section 10.03.
(b) The fact date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Registrar.
(d) Any request, demand, authorization, direction. notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted
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or suffered to be done by the Indenture Trustee or the Issuer in reliance
thereon, whether or not notation of such action is made upon such Note.
Section 10 04. Notices, etc., to Indenture Trustee. Issuer, Credit
---------------------------------------------------
Enhancer and Rating Agencies. Any request, demand, authorization, direction,
- ----------------------------
notice, consent. waiver or Act of Noteholders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to be
made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the Issuer shall
be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Indenture Trustee at the Corporate Trust
Office. The Indenture Trustee shall promptly transmit any notice received
by it from the Noteholders to the Issuer or
(ii) the Issuer by the Indenture Trustee or by any ,Noteholder shall
be sufficient for every purpose hereunder if in writing and mailed first-
class, postage prepaid to the Issuer addressed to: Home Equity Loan Trust
199_ - ____ in care of [Name of Owner Trustee] ____________, ___________,
_______________ Attention of _____________________ with a copy to the
Administrator at 8400 Normandale Boulevard. Suite 600, Minneapolis,
Minnesota 55437, Attention: of ___________________ or at any other address
previously furnished in writing to the Indenture Trustee by the Issuer or
the Administrator. The Issuer shall promptly transmit any notice received
by it from the Noteholders to the Indenture Trustee, or
(iii) the Credit Enhancer by the Issuer. the Indenture Trustee or
by any t Noteholders shall be sufficient for every purpose hereunder to in
writing and mailed, first-class postage, pre-paid. or personally delivered
or telecopied to: [Name of Credit 2 Enhancer], ____________,
______________, ___________, Attention: __________, ________________,
Telephone _________. Telecopier ________. The Credit Enhancer shall
promptly transmit any notice received by it from the Issuer the Indenture
Trustee or the Noteholders to the Issuer or Indenture Trustee, as the case
may be.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to (i) in the case of
[Moody's], at the following address: [Moody's Investors Service Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007] and (ii) in
the case of [Standard & Poor's], at the following address: [Standard & Poor's
Corporation, 26 Broadway (15th Floor), New York, New York 10004, Attention of
Asset Backed Surveillance Department; or as to each of the foregoing, at such
other address as shall b be designated by written notice to the other parties.
Section 10.05. Notices to Noteholders; Waiver. Where this Indenture
------------------------------
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if-in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at such Person's as it appears on the Note Register, not late than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice.
-57-
<PAGE>
In any case where notice to Noteholders is given by mail, neither the failure to
mail such notice nor any defect in any notice so mailed to any particular
Noteholder shall affect the sufficiency of such notice with respect to other
Noteholders. and any notice that is mailed in the manner herein provided shall
conclusively be presumed to have been duly given regardless of whether such
notice is in fact actually received.
Where this Indenture provides for notice in any manner, such notice
may he waived in writing by any Person entitled to receive such notice, either
before or after the event. and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity any
action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity. it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture. then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 10.06. Alternate Payment and Notice Provisions.
---------------------------------------
Notwithstanding any provisions of this Indenture or any of the Notes to the
contrary, the Issuer may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Indenture Trustee or any
Administrator to such Holder, that is different from the methods provided for in
this Indenture for such payments or notices. The Issuer shall furnish to the
Indenture Trustee a copy of each such agreement and the Indenture Trustee shall
cause payments to be made and notices to be given in accordance with such
agreements.
Section 10.07. Conflict with Trust Indenture Act. If any provisions
---------------------------------
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA (S)(S) 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 10.08. Effect of Headings. The Article and Section headings
------------------
herein, are for convenience only and shall not affect the construction hereof.
Section 10.09. Successors and Assigns. All covenants and agreements
----------------------
in this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee
in this Indenture shall bind its successors, co-trustees and agents.
-58-
<PAGE>
Section 10.10. Separability. In case any provision in this Indenture
------------
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 10.11. Benefits of Indenture. The Credit Enhancer and its
---------------------
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture. Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any
other Person with an ownership interest in any part of the Trust Estate, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 10.12. Legal Holidays. IN any case where the date on which
--------------
any payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 10.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THIS STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.14. Counterparts. This Indenture may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 10.15. Recording of Indenture. If this Indenture is subject
----------------------
to recording in any appropriate public recording offices, such recording is to
be effected by the Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Indenture Trustee or any other counsel
reasonably acceptable to the Indenture Trustee) to the effect that such
recording is necessary either for the protection of the Noteholders or any other
Person secured hereunder or for the enforcement of any right or remedy granted
to the Indenture Trustee under this Indenture.
Section 10.16. Issuer Obligation. No recourse may be taken, directly
-----------------
or indirectly, with respect to the obligations of the Issuer, the Owner Trustee
or the Indenture Trustee on the Notes or under this Indenture or any certificate
or other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent
-59-
<PAGE>
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call owing to such
entity. For all purposes of this Indenture, in the performance of any duties or
obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and
entitled to the benefits of, the terms and provisions of Article VI, VII and
VIII of the Trust Agreement.
Section 10.17. No Petition. The Indenture Trustee, by entering into
-----------
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
Section 10.18. Inspection. The Issuer agrees that, on reasonable
----------
prior notice, it shall permit any representative of the Indenture Trustee,
during the Issuer's normal business hours, to examine all the books of account,
records, reports and other papers of the Issuer, to make copies and extracts
therefrom, to cause such books to be audited by Independent certified public
accountants, and to discuss the Issuer's affairs, finances and accounts with the
Issuer's officers, employees, and Independent certified public accountants, all
at such reasonable times and as often as may be reasonably requested. The
Indenture Trustee shall and shall cause its representatives to hold in
confidence all such information except to the extent disclosure may be required
by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its obligations hereunder.
Section 10.19 Authority of the Administrator. Each of the parties to
------------------------------
this Indenture acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Issuer or the Owner Trustee pursuant to
the terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee , all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.
-60-
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
Home Equity Loan Trust 199_ - ________________
as Issuer
By: _______________________________________
not in its individual capacity
but solely as Owner Trustee
By: _______________________________________
Name:
Title:
______________________________________________
as Indenture Trustee, as Certificate Paying Agent
and as Note Registrar
By: _______________________________________
Name:
Title:
______________________________
hereby accepts the appointment as Certificate Paying Agent pursuant to Section
3.03 hereof and as Certificate Registrar pursuant to Section 4.02 hereof.
_____________________________________
By:__________________________________
Title: ______________________________
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ______ day of _____________, before me personally appeared
________________________, to me known, who being by me duly sworn, did depose
and say, that he resides at ______________________
____________________________________, that he is the _________________ of the
Owner Trustee, one of the corporations described in and which executed the above
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he signed his name thereto by
like order.
________________________________
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ______ day of _____________, before me personally appeared
_______________________, to me known who being by me duly sworn, did depose and
say, that he resides at _______________________ _____________________, that he
is the _________________ of ______________________, as Indenture Trustee, one of
the corporations described in and which executed the above instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of Directors
of said corporation; and that he signed his name thereto by like order.
________________________________
Notary Public
[NOTARIAL SEAL]
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ______ day of _____________, before me personally appeared
_______________________, to me known who being by me duly sworn, did depose and
say, that he resides at _______________________ _____________________, that he
is the _________________ of ______________________, as Indenture Trustee, one of
the corporations described in and which executed the above instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of Directors
of said corporation; and that he signed his name thereto by like order.
________________________________
Notary Public
[NOTARIAL SEAL]
<PAGE>
Exhibit B
[FORM OF OPINION]
[Date]
To: The Persons Listed On the attached Schedule
Re: Home Equity Loan Trust 199_-____
Home Equity Loan Asset-Backed Securities
----------------------------------------
Ladies and Gentlemen:
We have acted as counsel to __________ ("_____") in connection with
the issuance by __________ it Surety Bond Number [SB_____] (the "Surety Bond")
issued pursuant to the [Insurance and Reimbursement Agreement dated as of
_______________ among _______________, _________________, as Depositor (the
"Depositor"), ____________ ("___"), as Seller and Master Servicer and Home
Equity Loan Trust 199_, (the "Issuer") (the "Insurance Agreement") with respect
to the Additional Variable funding Notes issued pursuant to the Indenture, dated
as of ____________ between the Issuer and _______________, as Indenture
Trustee.]
For the purposes of this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction
of [(i) the Certificate of Incorporation and the By-Laws of __________: (ii)
resolutions adopted by the Board of Directors of __________ relevant to the
issuance of the Surety Bond; (iii) the Surety Bond; (iv) the Insurance
Agreement; (v) the certificate of the Secretary of __________ dated as of the
date hereof (the "Certificate");] and (vi) such other documents that we have
deemed necessary of appropriate as a basis for the opinion set forth below.
Capitalized terms used herein an not otherwise defined shall have the
meanings ascribed to them in the [Definitions incorporated in and attached as an
Appendix to the Indenture.]
In our examination we have assumed the genuineness of all signatures
and the legal capacity of natural persons (other than with respect to officers
of __________), the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
copies. We have relied upon the certificates, statements and representations of
officers and other representatives of __________ with regard to all facts (but
not conclusions of law) material to the opinion set forth below and have not
conducted an independent inquiry as to such matters. Based upon and subject to
the foregoing, we are of the opinion that:
B-1
<PAGE>
1. __________ is a corporation validly existing, in good standing and
licensed to transact the business of surety and financial guaranty
insurance under the laws of the State of New York.
2. __________ has the corporate power to execute and deliver, and to take
all action required of it under the Surety Bond.
3. Except as have already been obtained, no authorization, consent,
approval, license, formal exemption, or declaration from, nor any
registration or filing with, any curt, or government agency or body of he
United States of America or the State of New York, which if not obtained
would affect of impair the validity or enforceability of the Surety Bond
is required in connection with the execution and delivery by __________ of
the Surety Bond or in connection with __________ performance of its
obligations thereunder.
4. The Surety Bond has been duly authorized executed and delivered by
__________ and constitutes the legally valid and binding obligation of
__________ , enforceable in accordance with its terms subject, a to
enforcement, to (a) bankruptcy, reorganization, insolvency, moratorium and
other similar laws relating to or affecting the enforcement of creditors'
rights generally, including, without limitation, laws relating to
fraudulent transfers or conveyances, preferential transfers and equitable
subordination, presently or from time to time in effect, and general
principles of equity (regardless of whether such enforcement is considered
in a processing in equity or at law), as such laws may be applied in any
such proceeding with respect to __________ and (b) the qualification that
the remedy of specific performance may be subject to equitable defenses and
to the discussion of the court before which any proceedings with respect
thereto may be brought.
5. The Surety Bond is not required to be registered under the Securities
Act of 1933, as amended.
We express no opinion as to the laws of any jurisdiction other than
the federal laws of the United States of America and the laws of the State of
New York. This opinion is limited to the laws of New York and the United States
of America as in effect on the date hereof and, in rendering this opinion, we
assume no obligation to revise or supplement this opinion should the present
laws, or the interpretation thereof, be changed.
This opinion has been furnished solely for the benefit of the persons
listed on the attached Schedule A in connection with the transactions described
herein and on the condition that the opinions expressed herein may not be
published or otherwise communicated to any other party, or relied upon by any
other party, without prior written approval in each instance.
Very truly yours,
B-2
<PAGE>
Schedule A
Opinion of [Date]
Re: Home Equity Loan Trust 199_, ____
Home Equity Loan Asset-Backed Securities
---_____________________________________
[Name of Depositor]
[Name of Seller]
[Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007]
[Standard & Poor's Ratings Group
26 Broadway, 15/th/ Floor
New York, New York 10007]
_____________________________,
as Indenture Trustee
_____________________________
____________
________________________
_____________________________,
As Owner Trustee
____________
________________________
B-3
<PAGE>
Exhibit C
__________, 199_
[Name of Depositor]
[Name of Underwriter]
______________________
______________________
[Name of Credit Enhancer]
______________________
______________________
[Name of Indenture Trustee]
______________________
______________________
Re: Home Equity Loan Trust 199_ -____
---------------------------------
Ladies and Gentlemen:
We have acted as counsel to___________, a Delaware corporation (the
"Depositor"), in connection with (i) the purchase of certain adjustable rate
home equity revolving credit line loans (the "Mortgage Loans") pursuant to a
mortgage loan purchase agreement, dated as of __________ (the "Mortgage Loan
Purchase Agreement") between _________ as seller (the "Seller"), and the
Depositor, and (ii) the sale by the Depositor of he Class A Ownership Interest
to Home Equity Loan Trust 19_-___, a Delaware business trust (the "Issuer"),
created by a Trust Agreement dated as of __________-__________ (the "Trust
Agreement") between the Depositor and _______________, as owner trustee (the
"Owner Trustee"). In exchange for the Class A Ownership Interest, the Issuer
has issued Home Equity Asset-Backed Term Notes, Series _____ (the "Term Notes"),
Home Equity Loan asset-Backed Variable Funding Notes, Series _____ (the
"Variable Funding Notes", and together with the Term Notes, the "Notes") and
Home Equity Loan Asset-Backed Certificates, Series _____ (the "Certificates",
and together with the Notes, the "Securities"). The Issuer wishes to increase
the Maximum Variable Funding Balance of the Variable Funding Notes in excess of
$__________ as provided for in Section 4.01 of the Indenture. Capitalized terms
not otherwise defined herein shall (unless otherwise specifically set forth
herein) have the meanings ascribed to such terms in the Trust Agreement.
This opinion is rendered pursuant to Section 5.01(b)(iii) of the
Indenture.
C-1
<PAGE>
In arriving at the opinions expressed below, we have examined such
documents and records as we gave deemed appropriate, including the following:
1. A signed copy of the Indenture.
2. A signed copy of the Trust Agreement.
3. Specimens of the Notes.
As to any facts material to the following opinions which we did not
independently establish or verify, we have relied upon statements and
representations of he responsible officers and other representations of the
Depositor and of public officials and agencies.
Based upon the foregoing and consideration of such other matters as we
have deemed appropriate, we are of the opinion that:
1. For federal income tax purposes, as a result of the increase in
the Maximum Variable Funding Balance of the Variable Funding Notes in excess of
$__________, the issuer will not be classified as an association or a publicly
traded partnership taxable as a corporation.
2. The Variable Funding Notes will be treated as debt for federal
income tax purposes and will not affect the Classification as debt of any other
class of Notes.
We do not express any opinion as to any laws other than the federal
tax law of the United States of America.
The opinions set forth herein are expressly subject to there being no
additional facts that would materially affect the validity of the assumptions
and the conclusion set forth herein or upon which this opinion is based.
No one other than you shall be entitled to rely on the opinions
expressed herein. This opinion letter is not intended to be employed in any
transaction other than the one described above and is being delivered to you on
the understanding that neither it nor its contents may be published,
communicated or otherwise made available, in whole or in part, to any other
party or entity without, in each instance, our specific prior written consent.
Very truly yours,
C-2
<PAGE>
APPENDIX A
DEFINITIONS
Additional Balance: With respect to any Mortgage Loan, any future
------------------
Draw made by the related Mortgagor pursuant to the related Loan Agreement after
the Cut-Off-Date in the case of an Initial Loan, or after the Deposit Date in
the case of an Additional Loan; provided, however, that if an Amortization Event
-------- -------
occurs, then any Draw after such Amortization Event shall not be acquired by the
100_-_LLC and shall not be an Additional Balance.
Additional Balance Differential: With respect to any Payment Date,
-------------------------------
(x) during the Revolving Period the amount by which Draws under the Mortgage
Loans during the related Collection Period exceed Principal Collections during
such Collection Period and (y) on and after the end of the Revolving Period the
aggregate amount of Additional Balances conveyed to the 100_-_LLC during the
related Collection Period.
Additional Credit Enhancement Instrument: The credit enhancement
----------------------------------------
instrument which may be issued by the Credit Enhancer to the Indenture Trustee
to guaranty the Additional Variable Funding Notes for the benefit of holders of
the Additional Variable Funding Notes.
Additional Loans: All home equity line of credit loans sold by the
----------------
Seller to the Purchaser after the Closing Date pursuant to Section 2.3 of the
Mortgage Loan Purchase Agreement.
Additional Variable Funding Notes: The Additional Variable Funding
---------------------------------
Notes issued pursuant to Section 4.01(b) of the Indenture, which shall be in
addition to those Variable Funding Notes that are insured by the Credit
Enhancement Instrument.
Additional Variable Funding Note Issuance Date:
----------------------------------------------
The date on which any Additional Variable Funding Note is issued.
Administration Agreement: The Administration Agreement dated as of
------------------------
____________ among the Issuer, the Indenture Trustee and _________, as
Administration, as it may be amended from time to time.
Administrator: ______________, as administrator under the
-------------
Administration Agreement or any successor Administrator appointed pursuant to
the terms of the Administration Agreement.
Affiliate: With respect to any Person, any other Person controlling,
---------
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of a
Person, directly or indirectly, whether through ownership of voting securities,
by contract or otherwise and "controlling" and "controlled" shall have meanings
correlative to the foregoing.
<PAGE>
Aggregate Additional Balance Differential: With respect to any
-----------------------------------------
Payment Date, the sum of Additional Balance Differentials that have been added
to the Principal Balance of the Variable Funding Notes prior to such Payment
Date.
Aggregate Credit Enhancement Instrument Amounts: The sum of (i) with
-----------------------------------------------
respect to the Credit Enhancement Instrument the lesser of the Maximum Credit
Enhancement Instrument Amount and the aggregate of the Security Balances of the
Notes other than any Additional Variable Funding Notes and (ii) with respect to
any Additional Credit Enhancement Instrument the lesser of the Maximum
Additional Credit Enhancement Instrument Amount and the Security Balance of the
Additional Variable Funding Notes.
Aggregate Increased Maximum Credit Enhancement Instrument Amount: The
----------------------------------------------------------------
Aggregate Credit Enhancement Instrument Amounts of the Credit Enhancement
Instrument and of any Additional Credit Enhancement Instruments issued under the
Insurance Agreement not to exceed the Maximum Credit Enhancement Instrument
Amount, plus the Maximum Additional Credit Enhancement Instrument Amount.
Aggregate Security Balance: With respect to any Payment Date, the
--------------------------
aggregate of the Principal Balances of all Securities as of such date.
Amortization Event: [Any one of the following events:
------------------
(a) the failure on the part of the Seller (i) to make any
payment or deposit required to be made under the Mortgage Loan Purchase
Agreement within four Business Days after the date such payment or deposit
is required to be mad; or (ii) to observe or perform in any material
respect any other covenants or agreements of the Seller set forth in the
Mortgage Loan Purchase Agreement, which failure continues unremedied for a
period of 60 days after written notice and such failure materially and
adversely affects the interests of the Securityholders or the Credit
Enhancer;
(b) if any representation or warranty made by the Seller in the
Mortgage Loan Purchase Agreement proves to have been incorrect in any
material respect when made and which continues to be incorrect in any
material respect for a period of 45 days with respect to any representation
or warranty of the Seller made in Section 3.1(a) of the Mortgage Loan
Purchase Agreement or 90 days with respect to any representation or
warranty made in Section 3.1(b) or 3.2 of the Mortgage Loan Purchase
Agreement after written notice and as a result of which the interests of
the Securityholders or the Credit Enhancer are materially and adversely
affected; provided, however, that an Amortization Event shall not be deemed
-------- -------
to occur if the Seller has repurchased or substituted for the related
Mortgage Loans or all Mortgage Loans, if applicable during such period (or
within an additional 60 days with the consent of the Indenture Trustee and
the Credit Enhancer) in accordance with the provisions of the Indenture;
(c) the entry against the Seller of a decree or order by a court
or agency or supervisory authority having jurisdiction in the premises for
the appointment of a trustee,
2
<PAGE>
conservator, receiver or liquidator in any insolvency, conservatorship,
receivership, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days;
(d) The Seller shall voluntarily go into liquidation, consent to
the appointment of a conservator, receiver, liquidator or similar person in
any insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings of or relating to the Seller or of or relating to
all or substantially all of its property, or a decree or order of a court,
agency or supervisory authority having jurisdiction in the premises for the
appointment of a conservator, receiver, liquidator or similar person in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its affairs,
shall have been entered against the Seller and such decree or order shall
have remained in force undischarged, unbonded or unstayed for a period of
60 days; or the Seller shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an assignment for
the benefit of its creditors or voluntarily suspend payment of its
obligations;
(e) the [199_-_LLC] [or] ]Issuer] becomes subject to regulation
by the Commission as an investment company within the meaning of the
Investment Company Act of 1940, as amended;
(f) an Event of Servicing Termination relating to the Master
Servicer occurs under the Servicing Agreement and the Master Servicer is
the Seller;
In the case of any event described in 9a), (b) or (f), an Amortization
Event will be deemed to have occurred only if, after any applicable grace period
described in such clauses, either the Indenture Trustee, the Credit Enhancer or,
with the consent of the Credit Enhancer, Securityholders evidencing not less
than 51% of the Security Balance of each of the Term Notes and the Certificates
by written notice to the Seller, the Master Servicer, the Depositor and the
Owner Trustee (and to the Indenture Trustee, if given by the Credit Enhancer or
the Securityholders) may declare that an Amortization Event has occurred as of
the date of such notice. In the case of any event described in clauses (c),
(d), (e), an Amortization Event will be deemed to have occurred without any
notice or other action on the part of the Indenture Trustee, the Securityholders
or the Credit Enhancer immediately upon the occurrence of such event; provided,
--------
that any Amortization Event may be waived and deemed of no effect with the
written consent of the Credit Enhancer and each Rating Agency, subject to the
satisfaction of any conditions to such waiver.]
Appraised Value: With respect to any Mortgaged Property, either (x)
---------------
the value set forth in an appraisal of such Mortgaged Property made to establish
compliance with the underwriting criteria then in effect in connection with the
later of the application for the Mortgage Loan secured by such Mortgaged
Property or any subsequent increase or decrease in the related Credit Limit or
to reduce or eliminate the amount of any primary insurance, or (y) if
3
<PAGE>
the sales price of the Mortgaged Property is considered in accordance with the
underwriting criteria applicable to the Mortgage Loan, the lesser of (i) the
appraised value referred to in (x) above and (ii) the sales price of such
Mortgaged Property.
Asset Balance: With respect to any Mortgage Loan, other than a
-------------
Liquidated Mortgage Loan, and as of any day, the related Cut-Off Date Asset
Balance or Deposit Date Asset Balance, plus (i) any Additional Balances in
-----
respect of such Mortgage Loan conveyed to the 199_-_LLC, minus (ii) all
-----
collections credited as principal in respect of any such Mortgage Loan in
accordance with the related Loan Agreement (except for any such collections that
are allocable to the Excluded Amount) and applied in reduction of the Asset
Balance thereof. For purposes of this definition, a Liquidated Mortgage Loan
shall be deemed to have an Asset balance equal to the Asset Balance of the
related Mortgage Loan immediately prior to the final recovery of all related
Liquidation Proceeds and an Asset Balance of zero thereafter.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
----------------------
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the conveyance of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering the Mortgage Loans secured by Mortgaged Properties located
in the same jurisdiction.
Authorized Newspaper: A newspaper of general circulation in the
--------------------
Borough of Manhattan, The City of New York, printed in the English language and
customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.
Authorized Officer: With respect to the Issuer, any officer of the
------------------
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized officers delivered
by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list
may be modified or supplemented form time to time thereafter) and, so long as
the Administration Agreement is in effect, any Responsible Officer of the
Administrator who is authorized to act for the Administrator in matters relating
to the Issuer and to be acted upon by the Administrator pursuant to the
Administration Agreement and who is identified on the list of Authorized
Officers delivered by the Administrator to the Indenture Trustee on the Closing
Date (as such list may be modified or supplemented from time to time
thereafter).
Basic Documents: the Trust Agreement, the Certificate of Trust, the
---------------
Indenture, the Mortgage Loan Purchase Agreement, the Insurance Agreement, the
Administration Agreement, the Servicing Agreement, the Custodial Agreement and
the other documents and certificates delivered in connection with any of the
above.
Beneficial Owner: With respect to any Note, the Person who is the
----------------
beneficial owner of such Note as reflected on the books of the Depository or on
the books of a Person maintaining an account with such Depository (directly as
Depository Participant or indirectly through a Depository Participant, in
accordance with the rules of such Depository).
4
<PAGE>
Billing Cycle: With respect to any Mortgage Loan and Due Date, the
-------------
calendar month preceding such Due Date.
Billing Date: With respect to any Due Date and Mortgage Loan, the
------------
first day of the month preceding such Due Date on which date the bill is
generated for the amount due an payable on the related Mortgage Loan on such Due
Date.
Book-Entry Notes: Beneficial interests in the Notes, ownership and
----------------
transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
------------
day on which banking institutions in the State of New York, [Illinois] or
Minnesota are required or authorized by law to be closed.
Business Trust Statute: Chapter 38 of Title 12 of the Delaware Code,
----------------------
12 Del. Code (S)(S)3801 et seq., as the same may be amended from time to time.
--- -- ----
Capped Funding Note: Any Variable Funding Note that has reached its
-------------------
Maximum Individual Variable Funding Balance.
Carryover Loss Amount: With respect to any Payment Date, the
---------------------
aggregate of Loss Amounts (other than Loss amounts arising during the related
Collection Period) with respect to which either (i) payments of principal have
not been previously made on the Notes and the Certificates or (ii) were not
reflected in a reduction (not below zero) of the Outstanding Reserve Amount.
Certificate Distribution Account: The account or accounts created and
--------------------------------
maintained pursuant to Section ____ of the Servicing Agreement. The
Certificate Distribution Account shall be an Eligible Account.
Certificate Distribution Amount: With respect to any Payment Date,
-------------------------------
the sum of (x) the amount accrued during the related Interest Period on the
Principal Balance of the Certificates at the Certificate Rate for such Interest
Period and (y) any Unpaid Certificate Distribution Amount Shortfall. The amount
available for distribution on any Payment Date shall be allocated first to the
amount in clause (x) above, and second to the amount in clause (y) above.
Certificate Paying Agent: The meaning specified in Section 3.10 of
------------------------
the Trust Agreement.
Certificate Percentage: With respect to any Payment Date, the ration,
----------------------
expressed as a percentage, of the aggregate of the Principal Balance of the
Certificates immediately prior to such Payment Date to the sum of the aggregate
of the Principal Balance of the Securities immediately prior to such date.
5
<PAGE>
Certificate Rate: With respect to any Interest Period, the per annum
----------------
rate determined by the Master Servicer equal tot he sum of (i) LIBOR and (ii)
0.__% provided, however, that in no event shall the Certificate Rate with
-------- -------
respect to any Interest Period exceed the Maximum Rate.
Certificate Register: The register maintained by the Certificate
--------------------
Registrar in which the Certificate Registrar shall provide for the registration
of Certificates and of transfers and exchanges of Certificates.
Certificate Registrar: Initially,
---------------------
___________________________________, in its capacity as Certificate Registrar,
or any successor to the Indenture Trustee in such capacity.
Certificate of Trust: The Certificate of Trust filed for the Trust
--------------------
pursuant to Section 3810(a) of the Business Trust Statute.
Certificates: The Home Equity Loan Asset-Backed Certificates, Series
------------
_____, each evidencing undivided beneficial interests in the issuer and executed
by the Owner Trustee in substantially the form set forth in Exhibit A to the
Trust Agreement.
Certificateholder: The Person in whose name a Certificate is
-----------------
registered in the Certificate Register except that, any Certificate registered
in the name of the Issuer, the Owner Trustee or the Indenture Trustee or any
Affiliate of any of them shall be deemed not to be outstanding and the
registered holder will not be considered a Certificateholder or a holder for
purposes of giving any request, demand, authorization, direction, notice,
consent or waiver under the Indenture or the Trust agreement provided that, in
determining whether the Indenture Trustee or the Owner Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Certificates that the Indenture Trustee or the
Owner Trustee knows to be so owned shall be so disregarded. Owners of
Certificates that have been pledged in good faith may be regarded as Holders if
the pledgee establishes to the satisfaction of the Indenture Trustee or the
Owner Trustee, as the case may be, the pledgee's right so to act with respect to
such Certificates and that the pledgee is not the Issuer, any other obligor upon
the Certificates or any Affiliate of any of the foregoing Persons.
Class: The Term Notes, the Variable Funding
-----
Notes, the Certificates or the Exchanged Notes, as the case may be.
Class A Ownership Interest: The ownership interest in the 199_-_
--------------------------
Trust LLC designated as the Class A Ownership Interest.
Class B Ownership Interest: The ownership interest in the 199_-_
----------------------------
Trust LLC designated as the Class B Ownership Interest.
6
<PAGE>
Class Percentage: With respect to each Class of Notes and Payment
----------------
Date, the ratio, expressed as a percentage, of the aggregate Principal Balance
of such class of Notes to the aggregate Principal Balance of the Notes, in each
case immediately prior to such Payment Date.
Closing Date: ________________.
------------
Code: The Internal Revenue Code of 1986, as amended and the rules
----
Collateral: The meaning specified in the Granting Clause of the
----------
Indenture.
Collection Account: The account or accounts created and maintained
------------------
pursuant to Section 3.02(b) of the Servicing Agreement. The Collection Account
shall be an Eligible Account.
Collection Period: With respect to any Mortgage Loan and Payment Date
-----------------
other than the first Payment Date, the calendar month preceding any such Payment
Date and with respect to the first Payment Date, the period from
____________________ through ___________.
Combined Loan-to-Value Ratio: With respect to any Mortgage Loan and
----------------------------
any date, the percentage equivalent of a fraction, the numerator of which is the
sum of (i) the greater of (x) the Credit Limit and (y) the Cut-Off Date Asset
Balance of such Mortgage Loan and (ii) the outstanding principal balance as of
the date of the origination of such Mortgage Loan (or any subsequent date as of
which such outstanding principal balance may be determined in connection with an
increase or decrease in the Credit Limit or to reduce the amount of primary
insurance for such Mortgage Loan) of any mortgage loan or mortgage loans that
are secured by liens on the Mortgaged Property that are senior or subordinate to
the Mortgage and the denominator of which is the Appraised Value of the related
Mortgaged Property.
Corporate Trust Office: With respect to the Indenture Trustee,
----------------------
Certificate Registrar, Certificate Paying Agent and Paying Agent, the principal
corporate trust office of the Indenture Trustee and Note Registrar at which at
any particular time its corporate trust business shall be administered, which
office at the date of the execution of this instrument is located at
___________________________, ___________________, ___________________________,
___________________________, except that for purposes of Section 4.02 of the
Indenture and Section 3.09 of the Trust Agreement, such term shall include the
Indenture Trustee's office or agency at __________, ___________,
_______________, ______________. With respect to the Owner Trustee, the
principal corporate trust office of the Owner Trustee at which at any particular
time its corporate trust business shall be administered, which office at the
date of the execution of this Trust Agreement is located at ___________________,
__________________, _________________, Attention: _________________________.
Credit Enhancement Draw Amount: As defined in Section 3.32 of the
------------------------------
Indenture.
7
<PAGE>
Credit Enhancement Instrument: The surety bond number SB ___, dated
-----------------------------
as of the Closing Date, issued by the Credit Enhancer to the Indenture Trustee
for the benefit of the Noteholders.
Credit Enhancer: __________________________________ _____________, a
---------------
___________________-domiciled___________________________________________
insurance company, any successor thereto or any replacement credit enhancer
substituted pursuant to Section 3.33 of the Indenture.
Credit Enhancer Default: If the Credit Enhancer fails to make a
-----------------------
payment required under the Credit Enhancement Instrument in accordance with its
terms.
Credit Limit: With respect to any Mortgage Loan, the maximum Asset
------------
Balance permitted under the terms of the related Loan Agreement.
Custodial Agreement: Any Custodial Agreement between the Custodian,
-------------------
the Indenture Trustee, the Issuer and the Master Servicer relating to the
custody of the Mortgage Loans and the Related Documents.
Custodian: With respect to the ______ Loans, _____________________, a
---------
______________________, and its successors and assigns, and with respect to the
______________________ Loans, ________________________, a ___________, and its
successors and assigns, provided, that in no event shall the Custodian be an
Affiliate of the Seller.
Cut-Off Date: With respect to the Initial Loans, ___________________.
------------
Cut-Off Date Asset Balance: With respect to any Initial Loan, the
--------------------------
unpaid principal balance thereof as of the opening of business on the last day
of the related Billing Cycle immediately prior to the Cut-Off Date.
Default: Any occurrence which is or with notice or the lapse of
-------
time or both would become an Event of Default.
Definitive Notes: The meaning specified in Section 4.06 of the
----------------
Indenture.
Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced
---------------------
with an Eligible Substitute Mortgage Loan.
Deposit Date: The applicable date as of which any Additional Loan is
------------
sold to the Purchaser pursuant to the Mortgage Loan Purchase Agreement.
Deposit Date Asset Balance: With respect to any Additional Loan,
--------------------------
the Asset Balance thereof as of the Deposit Date.
8
<PAGE>
Depositor:_______________, a Delaware corporation, or its successor
---------
in interest.
Depository or Depository Agency: The Depository Trust Company or a
-------------------------------
successor appointed by the Indenture Trustee with the approval of the Depositor.
Any successor to the Depository shall be an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act and the
regulations of the Securities and Exchange Commission thereunder.
Depository Participant: A Person for whom, from time to time, the
----------------------
Depository effects book-entry transfers and pledges of securities deposited with
the Depository.
Designated Certificate: The meaning specified in Section 3.11 of
----------------------
the Trust Agreement.
Determination Date: With respect to any Payment Date, the later of
------------------
(i) the 15/th/ day of the month in which such Payment Date occurs or if such day
is not a Business Day, the next succeeding Business Day and (ii) the third
Business Day prior to such Payment Date.
Dissolution Payment Date: Following an Event of Default under the
------------------------
Indenture and an acceleration of the Maturity Date of the Notes, a date on which
the proceeds of the sale of the Trust Estate are paid to Securityholders.
Draw: With respect to any Mortgage Loan, a borrowing by the
----
Mortgagor under the related Loan Agreement.
Due Date: With respect to any __________ Loans, the [25/th/] day of
--------
the month. With respect to any __________ Loans ,the [10/th/] day of the month.
With respect to any __________ Loans, the [20/th/] day of the month.
Eligible Account: An account that is any of the following: (i)
----------------
maintained with a depository institution the debt obligations of which have been
rated by each Rating Agency in its highest rating available, or (ii) an account
or accounts in a depository institution in which such accounts are fully insured
to the limits established by the FDIC, provided that any deposits not so insured
--------
shall, to the extent acceptable to each Rating Agency, as evidenced in writing,
be maintained such that (as evidenced by an Opinion of Counsel delivered to the
Indenture Trustee and each Rating Agency) the Indenture Trustee have a claim
with respect to the funds in such account or a perfected first security interest
against any collateral (which shall be limited to Eligible Investments) securing
such funds that is superior to claims of any other depositors or creditors of
the depository institution with which such account is maintained, or (iii) in
the case of the Collection Account, either (A) a trust account or accounts
maintained at the Corporate Trust Department of the Indenture Trustee or (B) an
account or accounts maintained at the Corporate Trust Department of the
Indenture Trustee, as long as its short term debt obligations are rated P-1 by
Moody's and A-1 by Standard & Poor's or the equivalent) or better by each Rating
Agency and its long term debt obligations are rated A2 by Moody's and A by
Standard & Poor's or the equivalent) or better, by each Rating Agency, or (iv)
in the case of the Collection Account and the Payment Account, a trust account
or accounts maintained in the corporate trust
9
<PAGE>
division of the Indenture Trustee, or (v) an account or accounts of a depository
institution acceptable to each Rating Agency as evidenced in writing by each
Rating Agency that use of any such account as the Collection Account or the
Payment Account will not reduce the rating assigned to any of the Securities by
such Rating Agency below investment grade without taking into account the Credit
Enhancement Instrument.
Eligible Investments: One or more of the following:
--------------------
(i) obligations of or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof when such
obligations are backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause
(i) maturing not more than one month from the date of acquisition thereof,
provided that the unsecured obligations of the party agreeing to repurchase
--------
such obligations are at the time rated by each Rating Agency in the highest
short-term rating available;
(iii) federal funds, certificates of deposit, demand deposits,
time deposits and bankers' acceptances (which shall each have an original
maturity of not more than 90 days and, in the case of bankers' acceptances,
shall in no event have an original maturity of more than 365 days or a
remaining maturity of more than 30 days) denominated in United States
dollars of any U.S. depository institution or trust company incorporated
under the laws of the United States or any state thereof or of any domestic
branch of a foreign depository institution or trust company; provided that
--------
the debt obligations of such depository institution or trust company (or,
if the only Rating Agency is Standard & Poor's, in the case of the
principal depository institution in a depository institution holding
company, debt obligations of the depository institution holding company) at
the date of acquisition thereof have been rated by each Rating Agency in
its highest short-term rating available; and provided further that, if the
-------- -------
only Rating Agency is Standard & Poor's and if the depository or trust
company is a principal subsidiary of a bank holding company and the debt
obligations of such subsidiary are not separately rated, the applicable
rating shall be that of the bank holding company; and, provided further
-------- -------
that, if the original maturity of such short-term obligations of a domestic
branch of a foreign depository institution or trust company shall exceed 30
days, the short-term rating of such institution shall be A-1 / in the case
of Standard & Poor's if Standard & Poor's is the Rating Agency.
(iv) commercial paper (having original maturities of not more
than 270 days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been rated
by each Rating Agency in their highest short-term rating available;
provided that such commercial paper shall have a remaining maturity of not
--------
more than 30 days;
(v) interests in any money market fund or qualified investment
fund which at the date of acquisition of the interests in such fund and
throughout the time the
10
<PAGE>
interest is held in such fund has a rating of P-1 or Aaa by Moody's and
either AAAm or AAAm-G by Standard & Poor's or such lower rating as will not
result in the qualification, downgrading or withdrawal of the then-current
rating assigned to the Certificates by each Rating Agency.
(vi) other obligations or securities that are acceptable to each
Rating Agency as an Eligible Investment hereunder and will not reduce the
rating assigned to any Class of Certificates by such Rating Agency below
the lower of the rating then assigned thereto or the rating assigned at the
Closing Date, and which are acceptable to the Credit Enhancer, as evidenced
in writing, provided that if the Master Servicer or any other Person
--------
controlled by the Master Servicer is the issuer or the obligor of any
obligation or security described in this clause (vi) such obligation or
security must have an interest rate or yield that is fixed or is variable
based on an objective index that is not affected by the rate or amount of
losses on the Mortgage Loans;
provided, however, that each such instrument shall be acquired in an arm's
- -------- -------
length transaction and no such instrument shall be a Permitted Investment if it
represents, either (1) the right to receive only interest payments with respect
to the underlying debt instrument or (2) the right to receive both principal and
interest payments derived from obligations underlying such instrument and the
principal and interest payments with respect to such instrument provide a yield
to maturity greater than 120% of the yield to maturity at par of such underlying
obligations.
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by the
---------------------------------
Seller for a Deleted Mortgage Loan which must, on the date of such substitution,
as confirmed in an Officers' Certificate delivered to the Indenture Trustee, (i)
have an outstanding principal balance, after deduction of the principal portion
of the monthly payment due in the month of substitution (or in the case of a
substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, an
aggregate outstanding principal balance, after such deduction), not in excess of
the outstanding principal balance of the Deleted Mortgage Loan (the amount of
any shortfall to be deposited by the Seller in the Collection Account in the
month of substitution); (ii) comply with each representation and warranty set
forth in clauses (ii) through (xxxiv) of Section 3.1(b) of the Mortgage Loan
Purchase Agreement other than clauses (viii), (xiii), (xiv), (xxiv)(B),
(xxv)(B), (xxvi) and (xxvii); (iii) have a Loan Rate, Net Loan Rate and Gross
Margin no lower than and not more than [1]% per annum higher than the Loan Rate,
Net Loan Rate and Gross Margin, respectively, of the Deleted Mortgage Loan as of
the date of substitution; (iv) have a Combined Loan-to-Value Ratio at the time
of substitution no higher than that of the Deleted Mortgage Loan at the time of
substitution; (v) have a remaining term to stated maturity not greater than (and
not more than one year less than) that of the Deleted Mortgage Loan and (vi) not
be 30 days or more delinquent.
ERISA: The Employee Retirement Income Security Act of 19974, as
-----
amended.
Event of Default: With respect to the Indenture, any one of the
----------------
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary
11
<PAGE>
or be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(i) a default in the payment of any interest on any Note when
the same becomes due and payable, and such default shall continue for a
period of five days; or
(ii) a default in the payment of the principal of or any
installment of the principal of any Note when the same becomes due and
payable; or
(iii) a Credit Enhancer Default shall have occurred and be
continuing and there occurs a default in the observance or performance of
any covenant or agreement of the Issuer made in the Indenture, or any
representation or warranty of the Issuer made in the Indenture or in any
certificate or other writing delivered pursuant hereto or in connection
herewith proving to have been incorrect in any material respect as of the
time when the same shall have been made [which has a material adverse
effect on Securityholders], and such default shall continue or not be
cured, or the circumstance or condition in respect of which such
representation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 30 days after there shall have been given,
by registered or certified mail, to the Issuer by the Indenture Trustee or
to the Issuer and the Indenture Trustee by the Holders of at least 25% of
the Outstanding Amount of the Notes, a written notice specifying such
default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a notice of default hereunder; or
(iv) a Credit Enhancer Default shall have occurred and be
continuing and there occurs the filing of a decree or order for relief by a
court having jurisdiction in the premises in respect of the Issuer or any
substantial part of the Trust Estate in an involuntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now
or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for
any substantial part of the Trust Estate, or ordering the winding-up or
liquidation of the Issuer's affairs, and such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or
(v) a Credit Enhancer Default shall have occurred and be
continuing and there occurs the commencement by the Issuer of a voluntary
case under any applicable federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by the Issuer to the
entry of an order for relief in an involuntary case under any such law, or
the consent by the Issuer to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or for any substantial part of the assets of the
Trust Estate, or the making by the Issuer of any general assignment for the
benefit of creditors, or the failure by the Issuer generally to pay its
debts as such debts become due, or the taking of any action by the Issuer
in furtherance of any of the foregoing.
12
<PAGE>
Event of Servicer Termination: With respect to the Servicing
-----------------------------
Agreement, an Event of Default as defined in Section 7.01 of the Servicing
Agreement.
Excess Additional Balance Differential: With respect to any
--------------------------------------
Additional Variable Funding Notes, the amount by which the Additional Balance
Differential for the Collection Period immediately preceding the month in which
the related Additional Variable Funding Notes are issued, would have caused the
Security Balance of the Variable Funding Notes to exceed the Maximum Variable
Funding Balance immediately prior to the issuance of such Additional Variable
Funding Notes.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated thereunder.
Excluded Amount: For any Payment Date on or after the occurrence of
---------------
an Amortization Event, with respect to all collections whether interest or
principal (other than any amounts received in respect of a Repurchase Price and
pursuant to Section 3.05(c) of the Servicing Agreement) ("Total Collections") on
all Initial Loans and Additional Loans in each case including all Draws whether
or not transferred to the 199_-__ LLC (collectively, "Total Balances of
Obligors"), an amount equal to the product of (A) Total Collection during the
related Collection Period and (B) a fraction equal to one (1) minus a fraction
-----
the numerator of which is (x) the aggregate Asset Balances as of the end of the
last Collection Period and the denominator of which is (y) the Total Balances of
Obligors.
Expenses: The meaning specified in Section 7.02 of the Trust
--------
Agreement.
FDIC: The Federal Deposit Insurance Corporation or any successor
----
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any successor
-----
thereto.
Final Scheduled Payment Date: To the extent not previously paid, the
----------------------------
principal balance of each Class of Notes will be due on the Payment Date in
__________.
FNMA: The Federal National Mortgage Association, or any successor
----
thereto.
Foreclosure Profit: With respect to a Liquidated Mortgage Loan, the
------------------
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Asset Balance (plus accrued and unpaid interest thereon
at the applicable Loan Rate from the date interest was last paid through the
date of receipt of the final Liquidation Proceeds) of such Liquidated Mortgage
Loan immediately prior to the final recovery of its Liquidation Proceeds.
Funding Account: The trust account created and maintained with the
---------------
Indenture Trustee pursuant to Section 8.02 of the Indenture and referred to
therein as the Funding Account. Funds deposited in the Funding Account shall be
held in trust for the uses and purposes set forth in Article VIII of the
Indenture.
13
<PAGE>
Funding Period: The period commencing on the Cut-Off Date and ending
--------------
on the earlier of (x) the Payment Date in __________ and (y) the occurrence of
an Amortization Event.
Grant: Pledge, bargain, sell, warrant, alienate, remise, release,
-----
convey, assign, transfer, create, and grant a lien upon and a security interest
in and right of set-off against, deposit, set over and confirm pursuant to the
Indenture. A Grant of the Collateral or of any other agreement or instrument
shall include all rights, powers and options (but none of the obligations) of
the granting party thereunder, including the immediate and continuing right to
claim for, collect, receive and give receipt for principal and interest payments
in respect of such collateral or other agreement or instrument and all other
moneys payable thereunder, to give and receive notices and other communications,
to make waivers or other agreements, to exercise all rights and options, to
bring proceedings in the name of the granting party or otherwise, and generally
to do and receive anything that the granting party is or may be entitled to do
or receive thereunder or with respect thereto.
Gross Margin: With respect to any Mortgage Loan, the percentage set
------------
forth as the "Gross Margin" for such Mortgage Loan on the Mortgage Loan
Schedule, as adjusted from time to time with respect to any __________ Loan in
accordance with the terms of the Servicing Agreement.
Guaranteed Principal Payment Amount: [With respect to any Payment
-----------------------------------
Date, other than the Dissolution Payment Date, the amount, if any, by which the
Security Balance of the Notes (after giving effect to all amounts allocable and
distributable to principal on the Notes on such Payment Date) exceeds the sum of
(A) the Pool Balance plus (B) all amounts on deposit in the Funding Account on
----
such date (after giving effect to all withdrawals therefrom and deposits thereto
pursuant to Sections 8.02(b) and 8.02(c) of the Indenture on such Payment Date).
With respect to the Payment Date in __________, if such Payment Date is not a
Dissolution Payment Date, the amount, if any, by which the aggregate of the
Security Balances of the Notes (after giving effect to all amounts allocable and
distributable to principal on the Notes) exceeds the amount on deposit in the
Payment Account available to be paid as principal on the Notes (after giving
effect to all amounts allocable and distributable as principal on the Notes on
such date).
Holder: Any of the Noteholders or Certificateholders.
------
Indemnified Party: The meaning specified in Section 7.02 of the
-----------------
Trust Agreement.
Indenture: The indenture dated as of __________ between the Issuer,
---------
as debtor, and the Indenture Trustee, as Indenture Trustee.
Indenture Trustee: ____________________, and its successors and
-----------------
assigns or any successor indenture trustee appointed pursuant to the terms of
the Indenture.
14
<PAGE>
Independent: When used with respect to any specified Person, the
-----------
Person (i) is in fact independent of the Issuer, any other obligor on the Notes,
the Seller, the 199_-__ LLC, the Depositor and any Affiliate of any of the
foregoing Persons, (ii) does not have any direct financial interest or any
material indirect financial interest in the Issuer, any such other obligor, the
Seller, the 199_-__ LLC, the Depositor or any Affiliate of any of the foregoing
Persons and (iii) is not connected with the Issuer, any such other obligor, the
Seller, the 199_-__ LLC, the Depositor or any Affiliate of any of the foregoing
Persons as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
Independent Certificate: A certificate or opinion to be delivered to
-----------------------
the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 10.01 of the Indenture,
made by an Independent appraiser or other expert appointed by an Issuer Order
and approved by the Indenture Trustee in the exercise of reasonable care, and
such opinion or certificate shall state that the signer has read the definition
of "Independent" in this Indenture and that the signer is Independent within the
meaning thereof.
Index: With respect to any Mortgage Loan, the prime rate from time to
-----
time for the adjustment of the Loan Rate set forth as such on the related
Mortgage Note.
Initial Loans: All home equity lines of credit sold by the Seller to
-------------
the Purchaser on __________ pursuant to the terms of the Mortgage Loan Purchase
Agreement, as specified in the Mortgage Loan Schedule.
Initial Principal Balance: With respect to the Certificates,
-------------------------
$__________; the Term Notes, $__________; and the Variable Funding Notes, zero.
Initial Subservicers: With respect to the __________ Loans,
--------------------
__________. With respect to the __________ Loans, __________. With respect to
the __________ Loans, __________.
Insolvency Event: With respect to a specified Person, (a) the filing
----------------
of a decree or order for relief by a court having jurisdiction in the premises
in respect of such Person or any substantial part of its property in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by such Person to the
entry of an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or the making by such
Person of any general assignment for the benefit of creditors, or the failure by
such Person generally to pay its debts as such debts become due or the admission
by such Person in writing (as to which the Indenture Trustee shall have notice)
of its inability to pay its debts
15
<PAGE>
generally, or the adoption by the Board of Directors or managing member of such
Person of a resolution which authorizes action by such Person in furtherance of
any of the foregoing.
Insurance Agreement: The insurance and reimbursement agreement dated
-------------------
as of __________ among the Master Servicer, the Seller, the Depositor, [the
199_-__ LLC,] the Issuer and the Credit Enhancer, including any amendments and
supplements thereto.
Insurance Proceeds: Proceeds paid by any insurer (other than the
------------------
Credit Enhancer) pursuant to any insurance policy covering a Mortgage Loan which
are required to be remitted to the Master Servicer, or amounts required to be
paid by the Master Servicer pursuant to the next to last sentence of Section
3.04 of the Servicing Agreement, net of any component thereof (i) covering any
expenses incurred by or on behalf of the Master Servicer in connection with
obtaining such proceeds, (ii) that is applied to the restoration or repair of
the related Mortgaged Property, (iii) released to the Mortgagor in accordance
with the Master Servicer's normal servicing procedures or (iv) required to be
paid to any holder of a mortgage senior to such Mortgage Loan.
Interest Collections: With respect to any Payment Date, the sum of
--------------------
all payments by or on behalf of Mortgagors and any other amounts constituting
interest (including without limitation such portion of Insurance Proceeds, Net
Liquidation Proceeds and Repurchase Prices as is allocable to interest on the
applicable Mortgage Loan) as is paid by the Seller or the Master Servicer or is
collected by the Servicer under the Mortgage Loans, reduced by the Servicing
Fees for the related Collection Period and by any fees (including annual fees)
or late charges or similar administrative fees paid by Mortgagors during the
related Collection Period. The terms of the related Loan Agreement shall
determine the portion of each payment in respect of such Mortgage Loan that
constitutes principal or interest.
Interest Period: With respect to any Payment Date other than the
---------------
first Payment Date, the period beginning on the preceding Payment Date and
ending on the day preceding such Payment Date, and in the case of the first
Payment Date, the period beginning on the Closing Date and ending on the day
preceding the first Payment Date.
Interest Rate Adjustment Date: With respect to each Mortgage Loan,
-----------------------------
the date or dates on which the Loan Rate is adjusted in accordance with the
related Mortgage Note.
Issuer: The Home Equity Loan Trust 199_-__, a Delaware business
------
trust, or its successor in interest.
Issuer Request: A written order or request signed in the name of the
--------------
Issuer by any one of its Authorized Officers and delivered to the Indenture
Trustee.
LIBOR: For any Interest Period other than the first Interest Period,
-----
the rate for United States dollar deposits for one month which appears on the
Telerate Screen Page 3750 as of 11:00 A.M., London time, on the second LIBOR
Business Day prior to the first day of such Interest Period. With respect to
the first Interest Period, the rate for United States dollar deposits
16
<PAGE>
for one month which appears on the Telerate Screen Page 3750 as of 11:00 A.M.,
[Chicago, Illinois] time, two LIBOR Business Days prior to the Closing Date. If
such rate does not appear on such page (or such other page as may replace that
page on that service, or if such service is no longer offered, such other
service for displaying LIBOR or comparable rates as may be reasonably selected
by the Indenture Trustee after consultation with the Master Servicer), the rate
will be the Reference Bank Rate. If no such quotations can be obtained and no
Reference Bank Rate is available, LIBOR will be LIBOR applicable to the
preceding Payment Date.
LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or
------------------
(ii) a day on which banking institutions in the State of New York, [Illinois] or
Minnesota, or in the city of London, England are required or authorized by law
to be closed.
Lien: Any mortgage, deed or trust, pledge, conveyance, hypothecation,
----
assignment, participation, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority right or interest or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC (other than
any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing; provided,
--------
however, that any assignment pursuant to Section 6.02 of the Servicing Agreement
- -------
shall not be deemed to constitute a Lien.
Lifetime Rate Cap: With respect to each Mortgage Loan with respect to
-----------------
which the related Mortgage Note provides for a lifetime rate cap, the maximum
Loan Rate permitted over the life of such Mortgage Loan under the terms of such
Mortgage Note, as set forth on the Mortgage Loan Schedule and initially as set
forth on Exhibit A to the Servicing Agreement.
Liquidated Mortgage Loan: With respect to any payment Date, any
------------------------
Mortgage Loan in respect of which the Master Servicer has determined, in
accordance with the servicing procedures specified in the Servicing agreement,
as of the end of the related Collection Period that substantially all
Liquidation proceeds which it reasonably expects to recover with respect to the
disposition of the related REO have been recovered.
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
--------------------
which are incurred by or on behalf of the Master Servicer in connection with the
liquidation of any Mortgage Loan and not recovered under any insurance policy,
such expenses including, without limitation, legal fees and expenses, any
unreimbursed amount expended (including, without limitation, amounts advanced to
correct defaults on any mortgage loan which is senior to such Mortgage Loan and
amounts advanced to keep current or pay off a mortgage loan that is senior to
such Mortgage Loan) respecting the related Mortgage Loan and any related and
unreimbursed expenditures for real estate property taxes or for property
restoration, preservation or insurance against casualty loss or damage.
Liquidation Loss Amounts: With respect to any Payment Date and any
------------------------
Mortgage Loan that became a Liquidated Mortgage Loan during the related
Collection Period, the
17
<PAGE>
unrecovered portion of the related Asset Balance thereof at the end of such
Collection Period, after giving effect to the Net Liquidation Proceeds applied
in reduction of the Asset Balance.
Liquidation Proceeds: Proceeds (including Insurance Proceeds but not
--------------------
including amounts drawn under the Credit Enhancement Instrument) received in
connection with the liquidation of any Mortgage Loan or related REO, whether
through trustee's sale, foreclosure sale or otherwise.
LLC or 199 - LLC: 199_-_ Trust LLC, a limited
----------------
liability company.
Loan Agreement: With respect to any Mortgage Loan, the credit line
--------------
account agreement executed by the related Mortgagor and any amendment or
modification thereof.
Loan Rate: With respect to any Mortgage Loan and any day , the per
----------
annum rate of interest applicable under the related Loan Agreement.
Loan Rate Cap: With respect to each Mortgage Loan, the lesser of (i)
-------------
the Lifetime Rate Cap, if any, or (ii) the applicable state usury ceiling, if
any.
Loan Year: With respect to any Mortgage Loan, the one year period
---------
commencing on the day succeeding the origination of such Mortgage Loan and
ending on the anniversary date of such Mortgage Loan, and each annual period
thereafter.
Lost Note Affidavit: With respect to any Mortgage Loan as to which
-------------------
the original Mortgage Note has been permanently lost or destroyed and has not
been replaced, an affidavit from the Seller or the related Underlying Seller
certifying that the original Mortgage Note has been lost, misplaced or destroyed
(together with a copy of the related Mortgage Note).
Master Servicer: _____________ a Delaware corporation, and its
---------------
successor and assigns.
Master Servicing Fee: With respect to any __________ Loan or
--------------------
_________ Loan any Collection Period, the product of (i) the Master Servicing
Fee Rate divided by 12 and (ii) the aggregate Asset Balance of the ______ Loans
or ________ Loans, as applicable, as of the first day of such Collection Period,
and with respect to any ______ Loan and any Collection Period, the product of
(i) the Master Servicing Fee Rate divided by 12 and (ii) the aggregate Asset
Balance of the _______ Loans as of the first day of such Collection Period.
Master Servicing Fee Rate: With respect to any _____ Line Loan or any
-------------------------
________, ______% per annum. With respect to any _____ Loan, _____% per annum.
MATI: Mortgage Assets Trading, Inc., a Delaware corporation, or
----
its successors.
18
<PAGE>
Maximum Additional Credit Enhancement Instrument Amount: $________,
-------------------------------------------------------
comprised of the Initial principal Balance of the Term Notes ($________), plus
the Maximum Variable Funding Balance as of the Closing Date ($_______).
Maximum Individual Variable Funding Balance: As to any Variable
-------------------------------------------
Funding Note and date of determination $_______ reduced by the aggregate amount
of principal previously paid on such Variable Funding Note.
Maximum Pool Balance: As to any Payment Date the highest Pool Balance
--------------------
at the end of any Collection Period from the Closing Date up to and including
the related Collection Period.
Maximum Rate: With respect to any Interest Period, the Weighted
------------
Average Net Loan Rate related to the Due Date in the month preceding the month
in which such Interest Period ends (adjusted to an effective rate reflecting
accrued interest calculated on the basis of the actual number of days in the
Collection Period commencing in the month in which such Interest Period
commences and a year assumed to consist of 360 days).
Maximum Variable Funding Balance: The maximum Principal Balance of
--------------------------------
the Variable Funding Notes which is an of any day of determination $_______
reduced by the aggregate amount of principal previously paid on the Variable
Funding Notes; provided that the Maximum Variable Funding Balance may be
--------
increased pursuant to Section 4.01 of the Indenture.
Minimum Monthly Payment: With respect to any Mortgage Loan and any
-----------------------
month, the minimum amount required to be paid by the related Mortgagor in that
month.
Moody's: Moody's Investors Service, Inc. or its successor in
-------
interest.
Mortgage: The mortgage, deed of trust or other instrument creating a
---------
first or second lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
Mortgage File: The file containing the Related documents pertaining t
-------------
a particular Mortgage Loan and any additional documents required to be added to
the Mortgage File pursuant to the Mortgage Loan purchase Agreement or the
Servicing Agreement.
Mortgage Loan Group: Any of the ________ Loans, _________ Loans or
-------------------
the _______ Loans.
Mortgage Loan Purchase Agreement: The Mortgage Loan Purchase
--------------------------------
Agreement, dated as of the Cut-Off Date, between the Seller, as seller, and the
Depositor, as purchaser, with respect to the Mortgage Loans, dated as of
___________.
Mortgage Loan Schedule: With respect to any date, the schedule of
----------------------
Mortgage Loans held by the 199_-_ LLC on such date. The initial schedule of
Mortgage Loans as of the Cut-Off Date is the schedule set fourth in Exhibit A of
the Servicing Agreement, which schedule
19
<PAGE>
sets forth as to each Mortgage Loan (i) the Cut-Off Date Asset Balance, (ii) the
Credit Limit, (iii) the Gross Margin, (iv) the name of the Mortgagor, (v) the
Lifetime Rate Cap, if any, (vi) the loan number, (vii) an indication as to the
applicable Mortgage Loan Group, and (viii) the lien position of the related
Mortgage. The Mortgage Loan Schedule will be amended from time to time by annex
to reflect Additional Loans.
Mortgage Loans: At any time, collectively, all Initial Loans and
--------------
Additional Loans, in each case including Additional Balances, if any, that have
been sold to the Depositor under the Mortgage Loan Purchase Agreement, in each
case together with the Related Documents, and that remain subject to the terms
thereof.
Mortgage Note: With respect to a Mortgage Loan, the Loan Agreement
-------------
pursuant to which the related mortgagor agrees to pay the indebtedness evidenced
thereby and secured by the related Mortgage as modified or amended.
Mortgaged Property: The underlying property, including real property
------------------
and improvements thereon, securing a Mortgage Loan.
Mortgagor: The obligor or obligors under a Loan Agreement.
---------
Net Liquidation Proceeds: With respect to any Liquidated Mortgage
------------------------
Loan, Liquidation Proceeds net of Liquidation Expenses.
Net Loan Rate: With respect to any ______ Loan and any _______ Loan
-------------
and any day, the related Loan Rate less the related Servicing Fee Rate. [With
respect to any _____ Loan and any day, the Prime Rate then applicable to the
Loan Rate plus 1.00%, less the related Master Servicing Fee Rate.]
Net Principal Collections: With respect to any Distribution Date, the
-------------------------
excess, if any, of Security Principal Collections for the related Collection
Period over the amount of Additional balances created during the related
Collection Period.
Net Owner: The Beneficial Owner of a Note.
---------
Note Percentage: With respect to any Payment Date, the ratio
---------------
expressed as a percentage of the aggregate of the Principal Balances of all
Notes immediately prior to such Payment Date to the sum of the Pool Balance on
the first day of the related Collection Period and the amount on deposit in the
Funding Account from Net Principal Collections immediately prior to such Payment
Date.
Note Rate: With respect to any Interest Period, a per annum rate
---------
determined by the Master Servicer equal to LIBOR as of the second LIBOR Business
Day prior to the first day of such Inters Period and 0._%; provided however,
-------- -------
that in no event shall the Note Rate with respect to any Interest Period exceed
the Maximum Rate for such Interest Period.
20
<PAGE>
Note Register: The register maintained by the Note Registrar in which
-------------
the Note Registrar shall provide for the registration of Notes and of transfers
and exchanges of Notes.
Note Registrar: The Indenture Trustee, in its capacity as Note
--------------
Registrar.
Noteholder: The person in whose name a Note is registered in the Note
----------
Register, except that, any Note registered in the name of the Depositor the
Issuer or the Indenture Trustee or any Affiliate of any of them shall be deemed
not to be outstanding and the registered holder will not be considered a
Noteholder or holder for purposes of giving any request, demand, authorization,
direction, notice, consent or waiver under the Indenture or the Trust Agreement
provided that, in determining whether the Indenture trustee shall e protected in
relying upon any such request, demand, authorization, direction, notice, consent
or waiver, only Notes that the Indenture Trustee or the Owner Trustee knows to
be so owned shall be so disregarded. Owners of Notes that have been pledged in
good faith may be regarded as Holders if the pledgee established to the
satisfaction of the Indenture Trustee or the Owner Trustee the pledgee's right
so to act with respect to such Notes and that the pledgee is not the Issuer, any
other obligor upon the Notes or any Affiliate of any of the foregoing Persons.
Notes: Collectively, the Term Notes and the Variable Funding Notes
-----
which are anticipated to be issued on the Closing Date pursuant to the
Indenture.
Officer's Certificate: With respect to the Master Servicer, a
---------------------
certificate signed by the President, Managing Director, a Director, a Vice
President or an Assistant Vice President, of the Master Servicer and delivered
to the Indenture Trustee. With respect to the Issuer, a certificate signed by
any Authorized Officer of the Issuer, under the circumstances described in, and
otherwise complying with, the applicable requirements of Section [10.01] of the
Indenture, and delivered to the Indenture Trustee. Unless otherwise specified,
any reference in the Indenture to an Officer's Certificate shall be to an
Officer's Certificate of any Authorized Officer of the Issuer.
Operating Agreement: The Agreement pursuant to which the 199_-_
-------------------
LLC is established.
Opinion of Counsel: A written opinion of counsel who may be in-house
------------------
counsel for the Master Servicer if acceptable to the Indenture Trustee, the
Credit Enhancer and the Rating Agencies or counsel for the Depositor, as the
case may be.
Outstanding: With respect to the notes, as of the date of
-----------
determination, all Notes theretofore executed, authenticated and delivered under
this Indenture except;
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Indenture Trustee for cancellation; and
(ii) Notes in exchange for or in lieu of which other Notes have
been executed, authenticated and delivered pursuant
21
<PAGE>
to the Indenture unless proof satisfactory to the Indenture Trustee is
presented that any such Notes are held by a holder in due course;
provided, however, that for purposes of effectuating the Credit Enhancer's right
- -------- -------
of subrogation as set forth in Section 4.12 of the Indenture only, all Notes
that have been paid with funds provided under the Credit Enhancement Instrument
shall be deemed to be Outstanding until the Credit Enhancer has been reimbursed
with respect thereto.
Outstanding Reserve Amount: With respect to any Payment Date, the
--------------------------
amount by which the sum of (x) the Pool Balance as of the last day of the
related Collection Period and (y) the amount on deposit in the Funding Account
in respect of Net Principal Collections, on such Payment Date exceeds the
Aggregate Security Balance on such Payment Date )after giving effect to all
amounts distributed and allocable to principal on the Securities and deposits to
and withdrawals from the Funding Account that are applied to reduce the Security
Balances on such Payment Date).
Owner Trust: The Home Equity Loan Trust 199_-_. Series 199_-_ to
-----------
be created pursuant to the Trust Agreement.
Owner Trust Estate: The corpus of the Issuer created by the Trust
------------------
Agreement which consists of the Class A Ownership Interest.
Paying Agent: Any paying agent or co-paying agent appointed pursuant
------------
to Section 3.03 of the Indenture, which initially shall be
__________________________.
Payment Account: The account established by the Indenture Trustee
---------------
pursuant to Section 8.02 of the Indenture and Section 5.01 of the Servicing
Agreement. The Payment Account shall be an Eligible Account.
Payment Date: The [20/th/] day of each month, or if such day is
------------
not a Business Day, then the next Business Day.
Percentage Interest: With respect to any Note, the percentage
-------------------
obtained by dividing the Security Balance of such Note by the aggregate of the
Security Balances of all Notes of the same Class. With respect to any
Certificate, the percentage obtained by dividing the denomination specified on
such Certificate by the Initial principal Balance of the Certificates.
Person: Any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Pool Balance: With respect to any date, the aggregate of the Asset
------------
Balances of all Mortgage Loans as of such date.
22
<PAGE>
Predecessor Note: With respect to any particular Note, every previous
----------------
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purpose of this definition, any Note authenticated
and delivered under Section 4.03 of the Indenture in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same
debt as the mutilated, lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
Primary Insurance Policy: Each primary policy of mortgage guaranty
------------------------
insurance issued by a Qualified Insurer or any replacement policy thereof.
Prime Rate: The prime rate for corporate loans at U.S. commercial
----------
banks, as published in The Wall Street Journal.
-----------------------
Principal Balance: With respect to any Payment Date and each Security
-----------------
other than the Variable Funding Notes, the Initial Principal Balance thereof,
reduced by all distributions of principal thereon prior to such Payment Date
and, in the case of the Variable Funding Notes, (i) increased by the Aggregate
Additional Balance Differential immediately prior to such Payment Date and (ii)
reduced by all distributions of principal thereon prior to such Payment Date.
Principal Collection Distribution Amount: for any Payment Date, (i)
----------------------------------------
at any time during the Revolving Period, so long as an Amortization Event has
not occurred, Net Principal Collections and (ii) following an Amortization Event
or at any time after the end of the Revolving Period, Security Principal
Collections; provided, however, on any Payment Date with respect to which the
-------- -------
Outstanding Reserve Amount that would result if determined without regard to
this proviso exceeds the Reserve Amount Target the Principal Collection
Distribution Amount will be reduced by the amount of such excess until the
Outstanding Reserve Amount equals the Reserve Amount Target.
Principal Collections: With respect to any Payment Date and any
---------------------
Mortgage Loan, the aggregate of the following amounts;
(i) the total amount of payments made by or on behalf of the
Mortgagor, received and applied as payments of principal on the Mortgage
Loan during the related Collection Period, as reported by the related
Subservicer;
(ii) any Net Liquidation Proceeds, allocable as a recovery of
principal, received in connection with the Mortgage Loan during the
related Collection Period:
(iii) if the Mortgage Loan was purchased by the Master Servicer
pursuant to Section 3.14 of the Servicing Agreement, or was repurchased by
the Seller pursuant to the Mortgage Loan Purchase Agreement, during the
related Collection Period,
23
<PAGE>
100% of the Asset Balance of the Mortgage Loan as of the date of such
purchase or repurchase; and
(iv) any of the amounts received as payments on or proceeds of
the Mortgage Loan during the Collection Period to the extent applied in
reduction of the principal amount thereof;
provided that Principal Collections shall not include any Foreclosure Profits,
- --------
and shall be reduced by any amounts withdrawn from the Collection Account
pursuant to clauses (iii), (iv), (vii) and (viii) of Section 3.03 of the
Servicing agreement other than any portion of such amounts that are attributable
to the Excluded Amount in respect of any Mortgage Loan that are allocable to
principal of such Mortgage Loan and not otherwise excluded from the amounts
specified in (i)-(iv) above.
Proceeding: Any suit in equity, action at law or other judicial or
----------
administrative proceeding.
Program Group: With respect to any _____ Loan, the ______ Loans taken
-------------
together, with respect to any ________ Loan, the _______ Loans taken together;
and with respect to any ________ Loan, the ________ Loans taken together.
Program Guide: Together, the Seller's Seller Guide and Servicing
-------------
Guide, as in effect from time to time.
Program Seller: With respect to any ____ Loan, the Person that sold
--------------
such ______ Loan to the Seller.
Purchase Seller: With respect to any ______ Loan,
---------------
the Person that sold such ______ Loan to the Seller.
Purchase Price: The meaning specified in Section
--------------
2.2(a) of the Mortgage Loan Purchase Agreement.
Purchaser:_______________, a Delaware corporation,
---------
and its successors and assigns.
Qualified Insurer: A mortgage guaranty insurance company duly
-----------------
qualified as such under the laws of the state of its principal place of business
and each state having jurisdiction over such insurer in connection with the
insurance policy issued by such insurer, duly authorized and licensed in such
states to transact a mortgage guaranty insurance business in such states and to
write the insurance provided by the insurance policy issued by it, approved as
an insurer by the Master Servicer and as a FNMA-approved mortgage insurer.
Rating Agency: Any nationally recognized statistical rating
-------------
organization, or its successor, that rated the Securities at the request of the
Depositor at the time of the initial
24
<PAGE>
issuance of the Securities. Initially, Moody's or Standard & Poor's. If such
organization or a successor is no longer in existence, "Rating Agency" shall be
such nationally recognized statistical rating organization, or other comparable
Person, designated by the Depositor, notice of which designation shall be given
to the Indenture Trustee. References herein to the highest short term unsecured
rating category of a Rating Agency shall mean A-1 or better in the case of
Standard & Poor's and P-1 or better in the case of Moody's and in the case of
any other Rating Agency shall mean such equivalent ratings. References herein to
the highest long-term rating category of a Rating Agency shall mean "AAA" in the
case of Standard & Poor's and "Aaa" in the case of Moody's and in the case of
any other Rating Agency, such equivalent rating.
Realized Losses: Any losses incurred on defaulted HELOCs that have
---------------
been finally liquidated.
Record Date: With respect to the Term Notes and any Payment Date, the
-----------
Business Day next preceding such Payment Date and with respect to the
Certificates or the Variable Funding Notes and any Payment Date, the last
Business Day of the month preceding the month of such Payment Date.
Reference Bank Rate: With respect to any Interest Period, as follows:
-------------------
the arithmetic mean (rounded upwards, if necessary, to the nearest one sixteenth
or a percent) of the offered rates for United States dollar deposits for one
month which are offered by the Reference Banks as of 11:00 A.M., __________,
________ time, on the second LIBOR Business Day prior to the first day of such
Interest Period to prime banks in the London interbank market for a period of
one month in amounts approximately equal to the sum of the Outstanding Amount of
Notes and the Certificate Principal Balance; provided that at least two such
--------
Reference Banks provide such rate. If fewer than two offered rates appear, the
Reference Bank Rate will be the arithmetic mean of the rates quoted by one or
more major banks in New York City, selected by the Depositor after consultation
with the Indenture Trustee, as of 11:00 a.m., _______, [Illinois] time, on such
date for loans in U.S. Dollars to leading European Banks for a period of one
month in amounts approximately equal to the Aggregate Security Balance. If no
such quotations can be obtained, the Reference Bank Rate shall be the Reference
Bank Rate applicable to the preceding Interest Period.
Reference Banks: [Bank of Tokyo, Barclays Bank PLC, National
---------------
Westminster Bank and Bankers Trust company].
Registered Holder: The person in whose name a Note is registered
-----------------
in the Note Register on the applicable Record Date.
Related Documents: With respect to each Mortgage Loan, the documents
-----------------
specified in Section 2.1(c) of the Mortgage Loan Purchase Agreement and any
documents required to be added to such documents pursuant to the Mortgage Loan
Purchase Agreement, the Trust agreement or the Servicing Agreement.
25
<PAGE>
REO: A Mortgage Property that is acquired by the 199_-_ LLC in
---
foreclosure or by deed in lieu of foreclosure.
Repurchase Event: With respect to any Mortgage Loan, either (i) a
----------------
discovery that, as of the Closing Date with respect to an Initial Loan, or as of
the related Deposit Date with respect to an Additional Loan, as applicable, the
related Mortgage was not a valid lien on the related Mortgaged Property subject
only to (A) the lien of any prior mortgage indicated on the Mortgage Loan
Schedule, (B) the lien of real property taxes and assessments not yet due and
payable, (C) covenants, conditions, and restrictions, rights of way, easements
and other matters of public record as of the date of recording of such Mortgage
and such other permissible title exceptions as are listed in the Program Guide
and (D) other matters to which like properties are commonly subject which do not
materially adversely affect the value, use, enjoyment or marketability of the
related Mortgaged Property or (ii) with respect to any Mortgage Loan as to which
the Seller delivers an affidavit certifying that the original Mortgage Note has
been lost or destroyed, a subsequent default on such Mortgage Loan if the
enforcement thereof or of the related Mortgage is materially and adversely
affected by the absence of such original Mortgage Note.
Repurchase Price: With respect to any Mortgage Loan required to be
----------------
repurchased on any date pursuant to the Mortgage Loan Purchase Agreement or
purchased by the Master Servicer pursuant to the Servicing Agreement, an amount
equal to the sum of (i) 100% of the Asset Balance thereof (without reduction for
any amounts charged off) and (ii) unpaid accrued interest at the Loan Rate on
the outstanding principal balance thereof from the Due Date to which interest
was last paid by the Mortgagor to the first day of the month following the month
of purchase. No portion of any Repurchase Price shall be included in the
Excluded Amount for any Payment Date.
Revolving Period: The period commencing on the Closing date and
----------------
ending on _____________.
Reserve Amount Target: As to any Payment Date prior to the Payment
---------------------
Date in _________, 1.5% of the greater of (i) the Pool Balance as of the Cut-Off
Date and (ii) the Maximum Pool Balance as of the end of the Related Collection
Period (the "Initial Reserve Amount Target"). As to any Payment Date on or
after the Payment Date in _____, the greater of (A) the lesser of (x) the
Initial Reserve Amount Target and (y) [3]% of the Pool Balance as of the end of
the related Collection Period and (B) [0.75]% of the greater of (i) the Pool
balance as of the end of the Cut-Off Date and (ii) the Maximum Pool Balance;
provided, any scheduled reduction to the Reserve Amount Target described above
shall not be made as of any Payment Date unless (i) the outstanding Principal
Balance of the Mortgage Loans delinquent 60 days or more averaged over the last
12 months as a percentage of the aggregate outstanding Principal Balance of all
Mortgage Loans averaged over the last 12 month does not exceed [2]% (or if the
Pool Balance is less than [40%] of the Maximum Pool balance, [4%]) and (ii)
aggregate Liquidated Loss Amounts on the Mortgage Loans to date for such Payment
Date occurring during the first two years after the Closing Date or occurring
during the 3/rd/, 4/th/, 5/th/, or 6/th/ (or any year thereafter) after the
Closing Date, are less than {.5], [1.0], [1.5], [2.0] or [2.5]% respectively, of
the Maximum Pool Balance and (iii) there has been no draw on the Credit
Enhancement instrument. The Reserve Amount Target may be reduced with the prior
written consent of the Credit Enhancer and the Rating Agencies.
26
<PAGE>
Responsible Officer: With respect to the Indenture Trustee, any
-------------------
officer of the Indenture Trustee with direct responsibility for the
administration of the Trust Agreement and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
Revolving Period: With respect to each Mortgage Loan, the period
----------------
consisting of either the first five, ten or fifteen years after the date of
origination of such Mortgage Loan, during which the related Mortgage Note
provides for monthly payments of interest only with no payments of principal
(except with respect to certain Mortgage Loans that require non-amortizing
minimum payments of principal) and during which the Mortgagor is permitted to
make Draws.
Schedule Annex: With respect to any Additional Loans, the schedule
--------------
provided by the Seller to the Depositor or its assignee pursuant to Section 2.3
of the Mortgage Loan Purchase Agreement, which shall include all items of
information of the type shown on, and shall be deemed to be incorporated in, the
Mortgage Loan Schedule.
Securities Act: The Securities Act of 1933, as
--------------
amended, and the rules and regulations promulgated thereunder.
Security: Any of the Certificates or Notes.
--------
Security Balance: The Principal Balance of the Term Notes, the
----------------
Variable Funding Notes or the Certificates, as the case may be.
Security Collections: With respect to any Payment
--------------------
Date, the sum of the following amounts:
(i) the aggregate of all Security Interest Collections received
during the related Collection Period [plus net investment earnings or
amounts on deposit in the Funding Account]:
(ii) (A) at any time during the Revolving Period, so long as an
Amortization Event has not occurred, Net Principal Collections for such
Payment Date or (B) if such an Amortization Event has occurred or at any
time after the end of the Revolving Period, the aggregate of all Security
Principal Collections with respect to such Payment date; and
(iii) all
Substitution Adjustment Amounts to be deposited to the Payment Account for
such Payment Date.
Securityholder or Holder: Any Noteholder or a Certificateholder.
-------------- ------
27
<PAGE>
Security Interest Collections: With respect to any Payment Date,
-----------------------------
Interest Collections during the related Collection Period excluding the portion
thereof allocable to the Excluded Amount.
Security Percentage: With respect to any Payment Date and Security,
-------------------
the percentage equivalent of a fraction the numerator of which is the Security
balance of such Security immediately prior to such Payment Date and the
denominator of which is the aggregate of the Security Balances of all Securities
as of such date.
Security Principal Collections: With respect to any Payment Date,
------------------------------
Principal Collections during the related Collection Period excluding the portion
thereof allocable to the Excluded Amount.
Seller: _______________, a Delaware corporation, and its successors
------
and assigns.
Seller's Agreement: With respect to each ________ Loan, the agreement
------------------
between the Seller, as purchaser, and the related Program Seller, as seller.
Servicing Agreement: The Servicing Agreement dated as of ________
-------------------
between _________________ _________, as Indenture Trustee, and the Master
Servicer, as master servicer.
Servicing Certificate: A certificate completed and executed by a
-----------------------
Servicing Officer on behalf of the Master Servicer in accordance with Section
4.01 of the Servicing agreement.
Servicing Fee: With respect to any Mortgage Loan, the sum of the
-------------
related Mater Servicing Fee and the related Subservicing Fee.
Servicing Fee Rate: With respect to any Mortgage Loan, the sum of the
------------------
related Master Servicing Fee rate and the related Subservicing Fee Rate.
Servicing Officer: Any officer of the Master Servicer involved in,
-----------------
or responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished to
the Indenture Trustee (with a copy to the Credit Enhancer) by the Master
Servicer, as such list may be amended from time to time.
Single Certificate: A Certificate in the denomination of $1,000.
------------------
Single Note: A Note in the amount of $1,000.
-----------
28
<PAGE>
Special Capital Distribution Amount: With respect to any payment
-----------------------------------
Date, the lesser of (x) the amount remaining in the Payment Account after the
application of funds on deposit therein in accordance with clauses (i) through
(vi) of Section 3.05 of the Indenture and (y) the amount required to bring the
Outstanding Revenue Amount up to the Reserve Amount Target
Standard & Poor's: Standard & Poor's Ratings Group or its successor
-----------------
in interest.
Subservicer: Any Person with whom the Master Servicer has entered
-----------
into a Subservicing Agreement as a Subservicer by the Master Servicer, including
the Initial Subservicers.
Subservicing Account: An Eligible Account established or maintained
--------------------
by a Subservicer as provided for in Section 3.01 of the Servicing Agreement.
Subservicing Fee: With respect to any ______ Loan and nay Collection
----------------
Period, the fee retained monthly by the Subservicer (or, in the case of a
nonsubserviced Mortgage Loan, by the Master Servicer) equal to the product of
(i) the Subservicing Fee Rate divided by 12 and (ii) the aggregate Asset Balance
of the _____ Loans as of the first day of such Collection Period. With respect
to any _____ Loan and any Collection Period, the fee retained monthly by the
Subservicer (or, in the case of a nonsubserviced Mortgage Loan, by the Master
Servicer) equal to the product of (i) the Subservicing Fee Rate divided by 12
and (ii) the aggregate Asset Balance of the _____ Loans as of the first day of
such collection Period. With respect to any _______ loan and any Collection
Period, the fee retained monthly by the Subservicer (or, in the case of a
nonsubserviced Mortgage Loan, by the Master Servicer) equal to (i) the weighted
average of the applicable Subservicing Fee Rates divided by 12 and (ii) the
aggregate Asset Balance of the ______ Loans as of the first day of such
Collection Period.
Subservicing Fee Rate: With respect to _________ Loan, 0.50% per
---------------------
annum.
Substitution Adjustment Amounts: With respect to any Eligible
-------------------------------
Substitute Mortgage Loan, the amount as defined in Section 3.1(b) of the
Mortgage Loan Purchase Agreement.
Teaser Loan: With respect to the Additional Loans, any Mortgage Loan
-----------
which provides for an initial period during which the Loan Rate is less than the
sum of the current Index plus the applicable Gross Margin.
Telerate Screen Page 3750: The display designated as page 3750 on the
-------------------------
Telerate Service (or such other page as may replace page 3750 on that service
for the purpose of displaying London interbank offered rates of major banks).
If such rate does not appear on such page ( or such other page as may replace
that page on that service, or if such service is no longer offered, such other
service for displaying LIBOR or comparable rates as may be selected by the
Issuer after consolation with the Indenture Trustee), the rate will be the
Reference Bank Rate.
29
<PAGE>
Term Notes: The Notes designated as the "Term Notes" in the
----------
Indenture.
Treasury Regulations: Regulations, including proposed or temporary
--------------------
Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
Trust Agreement: The Trust Agreement dated as of
---------------
____________ between the Owner Trustee and the Depositor.
Trust Estate: The meaning specified in the
------------
Granting Clause of the Indenture.
Trust Indenture Act or TIA: The Trust Indenture Act of 1939, as
--------------------------
amended from time to time, as in effect on any relevant date.
UCC: The Uniform Commercial Code, as amended from
---
time to time, as in effect in any specified jurisdiction.
Underlying Seller: With respect to the ________ Loans, _______. With
-----------------
respect to the _______ Loans, ____. With respect to the _________ Loans, the
related Program Seller.
Unpaid Certificate Distribution Amount Shortfall: With respect to any
------------------------------------------------
Payment Date, the aggregate amount, if any, of Certificate Distribution Amount
that was accrued in respect of a prior Payment Date and has not been distributed
to Certificateholders.
Variable Funding Notes: The Notes designated as the "Variable Funding
----------------------
Notes" in the Indenture including any Capped Funding Notes and Additional
Variable Funding Notes.
Weighted Average Net Loan Rate: With respect to the Mortgage Loans in
------------------------------
the aggregate, and any Due Date, the aggregate of the Net Loan Rate for each
Mortgage Loan as of the last day of the related billing Cycle weighted on the
basis of the related Asset Balances outstanding as of the last day of the
related Billing Cycle (except for the _______ Loans where the Net Loan Rate will
represent the average Net Loan Rate during the related Billing Cycles weighted
on the basis of the daily Asset Balance during the related Billing Cycle for
such Mortgage Loans) for each Mortgage Loan as determined by the Master Servicer
in accordance with the Master Servicer's normal servicing procedures.
30
<PAGE>
Exhibit 4.10
------------
SALE AND SERVICING
AGREEMENT
among
HOME EQUITY
LOAN TRUST 199_-_
Issuer,
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
Seller and Servicer
Dated as of _______ __, 199_
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions......................................................................... 1
SECTION 1.1. Definitions.......................................................................... 1
SECTION 1.2. Other Definitional Provisions........................................................ 23
SECTION 1.3. Interest Calculations................................................................ 24
ARTICLE II Conveyance of Home Equity Loans................................................... 24
SECTION 2.1. Conveyance of Home Equity Loans...................................................... 24
SECTION 2.2. Acceptance by Trustee................................................................ 27
SECTION 2.3. [Intentionally Omitted].............................................................. 28
SECTION 2.4. Representations and Warranties of the Seller Regarding the Home Equity Loans......... 28
SECTION 2.5. Substitution of Home Equity Loans.................................................... 35
ARTICLE III Administration and Servicing of Home Equity Loans................................. 36
SECTION 3.1. Duties of Servicer................................................................... 36
SECTION 3.2. Collection and Allocation of Home Equity Loan Payments............................... 37
SECTION 3.3. Withdrawals from each Collection Account............................................. 39
SECTION 3.4. Maintenance of Hazard Insurance; Property Protection Expenses........................ 40
SECTION 3.5. Maintenance of Mortgage Impairment Insurance Policy.................................. 41
SECTION 3.6. Fidelity Bond........................................................................ 41
SECTION 3.7. Management and Realization Upon Defaulted Home Equity Loans.......................... 42
SECTION 3.8. Trustee to Cooperate................................................................. 43
SECTION 3.9. Servicing Fee........................................................................ 44
SECTION 3.10. Servicer's Certificate.............................................................. 44
SECTION 3.11. Annual Statement as to Compliance; Notice of Default................................ 44
SECTION 3.12. Annual Independent Certified Public Accountants' Report............................. 45
SECTION 3.13. Access to Certain Documentation and Information Regarding Home Equity Loans......... 45
SECTION 3.14. Servicer Expenses................................................................... 46
SECTION 3.15. Advances by the Servicer............................................................ 46
SECTION 3.16. Optional Purchase of Defaulted Home Equity Loans.................................... 47
SECTION 3.17. Superior Liens...................................................................... 47
SECTION 3.18..Payment of Taxes, Insurance and Other Charges........................................ 48
SECTION 3.19. Appointment of Subservicer.......................................................... 48
(i)
<PAGE>
ARTICLE IV Distributions; Reserve Account; Statements to Certificateholders and Noteholders... 49
SECTION 4.1. Establishment of Trust Accounts...................................................... 49
SECTION 4.2. [Intentionally Omitted].............................................................. 52
SECTION 4.3. Application of Collections........................................................... 52
SECTION 4.4. Additional Deposits.................................................................. 52
SECTION 4.5. Distributions........................................................................ 52
SECTION 4.6. Reserve Account...................................................................... 54
SECTION 4.7. [Intentionally Omitted].............................................................. 54
SECTION 4.8. Statements to Certificateholders and Noteholders..................................... 54
SECTION 4.9. Net Deposits......................................................................... 56
ARTICLE V The Seller......................................................................... 56
SECTION 5.1. Representations of Seller............................................................ 56
SECTION 5.2. Corporate Existence.................................................................. 58
SECTION 5.3. Liability of Seller; Indemnities..................................................... 59
SECTION 5.4. Merger or Consolidation of, or Assumption of the Obligations of, Seller.............. 60
SECTION 5.5. Limitation on Liability of Seller and Others......................................... 61
SECTION 5.6. Seller May Own Certificates or Notes................................................. 61
ARTICLE VI The Servicer...................................................................... 62
SECTION 6.1. Representations of Servicer.......................................................... 62
SECTION 6.2. Indemnities of Servicer.............................................................. 64
SECTION 6.3. Merger or Consolidation of, or Assumption of the Obligations of, Servicer............ 65
SECTION 6.4. Limitation on Liability of Servicer and Others....................................... 65
SECTION 6.5. Credit Suisse First Boston Mortgage Securities Corp. Not To Resign as Servicer........ 66
ARTICLE VII Default.......................................................................... 66
SECTION 7.1. Servicer Default..................................................................... 66
SECTION 7.2. Appointment of Successor............................................................. 68
SECTION 7.3. Payment of Servicing Fee............................................................. 69
SECTION 7.4. Notification to Noteholders and Certificateholders................................... 69
SECTION 7.5. Waiver of Past Defaults.............................................................. 69
ARTICLE VIII Termination..................................................................... 70
SECTION 8.1. Optional Purchase of All Home Equity Loans.70
ARTICLE IX Administrative Duties of the Servicer.............................................. 71
SECTION .. Administrative Duties.................................................................. 71
(ii)
<PAGE>
SECTION 9.2. Records.............................................................................. 74
SECTION 9.3. Additional Information To Be Furnished to the Issuer................................. 74
ARTICLE X Miscellaneous Provisions............................................................ 74
SECTION 10.1. Amendment........................................................................... 74
SECTION 10.2. Protection of Title to Trust........................................................ 75
SECTION 10.3. Notices............................................................................. 78
SECTION 10.4. Assignment.......................................................................... 78
SECTION 10.5. Limitations on Rights of Others..................................................... 78
SECTION 10.6. Severability........................................................................ 79
SECTION 10.7. Separate Counterparts............................................................... 79
SECTION 10.8 Headings............................................................................. 79
SECTION 10.9. Governing Law....................................................................... 79
SECTION 10.10. Assignment to Trustee.............................................................. 79
SECTION 10.11. Nonpetition Covenant............................................................... 79
SECTION 10.12. Limitation of Liability of Owner Trustee and Trustee............................... 80
SECTION 10.13. Independence of the Servicer....................................................... 80
SECTION 10.14. No Joint Venture................................................................... 80
</TABLE>
(iii)
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit A Home Equity Loan Schedule
<S> <C><C>
Exhibit B Form of Monthly Certificateholder Statement
Exhibit C Form of Monthly Noteholder Statement
Exhibit D Form of Servicer's Certificate
Exhibit E Form of Request for Release
</TABLE>
(iv)
<PAGE>
SALE AND SERVICING AGREEMENT dated as
of,___________ __, 199_-_, among HOME EQUITY LOAN
TRUST 199_-_, a Delaware business trust (the
"Issuer"), and CREDIT SUISSE FIRST BOSTON MORTGAGE
SECURITIES CORP., as Seller (the "Seller") and as
servicer (the "Servicer").
WHEREAS, the Issuer desires to purchase a portfolio of mortgage loans
from the Seller;
WHEREAS, the Seller has purchased such mortgage loans from
________________ and is willing to sell such mortgage loans to the Issuer; and
WHEREAS, the Servicer is willing to service such mortgage loans.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.1. Definitions. Whenever used in this Agreement, the
-----------
following words and phrases shall have the following meanings:
"Accrual Period" means as to any Simple Interest Loan and Monthly
--------------
Payment, the period commencing from and after the date through which interest
was last paid up to but excluding the date of receipt of such Monthly Payment.
As to any Actuarial Loan and Monthly Payment, the period from and including a
Due Date for such Actuarial Loan to but excluding the succeeding Due Date.
"Actuarial Loan" means a Home Equity Loan for which the relative
--------------
application of each Monthly Payment to interest and principal is based on the
period between Due Dates and not on the timing of receipt of such Monthly
Payment.
"Aggregate Net Losses" means with respect to a Due Period, the
--------------------
aggregate principal balance of all Home Equity Loans newly designated during
such Due Period as Liquidated Home Equity Loans minus Liquidation Proceeds
collected during such Due Period with respect to all Liquidated Home Equity
Loans.
<PAGE>
"Agreement" means this Sale and Servicing Agreement, as the same may
---------
be amended and supplemented from time to time.
"ARM" means a Home Equity Loan which is serviced as an Actuarial Loan
---
and the Mortgage Rate of which is subject to adjustment on each Change Date by
reference to the Index, subject to rounding and the Periodic Cap, the applicable
Lifetime Cap and the applicable Lifetime Floor.
"Assignment of Mortgage" means, with respect to any Mortgage, an
----------------------
assignment, notice of transfer or equivalent instrument, in recordable form,
sufficient under the laws of the jurisdiction in which the related Mortgaged
Property is located to reflect the sale of the Mortgage to the Issuer, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Home Equity Loans secured by
Mortgaged Properties located in the same jurisdiction.
"Available Principal" means with respect to any Distribution Date, the
-------------------
sum of the following amounts without duplication: (a) that portion of all
collections on the Home Equity Loans allocable to principal in respect of the
preceding Due Period; (b) Liquidation Proceeds attributable to the principal
amount of Home Equity Loans which became Liquidated Home Equity Loans during the
preceding Due Period in accordance with the Servicer's customary servicing
procedures; and (c) to the extent attributable to principal, the Purchase Price
of each Home Equity Loan repurchased by the Seller or purchased by the Servicer
during the preceding Due Period; provided, however, that in calculating the
-------- -------
Available Principal, all payments and proceeds (including Liquidation Proceeds)
of any Home Equity Loans repurchased by the Seller or purchased by the Servicer
the Purchase Price of which has been included in the Available Principal in a
prior Due Period shall be excluded.
"Basic Documents" means the Certificate of Trust, the Trust Agreement,
---------------
the Indenture, the Depository Agreements and other documents and certificates
delivered in connection therewith.
"Business Day" means any day other than (i) a Saturday or a Sunday or
------------
(ii) a day on which banking institutions in the States of New York or
____________ are required or authorized by law to be closed.
"Certificate" means a Trust Certificate (as defined in the Trust
-----------
Agreement).
-2-
<PAGE>
"Certificate Balance" equals, initially, $ and, thereafter,
------------------- ----------
equals the initial Certificate Balance, reduced by all amounts allocable to
principal previously distributed to Certificateholders.
"Certificate Distribution Account" has the meaning assigned to such
--------------------------------
term in the Trust Agreement.
"Certificate Rate" means ____% per annum.
----------------
"Certificateholder" has the meaning assigned to such term in the Trust
-----------------
Agreement.
"Certificateholders' Distributable Amount" means, with respect to any
----------------------------------------
Distribution Date, the sum of the Certificateholders' Interest Distributable
Amount and the Certificateholders' Principal Distributable Amount.
"Certificateholders' Interest Carryover Shortfall" means, with respect
------------------------------------------------
to any Distribution Date, the excess of the Certificateholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Certificate- holders' Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest at the Certificate
Rate that is actually deposited in the Certificate Distribution Account on such
preceding Distribution Date, plus interest on such excess, to the extent
permitted by law, at the Certificate Rate from and including such preceding
Distribution Date to but excluding the current Distribution Date.
"Certificateholders' Interest Distributable Amount" means, with
-------------------------------------------------
respect to any Distribution Date, the sum of the Certificateholders' Monthly
Interest Distributable Amount for such Distribution Date and the
Certificateholders' Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means,
---------------------------------------------------------
with respect to any Distribution Date, 30 days of interest (or, in the case of
the first Distribution Date, interest accrued from and including the Closing
Date to but excluding such Distribution Date) at the Certificate Rate on the
Certificate Balance on the immediately preceding Distribution Date, after giving
effect to all payments of principal to the Certificateholders on or prior to
such Distribution Date (or, in the case of the first Distribution Date, the
Certificate Balance on the Closing Date).
"Certificateholders' Monthly Principal Distributable Amount" means,
----------------------------------------------------------
with respect to any Distribution Date, the Certificateholders' Percentage of the
Principal Distribution
-3-
<PAGE>
Amount or, with respect to any Distribution Date on or after the Distribution
Date on which the outstanding principal balance of the Class A-__ Notes is
reduced to zero, 100% of the Principal Distribution Amount (less any amount
required on the first such Distribution Date to reduce the outstanding principal
balance of the Class A-__ Notes to zero, which shall be deposited into the Note
Distribution Account).
"Certificateholders' Percentage" means 100% minus the Noteholders'
------------------------------
Percentage.
"Certificateholders' Principal Carryover Shortfall" means, as of the
-------------------------------------------------
close of any Distribution Date, the excess of the Certificateholders' Monthly
Principal Distributable Amount and any outstanding Certificateholders' Principal
Carryover Shortfall from the preceding Distribution Date, over the amount in
respect of principal that is actually deposited in the Certificate Distribution
Account on such current Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with
--------------------------------------------------
respect to any Distribution Date, the sum of the Certificateholders' Monthly
Principal Distributable Amount for such Distribution Date and the
Certificateholders' Principal Carryover Shortfall as of the close of the
preceding Distribution Date; provided, however, that the Certificate-holders'
-------- -------
Principal Distributable Amount shall not exceed the Certificate Balance. In
addition, on the Certificate Final Scheduled Distribution Date, the principal
required to be distributed to Certificateholders will include the lesser of (a)
any payments of principal due and remaining unpaid on each Home Equity Loan in
the Trust as of _______ __, ____ or (b) the portion of the amount that is
necessary (after giving effect to the other amounts to be deposited in the
Certificate Distribution Account on such Distribution Date and allocable to
principal) to reduce the Certificate Balance to zero, in either case after
giving effect to any required distribution of the Noteholders' Principal
Distributable Amount to the Note Distribution Account. In addition, on any
Distribution Date on which, after giving effect to all distributions to the
Servicer, the Noteholders and the Certificateholders on such Distribution Date,
(i) the outstanding principal balance of the Notes is zero and (ii) the amount
on deposit in the Reserve Account is equal to or greater than the Certificate
Balance, Certificateholders' Principal Distributable Amount shall include an
amount equal to such Certificate Balance.
"Change Date" means the date on which the Mortgage Rate of each ARM is
-----------
subject to adjustment, which date is the Due Date set forth in the related
Mortgage Note and every twelfth Due Date thereafter.
-4-
<PAGE>
"Charge-off Rate" means, with respect to a Due Period, the Aggregate
---------------
Net Losses with respect to the Home Equity Loans expressed, on an annualized
basis, as a percentage of the average of (x) the Pool Balance on the last day of
the immediately preceding Due Period and (y) the Pool Balance on the last day in
such Due Period.
"Civil Relief Act" means the Soldiers' and Sailors' Civil Relief Act
----------------
of 1940, as amended.
"Closing Date" means ________ __, 199__.
------------
"Collection Account" means the account designated as such, established
------------------
and maintained pursuant to Section 3.2(c).
"Credit Suisse First Boston Mortgage Securities Corp." means Credit
----------------------------------------------------
Suisse First Boston Mortgage Securities Corp. in its individual capacity and not
as Servicer.
"Cutoff Date" means _________ __, 199__.
-----------
"Cutoff Date Principal Balance" means with respect to any Home Equity
-----------------------------
Loan, the unpaid principal balance thereof as of the Cut-Off Date (or as of the
applicable date of substitution with respect to an Eligible Substitute Home
Equity Loan pursuant to Section 2.2 or 2.4).
"Debt Service Reduction" means with respect to any Home Equity Loan, a
----------------------
reduction by a court of competent jurisdiction of the Monthly Payment due on
such Home Equity Loan.
"Defective Home Equity Loan" means any Home Equity Loan subject to
--------------------------
repurchase or substitution pursuant to Section 2.2 or 2.4.
"Delinquency Percentage" means, with respect to a Due Period, the
----------------------
ratio of (a) the outstanding principal balance of all outstanding Home Equity
Loans 60 days or more delinquent (which amount shall include Home Equity Loans
in respect of Mortgaged Properties that have been repossessed but not yet sold
or otherwise liquidated) as of the last day of such Due Period, determined in
accordance with the Servicer's normal practices, divided by (b) the outstanding
principal balance of all Home Equity Loans on the last day of such Due Period.
"Delivery" when used with respect to Trust Account Property means:
--------
-5-
<PAGE>
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9.105(1)(i) of the UCC and are
susceptible of physical delivery, transfer thereof to the Trustee or its
nominee or custodian by physical delivery to the Trustee or its nominee or
custodian endorsed to, or registered in the name of, the Trustee or its
nominee or custodian or endorsed in blank, and, with respect to a
certificated security (as defined in Section 8-102 of the UCC) transfer
thereof (i) by delivery of such certificated security endorsed to, or
registered in the name of, the Trustee or its nominee or custodian or
endorsed in blank to a financial intermediary (as defined in Section 8-313
of the UCC) and the making by such financial intermediary of entries on its
books and records identifying such certificated securities as belonging to
the Trustee or its nominee or custodian and the sending by such financial
intermediary of a confirmation of the purchase of such certificated
security by the Trustee or its nominee or custodian, or (ii) by delivery
thereof to a "clearing corporation" (as defined in Section 8-102(3) of the
UCC) and the making by such clearing corporation of appropriate entries on
its books reducing the appropriate securities account of the transferor and
increasing the appropriate securities account of a financial intermediary
by the amount of such certificated security, the identification by the
clearing corporation of the certificated securities for the sole and
exclusive account of the financial intermediary, the maintenance of such
certificated securities by such clearing corporation or a "custodian bank"
(as defined in Section 8-102(4) of the UCC) or the nominee of either
subject to the clearing corporation's exclusive control, the sending of a
confirmation by the financial intermediary of the purchase by the Trustee
or its nominee or custodian of such securities and the making by such
financial intermediary of entries on its books and records identifying such
certificated securities as belonging to the Trustee or its nominee or
custodian (all of the foregoing, "Physical Property"), and, in any event,
any such Physical Property in registered form shall be in the name of the
Trustee or its nominee or custodian; and such additional or alternative
procedures as may hereafter become appropriate to effect the complete
transfer of ownership of any such Trust Account Property to the Trustee or
its nominee or custodian, consistent with changes in applicable law or
regulations or the interpretation thereof;
(b) with respect to any securities issued by the U.S. Treasury, FHLMC
or by FNMA that is a book-entry security
-6-
<PAGE>
held through the Federal Reserve System pursuant to Federal book-entry
regulations, the following procedures, all in accordance with applicable
law, including applicable Federal regulations and Articles 8 and 9 of the
UCC: book-entry registration of such Trust Account Property to an
appropriate book-entry account maintained with a Federal Reserve Bank by a
financial intermediary which is also a "depository" pursuant to applicable
Federal regulations and issuance by such financial intermediary of a
deposit advice or other written confirmation of such book-entry
registration to the Trustee or its nominee or custodian of the purchase by
the Trustee or its nominee or custodian of such book-entry securities; the
making by such financial intermediary of entries in its books and records
identifying such book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations as belonging to the
Trustee or its nominee or custodian and indicating that such custodian
holds such Trust Account Property solely as agent for the Trustee or its
nominee or custodian; and such additional or alternative procedures as may
hereafter become appropriate to effect complete transfer of ownership of
any such Trust Account Property to the Trustee or its nominee or custodian,
consistent with changes in applicable law or regulations or the
interpretation thereof; and
(c) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not governed
by clause (b) above, registration on the books and records of the issuer
thereof in the name of the financial intermediary, the sending of a
confirmation by the financial intermediary of the purchase by the Trustee
or its nominee or custodian of such uncertificated security, the making by
such financial intermediary of entries on its books and records identifying
such uncertificated certificates as belonging to the Trustee or its nominee
or custodian.
"Depository Agreements" mean the Certificate Depository Agreement and
---------------------
the Note Depository Agreement.
"Determination Date" means, with respect to any Distribution Date, the
------------------
fourth Business Day prior to each Distribution Date.
"Distribution Date" means, with respect to each Due Period, the __th
-----------------
day of the following month, or if such day is not a Business Day, the
immediately following Business Day, commencing on _________ __, 199__.
-7-
<PAGE>
"Due Period" means a calendar month, except with respect to the first
----------
Due Period, which shall be the period from the Cutoff Date to _________ __,
199__. Any amount stated "as of the close of business on the last day of a Due
Period" shall give effect to the following calculations as determined as of the
end of the day on such last day: (1) all applications of collections and (2)
all distributions to be made on the immediately following Distribution Date.
"Eligible Deposit Account" means either (a) a segregated account with
------------------------
an Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution (other than the Seller or any
affiliate of the Seller) organized under the laws of the United States of
America or any one of the states thereof or the District of Columbia (or any
domestic branch of a foreign bank), having corporate trust powers and acting as
trustee for funds deposited in such account, so long as any of the securities of
such depository institution have a credit rating from each Rating Agency in one
of its generic rating categories which signifies investment grade.
"Eligible Institution" means a depository institution (other than the
--------------------
Seller or any affiliate of the Seller) organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), which (i) has (A) either a long-term
senior unsecured debt rating of [AAA] or a short-term senior unsecured debt or
certificate of deposit rating of [A-l+] or better by [Standard & Poor's] and
(B)(1) a long-term senior unsecured debt rating of [Al] or better and (2) a
short-term senior unsecured debt rating of [Pl] or better by [Moody's], or any
other long-term, short-term or certificate of deposit rating acceptable to the
Rating Agencies and (ii) whose deposits are insured by the Federal Deposit
Insurance Corporation. If so qualified, the Owner Trustee or the Trustee may be
considered an Eligible Institution.
"Eligible Investments" mean book-entry securities, negotiable
--------------------
instruments or securities represented by instruments in bearer or registered
form which evidence:
(a) direct obligations of, and obligations fully guaranteed as to
timely payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit of any
depository institution (including the Seller or any Affiliate of the
Seller) or trust company incorporated under the laws of the United States
of America
-8-
<PAGE>
or any state thereof or the District of Columbia (or any domestic branch of
a foreign bank) and subject to supervision and examination by Federal or
state banking or depository institution authorities (including depository
receipts issued by any such institution or trust company as custodian with
respect to any obligation referred to in clause (a) above or portion of
such obligation for the benefit of the holders of such depository
receipts); provided, however, that at the time of the investment or
-------- -------
contractual commitment to invest therein (which shall be deemed to be made
again each time funds are reinvested following each Distribution Date), the
commercial paper or other short-term senior unsecured debt obligations
(other than such obligations the rating of which is based on the credit of
a Person other than such depository institution or trust company) of such
depository institution or trust company shall have a credit rating from
[Standard & Poor's of A-1+ and from Moody's of P1];
(c) commercial paper (including commercial paper of the Seller or any
Affiliate of the Seller) having, at the time of the investment or
contractual commitment to invest therein, a rating from [Standard & Poor's
of A-1+ and from Moody's of P1];
(d) investments in money market funds (including funds for which the
Seller, the Trustee or the Owner Trustee or any of their respective
Affiliates is investment manager or advisor) having a rating from [Standard
& Poor's of AAA-m or AAAm-G and from Moody's of Aaa];
(e) bankers' acceptances issued by any depository institution or
trust company referred to in clause (b) above;
(f) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America
or any agency or instrumentality thereof the obligations of which are
backed by the full faith and credit of the United States of America, in
either case entered into with a depository institution or trust company
(acting as principal) referred to in clause (b) above; and
(g) any other investment which would not cause either Rating Agency
to downgrade or withdraw its then current rating of any class of Notes or
the Certificates.
"Eligible Substitute Home Equity Loan" means a Home Equity Loan
------------------------------------
substituted by the Seller for a Defective Home Equity
-9-
<PAGE>
Loan which must, on the date of such substitution, (i) have an outstanding
Principal Balance not in excess of and not more than __% less than the Principal
Balance of the Defective Home Equity Loan; (ii) have a current Mortgage Rate not
less than the Mortgage Rate of the Defective Home Equity Loan and not more than
__% in excess of the Mortgage Rate of such Defective Home Equity Loan; (iii)
have a Mortgage of the same or higher level of lien priority as the Mortgage
relating to the Defective Home Equity Loan at the time such Mortgage was
transferred to the Trust; (iv) have a remaining term to maturity not more than
six months earlier and not later than the remaining term to maturity of the
Defective Home Equity Loan; (v) comply with each representation and warranty set
forth in Section 2.4 (deemed to be made as of the date of substitution); and
(vi) have an original Loan-to-Value Ratio not greater than that of the Defective
Home Equity Loan; (vii) be an ARM if the Defective Home Equity Loan was an ARM;
and (viii) if an ARM, use the same Index, have the same Periodic Cap, have a
Lifetime Cap and a Gross Margin no less than, those of the Defective Home Equity
Loan.
"FHLMC" means Federal Home Loan Mortgage Corporation or any successor
-----
thereto.
"Final Scheduled Distribution Date" means with respect to [List
---------------------------------
Classe(s) of Notes and their Respective Final Scheduled Distribution Dates].
"Final Scheduled Maturity Date" means _________ __, __.
-----------------------------
"First Lien" means, with respect to any Home Equity Loan which is a
----------
second priority lien, the mortgage loan relating to the corresponding Mortgaged
Property having a first priority lien.
"Fitch" means Fitch Investors Service, L.P., or its successors.
-----
"FNMA" means Federal National Mortgage Association or any successor
----
thereto.
"Foreclosure Profits" means, with respect to a Liquidated Home Equity
-------------------
Loan, the amount, if any, by which (i) the aggregate of the related Net
Liquidation Proceeds exceeds (ii) the related Principal Balance (plus accrued
and unpaid interest thereon at the applicable Mortgage Rate from the date
interest was last paid through the date of receipt of the final Liquidation
Proceeds) of such Liquidated Home Equity Loan immediately prior to the final
recovery of its Liquidation Proceeds.
-10-
<PAGE>
"Gross Margin" means, with respect to each ARM, the number of basis
------------
points set forth in the related Mortgage Note which is added to the Index to
determine the Mortgage Rate on the related Change Date, subject to rounding and
the Periodic Cap and the applicable Lifetime Cap and the applicable Lifetime
Floor.
"GP Interest" means the __% interest in the Trust held by
-----------
___________________, a ___________, pursuant to the Trust Agreement.
"Home Equity Loan" means a mortgage loan transferred and assigned to
----------------
the Trustee pursuant to Section 2.1 or Section 2.4 and held as a part of the
Trust, as identified in the Home Equity Loan Schedule.
"Home Equity Loan Schedule" means with respect to any date, the
-------------------------
schedule of Home Equity Loans included in the Trust on such date. The initial
schedule of Home Equity Loans as of the Cutoff Date is the schedule set forth
herein as Exhibit A, which schedule sets forth as to each Home Equity Loan (i)
the Cut-Off Date Principal Balance, (ii) the account number, (iii) the original
principal amount, (iv) the Loan-to-Value Ratio as of the date of the origination
of the related Home Equity Loan, (v) the Due Date, (vi) the current Mortgage
Rate, (vii) the first date on which a Monthly Payment is due under the Mortgage
Note, (viii) the original stated maturity date of the Mortgage Note, (ix) the
remaining number of months to maturity as of the Cutoff Date, (x) the State in
which the related Mortgaged Property is situated, (xi) the type of property,
(xii) the lien status, (xiii) a code indicating whether the Home Equity Loan is
an ARM, and (xiv) for each ARM, the Gross Margin and the Mortgage Rate at
origination.]
"Indenture" means the Indenture dated as of _______ __, 199_, between
---------
the Issuer and the Trustee, as the same may be amended and supplemented from
time to time.
"Index" means [the weekly average yield on United States Treasury
-----
securities adjusted to a constant maturity of one year, as made available by the
Federal Reserve Board and most recently available as of the date __ days before
each Change Date].
"Insolvency Event" means, with respect to a specified Person, (a) the
----------------
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver
(including any receiver appointed under the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as
-11-
<PAGE>
amended), liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (b) the commencement by such Person of a voluntary case under any
applicable Federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by such Person to the entry of an order for
relief in an involuntary case under any such law, or the consent by such Person
to the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to pay its debts as such debts become due, or the taking of action by such
Person in furtherance of any of the foregoing.
"Insurance Proceeds" means proceeds paid by any insurer pursuant to
------------------
any insurance policy covering a Home Equity Loan, or amounts required to be paid
by the Servicer pursuant to Section 3.5, net of any component thereof (i)
covering any expenses incurred by or on behalf of the Servicer in connection
with obtaining such proceeds, (ii) that is applied to the restoration or repair
of the related Mortgaged Property, (iii) released to the Mortgagor in accordance
with the Servicer's normal servicing procedures or (iv) required to be paid to
any holder of a mortgage senior to such Home Equity Loan.
"Interest Distribution Amount" means, with respect to any Distribution
----------------------------
Date, the sum of the following amounts without duplication: (a) that portion of
all collections on the Home Equity Loans allocable to interest in respect of the
preceding Due Period; (b) Liquidation Proceeds attributable to interest on the
Home Equity Loans which became Liquidated Home Equity Loans during the preceding
Due Period in accordance with the Servicer's customary servicing procedures; (c)
the Purchase Price of each Home Equity Loan that became a Purchased Home Equity
Loan during the preceding Due Period to the extent attributable to accrued
interest on such Home Equity Loan; (d) Recoveries for such Due Period and (e)
Investment Earnings for such Distribution Date; provided, however, that in
-------- -------
calculating the Interest Distribution Amount, all payments and proceeds
(including Liquidation Proceeds) of any Purchased Home Equity Loans the Purchase
Price of which has been included in the Interest Distribution Amount in a prior
Due Period shall be excluded.
"Investment Earnings" means, with respect to any Distribution Date,
-------------------
the investment earnings (net of losses and investment expenses) on amounts on
deposit in the Trust Accounts
-12-
<PAGE>
and the Certificate Distribution Account to be deposited into the Collection
Account on such Distribution Date pursuant to Section 4.1(b).
"Issuer" means Home Equity Loan Trust 199_-_.
------
"Lien" means a security interest, lien, charge, pledge or encumbrance
----
of any kind, other than tax liens, mechanics' liens and any liens which attach
to the respective Home Equity Loan by operation of law as a result of any act or
omission by the related Mortgagor.
"Lifetime Cap" means the provision in the Mortgage Note for each ARM
------------
which limits the maximum Mortgage Rate over the life of such ARM to ___ basis
points greater than the Mortgage Rate on the date of origination of such ARM.
"Lifetime Floor" means the provision in the Mortgage Note for each ARM
--------------
which limits the minimum Mortgage Rate over the life of such ARM to the Mortgage
Rate on the date of origination of such ARM.
"Liquidated Home Equity Loan" means, as to any Distribution Date, any
---------------------------
Home Equity Loan with respect to which the Servicer has determined, in
accordance with the servicing procedures specified herein, as of the end of the
related Due Period that all Liquidation Proceeds which it expects to recover
with respect to the liquidation of the Home Equity Loan or disposition of the
related REO Property have been recovered.
"Liquidation Proceeds" means proceeds (including Insurance Proceeds)
--------------------
received in connection with the liquidation of any Home Equity Loan or related
REO Property, whether through trustee's sale, foreclosure sale or otherwise.
"Loan-to-Value Ratio" means the fraction, expressed as a percentage,
-------------------
the numerator of which is the original principal balance of the related Home
Equity Loan and the denominator of which is the Original Value of the related
Mortgaged Property.
"Monthly Advance" means an advance made by the Servicer pursuant to
---------------
Section 3.15 hereof.
"Monthly Payment" means the scheduled monthly payment of principal
---------------
and/or interest required to be made by a Mortgagor on the related Home Equity
Loan.
"Moody's" means Moody's Investors Service, Inc., or its successor.
-------
-13-
<PAGE>
"Mortgage" means the mortgage, deed of trust or other instrument
--------
creating a first or second lien on an estate in fee simple interest in real
property securing a Home Equity Loan.
"Mortgage File" means the mortgage documents listed in Section 2.1(b)
-------------
pertaining to a particular Home Equity Loan and any additional documents
required to be added to the Mortgage File pursuant to this Agreement.
"Mortgage Note" means the originally executed note or other evidence
-------------
of indebtedness evidencing the indebtedness of a Mortgagor under the related
Home Equity Loan.
"Mortgaged Property" means the land and improvements securing the
------------------
indebtedness of a Mortgagor under the related Home Equity Loan.
"Mortgagor" means the obligor or obligors on a Mortgage Note.
---------
"Net Liquidation Proceeds" means, with respect to any Liquidated Home
------------------------
Equity Loan, Liquidation Proceeds net of unreimbursed Servicing Fees,
unreimbursed Servicing Advances and Monthly Advances with respect thereto.
"Net Rate" means, with respect to any Home Equity Loan as to any day,
--------
the Mortgage Rate less the related Servicing Fee Rate.
"Nonrecoverable Advances" means, with respect to any Home Equity Loan,
-----------------------
(i) any Monthly Advance previously made and not reimbursed pursuant to Section
3.2(c) or 3.3(ii), or (ii) a Servicing Advance or Monthly Advance proposed to be
made in respect of a Home Equity Loan or REO Property which, in the good faith
business judgment of the Servicer, will not or, in the case of a proposed
advance, would not be ultimately recoverable pursuant to Sections 3.2(c) or
3.3(ii).
"Note Distribution Account" means the account designated as such,
-------------------------
established and maintained pursuant to Section 4.1.
"Noteholders' Distributable Amount" means, with respect to any
---------------------------------
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
-----------------------------------------
Distribution Date, the excess of the Noteholders' Monthly Interest Distributable
Amount for the preceding Distribution Date and any outstanding Noteholders'
Interest Carryover Shortfall on such preceding
-14-
<PAGE>
Distribution Date, over the amount in respect of interest that is actually
deposited in the Note Distribution Account on such preceding Distribution Date,
plus interest on the amount of interest due but not paid to Noteholders on the
preceding Distribution Date, to the extent permitted by law, at the respective
Interest Rate borne by each class of Notes from such preceding Distribution Date
through the current Distribution Date.
"Noteholders' Interest Distributable Amount" means, with respect to
------------------------------------------
any Distribution Date, the sum of the Noteholders' Monthly Interest
Distributable Amount for such Distribution Date and the Noteholders' Interest
Carryover Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with
--------------------------------------------------
respect to any Distribution Date, the product of (i)(A) in the case of the Class
A-__ Notes, the product of the Interest Rate for such class and a fraction, the
numerator of which is the number of days elapsed from and including the prior
Distribution Date (or, in the case of the first Distribution Date, from and
including the Closing Date) to but excluding such Distribution Date and the
denominator of which is ___ and (B) in the case of each other class of Notes,
___________ of the Interest Rate for such class (or, in the case of the first
Distribution Date, the Interest Rate for such class multiplied by a fraction,
the numerator of which is the number of days elapsed from and including the
Closing Date to but excluding such Distribution Date and the denominator of
which is ___) and (ii) the outstanding principal balance of the Notes of such
class on the immediately preceding Distribution Date, after giving effect to all
distributions of principal to Noteholders of such class on such Distribution
Date (or, in the case of the first Distribution Date, on the Closing Date).
"Noteholders' Monthly Principal Distributable Amount" means, with
---------------------------------------------------
respect to any Distribution Date, the Noteholders' Percentage of the Principal
Distribution Amount.
"Noteholders' Percentage" means 100% until the point in time at which
-----------------------
[List Class(es) of Notes] have been paid in full and zero thereafter.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
------------------------------------------
any Distribution Date, the excess of the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Principal Carryover
Shortfall from the preceding Distribution Date over the amount in respect of
-15-
<PAGE>
principal that is actually deposited in the Note Distribution Account.
"Noteholders' Principal Distributable Amount" means, with respect to
-------------------------------------------
any Distribution Date, the sum of the Noteholder's Monthly Principal
Distributable Amount for such Distribution Date and the Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date;
provided, however, that the Noteholders' Principal Distributable Amount shall
- -------- -------
not exceed the outstanding principal balance of the Notes. In addition, on the
Final Scheduled Distribution Date of each class of Notes, the principal required
to be deposited in the Note Distribution Account will include the amount
necessary (after giving effect to the other amounts to be deposited in the Note
Distribution Account on such Distribution Date and allocable to principal) to
reduce the Outstanding Amount of such class of Notes to zero.
"Officers' Certificate" means a certificate signed by (a) the chairman
---------------------
of the board, the president, the vice chairman of the board, any executive vice
president, any senior vice president or any vice president and (b) a cashier,
assistant cashier, secretary or assistant secretary of the Seller or the
Servicer, as appropriate, provided that no one person may sign in a capacity
fulfilling both clause (a) and clause (b).
"Opinion of Counsel" means one or more written opinions of counsel who
------------------
may be an employee of or counsel to the Seller or the Servicer, which counsel
shall be acceptable to the Trustee, the Owner Trustee or the Rating Agencies, as
applicable.
"Original Pool Balance" means the Pool Balance as of the Cutoff Date
---------------------
which is $____________.
"Original Value" means the value of the Mortgaged Property at the time
--------------
of origination of the related Home Equity Loan, such value being the lower of
the value of such property set forth in an appraisal acceptable to the
originator of the Home Equity Loan or the sales price of such property at the
time of origination or, in the case of a refinancing, the value of such property
set forth in an appraisal acceptable to the originator.
"Owner Trust Estate" has the meaning assigned to such term in the
------------------
Trust Agreement.
"Owner Trustee" means _________________________, not in its individual
-------------
capacity but solely as Owner Trustee under the Trust Agreement, its successors
in interest or any successor Owner Trustee under the Trust Agreement.
-16-
<PAGE>
"Payahead" on a Actuarial Home Equity Loan means the amount, as of the
--------
close of business on the last day of a Due Period, computed in accordance with
Section 4.3 with respect to such Home Equity Loan.
"Payahead Account" means the account designated as such, established
----------------
and maintained pursuant to Section 4.1(d)(ii).
"Payahead Balance" on a Actuarial Home Equity Loan means the sum, as
----------------
of the close of business on the last day of a Due Period, of all Payaheads made
by or on behalf of the Mortgagor with respect to such Actuarial Home Equity
Loan, as reduced by applications of previous Payaheads with respect to such
Actuarial Home Equity Loan, pursuant to Sections 4.3 and 4.4.
"Periodic Cap" means the provision in the Mortgage Note for each ARM
------------
which limits increases or decreases in the Mortgage Rate on each Change Date to
_____ basis points.
"Person" means any individual, corporation, limited liability company,
------
estate, partnership, joint venture, association, joint stock company, trust
(including any beneficiary thereof), unincorporated organization or government
or any agency or political subdivision thereof.
"Physical Property" has the meaning assigned to such term in the
-----------------
definition of "Delivery" above.
"Pool Balance" as of the close of business on the last day of a Due
------------
Period means the aggregate Principal Balance of the Home Equity Loans (excluding
Purchased Home Equity Loans and Liquidated Home Equity Loans).
"Primary Mortgage Insurance Policy" means the certificate of primary
---------------------------------
mortgage insurance relating to a particular Home Equity Loan, or any replacement
policy therefor.
"Principal Balance" means as to any Home Equity Loan other than a
-----------------
Liquidated Home Equity Loan and any day, the related Cut-Off Date Principal
Balance (or unpaid principal balance as of the date of substitution), minus all
collections credited against the Principal Balance of any such Home Equity Loan.
For purposes of this definition, a Liquidated Home Equity Loan shall be deemed
to have a Principal Balance equal to the Principal Balance of the related Home
Equity Loan immediately prior to the final recovery of related Liquidation
Proceeds and a Principal Balance of zero thereafter.
-17-
<PAGE>
"Principal Distribution Amount" means, with respect to any
-----------------------------
Distribution Date, the sum of the following amounts, without duplication, in
respect of the preceding Due Period: (a) that portion of all collections on
Home Equity Loans (including, with respect to Actuarial Loans, amounts withdrawn
from the Payahead Account but excluding amounts deposited into the Payahead
Account) allocable to principal, (b) Liquidation Proceeds attributable to the
principal amount of Home Equity Loans which became Liquidated Home Equity Loans
during such Due Period in accordance with the Servicer's customary servicing
procedures, plus the amount of Realized Losses with respect to such Liquidated
Home Equity Loans, (c) to the extent attributable to principal, the Purchase
Price of each Home Equity Loan that became a Purchased Home Equity Loan during
such Due Period and (d) on the Final Scheduled Distribution Date for the
Certificates, any amounts advanced by the Servicer on such Final Scheduled
Distribution Date with respect to principal on the Home Equity Loans; provided,
--------
however, that in calculating the Principal Distribution Amount the following
- -------
will be excluded: (i) amounts received on Actuarial Home Equity Loans to the
extent that the Servicer has previously made an unreimbursed Precomputed Advance
of principal, (ii) Liquidation Proceeds with respect to a particular Actuarial
Home Equity Loan to the extent of any unreimbursed Precomputed Advances of
principal, (iii) all payments and proceeds (including Liquidation Proceeds) of
any Purchased Home Equity Loans the Purchase Price of which has been included in
the Principal Distribution Amount in a prior Due Period and (iv) Recoveries.
"Purchase Price" means as to any Defective Home Equity Loan
--------------
repurchased on any date pursuant to Sections 2.2 or 2.4, an amount equal to the
sum of (i) the unpaid Principal Balance thereof, (ii) the greater of (a) all
unpaid accrued interest thereon and (b) ___ days' interest thereon, computed at
the applicable Mortgage Rate and (iii) any unreimbursed Servicing Advances with
respect to such Home Equity Loan; provided, however, that if at the time of
-------- -------
repurchase the Seller or an Affiliate is the Servicer, the amount described in
clause (ii) shall be computed at the Net Rate.
"Purchased Home Equity Loan" means a Home Equity Loan purchased as of
--------------------------
the close of business on the last day of a Due Period by the Servicer pursuant
to Section 3.16 or repurchased by the Seller pursuant to Section 2.2.
"Rating Agency" means Moody's, Standard & Poor's, Fitch and/or any
-------------
other rating agency requested by the Seller or an affiliate thereof to rate the
Notes and/or the Certificates. If no such organization or successor is any
longer in existence, "Rating Agency" shall be a nationally recognized
statistical
-18-
<PAGE>
rating organization or other comparable Person designated by the Seller, notice
of which designation shall be given to the Trustee, the Owner Trustee and the
Servicer.
"Rating Agency Condition" means, with respect to any action, that each
-----------------------
Rating Agency shall have been given 10 days' prior notice thereof (or such
shorter period as shall be acceptable to the Rating Agencies) and that neither
of the Rating Agencies shall have notified the Seller, the Servicer, the Owner
Trustee or the Trustee in writing that such action will, in and of itself,
result in a reduction or withdrawal of the then current rating of any class of
Notes, or the Certificates.
"Realized Losses" means the excess of the Principal Balance of any
---------------
Liquidated Home Equity Loan over Liquidation Proceeds to the extent allocable to
principal.
"Recoveries" means, with respect to any Liquidated Home Equity Loan,
----------
monies collected in respect thereof, from whatever source, during any Due Period
following the Due Period in which such Home Equity Loan became a Liquidated Home
Equity Loan, net of the sum of any amounts expended by the Servicer for the
account of the Mortgagor and any amounts required by law to be remitted to the
Mortgagor.
"REO Property" means a Mortgaged Property that is acquired by the
------------
Servicer on behalf of the Trustee in foreclosure or by deed-in-lieu of
foreclosure.
"Released Mortgaged Property Proceeds" means, as to any Home Equity
------------------------------------
Loan, proceeds received by the Servicer in connection with (a) a taking of an
entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (b) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise,
which are not released to the Mortgagor in accordance with applicable law,
mortgage servicing standards the Servicer would use in servicing mortgage loans
for its own account and this Agreement.
"Reserve Account" means the account designated as such, established
---------------
and maintained pursuant to Section 4.1.
"Reserve Account Initial Deposit" means, with respect to the Closing
-------------------------------
Date, $__________.
"Reserve Account Transfer Amount" means an amount equal to the lesser
-------------------------------
of (i) the amount of cash or other immediately available funds on deposit in the
Reserve Account on such Distribution Date (before giving effect to any
withdrawals
-19-
<PAGE>
therefrom relating to such Distribution Date) or (ii) the amount, if any, by
which (x) the sum of the Total Servicing Fee, the Noteholders' Interest
Distributable Amount, the Certificateholders' Interest Distributable Amount, the
Noteholders' Principal Distributable Amount and the Certificateholders'
Principal Distributable Amount for such Distribution Date exceeds (y) the sum of
the Interest Distribution Amount and the Available Principal for such
Distribution Date.
"Seller" means Credit Suisse First Boston Mortgage Securities Corp.,
------
as the seller of the Home Equity Loans, and each successor to Credit Suisse
First Boston Mortgage Securities Corp.(in the same capacity) to the extent
permitted hereunder.
"Servicer" means Credit Suisse First Boston Mortgage Securities Corp.,
--------
the servicer of the Home Equity Loans, and each successor to Credit Suisse First
Boston Mortgage Securities Corp., (in the same capacity) pursuant to Section 6.3
or 7.2.
"Servicer Default" means an event specified in Section 7.1.
----------------
"Servicer's Certificate" means an Officers' Certificate of the
----------------------
Servicer delivered pursuant to Section 3.10, substantially in the form of
Exhibit D.
"Servicing Advances" means all reasonable and customary "out of
------------------
pocket" costs and expenses incurred in the performance by the Servicer of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the REO Property, including reasonable fees paid
to any independent contractor in connection therewith, (iv) compliance with the
obligations under Sections 3.4, 3.7 or 3.19 and (v) in connection with the
liquidation of a Home Equity Loan, expenditures relating to the purchase or
maintenance of the First Lien pursuant to Section 3.17.
"Servicing Compensation" means the Servicing Fee, the Supplemental
----------------------
Servicing Fee and any other amounts to which the Servicer is entitled pursuant
to Section 3.9.
"Servicing Fee" has the meaning specified in Section 3.9.
-------------
"Servicing Fee Rate" means _____% per annum.
------------------
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"Simple Interest Loan" means any Home Equity Loan as to which,
--------------------
pursuant to the Mortgage Note related thereto, interest is calculated on the
basis of the outstanding principal balance of the Home Equity Loan multiplied by
the applicable Mortgage Rate and further multiplied by a fraction, of which the
numerator is the number of days in the period elapsed since the date to which
interest was paid and the denominator is the number of days in the annual period
for which interest accrues on such Home Equity Loan, and the Monthly Payment
received is applied first to interest accrued to the date of payment and the
balance is applied to reduce the unpaid principal balance.
"Specified Reserve Account Balance" means, with respect to (i) any
---------------------------------
Distribution Date prior to the Distribution Date on which the Outstanding Amount
of the Class A-1 Notes has been paid in full, $___________ and (ii) any
Distribution Date on or after the Distribution Date on which the Outstanding
Amount of the Class A-__ Notes has been paid in full the greater of (a) ____% of
the sum of the aggregate outstanding principal amount of each class of Notes
plus the outstanding Certificate Balance on such Distribution Date (after giving
effect to all payments on the Notes and distributions with respect to the
Certificates to be made on such Distribution Date); or (b) ____% of the sum of
the aggregate initial principal of the Notes plus the initial Certificate
Balance except that, if on any Distribution Date (x) the average of the Charge-
off Rates for the three preceding Due Periods exceeds ____% or (y) the average
of the Delinquency Percentages for the three preceding Due Periods exceeds
____%, then the Specified Reserve Account Balance shall be an amount equal to
___% of the sum of the aggregate outstanding principal amount of each class of
Notes and the aggregate outstanding Certificate Balance on such Distribution
Date (after giving effect to all payments on the Notes and distributions with
respect to the Certificates to be made on such Distribution Date).
"Standard & Poor's" means Standard & Poor's Ratings Group, or its
-----------------
successor.
"Supplemental Servicing Fee" means the fee payable to the Servicer for
--------------------------
certain services rendered during the respective Due Period, determined pursuant
to and defined in Section 3.9.
"Total Servicing Fee" means with respect to each Distribution Date the
-------------------
Servicing Fee for the related Due Period and all accrued and unpaid Servicing
Fees for prior Due Periods.
"Total Distribution Amount" means, for each Distribution Date, the sum
-------------------------
of (i) the Interest Distribution Amount (ii) the Available Principal and (iii)
the Reserve Account
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Transfer Amount, in each case in respect of such Distribution Date; provided,
--------
however, that if on the Class A-1 Final Scheduled Distribution Date, the Total
- -------
Distribution Amount (as defined above) would be insufficient to pay the Total
Servicing Fee, Noteholders' Interest Distributable Amount, Certificateholders'
Interest Distributable Amount and the Noteholders' Principal Distributable
Amount for such Distribution Date, then the Total Distribution Amount for such
Distribution Date will include, in addition to the Total Distribution Amount (as
defined above), an amount, up to the amount necessary to pay any such items, of
the Interest Distribution Amount and the Available Principal on deposit (or, if
the conditions specified in Section 3.2(c) have been satisfied, that would have
been required to have been deposited but for the satisfaction of such
conditions) in the Collection Account on the Determination Date relating to such
Class A-1 Final Scheduled Distribution Date which would have constituted the
Interest Distribution Amount or Available Principal, as the case may be, for the
Due Period relating to the succeeding Distribution Date and the Interest
Distribution Amount and Available Principal, as the case may be, for such
succeeding Distribution Date will be reduced accordingly.
"Transfer Date" means, with respect to any Distribution Date, the
-------------
Business Day preceding such Distribution Date.
"Trust" means the Issuer.
-----
"Trust Account Property" means the Trust Accounts, all amounts and
----------------------
investments held from time to time in any Trust Account (whether in the form of
deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), including the Reserve Account Initial Deposit, and all
proceeds of the foregoing.
"Trust Accounts" has the meaning assigned thereto in Section 4.1.
--------------
"Trust Agreement" means the Trust Agreement dated as of _________
--------------- -
________ __, ____, between the Seller and the Owner Trustee, as the same may be
amended and supplemented from time to time.
"Trust Officer" means, (i) in the case of the Trustee, any Officer
-------------
within the Corporate Trust Office of the Trustee, including any Vice President,
Assistant Vice President, Assistant Treasurer, Assistant Secretary or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject and (ii)
in the case of
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the Owner Trustee, any officer in the corporate trust office of the Owner
Trustee with direct responsibility for the administration of this Agreement or
any of the Basic Documents on behalf of the Owner Trustee.
"Trustee" means the Person acting as Trustee under the Indenture, its
-------
successors in interest and any successor trustee under the Indenture.
SECTION 1.2. Other Definitional Provisions.
-----------------------------
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Indenture, or, if not defined therein,
in the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any instrument governed hereby and in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein.
(c) As used in this Agreement, in any instrument governed hereby and
in any certificate or other document made or delivered pursuant hereto or
thereto, accounting terms not defined in this Agreement or in any such
instrument, certificate or other document, and accounting terms partly defined
in this Agreement or in any such instrument, certificate or other document to
the extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles as in effect on the date of this
Agreement or any such instrument, certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such instrument, certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Agreement or in any such instrument, certificate
or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of
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such terms and to the masculine as well as to the feminine and neuter genders of
such terms.
SECTION 1.3. Interest Calculations. All calculations of interest
---------------------
hereunder that are made in respect of the Principal Balance of a Simple Interest
Loan shall be made on the basis of the actual number of days in an Accrual
Period and a year assumed to consist of 365 days. All calculations of interest
in respect of the Principal Balance of an Actuarial Loan or in respect of the
Notes or the Certificates shall be made on the basis of a 360-day year
consisting of twelve 30-day months. The calculation of the Servicing Fee shall
be made on the basis of the actual number of days in an Accrual Period and a
year assumed to consist of 365 days.
ARTICLE II
Conveyance of Home Equity Loans
-------------------------------
SECTION 2.1. Conveyance of Home Equity Loans. (a) In consideration
-------------------------------
of the Issuer's delivery to or upon the order of the Seller on the Closing Date
of the net proceeds from the sale of the Notes and the Certificates and the
other amounts to be distributed from time to time to the Seller in accordance
with the terms of this Agreement, the Seller does hereby sell, transfer, assign,
set over and otherwise convey to the Issuer, without recourse (subject to the
obligations herein):
(A) all right, title and interest of the Seller in and to the
Home Equity Loans, and all moneys received thereon, on or after the
Cutoff Date;
(B) all right, title and interest of the Seller in the security
interests in the Mortgaged Properties granted by Mortgagors pursuant to
the Home Equity Loans and any other interest of the Seller in the
Mortgaged Properties;
(C) the interest of the Seller in any proceeds with respect to
the Home Equity Loans from claims on any physical damage, theft, credit
life or disability insurance policies covering Mortgaged Properties or
Mortgagors;
(D) all right, title and interest in all funds on deposit from
time to time in the Certificate Distribution Account, in the Trust
Accounts, including the Reserve Account Initial Deposit, and in all
investments and proceeds thereof (including all income thereon); and
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(E) the proceeds of any and all of the foregoing.
In connection with such transfer, assignment and conveyance by the
Seller, the Seller shall deliver to, and deposit with the Trustee, on or before
the Closing Date, the following documents or instruments with respect to each
Home Equity Loan (the "Related Documents"):
(i) The original Mortgage Note, with all prior and intervening
endorsements showing a complete chain of endorsements from the originator
of the Home Equity Loan to the Person so endorsing the Home Equity Loan to
the Trustee, endorsed by such Person "Pay to the order of
____________________, as Trustee for Home Equity and Home Improvement Loan
Trusts 199_-_ without recourse" and signed, by facsimile or manual
signature, in the name of the Seller by a Responsible Officer;
(ii) Any of: (1) the original Mortgage, and related power of
attorney, if any, with evidence of recording thereon, (2) a copy of the
Mortgage and related power of attorney, if any, certified as a true copy of
the original Mortgage or power of attorney by a Responsible Officer of the
Seller or by the closing attorney by facsimile or manual signature, or by
an officer of the title insurer or agent of the title insurer that issued
the related title insurance policy if the original has been transmitted for
recording until such time as the original is returned by the public
recording office or (3) a copy of the Mortgage and related power of
attorney, if any, certified by the public recording office;
(iii) The original Assignment of Mortgage in recordable form, to
"__________________, as Trustee for Home Equity and Home Improvement Loan
Trusts 199_-_". Any such Assignments of Mortgage may be made by blanket
assignments for Home Equity Loans secured by the Mortgaged Properties in
the same county, if permitted by applicable law;
(iv) The original lender's policy of title insurance or a true copy
thereof, or if such original lender's title insurance policy has been lost,
a copy thereof certified by the appropriate title insurer to be true and
complete, or if such lender's title insurance policy has not been issued as
of the Closing Date, a marked up commitment (binder) to issue such policy;
(v) All intervening assignments, if any, showing a complete chain of
assignments from the originator to the
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Seller, including any recorded warehousing assignments, with evidence of
recording thereon, certified by a Responsible Officer of the Seller by
facsimile or manual signature as a true copy of the original of such
intervening assignments; and
(vi) Originals of all assumption, written assurance, substitution and
modification agreements, if any.
In instances where the original recorded Mortgage cannot be delivered
by the Seller to the Trustee prior to or concurrently with the execution and
delivery of this Agreement due to a delay in connection with recording, the
Seller may in lieu of delivering such original recorded Mortgage, deliver to the
Trustee a copy thereof, provided that the Seller certifies that the original
Mortgage has been delivered to a title insurance company for recordation after
receipt of its policy of title insurance or binder therefor. In all such
instances, the Seller will deliver or cause to be delivered the original
recorded Mortgage to the Trustee promptly upon receipt of the original recorded
Mortgage but in no event later than one year after the Closing Date.
(b) The Trustee agrees, for the benefit of the Noteholders and the
Certificateholders, within 90 days after execution and delivery of this
Agreement, to review the Mortgage Files to ascertain that all required documents
set forth in paragraphs (i) - (v) of Section 2.1(a) have been executed and
received, and that the Mortgage Notes have been endorsed as set forth in Section
2.1(a), and that such documents relate to the Home Equity Loans identified on
the Home Equity Loan Schedule and in so doing the Trustee may rely on the
purported due execution and genuineness of any signature thereon. If within
such 90-day period the Trustee finds any document constituting a part of a
Mortgage File not to have been executed or received or to be unrelated to the
Home Equity Loans identified in said Home Equity Loan Schedule or, if in the
course of its review, the Trustee determines that such Mortgage File is
otherwise defective in any material respect, the Trustee shall promptly upon the
conclusion of its review notify the Seller, and the Seller shall have a period
of 90 days after such notice within which to correct or cure any such defect.
(c) The Trustee shall have no responsibility for reviewing any
Mortgage File except as expressly provided in Section 2.1(b). Without limiting
the effect of the preceding sentence, in reviewing any Mortgage File pursuant to
such subsection, the Trustee shall have no responsibility for determining
whether any document is valid and binding, whether the text of any assignment or
endorsement is in proper or
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<PAGE>
recordable form (except, if applicable, to determine if the Trustee is the
assignee or endorsee), whether any document has been recorded in accordance with
the requirements of any applicable jurisdiction, or whether a blanket assignment
is permitted in any applicable jurisdiction, but shall only be required to
determine whether a document has been executed, that it appears to be what it
purports to be, and, where applicable, that it purports to be recorded, but
shall not be required to determine whether any Person executing any document is
authorized to do so or whether any signature thereon is genuine.
SECTION 2.2. Acceptance by Trustee. The Trustee hereby acknowledges,
---------------------
subject to the review and period for delivery provided for in Section 2.1, its
receipt of the Mortgage Files, and declares that the Trustee holds and will hold
such documents and all amounts received by it thereunder and hereunder in trust,
upon the terms herein set forth, for the use and benefit of all present and
future Noteholders and Certificate holders. If the Seller is given notice under
Section 2.1(c) above and if the Seller does not correct or cure such omission or
defect within the 90-day period specified in Section 2.1(c) above, the Seller
shall substitute one or more Eligible Substitute Home Equity Loans therefor as
provided in Section 2.5 hereof or purchase such Home Equity Loan from the
Trustee on the Determination Date in the month following the month in which such
90-day period expired at the Purchase Price of such Home Equity Loan. The
Purchase Price for the purchased Home Equity Loan shall be deposited in the
Collection Account no later than the applicable Determination Date or the
Business Day preceding the expiration of such 90-day period, as the case may be,
and, upon receipt by the Trustee of written notification of such deposit signed
by an officer of the Seller, the Trustee shall release to the Seller the related
Mortgage File and the Trustee shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, as shall be necessary to
vest in the Seller or its designee any Home Equity Loan released pursuant
hereto. It is understood and agreed that the obligation of the Seller to cure,
substitute for or purchase any Home Equity Loan as to which a material defect in
or omission of a constituent document exists shall constitute the sole remedy
against the Seller respecting such defect or omission available to the Issuer,
the Owner Trustee, the Trustee, the Noteholders or the Certificateholders.
The Servicer, promptly following the transfer of (i) a Defective Home
Equity Loan from or (ii) an Eligible Substitute Home Equity Loan to the Trust
pursuant to this Section and Section 2.5, as the case may be, shall amend the
Home Equity Loan Schedule and make appropriate entries in its general account
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records to reflect such transfer and the addition of any Eligible Substitute
Home Equity Loan, if applicable.
SECTION 2.3. [Intentionally Omitted].
SECTION 2.4. Representations and Warranties of the Seller Regarding
------------------------------------------------------
the Home Equity Loans. (a) The Seller represents and warrants to the Issuer as
- ---------------------
follows as of the Closing Date:
(i) the information set forth in the Home Equity Loan Schedule
in Exhibit A hereto with respect to the Home Equity Loans was and will be
true and correct in all material respects at the date or dates respecting
which such information is furnished;
(ii) the terms of the Mortgage Note and the Mortgage have not
been impaired, waived, altered or modified in any respect, except by
written instruments, if required by law in the jurisdiction where the
Mortgaged Property is located, the substance of which waiver, alteration or
modification is reflected on the Home Equity Loan Schedule and the Mortgage
File for such Home Equity Loan contains a true, accurate and complete copy
of each such waiver, alteration and modification;
(iii) except as otherwise set forth in the Home Equity Loan
Schedule, the Mortgage File for each Home Equity Loan contains a true,
accurate and complete copy of each of the documents contained in such
Mortgage File, including all amendments, modifications and, if applicable,
waivers and assumptions that have been executed in connection with such
Home Equity Loan, and except as reflected in the Mortgage File, the Home
Equity Loan Schedule for such Home Equity Loan, such Home Equity Loan has
not been further modified or amended;
(iv) immediately prior to the transfer to the Issuer, the Seller
is the sole owner of beneficial title and holder of each Mortgage and
Mortgage Note relating to the Home Equity Loans free and clear of any and
all liens, claims, encumbrances, participation interests, equities,
pledges, charges or security interests of any nature and the Seller has
full right and authority, subject to no interest or participation of, or
agreement with, any other party, to sell or assign the same pursuant to
this Agreement;
(v) each Mortgage is a valid and enforceable first lien or
junior lien (as to which all prior liens are being assigned) on the
property securing the related
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Mortgage Note and each Mortgaged Property is owned by the Mortgagor in fee
simple (except with respect to common areas in the case of condominiums,
PUDs and de minimis PUDs) or by leasehold for a term longer than the term
-- -------
of the related Mortgage, subject only to (i) the lien of current real
property taxes and assessments, not yet due and payable, (ii) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal obtained in connection
with the origination of the related Home Equity Loan and (iii) such other
matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be
provided by such Mortgage;
(vi) as of the Cutoff Date, no payment of principal of or
interest on or in respect of any Home Equity Loan is more than ___ days
past due;
(vii) there is no mechanics' lien or claim for work, labor or
materials affecting the premises subject to any Mortgage which is or may be
a lien prior to, or equal with, the lien of such Mortgage except those
which are insured against by the title insurance policy referred to in
clause (x) below;
(viii) as of the Cutoff Date, no Home Equity Loan has been
delinquent for ___ days or more during the preceding 12 months, and there
is no delinquent tax or assessment lien against the property subject to any
Mortgage;
(ix) there is no valid offset, defense or counterclaim to any
Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay
the unpaid principal and interest on such Mortgage Note;
(x) the physical property subject to any Mortgage is free of
material damage and is in good repair and there is no proceeding pending
or, to the best of the Seller's knowledge, threatened for the total or
partial condemnation of any Mortgaged Property;
(xi) a lender's title insurance policy (on an ALTA or CLTA form)
or binder, or other assurance of title customary in the relevant
jurisdiction therefor in a form acceptable to FNMA or FHLMC, was issued on
the date of the origination of each related Home Equity Loan by a title
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insurance company acceptable to FNMA or FHLMC and qualified to do business
in the jurisdiction where the related Mortgaged Property is located,
insuring the Seller and its successors and assigns that the Mortgage is a
first priority lien on the related Mortgaged Property in the original
principal amount of the Home Equity Loan. The Seller is the sole insured
under such lender's title insurance policy, and such policy, binder or
assurance is valid and remains in full force and effect, and each such
policy, binder or assurance shall contain all applicable endorsements
including a negative amortization endorsement, if applicable;
(xii) in the event the Mortgage constitutes a deed of trust,
either a trustee, duly qualified under applicable law to serve as such, has
been properly designated and currently so serves and is named in the
Mortgage or if no duly qualified trustee has been properly designated and
so serves, the Mortgage contains satisfactory provisions for the
appointment of such trustee by the holder of the Mortgage at no cost or
expense to such holder, and no fees or expenses are or will become payable
by Issuer to the trustee under the deed of trust, except in connection with
a trustee's sale after default by the mortgagor;
(xiii) as of the Cutoff Date, the Home Equity Loans had the
characteristics described in the Home Equity Loan Schedule for such Home
Equity Loans;
(xiv) the original principal amount of each Home Equity Loan is
not more than ___% of the Original Value; except as otherwise set forth in
the Home Equity Loan Schedule, each Home Equity Loan for which the original
principal balance of the related Mortgage Note exceeded __% of the Original
Value is covered by a Primary Mortgage Insurance Policy issued by a private
mortgage insurer insuring against default under the Mortgage Note in an
amount at least equal to the excess of such outstanding principal amount
over __% of such Original Value until the principal balance of such Home
Equity Loan is reduced below __% of the Original Value or, based upon a new
appraisal, the principal balance of such Home Equity Loan represents less
than __% of the new appraised value. Each FHA insurance policy or VA
guaranty relating to each FHA/VA insured/guaranteed Home Equity Loan is
current, in full force and effect and may be assigned by the Seller to the
Issuer at no cost to the Issuer;
(xv) there has been no fraud, misrepresentation or dishonesty
with respect to the
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origination or servicing of any Home Equity Loan or which has resulted or
may result in the exclusion from, denial of or defense to coverage under
any Primary Mortgage Insurance Policy;
(xvi) upon origination of each Home Equity Loan, the originator
received an appraisal with respect to each Mortgaged Property which
conformed to all FNMA requirements, and a true, accurate and complete copy
of such appraisal is contained in the Mortgage File;
(xvii) on the basis of a representation by the Mortgagor at the
time of origination of the Home Equity Loans, at least ___% of the Home
Equity Loans (by aggregate principal balance) are secured by Mortgages on
properties which were owner-occupied primary residences at the time of the
origination of such Home Equity Loan;
(xviii) neither the Seller nor any servicer of the related Home
Equity Loans has advanced funds or knowingly received any advance of funds
by a party other than the Mortgagor, directly or indirectly, for the
payment of any amount required by the Mortgage, except for (i) interest
accruing from the date of the origination of the related Mortgage Note or
date of disbursement of the Home Equity Loan proceeds, whichever is later,
to the first Due Date under the related Mortgage Note and (ii) customary
advances for insurance and taxes;
(xix) each Mortgage Note, the related Mortgage and other
agreements executed in connection therewith are genuine, and each is the
legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms except as such enforcement may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in
equity or at law); and all parties to each Mortgage Note and the Mortgage
had legal capacity to execute the Mortgage Note and the Mortgage and each
Mortgage Note and Mortgage has been duly and properly executed by the
Mortgagor;
(xx) if the Home Equity Loan provides that the interest rate on
the principal balance of the related Home Equity Loan may be adjusted, all
of the terms of the related Mortgage pertaining to interest rate
adjustments, payment adjustments and adjustments of the outstanding
principal balance are enforceable and such adjustments will not affect the
priority of the Mortgage lien;
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(xxi) to the extent required under applicable law, each
originator and subsequent mortgagee or servicer of the Home Equity Loans
was authorized to transact and do business in the jurisdiction in which the
related Mortgaged Property is located at all times when it held or serviced
the Home Equity Loan; any requirements of any laws or regulations,
including usury, truth-in-lending, real estate settlement procedures,
consumer credit protection, fair credit reporting, unfair collection
practice, equal credit opportunity and disclosure laws and regulations,
applicable to the origination and servicing of such Home Equity Loan have
been complied with in all material respects; and any obligations of the
holder of the related Mortgage Note, Mortgage and other loan documents have
been complied with in all material respects; servicing of each Home Equity
Loan has been in accordance with prudent mortgage servicing standards, any
applicable laws, rules and regulations and in accordance with the terms of
the Mortgage Notes, the Mortgage and other loan documents, whether such
origination and servicing was done by the Seller, its affiliates, or any
third party which originated the Home Equity Loan on behalf of, or sold the
Home Equity Loan to, any of them, or any servicing agent of any of the
foregoing;
(xxii) the related Mortgage Note and Mortgage contain customary
and enforceable provisions such as to render the rights and remedies of the
holder adequate for the realization against the Mortgaged Property of the
benefits of the security, including realization by judicial, or, if
applicable, non-judicial foreclosure, and there is no homestead or other
exemption available to the Mortgagor which would interfere with such right
to foreclosure;
(xxiii) the proceeds of the related Home Equity Loans have been
fully disbursed, there is no requirement for future advances thereunder and
any and all requirements as to completion of any on-site or off-site
improvements and as to disbursements of any escrow funds therefor have been
complied with; and all costs, fees and expenses incurred in making, closing
or recording the related Home Equity Loan have been paid, except recording
fees with respect to Mortgages not recorded as of the Closing Date;
(xxiv) as of the Closing Date the Mortgaged Property securing
the Home Equity Loan is insured (by an insurer which is acceptable to the
Seller) against loss by fire and such hazards as are covered under a
standard extended coverage endorsement, in an amount which is not
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less than the lesser of the maximum insurable value of the improvements
securing such Home Equity Loan and the outstanding principal balance of the
Home Equity Loan, but in no event in an amount less than an amount that is
required to prevent the Mortgagor from being deemed to be a co-insurer
thereunder; if the Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium
project; if upon origination of the related Home Equity Loan, the
improvements on the Mortgaged Property were in an area identified as a
federally designated flood area, a flood insurance policy is in effect in
an amount representing coverage not less than the lesser of (i) the
outstanding principal balance of the Home Equity Loan, (ii) the restorable
cost of improvements located on such Mortgaged Property and (iii) the
maximum coverage available; and each Mortgage obligates the Mortgagor
thereunder to maintain the insurance referred to in the Mortgage at the
Mortgagor's cost and expense;
(xxv) except for ___% of the Home Equity Loans (by aggregate
principal balance as of the Cutoff Date) which are no more than ___ days
delinquent as of the Cutoff Date, there is no material monetary default
existing under any Mortgage or the related Mortgage Note and there is no
material event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default, breach
or event of acceleration; and neither the Seller nor any servicer of any
related Home Equity Loan has taken any action to waive any default, breach
or event of acceleration; except for ___% of the Home Equity Loans (by
aggregate principal balance as of the Cutoff Date) which are no more than
___ days delinquent as of the Cutoff Date, no foreclosure action is
threatened or has been commenced with respect to the Home Equity Loans;
(xxvi) no Mortgagor, at the time of origination of the
applicable Mortgage, was a debtor in any state or federal bankruptcy or
insolvency proceeding;
(xxvii) each Home Equity Loan was originated by an entity
described in Section 3(a)(41) of the Securities Exchange Act of 1934, as
amended;
(xxviii) all inspections, licenses and certificates required to
be made or issued with respect to the Mortgaged Property and, with respect
to the use and occupancy of the same, including, but not limited to,
certificates of occupancy and fire underwriting
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certificates, have been made or obtained from the appropriate authorities;
(xxix) the Mortgaged Property and all improvements thereon
comply with all requirements of any applicable zoning and subdivision laws
and ordinances;
(xxx) there do not exist any circumstances or conditions with
respect to the Mortgage, the Mortgaged Property, the Mortgagor or the
Mortgagor's credit standing that can be reasonably expected to cause
private institutional investors to regard the Home Equity Loan as an
unacceptable investment, cause the Home Equity Loan to become delinquent or
adversely affect the value or marketability of the Home Equity Loan;
(xxxi) no instrument of release or waiver has been executed in
connection with the Home Equity Loans, and no Mortgagor has been released,
in whole or in part, except in connection with an assumption agreement
which has been approved by the primary mortgage guaranty insurer, if any,
and which has been delivered to the Issuer or its designee; and
(xxxii) except as otherwise provided in the Home Equity Loan
Schedule, no Home Equity Loan provides for a balloon payment and each
Mortgage Note contains provisions providing for its full amortization by
the end of its original term and is payable on the first day of each month
in monthly installments of principal and interest, with interest payable in
arrears, over an original term of not more than ___ years.
(b) It is understood and agreed that the representations and
warranties set forth in Section 2.4(a) shall survive the sale, transfer and
assignment of the Home Equity Loans to the Issuer and the pledge thereof to the
Trustee pursuant to the Indenture. Upon discovery by the Seller, the Servicer
or the Owner Trustee of a breach of any of the foregoing representations and
warranties, without regard to any limitation set forth therein concerning the
knowledge of the Seller as to the facts stated therein, which materially and
adversely affects the interests of the Noteholders or the Certificateholders in
the related Home Equity Loan, the party discovering such breach shall give
prompt written notice to the other parties and the Trustee. Within 60 days of
its discovery or its receipt of notice of breach, the Seller shall use all
reasonable efforts to cure such breach in all material respects or shall
purchase from the Trust or substitute an Eligible Substitute Home Equity Loan as
provided in Section 2.5 for such Home Equity Loan. Any such purchase by
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the Seller shall be at the Purchase Price, and in each case shall be
accomplished in the manner set forth in Section 2.2. It is understood and agreed
that the obligation of the Seller to cure, substitute for or purchase any Home
Equity Loan as to which such a breach has occurred and is continuing shall
constitute the sole remedies against the Seller respecting such breach available
to the Issuer, the Owner Trustee, the Trustee, the Noteholders or
Certificateholders. Neither the Owner Trustee nor the Trustee shall have a duty
to conduct any affirmative investigation as to the occurrence of any conditions
requiring the repurchase of any Home Equity Loan pursuant to this Section.
SECTION 2.5. Substitution of Home Equity Loans. (a) On a
---------------------------------
Determination Date within two years following the Closing Date and which is on
or before the date on which the Seller would otherwise be required to repurchase
a Home Equity Loan under Section 2.2 or 2.4, the Seller may deliver to the
Trustee one or more Eligible Substitute Home Equity Loans in substitution for
any one or more of the Defective Home Equity Loans which the Seller would
otherwise be required to repurchase pursuant to Sections 2.2 or 2.4.
(b) The Seller shall notify the Issuer, the Owner Trustee, the
Servicer and the Trustee in writing not less than five Business Days before the
related Determination Date which is on or before the date on which the Seller
would otherwise be required to repurchase such Home Equity Loan pursuant to
Section 2.2 or 2.4 of its intention to effect a substitution under this Section.
On such Determination Date (the "Substitution Date"), the Seller shall deliver
to the Issuer (1) the Eligible Substitute Home Equity Loans to be substituted
for the Original Home Equity Loans, (2) a list of the Original Home Equity Loans
to be substituted for by such Eligible Substitute Home Equity Loans, (3) an
Officers' Certificate (A) stating that no failure by the Servicer described in
Section 7.1 shall have occurred and be continuing, (B) stating that all
conditions precedent to such substitution specified in subsection (a) have been
satisfied and attaching as an exhibit a supplemental Home Equity Loan schedule
(the "Supplemental Home Equity Loan Schedule") setting forth the same type of
information as appears on the Home Equity Loan Schedule and representing as to
the accuracy thereof and (C) confirming that the representations and warranties
contained in Section 2.4 are true and correct in all material respects with
respect to the Substitute Home Equity Loans on and as of such Determination
Date, provided that remedies for the inaccuracy of such representations are
limited as set forth in Sections 2.2, 2.4 and this Section 2.5 and (4) a
certificate stating that cash in the amount of the related Substitution
Adjustment, if any, has been deposited to the Collection Account. Upon receipt
of the
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foregoing, the Issuer shall release such Original Home Equity Loans to the
Seller.
(c) Concurrently with the satisfaction of the conditions set forth in
Section 2.5(a) and (b) above and the grant of such Eligible Substitute Home
Equity Loans to the Trustee pursuant to Section 2.5(a) above, Exhibit A to this
Agreement shall be deemed to be amended to exclude all Home Equity Loans being
replaced by such Eligible Substitute Home Equity Loans and to include the
information set forth on the Supplemental Home Equity Loan Schedule with respect
to such Eligible Substitute Home Equity Loans, and all references in this
Agreement to Home Equity Loans shall include such Eligible Substitute Home
Equity Loans and be deemed to be made on or after the related Substitution Date,
as the case may be, as to such Eligible Substitute Home Equity Loans.
ARTICLE III
Administration and Servicing of Home Equity Loans
-------------------------------------------------
SECTION 3.1. Duties of Servicer. (a) The Servicer, as agent for the
------------------
Issuer (to the extent provided herein) shall supervise, or take such actions as
are necessary to ensure, the servicing and administration of the Home Equity
Loans and any REO Property in accordance with this Agreement and the customary
and usual standards of an institution prudently servicing mortgage loans for its
own account and shall have full authority to do anything it reasonably deems
appropriate in connection with such servicing and administration. The Servicer
shall maintain servicing standards equivalent to those required for approval by
FNMA or FHLMC. The Servicer may perform its responsibilities relating to
servicing through other agents or independent contractors, but shall not thereby
be released from any of its responsibilities as hereinafter set forth. The
authority of the Servicer, in its capacity as servicer, shall include the power
to (i) supervise the filing and collection of insurance claims and take or cause
to be taken such actions on behalf of the insured person thereunder as shall be
reasonably necessary to prevent the denial of coverage thereunder, and (ii)
effectuate foreclosure or other conversion of the ownership of the Mortgaged
Property securing a related Home Equity Loan, including the employment of
attorneys, the institution of legal proceedings, the collection of deficiency
judgments, the acceptance of compromise proposals, the filing of claims under
any Primary Insurance Policy and any other matter pertaining to a delinquent
Home Equity Loan. The authority of the Servicer shall include, in addition, the
power to (i) execute and deliver customary consents or waivers and other
instruments and documents, (ii) consent to transfers of any
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related Mortgaged Property and assumptions of the related Mortgage Notes and
Security Instruments (but only in the manner provided in this Agreement) and
(iii) collect any Insurance Proceeds and Liquidation Proceeds. Without limiting
the generality of the foregoing, the Servicer is authorized and empowered to
execute and deliver, on behalf of itself, the Issuer, the Owner Trustee, the
Trustee, the Certificateholders and the Noteholders or any of them, any and all
instruments of satisfaction or cancellation, or partial or full release or
discharge, and all other comparable instruments, with respect to such Home
Equity Loans or to the Mortgaged Properties securing such Home Equity Loans.
(b) Notwithstanding the provisions of Subsection 3.1(a), the Servicer
shall not take any action inconsistent with the interest of the Noteholders or
the Certificateholders in the Home Equity Loans or with the rights and interests
of the Owner Trustee, the Trustee, the Noteholders or the Certificateholders
under this Agreement.
(c) The Owner Trustee shall furnish the Servicer with any powers of
attorney and other documents in form as provided to it necessary or appropriate
(as certified to the Owner Trustee by the Servicer) to enable the Servicer to
service and administer the related Home Equity Loans and REO Property.
SECTION 3.2. Collection and Allocation of Home Equity Loan Payments.
------------------------------------------------------
(a) The Servicer shall make reasonable efforts to collect all payments called
for under the terms and provisions of the Home Equity Loans as and when the same
shall become due and shall follow such collection procedures as it follows with
respect to all mortgage loans in its servicing portfolio comparable to the Home
Equity Loans that it services for itself or others.
(b) Consistent with the terms of this Agreement, the Servicer may
waive, modify or vary any term of any Home Equity Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if in the Servicer's determination such waiver,
modification, postponement or indulgence is not materially adverse to the
interests of the Noteholders and the Certificateholders; provided, however, that
-------- -------
the Servicer may not permit any modification with respect to any Home Equity
Loan that would change the Mortgage Rate, defer or forgive the payment of any
principal or interest (unless in connection with the liquidation of the related
Home Equity Loan) or extend the Final Scheduled Maturity Date on the Home Equity
Loan. No costs incurred by the Servicer in respect of Servicing Advances shall
for the purposes
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of distributions to Noteholders or Certificateholders be added to the amount
owing under the related Home Equity Loan.
(c) The Servicer, for the benefit of the Noteholders and the
Certificateholders, shall establish and maintain in the name of the Trustee an
Eligible Deposit Account (the "Collection Account"), bearing a designation
clearly indicating that the funds deposited therein are held for the benefit of
the Noteholders and the Certificateholders. The Collection Account shall
initially be established with the Trustee. The Servicer shall on the Closing
Date deposit into the Collection Account any amounts representing payments on
and any collections in respect of the Home Equity Loans in received on or after
the Cutoff Date and prior to the Closing Date, and thereafter shall use its best
efforts to deposit within one Business Day, and shall in any event deposit
within two Business Days following receipt thereof the following payments and
collections received or made by it (without duplication) with respect to the
Home Equity Loans:
(i) all payments received on and after the Cutoff Date on account of
principal on the Home Equity Loans and all full or partial prepayments
collected after the Cutoff Date;
(ii) all payments received on and after the Cutoff Date on account of
interest on the Home Equity Loans;
(iii) all Net Liquidation Proceeds net of Foreclosure Profits;
(iv) all Insurance Proceeds;
(v) all Released Mortgaged Property Proceeds;
(vi) any amounts payable in connection with the repurchase of any
Home Equity Loan and the amount of any Substitution Adjustment pursuant to
Sections 2.2, 2.4, 2.6 and 3.16; and
(vii) any amount required to be deposited in the Collection Account
pursuant to Sections 3.5, 3.7, 3.15, 3.16 or 8.1;
provided, however, that (x) with respect to each Due Period, the Servicer shall
- -------- -------
be permitted to retain from payments in respect of interest on the Home Equity
Loans, the Servicing Fee for such Due Period and (y) the Servicer shall be
permitted to retain late collections, including Liquidation Proceeds, Released
Mortgaged Property Proceeds and Insurance Proceeds, to the extent of any unpaid
Servicing Fees, unreimbursed Monthly Advance and/or Servicing Advance with
respect to the related Home Equity Loan.
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The foregoing requirements respecting deposits to the Collection Account are
exclusive, it being understood that, without limiting the generality of the
foregoing, the Servicer need not deposit in the Collection Account amounts
representing Foreclosure Profits, fees (including annual fees), late charges or
penalties payable by Mortgagors, or amounts received by the Servicer for the
accounts of Mortgagors for application towards the payment of taxes, insurance
premiums, assessments and similar items.
SECTION 3.3. Withdrawals from each Collection Account. The Trustee
----------------------------------------
shall withdraw or cause to be withdrawn funds from the Collection Account for
the following purposes with respect to the Home Equity Loans:
(i) the deposits and distributions required by Section 4.5(d);
(ii) to the extent not retained by the Servicer as provided in
Section 3.2(c), to reimburse the Servicer for any accrued unpaid
Servicing Fees and for unreimbursed Monthly Advances and Servicing
Advances. The Servicer's right to reimbursement for unpaid Servicing
Fees and unreimbursed Servicing Advances shall be limited to late
collections on the related Home Equity Loan, including Liquidation
Proceeds, Released Mortgaged Property Proceeds, Insurance Proceeds and
such other amounts as may be collected by the Servicer from the related
Mortgagor or otherwise relating to the Home Equity Loan in respect of
which such reimbursed amounts are owed. If a Monthly Advance was made
net of the Servicing Fee as permitted by Section 3.15 hereof, no
additional Servicing Fee for the related Mortgage loan and Due Period
shall be payable. The Servicer's right to reimbursement from such
Collection Account for unreimbursed Monthly Advances shall be limited to
late collections of interest on any Home Equity Loan and to Liquidation
Proceeds and Insurance Proceeds on related Home Equity Loans;
(iii) to withdraw any amount received from a Mortgagor that is
recoverable and sought to be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code in
accordance with a final, nonappealable order of a court having competent
jurisdiction;
(iv) (a) to make investments in Eligible Investments and (b) to
pay to the Servicer, interest earned in respect of Eligible Investments
or on funds deposited in the Collection Account;
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(v) to withdraw any funds deposited in such Collection Account
that were not required to be deposited therein (such as Servicing
Compensation) or were deposited therein in error and to pay such funds to
the appropriate Person;
(vi) to pay the Servicer Servicing Compensation pursuant to
Section 3.9 hereof to the extent not retained or paid pursuant to Section
3.2(c);
(vii) to withdraw funds necessary for the conservation and
disposition of REO Property pursuant to Section 3.7; and
(viii) to clear and terminate such Collection Account upon the
termination of this Agreement and to pay any amounts remaining therein in
accordance with Section 8.1(b).
SECTION 3.4. Maintenance of Hazard Insurance; Property Protection
----------------------------------------------------
Expenses. The Servicer shall cause to be maintained for each Home Equity Loan
- --------
fire and hazard insurance naming the Servicer as loss payee thereunder providing
extended coverage in an amount which is at least equal to the lesser of (i) the
maximum insurable value of the improvements securing such Home Equity Loan from
time to time, (ii) the combined principal balance owing on such Home Equity Loan
and any related First Lien and (iii) the minimum amount required to compensate
for damage or loss on a replacement cost basis. The Servicer shall also
maintain on property acquired upon foreclosure, or by deed-in-lieu of
foreclosure, hazard insurance with extended coverage in an amount which is at
least equal to the lesser of (i) the maximum insurable value from time to time
of the improvements which are a part of such property, (ii) the combined
principal balance owing on such Home Equity Loan and any related First Lien and
(iii) the minimum amount required to compensate for damage or loss on a
replacement cost basis at the time of such foreclosure, fire and or deed in lieu
of foreclosure plus accrued interest and the good-faith estimate of the Servicer
of related Servicing Advances to be incurred in connection therewith. Amounts
collected by the Servicer under any such policies shall be deposited in the
Collection Account to the extent called for by Section 3.2. In cases in which
any Mortgaged Property is located in a federally designated flood area, the
hazard insurance to be maintained for the related Home Equity Loan shall include
flood insurance to the extent such flood insurance is available and the Servicer
has determined such insurance to be necessary in accordance with accepted
mortgage loan servicing standards for mortgage loans comparable to the Home
Equity Loans. All such
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flood insurance shall be in amounts equal to the least of the amount in clause
(i) above, clause (ii) above and the maximum amount of insurance available under
the National Flood Insurance Act of 1968, as amended. The Servicer shall be
under no obligation to require that any Mortgagor maintain earthquake or other
additional insurance and shall be under no obligation itself to maintain any
such additional insurance on property acquired in respect of a Home Equity Loan,
other than pursuant to such applicable laws and regulations as shall at any time
be in force and as shall require such additional insurance.
SECTION 3.5. Maintenance of Mortgage Impairment Insurance Policy. In
---------------------------------------------------
the event that the Servicer shall obtain and maintain a blanket policy with an
insurer having a General Policy rating of A:VIII or better in Best's Key Rating
Guide insuring against fire and hazards of extended coverage on all of the Home
Equity Loans, then, to the extent such policy names the Servicer as loss payee
and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Home Equity Loans without co-insurance, and otherwise complies
with the requirements of Section 3.4, the Servicer shall be deemed conclusively
to have satisfied its obligations with respect to fire and hazard insurance
coverage under Section 3.4, it being understood and agreed that such blanket
policy may contain a deductible clause, in which case the Servicer shall, in the
event that there shall not have been maintained on the related Mortgaged
Property a policy complying with Section 3.4, and there shall have been a loss
which would have been covered by such policy, deposit in the Collection Account
the difference, if any, between the amount that would have been payable under a
policy complying with Section 3.4 and the amount paid under such blanket policy.
Upon the request of the Owner Trustee or the Trustee, the Servicer shall cause
to be delivered to the Owner Trustee or the Trustee a certified true copy of
such policy. In connection with its activities as administrator and servicer of
the Home Equity Loans, the Servicer agrees to prepare and present, on behalf of
itself, the Owner Trustee, the Trustee, the Noteholders and the
Certificateholders, claims under any such policy in a timely fashion in
accordance with the terms of such policy.
SECTION 3.6. Fidelity Bond. The Servicer shall maintain with a
-------------
responsible company, and at its own expense, a blanket fidelity bond and an
errors and omissions insurance policy, in a minimum amount acceptable to FNMA or
FHLMC or otherwise in an amount as is commercially available at a cost that is
not generally regarded as excessive by industry standards, with broad coverage
on all officers, employees or other persons acting in any capacity requiring
such persons to handle funds, money, documents or papers relating to the Home
Equity Loans ("Servicer Employees"). Any such fidelity bond and
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errors and omissions insurance shall protect and insure the Servicer against
losses, including losses resulting from forgery, theft, embezzlement, fraud,
errors and omissions and negligent acts of such Servicer Employees. Such
fidelity bond shall also protect and insure the Servicer against losses in
connection with the release or satisfaction of a Home Equity Loan without having
obtained payment in full of the indebtedness secured thereby. No provision of
this Section 3.6 requiring such fidelity bond and errors and omissions insurance
shall diminish or relieve the Servicer from its duties and obligations as set
forth in this Agreement. Upon the request of the Owner Trustee or the Trustee,
the Servicer shall cause to be delivered to the Owner Trustee or the Trustee a
certified true copy of such fidelity bond and insurance policy.
SECTION 3.7. Management and Realization Upon Defaulted Home Equity
-----------------------------------------------------
Loans. On behalf of the Issuer, the Servicer shall manage, conserve, protect
- -----
and operate each REO Property for the Noteholders and the Certificateholders
solely for the purpose of its prudent and prompt disposition and sale. The
Servicer shall, either itself or through an agent selected by the Servicer,
manage, conserve, protect and operate the REO Property in the same manner that
it manages, conserves, protects and operates other foreclosed property for its
own account, and in the same manner that similar property in the same locality
as the REO Property is managed. The Servicer shall attempt to sell the same
(and may temporarily rent the same) on such terms and conditions as the Servicer
deems to be in the best interests of the Noteholders and the Certificateholders.
The Servicer shall cause to be deposited, no later than five Business
Days after the receipt thereof, in the Collection Account, all revenues received
with respect to the related REO Property and shall retain, or cause the Trustee
to withdraw therefrom funds necessary for the proper operation, management and
maintenance of the REO Property and the fees of any managing agent acting on
behalf of the Servicer.
The disposition of REO Property shall be carried out by the Servicer
for cash at such price, and upon such terms and conditions, as the Servicer
deems to be in the best interests of the Noteholders and the Certificateholders
and, as soon as practicable thereafter, the expenses of such sale shall be paid.
The cash proceeds of sale of the REO Property shall be promptly deposited in the
Collection Account, net of Foreclosure Profits and of any related unreimbursed
Servicing Advances, accrued and unpaid Servicing Fees and unreimbursed Monthly
Advances payable to the Servicer in accordance with Section 3.3, for
distribution to the Noteholders and the Certificateholders in accordance with
Section 4.5 hereof.
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The Servicer shall foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Home Equity Loans as come
into and continue in default when no satisfactory arrangements can be made for
collection of delinquent payments pursuant to Section 3.2 subject to the
provisions contained in the last paragraph of this Section 3.7.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Owner Trustee, or to its nominee on behalf of the
Noteholders and the Certifi cateholders.
SECTION 3.8. Trustee to Cooperate. Upon payment in full of any Home
--------------------
Equity Loan, the Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.1, if the related Assignment of Mortgage
has been recorded as required hereunder, an instrument of satisfaction regarding
the related Mortgage, which instrument of satisfaction shall be recorded by the
Servicer if required by applicable law and be delivered to the Person entitled
thereto. It is understood and agreed that no expenses incurred in connection
with such instrument of satisfaction or transfer shall be reimbursed from
amounts deposited in the Collection Account. If the Trustee is holding the
Mortgage Files, from time to time and as appropriate for the servicing or
foreclosure of any Home Equity Loan, the Trustee shall, upon request of the
Servicer and delivery to the Trustee of a Request for Release, in the form
annexed hereto as Exhibit E, signed by a Servicing Officer, release the related
Mortgage File to the Servicer, and the Trustee shall execute such documents, in
the forms provided by the Servicer, as shall be necessary to the prosecution of
any such proceedings or the taking of other servicing actions. Such Request for
Release shall obligate the Servicer to return the Mortgage File to the Trustee
when the need therefor by the Servicer no longer exists unless the Home Equity
Loan shall be liquidated, in which case, upon receipt of a certificate of a
Servicing Officer similar to that hereinabove specified, the Request for Release
shall be released by the Trustee to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Home Equity Loan that is in default following recordation of the related
Assignment of Mortgage in accordance with the provisions hereof, the Trustee
shall, if so requested in writing by the Servicer, execute an appropriate
assignment in the form provided to the Trustee by the Servicer to assign such
Home Equity Loan for the purpose of collection to the Servicer (any such
assignment shall unambiguously indicate that the assignment
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is for the purpose of collection only), and, upon such assign ment, such
assignee for collection will thereupon bring all required actions in its own
name and otherwise enforce the terms of the Home Equity Loan and deposit or
credit the Net Liquidation Proceeds, exclusive of Foreclosure Profits, received
with respect thereto in the Collection Account. In the event that all delinquent
payments due under any such Home Equity Loan are paid by the Mortgagor and any
other defaults are cured then the assignee for collection shall promptly
reassign such Home Equity Loan to the Trustee and return it to the place where
the related Mortgage File was being maintained.
SECTION 3.9. Servicing Fee. The servicing fee for a Distribution
-------------
Date shall equal the product of (a) one-twelfth, (b) the Servicing Fee Rate and
(c) the Pool Balance as of the first day of the preceding Due Period (the
"Servicing Fee"). The Servicer shall also be entitled to all late payment
charges and other administrative fees or similar charges, including without
limitation, Foreclosure Profits, allowed by applicable law with respect to Home
Equity Loans, collected (from whatever source) on the Home Equity Loans (the
"Supplemental Servicing Fee"). The Servicer also shall be entitled to and may
retain from Collections the Servicing Fee, as provided herein. The Servicer, in
its discretion at its election, may defer receipt of all or any portion of the
Servicing Fee or Supplemental Servicing Fee for any Due Period to and until a
later Due Period for any reason, including in order to avoid a shortfall in any
payments due on any Notes or Certificates. Any such deferred amount shall be
payable to (or may be retained from subsequent collections by) the Servicer on
demand.
SECTION 3.10. Servicer's Certificate. On each Determination Date,
----------------------
the Servicer shall deliver to the Owner Trustee, the Trustee and the Seller,
with a copy to the Rating Agencies, a Servicer's Certificate containing all
information necessary to make the distributions pursuant to Sections 4.5 and 4.6
for the Due Period preceding the date of such Servicer's Certificate. Home
Equity Loans to be purchased by the Servicer or to be repurchased by the Seller
shall be identified by the Servicer by account number with respect to such Home
Equity Loan (as specified in Exhibit A).
SECTION 3.11. Annual Statement as to Compliance; Notice of Default.
---------------------------------- -----------------
(a) The Servicer shall deliver to the Owner Trustee and the Trustee, on or
before ________ of each year beginning ________, 199__, an Officers'
Certificate, dated as of December 31 of the preceding year, stating that (i) a
review of the activities of the Servicer during the preceding twelve-month
period (or, in the case of the first such report, during the period from the
Closing Date to December 31, 199__) and of its
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performance under this Agreement has been made under such officers' supervision
and (ii) to the best of such officers' knowledge, based on such review, the
Servicer has fulfilled all its obligations under this 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 officers and the nature and status
thereof. The Trustee shall send a copy of such certificate and the report
referred to in Section 3.10 to the Rating Agencies. A copy of such certificate
and the report referred to in Section 3.10 may be obtained by any
Certificateholder by a request in writing to the Owner Trustee addressed to the
Corporate Trust Office (as defined in the Trust Agreement) or by any Noteholder
by a request in writing to the Trustee addressed to the Corporate Trust Office.
Upon the telephone request of the Owner Trustee, the Trustee will promptly
furnish the Owner Trustee a list of Noteholders as of the date specified by the
Owner Trustee.
(b) The Servicer shall deliver to the Owner Trustee, the Trustee and
the Rating Agencies, promptly after having obtained knowledge thereof, but in no
event later than five Business Days thereafter, written notice in an Officers'
Certificate of any event which with the giving of notice or lapse of time, or
both, would become a Servicer Default under Section 7.1(a) or (b).
SECTION 3.12. Annual Independent Certified Public Accountants'
------------------------------------------------
Report. The Servicer shall cause a firm of independent certified public
accountants, which may also render other services to the Servicer or the Seller,
to deliver to the Seller, the Owner Trustee and the Trustee on or before
________ of each year beginning ________, 199__, an letter addressed to the
Servicer, the Seller, the Owner Trustee and the Trustee and each Rating Agency,
to the effect that such firm has with respect to the Servicer's overall
servicing operations examined such operations in accordance with the
requirements of the Uniform Single Audit Program for Mortgage Bankers during the
preceding calendar year (or, in the case of the first such report, during the
period from the Closing Date to December 31, 199__), and stating such firm's
conclusions relating thereto.
Such report will also indicate that the firm is independent of the
Servicer within the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants.
SECTION 3.13. Access to Certain Documentation and Information
-----------------------------------------------
Regarding Home Equity Loans. The Servicer shall provide to the
- ---------------------------
Certificateholders and Noteholders access to the Mortgage Files in such cases
where the Certificateholders or
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Noteholders shall be required by applicable statutes or regulations to review
such documentation as demonstrated by evidence satisfactory to the Servicer in
its reasonable judgment. Access shall be afforded without charge, but only upon
reasonable request and during the normal business hours at the respective
offices of the Servicer. Nothing in this Section 3.13 shall affect the
obligation of the Servicer to observe any applicable law prohibiting disclosure
of information regarding the Mortgagors and the failure of the Servicer to
provide access to information as provided in this Section 3.13 as a result of
such obligation shall not constitute a breach of this Section 3.13.
SECTION 3.14. Servicer Expenses. The Servicer shall be required to
-----------------
pay all expenses incurred by it in connection with its activities hereunder,
including fees and disbursements of independent accountants, taxes imposed on
the Servicer and expenses incurred in connection with distributions and reports
to Certificateholders and Noteholders.
SECTION 3.15. Advances by the Servicer. (a) Not later than the
------------------------
close of business on the second Business Day preceding each Distribution Date,
the Servicer shall remit to the Trustee for deposit in the Collection Account an
amount, to be distributed on the related Distribution Date pursuant to Section
4.5(d), equal to the sum of (a) the interest accrued on each Home Equity Loan at
the Mortgage Rate (or at such lower rate as may be in effect for such Home
Equity Loan pursuant to application of the Civil Relief Act and/or any Debt
Service Reduction) through the related Due Date, but not received as of the
close of busi ness on the Determination Date for such Distribution Date (net of
the Servicing Fee) and (b) with respect to each REO Property which was acquired
during or prior to the related Due Period and as to which a final disposition
did not occur during the related Due Period, an amount equal to the excess, if
any, of interest on the Principal Balance of such REO Property at the Net Rate
for the most recently ended Due Period prior to the related Determination Date
for the related Home Equity Loan over the net income from the REO Property
transferred to the Collection Account for such Distribution Date pursuant to
Section 3.4; such sum being defined herein as the "Monthly Advance." The
Servicer may fund all or a portion of the Monthly Advance with respect to the
Home Equity Loans by instructing the Trustee on such Determination Date to use
funds deposited in the Collection Account which are not part of the Total
Distribution Amount for the related Distribution Date; provided that if such
funds are so used the Servicer shall replace such funds on or before any
subsequent Determination Date on which such funds are required to be part of the
Total Distribution Amount.
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(b) Notwithstanding anything herein to the contrary, no Servicing
Advance or Monthly Advance shall be required to be made hereunder if the
Servicer determines that such Servicing Advance or Monthly Advance would, if
made, constitute a Nonrecoverable Advance.
SECTION 3.16. Optional Purchase of Defaulted Home Equity Loans. The
------------------------------------------------
Servicer, in its sole discretion, shall have the right to elect (by written
notice sent to the Seller, the Owner Trustee and the Trustee) to purchase for
its own account from the Issuer any Home Equity Loan which is 90 days or more
delinquent in the manner and at the price specified in Section 2.2. The
Purchase Price for any Home Equity Loan purchased hereunder shall be deposited
in the Collection Account and the Trustee, upon receipt of such deposit, shall
release or cause to be released to the Servicer or its designee the related
Mortgage File and shall execute and deliver such instruments of transfer or
assignment prepared by the purchaser of such Home Equity Loan, in each case
without recourse, as shall be necessary to vest in the purchaser of such Home
Equity Loan any Home Equity Loan released pursuant hereto and the purchaser of
such Home Equity Loan shall succeed to all the Issuer's right, title and
interest in and to such Home Equity Loan and all security and documents related
thereto. Such assignment shall be an assignment outright and not for security.
The purchaser of such Home Equity Loan shall thereupon own such Home Equity
Loan, and all security and documents, free of any further obligation to the
Owner Trustee, the Trustee, the Noteholders or the Certificateholders with
respect thereto.
SECTION 3.17. Superior Liens. The Servicer shall file (or cause to
--------------
be filed) of record a request for notice of any action by a superior lienholder
under a First Lien for the protection of the Issuer's interest, where permitted
by local law and whenever applicable state law does not require that a junior
lienholder be named as a party defendant in foreclosure proceed ings in order to
foreclose such junior lienholder's equity of redemption.
If the Servicer is notified that any superior lien holder has
accelerated or intends to accelerate the obligations secured by the First Lien,
or has declared or intends to declare a default under the mortgage or the
promissory note secured thereby, or has filed or intends to file an election to
have the Mortgaged Property sold or foreclosed, the Servicer shall take, on
behalf of the Trust, whatever actions are necessary to protect the interests of
the Noteholders and the Certificateholders, and/or to preserve the security of
the related Home Equity Loan. The Servicer shall advance the necessary funds to
cure the default or reinstate the superior lien, if the Servicer
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reasonably believes such advance is in the best interests of the Noteholders and
the Certificateholders. The Servicer shall not make such an advance except to
the extent that it determines in its reasonable good faith judgment that the
advance would be recoverable from Liquidation Proceeds on the related Home
Equity Loan.
SECTION 3.18. Payment of Taxes, Insurance and Other Charges. With
---------------------------------------------
respect to each Home Equity Loan, the Servicer shall maintain accurate records
reflecting fire and hazard insurance coverage.
With respect to each Home Equity Loan as to which the Servicer
maintains escrow accounts, the Servicer shall maintain accurate records
reflecting the status of ground rents, taxes, assessments, water rates and other
charges which are or may become a lien upon the Mortgaged Property and the
status of primary mortgage guaranty insurance premiums, if any, and fire and
hazard insurance coverage and shall obtain, from time to time, all bills for the
payment of such charges (including renewal premiums) and shall effect payment
thereof prior to the applicable penalty or termination date and at a time
appropriate for securing maximum discounts allowable, employing for such purpose
deposits of the Mortgagor in any escrow account which shall have been estimated
and accumulated by the Servicer in amounts sufficient for such purposes, as
allowed under the terms of the Mortgage. To the extent that a Mortgage does not
provide for escrow payments, the Servicer shall, if it has received notice of a
default or deficiency, monitor such payments to determine if they are made by
the Mortgagor.
SECTION 3.19. Appointment of Subservicer. The Servicer may at any
--------------------------
time appoint a subservicer to perform all or any portion of its obligations as
Servicer hereunder; provided, however, that the Rating Agency Condition shall
-------- -------
have been satisfied in connection therewith; provided further that the Servicer
-------- -------
shall remain obligated and be liable to the Issuer, the Owner Trustee, the
Trustee, the Certificateholders and the Noteholders for the servicing and
administering of the Home Equity Loans in accordance with the provisions hereof
without diminution of such obligation and liability by virtue of the appointment
of such subservicer and to the same extent and under the same terms and
conditions as if the Servicer alone were servicing and administering the Home
Equity Loans. The fees and expenses of the subservicer shall be as agreed
between the Servicer and its subservicer from time to time and none of the
Issuer, the Owner Trustee, the Trustee, the Certificateholders or the
Noteholders shall have any responsibility therefor.
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ARTICLE IV
Distributions; Reserve Account;
-------------------------------
Statements to Certificateholders and Noteholders
------------------------------------------------
SECTION 4.1. Establishment of Trust Accounts. (a) (i) The Servicer,
-------------------------------
for the benefit of the Noteholders, shall establish and maintain in the name of
the Trustee an Eligible Deposit Account (the "Note Distribution Account"),
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the Noteholders. The Note Distribution Account shall
initially be established with the Trustee.
(ii) The Servicer, for the benefit of the Noteholders and the
Certificateholders, shall establish and maintain in the name of the Trustee an
Eligible Deposit Account (the "Reserve Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Noteholders and the Certificateholders. The Reserve Account shall be maintained
with the Trustee as long as the Trustee is an Eligible Institution.
(b) Funds on deposit in the Collection Account, the Note Distribution
Account and the Reserve Account (collectively, the "Trust Accounts") and the
Certificate Distribution Account shall be invested by the Trustee with respect
to Trust Accounts and by the Owner Trustee with respect to the Certificate
Distribution Account (or any custodian with respect to funds on deposit in any
such account) in Eligible Investments selected in writing by the Servicer
(pursuant to standing instructions or otherwise); provided, however, it is
-------- -------
understood and agreed that neither the Trustee nor the Owner Trustee shall be
liable for any loss arising from such investment in Eligible Investments. All
such Eligible Investments shall be held by or on behalf of the Trustee or the
Owner Trustee, as applicable, for the benefit of the Noteholders and the
Certificateholders, the Noteholders or the Certificateholders, as applicable;
provided that on each Distribution Date all interest and other investment income
- --------
(net of losses and investment expenses) on funds on deposit therein shall be
deposited into the Collection Account and shall be deemed to constitute a
portion of the Interest Distribution Amount. Other than as permitted by the
Rating Agencies, funds on deposit in the Collection Account, the Note
Distribution Account, the Certificate Distribution Account and the Reserve
Account shall be invested in Eligible Investments that will mature so that such
funds will be available at the close of business on the Transfer Date preceding
the following Distribution Date. Funds deposited in a Trust Account or the
Certificate Distribution Account on a Transfer Date which
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immediately precedes a Distribution Date upon the maturity of any Eligible
Investments are not required to be invested overnight.
(c) (i) The Trustee shall possess all right, title and interest in
all funds on deposit from time to time in the Trust Accounts and in all proceeds
thereof (including all income thereon) and all such funds, investments, proceeds
and income shall be part of the Owner Trust Estate. Except as otherwise
provided herein, the Trust Accounts shall be under the sole dominion and control
of the Trustee for the benefit of the Noteholders and the Certificateholders, or
the Noteholders, as the case may be. If, at any time, any of the Trust Accounts
or the Certificate Distribution Account ceases to be an Eligible Deposit
Account, the Trustee (or the Servicer on its behalf) or the Owner Trustee, as
applicable, shall within 10 Business Days (or such longer period as to which
each Rating Agency may consent) establish a new Trust Account or a new
Certificate Distribution Account, as applicable, as an Eligible Deposit Account
and shall transfer any cash and/or any investments to such new Trust Account or
a new Certificate Distribution Account, as applicable. In connection with the
foregoing, the Servicer agrees that, in the event that any of the Trust Accounts
are not accounts with the Trustee, the Servicer shall notify the Trustee in
writing promptly upon any of such Trust Accounts ceasing to be an Eligible
Deposit Account.
(ii) With respect to the Trust Account Property, the Trustee,
and with respect to the Certificate Distribution Account, the Owner
Trustee, agrees, by its respective acceptance hereof, that:
(A) any Trust Account Property or any property in the Certificate
Distribution Account that is held in deposit accounts shall be held
solely in the Eligible Deposit Accounts subject to the penultimate
sentence of Section 4.1(c)(i); and, except as otherwise provided
herein, each such Eligible Deposit Account shall be subject to the
exclusive custody and control of the Trustee with respect to the Trust
Accounts and the Owner Trustee with respect to the Certificate
Distribution Account, and the Trustee or the Owner Trustee, as
applicable, shall have sole signature authority with respect thereto;
(B) any Trust Account Property that constitutes Physical Property
shall be delivered to the Trustee in accordance with paragraph (a) of
the definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Trustee or a financial
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intermediary (as such term is defined in Section 8-313(4) of the UCC)
acting solely for the Trustee;
(C) any Trust Account Property that is a book- entry security held
through the Federal Reserve System pursuant to Federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Trustee,
pending maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in such
paragraph; and
(D) any Trust Account Property that is an "uncertificated security"
under Article 8 of the UCC and that is not governed by clause (C)
above shall be delivered to the Trustee in accordance with paragraph
(c) of the definition of "Delivery" and shall be maintained by the
Trustee, pending maturity or disposition, through continued
registration of the Trustee's (or its nominee's) ownership of such
security.
(iii) The Servicer shall have the power, revocable by the Trustee or
by the Owner Trustee with the consent of the Trustee, to instruct the
Trustee to make withdrawals and payments from the Trust Accounts for the
purpose of permitting the Servicer or the Owner Trustee to carry out its
respective duties hereunder or permitting the Trustee to carry out its
duties under the Indenture.
(d) (i) The Servicer shall establish and maintain with the Trustee
an Eligible Deposit Account (the "Payahead Account"). The Payahead Account
shall not be property of the Issuer.
(ii) The Servicer shall on or prior to each Distribution Date (and
prior to deposits to the Note Distribution Account or the Certificate
Distribution Account) transfer from the Collection Account to the Payahead
Account all Payaheads as described in Section 4.3 received by the Servicer
during the Due Period. Notwithstanding the foregoing, for so long as the
Servicer is permitted to make monthly remittances to the Collection Account
pursuant to Section 3.2(c), Payaheads need not be remitted to and deposited in
the Payahead Account but instead may be remitted to and held by the Servicer.
So long as such condition is met, the Servicer shall not be required to
segregate or otherwise hold separate any Payaheads remitted to the Servicer as
aforesaid but shall be required to remit Payaheads to the Collection Account in
accordance with the first sentence of the third paragraph of Section 4.5(a).
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SECTION 4.2. [Intentionally Omitted].
SECTION 4.3. Application of Collections.
--------------------------
(a) All collections for the Due Period shall be applied by the
Servicer as follows:
With respect to each Home Equity Loan (other than a Purchased Home
Equity Loan), payments by or on behalf of the Mortgagor shall be applied, in the
case of Actuarial Home Equity Loans, to the Scheduled Payment and, in the case
of Simple Interest Home Equity Loans, to interest and principal in accordance
with the Simple Interest Method. With respect to Actuarial Home Equity Loans,
any remaining excess shall be added to the Payahead Balance, and shall be
applied to prepay the Actuarial Home Equity Loan, but only if the sum of such
excess and the previous Payahead Balance shall be sufficient to prepay the Home
Equity Loan in full. Otherwise, any such remaining excess payments shall
constitute a Payahead and shall increase the Payahead Balance.
(b) All Liquidation Proceeds shall be applied to the related Home
Equity Loan in accordance with the Servicer's customary servicing procedures.
SECTION 4.4. Additional Deposits. The Servicer and the Seller shall
-------------------
deposit or cause to be deposited in the Collection Account the aggregate
Purchase Price with respect to Purchased Home Equity Loans and the Seller shall
deposit therein all amounts to be paid under Section 8.1. The Servicer will
deposit the aggregate Purchase Price with respect to Purchased Home Equity Loans
within two Business Days after such obligations become due, unless the Servicer
shall not be required to make deposits within two Business Days of receipt
pursuant to Section 3.2(c) (in which case such deposit will be made by the
related Transfer Date). All such other deposits shall be made on the Transfer
Date following the end of the related Due Period.
SECTION 4.5. Distributions. (a) On each Distribution Date, the
-------------
Trustee shall cause to be transferred from the Payahead Account, or from the
Servicer in the event the provisions of Section 4.1(d)(ii) are applicable, to
the Collection Account, in immediately available funds, the aggregate previous
Payaheads to be applied to Scheduled Payments on Actuarial Home Equity Loans for
the related Due Period or prepayments for the related Due Period, pursuant to
Sections 4.3 and 4.4, in the amounts set forth in the Servicer's Certificate for
such Distribution Date. A single, net transfer may be made.
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(b) On each Determination Date, the Servicer shall calculate all
amounts required to determine the amounts to be deposited from the Reserve
Account into the Collection Account and from the Collection Account into the
Note Distribution Account and the Certificate Distribution Account.
(c) On or before each Distribution Date, the Servicer shall instruct
the Trustee (based on the information contained in the Servicer's Certificate
delivered on the related Determination Date pursuant to Section 3.10) to
withdraw from the Reserve Account and deposit in the Collection Account and the
Trustee shall so withdraw and deposit the Reserve Account Transfer Amount for
such Distribution Date.
(d) Subject to the last paragraph of this Section 4.5(c), on each
Distribution Date, the Servicer shall instruct the Trustee (based on the
information contained in the Servicer's Certificate delivered on the related
Determination Date pursuant to Section 3.10) to make, and the Trustee shall
make, the following deposits and distributions from the Collection Account for
deposit in the applicable Account by [TIME], to the extent of the Total
Distribution Amount, in the following order of priority:
(i) to the Servicer, from the Total Distribution Amount, the
Total Servicing Fee;
(ii) to the Note Distribution Account, from the Total
Distribution Amount remaining after the application of clause (i), the
Noteholders' Interest Distributable Amount;
(iii) to the Owner Trustee for deposit in the Certificate
Distribution Account, from the Total Distribution Amount remaining after
the application of clause (i) and clause (ii), the Certificateholders'
Interest Distributable Amount;
(iv) to the Note Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i)
through (iii), the Noteholders' Principal Distributable Amount; and
(v) to the Owner Trustee for deposit in the Certificate
Distribution Account, from the Total Distribution Amount remaining after
the application of clauses (i) through (iv), the Certificateholders'
Principal Distributable Amount;
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provided, however, that following the occurrence of an Event of Default pursuant
- -------- -------
to Section 5.1(i), 5.1(ii), 5.1(iv) or 5.1(v) of the Indenture, an acceleration
of the Notes pursuant to Section 5.2 of the Indenture or an Insolvency Event
with respect to the holder of the GP Interest, amounts on deposit in the
Collection Account will be deposited in the Note Distribution Account to the
extent necessary to pay accrued and unpaid interest on the Notes and then, to
the extent funds are available therefore, principal on the Notes until the
principal balance of each class of Notes has been reduced to zero, before any
amounts are deposited in the Certificate Distribution Account. Following the
payment in full of the Notes, amounts on deposit in the Collection Account will
be deposited in the Certificate Distribution Account to the extent necessary to
pay accrued and unpaid interest on the Certificates and then, to the extent
funds are available therefore, principal on the Certificates until the principal
balance thereof has been reduced to zero.
In the event that the Collection Account is maintained with an
institution other than the Trustee, the Servicer shall instruct and cause such
institution to make all deposits and distributions pursuant to this Section
4.5(c) on the related Transfer Date.
SECTION 4.6. Reserve Account. (a) On the Closing Date, the Seller
---------------
shall deposit the Reserve Account Initial Deposit into the Reserve Account.
(b) If the amount on deposit in the Reserve Account on any
Distribution Date (after giving effect to any withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Account Balance for
such Distribution Date, the Servicer shall instruct the Trustee to distribute,
and the Trustee shall distribute, the amount of the excess to the Seller.
Amounts properly distributed to the Seller pursuant to Section 4.6(b)
shall be deemed released from the Trust and the security interest therein
granted to the Trustee and the Seller shall in no event thereafter be required
to refund any such distributed amounts.
SECTION 4.7. [Intentionally Omitted].
SECTION 4.8. Statements to Certificateholders and Noteholders. On
------------------------------------------------
each Determination Date, the Servicer shall provide to the Trustee (with a copy
to the Rating Agencies) for the Trustee to forward to each Noteholder of record,
to each Paying Agent, if any, and to the Owner Trustee for the Owner Trustee to
forward to each Certificateholder of record, a statement substantially in the
form of Exhibit B and Exhibit C,
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respectively, setting forth at least the following information as to the Notes
and the Certificates to the extent applicable:
(i) the amount of such distribution allocable to principal of each
class of Notes and to the Certificate Balance of the Certificates;
(ii) the amount of such distribution allocable to interest on or with
respect to each class of Notes and to the Certificates;
(iii) the aggregate outstanding principal balance of each class of the
Notes and the Certificate Balance after giving effect to payments allocated
to principal reported under (i) above;
(iv) the amount of the Total Servicing Fee paid to the Servicer with
respect to the related Due Period;
(v) The amount of the Monthly Advances payment to be made on the
Determination Date;
(vi) the amount of the aggregate Realized Losses, if any, for such
Due Period;
(vii) the Reserve Account Transfer Amount, if any, for such
Distribution Date, the average of the Charge-off Rates and the Delinquency
Percentages for the three preceding Due Periods, the Specified Reserve
Account Balance for such Distribution Date, the amount distributed to the
Seller from the Reserve Account on such Distribution Date, and the balance
of the Reserve Account (if any) on such Distribution Date, after giving
effect to changes therein on such Distribution Date;
(viii) the Noteholders' Interest Carryover Shortfall, the
Certificateholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, and the Certificateholders' Principal
Carryover Shortfall;
(ix) the amounts which are reimbursable to the Servicer for
Reimbursable Amounts and Nonrecoverable Advances;
(x) the amount of Servicing Advances for the preceding Due Period;
and
(xi) the aggregate Purchase Price paid by the
Seller or the Servicer with respect to the related Due Period.
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Each amount set forth pursuant to paragraph (i), (ii), (vi) or (xi) above shall
be expressed as a dollar amount per $1,000 of the initial principal balance of
the Notes (or class thereof) or the initial Certificate Balance, as applicable.
SECTION 4.9. Net Deposits. As an administrative convenience, unless
------------
the Servicer is required to remit collections within two Business Days of
receipt thereof, the Servicer will be permitted to make the deposit of
collections on the Home Equity Loans and Purchase Prices for or with respect to
the Due Period net of distributions to be made to the Servicer with respect to
the Due Period. The Servicer, however, will account to the Owner Trustee, the
Trustee, the Noteholders and the Certificateholders as if all deposits,
distributions and transfers were made individually.
ARTICLE V
The Seller
----------
SECTION 5.1. Representations of Seller. The Seller makes the
-------------------------
following representations on which the Issuer is deemed to have relied in
acquiring the Home Equity Loans. The representations speak as of the execution
and delivery of this Agreement and shall survive the sale of the Home Equity
Loans to the Issuer and the pledge thereof to the Trustee pursuant to the
Indenture.
(a) Organization and Good Standing. The Seller is duly organized and
------------------------------
validly existing as a corporation in good standing under the laws of the
State of New York with the corporate power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is presently conducted, and had at all relevant
times, and has, the power, authority and legal right to acquire and own the
Home Equity Loans.
(b) Due Qualification. The Seller is duly qualified to do business
-----------------
as a foreign corporation in good standing, and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or lease
of property or the conduct of its business shall require such
qualifications.
(c) Power and Authority of the Seller. The Seller has the corporate
---------------------------------
power and authority to execute and deliver this Agreement and to perform
its obligations under each of the Basic Documents to which the Seller is a
party; the
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Seller has full corporate power and authority to sell and assign the
property to be sold and assigned to and deposited with the Issuer and the
Seller has duly authorized such sale and assignment to the Issuer by all
necessary corporate action; and the execution, delivery and performance of
each of the Basic Documents to which the Seller is a party has been duly
authorized by the Seller by all necessary corporate action.
(d) Binding Obligation. This Agreement and each of the Basic
------------------
Documents to which the Seller is a party constitute legal, valid and
binding obligations of the Seller, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization and similar laws now or hereafter in effect
relating to creditors' rights generally and subject to general principles
of equity (whether applied in a proceeding at law or in equity).
(e) No Violation. The consummation of the transactions contemplated
------------
by this Agreement and the fulfillment of the terms hereof do not result in
any breach of any of the terms and provisions of, nor constitute (with or
without notice or lapse of time or both) a default under, the articles of
association or by-laws of the Seller, or any material indenture, agreement
or other instrument to which the Seller is a party or by which it shall be
bound; nor result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement or other
instrument (other than pursuant to the Basic Documents); nor violate any
law or, to the best of its knowledge, any order, rule or regulation
applicable to the Seller of any court or of any Federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Seller or its properties.
(f) No Proceedings. There are no proceedings or investigations
--------------
pending against the Seller or, to its best knowledge, threatened against
the Seller, before any court, regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Seller or
its properties: (i) asserting the invalidity of this Agreement or any of
the Basic Documents, the Notes or the Certificates, (ii) seeking to prevent
the issuance of the Notes or the Certificates or the consummation of any of
the transactions contemplated by this Agreement or any of the Basic
Documents, (iii) seeking any determination or ruling that could reasonably
be expected to have a material and adverse effect on the performance by the
Seller of its
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obligations under, or the validity or enforceability of the Basic
Documents, the Notes or the Certificates or (iv) seeking to affect
adversely the Federal or state income tax or ERISA attributes of the
Issuer, the Notes or the Certificates.
(g) All Consents. All authorizations, consents, orders or approvals
------------
of or registrations or declarations with any court, regulatory body,
administrative agency or other government instrumentality required to be
obtained, effected or given by the Seller in connection with the execution
and delivery by the Seller of this Agreement or any of the Basic Documents
to which it is a party and the performance by the Seller of the
transactions contemplated by this Agreement or any of the Basic Documents
to which it is a party, have been duly obtained, effected or given and are
in full force and effect, except where failure to obtain the same would not
have a material adverse effect upon the rights of the Issuer, the
Noteholders or the Certificateholders.
SECTION 5.2. Corporate Existence. (a) During the term of this
-------------------
Agreement, the Seller will keep in full force and effect its existence, rights
and franchises as a corporation under the laws of the jurisdiction of its
incorporation and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, the Basic Documents
and each other instrument or agreement necessary or appropriate to the proper
administration of this Agreement and the transactions contemplated hereby.
(b) During the term of this Agreement, the Seller shall observe the
applicable legal requirements for the recognition of the Seller as a legal
entity separate and apart from its Affiliates, including as follows:
(i) the Seller shall maintain corporate records and books of account
separate from those of its Affiliates;
(ii) except as otherwise provided in this Agreement, the Seller shall
not commingle its assets and funds with those of its Affiliates;
(iii) the Seller shall hold such appropriate meetings of its Board of
Directors as are necessary to authorize all the Seller's corporate actions
required by law to be authorized by the Board of Directors, shall keep minutes
of such meetings and of meetings of its stockholder(s) and observe all other
customary corporate formalities (and any successor Seller not a corporation
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shall observe similar procedures in accordance with its governing documents and
applicable law);
(iv) the Seller shall at all times hold itself out to the public under
the Seller's own name as a legal entity separate and distinct from its
Affiliates; and
(v) all transactions and dealings between the Seller and its
Affiliates will be conducted on an arm's-length basis.
SECTION 5.3. Liability of Seller; Indemnities. The Seller shall be
--------------------------------
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Seller under this Agreement.
(a) The Seller shall indemnify, defend and hold harmless the Issuer,
the Owner Trustee and the Trustee and their respective officers, directors,
employees and agents from and against any taxes that may at any time be
asserted against any such Person with respect to the transactions
contemplated in this Agreement and any of the Basic Documents (except any
income taxes arising out of fees paid to the Owner Trustee or the Trustee
and except any taxes to which the Owner Trustee or the Trustee may
otherwise be subject to), including any sales, gross receipts, general
corporation, tangible personal property, privilege or license taxes (but,
in the case of the Issuer, not including any taxes asserted with respect
to, and as of the date of, the sale of the Home Equity Loans to the Owner
Trustee on behalf of the Issuer or the issuance and original sale of the
Certificates and the Notes, or asserted with respect to ownership of the
Home Equity Loans or Federal or other income taxes arising out of
distributions on the Certificates and the Notes) and costs and expenses in
defending against the same or in connection with any application relating
to the Notes or Certificates under any state securities laws.
(b) The Seller shall indemnify, defend and hold harmless the Issuer,
the Owner Trustee, the Trustee, the Certificateholders and the Noteholders
and the officers, directors, employees and agents of the Issuer, the Owner
Trustee and the Trustee from and against any and all costs, expenses,
losses, claims, damages and liabilities to the extent arising out of, or
imposed upon such Person through (i) the Seller's willful misfeasance, bad
faith or negligence in the performance of its duties under this Agreement,
or by reason of reckless disregard of its obligations and duties under this
Agreement and (ii) the Seller's or the Issuer's violation of Federal or
state
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securities laws in connection with the offering and sale of the Notes
and the Certificates or in connection with any application relating to the
Notes or Certificates under any state securities laws.
(c) The Seller shall be liable as primary obligor for, and shall
indemnify, defend and hold harmless the Owner Trustee and its officers,
directors, employees and agents from and against any and all costs,
expenses, losses, claims, damages and liabilities arising out of, or
incurred in connection with, this Agreement or any of the Basic Documents,
the Owner Trust Estate, the acceptance or performance of the trusts and
duties set forth herein and in the Trust Agreement or the action or the
inaction of the Owner Trustee hereunder and under the Trust Agreement,
except to the extent that such cost, expense, loss, claim, damage or
liability: (i) shall be due to the willful misfeasance, bad faith or
negligence of the Owner Trustee, (ii) shall arise from any breach by the
Owner Trustee of its covenants under this Agreement or any of the Basic
Documents; or (iii) shall arise from the breach by the Owner Trustee of any
of its representations or warranties set forth in Section 7.3 of the Trust
Agreement. Such liability shall survive the termination of the Trust. In
the event of any claim, action or proceeding for which indemnity will be
sought pursuant to this paragraph, the Owner Trustee's choice of legal
counsel shall be subject to the approval of the Seller, which approval
shall not be unreasonably withheld.
(d) The Seller shall pay any and all taxes levied or assessed upon
all or any part of the Trust Estate (other than those taxes expressly
excluded from the Seller's responsibilities pursuant to the parentheticals
in paragraph (a) above).
Indemnification under this Section shall survive the resignation or
removal of the Owner Trustee or the Trustee and the termination of this
Agreement or the Indenture or the Trust Agreement, as applicable, and shall
include reasonable fees and expenses of counsel and other expenses of
litigation. If the Seller shall have made any indemnity payments pursuant to
this Section and the Person to or on behalf of whom such payments are made
thereafter shall collect any of such amounts from others, such Person shall
promptly repay such amounts to the Seller, without interest.
SECTION 5.4. Merger or Consolidation of, or Assumption of the
------------------------------------------------
Obligations of, Seller. Any Person (a) into which the Seller may be merged or
- ----------------------
consolidated, (b) which may result from
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any merger or consolidation to which the Seller shall be a party or (c) which
may succeed to the properties and assets of the Seller substantially as a whole,
shall be the successor to the Seller without the execution or filing of any
document or any further act by any of the parties to this Agreement; provided,
--------
however, that the Seller hereby covenants that it will not consummate any of the
- -------
foregoing transactions except upon satisfaction of the following: (i) the
surviving Seller if other than Credit Suisse First Boston Mortgage Securities
Corp., executes an agreement of assumption to perform every obligation of the
Seller under this Agreement, (ii) immediately after giving effect to such
transaction, no representation or warranty made pursuant to Section 2.4 or 5.1
shall have been breached, (iii) the Seller shall have delivered to the Owner
Trustee and the Trustee an Officers' Certificate and an Opinion of Counsel each
stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section and that all conditions precedent, if any,
provided for in this Agreement relating to such transaction have been complied
with, and that the Rating Agency Condition shall have been satisfied with
respect to such transaction, (iv) the surviving Seller shall have a consolidated
net worth at least equal to that of the predecessor Seller, (v) such transaction
will not result in a material adverse federal or state tax consequence to the
Issuer, the Noteholders or the Certificateholders and (vi) unless Credit Suisse
First Boston Mortgage Securities Corp., is the surviving entity, the Seller
shall have delivered to the Owner Trustee and the Trustee an Opinion of Counsel
either (A) stating that, in the opinion of such counsel, all financing
statements and continuation statements and amendments thereto have been executed
and filed that are necessary fully to preserve and protect the interest of the
Owner Trustee and Trustee, respectively, in the Home Equity Loans and reciting
the details of such filings, or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect such
interests.
SECTION 5.5. Limitation on Liability of Seller and Others. The
--------------------------------------------
Seller and any director or officer or employee or agent of the Seller may rely
in good faith on the advice of counsel or on any document of any kind, prima
facie properly executed and submitted by any Person respecting any matters
arising under any Basic Document (provided that such reliance shall not limit in
any way the Seller's obligations under Section 2.4(b)). The Seller shall not be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its obligations under this Agreement, and that in its
opinion may involve it in any expense or liability.
SECTION 5.6. Seller May Own Certificates or Notes. The Seller and
------------------------------------
any Affiliate thereof may in its individual or any
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other capacity become the owner or pledgee of Certificates or Notes with the
same rights as it would have if it were not the Seller or an Affiliate thereof,
except as expressly provided herein or in any Basic Document.
ARTICLE VI
The Servicer
------------
SECTION 6.1. Representations of Servicer. The Servicer makes the
---------------------------
following representations on which the Issuer is deemed to have relied in
acquiring the Home Equity Loans. The representations speak as of the execution
and delivery of the Agreement and shall survive the sale of the Home Equity
Loans to the Issuer and the pledge thereof to the Trustee pursuant to the
Indenture.
(a) Organization and Good Standing. The Servicer is duly organized
------------------------------
and validly existing as a corporation in good standing under the laws of the
State of New York with the corporate power and authority to own its properties
and to conduct its business as such properties are currently owned and such
business is presently conducted, and had at all relevant times, and has, the
power, authority and legal right to service the Home Equity Loans.
(b) Due Qualification. The Servicer is duly qualified to do business
-----------------
and has obtained all necessary licenses and approvals in all jurisdictions in
which the ownership or lease of property or the conduct of its business
(including the servicing of the Home Equity Loans as required by this Agreement)
shall require such qualifications.
(c) Power and Authority of the Servicer. The Servicer has the
-----------------------------------
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, and the execution, delivery and performance
of this Agreement have been duly authorized by the Servicer by all necessary
corporate action. All authorizations, consents, orders or approvals of or
registrations or declarations with any court, regulatory body, administrative
agency or other government instrumentality required to be obtained, effected or
given by the Servicer in connection with the execution and delivery by the
Servicer of this Agreement or any of the Basic Documents to which it is a party
and the performance by the Servicer of the transactions contemplated by this
Agreement or any of the Basic Documents to which it is a party, have been duly
obtained, effected or given and are in full force and effect, except where
failure to obtain the same would not have a material adverse
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effect upon the rights of the Issuer, the Noteholders or the Certificateholders.
(d) Binding Obligation. This Agreement constitutes a legal, valid
------------------
and binding obligation of the Servicer, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization and similar laws now or hereafter in effect relating
to creditors' rights generally, and subject to general principles of equity
(whether applied in a proceeding of law or in equity).
(e) No Violation. The consummation of the transactions contemplated
------------
by this Agreement and the fulfillment of the terms hereof do not result in any
breach of any of the terms and provisions of, nor constitute (with or without
notice or lapse of time or both) a default under the articles of association or
by-laws of the Servicer, or any material indenture, agreement or other
instrument to which the Servicer is a party or by which it shall be bound; nor
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Basic Documents); nor violate any law or, to the
best of its knowledge, any order, rule or regulation applicable to the Servicer
of any court or of any federal or state regulatory body, administrative agency
or other governmental instrumentality having jurisdiction over the Servicer or
its properties.
(f) No Proceedings. There are no proceedings or investigations
--------------
pending against the Servicer, or, to its best knowledge, threatened against the
Servicer, before any court, regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties: (i) asserting the invalidity of this Agreement or any of the Basic
Documents, the Notes or the Certificates, (ii) seeking to prevent the issuance
of the Notes or the Certificates or the consummation of any of the transactions
contemplated by this Agreement or any of the Basic Documents, (iii) seeking any
determination or ruling that could reasonably be expected to have a material and
adverse effect on the performance by the Servicer of its obligations under, or
the validity or enforceability of this Agreement or any of the Basic Documents,
the Notes or the Certificates or (iv) seeking to affect adversely the Federal or
state income tax or ERISA attributes of the Issuer, the Notes or the
Certificates.
(g) No Amendment or Waiver. No provision of any Home Equity Loan has
----------------------
been waived, altered or modified in any respect, except pursuant to a document,
instrument or writing
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included in the relevant Mortgage File, and no such amendment, waiver,
alteration or modification causes such Home Equity Loan not to conform to the
other warranties contained in this Section or those of the Seller contained in
Section 2.4.
SECTION 6.2. Indemnities of Servicer. (a) The Servicer shall be
-----------------------
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer under this Agreement.
The Servicer shall indemnify, defend and hold harmless the Issuer, the
Owner Trustee, the Trustee, the Seller, the Certificateholders and the
Noteholders and any of the officers, directors, employees and agents of the
Issuer, the Owner Trustee, the Trustee or the Seller from any and all costs,
expenses, losses, claims, damages and liabilities (including reasonable
attorneys' fees and expenses) to the extent arising out of, or imposed upon any
such Person through, the negligence, willful misfeasance or bad faith of the
Servicer in the performance of its obligations and duties under this Agreement
or in the performance of the obligations and duties of any subservicer under any
subservicing agreement or by reason of the reckless disregard of its obligations
and duties under this Agreement or by reason of the reckless disregard of the
obligations of any subservicer under any subservicing agreement, where the final
determination that any such cost, expense, loss, claim, damage or liability
arose out of, or was imposed upon any such Person through, any such negligence,
willful misfeasance, bad faith or recklessness on the part of the Servicer or
any subservicer, is established by a court of law, by an arbitrator or by way of
settlement agreed to by the Servicer. Notwithstanding the foregoing, if the
Servicer is rendered unable, in whole or in part, by virtue of an act of God,
act of war, fires, earthquake or other natural disasters, to satisfy its
obligations under this Agreement, the Servicer shall not be deemed to have
breached any such obligation upon the sending of written notice of such event to
the other parties hereto, for so long as the Servicer remains unable to perform
such obligation as a result of such event. This provision shall not be
construed to limit the Servicer's or any other party's rights, obligations,
liabilities, claims or defenses which arise as a matter of law or pursuant to
any other provision of this Agreement.
The Servicer shall indemnify, defend and hold harmless the Issuer, the
Owner Trustee, the Trustee, the Seller, the Certificateholders and the
Noteholders or any of the officers, directors, employees and agents of the
Issuer, the Owner Trustee, the Trustee or the Seller from any and all costs,
expenses, losses, claims, damages and liabilities (including reasonable
attorneys' fees and expenses) to the extent arising out of or
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imposed upon any such Person as a result of any compensation payable to any
subservicer (including any fees payable in connection with the termination of
the servicing activities of such subservicer with respect to any Home Equity
Loan) whether pursuant to the terms of any subservicing agreement or otherwise.
SECTION 6.3. Merger or Consolidation of, or Assumption of the
------------------------------------------------
Obligations of, Servicer. Any Person (a) into which the Servicer may be merged
- ------------------------
or consolidated, (b) which may result from any merger or consolidation to which
the Servicer shall be a party or (c) which may succeed to the properties and
assets of the Servicer, substantially as a whole, shall be the successor to the
Servicer without the execution or filing of any document or any further act by
any of the parties to this Agreement; provided, however, that the Servicer
-------- -------
hereby covenants that it will not consummate any of the foregoing transactions
except upon satisfaction of the following: (i) the surviving Servicer if other
than Credit Suisse First Boston Mortgage Securities Corp., executes an agreement
of assumption to perform every obligation of the Servicer under this Agreement,
(ii) immediately after giving effect to such transaction, no representation or
warranty made pursuant to Section 6.1 shall have been breached and no Servicer
Default, and no event that, after notice or lapse of time, or both, would become
a Servicer Default shall have occurred and be continuing, (iii) the Servicer
shall have delivered to the Owner Trustee and the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with this Section
and that all conditions precedent, if any, provided for in this Agreement
relating to such transaction have been complied with, and that the Rating Agency
Condition shall have been satisfied with respect to such transaction, (iv) the
surviving Servicer shall have a consolidated net worth at least equal to that of
the predecessor Servicer, and (v) such transaction will not result in a material
adverse Federal or state tax consequence to the Issuer, the Noteholders or the
Certificateholders.
SECTION 6.4. Limitation on Liability of Servicer and Others. Neither
----------------------------------------------
the Servicer nor any of its directors, officers, employees or agents shall be
under any liability to the Issuer, the Noteholders or the Certificateholders,
except as provided under this Agreement, for any action taken or for refraining
from the taking of any action by the Servicer or any subservicer pursuant to
this Agreement or for errors in judgment; provided, however, that this provision
-------- -------
shall not protect the Servicer or any such person against any liability that
would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties under this Agreement. The Servicer or
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any subservicer and any of their respective directors, officers, employees or
agents may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising under this
Agreement.
Except as provided in this Agreement the Servicer shall not be under
any obligation to appear in, prosecute or defend any legal action that shall be
incidental to its duties to service the Home Equity Loans in accordance with
this Agreement, and that in its opinion may involve it in any expense or
liability; provided, however, that the Servicer, may (but shall not be required
-------- -------
to) undertake any reasonable action that it may deem necessary or desirable in
respect of the Basic Documents to protect the interests of the
Certificateholders under this Agreement and the Noteholders under the Indenture.
SECTION 6.5. Credit Suisse First Boston Mortgage Securities Corp. Not
--------------------------------------------------------
To Resign as Servicer. Subject to the provisions of Section 6.3, Credit Suisse
- ---------------------
First Boston Mortgage Securities Corp., hereby agrees not to resign from the
obligations and duties hereby imposed on it as Servicer under this Agreement
except upon determination that the performance of its duties hereunder shall no
longer be permissible under applicable law or if such resignation is required by
regulatory authorities. Notice of any such determination permitting the
resignation of Credit Suisse First Boston Mortgage Securities Corp., as Servicer
shall be communicated to the Owner Trustee and the Trustee at the earliest
practicable time (and, if such communication is not in writing, shall be
confirmed in writing at the earliest practicable time) and any such
determination shall be evidenced by an Opinion of Counsel to such effect
delivered to the Owner Trustee and the Trustee concurrently with or promptly
after such notice. No such resignation shall become effective until the earlier
of the Trustee or a Successor Servicer having assumed the responsibilities and
obligations of the resigning Servicer in accordance with Section 7.2 or the date
upon which any regulatory authority requires such resignation.
ARTICLE VII
Default
-------
SECTION 7.1. Servicer Default. If any one of the following events (a
----------------
"Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to deliver to the Trustee for deposit
in any of the Trust Accounts or the Certificate Distribution Account any
required payment or to
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direct the Trustee to make any required distributions therefrom (other than
a Monthly Advance required to be made from its own funds) that shall
continue unremedied for a period of five Business Days after written notice
of such failure is received by the Servicer from the Owner Trustee or the
Trustee or after discovery of such failure by an Authorized Officer of the
Servicer; or
(b) failure by the Servicer to make any required Servicing Advance
which failure continues unremedied for a period of 30 days, or failure on
the part of the Servicer duly to observe or to perform in any material
respect any other covenants or agreements of the Servicer set forth in this
Agreement or any other Basic Document, which failure shall (i) materially
and adversely affect the rights of either the Certificateholders or
Noteholders and (ii) continue unremedied for a period of 60 days after the
date on which written notice of such failure, requiring the same to be
remedied, shall have been given (A) to the Servicer by the Owner Trustee or
the Trustee or (B) to the Servicer and to the Owner Trustee and the Trustee
by the Holders of Notes evidencing not less than 25% of the Outstanding
Amount of the Notes or Holders of Certificates evidencing not less than 25%
of the outstanding Certificate Balance, as applicable (or for such longer
period, not in excess of 120 days, as may be reasonably necessary to remedy
such default; provided that such default is capable of remedy within 120
days and the Servicer delivers an Officers' Certificate to the Owner
Trustee and the Trustee to such effect and to the effect that the Servicer
has commenced or will promptly commence, and will diligently pursue, all
reasonable efforts to remedy such default); or
(c) any failure of the Servicer to pay any Monthly Advance required
to be made from its own funds pursuant to Section 3.15 that continues
unremedied for a period of one Business Day; or
(d) an Insolvency Event occurs with respect to the Servicer or any
successor;
then, and in each and every case, so long as the Servicer Default shall not have
been remedied, either the Trustee, or the Holders of Notes evidencing not less
than 25% of the Outstanding Amount of the Notes, by notice then given in writing
to the Servicer and the Owner Trustee (and to the Trustee if given by the
Noteholders) may terminate all the rights and obligations (other than the
obligations set forth in Section 6.2) of the Servicer under this Agreement. On
or after the receipt by the Servicer of such written notice, all authority and
power of the Servicer
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under this Agreement, whether with respect to the Notes, the Certificates or the
Home Equity Loans or otherwise, shall, without further action, pass to and be
vested in the Trustee or such successor Servicer as may be appointed under
Section 7.2; and, without limitation, the Trustee and the Owner Trustee are
hereby authorized and empowered to execute and deliver, on behalf of the
predecessor Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
whether to complete the transfer and endorsement of the Home Equity Loans and
related documents, or otherwise. The predecessor Servicer shall cooperate with
the successor Servicer, the Trustee and the Owner Trustee in effecting the
termination of the responsibilities and rights of the predecessor Servicer under
this Agreement, including the transfer to the successor Servicer for
administration by it of all cash amounts that shall at the time be held by the
predecessor Servicer for deposit, or shall thereafter be received by it with
respect to a Home Equity Loan. All reasonable costs and expenses (including
attorneys' fees) incurred in connection with transferring the Mortgage Files to
the successor Servicer and amending this Agreement to reflect such succession as
Servicer pursuant to this Section shall be paid by the predecessor Servicer upon
presentation of reasonable documentation of such costs and expenses. Upon
receipt of notice of the occurrence of a Servicer Default, the Owner Trustee
shall give notice thereof to the Rating Agencies.
SECTION 7.2. Appointment of Successor. (a) Upon the Servicer's
------------------------
receipt of notice of termination, pursuant to Section 7.1 or the Servicer's
resignation in accordance with the terms of this Agreement, the predecessor
Servicer shall continue to perform its functions as Servicer under this
Agreement, in the case of termination, only until the date specified in such
termination notice or, if no such date is specified in a notice of termination,
until receipt of such notice and, in the case of resignation, until the earlier
of (x) the date 45 days from the delivery to the Owner Trustee and the Trustee
of written notice of such resignation (or written confirmation of such notice)
in accordance with the terms of this Agreement and (y) the date upon which the
predecessor Servicer shall become unable to act as Servicer, as specified in the
notice of resignation and accompanying Opinion of Counsel. In the event of the
Servicer's termination hereunder, the Trustee shall appoint a successor
Servicer, and the successor Servicer shall accept its appointment by a written
assumption in form acceptable to the Owner Trustee and the Trustee. In the
event that a successor Servicer has not been appointed at the time when the
predecessor Servicer has ceased to act as Servicer in accordance with this
Section, the Trustee without further action shall automatically be appointed
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the successor Servicer and the Trustee shall be entitled to the Servicing Fee.
Notwithstanding the above, the Trustee shall, if it shall be unwilling or unable
so to act, appoint or petition a court of competent jurisdiction to appoint, any
established institution, having a net worth of not less than $50,000,000 and
whose regular business shall include the servicing of Home Equity Loans and REO
Property, as the successor to the Servicer under this Agreement.
(b) Upon appointment, the successor Servicer (including the Trustee
acting as successor servicer) shall be the successor in all respects to the
predecessor Servicer and shall be subject to all the responsibilities, duties
and liabilities arising thereafter relating thereto placed on the predecessor
Servicer and shall be entitled to the Servicing Fee and all the rights granted
to the predecessor Servicer by the terms and provisions of this Agreement. No
successor Servicer shall be liable for any acts or omissions of any predecessor
Servicer.
(c) The Servicer may not resign unless it is prohibited from serving
as such by law or by requirement of any regulatory authority.
SECTION 7.3. Payment of Servicing Fee. If the Servicer shall change,
------------------------
the predecessor Servicer shall be entitled to receive any accrued and unpaid
Servicing Fees through the date of the successor Servicer's acceptance hereunder
in accordance with Section 3.9.
SECTION 7.4. Notification to Noteholders and Certificateholders.
--------------------------------------------------
Upon any termination of, or appointment of a successor to, the Servicer pursuant
to this Article VII, the Owner Trustee shall give prompt written notice thereof
to Certificateholders and the Trustee shall give prompt written notice thereof
to Noteholders subject to the Rating Agency Condition.
SECTION 7.5. Waiver of Past Defaults. The Holders of Notes
-----------------------
evidencing not less than a majority of the Outstanding Amount of the Notes (or
the Holders (as defined in the Trust Agreement) of Certificates evidencing not
less than a majority of the outstanding Certificate Balance, as applicable, in
the case of any default which does not adversely affect the Trustee or the
Noteholders) may, on behalf of all Noteholders and Certificateholders, waive in
writing any default by the Servicer in the performance of its obligations
hereunder and its consequences, except a default in making any required deposits
to or payments from any of the Trust Accounts in accordance with this Agreement.
Upon any such waiver of a past default, such default shall cease to exist, and
any Servicer Default arising
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therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto.
ARTICLE VIII
Termination
-----------
SECTION 8.1. Optional Purchase of All Home Equity Loans. (a) On the
------------------------------------------
last day of any Due Period immediately preceding a Determination Date as of
which the then outstanding Pool Balance is __% or less of the Original Pool
Balance, the Seller shall have the option to purchase the Owner Trust Estate,
other than the Trust Accounts and the Certificate Distribution Account. To
exercise such option, the Seller shall deposit pursuant to Section 4.4 in the
Collection Account an amount which, when added to the amounts on deposit in the
Collection Account for such Distribution Date, equals the sum of (a) the unpaid
principal amount of the then outstanding Class A-__ Notes, plus accrued and
unpaid interest thereon, plus (b) the Certificate Balance plus accrued and
unpaid interest thereon. The Class A-__ Notes and the Certificates will be
redeemed concurrently therewith.
(b) Upon any sale of the assets of the Trust pursuant to Section 9.2
of the Trust Agreement, the Servicer shall instruct the Trustee to deposit the
proceeds from such sale after all payments and reserves therefrom (including the
expenses of such sale) have been made (the "Insolvency Proceeds") in the
Collection Account. On the Distribution Date on which the Insolvency Proceeds
are deposited in the Collection Account (or, if such proceeds are not so
deposited on a Distribution Date, on the Distribution Date immediately following
such deposit), the Servicer shall instruct the Trustee to make, and the Trustee
shall make, the following deposits and distributions (after the application on
such Distribution Date of the Total Distribution Amount pursuant to Section 4.5)
from the Insolvency Proceeds and any funds remaining on deposit in the Reserve
Account (including the proceeds of any sale of investments therein):
(i) to the Note Distribution Account, any portion of the
Noteholders' Interest Distributable Amount not otherwise deposited into the
Note Distribution Account on such Distribution Date;
(ii) to the Note Distribution Account, the outstanding principal
balance of the Notes (after giving effect to the reduction in the
outstanding principal balance
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of the Notes to result from the deposits made in the Note Distribution
Account on such Distribution Date);
(iii) to the Owner Trustee for deposit in the Certificate
Distribution Account, any portion of the Certificateholders' Interest
Distributable Amount not otherwise deposited into the Certificate
Distribution Account on such Distribution Date; and
(iv) to the Owner Trustee for deposit in the Certificate
Distribution Account, the Certificate Balance and any Certificateholders'
Principal Carryover Shortfall Amount (after giving effect to the reduction
in the Certificate Balance to result from the deposits made in the
Certificate Distribution Account on such Distribution Date).
Any Insolvency Proceeds remaining after the deposits described above shall be
paid to the GP Holder.
(c) Notice of any termination of the Trust shall be given by the
Servicer to the Owner Trustee, the Trustee and the Rating Agencies as soon as
practicable after the Servicer has received notice thereof.
(d) Following the satisfaction and discharge of the Indenture and the
payment in full of the principal of and interest on the Notes, the
Certificateholders will succeed to the rights of the Noteholders hereunder and
the Owner Trustee will succeed to the rights of, and assume the obligations of,
the Trustee pursuant to this Agreement.
ARTICLE IX
Administrative Duties of the Servicer
-------------------------------------
SECTION 9.1. Administrative Duties.
---------------------
(a) Duties with Respect to the Indenture and Depository Agreements.
--------------------------------------------------------------
The Servicer shall perform all its duties and the duties of the Issuer under the
Depository Agreements. In addition, the Servicer shall consult with the Owner
Trustee as the Servicer deems appropriate regarding the duties of the Issuer
under the Indenture and the Depository Agreements. The Servicer shall monitor
the performance of the Issuer and shall advise the Owner Trustee when action is
necessary to comply with the Issuer's duties under the Indenture and the
Depository Agreements. The Servicer shall prepare for execution by the Issuer
or shall cause the preparation by other appropriate Persons of all such
documents, reports, filings, instruments,
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certificates and opinions as it shall be the duty of the Issuer to prepare, file
or deliver pursuant to the Indenture and the Depository Agreements. In
furtherance of the foregoing, the Servicer shall take all appropriate action
that is the duty of the Issuer to take pursuant to the Indenture.
(b) Duties with Respect to the Issuer. (i) In addition to the
---------------------------------
duties of the Servicer set forth in this Agreement or any of the Basic
Documents, the Servicer shall perform such calculations and shall prepare for
execution by the Issuer or the Owner Trustee or shall cause the preparation by
other appropriate Persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer or the Owner
Trustee to prepare, file or deliver pursuant to this Agreement or any of the
Basic Documents, and at the request of the Owner Trustee shall take all
appropriate action that it is the duty of the Issuer to take pursuant to this
Agreement or any of the Basic Documents. Subject to Section 9.4, and in
accordance with the directions of the Owner Trustee, the Servicer shall
administer, perform or supervise the performance of such other activities in
connection with the Collateral (including the Basic Documents) as are not
covered by any of the foregoing provisions and as are expressly requested by the
Owner Trustee and are reasonably within the capability of the Servicer.
(ii) Notwithstanding anything in this Agreement or any of the Basic
Documents to the contrary, the Servicer shall be responsible for promptly
notifying the Owner Trustee in the event that any withholding tax is imposed on
the Issuer's payments (or allocations of income) to an Owner (as defined in the
Trust Agreement) as contemplated in Section 5.2(c) of the Trust Agreement. Any
such notice shall specify the amount of any withholding tax required to be
withheld by the Owner Trustee pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the Basic
Documents to the contrary, the Servicer shall be responsible for performance of
the duties of the Owner Trustee and the holder of the GP Interest set forth in
Section 5.6(a), (b), (c) and (d) of the Trust Agreement with respect to, among
other things, accounting and reports to Owners (as defined in the Trust
Agreement); provided, however, that the Owner Trustee shall retain
-------- -------
responsibility for the distribution of the Schedule K-1s necessary to enable
each Certificateholder to prepare its federal and state income tax returns.
(iv) The Servicer shall perform the duties of the Servicer specified
in Section 10.2 of the Trust Agreement required to be performed in connection
with the resignation or
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removal of the Owner Trustee, and any other duties expressly required to be
performed by the Servicer under this Agreement or any of the Basic Documents.
(v) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Servicer may enter into transactions with
or otherwise deal with any of its Affiliates; provided, however, that the terms
-------- -------
of any such transactions or dealings shall be in accordance with any directions
received from the Issuer and shall be, in the Servicer's opinion, no less
favorable to the Issuer in any material respect.
(c) Tax Matters. The Servicer shall prepare and file, on behalf of
-----------
the holder of the GP Interest, all tax returns, tax elections, financial
statements and such annual or other reports of the Issuer as are necessary for
preparation of tax reports as provided in Article V of the Trust Agreement,
including without limitation forms 1099 and 1066. All tax returns will be
signed by the holder of the GP Interest.
(d) Non-Ministerial Matters. With respect to matters that in the
-----------------------
reasonable judgment of the Servicer are non-ministerial, the Servicer shall not
take any action pursuant to this Article X unless within a reasonable time
before the taking of such action, the Servicer shall have notified the Owner
Trustee and the Trustee of the proposed action and the Owner Trustee and, with
respect to items (A), (B), (C) and (D) below, the Trustee shall not have
withheld consent or provided an alternative direction. For the purpose of the
preceding sentence, "non-ministerial matters" shall include:
(A) the amendment of or any supplement to the Indenture;
(B) the initiation of any claim or lawsuit by the Issuer and the
compromise of any action, claim or lawsuit brought by or against the Issuer
(other than in connection with the collection of the Home Equity Loans);
(C) the amendment, change or modification of this Agreement or
any of the Basic Documents;
(D) the appointment of successor Note Registrars, successor
Paying Agents and successor Trustees pursuant to the Indenture or the
appointment of Successor Servicers or the consent to the assignment by the
Note Registrar, Paying Agent or Trustee of its obligations under the
Indenture; and
(E) the removal of the Trustee.
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(e) Exceptions. Notwithstanding anything to the contrary in this
----------
Agreement, except as expressly provided herein or in the other Basic Documents,
the Servicer, in its capacity hereunder, shall not be obligated to, and shall
not, (1) make any payments to the Noteholders or Certificateholders under the
Basic Documents, (2) sell the Indenture Trust Estate pursuant to Section 5.4 of
the Indenture, (3) take any other action that the Issuer directs the Servicer
not to take on its behalf or (4) in connection with its duties hereunder assume
any indemnification obligation of any other Person.
SECTION 9.2. Records. The Servicer shall maintain appropriate books
-------
of account and records relating to services performed under this Agreement,
which books of account and records shall be accessible for inspection by the
Issuer at any time during normal business hours.
SECTION 9.3. Additional Information To Be Furnished to the Issuer.
----------------------------------------------------
The Servicer shall furnish to the Issuer from time to time such additional
information regarding the Collateral as the Issuer shall reasonably request.
ARTICLE X
Miscellaneous Provisions
------------------------
SECTION 10.1. Amendment. This Agreement may be amended by the
---------
Seller, the Servicer and the Owner Trustee, with the consent of the Trustee
(which consent may not be unreasonably withheld), but without the consent of any
of the Noteholders or the Certificateholders, to cure any ambiguity or defect,
to correct or supplement any provisions in this Agreement or for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions in this Agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; provided, however, that such action shall
-------- -------
not, as evidenced by an Opinion of Counsel delivered to the Owner Trustee and
the Trustee, adversely affect in any material respect the interests of any
Noteholder or Certificateholder.
This Agreement may also be amended from time to time by the Seller,
the Servicer and the Owner Trustee, with the consent of the Trustee, the consent
of the Holders of Notes evidencing not less than a majority of the Outstanding
Amount of the Notes and the consent of the Holders (as defined in the Trust
Agreement) of Certificates evidencing not less than a majority of the
Certificate Balance for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions
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of this Agreement or of modifying in any manner the rights of the Noteholders or
the Certificateholders; provided, however, that no such amendment shall (a)
-------- -------
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Home Equity Loans or distributions that
shall be required to be made for the benefit of the Noteholders or the
Certificateholders or (b) reduce the aforesaid percentage of the Outstanding
Amount of the Notes and the Certificate Balance, the Holders of which are
required to consent to any such amendment, without the consent of the Holders of
all the outstanding Notes and the Holders (as defined in the Trust Agreement) of
all the outstanding Certificates of each class affected thereby.
Prior to the execution of any such amendment or consent, the Owner
Trustee shall furnish written notification of the substance of such amendment or
consent to the Rating Agencies. Promptly after the execution of any such
amendment or consent, the Owner Trustee shall furnish written notification of
the substance of such amendment or consent to each Certificateholder and the
Trustee.
It shall not be necessary for the consent of Certificateholders or
Noteholders pursuant to this Section to approve the particular form of any
proposed amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Owner
Trustee and the Trustee shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement and that all conditions precedent to the execution and
delivery of such amendment have been satisfied and the Opinion of Counsel
referred to in Section 10.2(i)(1) has been delivered. The Owner Trustee and the
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's or the Trustee's, as applicable, own rights, duties
or immunities under this Agreement or otherwise.
SECTION 10.2. Protection of Title to Trust. (a) The Seller shall
----------------------------
execute and file such financing statements and cause to be executed and filed
such continuation statements, all in such manner and in such places as may be
required by law fully to preserve, maintain and protect the interest of the
Issuer and the interests of the Trustee in the Home Equity Loans and in the
proceeds thereof. The Seller shall deliver (or cause to be delivered) to the
Owner Trustee and the Trustee file-stamped copies of, or filing receipts for,
any document filed as provided above, as soon as available following such
filing.
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(b) Neither the Seller nor the Servicer shall change its name,
identity or corporate structure in any manner that would, could or might make
any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the meaning of Section 9-402(7)
of the UCC, unless it shall have given the Owner Trustee and the Trustee at
least five days' prior written notice thereof and shall have promptly filed
appropriate amendments to all previously filed financing statements or
continuation statements.
(c) Each of the Seller and the Servicer shall have an obligation to
give the Owner Trustee and the Trustee at least 60 days' prior written notice of
any relocation of its principal executive office if, as a result of such
relocation, the applicable provisions of the UCC would require the filing of any
amendment of any previously filed financing or continuation statement or of any
new financing statement and shall promptly file any such amendment. The
Servicer shall at all times maintain each office from which it shall service
Home Equity Loans, and its principal executive office, within the United States
of America.
(d) The Servicer shall maintain accounts and records as to each Home
Equity Loan accurately and in sufficient detail to permit (i) the reader thereof
to know at any time the status of such Home Equity Loan, including payments and
recoveries made and payments owing (and the nature of each) and (ii)
reconciliation between payments or recoveries on (or with respect to) each Home
Equity Loan and the amounts from time to time deposited in the Collection
Account in respect of such Home Equity Loan.
(e) The Servicer shall maintain its computer systems so that, from
and after the time of sale under this Agreement of the Home Equity Loans, the
Servicer's master computer records (including any backup archives) that refer to
a Home Equity Loan shall indicate clearly the interest of the Issuer and the
Trustee in such Home Equity Loan and that such Home Equity Loan is owned by the
Issuer and has been pledged to the Trustee. Indication of the Issuer's and the
Trustee's interest in a Home Equity Loan shall be deleted from or modified on
the Servicer's computer systems when, and only when, the related Home Equity
Loan shall have been paid in full or repurchased by the Seller or purchased by
the Servicer.
(f) If at any time the Seller or the Servicer shall propose to sell,
grant a security interest in or otherwise transfer any interest in mortgage
loans to any prospective purchaser, lender or other transferee, the Servicer
shall give to such prospective purchaser, lender or other transferee computer
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tapes, records or printouts (including any restored from backup archives) that,
if they shall refer in any manner whatsoever to any Home Equity Loan, shall
indicate clearly that such Home Equity Loan has been sold and is owned by the
Issuer and has been pledged to the Trustee.
(g) The Servicer shall permit the Trustee and its agents at any time
during normal business hours to inspect, audit and make copies of and abstracts
from the Servicer's records regarding any Home Equity Loan.
(h) Upon request at any time the Owner Trustee or the Trustee shall
have reasonable grounds to believe that such request is necessary in connection
with the performance of its duties under this Agreement or any of the Basic
Documents, the Servicer shall furnish to the Owner Trustee or to the Trustee,
within five Business Days, a list of all Home Equity Loans (by contract number
and name of Mortgagor) then held as part of the Trust, together with a
reconciliation of such list to the Home Equity Loan Schedule and to each of the
Servicer's Certificates furnished before such request indicating removal of Home
Equity Loans from the Trust.
(i) The Servicer shall deliver to the Owner Trustee and the
Trustee:
(1) promptly after the execution and delivery of this Agreement
and of each amendment thereto, an Opinion of Counsel either (A) stating
that, in the opinion of such counsel, all financing statements and
continuation statements have been executed and filed that are necessary
fully to preserve and protect the interest of the Owner Trustee and the
Trustee in the Home Equity Loans, and reciting the details of such filings
or referring to prior Opinions of Counsel in which such details are given,
or (B) stating that, in the opinion of such counsel, no such action shall
be necessary to preserve and protect such interest; and
(2) within 120 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months
after the Cutoff Date, an Opinion of Counsel, dated as of a date during
such 120-day period, either (A) stating that, in the opinion of such
counsel, all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the
interest of the Owner Trustee and the Trustee in the Home Equity Loans, and
reciting the details of such filings or referring to prior Opinions of
Counsel in which such details are given, or (B)
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stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest.
Each Opinion of Counsel referred to in clause (l) or (2) above shall
specify any action necessary (as of the date of such opinion) to be taken in the
following year to preserve and protect such interest.
(j) The Seller shall, to the extent required by applicable law, cause
the Certificates and the Notes to be registered with the Commission pursuant to
Section 12(b) or Section 12(g) of the Exchange Act within the time periods
specified in such sections.
SECTION 10.3. Notices. All demands, notices and communications upon
-------
or to the Seller, the Servicer, the Owner Trustee, the Trustee or the Rating
Agencies under this Agreement shall be in writing, personally delivered, sent by
overnight courier or mailed by certified mail, return receipt requested, and
shall be deemed to have been duly given upon receipt (a) in the case of the
Seller or the Servicer to Credit Suisse First Boston Mortgage Securities Corp.,
11 Madison Avenue, New York, New York 10010, Attention: ________________, (b)
in the case of the Issuer or the Owner Trustee, at the Corporate Trust Office
(as defined in the Trust Agreement), (c) in the case of the Trustee, at the
Corporate Trust Office, [(d) in the case of Moody's, to Moody's Investors
Service, Inc., to 99 Church Street, New York, New York 10004, Attention of Asset
Backed Securities Group, (e) in the case of Standard & Poor's, to Standard &
Poor's Ratings Group, 26 Broadway (15th Floor), New York, New York 10004,
Attention of Asset Backed Surveillance Department and (f) in the case of Fitch,
to Fitch Investors Service, L.P., One State Street Plaza, New York, New York
10004 Attention of ____________________.]
SECTION 10.4. Assignment. Notwithstanding anything to the contrary
----------
contained herein, except as provided in Sections 5.4 and 6.3 and as provided in
the provisions of this Agreement concerning the resignation of the Servicer,
this Agreement may not be assigned by the Seller or the Servicer.
SECTION 10.5. Limitations on Rights of Others. The provisions of
-------------------------------
this Agreement are solely for the benefit of the Seller, the Servicer, the
Issuer, the Owner Trustee and for the benefit of the Certificateholders
(including the holder of the GP Interest), the Trustee and the Noteholders, as
third-party beneficiaries, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or
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under or in respect of this Agreement or any covenants, conditions or provisions
contained herein.
SECTION 10.6. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 10.7. Separate Counterparts. This Agreement may be executed
---------------------
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 10.8 Headings. The headings of the various Articles and
--------
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 10.9. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF [NEW YORK], WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 10.10. Assignment to Trustee. The Seller hereby acknowledges
---------------------
and consents to any mortgage, pledge, assignment and grant of a security
interest by the Issuer to the Trustee pursuant to the Indenture for the benefit
of the Noteholders of all right, title and interest of the Issuer in, to and
under the Home Equity Loans and/or the assignment of any or all of the Issuer's
rights and obligations hereunder to the Trustee.
SECTION 10.11. Nonpetition Covenant. Notwithstanding any prior
--------------------
termination of this Agreement, the Servicer and the Seller shall not, prior to
the date which is one year and one day after the termination of this Agreement
with respect to the Issuer, acquiesce, petition or otherwise invoke or cause the
Issuer to invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Issuer under any Federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Issuer.
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SECTION 10.12. Limitation of Liability of Owner Trustee and Trustee.
----------------------------------------------------
(a) Notwithstanding anything contained herein to the contrary, this Agreement
has been countersigned by [Name of Owner Trustee] not in its individual capacity
but solely in its capacity as Owner Trustee of the Issuer and in no event shall
[Name of Owner Trustee] in its individual capacity or, except as expressly
provided in the Trust Agreement, as Owner Trustee have any liability for the
representations, warranties, covenants, agreements or other obligations of the
Issuer hereunder or in any of the certificates, notices or agreements delivered
pursuant hereto, as to all of which recourse shall be had solely to the assets
of the Issuer. For all purposes of this Agreement, in the performance of its
duties or obligations hereunder or in the performance of any duties or
obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and
entitled to the benefits of, the terms and provisions of Articles VI, VII and
VIII of the Trust Agreement.
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been accepted by ___________________ not in its individual
capacity but solely as Trustee and in no event shall _____________________ have
any liability for the representations, warranties, covenants, agreements or
other obligations of the Issuer hereunder or in any of the certificates, notices
or agreements delivered pursuant hereto, as to all of which recourse shall be
had solely to the assets of the Issuer.
SECTION 10.13. Independence of the Servicer. For all purposes of
----------------------------
this Agreement, the Servicer shall be an independent contractor and shall not be
subject to the supervision of the Issuer or the Owner Trustee with respect to
the manner in which it accomplishes the performance of its obligations
hereunder. Unless expressly authorized by the Issuer, the Servicer shall have
no authority to act for or represent the Issuer or the Owner Trustee in any way
and shall not otherwise be deemed an agent of the Issuer or the Owner Trustee.
SECTION 10.14. No Joint Venture. Nothing contained in this Agreement
----------------
(i) shall constitute the Servicer and either of the Issuer or the Owner Trustee
as members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective duly authorized officers as
of the day and year first above written.
HOME EQUITY LOAN
TRUST 199__-__
By:_________________________________,
not in its individual capacity but solely as Owner
Trustee on behalf of the Trust,
By:______________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON
MORTGAGE SECURITIES CORP.,
Seller and Servicer
By:____________________________________
Name:
Title:
Acknowledged and Accepted:
_____________________, not
in its individual capacity
but solely as Trustee,
By________________________________
Name:
Title:
Acknowledged and Accepted:
__________________________________,
not in its individual capacity
but solely as Owner Trustee,
By_________________________________
Name:
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Title:
Acknowledged and Accepted:
______________________________
By____________________________
Name:
Title:
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EXHIBIT 4.11
-------------------,
as Master Servicer
HOME EQUITY LOAN TRUST 199_-_,
as Issuer
and
------------------
as Indenture Trustee
----------------------
SERVICING AGREEMENT
Dated as of ______, 199_
----------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
Definitions
<S> <C> <C>
Section 1.1 Definitions.....................................................1
Section.1.2 Other Definitional Provisions...................................1
Section 1.3 Interest Calculations...........................................2
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties Regarding the Master Servicer...3
Section 2.2 Representations and Warranties of the Issuer...................4
Section 2.3 Enforcement of Representations and Warranties..................4
ARTICLE III
Administration and Servicingof Revolving Credit Loans
Section 3.1 The Master Servicer.............................................6
Section 3.2 Collection of Certain Revolving Credit Loan Payments............8
Section 3.3 Withdrawals from the Custodial Account.........................11
Section 3.4 Maintenance of Hazard Insurance; Property Protection Expenses.12
Section 3.5 Modification Agreements.......................................13
Section 3.6 Trust Estate; Related Documents................................14
</TABLE>
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<TABLE>
<S> <C> <C>
Section 3.7 Realization Upon Defaulted Revolving Credit Loans.............15
Section 3.8 Issuer and Indenture Trustee to Cooperate......................16
Section 3.9 Servicing Compensation; Payment of Certain Expenses by
Master Servicer...............................................18
Section 3.10 Annual Statement as to Compliance............................18
Section 3.11 Annual Servicing Report......................................18
Section 3.12 Access to Certain Documentation and Information Regarding the
Revolving Credit Loans.....................................................19
Section 3.13 Maintenance of Certain Servicing Insurance Policies...........19
Section 3.14 Information Required by the Internal Revenue Service
and Reports of Foreclosures and Abandonments of Mortgaged Property.........19
Section 3.15 Optional Repurchase of Defaulted Revolving Credit Loans......20
ARTICLE IV
Administration and Servicingof Revolving Credit Loans
Section 4.1 Statements to Securityholders.................................20
Section 4.2 Tax Reporting.................................................22
ARTICLE V
Payment Account
Section 5.1 Payment Account...............................................22
ARTICLE VI
The Master Servicer
Section 6.1 Liability of the Master Servicer..............................23
Section 6.2. Merger or Consolidation of, or Assumption of the Obligations
of, the Master Servicer....................................................23
</TABLE>
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<TABLE>
<S> <C> <C>
Section 6.3 Limitation on Liability of the Master Servicer and Others.....24
Section 6.4 Master Servicer Not to Resign.................................24
Section 6.5. Delegation of Duties..........................................25
Section 6.6. Master Servicer to Pay Indenture Trustee's and Owner
Trustee's Fees and Expenses; Indemnification..................25
ARTICLE VII
Default
Section 7.1 Servicing Default............................................27
Section 7.2 Indenture Trustee to Act; Appointment of Successor............29
Section 7.3 Notification to Securityholders...............................30
ARTICLE VIII
Miscellaneous Provisions
Section 8.1 Amendment.....................................................31
Section 8.2 Governing Law.................................................31
Section 8.3 Notices.......................................................31
Section 8.4 Severability of Provisions....................................31
Section 8.5 Third-Party Beneficiaries.....................................32
Section 8.6 Counterparts..................................................32
Section 8.7 Effect of Headings and Table of Contents......................32
Section 8.8 Termination Upon Purchase by the Master Servicer or
Liquidation of All Revolving Credit Loans; Partial
Redemption....................................................32
Section 8.9 Certain Matters Affecting the Indenture Trustee...............33
Section 8.10 Owner Trustee Not Liable for Related Documents...............34
</TABLE>
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This Servicing Agreement, dated as of ______, 199__, among
______________ (the "Master Servicer"), the Home Equity Loan Trust 199_-_ (the
"Issuer"), and _________ (the "Indenture Trustee").
W I T N E S S E T H T H A T:
WHEREAS, pursuant to the terms of the Revolving Credit Loan Purchase
Agreement, ___________ (in its capacity as Seller) will sell to the Depositor
the Revolving Credit Loans together with the Related Documents on the Closing
Date, and thereafter all Additional Balances created on or after the Cut-off
Date;
WHEREAS, the Depositor will sell the Revolving Credit Loans and all of
its rights under the Revolving Credit Loan Purchase Agreement to the Issuer,
together with the Related Documents on the Closing Date, and thereafter all
Additional Balances created on or after the Cut-off Date;
WHEREAS, pursuant to the terms of the Trust Agreement, the Issuer will
issue and transfer to or at the direction of the Depositor, the Certificates;
WHEREAS, pursuant to the terms of the Indenture, the Issuer will issue
and transfer to or at the direction of the Depositor, the Notes; and
WHEREAS, pursuant to the terms of this Servicing Agreement, the Master
Servicer will service the Revolving Credit Loans directly or through one or more
Subservicers;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I.
Definitions
Section 1.1. Definitions. For all purposes of this Servicing Agreement,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Definitions contained in Appendix A to the
Indenture dated ______, 199_ (the "Indenture"), between Home Equity Loan Trust
199_-_, as issuer, and _______, as indenture trustee, which is incorporated by
reference herein. All other capitalized terms used herein shall have the
meanings specified herein.
Section 1.2. Other Definitional Provisions.
<PAGE>
(a) All terms defined in this Servicing Agreement shall have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.
(b) As used in this Servicing Agreement and in any certificate or
other document made or delivered pursuant hereto or thereto, accounting terms
not defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing Agreement or in
any such certificate or other document, to the extent not defined, shall have
the respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this
Servicing Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Servicing Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Servicing Agreement shall refer to this Servicing
Agreement as a whole and not to any particular provision of this Servicing
Agreement; Section and Exhibit references contained in this Servicing Agreement
are references to Sections and Exhibits in or to this Servicing Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
(d) The definitions contained in this Servicing Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
Section 1.3. Interest Calculations. All calculations of interest
hereunder that are made in respect of the Loan Balance of a Revolving Credit
Loan shall be made on a daily basis using a 365-day year. All calculations of
interest on the Securities shall be made on the basis of the actual number of
days in an Interest Period and a year assumed to consist of 360 days. The
calculation of the Servicing Fee shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All dollar amounts calculated hereunder
shall be rounded to the nearest penny with one-half of one penny being rounded
up.
ARTICLE II.
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<PAGE>
Representations and Warranties
Section 2.1. Representations and Warranties Regarding the Master
Servicer. The Master Servicer represents and warrants to the Issuer and for the
benefit of the Indenture Trustee, as pledgee of the Revolving Credit Loans, as
of the Cut-off Date:
(i) The Master Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has the corporate power to own its assets and to transact
the business in which it is currently engaged. The Master Servicer is
duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it requires such
qualification and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets, or
condition (financial or other) of the Master Servicer;
(ii) The Master Servicer has the power and authority to
make, execute, deliver and perform this Servicing Agreement and all of
the transactions contemplated under this Servicing Agreement, and has
taken all necessary corporate action to authorize the execution,
delivery and performance of this Servicing Agreement. When executed and
delivered, this ServicingAgreement will constitute the legal, valid and
binding obligation of the Master Servicer enforceable in accordance with
its terms, except as enforcement of such terms may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and by the availability of equitable
remedies;
(iii) The Master Servicer is not required to obtain the
consent of any other Person or any consent, license, approval or
authorization from, or registration or declaration with, any
governmental authority, bureau or agency in connection with the
execution, delivery, performance, validity or enforceability of this
Servicing Agreement, except for such consent, license, approval or
authorization, or registration or declaration, as shall have been
obtained or filed, as the case may be;
(iv) The execution and delivery of this Servicing Agreement
and the performance of the transactions contemplated hereby by the
Master Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the Master
Servicer or any provision of the Certificate of Incorporation or Bylaws
of the Master Servicer, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Master Servicer is a
party or by which the Master Servicer may be bound; and
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(v) No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently pending, or to the
knowledge of the Master Servicer threatened, against the Master Servicer
or any of its properties or with respect to this Servicing Agreement or
the Securities which in the opinion of the Master Servicer has a
reasonable likelihood of resulting in a material adverse effect on the
transactions contemplated by this Servicing Agreement. The foregoing
representations and warranties shall survive any termination of the
Master Servicer hereunder.
Section 2.2. Representations and Warranties of the Issuer. The Issuer
hereby represents and warrants to the Master Servicer and for the benefit of the
Indenture Trustee, as pledgee of the Revolving Credit Loans, as of the Cut-off
Date:
(i) The Issuer is a business trust duly formed and in good
standing under the laws of the State of Delaware and has full power,
authority and legal right to execute and deliver this Servicing
Agreement and to perform its obligations under this Servicing Agreement,
and has taken all necessary action to authorize the execution, delivery
and performance by it of this Servicing Agreement; and
(ii) The execution and delivery by the Issuer of this Servicing
Agreement and the performance by the Issuer of its obligations under
this Servicing Agreement will not violate any provision of any law or
regulation governing the Issuer or any order, writ, judgment or decree
of any court, arbitrator or governmental authority or agency applicable
to the Issuer or any of its assets. Such execution, delivery,
authentication and performance will not require the authorization,
consent or approval of, the giving of notice to, the filing or
registration with, or the taking of any other action with respect to,
any governmental authority or agency regulating the activities of
limited liability companies. Such execution, delivery, authentication
and performance will not conflict with, or result in a breach or
violation of, any mortgage, deed of trust, lease or other agreement or
instrument to which the Issuer is bound.
Section 2.3. Enforcement of Representations and Warranties. The Master
Servicer, on behalf of and subject to the direction of the Indenture Trustee, as
pledgee of the Revolving Credit Loans, or the Issuer, shall enforce the
representations and warranties of the Seller pursuant to the Revolving Credit
Loan Purchase Agreement. Upon the discovery by the Seller, the Depositor, the
Master Servicer, the Indenture Trustee, the Credit Enhancer, the Issuer, or any
Custodian of a breach of any of the representations and warranties made in the
Revolving Credit Loan Purchase Agreement, in respect of any
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Revolving Credit Loan which materially and adversely affects the interests of
the Securityholders or the Credit Enhancer, the party discovering such breach
shall give prompt written notice to the other parties (any Custodian being so
obligated under a Custodial Agreement). The Master Servicer shall promptly
notify the Seller of such breach and request that, pursuant to the terms of the
Revolving Credit Loan Purchase Agreement, the Seller either (i) cure such breach
in all material respects within 45 days (with respect to a breach of the
representations and warranties contained in Section 3.1(a) of the Revolving
Credit Loan Purchase Agreement) or 90 days (with respect to a breach of the
representations and warranties contained in Section 3.1(b) of the Revolving
Credit Loan Purchase Agreement) from the date the Seller was notified of such
breach or (ii) purchase such Revolving Credit Loan at the price and in the
manner set forth in Section 3.1(b) of the Revolving Credit Loan Purchase
Agreement; provided that the Seller shall, subject to compliance with all the
conditions set forth in the Revolving Credit Loan Purchase Agreement, have the
option to substitute an Eligible Substitute Loan or Loans for such Revolving
Credit Loan. In the event that the Seller elects to substitute one or more
Eligible Substitute Loans pursuant to Section 3.1(b) of the Revolving Credit
Loan Purchase Agreement, the Seller shall deliver to the Issuer with respect to
such Eligible Substitute Loans, the original Credit Line Agreement, the
Mortgage, and such other documents and agreements as are required by the
Revolving Credit Loan Purchase Agreement. Payments due with respect to Eligible
Substitute Loans in the month of substitution shall not be transferred to the
Trust and will be retained by the Master Servicer and remitted by the Master
Servicer to the Seller on the next succeeding Payment Date provided a payment at
least equal to the applicable Minimum Monthly Payment has been received by the
Issuer for such month in respect of the Revolving Credit Loan to be removed. The
Master Servicer shall amend or cause to be amended the Revolving Credit Loan
Schedule to reflect the removal of such Revolving Credit Loan and the
substitution of the Eligible Substitute Loans and the Master Servicer shall
promptly deliver the amended Revolving Credit Loan Schedule to the Owner Trustee
and Indenture Trustee.
It is understood and agreed that the obligation of the Seller to cure
such breach or purchase or substitute for such Revolving Credit Loan as to which
such a breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Issuer and the Indenture Trustee, as
pledgee of the Revolving Credit Loans, against the Seller. In connection with
the purchase of or substitution for any such Revolving Credit Loan by the
Seller, the Issuer shall assign to the Seller all of its right, title and
interest in respect of the Revolving Credit Loan Purchase Agreement applicable
to such Revolving Credit Loan. Upon receipt of the Repurchase Price, or upon
completion of such substitution, the Master Servicer shall notify the Custodian
and then the Custodian shall deliver the Mortgage Files to the Master Servicer,
together with all relevant endorsements and assignments prepared by the Master
Servicer which the Indenture Trustee shall execute.
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ARTICLE III.
Administration and Servicingof Revolving Credit Loans
Section3.1. The Master Servicer.
(a) The Master Servicer shall service and administer the Revolving
Credit Loans in a manner generally consistent with the terms of the Program
Guide and in a manner consistent with the terms of this Servicing Agreement and
which shall be normal and usual in its general mortgage servicing activities,
and shall have full power and authority, acting alone or through a subservicer,
to do any and all things in connection with such servicing and administration
which it may deem necessary or desirable, it being understood, however, that the
Master Servicer shall at all times remain responsible to the Issuer, the
Indenture Trustee, as pledgee of the Revolving Credit Loans; and for the
performance of its duties and obligations hereunder in accordance with the terms
hereof and the Program Guide. Without limiting the generality of the foregoing,
the Master Servicer shall continue, and is hereby authorized and empowered by
the Issuer and the Indenture Trustee, as pledgee of the Revolving Credit Loans,
to execute and deliver, on behalf of itself, the Issuer, the Indenture Trustee
or any of them, any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge and all other comparable instruments with
respect to the Revolving Credit Loans and with respect to the Mortgaged
Properties. The Issuer, the Indenture Trustee and the Custodian, as applicable,
shall furnish the Master Servicer with any powers of attorney and other
documents necessary or appropriate to enable the Master Servicer to carry out
its servicing and administrative duties hereunder. In addition, the Master
Servicer may, at its own discretion and on behalf of the Indenture Trustee,
obtain credit information in the form of a "credit score" from a credit
repository. On the Closing Date, the Indenture Trustee shall deliver to the
Master Servicer a limited power of attorney generally in the form of Exhibit B
hereto.
If the Mortgage relating to a Revolving Credit Loan did not have a lien
senior to the Revolving Credit Loan on the related Mortgaged Property as of the
Cut-off Date, then the Master Servicer, in such capacity, may not consent to the
placing of a lien senior to that of the Mortgage on the related Mortgaged
Property. If the Mortgage relating to a Revolving Credit Loan had a lien senior
to the Revolving Credit Loan on the related Mortgaged Property as of the Cut-off
Date, then the Master Servicer, in such capacity, may consent to the refinancing
of the prior senior lien; provided that (i) the resulting Combined Loan-to-Value
Ratio of such Revolving Credit Loan is no higher than the greater of the
Combined Loan-to-Value Ratio prior to such refinancing and [70]% (or [80]% for
those borrowers with a FICO "credit score" of 710 or greater), (ii) the interest
rate for the loan evidencing the refinanced senior lien is no higher than the
interest rate on the loan evidencing the existing senior lien immediately prior
to the date of such
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refinancing; provided however if the loan evidencing the existing senior lien
prior to the date of refinancing is an adjustable rate and the loan evidencing
the refinanced senior lien is a fixed rate lien, then the loan evidencing the
refinanced senior lien may be up to 2.0% higher than the then-current mortgage
rate of the loan evidencing the existing senior lien and (iii) the loan
evidencing the refinanced senior lien is not subject to negative amortization.
In connection with servicing the Revolving Credit Loans, the Master
Servicer may take reasonable actions to encourage or effect the termination of
Loan Agreements that have become dormant.
The relationship of the Master Servicer (and of any successor to the
Master Servicer as servicer under this Servicing Agreement) to the Issuer under
this Servicing Agreement is intended by the parties to be that of an independent
contractor and not that of a joint venturer, partner or agent.
(b) The Master Servicer may enter into Subservicing Agreements with
Subservicers for the servicing and administration of certain of the Revolving
Credit Loans. References in this Servicing Agreement to actions taken or to be
taken by the Master Servicer in servicing the Revolving Credit Loans include
actions taken or to be taken by a Subservicer on behalf of the Master Servicer
and any amount actually received by such Subservicer in respect of a Revolving
Credit Loan shall be deemed to have been received by the Master Servicer whether
or not actually received by the Master Servicer. Each Subservicing Agreement
will be upon such terms and conditions as are not inconsistent with this
Servicing Agreement and as the Master Servicer and the Subservicer have agreed.
With the approval of the Master Servicer, a Subservicer may delegate its
servicing obligations to third-party servicers, but such Subservicers will
remain obligated under the related Subservicing Agreements. The Master Servicer
and the Subservicer may enter into amendments to the related Subservicing
Agreements; provided, however, that any such amendments shall not cause the
Revolving Credit Loans to be serviced in a manner that would be materially
inconsistent with the standards set forth in this Servicing Agreement. The
Master Servicer shall be entitled to terminate any Subservicing Agreement in
accordance with the terms and conditions thereof and without any limitation by
virtue of this Servicing Agreement; provided, however, that in the event of
termination of any Subservicing Agreement by the Master Servicer or the
Subservicer, the Master Servicer shall either act as servicer of the related
Revolving Credit Loan or enter into a Subservicing Agreement with a successor
Subservicer which will be bound by the terms of the related Subservicing
Agreement. The Master Servicer shall be entitled to enter into any agreement
with a Subservicer for indemnification of the Master Servicer and nothing
contained in this Servicing Agreement shall be deemed to limit or modify such
indemnification.
In the event that the rights, duties and obligations of the Master
Servicer are terminated hereunder, any successor to the Master Servicer in its
sole discretion may, to
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the extent permitted by applicable law, terminate the existing Subservicing
Agreement with any Subservicer in accordance with the terms of the applicable
Subservicing Agreement or assume the terminated Master Servicer's rights and
obligations under such subservicing arrangements which termination or assumption
will not violate the terms of such arrangements.
As part of its servicing activities hereunder, the Master Servicer, for
the benefit of the Trust and the Securityholders, shall use reasonable efforts
to enforce the obligations of each subservicer under the related Subservicing
Agreement, to the extent that the non-performance of any such obligation would
have a material adverse effect on a Revolving Credit Loan. Such enforcement,
including, without limitation, the legal prosecution of claims, termination of
Subservicing Agreements and the pursuit of other appropriate remedies, shall be
in such form and carried out to such an extent and at such time as the Master
Servicer, in its good faith business judgment, would require were it the owner
of the related Revolving Credit Loans. The Master Servicer shall pay the costs
of such enforcement at its own expense, and shall be reimbursed therefor only
(i) from a general recovery resulting from such enforcement to the extent, if
any, that such recovery exceeds all amounts due in respect of the related
Revolving Credit Loan or (ii) from a specific recovery of costs, expenses or
attorneys fees against the party against whom such enforcement is directed.
Section 3.2. Collection of Certain Revolving Credit Loan Payments.
(a) The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Revolving Credit
Loans, and shall, to the extent such procedures shall be consistent with this
Servicing Agreement and generally consistent with the Program Guide, follow such
collection procedures as shall be normal and usual in its general mortgage
servicing activities. Consistent with the foregoing, and without limiting the
generality of the foregoing, the Master Servicer may in its discretion (i) waive
any late payment charge, penalty interest or other fees which may be collected
in the ordinary course of servicing such Revolving Credit Loan and (ii) arrange
with a Mortgagor a schedule for the payment of principal and interest due and
unpaid; provided such arrangement is generally consistent with the Master
Servicer's policies with respect to home equity revolving credit loans;
provided, further, that notwithstanding such arrangement such Revolving Credit
Loans will be included in the information regarding delinquent Revolving Credit
Loans set forth in the Servicing Certificate. The Master Servicer may also
extend the Due Date for payment due on a Revolving Credit Loan in accordance
with the Program Guide, provided, however, that the Master Servicer shall first
determine that any such waiver or extension will not impair the coverage of any
related insurance policy or materially adversely affect the lien of the related
Mortgage or the interests of the Securityholders or the Credit Enhancer.
Consistent with the terms of this Servicing Agreement, the Master Servicer may
also waive, modify or vary any term of any Revolving Credit Loan (including
reduce the Credit Limit with respect to any Revolving Credit Loan) or consent to
the postponement of strict compliance with any
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such term or in any manner grant indulgence to any Mortgagor if in the Master
Servicer's determination such waiver, modification, postponement or indulgence
is not materially adverse to the interests of the Securityholders or the Credit
Enhancer, provided, however, that the Master Servicer may not modify or permit
any Subservicer to modify any Revolving Credit Loan (including without
limitation any modification that would change the Loan Rate, forgive the payment
of any principal or interest (unless in connection with the liquidation of the
related Revolving Credit Loan) or extend the final maturity date of such
Revolving Credit Loan) unless such Revolving Credit Loan is in default or, in
the judgment of the Master Servicer, such default is reasonably foreseeable. In
addition, if a Revolving Credit Loan is in default or, in the judgment of the
Master Servicer, such default is reasonably foreseeable, the Master Servicer
may, through modification, convert such Revolving Credit Loan to a fully
amortizing closed-end loan. Notwithstanding the foregoing, the Master Servicer
in its sole discretion may permit he Mortgagor (or may enter into a modification
agreement which will allow the Mortgagor) to make monthly payments, with respect
to any Billing Cycle during the related Draw Period, in a minimum amount that
will be equal to the related finance charge for such Billing Cycle.
(b) The Master Servicer shall establish a Custodial Account, which
shall be an Eligible Account in which the Master Servicer shall deposit or cause
to be deposited any amounts representing payments and collections in respect of
the Revolving Credit Loans received by it subsequent to the Cut-off Date (other
than in respect of the payments referred to in the following paragraph) within
one Business Day following receipt thereof (or otherwise on or prior to the
Closing Date), including the following payments and collections received or made
by it (without duplication):
(i) all payments of principal or interest on the Revolving
Credit Loans received by the Master Servicer from the respective
Subservicer, net of any portion of the interest thereof retained by the
Subservicer as Subservicing Fees;
(ii) the aggregate Repurchase Price of the Revolving Credit
Loans purchased by the Master Servicer pursuant to Section 3.15;
(iii) Net Liquidation Proceeds net of any related Foreclosure
Profit;
(iv) all proceeds of any Revolving Credit Loans repurchased
by the Seller pursuant to the Revolving Credit Loan Purchase Agreement,
and all Substitution Adjustment Amounts required to be deposited in
connection with the substitution of an Eligible Substitute Loan pursuant
to the Revolving Credit Loan Purchase Agreement;
(v) insurance proceeds, other than Net Liquidation
Proceeds, resulting from any insurance policy maintained on a Mortgaged
Property; and
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(vi) amounts required to be paid by the Master Servicer pursuant
to Section 8.8.
provided, however, that with respect to each Collection Period, the
Master Servicer shall be permitted to retain from payments in respect of
interest on the Revolving Credit Loans, the Master Servicing Fee for such
Collection Period. The foregoing requirements respecting deposits to the
Custodial Account are exclusive, it being understood that, without limiting the
generality of the foregoing, the Master Servicer need not deposit in the
Custodial Account amounts representing. Foreclosure Profits, fees (including
annual fees) or late charge penalties, payable by Mortgagors, or amounts
received by the Master Servicer for the accounts of Mortgagors for application
towards the payment of taxes, insurance premiums, assessments and similar items.
In the event any amount not required to be deposited in the Custodial Account is
so deposited, the Master Servicer may at any time withdraw such amount from the
Custodial Account, any provision herein to the contrary notwithstanding. The
Custodial Account may contain funds that belong to one or more trust funds
created for the notes or certificates of other series and may contain other
funds respecting payments on revolving credit loans or other mortgage loans
belonging to the Master Servicer or serviced or master serviced by it on behalf
of others. Notwithstanding such commingling of funds, the Master Servicer shall
keep records that accurately reflect the funds on deposit in the Custodial
Account that have been identified by it as being attributable to the Revolving
Credit Loans and shall hold all collections in the Custodial Account to the
extent they represent collections on the Revolving Credit Loans for the benefit
of the Trust, the Securityholders and the Indenture Trustee, as their interests
may appear. The Master Servicer shall retain all Foreclosure Profits as
additional servicing compensation.
The Master Servicer may cause the institution maintaining the Custodial
Account to invest any funds in the Custodial Account in Permitted Investments
(including obligations of the Master Servicer or any of its Affiliates, if such
obligations otherwise qualify as Permitted Investments), which shall mature not
later than the Business Day next preceding the Payment Date and shall not be
sold or disposed of prior to its maturity. Except as provided above, all income
and gain realized from any such investment shall inure to the benefit of the
Master Servicer and shall be subject to its withdrawal or order from time to
time. The amount of any losses incurred in respect of the principal amount of
any such investments shall be deposited in the Custodial Account by the Master
Servicer out of its own funds immediately as realized.
(c) The Master Servicer will require each Subservicer to hold all
funds constituting collections on the Revolving Credit Loans, pending remittance
thereof to the Master Servicer, in one or more accounts meeting the requirements
of an Eligible Account, and invested in Permitted Investments.
Section 3.3. Withdrawals from the Custodial Account. The Master Servicer
shall, from time to time as provided herein, make withdrawals from the Custodial
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Account of amounts on deposit therein pursuant to Section 3.2 that are
attributable to the Revolving Credit Loans for the following purposes:
(i) to deposit in the Payment Account, on the Business Day
prior to each Payment Date, an amount equal to the Interest Collections
and Principal Collections required to be distributed on such Payment
Date;
(ii) prior to either an Amortization Event or the Collection
Period preceding the end of the Revolving Period, to pay to the Seller,
the amount of any Additional Balances as and when created during the
related Collection Period, provided, that the aggregate amount so paid
to the Seller in respect of Additional Balances at any time during any
Collection Period shall not exceed the amount of Principal Collections
theretofore received for such Collection Period;
(iii) to the extent deposited to the Custodial Account, to
reimburse itself or the related Subservicer for previously unreimbursed
expenses incurred in maintaining individual insurance policies pursuant
to Section 3.4, or Liquidation Expenses, paid pursuant to Section 3.7 or
otherwise reimbursable pursuant to the terms of this Servicing Agreement
(to the extent not payable pursuant to Section 3.9), such withdrawal
right being limited to amounts received on particular Revolving Credit
Loans (other than any repurchase Price in respect thereof) which
represent late recoveries of the payments for which such advances were
made, or from related Liquidation Proceeds or the proceeds of the
purchase of such Revolving Credit Loan;
(iv) to pay to itself out of each payment received on
account of interest on a Revolving Credit Loan as contemplated by
Section 3.9, an amount equal to the related Master Servicing Fee (to the
extent not retained pursuant to Section 3.2), and to pay to any
Subservicer any Subservicing Fees not previously withheld by the
Subservicer;
(v) to the extent deposited in the Custodial Account to pay
to itself as additional servicing compensation any interest or
investment income earned on funds deposited in the Custodial Account and
Payment Account that it is entitled to withdraw pursuant to Sections
3.2(b) and 5.1;
(vi) to the extent deposited in the Custodial Account, to pay
to itself as additional servicing compensation any Foreclosure Profits
(to the extent permitted by law);
(vii) to pay to itself or the Seller, with respect to any
Revolving Credit Loan or property acquired in respect thereof that has
been purchased or otherwise
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transferred to the Seller, the Master Servicer or other entity, all
amounts received thereon and not required to be distributed to
Securityholders as of the date on which the related Purchase Price or
Repurchase Price is determined;
(viii) to reimburse itself in accordance with Section 4.2;
(ix) to withdraw any other amount deposited in the Custodial
Account that was not required to be deposited therein pursuant to
Section 3.2; and
(x) after the occurrence of an Amortization Event, to pay
to the Seller, the Excluded Amount for each Revolving Credit Loan.
Since, in connection with withdrawals pursuant to clauses (iii), (iv),
(vi) and (vii), the Master Servicer's entitlement thereto is limited to
collections or other recoveries on the related Revolving Credit Loan, the Master
Servicer shall keep and maintain separate accounting, on a Revolving Credit Loan
by Revolving Credit Loan basis, for the purpose of justifying any withdrawal
from the Custodial Account pursuant to such clauses. Notwithstanding any other
provision of this Servicing Agreement, the Master Servicer shall be entitled to
reimburse itself for any previously unreimbursed expenses incurred pursuant to
Section 3.7 or otherwise reimbursable pursuant to the terms of this Servicing
Agreement that the Master Servicer determines to be otherwise nonrecoverable
(except with respect to any Revolving Credit Loan as to which the Repurchase
Price has been paid), by withdrawal from the Custodial Account of amounts on
deposit therein attributable to the Revolving Credit Loans on any Business Day
prior to the Payment Date succeeding the date of such determination.
Section 3.4. Maintenance of Hazard Insurance; Property Protection
Expenses. The Master Servicer shall cause to be maintained for each Revolving
Credit Loan hazard insurance naming the Master Servicer or related Subservicer
as loss payee thereunder providing extended coverage in an amount which is at
least equal to the lesser of (i) the maximum insurable value of the improvements
securing such Revolving Credit Loan from time to time or (ii) the combined
principal balance owing on such Revolving Credit Loan and any mortgage loan
senior to such Revolving Credit Loan from time to time; provided, however, that
such coverage may not be less than the minimum amount required to fully
compensate for any loss or damage on a replacement cost basis. The Master
Servicer shall also cause to be maintained on property acquired upon
foreclosure, or deed in lieu of foreclosure, of any Revolving Credit Loan, fire
insurance with extended coverage in an amount which is at least equal to the
amount necessary to avoid the application of any co-insurance clause contained
in the related hazard insurance policy. mounts collected by the Master Servicer
under any such policies (other than amounts to be applied to the restoration or
repair of the related Mortgaged Property or property thus acquired or amounts
released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures) shall be deposited in the Custodial Account to the extent
called for by Section 3.2. In cases in which any Mortgaged Property is located
at any
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time during the life of a Revolving Credit Loan in a federally designated flood
area, the hazard insurance to be maintained for the related Revolving Credit
Loan shall include flood insurance (to the extent available). All such flood
insurance shall be in amounts equal to the lesser of (i) the amount required to
compensate for any loss or damage to the Mortgaged Property on a replacement
cost basis and (ii) the maximum amount of such insurance available for the
related Mortgaged Property under the national flood insurance program (assuming
that the area in which such Mortgaged Property is located is participating in
such program). The Master Servicer shall be under no obligation to require that
any Mortgagor maintain earthquake or other additional insurance and shall be
under no obligation itself to maintain any such additional insurance on property
acquired in respect of a Revolving Credit Loan, other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. If the Master Servicer shall obtain and
maintain a blanket policy consistent with its general mortgage servicing
activities insuring against hazard losses on all of the Revolving Credit Loans,
it shall conclusively be deemed to have satisfied its obligations as set forth
in the first sentence of this Section 3.4, it being understood and agreed that
such policy may contain a deductible clause, in which case the Master Servicer
shall, in the event that there shall not have been maintained on the related
Mortgaged Property a policy complying with the first sentence of this Section
3.4 and there shall have been a loss which would have been covered by such
policy, deposit in the Custodial Account the amount not otherwise payable under
the blanket policy because of such deductible clause. Any such deposit by the
Master Servicer shall be made on the last Business Day of the Collection Period
in the month in which payments under any such policy would have been deposited
in the Custodial Account. In connection with its activities as servicer of the
Revolving Credit Loans, the Master Servicer agrees to present, on behalf of
itself, the Issuer and the Indenture Trustee, claims under any such blanket
policy.
Section 3.5. Modification Agreements. The Master Servicer or the related
Subservicer, as the case may be, shall be entitled to (A) execute assumption
agreements, substitution agreements, and instruments of satisfaction or
cancellation or of partial or full release or discharge, or any other document
contemplated by this Servicing Agreement and other comparable instruments with
respect to the Revolving Credit Loans and with respect to the Mortgaged
Properties subject to the Mortgages (and the Issuer and the Indenture Trustee
each shall promptly execute any such documents on request of the Master
Servicer) and (B) approve the granting of an easement thereon in favor of
another Person, any alteration or demolition of the related Mortgaged Property
or other similar matters, if it has determined, exercising its good faith
business judgment in the same manner as it would if it were the owner of the
related Revolving Credit Loan, that the security for, and the timely and full
collectability of, such Revolving Credit Loan would not be adversely affected
thereby. A partial release pursuant to this Section 3.5 shall be permitted only
if the Combined Loan-to-Value Ratio for such Revolving Credit Loan after such
partial release does not exceed the Combined Loan-to-Value Ratio for such
Revolving Credit Loan as of the Cut-off Date. Any fee collected by the Master
Servicer
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or the related Subservicer for processing such request will be retained by the
Master Servicer or such Subservicer as additional servicing compensation.
Section 3.6. Trust Estate; Related Documents.
(a) When required by the provisions of this Servicing Agreement, the
Issuer or the Indenture Trustee shall execute instruments to release property
from the terms of the Trust Agreement, Indenture or Custodial Agreement, as
applicable, or convey the Issuer's or the Indenture Trustee's interest in the
same, in a manner and under circumstances which are not inconsistent with the
provisions of this Servicing Agreement. No party relying upon an instrument
executed by the Issuer or the Indenture Trustee as provided in this Section 3.6
shall be bound to ascertain the Issuer's or the Indenture Trustee's authority,
inquire into the satisfaction of any conditions precedent or see to the
application of any moneys.
(b) If from time to time the Master Servicer shall deliver to the
Custodian copies of any written assurance, assumption agreement or substitution
agreement or other similar agreement pursuant to Section 3.5, the Custodian
shall check that each of such documents purports to be an original executed copy
(or a copy of the original executed document if the original executed copy has
been submitted for recording and has not yet been returned) and, if so, shall
file such documents, and upon receipt of the original executed copy from the
applicable recording office or receipt of a copy thereof certified by the
applicable recording office shall file such originals or certified copies with
the Related Documents. If any such documents submitted by the Master Servicer do
not meet the above qualifications, such documents shall promptly be returned by
the Custodian to the Master Servicer, with a direction to the Master Servicer to
forward the correct documentation.
(c) Upon receipt of a Request for Release from the Master Servicer,
substantially in the form of Exhibit C to the effect that a Revolving Credit
Loan has been the subject of a final payment or a prepayment in full and the
related Revolving Credit Loan has been terminated or that substantially all
Liquidation Proceeds which have been determined by the Master Servicer in its
reasonable judgment to be finally recoverable have been recovered, and upon
deposit to the Custodial Account of such final monthly payment, prepayment in
full together with accrued and unpaid interest to the date of such payment with
respect to such Revolving Credit Loan or, if applicable, Liquidation Proceeds,
the Custodian shall promptly release the Related Documents to the Master
Servicer, which the Indenture Trustee shall execute, along with such documents
as the Master Servicer or the Mortgagor may request to evidence satisfaction and
discharge of such Revolving Credit Loan, upon request of the Master Servicer. If
from time to time and as appropriate for the servicing or foreclosure of any
Revolving Credit Loan, the Master Servicer requests the Custodian to release the
Related Documents and delivers to the Custodian a trust receipt reasonably
satisfactory to the Custodian and signed by a Responsible Officer of the Master
Servicer, the Custodian shall release the Related Documents to the Master
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Servicer. If such Revolving Credit Loans shall be liquidated and the Custodian
receives a certificate from the Master Servicer as provided above, then, upon
request of the Master Servicer, the Custodian shall release the trust receipt to
the Master Servicer.
Section 3.7. Realization Upon Defaulted Revolving Credit Loans. With
respect to such of the Revolving Credit Loans as come into and continue in
default, the Master Servicer will decide whether to (i) foreclose upon the
Mortgaged Properties securing such Revolving Credit Loans, (ii) write off the
unpaid principal balance of the Revolving Credit Loans as bad debt, (iii) take a
deed in lieu of foreclosure, (iv) accept a short sale, (v) arrange for a
repayment plan, (vi) agree to a modification in accordance with this Servicing
Agreement, or (vii) take an unsecured note in each case subject to the rights of
any related first lien holder; provided that in connection with the foregoing if
the Master Servicer has actual knowledge that any Mortgaged Property is affected
by hazardous or toxic wastes or substances and that the acquisition of such
Mortgaged Property would not be commercially reasonable, then the Master
Servicer will not cause the Issuer or the Indenture Trustee to acquire title to
such Mortgaged Property in a foreclosure or similar proceeding. In connection
with such decision, the Master Servicer shall follow such practices (including,
in the case of any default on a related senior mortgage loan, the advancing of
funds to correct such default if deemed to be appropriate by the Master
Servicer) and procedures as it shall deem necessary or advisable and as shall be
normal and usual in its general mortgage servicing activities and as shall be
required or permitted by the Program Guide; provided that the Master Servicer
shall not be liable in any respect hereunder if the Master Servicer is acting in
connection with any such foreclosure or attempted foreclosure which is not
completed or other conversion in a manner that is consistent with the provisions
of this Servicing Agreement. The foregoing is subject to the proviso that the
Master Servicer shall not be required to expend its own funds in connection with
any foreclosure or attempted foreclosure which is not completed or towards the
correction of any default on a related senior mortgage loan or restoration of
any property unless it shall determine that such expenditure will increase Net
Liquidation Proceeds. In the event of a determination by the Master Servicer
that any such expenditure previously made pursuant to this Section 3.7 will not
be reimbursable from Net Liquidation Proceeds, the Master Servicer shall be
entitled to reimbursement of its funds so expended pursuant to Section 3.3.
Notwithstanding any provision of this Servicing Agreement, a Revolving
Credit Loan may be deemed to be finally liquidated if substantially all amounts
expected by the Master Servicer to be received in connection with the related
defaulted Revolving Credit Loan have been received. Any subsequent collections
with respect to any such Revolving Credit Loan shall be deposited to the
Custodial Account. For purposes of determining the amount of any Liquidation
Proceeds or Insurance Proceeds, or other unscheduled collections, the Master
Servicer may take into account minimal amounts of additional receipts expected
to be received or any estimated additional liquidation expenses expected to be
incurred in connection with the related defaulted Revolving Credit Loan.
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In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Indenture Trustee, who shall hold the same on behalf of
the Issuer in accordance with Section 3.13 of the Indenture. Notwithstanding any
such acquisition of title and cancellation of the related Revolving Credit Loan,
such Mortgaged Property shall (except as otherwise expressly provided herein) be
considered to be an outstanding Revolving Credit Loan held as an asset of the
Issuer until such time as such property shall be sold. Consistent with the
foregoing for purposes of all calculations hereunder, so long as such Mortgaged
Property shall be considered to be an outstanding Revolving Credit Loan it shall
be assumed that, notwithstanding that the indebtedness evidenced by the related
Credit Line Agreement shall have been discharged, such Credit Line Agreement in
effect at the time of any such acquisition of title before any adjustment
thereto by reason of any bankruptcy or similar proceeding or any moratorium or
similar waiver or grace period will remain in effect.
Any proceeds from foreclosure proceedings or the purchase or repurchase
of any Revolving Credit Loan pursuant to the terms of this Servicing Agreement,
as well as any recovery resulting from a collection of Liquidation Proceeds or
Insurance Proceeds, will be applied in the following order of priority: first,
to reimburse the Master Servicer or the related Subservicer in accordance with
this Section 3.7; second, to the Master Servicer or the related Subservicer, all
Servicing Fees payable therefrom; third, to the extent of accrued and unpaid
interest on the related Revolving Credit Loan, at the Net Loan Rate to the
Payment Date on which such amounts are to be deposited in the Payment Account;
fourth, as a recovery of principal on the Revolving Credit Loan; and fifth, to
Foreclosure Profits.
Section 3.8. Issuer and Indenture Trustee to Cooperate. On or before
each Payment Date, the Master Servicer will notify the Indenture Trustee or the
Custodian, with a copy to the Issuer, of the termination of or the payment in
full and the termination of any Revolving Credit Loan during the preceding
Collection Period. Upon receipt of payment in full, the Master Servicer is
authorized to execute, pursuant to the authorization contained in Section 3.1,
if the assignments of Mortgage have been recorded as required under the
Revolving Credit Loan Purchase Agreement, an instrument of satisfaction
regarding the related Mortgage, which instrument of satisfaction shall be
recorded by the Master Servicer if required by applicable law and be delivered
to the Person entitled thereto. It is understood and agreed that any expenses
incurred in connection with such instrument of satisfaction or transfer shall be
reimbursed from amounts deposited in the Custodial Account. From time to time
and as appropriate for the servicing or foreclosure of any Revolving Credit
Loan, the Indenture Trustee or the Custodian shall, upon request of the Master
Servicer and delivery to the Indenture Trustee or Custodian, with a copy to the
Issuer, of a Request for Release, in the form annexed hereto as Exhibit C,
signed by a Servicing Officer, release or cause to be released the related
Mortgage File to the Master Servicer and the Issuer or Indenture Trustee shall
promptly execute such documents, in the forms provided by the Master
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Servicer, as shall be necessary for the prosecution of any such proceedings or
the taking of other servicing actions. Such trust receipt shall obligate the
Master Servicer to return the Mortgage File to the Indenture Trustee or the
Custodian (as specified in such receipt) when the need therefor by the Master
Servicer no longer exists unless the Revolving Credit Loan shall be liquidated,
in which case, upon receipt of a certificate of a Servicing Officer similar to
that hereinabove specified, the trust receipt shall be released to the Master
Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Revolving Credit Loan that is in default following recordation of the
assignments of Mortgage in accordance with the provisions of the Revolving
Credit Loan Purchase Agreement, the Indenture Trustee or the Issuer shall, if so
requested in writing by the Master Servicer, promptly execute an appropriate
assignment in the form provided by the Master Servicer to assign such Revolving
Credit Loan for the purpose of collection to the Master Servicer (any such
assignment shall unambiguously indicate that the assignment is for the purpose
of collection only), and, upon such assignment, such assignee for collection
will thereupon bring all required actions in its own name and otherwise enforce
the terms of the Revolving Credit Loan and deposit or credit the Net Liquidation
Proceeds, exclusive of Foreclosure Profits, received with respect thereto in the
Custodial Account. In the event that all delinquent payments due under any such
Revolving Credit Loan are paid by the Mortgagor and any other defaults are
cured, then the assignee for collection shall promptly reassign such Revolving
Credit Loan to the Indenture Trustee and return all Related Documents to the
place where the related Mortgage File was being maintained.
In connection with the Issuer's obligation to cooperate as provided in
this Section 3.8 and all other provisions of this Servicing Agreement requiring
the Issuer to authorize or permit any actions to be taken with respect to the
Revolving Credit Loans, the Indenture Trustee, as pledgee of the Revolving
Credit Loans and as assignee of record of the Revolving Credit Loans on behalf
of the Issuer pursuant to Section 3.13 of the Indenture, expressly agrees, on
behalf of the Issuer, to take all such actions on behalf of the Issuer and to
promptly execute and return all instruments reasonably required by the Master
Servicer in connection therewith; provided that if the Master Servicer shall
request a signature of the Indenture Trustee, on behalf of the Issuer, the
Master Servicer will deliver to the Indenture Trustee an Officer's Certificate
stating that such signature is necessary or appropriate to enable the Master
Servicer to carry out its servicing and administrative duties under this
Servicing Agreement.
Section 3.9. Servicing Compensation; Payment of Certain Expenses by
Master Servicer. The Master Servicer shall be entitled to receive the Master
Servicing Fee in accordance with Section 3.3 as compensation for its services in
connection with servicing the Revolving Credit Loans. Moreover, additional
servicing compensation in the form of late payment charges and other receipts
not required to be deposited in the Custodial Account as specified in Section
3.2 shall be retained by the Master Servicer. The Master Servicer shall be
required to pay all expenses incurred by it in connection with its
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activities hereunder (including payment of all other fees and expenses not
expressly stated hereunder to be for the account of the Securityholders,
including, without limitation, the fees and expenses of the Owner Trustee,
Indenture Trustee and any Custodian) and shall not be entitled to reimbursement
therefor.
Section 3.10. Annual Statement as to Compliance.
(a) The Master Servicer will deliver to the Issuer and the Indenture
Trustee, with a copy to the Credit Enhancer, on or before March 31 of each year,
beginning March 31, 1998, an Officer's Certificate stating that (i) a review of
the activities of the Master Servicer during the preceding calendar year and of
its performance under servicing agreements, including this Servicing Agreement
has been made under such officer's supervision and (ii) to the best of such
officer's knowledge, based on such review, the Master Servicer has complied in
all material respects with the minimum servicing standards set forth in the
Uniform Single Attestation Program for Mortgage Bankers and has fulfilled all of
its material obligations in all material respects throughout such year, or, if
there has been material noncompliance with such servicing standards or a default
in the fulfillment in all material respects of any such obligation relating to
this Servicing Agreement, such statement shall include a description of such
noncompliance or specify each such default, as the case may be, known to such
officer and the nature and status thereof.
(b) The Master Servicer shall deliver to the Issuer and the
Indenture Trustee, with a copy to the Credit Enhancer, promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which with the giving of notice or the lapse of time or both, would become a
Servicing Default.
Section 3.11. Annual Servicing Report. On or before [March 31] of each
year, beginning [March 31], 199_, the Master Servicer at its expense shall cause
a firm of nationally recognized independent public accountants (who may also
render other services to the Master Servicer) to furnish a report to the Issuer,
the Indenture Trustee, the Depositor, the Credit Enhancer and each Rating Agency
stating its opinion that, on the basis of an examination conducted by such firm
substantially in accordance with standards established by the American Institute
of Certified Public Accountants, the assertions made pursuant to Section 3.10
regarding compliance with the minimum servicing standards set forth in the
Uniform Single Attestation Program for Mortgage Bankers during the preceding
calendar year are fairly stated in all material respects, subject to such
exceptions and other qualifications that, in the opinion of such firm, such
accounting standards require it to report. In rendering such statement, such
firm may rely, as to matters relating to the direct servicing of such Revolving
Credit Loans by Subservicers, upon comparable statements for examinations
conducted by independent public accountants substantially in accordance with
standards established by the
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American Institute of Certified Public Accountants (rendered within one year of
such statement) with respect to such Subservicers.
Section 3.12. Access to Certain Documentation and Information Regarding
the Revolving Credit Loans. Whenever required by statute or regulation, the
Master Servicer shall provide to the Credit Enhancer, any Securityholder upon
reasonable request (or a regulator for a Securityholder) or the Indenture
Trustee, reasonable access to the documentation regarding the Revolving Credit
Loans such access being afforded without charge but only upon reasonable request
and during normal business hours at the offices of the Master Servicer. Nothing
in this Section 3.12 shall derogate from the obligation of the Master Servicer
to observe any applicable law prohibiting disclosure of information regarding
the Mortgagors and the failure of the Master Servicer to provide access as
provided in this Section 3.12 as a result of such obligation shall not
constitute a breach of this Section 3.12.
Section 3.13. Maintenance of Certain Servicing Insurance Policies. The
Master Servicer shall during the term of its service as servicer maintain in
force (i) a policy or policies of insurance covering errors and omissions in the
performance of its obligations as master servicer hereunder and (ii) a fidelity
bond in respect of its officers, employees or agents. Each such policy or
policies and bond shall be at least equal to the coverage that would be required
by FNMA or FHLMC, whichever is greater, for Persons performing servicing for
revolving credit loans purchased by such entity.
Section 3.14. Information Required by the Internal Revenue Service and
Reports of Foreclosures and Abandonments of Mortgaged Property. The Master
Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Master Servicer or Subservicer shall make reports of
foreclosures and abandonments of any mortgaged property for each year beginning
in [1998], the Master Servicer or Subservicer shall file reports relating to
each instance occurring during the previous calendar year in which the Master
Servicer (i) on behalf of the Issuer, acquires an interest in any Mortgaged
Property through foreclosure or other comparable conversion in full or partial
satisfaction of a Revolving Credit Loan, or (ii) knows or has reason to know
that any Mortgaged Property has been abandoned. The reports from the Master
Servicer or Subservicer shall be in form and substance sufficient to meet the
reporting requirements imposed by Section 6050J and Section 6050H (reports
relating to mortgage interest received) of the Code.
Section 3.15. Optional Repurchase of Defaulted Revolving Credit Loans.
Notwithstanding any provision in Section 3.7 to the contrary, the Master
Servicer, at its option and in its sole discretion, may repurchase any Revolving
Credit Loan delinquent in payment for a period of 60 days or longer for a price
equal to the Repurchase Price.
ARTICLE IV.
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Administration and Servicingof Revolving Credit Loans
Section 4.1. Statements to Securityholders. (a) With respect to each
Payment Date, on the Business Day following the related Determination Date the
Master Servicer shall forward to the Indenture Trustee and the Indenture Trustee
pursuant to Section 3.26 of the Indenture shall forward or cause to be forwarded
by mail to each Certificateholder, Noteholder, the Credit Enhancer, the
Depositor, the Owner Trustee, the Certificate Paying Agent and each Rating
Agency, a statement setting forth the following information as to the Notes and
Certificates, to the extent applicable:
(i) the aggregate amount of (a) Interest Collections, (b)
Principal Collections and (c) Substitution Adjustment Amounts;
(ii) the amount of such distribution as principal to the
Noteholders;
(iii) the amount of such distribution as interest to the
Noteholders, separately stating the portion thereof in respect of
overdue accrued interest;
(iv) the amount of any Credit Enhancement Draw Amount;
(v) the amount of such distribution as principal and
interest to the Certificateholders of the Certificates, separately
stating the portion thereof which resulted in a reduction of the
Certificate Principal Balance thereof;
(vi) the aggregate Loan Balance of the Revolving Credit Loans as
of the end of the preceding Collection Period;
(vii) the number and aggregate Loan Balances of Revolving
Credit Loans (a) as to which the Minimum Monthly Payment is delinquent
for 30-59 days, 60-89 days and 90 or more days, respectively, (b) that
are foreclosed and (c) that have become REO, in each case as of the end
of the preceding Collection Period; provided, however, that such
information will not be provided on the statements relating to the first
Payment Date;
(viii) the weighted average Net Loan Rate for the related
Collection Period;
(ix) the aggregate Liquidation Loss Amounts with respect to
the related Collection Period, the amount of any Liquidation Loss
Distribution Amounts with respect to the Notes, and the aggregate of the
Liquidation Loss Amounts from all Collection Periods to date expressed
as dollars and as a percentage of the aggregate Cut-off Date Loan
Balance;
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(x) the aggregate Excess Loss Amounts with respect to the
related Collection Period and the aggregate of the Excess Loss Amounts
from all Collection Periods to date;
(xi) the aggregate Special Hazard Losses, Fraud Losses,
Bankruptcy Losses and losses caused by or resulting from an
Extraordinary Event with respect to the related Collection Period and
the aggregate of each of such losses from all Collection Periods to
date;
(xii) the Note Balance of each Class of Notes and the
Certificate Principal Balance of the Certificates after giving effect to
the distribution of principal on such Payment Date;
(xiii) the aggregate Servicing Fees for the related Collection
Period and the aggregate amount of Draws for the related Collection
Period; and
(xiv) the Outstanding Reserve Amount, the Special Hazard Amount,
the Fraud Loss Amount, the Bankruptcy Loss Amount and the Reserve Amount
Target immediately following such Payment Date.
In the case of information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall be expressed as an aggregate dollar amount per Variable
Funding Note, Term Note or Certificate, as applicable, with a $1,000
denomination.
In addition the Master Servicer shall forward to the Indenture Trustee
any other information reasonably requested by the Indenture Trustee necessary to
make distributions pursuant to Section 3.5 of the Indenture. Prior to the close
of business on the Business Day next succeeding each Determination Date, the
Master Servicer shall furnish a written statement to the Certificate Paying
Agent and the Indenture Trustee setting forth the aggregate amounts required to
be withdrawn from the Custodial Account and deposited into the Payment Account
on the Business Day preceding the related Payment Date pursuant to Section 3.3.
The determination by the Master Servicer of such amounts shall, in the absence
of obvious error, be presumptively deemed to be correct for all purposes
hereunder and the Owner Trustee and Indenture Trustee shall be protected in
relying upon the same without any independent check or verification. In
addition, upon the Issuer's written request, the Master Servicer shall promptly
furnish information reasonably requested by the Issuer that is reasonably
available to the Master Servicer to enable the Issuer to perform its federal and
state income tax reporting obligations.
Section 4.2. Tax Reporting. ___________ (the "Trust Tax Matters Person")
hereby agrees (i) to cause the Issuer to file or cause to be filed federal and
state income tax returns and information statements as a partnership for each of
its taxable years, (ii) to cause the Issuer to file or cause to be filed any
information returns or reports and to make
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any elections or take any other similar action required for the Issuer to be
classified as a partnership for federal income tax purposes, and (iii) pursuant
to Section 5.5 of the Trust Agreement, to act as "tax matters partner" (as
defined in Section 6231(a)(7) of the Code) for the Issuer. The Trust Tax Matters
Person, as tax matters partner, shall (i) act on behalf of the Issuer in
relation to any tax matter or controversy involving the Issuer and (ii)
represent the Issuer in any administrative or judicial proceeding relating to an
examination or audit by any governmental taxing authority with respect thereto.
The legal expenses, including without limitation attorneys' or accountants'
fees, and costs of any such proceeding and any liability resulting therefrom
shall be expenses of the Issuer and the Trust Tax Matters Person shall be
entitled to reimbursement therefor out of amounts attributable to the Revolving
Credit Loans on deposit in the Custodial Account as provided by Section 3.3 of
the Servicing Agreement unless such legal expenses and costs are incurred by
reason of the Trust Tax Matters Person's willful misfeasance, bad faith or gross
negligence. Within 90 days after the end of each calendar year, the Trust Tax
Matters Person shall cause the Issuer to provide to each Certificateholder an
Internal Revenue Service "K-1" or any successor schedule and supplemental
information, if required by law, to enable each Certificateholder to file its
federal and state income tax returns.
ARTICLE V.
Payment Account
Section 5.1. Payment Account. The Indenture Trustee shall establish and
maintain a Payment Account titled "____________, as Indenture Trustee, for the
benefit of the Securityholders, the Certificate Paying Agent and the Credit
Enhancer pursuant to the Indenture, dated as of ______, 199_, between Home
Equity Loan Trust 199_-_ and The ___________". The Payment Account shall be an
Eligible Account. On each Payment Date, amounts on deposit in the Payment
Account will be distributed by the Indenture Trustee in accordance with Section
3.5 of the Indenture. The Indenture Trustee shall, upon written request from the
Master Servicer, invest or cause the institution maintaining the Payment Account
to invest the funds in the Payment Account in Permitted Investments designated
in the name of the Indenture Trustee, which shall mature not later than the
Business Day next preceding the Payment Date next following the date of such
investment (except that (i) any investment in the institution with which the
Payment Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Payment Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Securities) and shall not be sold or
disposed of prior to maturity. All income and gain realized from any such
investment shall be for the benefit of the Master Servicer and shall be subject
to its withdrawal or order from time to time. The amount of any losses incurred
in respect of any such investments shall be deposited
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in the Payment Account by the Master Servicer out of its own funds immediately
as realized.
ARTICLE VI.
The Master Servicer
Section 6.1. Liability of the Master Servicer. The Master Servicer shall
be liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by the Master Servicer herein.
Section 6.2.. Merger or Consolidation of, or Assumption of the
Obligations of, the Master Servicer. Any corporation into which the Master
Servicer may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Master Servicer shall be a party, or any corporation succeeding to the business
of the Master Servicer, shall be the successor of the Master Servicer,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
The Master Servicer may assign its rights and delegate its duties and
obligations under this Servicing Agreement; provided that the Person accepting
such assignment or delegation shall be a Person which is qualified to service
revolving credit loans, is reasonably satisfactory to the Indenture Trustee (as
pledgee of the Revolving Credit Loans), the Issuer and the Credit Enhancer, is
willing to service the Revolving Credit Loans and executes and delivers to the
Indenture Trustee and the Issuer an agreement, in form and substance reasonably
satisfactory to the Credit Enhancer, the Indenture Trustee and the Issuer, which
contains an assumption by such Person of the due and punctual performance and
observance of each covenant and condition to be performed or observed by the
Master Servicer under this Servicing Agreement; provided further that each
Rating Agency's rating of the Securities in effect immediately prior to such
assignment and delegation will not be qualified, reduced, or withdrawn as a
result of such assignment and delegation (as evidenced by a letter to such
effect from each Rating Agency), if determined without regard to the Credit
Enhancement Instrument.
Section 6.3. Limitation on Liability of the Master Servicer and Others.
Neither the Master Servicer nor any of the directors or officers or employees or
agents of the Master Servicer shall be under any liability to the Issuer, the
Owner Trustee, the Indenture Trustee or the Securityholders for any action taken
or for refraining from the taking of any action in good faith pursuant to this
Servicing Agreement, provided, however, that this provision shall not protect
the Master Servicer or any such Person against any liability which would
otherwise be imposed by reason of its willful misfeasance, bad faith or gross
negligence in the performance of its duties hereunder or by reason of its
reckless disregard of its obligations and duties hereunder. The Master Servicer
and any director or
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officer or employee or agent of the Master Servicer may rely in good faith on
any document of any kind prima facie properly executed and submitted by any
Person respecting any matters arising hereunder. The Master Servicer and any
director or officer or employee or agent of the Master Servicer shall be
indemnified by the Issuer and held harmless against any loss, liability or
expense incurred in connection with any legal action relating to this Servicing
Agreement or the Securities, including any amount paid to the Owner Trustee or
the Indenture Trustee pursuant to Section 6.6(b), other than any loss, liability
or expense incurred by reason of its willful misfeasance, bad faith or gross
negligence in the performance of its duties hereunder or by reason of its
reckless disregard of its obligations and duties hereunder. The Master Servicer
shall not be under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its duties to service the Revolving Credit
Loans in accordance with this Servicing Agreement, and which in its opinion may
involve it in any expense or liability; provided, however, that the Master
Servicer may in its sole discretion undertake any such action which it may deem
necessary or desirable in respect of this Servicing Agreement, and the rights
and duties of the parties hereto and the interests of the Securityholders. In
such event, the reasonable legal expenses and costs of such action and any
liability resulting therefrom shall be expenses, costs and liabilities of the
Master Servicer shall be entitled to be reimbursed therefor. The Master
Servicer's right to indemnity or reimbursement pursuant to this Section 6.3
shall survive any resignation or termination of the Master Servicer pursuant to
Section 6.4 or 7.1 with respect to any losses, expenses, costs or liabilities
arising prior to such resignation or termination (or arising from events that
occurred prior to such resignation or termination).
Section 6.4. Master Servicer Not to Resign. Subject to the provisions of
Section 6.2, the Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) upon determination that the performance
of its obligations or duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it or its subsidiaries or Affiliates, the other
activities of the Master Servicer so causing such a conflict being of a type and
nature carried on by the Master Servicer or its subsidiaries or Affiliates at
the date of this Servicing Agreement or (ii) upon satisfaction of the following
conditions: (a) the Master Servicer has proposed a successor servicer to the
Issuer and the Indenture Trustee in writing and such proposed successor servicer
is reasonably acceptable to the Issuer, the Indenture Trustee and the Credit
Enhancer; (b) each Rating Agency shall have delivered a letter to the Issuer,
the Credit Enhancer and the Indenture Trustee prior to the appointment of the
successor servicer stating that the proposed appointment of such successor
servicer as Master Servicer hereunder will not result in the reduction or
withdrawal of the then current rating of the Securities, if determined without
regard to the Credit Enhancement Instrument; and (c) such proposed successor
servicer is reasonably acceptable to the Credit Enhancer, as evidenced by a
letter to the Issuer and the Indenture Trustee; provided, however, that no such
resignation by the Master Servicer shall become effective until such successor
servicer or, in the case of (i) above, the Indenture Trustee, as pledgee of the
Revolving Credit Loans, shall have assumed the Master Servicer's
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responsibilities and obligations hereunder or the Indenture Trustee, as pledgee
of the Revolving Credit Loans, shall have designated a successor servicer in
accordance with Section 7.2. Any such resignation shall not relieve the Master
Servicer of responsibility for any of the obligations specified in Sections 7.1
and 7.2 as obligations that survive the resignation or termination of the Master
Servicer. Any such determination permitting the resignation of the Master
Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to
the Indenture Trustee and the Credit Enhancer.
Section 6.5.. Delegation of Duties. In the ordinary course of business,
the Master Servicer at any time may delegate any of its duties hereunder to any
Person, including any of its Affiliates, who agrees to conduct such duties in
accordance with standards comparable to those with which the Master Servicer
complies pursuant to Section 3.1. Such delegation shall not relieve the Master
Servicer of its liabilities and responsibilities with respect to such duties and
shall not constitute a resignation within the meaning of Section 6.4.
Section 6.6.. Master Servicer to Pay Indenture Trustee's and Owner
Trustee's Fees and Expenses; Indemnification.
(a) The Master Servicer covenants and agrees to pay to the Owner
Trustee, the Indenture Trustee and any co-trustee of the Indenture Trustee or
the Owner Trustee from time to time, and the Owner Trustee, the Indenture
Trustee and any such co-trustee shall be entitled to, reasonable compensation
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by each
of them in the execution of the trusts created under the Trust Agreement and the
Indenture and in the exercise and performance of any of the powers and duties
under the Trust Agreement or the Indenture, as the case may be, of the Owner
Trustee, the Indenture Trustee and any co-trustee, and the Master Servicer will
pay or reimburse the Indenture Trustee and any co-trustee upon request for all
reasonable expenses, disbursements and advances incurred or made by the
Indenture Trustee or any co-trustee in accordance with any of the provisions of
this Servicing Agreement except any such expense, disbursement or advance as may
arise from its negligence, wilful misfeasance or bad faith.
(b) The Master Servicer agrees to indemnify the Indenture Trustee
and the Owner Trustee for, and to hold the Indenture Trustee and the Owner
Trustee, as the case may be, harmless against, any loss, liability or expense
incurred without negligence, bad faith or willful misconduct on its part,
arising out of, or in connection with, the acceptance and administration of the
Issuer and the assets thereof, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against any claim in
connection with the exercise or performance of any of its powers or duties under
any Basic Document, provided that:
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(i) with respect to any such claim, the Indenture Trustee
or Owner Trustee, as the case may be, shall have given the Master
Servicer written notice thereof promptly after the Indenture Trustee or
Owner Trustee, as the case may be, shall have actual knowledge thereof;
(ii) while maintaining control over its own defense, the
Issuer, the Indenture Trustee or Owner Trustee, as the case may be,
shall cooperate and consult fully with the Master Servicer in preparing
such defense; and
(iii) notwithstanding anything in this Servicing Agreement to
the contrary, the Master Servicer shall not be liable for settlement of
any claim by the Indenture Trustee or the Owner Trustee, as the case may
be, entered into without the prior consent of the Master Servicer.
No termination of this Servicing Agreement shall affect the obligations
created by this Section 6.6 of the Master Servicer to indemnify the Indenture
Trustee and the Owner Trustee under the conditions and to the extent set forth
herein.
Notwithstanding the foregoing, the indemnification provided by the
Master Servicer in this Section 6.6(b) shall not pertain to any loss, liability
or expense of the Indenture Trustee or the Owner Trustee, including the costs
and expenses of defending itself against any claim, incurred in connection with
any actions taken by the Indenture Trustee or the Owner Trustee at the direction
of the Noteholders or Certificateholders, as the case may be, pursuant to the
terms of this Servicing Agreement.
ARTICLE VII.
Default
Section 7.1. Servicing Default. If any one of the following events
("Servicing Default") shall occur and be continuing:
(i) Any failure by the Master Servicer to deposit in the
Custodial Account or Payment Account any deposit required to be made
under the terms of this Servicing Agreement which continues unremedied
for a period of five Business Days after the date upon which written
notice of such failure shall have been given to the Master Servicer by
the Issuer or the Indenture Trustee or to the Master Servicer, the
Issuer and the Indenture Trustee by the Credit Enhancer; or
(ii) Failure on the part of the Master Servicer duly to
observe or perform in any material respect any other covenants or
agreements of the Master Servicer set forth in the Securities or in this
Servicing Agreement, which failure, in each case, materially and
adversely affects the interests of Securityholders or the Credit
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Enhancer and which continues unremedied for a period of 45 days after
the date on which written notice of such failure, requiring the same to
be remedied, and stating that such notice is a "Notice of Default"
hereunder, shall have been given to the Master Servicer by the Issuer or
the Indenture Trustee or to the Master Servicer, the Issuer and the
Indenture Trustee by the Credit Enhancer; or
(iii) The entry against the Master Servicer of a decree or
order by a court or agency or supervisory authority having jurisdiction
in the premises for the appointment of a trustee, conservator, receiver
or liquidator in any insolvency, conserva-torship, receivership,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
The Master Servicer shall voluntarily go into liquidation, consent to
the appointment of a conservator, receiver, liquidator or similar person in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Master Servicer or of or relating to
all or substantially all of its property, or a decree or order of a court,
agency or supervisory authority having jurisdiction in the premises for the
appointment of a conservator, receiver, liquidator or similar person in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the Master Servicer and such decree or order shall
have remained in force undischarged, unbonded or unstayed for a period of 60
days; or the Master Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations,
then, and in every such case, so long as a Servicing Default shall not have been
remedied by the Master Servicer, Indenture Trustee, with the consent of the
Credit Enhancer, or the Credit Enhancer, by notice then given in writing to the
Master Servicer (and to the Issuer and the Indenture Trustee if given by the
Credit Enhancer) may terminate all of the rights and obligations of the Master
Servicer as servicer under this Servicing Agreement other than its right to
receive servicing compensation and expenses for servicing the Revolving Credit
Loans hereunder during any period prior to the date of such termination and the
Issuer or the Indenture Trustee, with the consent of the Credit Enhancer, or the
Credit Enhancer may exercise any and all other remedies available at law or
equity. Any such notice to the Master Servicer shall also be given to each
Rating Agency, the Credit Enhancer and the Issuer. On or after the receipt by
the Master Servicer of such written notice, all authority and power of the
Master Servicer under this Servicing Agreement, whether with respect to the
Securities or the Revolving Credit Loans or otherwise, shall pass to and be
vested in the Indenture Trustee as pledgee of the Revolving Credit Loans,
pursuant to and under this Section 7.1; and, without limitation, the Indenture
Trustee is hereby authorized and empowered to execute and deliver, on behalf of
the Master Servicer, as attorney-in-fact or otherwise, any and all
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documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of each Revolving
Credit Loan and related documents, or otherwise. The Master Servicer agrees to
cooperate with the Indenture Trustee in effecting the termination of the
responsibilities and rights of the Master Servicer hereunder, including, without
limitation, the transfer to the Indenture Trustee for the administration by it
of all cash amounts relating to the Revolving Credit Loans that shall at the
time be held by the Master Servicer and to be deposited by it in the Custodial
Account, or that have been deposited by the Master Servicer in the Custodial
Account or thereafter received by the Master Servicer with respect to the
Revolving Credit Loans. All reasonable costs and expenses (including, but not
limited to, attorneys' fees) incurred in connection with amending this Servicing
Agreement to reflect such succession as Master Servicer pursuant to this Section
7.1 shall be paid by the predecessor Master Servicer (or if the predecessor
Master Servicer is the Indenture Trustee, the initial Master Servicer) upon
presentation of reasonable documentation of such costs and expenses.
Notwithstanding any termination of the activities of the Master Servicer
hereunder, the Master Servicer shall be entitled to receive, out of any late
collection of a payment on a Revolving Credit Loan which was due prior to the
notice terminating the Master Servicer's rights and obligations hereunder and
received after such notice, that portion to which the Master Servicer would have
been entitled pursuant to Sections 3.3 and 3.9 as well as its Master Servicing
Fee in respect thereof, and any other amounts payable to the Master Servicer
hereunder the entitlement to which arose prior to the termination of its
activities hereunder.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 7.1(i) or under Section 7.1(ii) after the applicable grace periods
specified in such Sections, shall not constitute a Servicing Default if such
delay or failure could not be prevented by the exercise of reasonable diligence
by the Master Servicer and such delay or failure was caused by an act of God or
the public enemy, acts of declared or undeclared war, public disorder, rebellion
or sabotage, epidemics, landslides, lightning, fire, hurricanes, earthquakes,
floods or similar causes. The preceding sentence shall not relieve the Master
Servicer from using reasonable efforts to perform its respective obligations in
a timely manner in accordance with the terms of this Servicing Agreement and the
Master Servicer shall provide the Indenture Trustee, the Credit Enhancer and the
Securityholders with notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Master Servicer
shall immediately notify the Indenture Trustee, the Credit Enhancer and the
Owner Trustee in writing of any Servicing Default.
Section 7.2. Indenture Trustee to Act; Appointment of Successor.
(a) On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7.1 or sends a notice pursuant to Section 6.4,
the Indenture Trustee as pledgee of the Revolving Credit Loans shall be the
successor in all respects to the Master
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Servicer in its capacity as servicer under this Servicing Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Master
Servicer by the terms and provisions hereof. Nothing in this Servicing Agreement
or in the Trust Agreement shall be construed to permit or require the Indenture
Trustee to (i) succeed to the responsibilities, duties and liabilities of the
initial Master Servicer in its capacity as Seller under the Revolving Credit
Loan Purchase Agreement, (ii) be responsible or accountable for any act or
omission of the Master Servicer prior to the issuance of a notice of termination
hereunder, (iii) require or obligate the Indenture Trustee, in its capacity as
successor Master Servicer, to purchase, repurchase or substitute any Revolving
Credit Loan, (iv) fund any Additional Balances with respect to any Revolving
Credit Loan, (v) fund any losses on any Permitted Investment directed by any
other Master Servicer, or (vi) be responsible for the representations and
warranties of the Master Servicer. As compensation therefor, the Indenture
Trustee shall be entitled to such compensation as the Master Servicer would have
been entitled to hereunder if no such notice of termination had been given.
Notwithstanding the above, (i) if the Indenture Trustee is unwilling to act as
successor Master Servicer, or (ii) if the Indenture Trustee is legally unable so
to act, the Indenture Trustee as pledgee of the Revolving Credit Loans may (in
the situation described in clause (i)) or shall (in the situation described in
clause (ii)) appoint or petition a court of competent jurisdiction to appoint
any established housing and home finance institution, bank or other mortgage
loan or home equity loan servicer having a net worth of not less than
$10,000,000 as the successor to the Master Servicer hereunder in the assumption
of all or any part of the responsibilities, duties or liabilities of the Master
Servicer hereunder; provided that any such successor Master Servicer shall be
acceptable to the Credit Enhancer, as evidenced by the Credit Enhancer's prior
written consent which consent shall not be unreasonably withheld and provided
further that the appointment of any such successor Master Servicer will not
result in the qualification, reduction or withdrawal of the ratings assigned to
the Securities by the Rating Agencies, if determined without regard to the
Credit Enhancement Instrument. Pending appointment of a successor to the Master
Servicer hereunder, unless the Indenture Trustee is prohibited by law from so
acting, the Indenture Trustee shall act in such capacity as hereinabove
provided. In connection with such appointment and assumption, the successor
shall be entitled to receive compensation out of payments on Revolving Credit
Loans in an amount equal to the compensation which the Master Servicer would
otherwise have received pursuant to Section 3.9 (or such lesser compensation as
the Indenture Trustee and such successor shall agree). The appointment of a
successor Master Servicer shall not affect any liability of the predecessor
Master Servicer which may have arisen under this Servicing Agreement prior to
its termination as Master Servicer (including, without limitation, the
obligation to purchase Revolving Credit Loans pursuant to Section 3.1, to pay
any deductible under an insurance policy pursuant to Section 3.4 or to indemnify
the Indenture Trustee pursuant to Section 6.6), nor shall any successor Master
Servicer be liable for any acts or omissions of the predecessor Master Servicer
or for any breach by such Master Servicer of any of its representations or
warranties contained herein or in any related document or agreement. The
Indenture Trustee and such successor shall take such
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action, consistent with this Servicing Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Indenture Trustee, to the Master
Servicer as servicer shall during the term of its service as servicer (i)
continue to service and administer the Revolving Credit Loans for the benefit of
the Securityholders, (ii) maintain in force a policy or policies of insurance
covering errors and omissions in the performance of its obligations as Master
Servicer hereunder and a fidelity bond in respect of its officers, employees and
agents to the same extent as the Master Servicer is so required pursuant to
Section 3.13 and (iii) be bound by the terms of the Insurance Agreement.
(c) Any successor Master Servicer, including the Indenture Trustee,
shall not be deemed in default or to have breached its duties hereunder if the
predecessor Master Servicer shall fail to deliver any required deposit to the
Custodial Account or otherwise cooperate with any required servicing transfer or
succession hereunder.
Section 7.3. Notification to Securityholders. Upon any termination of or
appointment of a successor to the Master Servicer pursuant to this Article VII
or Section 6.4, the Indenture Trustee shall give prompt written notice thereof
to the Securityholders, the Credit Enhancer, the Issuer and each Rating Agency.
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ARTICLE VIII.
Miscellaneous Provisions
Section 8.1. Amendment. This Servicing Agreement may be amended from
time to time by the parties hereto, provided that any amendment be accompanied
by a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to the Securities, if
determined without regard to the Credit Enhancement Instrument and the consent
of the Credit Enhancer and the Indenture Trustee.
SECTION 8.2. GOVERNING LAW. THIS SERVICING AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
Section 8.3. Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by certified mail, return receipt requested, to (a) in
the case of the Master Servicer, ______________, Attention: Managing Director -
Mortgage Finance, (b) in the case of the Credit Enhancer, ___________________,
(c) in the case of [Moody's, Home Revolving Credit Loan Monitoring Group, 4th
Floor, 99 Church Street, New York, New York 10001], (d) in the case of [Standard
& Poor's, 26 Broadway, 15th Floor, New York, New York 10004, Attention:
Residential Mortgage Surveillance Group], (e) in the case of the Owner Trustee,
_________________, and (f) in the case of the Issuer, to Home Equity Loan Trust
199_-_, c/o Owner Trustee, _____________, and (g) in the case of the Indenture
Trustee, _______________, or, as to each party, at such other address as shall
be designated by such party in a written notice to each other party. Any notice
required or permitted to be mailed to a Securityholder shall be given by first
class mail, postage prepaid, at the address of such Securityholder as shown in
the Register. Any notice so mailed within the time prescribed in this Servicing
Agreement shall be conclusively presumed to have been duly given, whether or not
the Securityholder receives such notice. Any notice or other document required
to be delivered or mailed by the Indenture Trustee to any Rating Agency shall be
given on a reasonable efforts basis and only as a matter of courtesy and
accommodation and the Indenture Trustee shall have no liability for failure to
delivery such notice or document to any Rating Agency.
Section 8.4. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Servicing Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Servicing Agreement and shall in no way
affect the validity or enforceability of the other
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provisions of this Servicing Agreement or of the Securities or the rights of the
Securityholders thereof.
Section 8.5. Third-Party Beneficiaries. This Servicing Agreement will
inure to the benefit of and be binding upon the parties hereto, the
Securityholders, the Credit Enhancer, the Owner Trustee and their respective
successors and permitted assigns. Except as otherwise provided in this Servicing
Agreement, no other Person will have any right or obligation hereunder.
Section 8.6. Counterparts. This instrument may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
Section 8.7. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 8.8. Termination Upon Purchase by the Master Servicer or
Liquidation of All Revolving Credit Loans; Partial Redemption.
(a) The respective obligations and responsibilities of the Master
Servicer, the Issuer and the Indenture Trustee created hereby shall terminate
upon the last action required to be taken by the Issuer pursuant to the Trust
Agreement and by the Indenture Trustee pursuant to the Indenture following the
earlier of:
(i) the date on or before which the Indenture or Trust Agreement
is terminated, or
(ii) the purchase by the Master Servicer from the Issuer of
all Revolving Credit Loans and all property acquired in respect of any
Revolving Credit Loan at a price equal to 100% of the unpaid Loan
Balance of each Revolving Credit Loan, plus accrued and unpaid interest
thereon at the Weighted Average Net Loan Rate up to the day preceding
the Payment Date on which such amounts are to be distributed to
Securityholders, plus any amounts due and owing to the Credit Enhancer
under the Insurance Agreement (any unpaid Master Servicing Fee shall be
deemed paid at such time).
The right of the Master Servicer to purchase the assets of the Issuer pursuant
to clause (ii) above is conditioned upon the Pool Balance as of such date being
less than ten percent of the aggregate of the Cut-off Date Loan Balances of the
Revolving Credit Loans. If such right is exercised by the Master Servicer, the
Master Servicer shall deposit the amount calculated pursuant to clause (ii)
above with the Indenture Trustee pursuant to Section 4.10 of the Indenture and,
upon the receipt of such deposit, the Indenture Trustee or
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Custodian shall release to the Master Servicer, the files pertaining to the
Revolving Credit Loans being purchased.
(b) Subject to the provisions of clause (c) below, the Master
Servicer has the right to purchase a portion of the Revolving Credit Loans upon
the Pool Balance as of such date being less than ten percent of the aggregate of
the Cut-off Date Loan Balances of the Revolving Credit Loans at a price equal to
100% of the unpaid Loan Balance of each Revolving Credit Loan so purchased, plus
accrued and unpaid interest thereon at the Weighted Average Net Loan Rate up to
the day preceding the Payment Date on which such amounts are to be distributed
to Securityholders, plus any amounts due and owing to the Credit Enhancer under
the Insurance Agreement (any unpaid Master Servicing Fee shall be deemed paid at
such time). If such right is exercised by the Master Servicer, the Master
Servicer shall deposit the amount calculated above with the Indenture Trustee
pursuant to Section 5.2 of the Indenture and, upon the receipt of such deposit,
the Indenture Trustee or Custodian shall release to the Master Servicer, the
files pertaining to the Revolving Credit Loans being purchased.
(c) With respect to any purchase of a portion of the Revolving
Credit Loans by the Master Servicer pursuant to subsection (b) above, the
following conditions must be satisfied: (i) the Master Servicer shall have
delivered to the Indenture Trustee and the Credit Enhancer a loan schedule
containing a list of all Revolving Credit Loans remaining in the Trust after
such removal; (ii) the Master Servicer shall represent and warrant that no
selection procedures adverse to the interests of the Securityholders or the
Credit Enhancer were used by the Master Servicer in selecting such Revolving
Credit Loans; and (iii) each Rating Agency shall have notified the Master
Servicer that such retransfer would not result in a reduction or withdrawal of
the ratings of the Securities, if determined without regard to the Credit
Enhancement Instrument. In lieu of a cash payment, if an Amortization Event had
previously occurred, all or a portion of such purchase price by the Master
Servicer may be in the form of Additional Balances on other Revolving Credit
Loans not previously conveyed to the Trust.
(d) The Master Servicer, at its expense, shall prepare and deliver
to the Indenture Trustee for execution, at the time the Revolving Credit Loans
are to be released to the Master Servicer, appropriate documents assigning each
such Revolving Credit Loan from the Indenture Trustee or the Issuer to the
Master Servicer or the appropriate party.
Section 8.9. Certain Matters Affecting the Indenture Trustee. For all
purposes of this Servicing Agreement, in the performance of any of its duties or
in the exercise of any of its powers hereunder, the Indenture Trustee shall be
subject to and entitled to the benefits of Article VI of the Indenture.
Section 8.10. Owner Trustee Not Liable for Related Documents. The
recitals contained herein shall be taken as the statements of the Depositor, and
the Owner Trustee assumes no responsibility for the correctness thereof. The
Owner Trustee makes no
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representations as to the validity or sufficiency of this Servicing Agreement,
of any Basic Document or of the Certificates (other than the signatures of the
Owner Trustee on the Certificates) or the Notes, or of any Related Documents.
The Owner Trustee shall at no time have any responsibility or liability with
respect to the sufficiency of the Owner Trust Estate or its ability to generate
the payments to be distributed to Certificateholders under the Trust Agreement
or the Noteholders under the Indenture, including, the compliance by the
Depositor or the Seller with any warranty or representation made under any Basic
Document or in any related document or the accuracy of any such warranty or
representation, or any action of the Certificate Paying Agent, the Certificate
Registrar or the Indenture Trustee taken in the name of the Owner Trustee.
IN WITNESS WHEREOF, the Master Servicer, the Indenture Trustee and the
Issuer have caused this Servicing Agreement to be duly executed by their
respective officers or representatives all as of the day and year first above
written.
-------------------------------------,
as Master Servicer
By:
Title:
HOME EQUITY LOAN TRUST 199_-_
By:______________, not in its
individual capacity but solely as
Owner Trustee
By:
Title:
__________________, as Indenture
Trustee
By:
Title:Vice President
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EXHIBIT A
REVOLVING CREDIT LOAN SCHEDULE
TO BE PROVIDED UPON REQUEST
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EXHIBIT B
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PREMISES:
That_______________, as Indenture Trustee (the "Trustee"), under the
Indenture (the "Indenture") among ________________________________________ and
the Indenture Trustee, a organized and existing under the laws of the State of
New York, and having an office located at______________, hath made, constituted
and appointed, and does by these presents make, constitute and
appoint________________, a corporation organized and existing under the laws of
the State of Delaware, its true and lawful Attorney-in-Fact, with full power and
authority to sign, execute, acknowledge, deliver, file for record, and record
any instrument on its behalf and to perform such other act or acts as may be
customarily and reasonably necessary and appropriate to effectuate the following
enumerated transactions in respect of any of the mortgages or deeds of trust
(the "Mortgages" and the "Deeds of Trust", respectively) creating a trust or
second lien or an estate in fee simple interest in real property securing a
Revolving Credit Loan and promissory notes secured thereby (the "Mortgage
Notes") for which the undersigned is acting as Trustee for various
certificateholders (whether the undersigned is named therein as mortgagee or
beneficiary or has become mortgagee by virtue of indorsement of the Mortgage
Note secured by any such Mortgage or Deed of Trust) and for which ____________
is acting as master servicer.
This appointment shall apply only to transactions which the Trustee is
authorized to enter into under the Indenture, but in no event shall apply to any
transactions other than the following enumerated transactions only:
1. The modification or re-recording of a Mortgage or Deed of Trust,
where said modification or re-recording is for the purpose of correcting the
Mortgage or Deed of Trust to conform same to the original intent of the parties
thereto or to correct title errors discovered after such title insurance was
issued and said modification or re-recording, in either instance, does not
adversely affect the lien of the Mortgage or Deed of Trust as insured.
2. The subordination of the lien of a Mortgage or Deed of Trust to an
easement in favor of a public utility company or a government agency or unit
with powers of eminent domain; this section shall include, without limitation,
the execution of partial
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satisfaction/releases, partial reconveyances or the execution of requests to
trustees to accomplish same.
3. The qualified subordination of the lien of a Mortgage or Deed of
Trust to a lien of a creditor that is created in connection with the refinancing
of a debt secured by seller that was superior to the lien of the Mortgage or
Deed of Trust.
4. With respect to a Mortgage or Deed of Trust, the foreclosure, the
taking of a deed in lieu of foreclosure, or the completion of judicial or
non-judicial foreclosure or termination, cancellation or rescission of any such
foreclosure, including, without limitation, any and all of the following acts:
(a) The substitution of trustee(s) serving under a Deed of Trust, in
accordance with state law and the Deed of Trust;
(b) Statements of breach or non-performance;
(c) Notices of default;
(d) Cancellations/rescissions of notices of default and/or notices
of sale;
(e) The taking of a deed in lieu of foreclosure; and
(f) Such other documents and actions as may be necessary under the
terms of the Mortgage, Deed of Trust or state law to expeditiously complete said
transactions.
5. The conveyance of the properties to the mortgage insurer, or the
closing of the title to the property to be acquired as real estate owned, or
conveyance of title to real estate owned.
6. The completion of loan assumption agreements.
7. The full satisfaction/release of a Mortgage or Deed of Trust or full
reconveyance upon payment and discharge of all sums secured thereby, including,
without limitation, cancellation of the related Mortgage Note.
8. The assignment of any Mortgage or Deed of Trust and the related
Mortgage Note, in connection with the repurchase of the Revolving Credit Loan
secured and evidenced thereby pursuant to the requirements of a ____________
Seller Contract, including, with limitation, by reason of conversion of an
adjustable rate mortgage loan from a variable rate to a fixed rate.
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9. The full assignment of a Mortgage or Deed of Trust upon payment and
discharge of all sums secured thereby in conjunction with the refinancing
thereof, including, without limitation, the endorsement of the related Mortgage
Note. The undersigned gives said Attorney-in-Fact full power and authority to
execute such instruments and to do and perform all and every act and thing
necessary and proper to carry into effect the power or powers granted by or
under this Limited Power of Attorney as fully as the undersigned might or could
do, and hereby does ratify and confirm to all that said Attorney-in-Fact shall
lawfully do or cause to be done by authority hereof.
Third parties without actual notice may rely upon the exercise of the
power granted under this Limited Power of Attorney; and may be satisfied that
this Limited Power of Attorney shall continue in full force and effect has not
been revoked unless an instrument of revocation has been made in writing by the
undersigned.
----------------------,
not to its individual capacity, by
solely Indenture
Trustee under the Agreements and the
Indentures
Name:
Name: Title:
Title:
STATE OF )
SS.
COUNTY OF )
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On this __th day of _______, 199__, before me the undersigned,
Notary Public of said State, personally appeared _______________________________
personally known to me to be duly authorized officers of ______________that
executed the within instrument and personally known to me to be the persons who
executed the within instrument on behalf of ______________ therein named, and
acknowledged to me such ______________ executed the within instrument pursuant
to its by-laws.
WITNESS my hand and official seal.
Notary Public in and for the
State of
After recording, please mail to:
Attn:
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EXHIBIT C
FORM OF REQUEST FOR RELEASE
DATE:
TO:
RE: REQUEST FOR RELEASE OF DOCUMENTS
In connection with your administration of the Revolving Credit Loans, we
request the release of the Mortgage File described below.
Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle one) Revolving Credit Loan Prepaid
in Full
Revolving Credit Loan Repurchased
"We hereby certify that all amounts received or to be received in
connection with such payments which are required to be deposited have been or
will be so deposited as provided in the Servicing Agreement."
-------------------------------------
Authorized Signature
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<PAGE>
****************************************************************** TO
CUSTODIAN/INDENTURE TRUSTEE: Please acknowledge this request, and check off
documents being enclosed with a copy of this form. You should retain this form
for your files in accordance with the terms of the Servicing Agreement.
Enclosed Documents: [ ] Promissory Note
[ ] Mortgage or Deed of Trust
[ ] Assignment(s) of Mortgage or
Deed of Trust
[ ] Title Insurance Policy
[ ] Other: ______________________ Title
Date
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Exhibit 5.1
-----------
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
July 22, 1997
Credit Suisse First Boston Mortgage Securities Corp.
11 Madison Avenue
New York, New York 10010
Gentlemen:
We have acted as special counsel to Credit Suisse First Boston Mortgage
Securities Corp. (the "Company") in connection with the preparation of the
registration statement on Form S-3 (No. 333-29239) (the "Registration
Statement") relating to the proposed offering from time to time in one or more
series (each, a "Series") by one or more trusts of ABS Mortgage and
Manufactured Housing Contract Pass-Through Certificates (the "Certificates")
and ABS Mortgage and Manufactured Housing Contract-Backed Notes (the "Notes"
and together with the Certificates, the "Securities"). The Registration
Statement has been filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as Amended (the "Act"). As
set forth in the Registration Statement, each Series of Securities is to be
issued under and pursuant to the terms of a separate pooling and servicing
agreement, or sale and servicing agreement, trust agreement and indenture
(each, an "Agreement") among the Company, as depositor, the servicer and an
independent trustee (the "Trustee") to be identified in the prospectus
supplement for each Series of Certificates.
As such counsel, we have examined copies of the Restated Certificate of
Incorporation, Certificate of Amendment of Certificate of Incorporation and
By-Laws of the Company, the Registration Statement, the base Prospectus and
forms of Prospectus Supplement included therein, the form of each Agreement,
and originals or copies of such other corporate minutes, records,
agreements and other instruments of the Company, certificates of public
officials and other documents and have
<PAGE>
made such examinations of law, as we have deemed necessary to form the basis
for the opinions hereinafter expressed. In our examination of such materials,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to original
documents of all copies submitted to us. As to various questions of fact
material to such opinions, we have relied, to the extent we deemed
appropriate, upon representations, statements and certificates of officers
and representatives of the Company and others.
Attorneys involved in the preparation of this opinion are admittcd to practice
law in the State of New York and we do not express any opinion herein
concerning any law other than the federal laws of the United States of
America, the laws of the State of New York and the General Corporation
Law of the State of Delaware.
Based upon and subject to the foregoing, we are of the opinion that:
1. When the issuance, execution and delivery of each Series of Notes has
been authorized by all necessary corporate action of the Company in accordance
with the provisions of the related Agreement or Agreements, and when such
Notes have been duly executed and delivered, authenticated by the Trustee and
sold as described in the Registration Statement, assuming that the terms of
such Notes are otherwise in compliance with applicable law at such time, such
Notes will constitute binding obligations of the issuer thereof in accordance
with their terms and the terms of such Agreement or Agreements. This opinion
is subject to the effect of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto and we express no opinion
with respect to the application of equitable principles or remedies in any
proceeding, whether at law or in equity.
2. When the issuance, execution and delivery of each Series of
Certificates has been authorized by all necessary corporate action of the
Company in accordance with the provisions of the related Agreement or
Agreements, and when such Certificates have been duly executed and delivered,
authenticated by the Trustee and sold as described in the Registration
Statement, assuming that the terms of such Certificates are otheywise in
compliance with applicable law at such time, such Certificates will be legally
issued, fully paid and non-assessable.
3. The statements set forth in the base Prospectus under the heading
"Federal Income Tax Considerations," to the extent they constitute matters of
law or legal conclusions with respect thereto, are correct in all material
respects.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the references to this firm in the Prospectus and
the related Prospectus Supplement which forms a part of the Registration
Statement and to the filing of this opinion as an exhibit to any application
made by or on behalf of the Company or any dealer in connection with the
registration of the Securities under the securities or blue sky laws of any
state or jurisdiction. In giving such consent, we do not admit hereby that we
come within the category of persons whose consent is required under Section 7
of the Act or the Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan LLP
STROOCK & STROOCK & LAVAN LLP
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of eligibility under the Trust
Indenture Act of 1939 of a corporation
designated to act as trustee
__X__Check if an application to determine eligibility
of a trustee pursuant to section 305(b)(2)
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
280 PARK AVENUE
NEW YORK, NEW YORK 10017 13-4941247
(Address of principal (I.R.S. Employer
executive offices) Identification No.)
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
(Exact name of obligor as specified in its charter)
DELAWARE 33-3320910
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
11 MADISON AVENUE
NEW YORK, NEW YORK 10010
(Address of principal executive offices)
ABS MORTGAGE AND MANUFACTURED HOUSING CONTRACT MORTGAGE
PASS-THROUGH CERTIFICATES AND ABS MORTGAGE AND MANUFACTURED
CONTRACT BACKED NOTES
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
NAME ADDRESS
Office of the Comptroller 1114 Avenue of the
of the Currency Americas, Suite 3900
New York, New York 10036
(b) Whether it is authorized to exercise corporate trust
powers.
Yes.
Item 2. Affiliations with Obligor
If the obligor is an affiliate of the trustee, describe each
such affiliation.
None.
Item 16. List of Exhibits
Exhibit 1 -
Restated Organization Certificate of Bankers Trust Company dated
August 7, 1990, Certificate of Amendment of the Organization
Certificate of Bankers Trust Company dated June 21, 1995 -
Incorporated herein by reference to Exhibit 1 filed with Form T-1
Statement, Registration No. 333-25843.
Exhibit 2 -
State of New York, Banking Department Good Standing Certificate
dated July 1, 1997.
Exhibit 3 -
Existing By-Laws of Bankers Trust Company as amended dated
February 18, 1997 - Incorporated by reference to Exhibit 4 filed
with Form T-1 Statement, Registration No. 333-25843.
<PAGE>
Exhibit 4 -
Not Applicable.
Exhibit 5 -
Consent of Bankers Trust Company required by Section 321(b) of
the Act.
Exhibit 6 -
Reports of Condition of Bankers Trust Company dated as of March
31, 1997 - Incorporated by reference to Exhibit 7 with Form T-1
Statement, Registration No. 333-25843.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939 the trustee, Bankers Trust Company a New York Corporation,
organized and existing under the laws of New York, has duly
caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in the city
of Irvine, and State of California, on the 17th day of July,
1997.
Bankers Trust Company
By: /s/ Judy L. Gomez
Judy L. Gomez
Assistant Vice President
<PAGE>
State of New York,
BANKING DEPARTMENT
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New
York, DO HEREBY CERTIFY:
THAT, BANKERS TRUST COMPANY is a corporation duly organized and
existing under the laws of the State of New York and has its principal office
and place of business at 130 Liberty Street, New York, New York.
THAT, BANKERS TRUST COMPANY is validly existing as a banking
organization under the Banking Law of the State of New York. The authorization
certificate of such corporation has not been revoked or suspended and such
corporation is a subsisting trust company under the supervision of this
Department.
WITNESS, my hand and official seal of the Banking Department at the City of New
York,
this 1st day of July in the Year of our Lord
--- ----
one thousand nine hundred and ninety-seven
<PAGE>
EXHIBIT 5
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939 in connection with the proposed issue by
Credit Suisse First Boston Mortgage Securities Corp. ABS Mortgage
and Manufactured Housing Contract Mortgage Pass-Through
Certificates and ABS Mortgage and Manufactured Contract Backed
Notes, we hereby consent that reports of examination by Federal,
State, Territorial or District authorities may be furnished by
such authorities to the Securities and Exchange Commission upon
request therefor.
Dated: July 17, 1997 Bankers Trust Company
By: /s/ Judy L. Gomez
Judy L. Gomez
Assistant Vice President
