<PAGE>
<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MARCH 5, 1998
$139,648,100
Credit Suisse First Boston Mortgage Securities Corp.,
Depositor
[Logo]
Seller and Servicer
IndyMac Manufactured Housing Contract Pass-Through Certificates, Series 1998-1
<TABLE>
<C> <C> <S> <C> <C> <C> <C> <C> <C>
$ 7,000,000 5.6875% Class A-1 $18,300,000 6.4900% Class A-4 $11,699,000 7.1100% Class M*
$26,850,000 6.3900% Class A-2 $39,020,000 6.9600% Class A-5* $12,429,000 7.5900% Class B-1*
$24,350,000 6.3700% Class A-3 $ 100 6.5000% Class A-R
</TABLE>
- ------------
* Pass-Through Rate subject to adjustment as described herein.
(Principal and interest payable on the twenty-fifth day of each month, beginning
in April 1998)
The IndyMac Manufactured Housing Contract Pass-Through Certificates, Series
1998-1 (the 'Certificates') will represent beneficial interests in a trust
(the 'Trust'), the assets of which will consist primarily of manufactured
housing installment sales contracts and installment loan agreements
(the 'Contracts') originated or purchased by IndyMac, Inc.
('IndyMac') or an affiliate thereof in the ordinary course of
its business and conveyed, together with certain related
property described herein, by IndyMac to Credit Suisse
First Boston Mortgage Securities Corp. (the 'Depositor')
and then conveyed by the Depositor to the Trust.
The Trust will be created and the Certificates
will be issued pursuant to a pooling and
servicing agreement among the
Depositor, IndyMac and The Bank of
New York, as Trustee. See
'Description of the
Certificates' herein.
(Continued on next page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE OFFERED CERTIFICATES, SEE 'RISK FACTORS' ON PAGE S-14
HEREIN AND PAGE 15 OF THE ACCOMPANYING PROSPECTUS.
THE OFFERED CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., THE TRUSTEE, INDYMAC, THE
SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. THE OFFERED CERTIFICATES
WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PARTY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS DEPOSITOR(1)(2)
--------------- ------------- ---------------
<S> <C> <C> <C>
Class A-1 Certificates.................................. 100.000000% 0.150% 99.850000%
Class A-2 Certificates.................................. 99.994676% 0.210% 99.784676%
Class A-3 Certificates.................................. 99.997128% 0.260% 99.737128%
Class A-4 Certificates.................................. 99.991220% 0.340% 99.651220%
Class A-5 Certificates.................................. 99.928931% 0.450% 99.478931%
Class A-R Certificates.................................. 100.000000% 0.250% 99.750000%
Class M Certificates.................................... 99.976141% 0.500% 99.476141%
Class B-1 Certificates.................................. 99.733714% 0.500% 99.233714%
Total................................................... $139,580,745.37 $ 488,645.25 $139,092,100.12
</TABLE>
(1) Plus accrued interest, if any, at the applicable Pass-Through Rate from (i)
for the Class A-1 Certificates, the Closing Date and (ii) for all other
Classes of Offered Certificates, March 1, 1998.
(2) Before deducting expenses payable by the Depositor, estimated to be
$300,000.
The Offered Certificates are offered by the several Underwriters when, as
and if issued by the Depositor, delivered to and accepted by the Underwriters
and subject to the Underwriters' right to reject orders in whole or in part. It
is expected that delivery of the Offered Certificates, in book-entry form, will
be made through the facilities of The Depository Trust Company on or about March
13, 1998, against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
Prospectus Supplement dated March 5, 1998.
<PAGE>
<PAGE>
(Continued from the cover page)
The Certificates will consist of six classes of senior Certificates
(respectively, the 'Class A-1 Certificates,' the 'Class A-2 Certificates,' the
'Class A-3 Certificates,' the 'Class A-4 Certificates,' the 'Class A-5
Certificates' and the 'Class A-R Certificates' and, collectively, the 'Class A
Certificates' or the 'Senior Certificates') and four classes of subordinate
Certificates (respectively, the 'Class M Certificates,' the 'Class B-1
Certificates,' the 'Class B-2 Certificates' and the 'Class X Certificates'). The
Class M, Class B-1 and Class B-2 Certificates are collectively referred to
herein as the 'Subordinate Certificates.' The Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class M, Class B-1 and Class B-2 Certificates will
respectively evidence in the aggregate initial 4.79%, 18.36%, 16.65%, 12.51%,
26.68%, 8.00%, 8.50% and 4.50% undivided interests in the Trust. Only the Class
A, Class M and Class B-1 Certificates (collectively, the 'Offered Certificates')
are being offered hereby.
Payments of principal and interest on the Certificates will be distributed
to Certificateholders on the twenty-fifth day of each month (or, if such day is
not a Business Day, on the immediately succeeding Business Day), commencing
April 27, 1998 (each, a 'Distribution Date'). The Class A-1, Class A-2, Class
A-3, Class A-4 and Class A-R Certificates will have fixed Pass-Through Rates of
5.6875%, 6.3900%, 6.3700%, 6.4900% and 6.5000% per annum, respectively, computed
on the basis of (i) in the case of the Class A-1 Certificates, a 360-day year
and the actual number of days in the applicable Interest Accrual Period and (ii)
in the case of the Class A-2, Class A-3, Class A-4 and Class A-R Certificates, a
360-day year of twelve 30-day months. The Pass-Through Rates for the Class A-5,
Class M, Class B-1 and Class B-2 Certificates on any Distribution Date will be
the lesser of (i) 6.9600%, 7.1100%, 7.5900% and 9.0000% per annum, respectively,
computed on the basis of a 360-day year of twelve 30-day months, or (ii) the
Weighted Average Net Contract Rate for such Distribution Date, calculated as
described herein. The right to receive distributions of interest and principal
by the holders of the Subordinate Certificates will be subordinated to such
rights of the Senior Certificateholders, to the extent provided herein. See
'Description of the Certificates.'
Elections will be made to treat certain assets of the Trust as two separate
real estate mortgage investment conduits (each, a 'REMIC') under the Internal
Revenue Code of 1986, as amended (the 'Code'). The Offered Certificates (other
than the Class A-R Certificates), the Class B-2 Certificates and the Class X
Certificates will represent 'regular interests' in one of the REMICs. The Class
A-R Certificates will represent beneficial ownership of the 'residual interest'
in each REMIC. See 'Certain Federal Income Tax Consequences' herein and in the
Prospectus.
------------------------
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of any Class of Offered
Certificates including over-allotment, stabilizing and short-covering
transactions in such Certificates. For a description of these activities, see
'Underwriting.'
The Certificates will be part of a separate series of ABS Mortgage and
Manufactured Housing Contract Asset-Backed Certificates being offered by the
Depositor from time to time pursuant to a Prospectus dated March 5, 1998 (the
'Prospectus'), of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains important
information about the offering of the Offered Certificates that is not contained
herein, and prospective investors are urged to read both this Prospectus
Supplement and the Prospectus in full. Sales of the Offered Certificates may not
be consummated unless the purchaser has received both this Prospectus Supplement
and the Prospectus.
S-2
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<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used herein that are not otherwise
defined shall have the meanings ascribed thereto elsewhere in this Prospectus
Supplement or in the Prospectus. See the Index of Principal Terms for the
location herein of certain principal terms.
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<S> <C>
Securities Issued................... IndyMac Manufactured Housing Contract Pass-Through Certificates, Series
1998-1 (the 'Certificates') will be issued pursuant to a pooling and
servicing agreement, to be dated as of March 1, 1998 (the 'Agreement'),
among Credit Suisse First Boston Mortgage Securities Corp., as depositor
(the 'Depositor'), IndyMac, Inc. ('IndyMac'), as seller and servicer (in
such capacities, the 'Seller' and the 'Servicer,' respectively), and The
Bank of New York, as trustee (the 'Trustee').
The Certificates will consist of six classes (each, a 'Class') of senior
Certificates (respectively, the 'Class A-1 Certificates,' the 'Class A-2
Certificates,' the 'Class A-3 Certificates,' the 'Class A-4 Certificates,'
the 'Class A-5 Certificates' and the 'Class A-R Certificates' and
collectively, the 'Class A Certificates' or the 'Senior Certificates') and
four Classes of subordinate Certificates (respectively, the 'Class M
Certificates,' the 'Class B-1 Certificates,' the 'Class B-2 Certificates'
and the 'Class X Certificates'). The Class B-1 Certificates and Class B-2
Certificates are referred to collectively herein as the 'Class B
Certificates.' The Class M Certificates and Class B Certificates are
referred to collectively herein as the 'Subordinate Certificates.' The
Offered Certificates will be issued in the amounts (with respect to each
Class, the 'Initial Certificate Principal Balance') and bear the pass-
through rates (with respect to each Class, the 'Pass-Through Rate') set
forth below:
</TABLE>
<TABLE>
<CAPTION>
INITIAL CERTIFICATE PASS-THROUGH
TITLE PRINCIPAL BALANCE RATE
------------------------------------- -------------------- ------------
<S> <C> <C> <C>
Class A-1 Certificates............... $ 7,000,000 5.6875%(1)
Class A-2 Certificates............... $ 26,850,000 6.3900%(2)
Class A-3 Certificates............... $ 24,350,000 6.3700%(2)
Class A-4 Certificates............... $ 18,300,000 6.4900%(2)
Class A-5 Certificates............... $ 39,020,000 6.9600%(3)
Class A-R Certificates............... $ 100 6.5000%(2)
Class M Certificates................. $ 11,699,000 7.1100%(3)
Class B-1 Certificates............... $ 12,429,000 7.5900%(3)
</TABLE>
<TABLE>
<S> <C>
------------------------
(1) Computed on the basis of a 360-day year and the actual number of days
in the applicable Interest Accrual Period.
(2) Computed on the basis of a 360-day year of twelve 30-day months.
(3) The lesser of (i) the Pass-Through Rate specified above, computed on
the basis of a 360-day year of twelve 30-day months, or (ii) the Weighted
Average Net Contract Rate (as defined herein) for the related Distribution
Date.
</TABLE>
S-3
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<S> <C>
The following chart sets forth information regarding securities to be
issued pursuant to the Agreement but which are not offered hereby:
</TABLE>
<TABLE>
<CAPTION>
Initial Certificate Pass-Through
Title Principal Balance Rate
----- ----------------- -----------
<S> <C>
Class B-2 Certificates............... $ 6,580,841 9.0000%(1)
Class X Certificates(2)..............
</TABLE>
<TABLE>
<S> <C>
------------------------
(1) The lesser of (i) the Pass-Through Rate specified above, computed on
the basis of a 360-day year of twelve 30-day months, or (ii) the Weighted
Average Net Contract Rate for the related Distribution Date.
(2) The Class X Certificates are interest-only securities that have no
stated Certificate Principal Balance or Pass-Through Rate, but will
represent the right to receive a distribution on each Distribution Date of
certain interest amounts, as more fully set forth in the Agreement.
Securities Offered.................. The Class A, Class M and Class B-1 Certificates are the only Certificates
being offered hereby (the 'Offered Certificates'). The Offered Certificates
(other than the Class A-R Certificates) will be issued in book-entry form
in minimum denominations of $1,000 and integral multiples of $1 in excess
thereof (the 'Book-Entry Certificates'). The Class A-R Certificates will be
issued in definitive form as fully registered physical certificates. The
certificates representing the Class A-R Certificates will be subject to
certain transfer restrictions. See 'Description of the
Certificates -- Registration of the Offered Certificates -- The Class A-R
Certificates' herein. The other Offered Certificates initially will be
represented by certificates registered in the name of Cede & Co., as the
nominee of The Depository Trust Company ('DTC').
Except as otherwise stated herein, certificates representing the Offered
Certificates will be issued in definitive form only under the limited
circumstances described herein. All references herein to 'holders' or
'holders of the Offered Certificates' will reflect the rights of beneficial
owners of Offered Certificates issued in book-entry form ('Certificate
Owners') as they may indirectly exercise such rights through DTC, and
participating members thereof, except as otherwise specified herein. See
'Risk Factors -- Book-Entry Registration' and 'Description of the
Certificates -- Registration of the Offered Certificates' herein and 'Risk
Factors -- Limitation on Exercise of Rights Due to Book-Entry Registration'
in the Prospectus.
The Offered Certificates will evidence undivided interests in the Contract
Pool and certain other property held in trust for the benefit of the
Certificateholders (collectively, the 'Trust Fund'). The undivided
percentage interest (the 'Percentage Interest') of a Class A, Class M or
Class B Certificate in distributions on the related Class of Certificates
will equal the percentage obtained from dividing the denomination of such
Certificate by the Initial Certificate Principal Balance of such Class of
Certificates.
The Offered Certificates will not represent interests in or obligations of
the Depositor, the Trustee, IndyMac or any of their respective affiliates.
Neither the Offered Certificates nor the underlying Contracts will be
insured or guaranteed by any governmental agency or instrumentality or by
any other party.
Cut-off Date........................ March 1, 1998.
Due and Prepayment Periods.......... With respect to each Distribution Date, the calendar month preceding the
month in which the Distribution Date occurs.
Closing Date........................ On or about March 13, 1998.
</TABLE>
S-4
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<S> <C>
Interest Accrual Period............. With respect to each Distribution Date, (i) for the Class A-1 Certificates,
the period commencing on the 25th day of the preceding month through the
24th day of the month in which such Distribution Date occurs (except that
the first Interest Accrual Period for the Class A-1 Certificates will be
the period from the Closing Date through April 24, 1998) and (ii) for all
other Classes of Certificates, the calendar month preceding the month in
which the Distribution Date occurs.
Distribution Dates.................. Distributions on the Certificates will be made on the twenty-fifth day of
each month (or, if such day is not a Business Day, on the immediately
succeeding Business Day), commencing April 27, 1998 (each, a 'Distribution
Date'). A 'Business Day' will be any day other than (i) a Saturday or
Sunday or (ii) a day on which banks in the States of New York or California
are authorized or obligated by law or executive order to be closed.
Distributions....................... On each Distribution Date, distributions to the holders of Certificates of
a Class will be made in an amount equal to their respective Percentage
Interests multiplied by the aggregate amount distributed on such Class of
Certificates on such Distribution Date. So long as the Offered Certificates
are registered in the name of Cede & Co., as nominee of DTC, distributions
on each Distribution Date will be made to the holders of record of the
related Offered Certificates (the 'Certificateholders') as of the close of
business on the Business Day immediately preceding such Distribution Date
(each, a 'Record Date'), except that the final distribution in respect of
the Certificates will only be made upon presentation and surrender of the
Certificates at the office or agency appointed by the Trustee for that
purpose in New York, New York. With respect to the Class A-R Certificates
and, if Definitive Certificates are issued with respect to any other Class
of Offered Certificates, the Record Date shall be the close of business on
the last Business Day of the month immediately preceding the month in which
the related Distribution Date occurs. As more fully described herein under
'Description of the Certificates -- Distributions -- Priority of
Distributions,' distributions to Certificateholders generally will be
applied first to the payment of interest and interest shortfalls, second to
the payment of any unpaid principal and third, if any principal is then
due, to the payment of principal of the related Class of Certificates. With
respect to each Distribution Date, interest on the Certificates will accrue
during the related Interest Accrual Period. The Available Distribution
Amount with respect to each Distribution Date will be calculated as
described herein under 'Description of the
Certificates -- Distributions -- Available Distribution Amount.' On each
Distribution Date, the Available Distribution Amount will be distributed in
the amounts and in the order of priority set forth herein under
'Description of the Certificates -- Distributions -- Priority of
Distributions.'
Effect of Priority Sequence of
Principal Distributions........... Prior to the Cross-over Date, the principal amounts described herein under
'Description of the Certificates -- Distributions -- Priority of
Distributions' generally will be distributed, to the extent of the
Available Distribution Amount after payment of interest and interest
shortfalls on the Certificates, first to the Senior Certificates,
sequentially beginning with the Class A-R Certificates and then in
numerical Class order, and then to each Class of Subordinate Certificates
in order of seniority. After
</TABLE>
S-5
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<PAGE>
<TABLE>
<S> <C>
the Cross-over Date, unless one or more of the Principal Distribution Tests
is not met, such principal amounts generally will be allocated to the Class
A Certificates, the Class M Certificates and the Class B Certificates in
accordance with the respective Class A, Class M and Class B Percentages and
within each Class in the order of priority described herein. See
'Description of the Certificates -- Distributions -- Priority of
Distributions' herein.
The foregoing sequence of principal distributions should, unless offset by
other cash flow insufficiencies due to delinquencies and liquidation
losses, have the general effect of accelerating the amortization of the
Senior Certificates sequentially beginning with the Class A-R Certificates
and then in numerical Class order (or, in the case of the Subordinate
Certificates, each Class of Subordinate Certificates that is senior in
payment of principal to one or more other Classes of Subordinate
Certificates) and delaying the amortization of the related Subordinate
Certificates, from what it would be without such prioritization, thereby
increasing the respective interest in the Trust Fund evidenced by such
Subordinate Certificates. Increasing the respective interest of one or more
Classes of Subordinate Certificates relative to that of the Senior
Certificates is intended to preserve, as provided herein, the availability
on each Distribution Date of the subordination provided by the related
Subordinate Certificates. The aggregate amount of principal paid on any
Class of Certificates will not exceed its Initial Certificate Principal
Balance. See 'Description of the Certificates' herein.
Prepayment Considerations and
Risks............................. The Contracts may be prepaid at any time without penalty and, accordingly,
the rate of principal payments thereon is likely to vary from time to time.
The Offered Certificates may be sold at a discount to their principal
amounts. A slower than anticipated rate of principal payments on the
Contracts is likely to result in a lower than anticipated yield on the
Offered Certificates if they are purchased at a discount. See 'Risk
Factors -- Prepayment Considerations' and 'Yield and Prepayment
Considerations' herein and 'Maturity, Prepayment and Yield Considerations'
in the Prospectus.
Subordination of the Subordinate
Certificates and the Class X
Certificates...................... The rights of the Subordinate Certificateholders to receive distributions
of amounts collected on or in respect of the Contracts will be subordinated
to such rights of the Senior Certificateholders to the extent described
herein. Interest and interest shortfalls on the Subordinate Certificates
will not be subordinated to principal payments on the Senior Certificates.
The foregoing subordination is intended to enhance the likelihood of
receipt by the holders of each Class of Senior Certificates of the full
amount of their monthly payments of interest and the ultimate receipt by
such holders of principal equal to the related Initial Certificate
Principal Balances.
The protection afforded to the holders of (i) the Senior Certificates by
means of the subordination of the Subordinate Certificates and the Class X
Certificates, (ii) the Class A and Class M Certificates by means of the
subordination of the Class B and Class X Certificates and (iii) the Class
B-1 Certificates by means of the subordination of the Class B-2 and Class X
Certificates, in each case to the extent described herein, will be
</TABLE>
S-6
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<TABLE>
<S> <C>
accomplished by the application of the Available Distribution Amount on
each Distribution Date in the order specified herein under 'Description of
the Certificates -- Distributions -- Priority of Distributions' and
' -- Subordination of the Subordinate Certificates and the Class X
Certificates.'
Overcollateralization............... Excess interest collections will be applied, to the extent available, to
make accelerated payments of principal on the Certificates. The 'Target
Overcollateralization Amount' will generally mean, (i) for any Distribution
Date prior to the Cross-over Date, 1.25% of the Cut-off Date Pool Balance
and (ii) for any other Distribution Date, the lesser of (a) 1.25% of the
Cut-off Date Pool Balance and (b) 2.25% of the then-outstanding Pool
Balance; provided, however, that so long as any Class of Certificates is
outstanding, the Target Overcollateralization Amount will not be less than
0.50% of the Cut-off Date Pool Balance.
Losses on Liquidated
Contracts......................... As described herein, on each Distribution Date the aggregate distribution
of principal to the holders of Certificates is intended to include the
Contract Principal Balance of each Contract that became a Liquidated
Contract during the related Prepayment Period. If the amounts received by
the Servicer in connection with the liquidation of a Liquidated Contract,
whether through foreclosure thereon or repossession and resale of the
related manufactured home or otherwise (including insurance proceeds
collected in connection with such liquidation) ('Liquidation Proceeds'),
net of reasonable, out-of-pocket costs and expenses (exclusive of the
Servicer's overhead costs) incurred by the Servicer in connection with
liquidation of such Contract or disposition of any related REO property
('Liquidation Expenses'), are less than the Contract Principal Balance of
such Liquidated Contract and accrued and unpaid interest thereon, then to
the extent such deficiency is not covered by any excess interest
collections on nondefaulted Contracts, the deficiency may, in effect, be
absorbed first by a reduction in the Current Overcollateralization Amount,
then by the Class B-2 Certificateholders, then by the Class B-1
Certificateholders and then by the Class M Certificateholders, because a
portion of future Available Distribution Amounts funded by future principal
collections on or in respect of the Contracts, up to the aggregate amount
of such deficiencies, that would otherwise have been distributable to the
related Subordinate Certificateholders may instead be paid to the Senior
Certificateholders. If the protection afforded to the holders of a Class of
Subordinate Certificates by the subordination of one or more other Classes
of Subordinate Certificates is exhausted, the holders of such Class of
Subordinate Certificates will incur a loss on their investment. If the
protection afforded to the holders of a Class of Senior Certificates by the
subordination of the Subordinate Certificates and the Class X Certificates
is exhausted, the holders of the Senior Certificates will incur a loss on
their investment.
The 'Contract Principal Balance' of a Contract as of any date of
determination will be its unpaid principal balance, computed as described
herein under 'IndyMac, Inc. -- Manufactured Housing Division -- Servicing'
on the basis of the actuarial method. In general, a 'Liquidated Contract'
will be a defaulted Contract as to which all amounts that the Servicer
expects to recover through the date of sale or other disposition of
</TABLE>
S-7
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<TABLE>
<S> <C>
the Manufactured Home and any real property securing such Contract have
been received.
If the Available Distribution Amount for any Distribution Date is not
sufficient to distribute an amount equal to the full Formula Principal
Distribution Amount for such Distribution Date to the Certificateholders,
in addition to interest and interest shortfalls distributable to the
Certificateholders, the aggregate Certificate Principal Balance will be
greater than the Pool Balance. In such event, the amount of such deficiency
(the 'Liquidation Loss Amount') will be allocated first to the Class B-2
Certificates (the 'Class B-2 Liquidation Loss Amount') to reduce the Class
B-2 Adjusted Certificate Principal Balance. After the Class B-2 Adjusted
Certificate Principal Balance has been reduced to zero, any further
Liquidation Loss Amounts will be allocated to reduce the Class B-1 Adjusted
Certificate Principal Balance (the 'Class B-1 Liquidation Loss Amount').
After the Class B-1 Adjusted Certificate Principal Balance has been reduced
to zero, any further Liquidation Loss Amount will be allocated to reduce
the Class M Adjusted Certificate Principal Balance (the 'Class M
Liquidation Loss Amount'). Any such Liquidation Loss Amounts will be
reduced on subsequent Distribution Dates to the extent that the related
Available Distribution Amounts are sufficient to permit the distribution of
principal due on the Certificates on one or more prior Distribution Dates
but not paid. In the event the Adjusted Certificate Principal Balance of a
Class of Subordinate Certificates were to be reduced by a Liquidation Loss
Amount, interest accruing on such Class will be calculated on such reduced
Adjusted Certificate Principal Balance. On each Distribution Date, holders
of the Class M, Class B-1 and Class B-2 Certificates will be entitled to
receive from the Available Distribution Amount for such Distribution Date,
one month's interest at the related Pass-Through Rate on the Adjusted
Certificate Principal Balance of such Class immediately prior to such
Distribution Date. Additionally, such holders will be entitled to receive,
prior to any distribution of principal on the related class of Certificates
and each subordinate Class of Certificates, (i) one month's interest at the
related Pass-Through Rate on the Liquidation Loss Amount for such Class as
of the immediately preceding Distribution Date (each, a 'Liquidation Loss
Interest Amount') plus (ii) any amounts distributable under clause (i) or
this clause (ii) on such Class on the previous Distribution Date but not
previously distributed, plus, to the extent legally permissible, interest
accrued on any such amount during the related Interest Accrual Period at
the related Pass-Through Rate. The 'Adjusted Certificate Principal Balance'
of any Class of Subordinate Certificates on any Distribution Date will be
its Certificate Principal Balance prior to such Distribution Date less any
Liquidation Loss Amounts allocated to such Class on the preceding
Distribution Date. See 'Description of the Certificates -- Realized Losses
on Liquidated Contracts' and ' -- Subordination of the Subordinate
Certificates and the Class X Certificates' and 'Yield and Prepayment
Considerations' herein.
Servicer............................ IndyMac will act as the Servicer of the Contracts and will be the Master
Servicer for purposes of the Prospectus. See 'IndyMac, Inc.' and
'Description of the Certificates -- Certain Other Matters Regarding the
Servicer' herein.
</TABLE>
S-8
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Advances............................ On each Deposit Date, the Servicer will be required to make Advances in
respect of the related Due Period, in an amount equal to the interest
portion of the related Monthly Payment that was not timely made. The
Servicer will not be required to advance principal in respect of any
Contract. The Servicer will be required to make an Advance only to the
extent that it determines such Advance will be recoverable from future
payments and collections on or in respect of the Contracts.
Final Distribution Dates............ To the extent not previously paid prior to such date, the outstanding
principal amount of (i) the Class A-1 Certificates will be payable on the
March 1999 Distribution Date (the 'Class A-1 Final Distribution Date') and
(ii) each other Class of Offered Certificates will be payable on the
September 2028 Distribution Date (the 'Final Scheduled Distribution Date').
The Final Scheduled Distribution Date has been determined by adding seven
months to the month in which the maturity date of the Contract with the
latest stated maturity as of the Cut-off Date occurs. Because the rate of
distributions in reduction of the Certificate Principal Balances of the
Offered Certificates will depend on the rate of amortization of the
Contracts (including amortization due to prepayments and defaults), the
actual final distribution on any Class of Offered Certificates could occur
significantly earlier than the Class A-1 Final Distribution Date or the
Final Scheduled Distribution Date, as the case may be. See 'Risk
Factors -- Prepayment Considerations' and 'Yield and Prepayment
Considerations' herein.
Termination......................... The Depositor and the Servicer will each have the option to purchase from
the Trust all Contracts then outstanding and all other property in the
Trust Fund on any Distribution Date on or after the first Distribution Date
as of which the Pool Balance is less than 10% of the Cut-off Date Pool
Balance. See 'Description of the Certificates -- Termination' herein.
If neither the Depositor nor the Servicer exercises its optional
termination right within 90 days after such right can first be exercised,
the Trustee shall solicit bids for the purchase of all Contracts then
outstanding and all other property in the Trust Fund. In the event that
satisfactory bids are received as described herein under 'Description of
the Certificates -- Termination,' the sale proceeds will be distributed to
Certificateholders. If satisfactory bids are not received, the Trustee
shall decline to sell such Contracts and other property of the Trust Fund,
and shall not be under any obligation to solicit any further bids or
otherwise negotiate any further sale of the Contracts. See 'Description of
the Certificates -- Termination' herein.
The Contracts....................... The assets of the Trust will primarily consist of a pool (the 'Contract
Pool') of fixed rate manufactured housing installment sales contracts and
installment loan agreements (collectively, the 'Contracts') secured by
security interests in manufactured homes (the 'Manufactured Homes')
financed or refinanced with the proceeds of the Contracts and, with respect
to certain of the Contracts (the 'Land-and-Home Contracts'), secured by
liens on the real estate on which the related Manufactured Homes are
located. The Contract Pool will consist of approximately 3,634 Contracts
having an aggregate unpaid Contract Principal Balance as of the Cut-off
Date of approximately $146,228,941 (the 'Cut-off Date Pool Balance'). The
properties underlying the Contracts as of the Cut-off Date were located in
47 states. Substantially all of the Contracts bear interest at an annual
percentage rate (each, an 'APR') which will be
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equal to or higher than the sum of (i) the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-R or Class M Pass-Through Rate, as the case
may be, and (ii) the rate at which the Servicing Fee is calculated. Monthly
payments of principal of and interest on the Contracts will be due on
various days (each, a 'Due Date') throughout each Due Period. All of the
Contracts are Actuarial Contracts. As of the Cut-off Date, the APRs on the
Contracts ranged from 7.00% to 14.99%, with a weighted average APR of
10.30%. The Contracts have remaining terms to maturity as of the Cut-off
Date of at least 18 months but not more than 360 months and original terms
to maturity of at least 36 months but not more than 360 months. As of the
Cut-off Date, the Contracts had a weighted average remaining term to
maturity of approximately 305 months, a weighted average original term to
maturity of approximately 310 months and a weighted average seasoning of
approximately five months. As of the Cut-off Date, the weighted average
Loan-to-Value Ratio of the Contracts did not exceed 87% and no more than 3%
of the Contracts had Loan-to-Value Ratios greater than 95%. See 'The
Contract Pool' herein. The Agreement will require the Servicer to cause to
be maintained one or more standard hazard insurance policies with respect
to each Manufactured Home (other than a Manufactured Home in repossession)
in an amount and manner described herein under 'Description of the
Certificates -- Hazard Insurance Policies.' Generally, no other insurance
policies will be provided with respect to any Contract or Manufactured
Home.
Security Interests and Mortgages on
the Manufactured Homes; Repurchase
Obligations....................... In connection with the transfer of the Contracts to the Trustee, IndyMac
will assign the security interests in the Manufactured Homes and, with
respect to Land-and-Home Contracts, the liens on the real property on which
the Manufactured Homes are located, to the Trustee. Under the laws of most
states, Manufactured Homes constitute personal property, and perfection of
a security interest in a 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. With respect to the Contracts,
the Servicer will be required to take such steps as are necessary to
perfect and maintain perfection of the security interest in each
Manufactured Home in the name of IndyMac or an affiliate of IndyMac as
lienholder or legal titleholder, except that for so long as IndyMac or an
affiliate thereof is the Servicer, the Servicer will not be required to
cause notations to be made on any document of title relating to any
Manufactured Home to change the lienholder specified on any document of
title to the Trustee or to execute any instrument of transfer relating to
any Manufactured Home in favor of the Trustee (although IndyMac or an
affiliate of IndyMac, as applicable, will make a notation on the
certificate of title or execute a transfer instrument necessary to show
IndyMac or such affiliate, as applicable, as the lienholder or legal
titleholder). With respect to the Land-and-Home Contracts, assignments to
the Trustee of the mortgages or deeds of trust securing the Land-and-Home
Contracts (each, a 'Mortgage') will be recorded in the appropriate public
office for real property records, except in the State of California and
states where, in the opinion of counsel, such recording is not required to
protect the Trustee's interest against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the Seller.
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As a result of the foregoing, the security interests in the Manufactured
Homes in certain states may not be effectively transferred to the Trustee
or perfected. To the extent a security interest in a Manufactured Home is
perfected and is effectively transferred to the Trustee, the Trustee will
have a prior claim over subsequent purchasers of the Manufactured Homes,
holders of subsequently perfected security interests and creditors of any
of the Depositor, IndyMac or any applicable affiliate of IndyMac. If a
Manufactured Home were relocated to another state without reperfection of
the related security interest, or if it 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 perfected security interest in
such Manufactured Home. See 'Risk Factors -- Security Interests and Certain
Other Aspects of the Contracts' herein.
Federal and state consumer protection laws impose requirements upon
creditors in connection with extensions of credit and collections on
installment sales contracts and installment loan agreements, and certain of
these laws make an assignee of such a contract, such as the Trust Fund,
liable to the obligor thereon for any violation by the lender. IndyMac will
be obligated, subject to certain conditions described under 'Description of
the Certificates -- Conveyance of Contracts,' to repurchase any Contract as
to which a court of competent jurisdiction determines that IndyMac 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 'Risk Factors -- Consumer Protection Laws and
Other Limitations on Lenders' herein.
Certain Federal Income Tax
Consequences...................... An election will be made to treat the Contract Pool and certain other
assets of the Trust as a REMIC for federal income tax purposes (the
'Pooling REMIC'). An election also will be made to treat the 'regular
interests' in the Pooling REMIC and certain other assets of the Trust as
another REMIC for federal income tax purposes (the 'Issuing REMIC'). The
Class A Certificates (other than the Class A-R Certificates), the Class M
Certificates, the Class B Certificates and the Class X Certificates
(including Class X components) will be designated as 'regular interests' in
the Issuing REMIC and the Class A-R Certificates will represent the
beneficial ownership of the 'residual interest' in each of the Pooling
REMIC and the Issuing REMIC.
Because the Offered Certificates (other than the Class A-R Certificates)
will be considered REMIC regular interests, they will be taxable debt
obligations under the Internal Revenue Code of 1986, as amended (the
'Code'), and interest paid or accrued on such Certificates, including any
original issue discount, will be taxable to the holders of such
Certificates in accordance with the accrual method of accounting,
regardless of such Certificateholders' usual methods of accounting. Each of
the Class A Certificates (other than the Class A-R Certificates and the
Class A-5 Certificates) will be issued with original issue discount only if
its stated principal amount exceeds its issue price. The Class A-5, Class
B-1 and Class M Certificates will not be treated by the Trust as 'variable
rate debt instruments' as defined in Treasury Regulations promulgated under
the
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Code and, therefore, will be treated as issued with original issue discount
as described in 'Certain Federal Income Tax Consequences' herein and in the
Prospectus. For purposes of determining the amount and the rate of accrual
of original issue discount and market discount, the Depositor intends to
assume that there will be prepayments on the Contracts at a rate equal to
180% of the Prepayment Model. No representation is made as to whether the
Contracts will prepay at that rate or any other rate. See 'Certain Federal
Income Tax Consequences' herein and in the Prospectus.
For federal income tax purposes, the Offered Certificates (other than the
Class A-R Certificates) generally will be treated as 'regular interests in
a REMIC' for domestic building and loan associations, and 'real estate
assets' for real estate investment trusts ('REITs'), subject to the
limitations described in 'Certain Federal Income Tax Consequences' herein
and in the Prospectus. Similarly, interest on the Offered Certificates will
be considered 'interest on obligations secured by mortgages on real
property' for REITs, subject to the limitations described in 'Certain
Federal Income Tax Consequences' in the Prospectus.
The holders of the Class A-R Certificates, as holders of the residual
interest in the REMICs, will be subject to special federal income tax rules
that may significantly reduce the after-tax yield of such Certificates.
Further, significant restrictions apply to the transfer of the Class A-R
Certificates. See 'Certain Federal Income Tax Consequences' herein and in
the Prospectus.
ERISA Considerations................ A fiduciary of an employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ('ERISA'), or Section 4975 of the
Code should carefully review with its legal advisors whether the purchase
or holding of Class A-1, Class A-2, Class A-3, Class A-4 or Class A-5
Certificates could give rise to a transaction prohibited or not otherwise
permissible under ERISA or the Code. See 'ERISA Considerations' herein and
in the Prospectus.
AN EMPLOYEE BENEFIT PLAN OR OTHER PLAN SUBJECT TO ERISA AND/OR SECTION 4975
OF THE CODE, OR AN ENTITY PURCHASING CLASS A-R, CLASS M OR CLASS B-1
CERTIFICATES ON BEHALF OF ANY SUCH EMPLOYEE BENEFIT OR OTHER PLAN, WILL NOT
BE PERMITTED TO PURCHASE OR HOLD SUCH CERTIFICATES UNLESS THE OPINION OF
COUNSEL DESCRIBED UNDER 'ERISA CONSIDERATIONS' IS DELIVERED TO THE TRUSTEE.
SEE 'ERISA CONSIDERATIONS' HEREIN AND IN THE PROSPECTUS.
Legal Investment
Considerations.................... For so long as the Class A and Class M Certificates are rated in one of the
two highest rating categories by at least one nationally recognized
statistical rating organization, such Certificates will constitute
'mortgage related securities' under the Secondary Mortgage Market
Enhancement Act of 1984 ('SMMEA') and, as such, will be 'legal investments'
for certain types of institutional investors to the extent provided in
SMMEA. Because the Class B-1 Certificates will not be rated by a nationally
recognized statistical rating organization in one of its two highest
categories, the Class B-1 Certificates will not constitute 'mortgage
related securities' under SMMEA. No representation is made as to the
appropriate characterization of the Class B-1 Certificates under any laws
relating to investment restrictions and investors should consult their
legal
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advisors. See 'Risk Factors -- Limited Liquidity; Lack of SMMEA Eligibility
of the Class B-1 Certificates' and 'Legal Investment Considerations' herein
and 'Legal Investment' in the Prospectus.
The Class A-1 Certificates have been structured to be eligible securities
for purchase by money market funds under Rule 2a-7 under the Investment
Company Act of 1940, as amended. A money market fund should consult its
legal advisors regarding the eligibility of the Class A-1 Certificates
under Rule 2a-7, the fund's investment policies and objectives and an
investment in the Class A-1 Certificates.
Ratings............................. It is a condition to issuance that Moody's Investors Service, Inc.
('Moody's') and Fitch IBCA, Inc. ('Fitch' and, together with Moody's, the
'Rating Agencies') respectively rate (i) the Class A-1 Certificates 'P-1'
and 'F-1+,' (ii) the Class A-2, Class A-3, Class A-4, Class A-5 and Class
A-R Certificates 'Aaa' and 'AAA,' (iii) the Class M Certificates at least
'Aa3' and 'AA' and (iv) the Class B-1 Certificates at least 'Baa2' and
'BBB.' See 'Ratings' herein.
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RISK FACTORS
Prospective investors in the Offered Certificates should consider among
other things, the following risk factors in connection with the purchase of the
Offered Certificates.
GENERAL
An investment in the Offered 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 manufactured housing
contracts. The geographic location of the Manufactured Homes is set forth under
'The Contract Pool' herein. Based on Cut-off Date Pool Balance, 15.30%, 9.64%,
8.68%, 7.52%, 7.39%, 5.76%, 5.27% and 5.02% of such properties are located in
Texas, Michigan, Arizona, California, Nevada, Florida, Washington and Oregon,
respectively. Moreover, regardless of its location, manufactured housing
generally depreciates in value over time. Consequently, the market value of the
Manufactured Homes could be or become lower than the Contract Principal Balance
of the related Contracts. See 'The Contract Pool' herein and 'The Trust
Fund -- The Contract Pools' in the Prospectus. High delinquencies and
liquidation losses on the Contracts will have the effect of reducing, and could
eliminate, the protection against losses afforded by, with respect to (i) the
Senior Certificates, the subordination of the Subordinate and Class X
Certificates, (ii) the Class M Certificates, the subordination of the Class B
and the Class X Certificates and (iii) the Class B-1 Certificates, the
subordination of the Class B-2 and the Class X Certificates. If any such
protection is eliminated, and the amount of overcollateralization, if any, has
been reduced to zero, the related Certificateholders will bear the risk of
losses on the Contracts and must rely on the value of the Manufactured Homes for
recovery of the outstanding principal of and unpaid interest on any defaulted
Contracts. See 'Description of the Certificates -- Subordination of the
Subordinate Certificates and the Class X Certificates' and ' -- Realized Losses
on Liquidated Contracts' herein.
Certain statistical information relating to the delinquency, loan loss and
repossession experience of the portfolio of manufactured housing contracts
serviced by IndyMac is set forth herein under 'IndyMac, Inc. -- Delinquency and
Loss Experience.' Such statistical information relates only to manufactured
housing contracts serviced by IndyMac during the periods indicated and is
included herein only for illustrative purposes. There is no assurance that the
Contracts will have characteristics similar to the manufactured housing
contracts to which such statistical information relates. In addition, the losses
experienced upon recovery of principal upon the liquidation of manufactured
housing contracts historically have been sharply affected by downturns in
regional or local economic conditions. These regional or local economic
conditions are often volatile, and no prediction can be made regarding future
economic loss upon liquidation. In light of the foregoing, no assurance can be
given that the losses experienced upon the liquidation of defaulted Contracts
will be similar to any statistical information contained herein regarding
IndyMac. See 'The Trust Fund -- The Contract Pools' in the Prospectus.
LIMITED HISTORICAL DELINQUENCY, LOSS AND PREPAYMENT INFORMATION
IndyMac began acquiring and servicing manufactured housing contracts and
installment loan agreements in February 1996 and, from such date to the present,
has substantially increased the volume of such contracts that it has acquired
and/or serviced. Consequently, IndyMac has limited historical experience with
respect to the performance, including the delinquency and loss experience and
the rate of prepayments of these contracts. Accordingly, neither the delinquency
experience and loan loss and liquidation experience set forth under 'IndyMac,
Inc. -- Delinquency and Loss Experience' nor the prepayment scenarios set forth
under 'Yield and Prepayment Considerations' may be indicative of the performance
of the Contracts included in the Contract Pool. Prospective investors should
take these factors into account when reviewing the information set forth herein
and making their investment decision.
PREPAYMENT CONSIDERATIONS
The prepayment experience on the Contracts may affect the average life of
the Offered Certificates. Prepayments on the Contracts (which include both
voluntary prepayments and liquidations following default) may be influenced by a
variety of economic, geographic, social and other factors, including
repossessions, aging, seasonality, market interest rates, changes in housing
needs, job transfers and unemployment. See 'Yield
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and Prepayment Considerations' herein and 'Maturity, Prepayment and Yield
Considerations' in the Prospectus.
YIELD ON THE OFFERED CERTIFICATES
Because, with respect to all Offered Certificates other than the Class A-1
Certificates, interest will not be distributed until the 25th day (or, if such
day is not a Business Day, then on the next succeeding Business Day) of the
month following the Interest Accrual Period during which such interest accrues
on such Offered Certificates, the effective yield to the holders of the Offered
Certificates (other than the Class A-1 Certificates) will be lower than the
yield otherwise produced by their respective Pass-Through Rates and purchase
prices.
The yield to maturity of, and the aggregate amount of distributions on,
each Class of the Offered Certificates will be related to the rate and timing of
principal payments on the Contracts. The rate of principal payments on the
Contracts will be affected by the amortization schedules of the Contracts and by
the rate of principal prepayments thereon (including for this purpose payments
resulting from refinancings and liquidations of the Contracts due to defaults
and repurchases of Contracts by IndyMac under certain circumstances). No
assurance can be given as to the rate of principal payments or prepayments on
the Contracts.
LIMITED OBLIGATIONS
The Offered Certificates will not represent an interest in or obligation of
the Depositor, the Trustee, the Underwriters, IndyMac or any of their respective
affiliates. Neither the Contracts nor the Offered Certificates will be insured
or guaranteed by any governmental agency or instrumentality, the Depositor, the
Underwriters, IndyMac, the Trustee, the Servicer or any of their respective
affiliates and the Offered Certificates will be payable only from amounts
payable on or in respect of the assets in the Trust Fund. See 'Risk
Factors -- Limited Obligations' in the Prospectus.
The Depositor will not be obligated in any way in respect of the
Certificates. The obligations of IndyMac in its capacity as Servicer with
respect to the Certificates will be limited to its contractual servicing
obligations. IndyMac will, however, make certain representations and warranties
in its capacity as Seller relating to the Contracts. In the event of an uncured
breach of any such representation or warranty that materially adversely affects
a Contract, IndyMac, as Seller, may, under certain circumstances, be obligated
to repurchase such Contract. See 'Description of the Certificates -- Conveyance
of Contracts' herein.
LIMITED LIQUIDITY; LACK OF SMMEA ELIGIBILITY OF THE CLASS B-1 CERTIFICATES
The Underwriters intend to make a secondary market in the Offered
Certificates, but will have no obligation to do so. There can be no assurance
that a secondary market for any Class of Offered Certificates will develop, or
if one does develop, that it will continue or provide sufficient liquidity of
investment or that it will remain for the term of the related Class of Offered
Certificates. Because the Class B-1 Certificates will not be rated by a
nationally recognized statistical rating organization in one of its two highest
categories, the Class B-1 Certificates will not constitute 'mortgage related
securities' under SMMEA. No representation is made as to the appropriate
characterization of the Class B-1 Certificates under any laws relating to
investment restrictions and investors should consult their legal advisors. See
'Legal Investment Considerations' herein and 'Risk Factors -- Limited Liquidity'
in the Prospectus.
SECURITY INTERESTS AND CERTAIN OTHER ASPECTS OF THE CONTRACTS
Each Contract will be secured by a security interest in a Manufactured Home
(and, in the case of a Land-and-Home Contract, by a Mortgage on the real estate
on which the Manufactured Home is located). Perfection of security interests in
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 (the 'UCC') as
adopted in each state and, in most states, certificate of title statutes, but
generally not state real estate laws. The steps necessary to perfect the
security interest in a Manufactured Home will vary from state to state.
The certificates of title for the Manufactured Homes will show IndyMac or
an affiliate thereof as the lienholder and the UCC financing statements, where
applicable, will show IndyMac or an affiliate thereof as
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secured party. Because of the expense and administrative inconvenience involved,
IndyMac will not amend any certificate of title to change the lienholder
specified therein from IndyMac (or such affiliate) to the Trustee or file any
UCC-3 assignments relating to any Manufactured Home in favor of the Trustee and
will not deliver any certificate of title to the Trustee or note thereon the
Trustee's interest, although UCC-1 financing statements will be filed to reflect
the sale of the Contracts from any relevant affiliate to IndyMac, from IndyMac
to the Depositor and from the Depositor to the Trust. Consequently, in some
states, in the absence of such an amendment to the certificate of title, the
assignment to the Trustee of the security interest in the Manufactured Home may
not be effective or such security interest may not be perfected and, in the
absence of such notation of the Trustee's interest, the filing of UCC-3
assignments in favor of the Trustee or delivery of the certificate of title to
the Trustee, the assignment of the security interest in the Manufactured Home
may not be effective against creditors of IndyMac, an applicable affiliate or a
trustee in bankruptcy of IndyMac or such affiliate. Land-and-Home Contracts will
also be secured by a Mortgage on the property on which a Manufactured Home is
placed. Assignments to the Trustee of such Mortgages will be recorded in the
appropriate public office for real property records, except in the State of
California and states where, in the opinion of counsel, such recording is not
required to protect the Trustee's interest against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the Seller. See
'Certain Legal Aspects of the Contracts' herein.
CONSUMER PROTECTION LAWS AND OTHER LIMITATIONS ON LENDERS
Numerous federal and state consumer protection laws impose requirements on
lending under installment 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 the right of set-off against claims by such
assignees. These laws would apply to the Trust Fund as assignee of the
Contracts. Pursuant to the Agreement, IndyMac will represent and warrant that
each Contract complies with all requirements of law and will provide certain
warranties relating to the validity, perfection and priority of the security
interest in each Manufactured Home securing a Contract. A breach of any such
representation and warranty that materially adversely affects any Contract may,
subject to certain conditions described herein under 'Description of the
Certificates -- Conveyance of Contracts,' create an obligation by IndyMac to
repurchase such Contract unless such breach is cured within 90 days after notice
thereof. If IndyMac does not honor its repurchase obligation in respect of a
Contract and such Contract were to become defaulted, recovery of amounts due on
such Contract would be dependent on repossession and resale of the Manufactured
Home securing such Contract. Certain other factors, such as the bankruptcy of an
obligor or the application of equitable principles by a court, may limit the
ability of the Certificateholders to receive payments on the Contracts or to
realize upon the Manufactured Homes or may limit the amount realized to less
than the amount due. See 'Certain Legal Aspects of the Contracts' herein and
'Certain Legal Aspects of the Mortgage Loans and Contracts' in the Prospectus.
CERTAIN MATTERS RELATING TO INSOLVENCY
IndyMac and the Depositor intend that the transfer of Contracts from
IndyMac to the Depositor and from the Depositor to the Trust Fund constitutes a
sale, rather than a pledge of the Contracts to secure indebtedness of IndyMac or
the Depositor, as the case may be. However, if IndyMac or the Depositor were to
become a debtor under the federal bankruptcy code, it is possible that a
creditor or trustee in bankruptcy of IndyMac or the Depositor, or IndyMac or the
Depositor as debtor-in-possession, may argue that the sale of the Contracts by
IndyMac or the Depositor, as the case may be, was a pledge of the Contracts
rather than a sale. This position, if presented to or accepted by a court, could
result in a delay in or reduction of distributions to the Certificateholders.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.), cert.
denied 114 S.Ct. 554 (1993), the court's decision included language to the
effect that accounts sold by an entity which subsequently became bankrupt
remained property of the debtor's bankruptcy estate. Although the Contracts
constitute chattel paper rather than accounts under the UCC, sales of chattel
paper, like sales of accounts, are governed by Article 9 of the UCC. If IndyMac
or the Depositor were to become a debtor under the federal bankruptcy code and a
court were to follow the reasoning of the Tenth Circuit and apply such reasoning
to chattel paper, Certificateholders could experience a delay in or reduction of
distributions.
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BOOK-ENTRY REGISTRATION
Since transactions in the Book-Entry Certificates can be effected only
through DTC, participating organizations, indirect participants and certain
banks, the ability of a Certificate Owner of Book-Entry Certificates to pledge a
Book-Entry Certificate to persons or entities that do not participate in the DTC
system or otherwise to take action in respect of such Book-Entry Certificate,
may be limited due to lack of a physical certificate representing such
Book-Entry Certificate.
Certificate Owners of Book-Entry Certificates may experience some delay in
their receipt of distributions of interest and principal on the Book-Entry
Certificates since such distributions will be forwarded by the Trustee to DTC
and DTC will credit such distributions to the accounts of its Participants,
which will thereafter credit them to the accounts of such Certificate Owners
either directly or indirectly through indirect participants. See 'Description of
the Certificates -- Registration of the Offered Certificates' herein and 'Risk
Factors -- Limitation on Exercise of Rights Due to Book-Entry Registration' in
the Prospectus.
THE CONTRACT POOL
All of the Contracts will have been purchased or originated by IndyMac or
an affiliate thereof and conveyed to IndyMac in the ordinary course of business.
Each Contract will be a manufactured housing installment sales contract or
installment loan agreement (collectively, 'manufactured housing contracts' or
'contracts'). A description of the general practice of IndyMac and its
affiliates with respect to the origination or purchase of manufactured housing
contracts is set forth under 'IndyMac, Inc. -- Manufactured Housing Division --
Underwriting Practices' herein.
The statistical information presented in this Prospectus Supplement
concerning the Contract Pool is based on the Contract Pool as of the Cut-off
Date. Unless otherwise noted, all percentages relating to the Contracts are
measured by the Contract Principal Balance of the related Contracts and the
Contract Pool as of the Cut-off Date.
Under the Agreement, the Manufactured Homes will be required to comply with
the requirements of certain federal statutes which, in the aggregate, generally
require the Manufactured Homes to have a minimum of 400 square feet of living
space and a minimum width in excess of 102 inches and to be of a kind
customarily used at a fixed location. Such statutes also require the
Manufactured Homes to be transportable in one or more sections, built on a
permanent chassis and designed to be used as dwellings, with or without
permanent foundations, when connected to the required utilities. The
Manufactured Homes will also be required to include the plumbing, heating, air
conditioning and electrical systems therein.
The Agreement will require the Servicer to maintain hazard insurance
policies with respect to each Manufactured Home (other than a Manufactured Home
in repossession) in the amounts and manner set forth herein under 'Description
of the Certificates -- Hazard Insurance Policies' and in the Prospectus under
'Description of the Certificates -- Standard Hazard Insurance.' Generally, no
other insurance will be maintained with respect to the Manufactured Homes or the
Contracts.
IndyMac will assign to the Trustee the Contracts and all rights to receive
payments on the Contracts received on or after the Cut-off Date. See
'Description of the Certificates -- Conveyance of Contracts' herein.
The Contract Pool will consist of approximately 3,634 Contracts having an
aggregate Contract Principal Balance as of the Cut-off Date of approximately
$146,228,941 (the 'Cut-off Date Pool Balance'). Each Contract was originated on
or after April 1, 1996 and on or before December 31, 1997.
Substantially all of the Contracts have fixed APRs and provide for level
monthly payments ('Monthly Payments') over their respective terms that fully
amortize the principal balance thereof. The remaining 22 Contracts, representing
0.79% of the Cut-off Date Pool Balance, are Step-Up Rate Contracts. All
Contracts provide for allocation of payments according to the 'actuarial'
method, as described under 'IndyMac, Inc. -- Manufactured Housing
Division -- Servicing.'
A 'Step-Up Rate Contract' is a Contract that provides for a one-time
increase of 2.01% in the applicable APR (and therefore an increase in subsequent
Monthly Payments) at the commencement of the thirteenth month of such Contract.
The total amount and the principal portion of the Monthly Payment with respect
to any Step-Up Rate Contract during its initial interest period or the step-up
period, as applicable, is determined on a basis that would cause such Contract
to be fully amortized over its remaining term (at the commencement of
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such period) on a level payment basis based on the initial APR or the increased
APR, as applicable. To the extent that the statistical information set forth
below involves Step-Up Rate Contracts, such information is based only on the
APRs borne by such Contracts as of the Cut-off Date.
For each Land-and-Home Contract, IndyMac either (a) financed the
Manufactured Home and the land on which it is located, or (b) financed the
Manufactured Home and either took as additional security a Mortgage on the
property on which the Manufactured Home is located or, in certain cases, took a
Mortgage on the property on which the Manufactured Home is located either in
lieu of a down payment in the form of cash or the value of a trade-in unit. See
'Certain Legal Aspects of the Contracts' herein and 'Certain Legal Aspects of
the Mortgage Loans and Contracts' in the Prospectus.
Based on Cut-off Date Pool Balance, 63.07% of the Contracts are secured by
Manufactured Homes which were new and 36.93% of the Contracts are secured by
Manufactured Homes which were used. Based on Cut-off Date Pool Balance, 33.16%
of the Contracts are Land-and-Home Contracts. Each Contract has an APR of at
least 7.00% and not more than 14.99%. The weighted average APR of the Contracts
as of the Cut-off Date is approximately 10.30%. The Contracts have remaining
terms to maturity as of the Cut-off Date of at least 18 months but not more than
360 months and original terms to maturity of at least 36 months but not more
than 360 months. As of the Cut-off Date, the Contracts had a weighted average
remaining term to maturity of approximately 305 months, a weighted average
original term to maturity of approximately 310 months and a weighted average
seasoning of approximately five months. As of the Cut-off Date, the weighted
average Loan-to-Value Ratio (as defined below) of the Contracts did not exceed
87% and no more than 3% of the Contracts had Loan-to-Value Ratios greater than
95%. The average outstanding Contract Principal Balance as of the Cut-off Date
was approximately $40,239. The properties underlying the Contracts were located
as of the Cut-off Date in 47 states. Based on the Cut-off Date Pool Balance,
approximately 15.30%, 9.64%, 8.68%, 7.52%, 7.39%, 5.76%, 5.27% and 5.02% of such
properties are located in Texas, Michigan, Arizona, California, Nevada, Florida,
Washington and Oregon, respectively. No other state represented more than 5.00%
of the Cut-off Date Pool Balance. The final scheduled payment date of the
Contract with the latest maturity is February 2028.
'Loan-to-Value Ratio' means, with respect to any Contract, the fraction,
expressed as a percentage, the numerator of which is the original principal
balance of such Contract, and the denominator of which is the Value (as defined
below) of such Contract. 'Value' with respect to each Contract is calculated by
determining the sum of (a) either (i) the sum of the down payment (which
includes the value of any trade-in unit), the original amount financed on the
related Contract (which may include sales and other taxes) and insurance and
prepaid finance charges or (ii) the appraisal value of the home and (b) the
appraisal value of the land, if any, securing the Contract.
S-18
<PAGE>
<PAGE>
Appearing below is some additional information regarding the
characteristics of the Contracts. Unless otherwise indicated by the context, all
such information is as of the Cut-off Date. Percentages may not add to 100.00%
due to rounding.
<TABLE>
<CAPTION>
GEOGRAPHICAL DISTRIBUTION OF MANUFACTURED HOMES(1)
- ---------------------------------------------------------------------------
AGGREGATE
PERCENTAGE OF CUT-OFF DATE PERCENTAGE OF
GEOGRAPHIC NUMBER OF NUMBER OF CONTRACT CUT-OFF DATE
LOCATION CONTRACTS CONTRACTS PRINCIPAL BALANCE POOL BALANCE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama......... 3 0.08% $ 68,300 0.05%
Arizona......... 275 7.57 12,693,805 8.68
Arkansas........ 98 2.70 3,315,616 2.27
California...... 228 6.27 11,000,844 7.52
Colorado........ 48 1.32 2,419,264 1.65
Connecticut..... 1 0.03 13,606 0.01
Delaware........ 1 0.03 13,358 0.01
Florida......... 273 7.51 8,420,242 5.76
Georgia......... 100 2.75 4,093,985 2.80
Idaho........... 52 1.43 2,267,771 1.55
Illinois........ 39 1.07 1,186,526 0.81
Indiana......... 51 1.40 1,736,954 1.19
Iowa............ 19 0.52 659,118 0.45
Kansas.......... 6 0.17 164,151 0.11
Kentucky........ 20 0.55 640,532 0.44
Louisiana....... 2 0.06 107,749 0.07
Maine........... 1 0.03 52,020 0.04
Maryland........ 4 0.11 159,646 0.11
Massachusetts... 2 0.06 103,445 0.07
Michigan........ 389 10.70 14,101,230 9.64
Minnesota....... 34 0.94 1,147,635 0.78
Mississippi..... 6 0.17 172,043 0.12
Missouri........ 92 2.53 3,651,293 2.50
Montana......... 25 0.69 1,253,761 0.86
Nebraska........ 10 0.28 424,214 0.29
Nevada.......... 195 5.37 10,809,807 7.39
New Hampshire... 8 0.22 287,387 0.20
New Jersey...... 12 0.33 320,350 0.22
New Mexico...... 43 1.18 1,833,849 1.25
New York........ 7 0.19 204,143 0.14
North
Carolina....... 134 3.69 5,353,399 3.66
North Dakota.... 3 0.08 107,282 0.07
Ohio............ 85 2.34 2,066,695 1.41
Oklahoma........ 62 1.71 2,352,539 1.61
Oregon.......... 171 4.71 7,346,375 5.02
Pennsylvania.... 102 2.81 2,479,809 1.70
Rhode Island.... 4 0.11 103,480 0.07
South
Carolina....... 104 2.86 4,233,673 2.90
South Dakota.... 14 0.39 714,901 0.49
Tennessee....... 144 3.96 5,671,175 3.88
Texas........... 567 15.56 22,377,362 15.29
Utah............ 25 0.69 1,045,819 0.72
Virginia........ 6 0.17 243,656 0.17
Washington...... 142 3.91 7,704,948 5.27
West Virginia... 9 0.25 310,151 0.21
Wisconsin....... 2 0.06 82,255 0.06
Wyoming......... 16 0.44 712,776 0.49
----- ------- ----------------- -------
Total........ 3,634 100.00% $ 146,228,941 100.00%
----- ------- ----------------- -------
----- ------- ----------------- -------
</TABLE>
- ------------------------
(1) Based on the location of the properties underlying the Contracts as of the
Cut-off Date.
<TABLE>
<CAPTION>
ORIGINAL CONTRACT AMOUNTS
- ---------------------------------------------------------------------------
AGGREGATE
ORIGINAL PERCENTAGE OF CUT-OFF DATE PERCENTAGE OF
CONTRACT NUMBER OF NUMBER OF CONTRACT CUT-OFF DATE
AMOUNT CONTRACTS CONTRACTS PRINCIPAL BALANCE POOL BALANCE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 4,999 or
less........... 1 0.03% $ 4,726 0.00%
$ 5,000 - $ 9,999... 70 1.93 552,860 0.38
$10,000 - $14,999... 243 6.69 3,001,719 2.05
$15,000 - $19,999... 271 7.46 4,677,701 3.20
$20,000 - $24,999... 281 7.73 6,260,493 4.28
$25,000 - $29,999... 406 11.17 11,095,597 7.59
$30,000 - $34,999... 450 12.37 14,550,528 9.95
$35,000 - $39,999... 362 9.96 13,471,144 9.21
$40,000 - $44,999... 300 8.26 12,629,781 8.64
$45,000 - $49,999... 253 6.96 11,993,282 8.20
$50,000 - $54,999... 237 6.52 12,391,573 8.47
$55,000 - $59,999... 177 4.87 10,114,517 6.92
$60,000 - $64,999... 146 4.02 9,059,578 6.20
$65,000 - $69,999... 105 2.89 6,978,340 4.77
$70,000 - $74,999... 69 1.90 4,975,062 3.40
$75,000 - $79,999... 68 1.87 5,237,077 3.58
$80,000 - $84,999... 43 1.18 3,528,983 2.41
$85,000 - $89,999... 38 1.05 3,299,991 2.26
$90,000 - $94,999... 23 0.63 2,123,127 1.45
$95,000 - $99,999... 25 0.69 2,434,207 1.67
$100,000 or
more........... 66 1.82 7,848,657 5.37
----- ------- ----------------- -------
Total........ 3,634 100.00% $ 146,228,941 100.00%
----- ------- ----------------- -------
----- ------- ----------------- -------
</TABLE>
<TABLE>
<CAPTION>
APRS
- ---------------------------------------------------------------------------
AGGREGATE
PERCENTAGE OF CUT-OFF DATE PERCENTAGE OF
NUMBER OF NUMBER OF CONTRACT CUT-OFF DATE
APRS CONTRACTS CONTRACTS PRINCIPAL BALANCE POOL BALANCE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7.00% - 7.99%... 115 3.16% $ 6,986,079 4.78%
8.00% - 8.99%... 370 10.18 20,881,677 14.28
9.00% - 9.99%... 807 22.21 35,373,910 24.19
10.00% - 10.99%... 938 25.81 39,667,709 27.13
11.00% - 11.99%... 872 24.00 30,784,458 21.05
12.00% - 12.99%... 335 9.22 9,332,372 6.38
13.00% - 13.99%... 141 3.88 2,425,396 1.66
14.00% - 14.99%... 56 1.54 777,339 0.53
----- ------- ----------------- -------
Total........ 3,634 100.00% $ 146,228,940 100.00%
----- ------- ----------------- -------
----- ------- ----------------- -------
</TABLE>
<TABLE>
<CAPTION>
REMAINING TERM TO MATURITY
- ---------------------------------------------------------------------------
AGGREGATE
PERCENTGE OF CUT-OFF DATE PERCENTAGE OF
NUMBER OF NUMBER OF CONTRACT CUT-OFF DATE
REMAINING TERM CONTRACTS CONTRACTS PRINCIPAL BALANCE POOL BALANCE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than 121
months......... 412 11.34% $ 6,989,882 4.78%
121 - 180
months......... 539 14.83 12,990,752 8.88
181 - 240
months......... 491 13.51 15,604,576 10.67
241 - 300
months......... 523 14.39 21,516,081 14.71
301 - 360
months......... 1,669 45.93 89,127,650 60.96
----- ------- ----------------- -------
Total........ 3,634 100.00% $ 146,228,941 100.00%
----- ------- ----------------- -------
----- ------- ----------------- -------
</TABLE>
S-19
<PAGE>
<PAGE>
INDYMAC, INC.
IndyMac, formerly known as Independent National Mortgage Corporation,
operates a nationwide mortgage conduit business established in 1993 to purchase
mortgage loans that do not typically qualify for sale to the U.S. government
sponsored mortgage agencies. IndyMac formed its Manufactured Housing Division
('MHD') in December 1995 to both originate directly to consumers and to purchase
manufactured housing retail installment sales contracts and installment loan
agreements from retailers, brokers and other loan originators. All loans
currently originated or purchased by the MHD are fixed or variable rate and
fully amortizing loans and, in general, provide that the related manufactured
home be constructed in compliance with the Manufactured Home and Construction
and Safety Standards instituted by the Department of Housing and Urban
Development ('HUD') in June 1976. The MHD's primary competition is from local,
regional and national banks, independent finance companies and captive
manufactured housing finance companies. The MHD conducts its operations through
six Region Service Centers currently located in Atlanta, Houston, Indianapolis,
Raleigh, San Diego and Vancouver, WA and the Third Party Lending Department (the
'TPL Department'), with its administrative headquarters in San Diego,
California.
In addition to its mortgage conduit business and manufactured housing
operations, IndyMac is engaged in the subprime mortgage lending business and
additional lending operations through its Home Improvement Division ('HID'),
Construction Lending Division ('CLD') and LoanWorks, which make home improvement
and debt consolidation loans, loans for the purchase of lots, home construction
and remodeling and real estate loans to consumers. IndyMac's principal office is
located at 155 North Lake Avenue, Pasadena, CA 91101, telephone (800) 669-2300.
MANUFACTURED HOUSING DIVISION
The MHD finances both new and used manufactured homes and originates retail
installment sales contracts and installment loan agreements by purchasing such
contracts from retailers. In addition, the MHD purchases loans from other
originators of manufactured home loans and from approved IndyMac sellers who
deal with other IndyMac divisions. The MHD distributes its products and services
through its Region Service Centers and the TPL Department in San Diego. The
marketing efforts of each Region Service Center are implemented through account
executives located throughout the country and offer retailers financing programs
with varying loan terms, down payment requirements, interest rates and credit
policies. Retailers/loan originators wishing to offer the MHD financing programs
to their customers must submit an application to the MHD for approval. Upon
satisfactory review of the dealer's/loan originator's credit worthiness,
financial strength and appropriate experience and qualifications, the
dealer/loan originator is approved and a financing agreement is executed. Annual
reviews are conducted to monitor continuing qualifications as well as portfolio
performance. The TPL Department originates Land-and-Home Contracts through
sellers which sell to IndyMac's mortgage conduit business.
Underwriting Practices. Due to the importance of the roles the
manufacturer, the retailer and the home buyer play in the satisfactory
performance of a contract, all three are subject to investigation to manage
credit risk. Manufacturers are evaluated and approved by a centralized unit.
Such manufacturers must be approved by HUD and meet minimum financial
requirements. In addition, the MHD region sales and management staff make
recommendations based on the industry experience of the principals and relevant
market experience with the product. Dealers are also approved by a centralized
unit based upon their financial condition, experience in the industry and the
credit history of the principals. Such approval process also involves the input
of the region sales staff and management. The dealers are subject to annual
performance reviews.
The MHD's underwriting guidelines generally require that each applicant's
credit history, residence history, employment history, debt payment to income
ratio and discretionary income be examined. Generally, a borrower is required to
be employed by the same employer a minimum of two years or be in the same
occupational field for at least two years. The borrower is required to have an
established credit history, and the MHD carefully reviews any derogatory
information. In general, the debt payment to income ratio generally is not
permitted to exceed 45%. Discretionary income requirements are based on family
size. Headquarters' approval is required for certain exceptions, such as
applicants with bankruptcies within the preceding five years, credit bureau
scores which are below the required standards and debt ratios in excess of
Region Service Centers' exception guidelines.
S-20
<PAGE>
<PAGE>
Servicing. The MHD services all manufactured housing loans purchased or
originated by IndyMac and its affiliates. The customer service department (the
'Customer Service Department') and collection department (the 'Collection
Department') located in each Region Service Center service the contracts
relating to such region. The Collection Department of each Region Service Center
performs all collection efforts. In the event of delinquencies, collectors
evaluate the customer's situation and work with the customer to eliminate the
delinquency in a timely manner. The Collection Department also monitors accounts
which have filed bankruptcy and manages repossession proceedings and
liquidations. All loans purchased or originated by the TPL Department are
serviced in the Region Service Center responsible for the state in which the
manufactured home is located.
Each Contract provides for allocation of payments according to the
'actuarial' method, whereby the portion of each Monthly Payment for any Contract
allocable to principal will be equal to the total amount thereof less the
portion allocable to interest. The portion of each Monthly Payment due in a
particular month that is allocable to interest is a precomputed amount equal to
one month's interest on the principal balance of the Contract, which principal
balance is determined by reducing the initial principal balance by the principal
portion of all Monthly Payments that were due in prior months (whether or not
such Monthly Payments were timely made) and all prior partial principal
prepayments. Thus, each payment allocated to a scheduled monthly payment of a
Contract will be applied to interest and to principal in accordance with such
precomputed allocation whether such Monthly Payment is received in advance of or
subsequent to the related Due Dates. All payments received on the Contracts
(other than payments allocated to items other than principal and interest or
payments sufficient to pay the outstanding principal balance of and all accrued
and unpaid interest on such Contracts) will be applied when received to current
and any previously unpaid Monthly Payments in the order of the Due Dates of such
payments.
DELINQUENCY AND LOSS EXPERIENCE
The following table sets forth information concerning delinquency
experience for the periods indicated for the portfolio of manufactured housing
contracts serviced by the Region Service Centers.
DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT
----------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1997 1997
------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Principal Balance of Contracts
Outstanding(1).................. $ 97,578 $ 131,368 $176,433 $ 243,540 $325,757
Principal Balance of Contracts
Delinquent(2)
30-59 Days................... $ 1,676 $ 912 $ 1,798 $ 2,563 $ 3,451
60-89 Days................... $ 162 $ 368 $ 477 $ 715 $ 1,436
90 Days or More.............. $ 263 $ 675 $ 889 $ 1,412 $ 2,275
Total Delinquency
Dollars...................... $ 2,101 $ 1,954 $ 3,164 $ 4,691 $ 7,162
Percentage(3)................ 2.15% 1.49% 1.79% 1.93% 2.20%
</TABLE>
- ------------
(1) Excludes contracts already in repossession.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a contract
due on the first day of the month is not 30 days delinquent until the first
day of the next month.
(3) As a percentage of the principal balance of contracts outstanding at month
end.
S-21
<PAGE>
<PAGE>
The following table sets forth information concerning repossession and loss
experience for the periods indicated for the portfolio of manufactured housing
contracts serviced by the Region Service Centers.
LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1997 1997
------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Number of Contracts Serviced(1)... 3,554 4,333 5,508 7,178 9,083
Principal Balance of Contracts
Serviced(1)..................... $ 97,745 $ 131,796 $177,214 $ 244,798 $328,450
Contract Repossessions............ $ 32 $ 184 $ 417 $ 363 $ 1,005
Contract Liquidations............. $ 0 $ 62 $ 284 $ 157 $ 170
Ending Balance of Contracts in
Repossession
Dollars...................... $ 167 $ 428 $ 781 $ 1,258 $ 2,692
Percentage(2)................ 0.17% 0.32% 0.44% 0.51% 0.82%
Net Losses
Dollars...................... $ 5 $ 33 $ 96 $ 20 $ 164
Percentage(2)................ 0.01% 0.03% 0.05% 0.01% 0.05%
</TABLE>
- ------------
(1) As of period end. Includes contracts in repossession.
(2) As a percentage of principal balance of contracts being serviced as of
period end.
The data presented in the foregoing tables are for illustrative purposes
only and there is no assurance that the delinquency, loan loss or repossession
experience of the Contracts will be similar to that set forth above. IndyMac and
its affiliates only recently began purchasing and originating manufactured
housing installment sales contracts and installment loans. Consequently, such
contracts and loans have not yet exhibited a loss and delinquency experience
that is representative of the losses and delinquencies that may be experienced
over a longer period of time. In addition, the delinquency, loan loss and
repossession experience of manufactured housing contracts historically has been
sharply affected by a downturn in regional or local economic conditions. These
regional or local economic conditions are often volatile, and no predictions can
be made regarding future economic conditions in any particular area. These
downturns have tended to increase the severity of loss on repossession because
of the increased supply of used manufactured homes, which in turn may affect the
supply in other regions.
YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under 'Maturity,
Prepayment and Yield Considerations.'
The Contracts may be prepaid in full or in part at any time by the related
borrowers (each, an 'Obligor') without payment of any prepayment fee or penalty
(although there is generally no refund of any prepaid finance charges). The
prepayment experience of the Contracts (including prepayments due to
liquidations of defaulted Contracts) will affect the life of the Certificates.
It is anticipated that a substantial number of Contracts will be prepaid in full
prior to maturity. A variety of factors, including homeowner mobility, general
and regional economic conditions and prevailing interest rates, may influence
prepayments. In addition, repurchases of Contracts on account of certain
breaches of representations and warranties as described herein under
'Description of the Certificates -- Conveyance of Contracts' will have the
effect of prepayment of such Contracts and therefore will affect the lives of
the Certificates. Most of the Contracts contain provisions that prohibit the
Obligor from selling the related Manufactured Home without the prior consent of
the holder of the related Contract. Such provisions are similar to 'due-on-sale'
clauses and may not be enforceable in some states. See 'Certain Legal Aspects of
the Contracts -- Land-and-Home Contracts' herein and 'Certain Legal Aspects of
the Mortgage Loans and Contracts -- The Contracts -- Transfers of Manufactured
Homes;
S-22
<PAGE>
<PAGE>
Enforceability of `Due-on-Sale' Clauses ' in the Prospectus. IndyMac's policy is
to permit most sales of Manufactured Homes where the proposed buyer meets its
then current underwriting standards and enters into an assumption agreement. See
' -- Weighted Average Life of the Offered Certificates' herein and 'Maturity,
Prepayment and Yield Considerations' in the Prospectus.
The allocation of distributions to the Certificateholders in accordance
with the Agreement will have the effect of accelerating the amortization of each
Class of Offered Certificates in the sequence indicated herein under
'Description of the Certificates -- Distributions -- Priority of Distributions'
from the amortization that would be applicable if distributions in respect of
the Formula Principal Distribution Amount were made pro rata according to the
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-R, Class M, Class
B-1 and Class B-2 Certificate Principal Balances. As described herein under
'Description of the Certificates -- Subordination of the Subordinate
Certificates and the Class X Certificates' to the extent that, on any
Distribution Date, the Available Distribution Amount is not sufficient to permit
a full distribution of the Formula Principal Distribution Amount or the portion
thereof due on such Distribution Date to any Class of Offered Certificates
entitled to such distribution, the effect will be to delay the amortization of
such Class of Offered Certificates. If a purchaser of a Class of Offered
Certificates purchases them at a discount and calculates its anticipated yield
to maturity based on an assumed rate of payment of principal on such Offered
Certificates that is faster than the rate actually realized, such purchaser's
actual yield to maturity will be lower than the yield so calculated by such
purchaser.
The rate of distributions of principal of the Offered Certificates and the
yield to maturity of the Offered Certificates also will be directly related to
the rate of payment of principal (including delinquencies and prepayments) of
the Contracts. The rate of principal distributions on the Offered Certificates
and the yield to maturity of the Offered Certificates will be affected by the
rate of delinquencies on the Contracts and the rate of Obligor defaults
resulting in losses on Liquidated Contracts, by the severity of those losses and
by the timing of those losses. If a purchaser of Offered Certificates calculates
its anticipated yield based on an assumed rate of default and an assumed amount
of losses that are lower than the default rate and amount of losses actually
incurred and such amount of losses actually incurred is not entirely covered by
interest collected on the Contracts in excess of the amount necessary to
distribute interest on the Certificates and exceeds the Current
Overcollateralization Amount, if any, its actual yield to maturity will be lower
than that so calculated. The timing of losses on Liquidated Contracts will also
affect an investor's actual yield to maturity, even if the rate of defaults and
severity of losses are consistent with an investor's expectations. There can be
no assurance that the delinquency, repossession or loss experience set forth
herein under 'IndyMac, Inc. -- Delinquency and Loss Experience' will be
representative of the results that may be experienced with respect to the
Contracts. There can be no assurance as to the delinquency, repossession or loss
experience with respect to the Contracts.
On any Distribution Date on or after the Distribution Date, if any, on
which the aggregate Certificate Principal Balance of the Certificates is greater
than the Pool Balance, if the Available Distribution Amount is not sufficient to
permit a full distribution of the Formula Principal Distribution Amount to the
Certificateholders, the Certificateholders (beginning with the most junior Class
of Certificates with a Certificate Principal Balance (i.e., the Class B-2
Certificates) until its Adjusted Certificate Principal Balance has been reduced
to zero, then to the second most junior Class (i.e., the Class B-1 Certificates)
and so forth) will absorb (i) all losses on each Liquidated Contract in the
amount by which its Liquidation Proceeds (net of Liquidation Expenses and
applicable Advances) are less than its Contract Principal Balance plus accrued
and unpaid interest thereon at a percentage equal to the sum of (a) the weighted
average Pass-Through Rate and (b) the percentage rate used to calculate the
Servicing Fee and (ii) other shortfalls in the Available Distribution Amount and
will incur a loss on their investments. See 'Description of the
Certificates -- Distributions,' ' -- Subordination of the Subordinate
Certificates and the Class X Certificates' and ' -- Realized Losses on
Liquidated Contracts' herein.
Each of the Depositor and the Servicer will have the option to repurchase
the Contracts and other property in the Trust on any Distribution Date on or
after the first Distribution Date as of which the Pool Balance is less than 10%
of the Cut-off Date Pool Balance. See 'Description of the
Certificates -- Termination' herein. The exercise of such option or the sale of
the Contracts and such other property of the Trust Fund by the Trustee under the
circumstances described herein under 'Description of the
Certificates -- Termination' will effect early retirement of all outstanding
Offered Certificates.
Although the APRs on the Contracts vary, prepayments on Contracts generally
will not affect the Pass-Through Rate on the Class A-R, Class A-1, Class A-2,
Class A-3 and Class A-4 Certificates, because the related
S-23
<PAGE>
<PAGE>
Pass-Through Rates are fixed. The Class A-5, Class M, Class B-1 and Class B-2
Pass-Through Rates on any Distribution Date will respectively be 6.9600%,
7.1100%, 7.5900% and 9.0000% per annum (computed on the basis of a 360-day year
of twelve 30-day months), unless the Contracts prepay in such a manner that the
applicable Weighted Average Net Contract Rate is less than 6.9600%, 7.1100%,
7.5900% and 9.0000%, respectively, in which case the Class A-5, Class M, Class
B-1 or Class B-2 Pass-Through Rate, as the case may be, will equal such Weighted
Average Net Contract Rate.
While partial prepayments of the principal on the Contracts are applied on
the related Due Dates, Obligors are not required to pay interest on the
Contracts after the date of a full prepayment of principal. As a result, full
prepayments of Contracts in advance of the related Due Dates in any Prepayment
Period will reduce the amount of interest received during such Prepayment Period
to less than one month's interest. If a sufficient number of Contracts are
prepaid in full in a Prepayment Period in advance of their respective Due Dates,
interest received during that Prepayment Period may be less than the interest
payable on the Class A, Class M and Class B Certificates on the related
Distribution Date. See 'Description of the Certificates -- Compensating
Interest.' Although no assurance can be given in this matter, it is not expected
that the net shortfall of interest received because of prepayments in full in
any Prepayment Period will be great enough, in the absence of delinquencies and
Liquidation Losses, to reduce the Available Distribution Amount for the related
Distribution Date below the amount that would be required to be distributed to
Class A, Class M and Class B Certificateholders on such Distribution Date.
WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments of the Contracts on the weighted average life of the Offered
Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Contracts.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the Offered Certificates
will be affected by the rate at which principal of the Contracts is paid.
Principal payments on Contracts may be in the form of scheduled amortization or
prepayments (for this purpose, the term 'prepayment' includes repayments and
liquidations due to default or other dispositions of Contracts). Prepayments on
Contracts may be measured by a prepayment standard or model. The model used in
this Prospectus Supplement (the 'Prepayment Model') is based on an assumed rate
of prepayment each month of the Contract Principal Balance of a pool of new
Contracts. 100% of the Prepayment Model assumes prepayment rates of 3.7% per
annum of the Contract Principal Balance of such Contracts in the first month of
the life of the Contracts and an additional 0.1% per annum in each month
thereafter until the 24th month. Beginning in the 24th month and in each month
thereafter during the life of the Contracts, 100% of the Prepayment Model
assumes a constant prepayment rate of 6.0% per annum.
As used in the following tables, '0% of the Prepayment Model' assumes no
prepayments on the Contracts, '100% of the Prepayment Model' assumes the
Contracts will prepay at rates equal to 100% of the Prepayment Model assumed
prepayment rates, '150% of the Prepayment Model' assumes the Contracts will
prepay at rates equal to 150% of the Prepayment Model assumed prepayment rates,
'180% of the Prepayment Model' assumes the Contracts will prepay at rates equal
to 180% of the Prepayment Model assumed prepayment rates, '200% of the
Prepayment Model' assumes the Contracts will prepay at rates equal to 200% of
the Prepayment Model assumed prepayment rates and '300% of the Prepayment Model'
assumes the Contracts will prepay at rates equal to 300% of the Prepayment Model
assumed prepayment rates.
There is no assurance, however, that prepayments of the Contracts will
conform to any level of the Prepayment Model, and no representation is made that
the Contracts will prepay at the prepayment rates shown or any other prepayment
rate. The rate of principal payments on pools of manufactured housing contracts
is influenced by a variety of economic, geographic, social and other factors,
including the level of interest rates and the rate at which manufactured
homeowners sell their manufactured homes or default on their contracts. Other
factors affecting prepayment of manufactured housing contracts include changes
in obligors' housing needs, job transfers, unemployment and obligors' net equity
in the related manufactured homes. In the case of mortgage loans secured by
site-built homes, in general, if prevailing interest rates fall significantly
below the interest rates on such mortgage loans, the mortgage loans are likely
to be subject to higher prepayment rates than if prevailing interest rates
remain at or above the rates borne by such mortgage loans. Conversely, if
prevailing interest rates
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<PAGE>
rise above the interest rates on such mortgage loans, the rate of prepayment
would be expected to decrease. In the case of manufactured housing contracts,
however, because the outstanding scheduled principal balances are, in general,
much smaller than mortgage loan balances and the original terms to maturity are
generally shorter, the reduction or increase in the size of the monthly payments
on contracts of the same maturity and principal balance arising from a change in
the interest rate thereon is generally much smaller. Consequently, changes in
prevailing interest rates may not have a similar effect, or may have a similar
effect, but to a smaller degree, on the prepayment rates on manufactured housing
contracts.
MODELING ASSUMPTIONS AND MHP TABLES
The prepayment tables set forth below (the 'MHP Tables') assume that
Monthly Payments on the Contracts are received by the Servicer on their
respective Due Dates and that on each Distribution Date the Available
Distribution Amount will be sufficient to distribute interest on the Offered
Certificates and an amount equal to the full Formula Principal Distribution
Amount to the Certificateholders and to pay the Servicing Fee to the Servicer
and the Monthly Trustee Fee to the Trustee (together with the assumptions set
forth below, the 'Modeling Assumptions').
The percentages and weighted average lives in the following tables were
determined assuming that (i) scheduled interest and principal payments on the
Contracts are received in a timely manner and prepayments are made at the
indicated percentages of the Prepayment Model; (ii) neither the Depositor nor
the Servicer exercises its right of optional termination and the Trustee does
not receive satisfactory bids for the sale of the Contracts and other property
in the Trust Fund, in each case as described herein under 'Description of the
Certificates -- Termination'; (iii) the Contracts will, as of the Cut-off Date,
be grouped into five pools having the additional characteristics set forth below
under 'Assumed Contract Characteristics'; (iv) the Initial Certificate Principal
Balance and the Pass-Through Rate of each Class of Certificates is as set forth
under 'Summary -- Securities Issued' herein; (v) no interest shortfalls will
arise in connection with prepayment in full of the Contracts; (vi) there will be
no losses on the Contract Pool; and (vii) the Servicing Fee will be paid to the
Servicer. No representation is made that the Contracts will experience
delinquencies or losses at the respective rates assumed above or at any other
rates.
ASSUMED CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
REMAINING
CUT-OFF DATE TERM TO
CONTRACT PRINCIPAL MATURITY SEASONING
POOL BALANCE APR (MONTHS) (MONTHS)
- ---------------------------------------------------- ------------------- ----- --------- ---------
<S> <C> <C> <C> <C>
1.................................................. $ 6,989,881.53 10.33% 105 7
2.................................................. 12,990,752.45 11.27 171 6
3.................................................. 15,604,575.77 10.84 234 5
4.................................................. 21,516,081.25 10.83 295 6
5.................................................. 89,127,650.49 9.94 355 5
------------------- ----- --- --
Total.......................................... $146,228,941.49 10.30% 305 5
------------------- ----- --- --
------------------- ----- --- --
</TABLE>
Since the tables that follow were prepared on the basis of the assumptions
in the preceding table (the 'Assumed Contract Characteristics'), there will be
discrepancies between the characteristics of the actual Contracts and the
characteristics of the Contracts assumed in preparing the following tables. Any
such discrepancy may have an effect upon the percentages of the Initial Class A,
Initial Class M and Initial Class B-1 Certificate Principal Balances outstanding
and weighted average lives of the Class A, Class M and Class B-1 Certificates
set forth in the tables. In addition, since the actual Contracts and the Trust
Fund will have characteristics which differ from those assumed in preparing the
tables set forth below, distributions of principal of the Certificates may be
made earlier or later than as indicated in the tables.
It is not likely that the Contracts will prepay at any constant percentage
of the Prepayment Model to maturity or that all Contracts will prepay at the
same rate. In addition, the remaining terms to maturity of the Contracts (which
include recently originated Contracts) could produce slower distributions of
principal than as indicated in the tables at the various percentages of the
Prepayment Model specified even if the weighted
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average remaining term to maturity of the Contracts is the same as the weighted
average remaining term to maturity of the Assumed Contract Characteristics.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
resulting weighted average lives of the Offered Certificates and set forth the
percentage of the Initial Class A, Initial Class M and Initial Class B-1
Certificate Principal Balances that would be outstanding after each of the dates
shown at the indicated percentages of the Prepayment Model. In the following
tables, the weighted average life of a Class of Certificates is determined by
(i) multiplying the amount of each principal distribution by the number of years
from the Closing Date to the related Distribution Date, (ii) summing the results
and (iii) dividing the sum by the Initial Certificate Principal Balance of such
Class of Certificates.
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<PAGE>
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
PREPAYMENT MODEL ASSUMPTION PREPAYMENT MODEL ASSUMPTION
------------------------------------------------ -------------------------------------------------
DISTRIBUTION DATE 0% 100% 150% 180% 200% 300% 0% 100% 150% 180% 200% 300%
- ----------------------- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage..... 100 100 100 100 100 100 100 100 100 100 100 100
March 1999............. 21 0 0 0 0 0 100 87 74 66 61 35
March 2000............. 0 0 0 0 0 0 100 50 23 8 0 0
March 2001............. 0 0 0 0 0 0 96 14 0 0 0 0
March 2002............. 0 0 0 0 0 0 86 0 0 0 0 0
March 2003............. 0 0 0 0 0 0 76 0 0 0 0 0
March 2004............. 0 0 0 0 0 0 64 0 0 0 0 0
March 2005............. 0 0 0 0 0 0 51 0 0 0 0 0
March 2006............. 0 0 0 0 0 0 37 0 0 0 0 0
March 2007............. 0 0 0 0 0 0 22 0 0 0 0 0
March 2008............. 0 0 0 0 0 0 9 0 0 0 0 0
March 2009............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2010............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2011............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2012............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2013............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2014............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2015............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2016............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2017............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2018............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2019............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2020............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2021............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2022............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2023............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2024............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2025............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2026............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2027............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2028............. 0 0 0 0 0 0 0 0 0 0 0 0
--- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Weighted Average Life
(years)............... 0.7 0.4 0.3 0.3 0.3 0.2 7.0 2.1 1.5 1.3 1.2 0.9
<CAPTION>
CLASS A-3
PREPAYMENT MODEL ASSUMPTION
-------------------------------------------------
DISTRIBUTION DATE 0% 100% 150% 180% 200% 300%
- ----------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage..... 100 100 100 100 100 100
March 1999............. 100 100 100 100 100 100
March 2000............. 100 100 100 100 98 44
March 2001............. 100 100 74 50 35 0
March 2002............. 100 78 27 0 0 0
March 2003............. 100 43 0 0 0 0
March 2004............. 100 9 0 0 0 0
March 2005............. 100 0 0 0 0 0
March 2006............. 100 0 0 0 0 0
March 2007............. 100 0 0 0 0 0
March 2008............. 100 0 0 0 0 0
March 2009............. 94 0 0 0 0 0
March 2010............. 76 0 0 0 0 0
March 2011............. 56 0 0 0 0 0
March 2012............. 34 0 0 0 0 0
March 2013............. 16 0 0 0 0 0
March 2014............. 0 0 0 0 0 0
March 2015............. 0 0 0 0 0 0
March 2016............. 0 0 0 0 0 0
March 2017............. 0 0 0 0 0 0
March 2018............. 0 0 0 0 0 0
March 2019............. 0 0 0 0 0 0
March 2020............. 0 0 0 0 0 0
March 2021............. 0 0 0 0 0 0
March 2022............. 0 0 0 0 0 0
March 2023............. 0 0 0 0 0 0
March 2024............. 0 0 0 0 0 0
March 2025............. 0 0 0 0 0 0
March 2026............. 0 0 0 0 0 0
March 2027............. 0 0 0 0 0 0
March 2028............. 0 0 0 0 0 0
---- ---- ---- ---- ---- ----
Weighted Average Life
(years)............... 13.3 4.9 3.6 3.1 2.8 2.0
</TABLE>
The MHP Tables above have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Contracts, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-27
<PAGE>
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-4 CLASS A-5
PREPAYMENT MODEL ASSUMPTION PREPAYMENT MODEL ASSUMPTION
------------------------------------------------- -------------------------------------------------
DISTRIBUTION DATE 0% 100% 150% 180% 200% 300% 0% 100% 150% 180% 200% 300%
- ----------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage..... 100 100 100 100 100 100 100 100 100 100 100 100
March 1999............. 100 100 100 100 100 100 100 100 100 100 100 100
March 2000............. 100 100 100 100 100 100 100 100 100 100 100 100
March 2001............. 100 100 100 100 100 52 100 100 100 100 100 100
March 2002............. 100 100 100 98 73 0 100 100 100 100 100 84
March 2003............. 100 100 83 47 22 0 100 100 100 100 100 60
March 2004............. 100 100 50 14 0 0 100 100 100 100 95 48
March 2005............. 100 77 20 0 0 0 100 100 100 92 81 38
March 2006............. 100 51 0 0 0 0 100 100 96 80 69 30
March 2007............. 100 27 0 0 0 0 100 100 85 69 59 24
March 2008............. 100 6 0 0 0 0 100 100 75 60 50 19
March 2009............. 100 0 0 0 0 0 100 93 66 52 43 15
March 2010............. 100 0 0 0 0 0 100 84 58 44 36 12
March 2011............. 100 0 0 0 0 0 100 76 50 37 30 9
March 2012............. 100 0 0 0 0 0 100 68 43 31 25 7
March 2013............. 100 0 0 0 0 0 100 61 37 27 21 5
March 2014............. 96 0 0 0 0 0 100 54 32 22 17 3
March 2015............. 77 0 0 0 0 0 100 48 27 19 14 0
March 2016............. 58 0 0 0 0 0 100 42 23 15 11 0
March 2017............. 37 0 0 0 0 0 100 36 19 12 9 0
March 2018............. 17 0 0 0 0 0 100 31 16 10 6 0
March 2019............. 0 0 0 0 0 0 99 27 13 7 4 0
March 2020............. 0 0 0 0 0 0 89 23 11 4 1 0
March 2021............. 0 0 0 0 0 0 79 18 7 2 0 0
March 2022............. 0 0 0 0 0 0 67 14 4 0 0 0
March 2023............. 0 0 0 0 0 0 56 11 1 0 0 0
March 2024............. 0 0 0 0 0 0 45 7 0 0 0 0
March 2025............. 0 0 0 0 0 0 34 3 0 0 0 0
March 2026............. 0 0 0 0 0 0 21 0 0 0 0 0
March 2027............. 0 0 0 0 0 0 6 0 0 0 0 0
March 2028............. 0 0 0 0 0 0 0 0 0 0 0 0
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Weighted Average Life
(years)............... 18.4 8.2 6.1 5.1 4.5 3.1 25.5 17.5 14.2 12.4 11.3 7.1
<CAPTION>
CLASS A-R
PREPAYMENT MODEL ASSUMPTION
-------------------------------------------------
DISTRIBUTION DATE 0% 100% 150% 180% 200% 300%
- ----------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage..... 100 100 100 100 100 100
March 1999............. 0 0 0 0 0 0
March 2000............. 0 0 0 0 0 0
March 2001............. 0 0 0 0 0 0
March 2002............. 0 0 0 0 0 0
March 2003............. 0 0 0 0 0 0
March 2004............. 0 0 0 0 0 0
March 2005............. 0 0 0 0 0 0
March 2006............. 0 0 0 0 0 0
March 2007............. 0 0 0 0 0 0
March 2008............. 0 0 0 0 0 0
March 2009............. 0 0 0 0 0 0
March 2010............. 0 0 0 0 0 0
March 2011............. 0 0 0 0 0 0
March 2012............. 0 0 0 0 0 0
March 2013............. 0 0 0 0 0 0
March 2014............. 0 0 0 0 0 0
March 2015............. 0 0 0 0 0 0
March 2016............. 0 0 0 0 0 0
March 2017............. 0 0 0 0 0 0
March 2018............. 0 0 0 0 0 0
March 2019............. 0 0 0 0 0 0
March 2020............. 0 0 0 0 0 0
March 2021............. 0 0 0 0 0 0
March 2022............. 0 0 0 0 0 0
March 2023............. 0 0 0 0 0 0
March 2024............. 0 0 0 0 0 0
March 2025............. 0 0 0 0 0 0
March 2026............. 0 0 0 0 0 0
March 2027............. 0 0 0 0 0 0
March 2028............. 0 0 0 0 0 0
---- ---- ---- ---- ---- ----
Weighted Average Life
(years)............... 0.1 0.1 0.1 0.1 0.1 0.1
</TABLE>
The MHP Tables above have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Contracts, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-28
<PAGE>
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS M CLASS B-1
PREPAYMENT MODEL ASSUMPTION PREPAYMENT MODEL ASSUMPTION
------------------------------------------------- -------------------------------------------------
DISTRIBUTION DATE 0% 100% 150% 180% 200% 300% 0% 100% 150% 180% 200% 300%
- ----------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage..... 100 100 100 100 100 100 100 100 100 100 100 100
March 1999............. 100 100 100 100 100 100 100 100 100 100 100 100
March 2000............. 100 100 100 100 100 100 100 100 100 100 100 100
March 2001............. 100 100 100 100 100 100 100 100 100 100 100 100
March 2002............. 100 100 100 100 100 100 100 100 100 100 100 100
March 2003............. 100 100 97 93 93 90 100 100 96 90 89 85
March 2004............. 100 100 86 81 80 72 100 100 79 71 69 58
March 2005............. 100 96 76 71 68 58 100 93 64 55 52 35
March 2006............. 100 87 67 61 58 46 100 80 50 40 36 17
March 2007............. 100 79 59 53 50 36 100 68 38 28 23 2
March 2008............. 100 72 52 46 42 28 100 57 27 17 12 0
March 2009............. 100 66 46 39 36 22 100 47 18 7 2 0
March 2010............. 100 59 40 34 30 17 100 38 9 0 0 0
March 2011............. 100 53 35 29 25 13 100 29 1 0 0 0
March 2012............. 100 48 30 24 21 8 100 20 0 0 0 0
March 2013............. 100 43 26 20 17 1 100 12 0 0 0 0
March 2014............. 100 38 22 17 14 0 100 5 0 0 0 0
March 2015............. 95 34 19 14 12 0 93 0 0 0 0 0
March 2016............. 89 30 16 12 6 0 83 0 0 0 0 0
March 2017............. 82 26 13 6 1 0 72 0 0 0 0 0
March 2018............. 75 22 10 1 0 0 62 0 0 0 0 0
March 2019............. 69 19 5 0 0 0 53 0 0 0 0 0
March 2020............. 62 16 1 0 0 0 43 0 0 0 0 0
March 2021............. 55 13 0 0 0 0 31 0 0 0 0 0
March 2022............. 47 8 0 0 0 0 19 0 0 0 0 0
March 2023............. 39 2 0 0 0 0 6 0 0 0 0 0
March 2024............. 32 0 0 0 0 0 0 0 0 0 0 0
March 2025............. 24 0 0 0 0 0 0 0 0 0 0 0
March 2026............. 15 0 0 0 0 0 0 0 0 0 0 0
March 2027............. 0 0 0 0 0 0 0 0 0 0 0 0
March 2028............. 0 0 0 0 0 0 0 0 0 0 0 0
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Weighted Average Life
(years).............. 23.4 14.7 11.6 10.6 10.1 8.5 21.2 11.1 8.4 7.7 7.4 6.6
</TABLE>
The MHP Tables above have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Contracts, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-29
<PAGE>
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement and will
constitute a series of ABS Mortgage and Manufactured Housing Contract
Asset-Backed Certificates for purposes of the Prospectus. A copy of a general
form of a Pooling and Servicing Agreement has been filed with the Securities and
Exchange Commission. A copy of the execution form of the Agreement (without
certain exhibits) will be filed with the Securities and Exchange Commission
after the Closing Date. The following description supplements and, to the extent
inconsistent therewith, supersedes, the description of the Agreement and the
Certificates under 'Description of the Securities' in the Prospectus and must be
read together therewith. The following summaries describe certain terms of the
Agreement, do not purport to be complete and will be subject to, and will be
qualified in their entirety by reference to, the provisions of the Agreement.
When particular provisions or terms used in the Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by
reference.
GENERAL
The Offered Certificates (other than the Class A-R Certificates) will be
issued in fully registered form only, in minimum denominations of $1,000 and
integral multiples of $1 in excess thereof. The Class A-R Certificates will be
issued in definitive form as fully registered physical certificates. Definitive
Certificates, if issued, will be transferable and exchangeable at the Corporate
Trust Office of the Trustee. No service charge will be made for any registration
of exchange or transfer, but the Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge.
The Trust Fund will include, among other things, (i) the Contract Pool,
including all rights to receive payments on the Contracts received on or after
the Cut-off Date, (ii) security interests in the related Manufactured Homes (and
related real estate, in the case of Land-and-Home Contracts), (iii) the amounts
held from time to time in an account (the 'Certificate Account') maintained by
the Trustee pursuant to the Agreement, (iv) any property which initially secured
a Contract and which is acquired in the process of realizing thereon, (v) the
proceeds of all insurance policies described herein and (vi) all proceeds of the
foregoing. The Depositor will cause the Contracts and other assets of the Trust
Fund to be assigned to the Trustee or a co-trustee. The Servicer will service
the Contracts pursuant to the Agreement.
Distributions of principal of and interest on the Certificates will be made
on each Distribution Date to the persons in whose names the Certificates are
registered as of the close of business on the related Record Date. With respect
to each Distribution Date, the Offered Certificates will accrue interest during
the related Interest Accrual Period. If Definitive Certificates are issued,
distributions will be made by check mailed to the address of the person entitled
thereto as it appears on the Certificate Register, except that a holder of
Offered Certificates with original denominations aggregating at least $5 million
may request payment by wire transfer of funds pursuant to written instructions
delivered to the Trustee at least five Business Days prior to the related Record
Date. The final distribution in retirement of the Certificates will be made only
upon presentation and surrender of the Certificates at the office or agency of
the Trustee specified in the final distribution notice to Certificateholders.
To the extent not previously paid prior to such dates, the Certificate
Principal Balance of (i) the Class A-1 Certificates will be payable on the Class
A-1 Final Distribution Date and (ii) each other Class of Offered Certificates
will be payable on the Final Scheduled Distribution Date.
CONVEYANCE OF CONTRACTS
On the Closing Date, the Depositor will assign to the Trustee or a
co-trustee, without recourse, among other things, all right, title and interest
of the Depositor conveyed to it by IndyMac in, to and under the Contracts,
including all principal and interest payments received on the Contracts on or
after the Cut-off Date, and all rights under the standard hazard insurance
policies on the related Manufactured Homes. The Depositor will represent and
warrant only that it had, subject to certain assumptions, good title to, and was
the sole owner of, each Contract and any related Mortgage free of any liens,
charges or encumbrances created by the Depositor. The Contracts will be
described on a schedule attached to the Agreement that will identify each
Contract by number and name of the related Obligor and set forth the Contract
Principal Balance as of the Cut-off Date. Any Contract discovered not to agree
with such schedule in a manner that is materially adverse to the interests of
the Certificateholders will be repurchased by IndyMac, except that if the
discrepancy relates to the Contract
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<PAGE>
Principal Balance, IndyMac may deposit cash in the Certificate Account in an
amount sufficient to offset such discrepancy.
IndyMac will deliver or cause to be delivered to the Trustee or a custodian
of the Trustee, as specified in the Agreement, with respect to (a) each Contract
that is not a Land-and-Home Contract, (i) the original copy of the Contract,
(ii) in the case of a Contract not originated by IndyMac or an affiliate
thereof, the assignment of the related Contract from the originator to IndyMac
or such affiliate and (iii) any extension, modification or waiver agreement(s),
and (b) each Land-and-Home Contract, (i) the original copy of the Contract, (ii)
the related Mortgage with evidence of recording thereon, (iii) an assignment in
recordable form of the Mortgage to the Trustee (which may be a blanket
assignment if permitted in the applicable jurisdiction), (iv) in the case of a
Contract not originated by IndyMac or an affiliate thereof, the assignment of
the related Contract from the originator to IndyMac or such affiliate, (v) if
applicable, the power of attorney granted to the Trustee and (vi) any extension,
modification or waiver agreement(s). All Contracts originated or otherwise owned
by an affiliate of IndyMac have been or will be assigned to IndyMac in the
ordinary course of business, and such assignment shall be delivered to the
Trustee or a custodian of the Trustee on or prior to the Closing Date. All other
documents relating to such Contract, including the original title document or
application for title for the related Manufactured Home, the credit application,
credit reports and verifications, appraisals, tax and insurance records and
payment records, will be maintained by the Servicer.
IndyMac will make certain representations and warranties in respect of each
Contract as of the Closing Date or other specified date, including the
following: (a) as of the Cut-off Date, no Contract was more than 30 days past
due; (b) each Contract and any related Mortgage is a legal, valid and binding
obligation of the Obligor and is enforceable in accordance with its terms
(except as may be limited by laws affecting creditors' rights generally or by
general equitable principles); (c) each Contract is covered by hazard insurance
described below under ' -- Hazard Insurance Policies'; (d) each Contract
complies with all requirements of law; (e) each Contract creates a valid and
enforceable first priority security interest in favor of IndyMac in the
Manufactured Home covered thereby and such security interest and, if applicable,
the related Mortgage has been assigned (by way of individual assignment) by
IndyMac to the Trustee; and (f) immediately prior to the transfer thereof to the
Depositor, IndyMac had good and marketable title to each Contract, free and
clear of any encumbrance, equity, loan, pledge, charge, claim or security
interest, and was the sole owner and had full right to transfer such Contract
and any related Mortgage to the Depositor, no Contract or any related Mortgage
has been sold, assigned or pledged by IndyMac to any person other than the
Depositor and prior to the transfer of the Contracts by IndyMac to the
Depositor, IndyMac was the sole owner and had the full right to transfer the
Contract to the Depositor. Pursuant to the Agreement, IndyMac will be obligated
to repurchase for the Repurchase Price any Contract on the first Business Day
after the first Determination Date which is more than 90 days after IndyMac
becomes aware, or after IndyMac's receipt of written notice from the Trustee or
the Servicer, of a breach of any representation or warranty of IndyMac in the
Agreement that materially adversely affects the Trustee's interest in any
Contract if such breach has not been cured. If a court of competent jurisdiction
were to determine that the failure to note the Trustee or a co-trustee as the
lienholder on the related certificate of title has resulted in the Trustee not
having a perfected first priority security interest in the related Manufactured
Home, IndyMac would be obligated to repurchase the related Contract. The
'Repurchase Price' for any Contract will be the unpaid principal balance of such
Contract as of the beginning of the month of repurchase plus accrued interest
from the date through which interest was last paid to its Due Date in the month
in which such Contract is repurchased. This repurchase obligation will
constitute the sole remedy available to the Depositor, the Trustee (on behalf of
the Trust) and the Certificateholders for a breach of a representation or
warranty under the Agreement with respect to the Contracts. The foregoing
description of representations and warranties with respect to the Contracts
replaces the description under 'Description of the Securities -- Assignment of
Contracts' in the Prospectus.
Pursuant to the Agreement, IndyMac will also make certain representations
and warranties with respect to the Contracts in the aggregate, including that
the aggregate Contract Principal Balance as of the Cut-off Date equals the
Cut-off Date Pool Balance and no adverse selection procedures were employed in
selecting the Contracts.
PAYMENTS ON CONTRACTS; COLLECTION ACCOUNT; CERTIFICATE ACCOUNT
The Servicer will establish and maintain the Collection Account, and the
Trustee will establish and maintain the Certificate Account. The Collection
Account and the Certificate Account will each be maintained
S-31
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<PAGE>
(i) at a depository institution organized under the laws of the United States or
any State, the deposits of which are insured to the full extent permitted by law
by the Federal Deposit Insurance Corporation (a) the long-term deposit rating or
unsecured long-term debt of which has been assigned one of the two highest
ratings by each Rating Agency or (b) maintained with a depository institution
the short-term unsecured debt obligations of which are rated in the highest
short-term rating category by the Rating Agencies or (c) the commercial paper of
which has a rating of P-1 by Moody's and, if rated by Fitch, F-1 by Fitch or
(ii) in the corporate trust department of the Trustee or (iii) at an institution
otherwise acceptable to each Rating Agency (such account, an 'Eligible
Account'). Funds in the Collection Account and the Certificate Account will be
invested in Eligible Investments that will mature or be subject to redemption
not later than the Business Day immediately preceding the Distribution Date next
following the date of such investment. Eligible Investments will include, among
other things, obligations of the United States or of any agency thereof backed
by the full faith and credit of the United States, federal funds, certificates
of deposit, time deposits and bankers' acceptances sold by eligible financial
institutions, commercial paper rated P-1 by Moody's and, if rated by Fitch, F-1
by Fitch and other obligations acceptable to each Rating Agency.
All payments in respect of principal of and interest on the Contracts
received by the Servicer (net of any servicing compensation and certain other
amounts reimbursable to the Servicer pursuant to the Agreement), including
principal prepayments and Liquidation Proceeds (net of Liquidation Expenses),
will be deposited into the Collection Account no later than the second Business
Day following IndyMac's receipt thereof. Amounts received as late payment fees,
extension fees, assumption fees or similar fees will be retained by the Servicer
as additional servicing compensation. See ' -- Servicing Compensation' herein
and 'Description of the Securities -- Servicing Compensation and Payment of
Expenses' in the Prospectus. In addition, on or prior to the Deposit Date (as
defined below) the following amounts will also be deposited into the Collection
Account: (i) the Repurchase Price paid by IndyMac for Contracts repurchased as a
result of breach of a representation or warranty under the Agreement, as
described herein under ' -- Conveyance of Contracts,' (ii) all Advances, if any,
and (iii) amounts collected under Hazard Insurance Policies, except to the
extent that they are applied to the restoration of the related Manufactured Home
or paid to the related Obligor in accordance with the normal servicing
procedures of the Servicer. From time to time, as will be provided in the
Agreement, the Servicer will also withdraw funds from the Collection Account to
make payments payable to it as permitted by the Agreement and described in the
definition of the term 'Available Distribution Amount.'
On the Business Day immediately preceding each Distribution Date (each, a
'Deposit Date'), the Servicer will withdraw funds from the Collection Account
(but only to the extent of the related Available Distribution Amount) and
deposit such funds in the Certificate Account. On each Distribution Date, the
Trustee or its Paying Agent will withdraw funds from the Certificate Account
(but only to the extent of the related Available Distribution Amount) to make
payments to Certificateholders as described herein under ' -- Distributions --
Priority of Distributions.'
DISTRIBUTIONS
General. Distributions will be made on each Distribution Date to holders of
record on the preceding Record Date, except that the final distribution in
respect of the Certificates will only be made upon presentation and surrender of
the Certificates at the office or agency appointed by the Trustee for that
purpose. Distributions on a Class of Certificates will be allocated among the
Certificates of such Class in proportion to their respective Percentage
Interests. In no event will the aggregate distributions of principal to a holder
of Offered Certificates exceed the Initial Certificate Principal Balance of the
related Class of Certificates.
The Class X Certificates are interest-only securities that have no stated
Certificate Principal Balance or Pass-Through Rate, but will represent the right
to receive a distribution on each Distribution Date of certain interest amounts,
as more fully set forth in the Agreement (the 'Class X Strip Amount').
Each distribution with respect to an Offered Certificate held in book-entry
form will be paid to DTC, which will credit the amount of such distribution to
the accounts of its Participants in accordance with its normal procedures. Each
Participant will be responsible for disbursing such distribution to the
Certificate Owners that it represents and to each indirect participating
brokerage firm (each, a 'brokerage firm' or 'indirect participating firm') for
which it acts as agent. Each brokerage firm will be responsible for disbursing
funds to the Certificate Owners that it represents. All such credits and
disbursements with respect to Offered Certificates held in book-
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entry form will be made by DTC and the Participants in accordance with DTC's
rules. See ' -- Registration of the Offered Certificates' herein.
Available Distribution Amount. On the second Business Day preceding each
Distribution Date (each, a 'Determination Date'), the Servicer will determine
the Available Distribution Amount and amounts to be distributed on the
Certificates on such Distribution Date. The 'Available Distribution Amount' with
respect to any Distribution Date will be an amount equal to (a) the sum of (i)
Monthly Payments received during the related Due Period, (ii) the Advance, if
any, made by the Servicer in respect of such Due Period and (iii) to the extent
not duplicative with amounts described in clause (i), unscheduled payments
received with respect to the Contracts during the related Prepayment Period,
including principal prepayments, Net Liquidation Proceeds, net insurance
proceeds, the proceeds of the disposition of REO Properties, the Repurchase
Price of each Repurchased Contract and any other unscheduled payments, reduced
by (b) the sum of (i) aggregate Repossession Profits, (ii) the Monthly Trustee
Fee, (iii) the Servicing Fee and other servicing compensation, (iv) payments on
Contracts that have been repurchased by IndyMac as a result of a breach of a
representation or warranty and any other payments not required to be deposited
in the Certificate Account, (v) reimbursements to the Servicer for Liquidation
Expenses incurred in respect of Manufactured Homes, (vi) reimbursements to the
Servicer for Advances in respect of delinquent Contracts as to which the related
late Monthly Payments have been made, Nonrecoverable Advances and Advances in
respect of Liquidated Contracts, in each case to the extent permitted in the
Agreement, and (vii) certain expenses reimbursable to the Depositor permitted in
the Agreement.
Interest. On each Distribution Date, holders of each Class of Class A
Certificates will be entitled to receive, to the extent of the Available
Distribution Amount, (i) interest accrued on such Class during the related
Interest Accrual Period at the related Pass-Through Rate on the Certificate
Principal Balance of such Class immediately prior to such Distribution Date (the
'Interest Distribution Amount' for such Class and Distribution Date), plus (ii)
any amounts distributable under clause (i) above or this clause (ii) on such
Class on the previous Distribution Date but not previously distributed, plus, to
the extent legally permissible, interest accrued on any such amount during the
related Interest Accrual Period at the related Pass-Through Rate (the 'Carryover
Interest Distribution Amount' for such Class and Distribution Date). On each
Distribution Date, holders of the Subordinate Certificates will be entitled to
receive, to the extent of the Available Distribution Amount and on a
subordinated basis as described below under ' -- Priority of Distributions,' (i)
interest accrued on such Class during the related Interest Accrual Period at the
related Pass-Through Rate on the Adjusted Certificate Principal Balance of such
Class immediately prior to that Distribution Date (the 'Interest Distribution
Amount' for such Class and Distribution Date), plus (ii) any amounts
distributable under clause (i) above or this clause (ii) on such Class on the
previous Distribution Date but not previously distributed, plus, to the extent
legally permissible, interest accrued on any such amount during the related
Interest Accrual Period at the related Pass-Through Rate (the 'Carryover
Interest Distribution Amount' for such Class and Distribution Date).
The 'Interest Accrual Period' will mean, with respect to each Distribution
Date, (i) for the Class A-1 Certificates, the period commencing on the 25th day
of the preceding month through the 24th day of the month in which such
Distribution Date occurs (except that the first Interest Accrual Period for the
Class A-1 Certificates will be the period from the Closing Date through April
24, 1998) and (ii) for all other Classes of Certificates, the calendar month
preceding the month in which the Distribution Date occurs. Interest on (i) the
Class A-1 Certificates will be computed on the basis of a 360-day year and the
actual number of days in the related Interest Accrual Period and (ii) all other
Classes of Certificates will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
For any Distribution Date, the Pass-Through Rates will be, in the case of
(i) the Class A-1 Certificates, 5.6875% per annum, (ii) the Class A-2
Certificates, 6.3900% per annum, (iii) the Class A-3 Certificates, 6.3700% per
annum, (iv) the Class A-4 Certificates, 6.4900% per annum and (v) the Class A-R
Certificates, 6.5000% per annum. The Pass-Through Rate for a Distribution Date
for (i) the Class A-5 Certificates will equal the lesser of 6.9600% per annum or
the Weighted Average Net Contract Rate for such Distribution Date, (ii) the
Class M Certificates will equal the lesser of 7.1100% per annum or the Weighted
Average Net Contract Rate for such Distribution Date, (iii) the Class B-1
Certificates will equal the lesser of 7.5900% per annum or the Weighted Average
Net Contract Rate for such Distribution Date and (iv) the Class B-2 Certificates
will equal the lesser of 9.0000% per annum or the Weighted Average Net Contract
Rate for such Distribution Date. The 'Weighted Average Net Contract Rate' for a
Distribution Date will be equal to (i) the weighted average of the
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APRs applicable to the Monthly Payments due on the outstanding Contracts during
the related Due Period less (ii) the percentage rate at which the Servicing Fee
is calculated.
In addition, on each Distribution Date, to the extent of the Available
Distribution Amount and on a subordinated basis as described below under
' -- Priority of Distributions,' the holders of the Subordinate Certificates
will be entitled to receive (i) interest accrued during the related Interest
Accrual Period at the related Pass-Through Rate on any related Liquidation Loss
Amount for such Class as of the immediately preceding Distribution Date (the
'Liquidation Loss Interest Amount' for such Class and Distribution Date), plus
(ii) any amounts distributable under clause (i) above or this clause (ii) on
such Class on the previous Distribution Date but not previously distributed,
plus, to the extent legally permissible, interest accrued on any such amount
during the related Interest Accrual Period at the related Pass-Through Rate (the
'Unpaid Liquidation Loss Interest Shortfall' for such Class and Distribution
Date).
Principal. The 'Formula Principal Distribution Amount' for any Distribution
Date will equal (a) the sum of: (i) the principal components of all Monthly
Payments received during the related Due Period on the Contracts that were
outstanding on the first day of such Due Period, to the extent not duplicative
with amounts described in clauses (ii) through (iv), and not including any
Monthly Payments received on Liquidated Contracts or repurchased Contracts; (ii)
the amounts of all Principal Prepayments received by the Servicer on the
Contracts during the related Prepayment Period; (iii) with respect to any
Contract that became a Liquidated Contract during the related Prepayment Period,
the Contract Principal Balance thereof on the date of liquidation thereof
(determined without giving effect to such liquidation); and (iv) with respect to
any Contract that was purchased or repurchased by the Seller pursuant to the
Agreement during the related Prepayment Period, the Contract Principal Balance
thereof on the date of purchase or repurchase thereof (determined without giving
effect to such purchase or repurchase), less (b) the Overcollateralization
Reduction Amount, if any, for such Distribution Date. The 'Unpaid Certificate
Principal Shortfall' for any Distribution Date will be, with respect to each
Class of Certificates, an amount equal to all Formula Principal Distribution
Amounts distributable on such Class on previous Distribution Dates that have not
yet been distributed on such Class of Certificates.
The 'Class A Formula Principal Distribution Amount' for any Distribution
Date will equal (i) prior to the Cross-over Date, the entire Formula Principal
Distribution Amount, (ii) on any Distribution Date as to which the Principal
Distribution Tests are not satisfied, the entire Formula Principal Distribution
Amount, or (iii) on any other Distribution Date, the Class A Percentage of the
Formula Principal Distribution Amount. The 'Class M Formula Principal
Distribution Amount' for any Distribution Date will equal (i) as long as the
Class A Certificate Principal Balance has not been reduced to zero and prior to
the Cross-over Date, zero, (ii) on any Distribution Date as to which the
Principal Distribution Tests are not satisfied and the Class A Certificate
Principal Balance has not been reduced to zero, zero, (iii) on any Distribution
Date as to which the Principal Distribution Tests are not met and the Class A
Certificate Principal Balance has been reduced to zero, the entire Formula
Principal Distribution Amount, or (iv) on any other Distribution Date, the Class
M Percentage of the Formula Principal Distribution Amount. The 'Class B-1
Formula Principal Distribution Amount' for any Distribution Date will equal (i)
as long as the Class A and the Class M Certificate Principal Balances have not
been reduced to zero and prior to the Cross-over Date, zero, (ii) on any
Distribution Date as to which the Principal Distribution Tests are not satisfied
and the Class A and Class M Certificate Principal Balances have not been reduced
to zero, zero, (iii) on any Distribution Date as to which the Principal
Distribution Tests are not satisfied and the Class A and the Class M Certificate
Principal Balances each have been reduced to zero, the entire Formula Principal
Distribution Amount, or (iv) on any other Distribution Date, the Class B
Percentage of the Formula Principal Distribution Amount. The 'Class B-2 Formula
Principal Distribution Amount' for any Distribution Date will equal the Formula
Principal Distribution Amount less the sum of the Class A, Class M and Class B-1
Formula Principal Distribution Amounts. If the Class A and Class M Certificate
Principal Balances have not been reduced to zero on or before a Distribution
Date, to the extent that allocations in respect of principal to the Class B-2
Certificateholders would reduce the Class B-2 Certificate Principal Balance
below the Class B-2 Floor Amount, then the amount of such excess principal will
instead be added, first to the Class M Formula Principal Distribution Amount
until the Class M Certificate Principal Balance would be reduced to zero, and
then to the Class A Formula Principal Distribution Amount. On any Distribution
Date, if the Class A, Class M or Class B-1 Formula Principal Distribution Amount
exceeds the Certificate Principal Balance of the related Class of Certificates
(which in the case of the Class A Certificates will mean all Class A
Certificates), less any Unpaid Certificate Principal Shortfall with respect to
such Class and Distribution Date, then the amount
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of such excess will be added to the Formula Principal Distribution Amount of the
next junior Class of Certificates.
The 'Class A Percentage' for a Distribution Date will generally be the
percentage derived from the fraction (which shall not be greater than one), the
numerator of which is the Class A Certificate Principal Balance immediately
prior to such Distribution Date and the denominator of which is the sum of the
Class A Certificate Principal Balance, the Class M Adjusted Certificate
Principal Balance and the Class B Adjusted Certificate Principal Balance, each
immediately prior to such Distribution Date. The 'Class M Percentage' for a
Distribution Date will generally be the percentage derived from the fraction
(which shall not be greater than one), the numerator of which is the Class M
Adjusted Certificate Principal Balance immediately prior to such Distribution
Date and the denominator of which is the sum of the Class A Certificate
Principal Balance, the Class M Adjusted Certificate Principal Balance and the
Class B Adjusted Certificate Principal Balance, each immediately prior to such
Distribution Date. The 'Class B Percentage' for a Distribution Date will
generally be calculated in the same manner as the Class M Percentage,
appropriately modified to relate to the Class B Certificates.
Priority of Distributions. On each Distribution Date the Available
Distribution Amount will be distributed in the following amounts and in the
following order of priority:
(i) concurrently, to each Class of Class A Certificates, (a) first,
the related Interest Distribution Amount for such Distribution Date, with
the Available Distribution Amount being allocated among such Classes pro
rata based on their respective Interest Distribution Amounts and (b)
second, the related Carryover Interest Distribution Amount, if any, for
such Distribution Date, with the Available Distribution Amount being
allocated among such Classes pro rata based on their respective Carryover
Interest Distribution Amounts;
(ii) to the Class M Certificates, (a) first, the related Interest
Distribution Amount for such Distribution Date and (b) second, the related
Carryover Interest Distribution Amount, if any, for such Distribution Date;
(iii) to the Class B-1 Certificates, (a) first, the related Interest
Distribution Amount for such Distribution Date and (b) second, the related
Carryover Interest Distribution Amount, if any, for such Distribution Date;
(iv) to the Class B-2 Certificates, (a) first, the related Interest
Distribution Amount for such Distribution Date and (b) second, the related
Carryover Interest Distribution Amount, if any, for such Distribution Date;
(v) concurrently, to each Class of Class A Certificates, the related
Unpaid Certificate Principal Shortfall for the Class A Certificates, if
any, for such Distribution Date, allocated among the Class A Certificates
pro rata based on their respective Certificate Principal Balances;
(vi) to the Class A Certificates, the Class A Formula Principal
Distribution Amount allocated in the following manner and in the following
order of priority; provided, however, that on any Distribution Date on
which the Pool Balance is less than or equal to the aggregate Certificate
Principal Balance of the Class A Certificates immediately prior to such
Distribution Date, the Class A Formula Principal Distribution Amount will
be allocated among the Class A Certificates pro rata based upon their
respective Certificate Principal Balances:
(a) to the Class A-R Certificates until the Class A-R Certificate
Principal Balance has been reduced to zero;
(b) to the Class A-1 Certificates until the Class A-1 Certificate
Principal Balance has been reduced to zero;
(c) to the Class A-2 Certificates until the Class A-2 Certificate
Principal Balance has been reduced to zero;
(d) to the Class A-3 Certificates until the Class A-3 Certificate
Principal Balance has been reduced to zero;
(e) to the Class A-4 Certificates until the Class A-4 Certificate
Principal Balance has been reduced to zero; and
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(f) to the Class A-5 Certificates until the Class A-5 Certificate
Principal Balance has been reduced to zero;
(vii) to the Class M Certificates, (a) first, any related Liquidation
Loss Interest Amount for such Distribution Date and (b) second, any related
Unpaid Liquidation Loss Interest Shortfall for such Distribution Date;
(viii) to the Class M Certificates, the related Unpaid Certificate
Principal Shortfall for the Class M Certificates, if any, for such
Distribution Date;
(ix) to the Class M Certificates, the Class M Formula Principal
Distribution Amount, until the Class M Certificate Principal Balance has
been reduced to zero;
(x) to the Class B-1 Certificates, (a) first, any related Liquidation
Loss Interest Amount for such Distribution Date and (b) second, any related
Unpaid Liquidation Loss Interest Shortfall for such Distribution Date;
(xi) to the Class B-1 Certificates, the related Unpaid Certificate
Principal Shortfall for the Class B-1 Certificates, if any, for such
Distribution Date;
(xii) to the Class B-1 Certificates, the Class B-1 Formula Principal
Distribution Amount, until the Class B-1 Certificate Principal Balance has
been reduced to zero;
(xiii) to the Class B-2 Certificates, (a) first, any related
Liquidation Loss Interest Amount for such Distribution Date and (b) second,
any related Unpaid Liquidation Loss Interest Shortfall for such
Distribution Date;
(xiv) to the Class B-2 Certificates, the related Unpaid Certificate
Principal Shortfall for the Class B-2 Certificates, if any, for such
Distribution Date;
(xv) to the Class B-2 Certificates, the Class B-2 Formula Principal
Distribution Amount until the Class B-2 Certificate Principal Balance has
been reduced to zero;
(xvi) to each Class of Class A Certificates, sequentially in
accordance with clause (vi), the Accelerated Principal Distribution Amount
for such Distribution Date, in reduction of the Certificate Principal
Balance of such Classes, until each is reduced to zero;
(xvii) to the Class X Certificates, in the following sequential order;
(a) the current Class X Strip Amount; and
(b) any Class X Strip Amounts from previous Distribution Dates
remaining unpaid;
(xviii) to the Servicer, an additional servicing fee equal to
one-twelfth of the product of 0.08% and the Pool Balance at the beginning
of the related Due Period; and
(xix) any remainder, to the Class A-R Certificates.
The 'Cross-over Date' will be the later to occur of (i) the Distribution
Date occurring in October 2002 or (ii) the first Distribution Date on which the
percentage equivalent of a fraction (which shall not be greater than one) the
numerator of which is the aggregate Adjusted Certificate Balance of the
Subordinate Certificates plus the Current Overcollateralization Amount for such
Distribution Date and the denominator of which is the Pool Balance on such
Distribution Date, equals or exceeds 1.75 times the percentage equivalent of a
fraction (which shall not be greater than one) the numerator of which is the
aggregate Initial Certificate Principal Balance of the Subordinate Certificates
and the denominator of which is the Cut-off Date Pool Balance.
The 'Principal Distribution Tests' will be met in respect of a Distribution
Date if the following conditions are satisfied: (i) the Average Sixty-Day
Delinquency Ratio (as defined in the Agreement) as of such Distribution Date
does not exceed 5.00%; (ii) the Average Thirty-Day Delinquency Ratio (as defined
in the Agreement) as of such Distribution Date does not exceed 7.00%; (iii) the
Cumulative Realized Losses (as defined in the Agreement) as of such Distribution
Date do not exceed a certain specified percentage of the original Pool Balance,
depending on the year in which such Distribution Date occurs; and (iv) the
Current Realized Loss Ratio (as defined in the Agreement) as of such
Distribution Date does not exceed 2.75%. The Average Sixty-Day Delinquency Ratio
and the Average Thirty-Day Delinquency Ratio will, in general, be the ratios of
the average of the Contract Principal Balances delinquent 60 days or more and 30
days or more, respectively, for the preceding three calendar months to the
average Pool Balance for such periods. Cumulative Realized Losses will,
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in general, be the aggregate Realized Losses incurred in respect of Liquidated
Contracts since the Cut-off Date. The Current Realized Loss Ratio will, in
general, be the ratio of the aggregate Realized Losses incurred on Liquidated
Contracts for the periods specified in the Agreement to an average Pool Balance
specified in the Agreement.
The 'Pool Balance' for any Distribution Date will be equal to (i) the
Cut-off Date Pool Balance, less (ii) the aggregate of the Formula Principal
Distribution Amounts (without subtracting therefrom any Overcollateralization
Reduction Amount) for such Distribution Date and all prior Distribution Dates.
The 'Certificate Principal Balance' of each Class of Certificates will be its
Initial Certificate Principal Balance reduced by all distributions in respect of
principal on such Class.
With respect to any Distribution Date the 'Class B-2 Floor Amount' will
mean (i) 1.50% of the Cut-off Date Pool Balance, if the Class A Certificate
Principal Balance, the Class M Certificate Principal Balance and the Class B-1
Certificate Principal Balance have not been reduced to zero prior to such
Distribution Date, and (ii) zero, if the Class A Certificate Principal Balance,
the Class M Certificate Principal Balance and the Class B-1 Certificate
Principal Balance have been reduced to zero prior to such Distribution Date.
REALIZED LOSSES ON LIQUIDATED CONTRACTS
The Formula Principal Distribution Amount for any Distribution Date is
intended to include the Contract Principal Balance of each Contract that became
a Liquidated Contract during the related Prepayment Period. A Realized Loss will
be incurred on a Liquidated Contract in the amount, if any, by which the
Liquidation Proceeds, net of Liquidation Expenses, from such Liquidated Contract
are less than the Contract Principal Balance of such Liquidated Contract, plus
accrued and unpaid interest thereon, plus amounts reimbursable to the Servicer
for previously unreimbursed Advances. To the extent that the amount of the
Realized Loss is not covered by interest collected on the nondefaulted Contracts
in excess of certain interest payments due to be distributed on the Class A,
Class M and Class B Certificates and any portion of such interest required to be
paid to the Trustee and the Servicer as compensation, the amount of such
Realized Loss may be allocated first, to reduce the Current
Overcollateralization Amount, and then to the Subordinate Certificates. See
' -- Allocation of Liquidation Loss Amounts.'
ALLOCATION OF LIQUIDATION LOSS AMOUNTS
The 'Liquidation Loss Amount' for any Distribution Date will be the amount,
if any, by which the aggregate Certificate Principal Balance of all Certificates
(after giving effect to the distributions made on such Distribution Date)
exceeds the Pool Balance for such Distribution Date. The Liquidation Loss Amount
will be allocated among the Classes of Subordinate Certificates in the following
order of priority:
(i) first, to the Class B-2 Certificates, to be applied in reduction
of the Adjusted Certificate Principal Balance of such Class until it has
been reduced to zero;
(ii) second, to the Class B-1 Certificates, to be applied in reduction
of the Adjusted Certificate Principal Balance of such Class until is has
been reduced to zero; and
(iii) third, to the Class M Certificates, to be applied in reduction
of the Adjusted Certificate Principal Balance of such Class until it has
been reduced to zero.
SUBORDINATION OF THE SUBORDINATE CERTIFICATES AND THE CLASS X CERTIFICATES
Credit support for the Class A Certificates will be provided by the
subordination of the Subordinate Certificates and the Class X Certificates,
effected by the allocation of Liquidation Loss Amounts as described herein and
by the preferential application of the Available Distribution Amount to the
Class A Certificates relative to the Subordinate Certificates to the extent
described herein. The primary credit support for the Class M Certificates will
be the subordination of the Class B and Class X Certificates, effected by the
allocation of Liquidation Loss Amounts as described herein and by the
preferential allocation of the Available Distribution Amount to the Class M
Certificates relative to the Class B and Class X Certificates to the extent
described herein. The primary credit support for the Class B-1 Certificates will
be the subordination of the Class B-2 and Class X Certificates, effected by the
allocation of Liquidation Loss Amounts as described herein and by the
preferential allocation of the Available Distribution Amount to the Class B-1
Certificates relative to the
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Class B-2 and Class X Certificates to the extent described herein. See
' -- Distributions -- Priority of Distributions' above.
OVERCOLLATERALIZATION
Excess interest collections will be applied, to the extent available, to
make accelerated payments of principal on the Certificates. The 'Accelerated
Principal Distribution Amount' for any Distribution Date will be the positive
difference, if any, between the Target Overcollateralization Amount and the
Current Overcollateralization Amount. The 'Overcollateralization Reduction
Amount' will mean, (i) for any Distribution Date on or prior to the Distribution
Date on which the Class A-1 Certificate Principal Balance is reduced to zero,
zero, and (ii) for any other Distribution Date, the positive difference, if any,
between the Current Overcollateralization Amount and the Target
Overcollateralization Amount. The 'Current Overcollateralization Amount' will
mean, for any Distribution Date, the positive difference, if any, between the
Pool Balance and the sum of the Certificate Principal Balances of all
then-outstanding Classes of Certificates. The 'Target Overcollateralization
Amount' will mean (i) for any Distribution Date prior to the Cross-over Date,
1.25% of the Cut-off Date Pool Balance and (ii) for any other Distribution Date,
the lesser of (a) 1.25% of the Cut-off Date Pool Balance and (b) 2.25% of the
then-outstanding Pool Balance; provided, however, that so long as any Class of
Certificates is outstanding, the Target Overcollateralization Amount will not be
less than 0.50% of the Cut-off Date Pool Balance. Notwithstanding the foregoing,
the Target Overcollateralization Amount will mean, for any Distribution Date on
which the Class A-1 Certificate Principal Balance as of such Distribution Date
exceeds the Pro Forma Class A-1 Certificate Principal Balance as of such
Distribution Date, 4.79% of the Cut-off Date Pool Balance. The 'Pro Forma Class
A-1 Certificate Principal Balance' as of any Distribution Date will be equal to
an amount to be specified in the Agreement and generally will be equal to the
Class A-1 Certificate Principal Balance as of such Distribution Date, assuming
that prepayments are made on the Contracts at a rate equal to 75% of the
Prepayment Model and the Target Overcollateralization Amount is equal to zero.
ADVANCES
On each Deposit Date, the Servicer will be required to advance to the Trust
with respect to the related Due Period the amount, if any, of the interest
portion of each Monthly Payment that was not timely made (each, an 'Advance').
The Servicer will not be required (i) to advance principal with respect to any
Contract or (ii) to make any Advance that the Servicer believes is not or if
made would not be ultimately recoverable from future payments made on the
related Contracts, Liquidation Proceeds or otherwise (a 'Nonrecoverable
Advance').
On each Distribution Date, the Servicer will be entitled to reimbursement
from collections of payments on the Contracts in respect of any Advances made
and not previously reimbursed. The total amount of all Advances with respect to
any Due Period will not exceed the amount of interest that would have been paid
on or in respect of the Contracts during the related Due Period assuming that
all Monthly Payments were received by the Servicer on the related Due Dates.
Advances are intended to maintain a regular flow of scheduled payments to
Certificateholders rather than to guarantee or insure against losses. The
Servicer will be reimbursed for Advances out of collections of late Monthly
Payments on the Contracts. In addition, upon the determination that a
Nonrecoverable Advance has been made in respect of a Contract or upon a Contract
becoming a Liquidated Contract, the Servicer will reimburse itself out of funds
in the Collection Account for the Advances on such Contract (exclusive of any
Advances that were recovered out of Liquidation Proceeds for the related
Contract).
COMPENSATING INTEREST
When an Obligor prepays a Contract between Due Dates, the Obligor is
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. Pursuant to the Agreement, so long as IndyMac is the
Servicer, the Servicing Fee for any month will be reduced by an amount with
respect to each prepaid Contract sufficient to pass through to
Certificateholders the full amount of interest to which they would be entitled
in respect of such Contract on the related Distribution Date (the 'Compensating
Interest'). If shortfalls in interest as a result of prepayments in any
Prepayment Period exceed in the aggregate the amount of the Servicing Fee for
such Distribution Date, the amount of interest available to be distributed to
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Certificateholders will be reduced by the amount of such excess and IndyMac will
have no obligation to reimburse such shortfall.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will include with each distribution to each Certificateholder a
statement as of the related Distribution Date setting forth, among other things:
(i) the aggregate amount distributed on each Class of Certificates,
separately identifying the portion thereof which constitutes principal and
interest;
(ii) the Interest Distribution Amount, Carryover Interest Distribution
Amount, Liquidation Loss Interest Amount and Unpaid Liquidation Loss
Interest Shortfall in respect of each Class of Certificates;
(iii) the Formula Principal Distribution Amount and Unpaid Certificate
Principal Shortfall in respect of each Class of Certificates;
(iv) the Accelerated Principal Distribution Amount,
Overcollateralization Reduction Amount, Target Overcollateralization Amount
and Current Overcollateralization Amount;
(v) the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class
A-R, Class M, Class B-1 and Class B-2 Certificate Principal Balances, after
giving effect to the distributions of principal made on such Distribution
Date;
(vi) the Adjusted Certificate Principal Balance of the Class M, Class
B-1 and Class B-2 Certificates, after giving effect to the distributions of
principal and allocation of Liquidation Loss Amounts made on such
Distribution Date;
(vii) the number of and aggregate Contract Principal Balances of
Contracts with payments delinquent 30 to 59, 60 to 89 and 90 or more days,
respectively;
(viii) the number of and aggregate Contract Principal Balances of
Contracts relating to Manufactured Homes that were repossessed since the
immediately preceding Distribution Date;
(ix) the number of and aggregate Contract Principal Balances of
Contracts (other than Liquidated Contracts) relating to Manufactured Homes
that were repossessed remaining in the Trust Fund on such Distribution
Date;
(x) the number of and aggregate Contract Principal Balances of
Contracts relating to Manufactured Homes that were liquidated since the
immediately preceding Distribution Date;
(xi) the Realized Losses with respect to such Distribution Date;
(xii) the Cumulative Losses with respect to such Distribution Date;
and
(xiii) the amount of fees payable out of the Trust Fund.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish a report to each Certificateholder of
record at any time during such calendar year as to, among other things, the
aggregate of interest and principal reported pursuant to clause (i) for such
calendar year.
TERMINATION
The Agreement will provide that on any Distribution Date on or after the
first Distribution Date as of which the Pool Balance is less than 10% of the
Cut-off Date Pool Balance, the Depositor and the Servicer will each have the
option to repurchase all outstanding Contracts and all other property of the
Trust Fund at a price equal to the sum of (a) 100% of the unpaid principal
balance as of the final Distribution Date, and (b) the lesser of (i) the fair
market value of any REO Property (as determined by the Depositor or the
Servicer, as the case may be) and (ii) the unpaid principal balance of each
Contract related to any REO Property, plus, in each case, any unpaid interest on
the Certificates due on prior Distribution Dates, together with interest
thereon, to the extent legally permissible, at the related APR on the unpaid
principal balance (including any Contract as to which the related Manufactured
Home has been repossessed and not yet disposed of). Notwithstanding the
foregoing, the foregoing option will not be exercisable unless there will be
distributed to the Certificateholders an amount equal to 100% of the Certificate
Principal Balance of each Certificate plus one month's interest thereon at the
related Pass-Through Rate, any previously undistributed shortfalls in interest
due thereon, together with interest
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thereon, to the extent legally permissible, at the related Pass-Through Rate,
and any unpaid Liquidation Loss Interest Amounts. The Servicer shall have the
prior right to exercise the option to purchase the Contracts as described above
if both the Depositor and the Servicer desire to exercise such option.
If neither the Depositor nor the Servicer exercises its optional
termination right within 90 days after it first becomes eligible to do so, the
Trustee will solicit bids for the purchase of all Contracts and other property
in the Trust Fund. The Trustee will sell such Contracts and other property only
if the net proceeds to the Trust from such sale would at least equal the
Termination Price. If the net proceeds from such sale would not at least equal
the Termination Price, the Trustee will decline to sell the Contracts and other
property of the Trust and will not be under any obligation to solicit any
further bids or otherwise negotiate any further sale of the Contracts and other
property of the Trust.
The 'Termination Price' will equal the sum of (1) any Liquidation Expenses
incurred by the Servicer in respect of any Contract that has not yet been
liquidated, (2) all amounts required to be reimbursed or paid to the Servicer in
respect of previously unreimbursed Advances and (3) the greater of (a) the sum
of (i) the aggregate Contract Principal Balance, plus accrued and unpaid
interest thereon at the related APRs through the end of the Due Period
immediately preceding the Due Period in which the terminating purchase will
occur, plus (ii) the lesser of (A) the aggregate Contract Principal Balance of
each Contract that had been secured by any Manufactured Home acquired by the
Servicer in a repossession or foreclosure (each, an 'REO Property') remaining in
the Trust, plus accrued interest thereon at the related APR through the end of
the Due Period immediately preceding the Due Period in which the terminating
purchase will occur, and (B) the current appraised value of any such REO
Property (net of Liquidation Expenses to be incurred in connection with the
disposition of such property estimated in good faith by the Servicer), such
appraisal to be conducted by an appraiser mutually agreed upon by the Servicer
and the Trustee, plus all previously unreimbursed Advances made in respect of
such REO Property, and (b) the aggregate fair market value of the Trust Fund (as
determined by the Servicer as will be described in the Agreement). The fair
market value of the assets of the Trust as determined for purposes of a
terminating purchase will be deemed to include accrued interest at the
applicable APR on the Contract Principal Balance (including any Contract that
had been secured by a REO Property, which REO Property has not yet been disposed
of by the Servicer) through the end of the Due Period immediately preceding the
Due Period in which the terminating purchase will occur. The basis for any such
valuation shall be furnished by the Servicer to the Certificateholders upon
request.
On the date of any termination of the Trust, the Termination Price will be
distributed (i) first to the Servicer to reimburse it for all previously
unreimbursed Liquidation Expenses and Advances and (ii) second to the
Certificateholders in accordance with the distribution priorities set forth
herein under ' -- Distributions -- Priority of Distributions.' Upon the
termination of the Trust and payment of all amounts due on the Certificates and
all administrative expenses associated with the Trust, any remaining assets of
the Trust will be sold and the proceeds distributed to the holders of the Class
A-R Certificates in accordance with the Agreement.
TERMINATION OF THE AGREEMENT
The Agreement will terminate upon the last action required to be taken by
the Trustee on the final Distribution Date following the earliest to occur of
(i) the purchase by the Depositor or the Servicer of all Contracts and all other
property in the Trust Fund as described herein under ' -- Termination,' (ii) the
sale of the Contracts and other property in the Trust Fund by the Trustee as
described herein under ' -- Termination' or (iii) the final payment or other
liquidation (or any Advance with respect thereto) of the last Contract remaining
in the Trust Fund or the disposition of all property acquired upon repossession
of any Manufactured Home.
Upon presentation and surrender of the Offered Certificates, the Trustee
will cause to be distributed, to the extent of funds available, to
Certificateholders on the final Distribution Date in proportion to their
respective Percentage Interests an amount equal to the respective Certificate
Principal Balances of the Offered Certificates, together with any unpaid
interest on such Offered Certificates due on prior Distribution Dates, together
with interest thereon, to the extent legally permissible, at the related
Pass-Through Rate, and any Liquidation Loss Interest Amounts for such Class and
one month's interest at the applicable Pass-Through Rate on such unpaid
Certificate Principal Balances; provided that such funds will be distributed in
the applicable order of priority specified herein under
' -- Distributions -- Priority of Distributions.' If the Agreement is then being
terminated, any amount which remains on deposit in the Certificate Account
(other than amounts retained to meet claims)
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after distribution to the holders of the Certificates will be distributed to the
Class A-R Certificateholders in accordance with the Agreement.
SERVICING COMPENSATION
For its servicing of the Contracts, on each Distribution Date (i) the
Servicer will be entitled to receive a monthly servicing fee equal to
one-twelfth of the product of 1.00% and the Pool Balance as of the first day of
the related Due Period (the 'Servicing Fee'), whether or not the related
payments on the Contracts are received and (ii) as additional servicing
compensation, the Servicer will receive amounts pursuant to clause (xviii) under
' -- Distributions -- Priority of Distributions.' See ' -- Payments on
Contracts; Collection Account; Certificate Account' herein.
The Servicer will also be entitled to retain, as compensation for the
additional services provided in connection with the performance of its servicing
obligations under the Agreement, any fees for late payments made by Obligors,
extension fees paid by Obligors for the extension of scheduled payments and
assumption and similar fees for permitted assumptions of Contracts by purchasers
of the related Manufactured Homes. The Servicer also will be entitled to retain
as additional servicing compensation amounts in respect of interest on principal
prepayments in full of a Contract received after the Contract's Due Date during
any Prepayment Period, but, correspondingly, its Servicing Fee will be reduced
by amounts in respect of interest on principal prepayments in full of a Contract
received in advance of the Contract's Due Date during such Prepayment Period.
COMPENSATION OF THE TRUSTEE
For its services, on each Distribution Date the Trustee will be entitled to
receive a monthly trustee fee as described in the Agreement (the 'Monthly
Trustee Fee').
CERTAIN OTHER MATTERS REGARDING THE SERVICER
Any person with which the Servicer is merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer is a party, or any person succeeding to the business of the Servicer,
will be the successor to the Servicer under the Agreement, so long as such
successor has a net worth of at least $10 million and has serviced at least $100
million of manufactured housing contracts for at least one year.
HAZARD INSURANCE POLICIES
The Servicer will be obligated to cause to be maintained one or more hazard
insurance policies with respect to each Manufactured Home (other than any
Manufactured Home in repossession) 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 hazard insurance policies will, at a minimum, provide
fire and extended coverage on terms and conditions customary in manufactured
housing hazard insurance policies, with customary deductible amounts.
All amounts collected by the Servicer under a hazard insurance policy will
be applied either to the restoration or repair of the related Manufactured Home
or against the principal balance of the related Contract upon repossession of
such Manufactured Home, after reimbursing the Servicer for amounts previously
advanced by it for such purposes. The Servicer may satisfy its obligation to
maintain hazard insurance policies by maintaining a blanket policy insuring
against hazard losses on all the Manufactured Homes. Such blanket policy may
contain a deductible clause, in which case the Servicer will be required to make
payments to the Trust Fund in the amount of any deductible amounts in connection
with insurance claims on repossessed Manufactured Homes. See 'Description of the
Certificates -- Standard Hazard Insurance' and 'Description of Insurance --
Standard Hazard Insurance Policies on the Manufactured Homes' in the Prospectus.
If the Servicer repossesses a Manufactured Home on behalf of the Trustee,
the Servicer will be required to either maintain a Hazard Insurance Policy with
respect to such Manufactured Home meeting the requirements set forth above, or
to indemnify the Trust against any damage to such Manufactured Home prior to
resale or other disposition.
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EVIDENCE AS TO COMPLIANCE
The Servicer will be required to deliver to the Trustee on or before March
31 of each year, beginning March 31, 1999, an officer's certificate executed by
an officer of the Servicer stating that (i) a review of the activities of the
Servicer during the preceding calendar year (or longer period in the case of the
first such officer's certificate) and of performance under the Agreement has
been made under the supervision of such officer, and (ii) to the best of such
officer's knowledge, the Servicer has fulfilled all its obligations under the
Agreement throughout such year (or longer period in the case of the first such
officer's certificate), 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 will 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 Contracts under the Agreement, conducted in accordance with generally
accepted auditing standards or such other audit or review program used by the
Servicer, the Servicer's servicing has been conducted in compliance with the
provisions of the Agreement (or such agreements), except for (i) such exceptions
as such firm believes to be immaterial and (ii) such other exceptions as may be
set forth in such statement.
EVENTS OF DEFAULT
'Events of Default' under the Agreement will consist of (i) any failure by
the Servicer to make any deposit or payment required of it under the Agreement
which continues unremedied for five days after the giving of written notice of
such failure; (ii) any failure by the Servicer duly to observe or perform in any
material respect any of its other covenants or agreements in the Agreement which
continues unremedied for 60 days after the giving of written notice of such
failure or breach; and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or other similar proceedings regarding the
Servicer. 'Notice' as used in this paragraph will mean notice to the Servicer by
the Trustee or the Depositor, or to the Servicer, the Trustee and the Depositor
by the Holders of Certificates evidencing, in the aggregate, interests
('Fractional Interests') at least equal to 25% of the principal balance of all
Certificates. The foregoing description of Events of Default replaces the
description under 'Description of the Securities -- Events of Default' in the
Prospectus.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied, the Trustee may, and at
the written direction of the Holders of Certificates evidencing Fractional
Interests aggregating not less than 51%, shall, terminate all of the rights and
obligations of the Servicer under the Agreement and in and to the related
Contracts, whereupon (i) (subject to applicable law regarding the Trustee's
ability to make Advances) the Trustee or (ii) a successor Servicer appointed by
the Trustee with a net worth of at least $10 million that has serviced at least
$100 million of manufactured housing contracts for at least one year will
succeed to all the responsibilities, duties and liabilities of the Servicer
under the Agreement and will be entitled to similar compensation arrangements.
If, however, a bankruptcy trustee or similar official has been appointed for the
Servicer, and no Event of Default other than such appointment has occurred, such
trustee or official may have the power to prevent the Trustee or such
Certificateholders from effecting a transfer of servicing. If the Trustee is
obligated to succeed the Servicer but is unwilling or unable so to act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
successor Servicer as described above. Pending such appointment, the Trustee
will be obligated to act in such capacity. The Trustee and such successor
Servicer may agree upon the servicing compensation to be paid, which in no event
may be greater than a monthly amount specified in the Agreement.
AMENDMENT
The Agreement may be amended by the Depositor, the Servicer and the Trustee
without the consent of the Certificateholders (i) to cure any ambiguity, (ii) to
correct or supplement any provision therein that may be inconsistent with any
other provision therein, (iii) to add to the duties or obligations of the
Servicer, (iv) to obtain a rating from a nationally recognized rating agency or
to maintain or improve the then-current ratings of any Class of Certificates (it
being understood that none of the Trustee, the Depositor or the Servicer will be
obligated to obtain, maintain or improve any rating assigned to any Class of
Certificates after the Closing Date), (v) to amend the Principal Distribution
Tests or certain loss or delinquency ratios as specified in the Agreement
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or (vi) to make any other provisions with respect to matters or questions
arising under the Agreement; provided, however, that in the case of clause (vi),
any such action will not, as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of the Certificateholders; provided
further, that in the case of clause (v), any such action may be taken only after
the Trustee has received from each Rating Agency a confirmation that such action
will not result in the reduction or withdrawal of any then current rating of a
Certificate. The Agreement may also be amended by the Depositor, the Servicer
and the Trustee with the consent of at least 66% (by Certificate Principal
Balance) of the Holders of Certificates of each Class affected thereby for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Agreement or of modifying in any manner the rights of
the Certificateholders; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, any distributions on
any Certificate, without the consent of the Holder of such Certificate, (ii)
reduce the aforesaid percentage of Certificates the Holders of which are
required to consent to any such amendment, without the consent of the Holders of
all Certificates then outstanding or (iii) adversely affect the status of the
Trust Fund as a REMIC.
The Agreement may also be amended from time to time, without the consent of
any Certificateholders, by the Depositor, the Trustee and the Servicer to
modify, eliminate or add to the provisions of the Agreement to (i) maintain the
qualification of the Trust Fund as a REMIC under the Code or avoid, or minimize
the risk of, the imposition of any tax on the Trust Fund under the Code that
would be a claim against the Trust Fund, or (ii) prevent the Trust Fund from
entering into any 'prohibited transaction' as defined in Section 860F of the
Code; provided, that (a) an opinion of counsel is delivered to the Trustee to
the effect that such action is necessary or appropriate to maintain such
qualification or avoid any such tax or minimize the risk of its imposition or
prevent the Trust Fund from entering into such prohibited transaction, as the
case may be, and (b) such amendment may not adversely affect in any material
respect the interests of any Certificateholder.
VOTING
The Agreement will provide that, solely for the purposes of giving any
consent, notice, waiver, request or demand pursuant to the Agreement, any
Certificate registered in the name of the Depositor, the Servicer or any
affiliate of the Servicer and any Certificate in respect of which the Servicer
or any affiliate thereof is the Certificate Owner shall be deemed not to be
outstanding and the Percentage Interest and Fractional Interest evidenced
thereby shall not be taken into account in determining whether the requisite
amount of Percentage Interests or Fractional Interests necessary to effect such
consent, notice, waiver, request or demand has been obtained, unless, in the
case of (i) the Class A Certificates, all Class A Certificates are held by such
persons, (ii) the Class M Certificates, all Class A Certificates and Class M
Certificates are held by such persons or (iii) the Class B Certificates, all
Certificates are held by such persons, or, in each case, the Certificates of the
related Class or Classes have been fully paid.
THE TRUSTEE
The Bank of New York, a banking corporation organized under the laws of the
State of New York, will be the Trustee. Its 'Corporate Trust Office' is located
at 101 Barclay Street, New York, New York 10286, telephone (212) 815-2007. The
Depositor, IndyMac and their respective affiliates may engage in commercial
transactions with the Trustee from time to time.
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee. The Depositor may remove the Trustee
if the Trustee ceases to be eligible to continue as such under the Agreement or
if the Trustee becomes insolvent. In such circumstances, the Depositor will also
be obligated to appoint a successor Trustee. In addition, the Holders of Class A
Certificates or, after the Certificate Principal Balance of each Class of Class
A Certificates has been reduced to zero, Holders of Class M and Class B
Certificates evidencing Fractional Interests of more than 50% of the Class A or
the Class M and Class B Certificates, as the case may be, may remove the Trustee
at any time and appoint a successor Trustee. Any resignation or removal of the
Trustee and appointment of a successor Trustee will not become effective until
acceptance of the appointment by the successor Trustee.
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REGISTRATION OF THE OFFERED CERTIFICATES
The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class M and
Class B-1 Certificates. The Offered Certificates other than the Class A-R
Certificates will be book-entry Certificates (the 'Book-Entry Certificates').
Certificate Owners will hold their Offered Certificates through DTC if they are
participants of such system, or indirectly through organizations which are
participants in such system. The Book-Entry Certificates will be issued as one
or more certificates with aggregate principal balances equal to the aggregate
principal balance of the Offered Certificates and will initially be registered
in the name of Cede & Co., the nominee of DTC. Investors may hold beneficial
interests in the Book-Entry Certificates in minimum denominations of $1,000.
Except as described below, no person acquiring a Book-Entry Certificate will be
entitled to receive a physical certificate representing such Certificate (a
'Definitive Certificate'). Unless and until Definitive Certificates are issued,
it is anticipated that the only 'Certificateholder' of the Offered Certificates
will be Cede & Co., as nominee of DTC. Certificate Owners will not be
Certificateholders as that term will be used in the Agreement. Certificate
Owners will be permitted to exercise their rights only indirectly through DTC
and its participating members (the 'DTC Participants').
A Certificate Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a 'Financial Intermediary') that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Certificate Owner's Financial Intermediary is not a DTC Participant).
Certificate Owners will receive all distributions of principal of and
interest on the Offered Certificates from the Trustee through DTC and DTC
Participants. While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the 'DTC Rules'), DTC is required
to make book-entry transfers among DTC Participants on whose behalf it acts with
respect to the Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates. DTC
Participants and indirect participants with whom Certificate Owners have
accounts with respect to Offered Certificates will similarly be 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 representing their respective interests in the
Offered Certificates, the DTC Rules provide a mechanism by which Certificate
Owners will receive distributions and will be able to transfer their interests.
Certificateholders will not receive or be entitled to receive certificates
representing their respective interests in the Offered Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Certificateholders who are not DTC Participants may
transfer ownership of Offered Certificates only through DTC Participants and
indirect participants by instructing such DTC Participants and indirect
participants to transfer Offered Certificates, by book-entry transfer, through
DTC for the account of the purchasers of such Offered Certificates, which
account is maintained with their respective DTC Participants. Under the DTC
Rules and in accordance with DTC's normal procedures, transfers of ownership of
Offered Certificates will be executed through DTC and the accounts of the
respective DTC Participants will be debited and credited. Similarly, the DTC
Participants and indirect participants will make debits or credits, as the case
may be, on their records on behalf of selling and purchasing Certificateholders.
Transfers between DTC Participants will occur in accordance with DTC Rules.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC Participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the DTC Rules
as in effect from time to time.
Distributions on Book-Entry Certificates will be made on each Distribution
Date by the Trustee to DTC. DTC will be responsible for crediting the amount of
such payments to the accounts of the applicable DTC Participants in accordance
with DTC's normal procedures. Each DTC Participant will be responsible for
disbursing such payments to the beneficial owners of the Book-Entry Certificates
that it represents and to each Financial Intermediary for which it acts as
agent. Each such Financial Intermediary will be responsible for disbursing funds
to the beneficial owners of the Book-Entry Certificates that it represents.
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Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede & Co. Because DTC can only act on behalf of
Financial Intermediaries, the ability of a beneficial owner to pledge Book-Entry
Certificates to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such Book-Entry Certificates, may be
limited due to the lack of physical certificates for such Book-Entry
Certificates. In addition, issuance of the Book-Entry Certificates in book-entry
form may reduce the liquidity of the Offered Certificates in the secondary
market since certain potential investors may be unwilling to purchase Offered
Certificates for which they cannot obtain physical certificates. See 'Risk
Factors -- Limited Liquidity; Lack of SMMEA Eligibility of the Class B-1
Certificates' herein.
Monthly and annual reports on the Trust will be provided to Cede & Co., as
nominee of DTC, and may be made available by Cede & Co. to Certificate Owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such Certificate Owners are credited.
DTC has advised the Trustee that, unless and until Definitive Certificates
are issued, DTC will take actions permitted to be taken by the holders of the
Book-Entry Certificates under the Agreement only at the direction of one or more
Financial Intermediaries to whose DTC accounts the Book-Entry Certificates are
credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Certificates. DTC may take
actions, at the direction of the related Participants, with respect to some
Offered Certificates which conflict with actions taken with respect to other
Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depository with respect to the Book-Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor, at its
sole option, with the consent of the Trustee, elects to terminate the book-entry
system through DTC or (c) after the occurrence of an Event of Default,
Certificate Owners having Fractional Interests aggregating not less than 51% of
the Book-Entry Certificates advise the Trustee and DTC through the Financial
Intermediaries and the DTC Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Certificate
Owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of Offered Certificates among participants of DTC, it will be under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
Neither the Depositor, the Servicer 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 Book-Entry Certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Class A-R Certificates. The Class A-R Certificates will be issued in
definitive form as one fully registered physical certificate representing the
entire Class A-R Certificate Principal Balance. The certificates representing
the Class A-R Certificates will be subject to certain transfer restrictions. See
'ERISA Considerations -- Class A-R Certificates' herein and 'ERISA
Considerations' in the Prospectus.
USE OF PROCEEDS
Substantially all of the net proceeds to be received by the Depositor from
the sale of the Offered Certificates will be applied towards the purchase of the
Contracts from IndyMac, to pay the costs, if any, of carrying the Contracts
until sale of the Offered Certificates and to pay other expenses connected with
pooling the Contracts, issuing the Certificates and selling the Offered
Certificates.
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CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following information supplements the information in the Prospectus
under 'Certain Legal Aspects of the Mortgage Loans and Contracts.'
LAND-AND-HOME CONTRACTS
General. The Land-and-Home Contracts 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. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower, 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, a lender as
beneficiary 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 and expensive. 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.
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 to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. 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 the notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust 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 related
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, that may be recovered by a lender.
In the 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 the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
not common for a third party to purchase the property at the foreclosure sale.
Rather, the lender generally purchases the property from the trustee or receiver
for an amount 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.
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<PAGE>
Rights of Redemption. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the borrower and certain foreclosed junior
lienholders 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 sale following judicial foreclosure, and not 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 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 at a foreclosure sale, or
of any purchaser from the lender subsequent to judicial foreclosure or sale
under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to maintain the property and pay the expenses of
ownership until the redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage relating to a
single family residence. In some states, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. A deficiency judgment is a
personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the net amount realized upon the
foreclosure sale.
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 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, with respect
to a Land-and-Home Contract, 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 proceeds, 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 Report 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 Contracts such as the Trust Fund.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
An election will be made to treat the Contract Pool and certain other
assets of the Trust as a REMIC for federal income tax purposes (the 'Pooling
REMIC'). An election also will be made to treat the 'regular interests' in the
Pooling REMIC and certain other assets of the Trust as another REMIC for federal
income tax purposes (the 'Issuing REMIC'). The Class A Certificates (other than
the Class A-R Certificates), the Class M Certificates, the Class B Certificates
and the Class X Certificates (including Class X components) will be designated
as 'regular interests' in the Issuing REMIC and the Class A-R Certificates will
represent the beneficial ownership of the 'residual interest' in each of the
Pooling REMIC and the Issuing REMIC. In order for the REMIC standards to be met,
substantially all of the assets of the Trust must consist of qualified mortgages
or permitted investments. Section 860G(a)(3) of the Code contains the definition
of 'qualified mortgages' for REMIC purposes. The regulations promulgated by the
Internal Revenue Service under Sections 860A through 860G of the Code provide
that obligations secured by interests in manufactured housing that qualify as
'single family residences' within the meaning of Section 25(e)(10) of the Code
may be treated as qualified mortgages of the REMIC. Under Section 25(e)(10), the
term 'single family residence' includes any manufactured home which has a
minimum of 400 square feet of living space and a minimum width in excess of 102
inches and which is of a kind customarily used in a fixed location. Accordingly,
assuming a timely election to be treated as a REMIC is made and further assuming
the compliance by the Trust Fund with all the terms of the Agreement, Brown &
Wood LLP will be of the opinion that (i) the Pooling REMIC and the Issuing REMIC
will each qualify as a REMIC within the meaning of the Code, (ii) the Class A
(other than the Class A-R Certificates), Class X, Class M and Class B
Certificates will constitute 'regular interests' in the Issuing REMIC and (iii)
the Class A-R Certificates will constitute the sole class of 'residual
interests' in each of the Pooling REMIC and the Issuing REMIC.
Because the Offered Certificates (other than the Class A-R Certificates)
will be considered REMIC regular interests, they will be taxable debt
obligations under the Code, and interest paid or accrued on such Certificates,
including any original issue discount, will be taxable to the holders of such
Certificates in accordance with the accrual method of accounting, regardless of
such Certificateholders' usual methods of accounting. Each Class A Certificate
(other than the Class A-R Certificates and the Class A-5 Certificates) bears
interest at a fixed rate and, therefore, each such Class of Class A Certificates
will be issued with original issue discount only if its stated principal amount
exceeds its issue price by more than a statutorily defined de minimis amount.
The Class A-5, Class M, Class B-1 and Class B-2 Certificates will not be treated
by the Trust as 'variable rate debt instruments' as defined in Treasury
Regulations promulgated under the Code and, therefore, will be treated as issued
with original issue discount as described in 'Certain Federal Income Tax
Consequences' in the Prospectus. For purposes of determining the amount and the
rate of accrual of original issue discount and market discount, the Depositor
intends to assume that there will be prepayments on the Contracts at a rate
equal to 180% of the Prepayment Model. No representation is made as to whether
the Contracts will prepay at that rate or any other rate. See 'Certain Federal
Income Tax Consequences' in the Prospectus.
The Offered Certificates will be treated as (i) assets described in Section
7701(a)(19)(C) of the Code and (ii) 'real estate assets' within the meaning of
Section 856(c)(5) of the Code, in each case to the extent described in the
Prospectus. Interest on the Offered Certificates will be treated as interest on
obligations secured by mortgages on real property within the meaning of Section
856(c)(3)(B) of the Code to the same extent that the Offered Certificates are
treated as real estate assets. See 'Certain Federal Income Tax Consequences' in
the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see 'Certain Federal Income Tax
Consequences' in the Prospectus. For this purpose, applicable references therein
to Mortgage Loans and Mortgage Pool shall be deemed to be to Contracts and
Contract Pool, respectively.
ORIGINAL ISSUE DISCOUNT
The Offered Certificates (other than the Class A-R Certificates) may be
issued with original issue discount for federal income tax purposes. For
purposes of determining the amount and the rate of accrual of original issue
discount and market discount, the Depositor intends to assume that there will be
prepayments on the Contracts at a rate equal to 180% of the Prepayment Model. No
representation is made as to whether the Contracts will
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<PAGE>
prepay at that rate or any other rate. See 'Yield and Prepayment Considerations'
herein and 'Certain Federal Income Tax Consequences' in the Prospectus.
EFFECT OF LOSSES AND DELINQUENCIES
As described herein under 'Description of the Certificates,' the Class M
and Class B Certificates will be subordinated to the Senior Certificates. In the
event there are losses or delinquencies on the Contracts, amounts that otherwise
would be distributed on the Class M or Class B Certificates may instead be
distributed on the Senior Certificates. Holders of the Class M and Class B
Certificates nevertheless will be required to report interest with respect to
such Class M or Class B Certificates under an accrual method without giving
effect to delays and reductions in distributions on such Certificates
attributable to losses and delinquencies on the Contracts in the Contract Pool,
except to the extent it can be established, for tax purposes, that such amounts
are uncollectible. As a result, the amount of income reported by holders of the
Class M or Class B Certificates in any period could significantly exceed the
amount of cash distributed to such holders in that period. The holders of Class
M or Class B Certificates will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount of
distributions on such Certificates is reduced as a result of losses and
delinquencies on the Contracts in the Contract Pool. However, the timing and
character of such losses or reductions in income are uncertain, and holders of
the Class M or Class B Certificates are urged to consult their own tax advisors
on this point.
CLASS A-R CERTIFICATES
In addition to the stated Initial Certificate Principal Balance, the Class
A-R Certificates will be entitled to receive the proceeds of the remaining
assets of the Trust, if any, after the distribution of all amounts due to all
other Classes of Certificates. It is not anticipated that there will be any
material assets remaining in such circumstances.
The holders of the Class A-R Certificates must include the taxable income
of each REMIC in their federal taxable income. The resulting tax liability of
the holders may exceed cash distributions to such holders during certain
periods. All or a portion of the taxable income from a Class A-R Certificate
recognized by a holder may be treated as 'excess inclusion' income which, with
limited exceptions, is subject to U.S. federal income tax.
The Small Business Job Protection Act 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 residual certificates continuously
held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for such residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, a residual
holder's alternative minimum taxable income for a tax year cannot be less than
the excess inclusions for the year. Third, the amount of any alternative minimum
tax net operating loss deductions must be computed without regard to any excess
inclusions. These rules are effective for tax years beginning after December 31,
1986, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
Furthermore, the Small Business Job Protection Act of 1996, as part of the
repeal of the bad debt reserve method for thrift institutions, repealed the
application of Code Section 593(d) to any taxable year beginning after December
31, 1995.
Also, purchasers of a Class A-R Certificate should consider carefully the
tax consequences of an investment in Class A-R Certificates discussed in the
Prospectus and should consult their own tax advisors with respect to those
consequences. See 'Certain Federal Income Tax Consequences -- REMIC Trust
Funds -- Taxation of Owners of REMIC Residual Certificates' in the Prospectus.
Specifically, prospective holders of Class A-R Certificates should consult their
tax advisors regarding whether, at the time of acquisition, a Class A-R
Certificate will be treated as a 'noneconomic' residual interest, a
'non-significant value' residual interest and a 'tax avoidance potential'
residual interest.
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ERISA CONSIDERATIONS
ERISA imposes certain restrictions on employee benefit plans that are
subject to ERISA ('Plans') and on persons who are fiduciaries with respect to
such Plans. See 'ERISA Considerations' in the Prospectus.
CLASS A CERTIFICATES (OTHER THAN THE CLASS A-R CERTIFICATES)
As discussed in the Prospectus under 'ERISA Considerations' and subject to
the limitations discussed thereunder, it is expected that Credit Suisse First
Boston Corporation's PTE (as such term is defined in the Prospectus) will apply
to the acquisition and holding by Plans of Class A Certificates (other than the
Class A-R Certificates) sold by the Underwriters and that all conditions of
Credit Suisse First Boston Corporation's PTE other than those within the control
of the investors have been met. In addition, as of the date hereof, no Obligor
with respect to Contracts included in the Trust Fund constitutes more than five
percent of the aggregate unamortized principal balance of the assets of the
Trust Fund.
Employee benefit plans that are governmental plans and certain church plans
(in each case as defined in Sections 3(32) and 3(33), respectively, of ERISA)
are not subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the Class A Certificates without regard to the ERISA restrictions
described above, subject to applicable provisions of other federal and state
laws.
Any Plan fiduciary who proposes to cause a Plan to purchase Class A
Certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the Code, of the Plan's acquisition and ownership
of Class A Certificates. Assets of a Plan or individual retirement account
should not be invested in the Class A Certificates unless it is clear that the
assets of the Trust Fund will not be plan assets or unless it is clear that
Credit Suisse First Boston Corporation's PTE or a prohibited transaction class
exemption will apply and exempt all potential prohibited transactions. See
'ERISA Considerations' in the Prospectus.
CLASS A-R CERTIFICATES
Because the characteristics of the Class A-R Certificates may not meet the
requirements of Prohibited Transaction Class Exemption 83-1 (Class Exemption for
Certain Transactions Involving Mortgage Pool Investment Trusts), Credit Suisse
First Boston Corporation's PTE or any other issued exemption under ERISA, the
purchase and holding of the Class A-R Certificates by a Plan or by individual
retirement accounts or other plans subject to Section 4975 of the Code may
result in prohibited transactions or the imposition of excise taxes or civil
penalties. Consequently, transfers of the Class A-R Certificates will not be
registered by the Trustee unless the Trustee receives: (i) a representation from
the transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Trustee, the Depositor and the Servicer, to the effect that
such transferee is not an employee benefit plan subject to Section 406 of ERISA
or a plan or arrangement subject to Section 4975 of the Code, nor a person
acting on behalf of any such plan or arrangement nor using the assets of any
such plan or arrangement to effect such transfer; (ii) if the purchaser is an
insurance company, a representation that the purchaser is an insurance company
which is purchasing such Certificates with funds contained in an 'insurance
company general account' (as such term is defined in Section V(e) of Prohibited
Transactions Class Exemption 95-60 ('PTCE 95-60')) and that the purchase and
holding of such Certificates are covered under Sections I and III of PTCE 95-60;
or (iii) an opinion of counsel satisfactory to the Trustee, the Depositor and
the Servicer that the purchase or holding of such Certificate by a Plan, any
person acting on behalf of a Plan or using such Plan's assets, will not result
in the assets of the Trust Fund being deemed to be 'plan assets' and subject to
the prohibited transaction requirements of ERISA and the Code and will not
subject the Trustee, the Depositor or the Servicer to any obligation in addition
to those undertaken in the Agreement. In the event that the representation is
violated, or any attempt to transfer to a Plan or person acting on behalf of a
Plan or using such Plan's assets is attempted without such opinion of counsel,
such attempted transfer or acquisition shall be void and of no effect.
CLASS M AND CLASS B-1 CERTIFICATES
As discussed in the Prospectus, because subordinate certificates such as
the Class M and Class B-1 Certificates are subordinated to the Class A
Certificates, Credit Suisse First Boston Corporation's PTE will not apply to the
Class M and Class B-1 Certificates. As such, no transfer of a Class M or Class
B-1 Certificate will be permitted to be made to a Plan unless such Plan, at its
expense, delivers to the Trustee and the Depositor an opinion of counsel to the
effect that the purchase or holding of a Class M or Class B-1 Certificate by
such Plan
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will not result in the assets of the Trust Fund being deemed to be 'plan assets'
and subject to the prohibited transaction provisions of ERISA and the Code and
will not subject the Depositor, the Trustee or the Servicer to any obligation in
addition to those undertaken in the Agreement. Unless such opinion or
representation is delivered, each person acquiring a Class M or Class B-1
Certificate will be deemed to represent to the Trustee, the Depositor and the
Servicer that such person is not a Plan subject to ERISA or Section 4975 of the
Code and is not acting on behalf of or investing assets of such a Plan.
Purchasers who are insurance companies purchasing Class M or Class B-1
Certificates with funds from their 'general accounts' may instead represent with
respect to their acquisition of a beneficial interest in such Certificates that
such purchase is covered under Sections I and II of the Prohibited Transaction
Class Exemption 95-60. See 'ERISA Considerations' in the Prospectus.
LEGAL INVESTMENT CONSIDERATIONS
For so long as the Class A and Class M Certificates are rated in one of the
two highest rating categories by at least one nationally recognized statistical
rating organization, such Certificates will constitute 'mortgage related
securities' under SMMEA and, as such, will be 'legal investments' for certain
types of institutional investors to the extent provided in SMMEA. Because the
Class B-1 Certificates will not be rated by a nationally recognized statistical
rating organization in one of its two highest categories, the Class B-1
Certificates will not constitute 'mortgage related securities' under SMMEA. The
appropriate characterization of the Offered Certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase the Offered Certificates, may be subject to significant
interpretive uncertainties. All investors whose investment authority is subject
to legal restrictions should consult their own legal advisors to determine
whether, and to what extent, the Offered Certificates will constitute legal
investments for them.
The Depositor makes no other representation as to the proper
characterization of the Offered Certificates for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors to
purchase Offered Certificates under applicable legal investment restrictions.
The uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Offered Certificates) may adversely affect the liquidity of the Offered
Certificates. See 'Legal Investment' in the Prospectus.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated March 5, 1998 (the 'Underwriting Agreement'), the underwriters
named below (the 'Underwriters'), for whom Credit Suisse First Boston
Corporation is acting as representative (the 'Representative'), have severally
but not jointly agreed to purchase from the Depositor the following respective
principal amounts of the Offered Certificates.
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITERS CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
- ------------------------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Credit Suisse First Boston Corporation.... $ 3,500,000 $ 13,425,000 $ 12,175,000 $ 9,150,000
Donaldson, Lufkin & Jenrette
Securities Corporation................ 3,500,000 13,425,000 12,175,000 9,150,000
------------ ------------ ------------ ------------
Total................................ $ 7,000,000 $ 26,850,000 $ 24,350,000 $ 18,300,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A-5 CLASS A-R CLASS M CLASS B-1
UNDERWRITERS CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
- ------------------------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Credit Suisse First Boston Corporation.... $ 19,510,000 $ 100 $ 5,849,500 $ 9,322,000
Donaldson, Lufkin & Jenrette Securities
Corporation............................ 19,510,000 0 5,849,500 3,107,000
------------ ------------ ------------ ------------
Total................................ $ 39,020,000 $ 100 $ 11,699,000 $ 12,429,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the Offered Certificates, if any
are purchased. The Underwriting Agreement provides that, in the event of a
default by an Underwriter, in certain circumstances the purchase commitments of
the non-defaulting Underwriter may be increased or the Underwriting Agreement
may be terminated.
The Depositor has been advised by the Representative that the Underwriters
propose to offer the Offered Certificates to the public initially at the public
offering prices set forth on the cover page of this Prospectus
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Supplement and, through the Representative, to certain dealers at such price
less a concession, based on Initial Certificate Principal Balances, not in
excess of 0.090% of the Class A-1 Certificates, 0.130% of the Class A-2
Certificates, 0.160% of the Class A-3 Certificates, 0.200% of the Class A-4
Certificates, 0.270% of the Class A-5 Certificates, 0.150% of the Class A-R
Certificates, 0.300% of the Class M Certificates and 0.300% of the Class B-1
Certificates. The Underwriters may allow and such dealers may reallow a
concession not in excess of, based on Initial Certificate Principal Balances,
0.125% of the Class A-1 Certificates, 0.125% of the Class A-2 Certificates,
0.125% of the Class A-3 Certificates, 0.125% of the Class A-4 Certificates,
0.125% of the Class A-5 Certificates, 0.125% of the Class A-R Certificates,
0.125% of the Class M Certificates and 0.125% of the Class B-1 Certificates to
certain other dealers. After the initial public offering of each Class of
Offered Certificates, the public offering price and such concessions for such
Class may be changed.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriters may be required to
make in respect thereof. The Underwriting Agreement provides that, in the event
of a default by an Underwriter, in certain circumstances the purchase
commitments of the non-defaulting Underwriter may be increased or the
Underwriting Agreement may be terminated.
Until the distribution of the Offered Certificates is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Certificates. As
an exemption to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of each Class of Offered Certificates.
Such transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Offered Certificates.
Neither the Depositor nor any Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Offered Certificates. In addition,
neither the Depositor nor any Underwriter makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Offered Certificates in Canada is being made only
on a private placement basis exempt from the requirement that the Depositor
prepare and file a prospectus with the securities regulatory authorities in each
province where trades of the Offered Certificates are effected. Accordingly, any
resale of the Offered Certificates in Canada must be made in accordance with
applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the Offered Certificates.
REPRESENTATIONS TO PURCHASERS
Each purchaser of Offered Certificates in Canada who receives a purchase
confirmation will be deemed to represent to the Depositor and the dealer from
whom such purchase confirmation is received that (i) such purchaser is entitled
under applicable provincial securities laws to purchase such Offered
Certificates without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, that such purchaser is purchasing as a
principal and not as agent and (iii) such purchaser has reviewed the text above
under ' -- Resale Restrictions.'
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be
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located outside of Canada and, as a result, it may not be possible to satisfy a
judgment against the issuer or such persons in Canada or to enforce a judgment
obtained in Canadian courts against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Offered Certificates to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Offered Certificates acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from the
Depositor. Only one such report must be filed in respect of Offered Certificates
acquired on the same date and under the same prospectus exemption.
LEGAL MATTERS
The validity of the Offered Certificates will be passed upon for the
Depositor and the Underwriters by Brown & Wood LLP, San Francisco, California.
The material federal income tax consequences of the Offered Certificates will be
passed upon for the Depositor by Brown & Wood LLP, San Francisco, California.
Certain legal matters will be passed upon for IndyMac by Brown & Wood LLP, New
York, New York.
RATINGS
It is a condition to the issuance of (i) the Class A-1 Certificates that
they be rated 'P-1' by Moody's and 'F-1+' by Fitch, (ii) the Class A-2, Class
A-3, Class A-4, Class A-5 and Class A-R Certificates that they be rated 'Aaa' by
Moody's and 'AAA' by Fitch, (iii) the Class M Certificates that they be rated at
least 'Aa3' by Moody's and 'AA' by Fitch and (iv) the Class B-1 Certificates
that they be rated at least 'Baa2' by Moody's and 'BBB' by Fitch.
There is no assurance that any such rating will continue for any period of
time or that it will not be revised or withdrawn entirely by the assigning
Rating Agency if, in its judgment, circumstances so warrant. A revision or
withdrawal of such rating may have an adverse effect on the market price of the
related Class of Offered Certificates. A security rating is not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at
any time.
The Depositor has not requested a rating on the Offered Certificates by any
rating agency other than the Rating Agencies. However, there can be no assurance
as to whether any other rating agency will rate any or all Classes of Offered
Certificates, or if it does, what rating would be assigned by any such other
rating agency. A rating on any or all of the Offered Certificates by other
rating agencies, if assigned at all, may be lower than the rating assigned to
such Offered Certificates by the Rating Agencies.
S-53
<PAGE>
<PAGE>
INDEX OF PRINCIPAL TERMS
Set forth below is a list of certain of the more significant capitalized
terms used in this Prospectus Supplement and the pages on which the definitions
of such terms may be found.
<TABLE>
<CAPTION>
TERM PAGE
- ---------------------------------------- ----------
<S> <C>
Accelerated Principal Distribution
Amount................................ S-38
Adjusted Certificate Principal
Balance............................... S-8
Agreement............................... S-3
APR..................................... S-19
Available Distribution Amount........... S-33
Book-Entry Certificates................. S-4
Business Day............................ S-5
Carryover Interest Distribution
Amount................................ S-33
Certificate Account..................... S-30
Certificate Owners...................... S-4
Certificate Principal Balance........... S-37
Certificateholders...................... S-5
Certificates............................ S-1, S-3
Class................................... S-3
Class A-1 Certificates.................. S-2, S-3
Class A-2 Certificates.................. S-2, S-3
Class A-3 Certificates.................. S-2, S-3
Class A-4 Certificates.................. S-2, S-3
Class A-5 Certificates.................. S-2, S-3
Class A Certificates.................... S-2, S-3
Class A Formula Principal
Distribution Amount................... S-34
Class A Percentage...................... S-35
Class A-R Certificates.................. S-2, S-3
Class B Percentage...................... S-35
Class B-1 Certificates.................. S-2, S-3
Class B-1 Formula Principal
Distribution Amount................... S-34
Class B-1 Liquidation Loss
Amount................................ S-8
Class B-2 Certificates.................. S-2, S-3
Class B-2 Floor Amount.................. S-37
Class B-2 Formula Principal
Distribution Amount................... S-34
Class B-2 Liquidation Loss
Amount................................ S-8
Class M Certificates.................... S-2, S-3
Class M Formula Principal
Distribution Amount................... S-34
Class M Liquidation Loss Amount......... S-8
Class M Percentage...................... S-35
Class X Certificates.................... S-2, S-3
Class X Strip Amount.................... S-32
Closing Date............................ S-5
<CAPTION>
TERM PAGE
- ---------------------------------------- ----------
<S> <C>
Code.................................... S-2, S-11
Compensating Interest................... S-38
Contract Pool........................... S-9
Contract Principal Balance.............. S-7
contracts............................... S-17
Contracts............................... S-1, S-9
Corporate Trust Office.................. S-43
Cross-over Date......................... S-36
Current Overcollateralization
Amount................................ S-38
Cut-off Date............................ S-4
Cut-off Date Pool Balance............... S-9
Deposit Date............................ S-32
Depositor............................... S-1, S-3
Determination Date...................... S-33
Distribution Date....................... S-2, S-5
DTC..................................... S-4
Due Date................................ S-10
Due Period.............................. S-4
Eligible Account........................ S-32
ERISA................................... S-12
Events of Default....................... S-42
Final Scheduled Distribution Date....... S-9
Fitch................................... S-13
Formula Principal Distribution Amount... S-34
Fractional Interests.................... S-42
HUD..................................... S-20
IndyMac................................. S-1, S-3
Initial Certificate Principal Balance... S-3
Interest Accrual Period................. S-5, S-33
Interest Distribution Amount............ S-33
Issuing REMIC........................... S-11, S-48
Land-and-Home Contracts................. S-9
Liquidated Contract..................... S-7
Liquidation Expenses.................... S-7
Liquidation Loss Amount................. S-8, S-37
Liquidation Loss Interest Amount........ S-8, S-34
Liquidation Proceeds.................... S-7
manufactured housing contracts.......... S-17
Manufactured Homes...................... S-9
MHD..................................... S-20
Monthly Trustee Fee..................... S-41
Moody's................................. S-13
Mortgage................................ S-10
Obligor................................. S-22
</TABLE>
S-54
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---------------------------------------- ----------
<S> <C>
Offered Certificates.................... S-2, S-4
Overcollateralization Reduction
Amount................................ S-38
Pass-Through Rate....................... S-3
Percentage Interest..................... S-4
Pool Balance............................ S-37
Pooling REMIC........................... S-11
Prepayment Model........................ S-24
Principal Distribution Tests............ S-36
Prospectus.............................. S-2
Rating Agencies......................... S-13
Record Date............................. S-5
REITs................................... S-12
REMIC................................... S-2
REO Property............................ S-40
Repurchase Price........................ S-31
Seller.................................. S-3
Senior Certificates..................... S-2, S-3
<CAPTION>
TERM PAGE
- ---------------------------------------- ----------
<S> <C>
Servicer................................ S-3, S-8
Servicing Fee........................... S-41
Step-Up Rate Contract................... S-17
Subordinate Certificates................ S-2, S-3
Target Overcollateralization Amount..... S-7, S-38
Termination Price....................... S-40
Trust................................... S-1
Trust Fund.............................. S-4
Trustee................................. S-3
UCC..................................... S-15
Underwriting Agreement.................. S-51
Unpaid Certificate Principal
Shortfall............................. S-34
Unpaid Liquidation Loss Interest
Shortfall............................. S-34
Value................................... S-18
Weighted Average Net Contract
Rate.................................. S-33
</TABLE>
S-55
<PAGE>
<PAGE>
[THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
<PAGE>
<PAGE>
PROSPECTUS
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 installment or
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 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 15 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 March 5, 1998.
<PAGE>
<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 (or manner in which interest is paid, if any) 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., Eleven 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 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., Eleven 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 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.
2
<PAGE>
<PAGE>
SUMMARY
The following summary 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.
<TABLE>
<S> <C>
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 one or more
other Classes or Subclasses 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
of and interest on the Mortgage Loans, the Contracts and the Mortgage
Certificates included in the related Trust Fund, as specified in such
Prospectus Supplement (any such Class or Subclass receiving the higher
proportion of principal distributions being referred to hereinafter as a
'Principal Weighted Class' or 'Principal Weighted Subclass,' respectively,
and any such Class or Subclass receiving the higher proportion of interest
distributions being referred to hereinafter as an 'Interest Weighted Class'
or an 'Interest Weighted Subclass,' respectively). If so specified in the
related Prospectus Supplement, the allocation of the principal and interest
distributions may involve as much as 100% of each distribution of principal
or interest being allocated to one or more Classes or Subclasses and 0% to
another. If so specified in the related Prospectus Supplement, one or more
Classes or Subclasses may receive disproportionate amounts of certain
distributions of 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
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<S> <C>
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
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 installment or 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
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
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.'
Interest............................ Interest will be distributed on the days specified in the Prospectus
Supplement with respect to each Class or Subclass of Securities 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 Securities 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 and in the priority and
manner specified in the related 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
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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 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 corpora-
tions or by pledges of shares of cooperative corporations and assignments
of proprietary leases or occupancy agreements on cooperative dwellings,
unless otherwise specified in such Prospectus Supplement.
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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 installment or 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, to the extent specified in
such Prospectus Supplement, 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 have a lower than anticipated yield but, in
extreme cases, to fail to recoup fully their initial investment.
Conversely, a lower than anticipated level of principal prepayments (which
can be anticipated to increase the expected yield to Holders of 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
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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 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 will be 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
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the applicable Prospectus Supplement. In lieu of 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 one or
more other Classes or Subclasses (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 one or more other Classes 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 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
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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 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
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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
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 ' -- Distri-
butions 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 a 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
Contracts (the 'Subordinated Pool'), with the aggregate principal balance
specified in such Prospectus Supplement, or by the deposit of cash in the
amount specified in such 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 Contracts in the Subordinated
Pool, until the Reserve Fund (without taking 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
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Contracts 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 any Initial Deposit) 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 a
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 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
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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 Assets........ If so specified in the Prospectus Supplement 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............................ Except as otherwise provided in the Prospectus Supplement with respect to a
Series, 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 of and interest on the Mortgage Loans and Contracts (the
'Advances') under certain circumstances. See 'Description of the
Securities -- 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 such 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 the
related 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
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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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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
Subclass 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
related Securities. The Prospectus Supplement for a 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 respective 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
respective 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 one or more 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 installment or conditional sales contracts and installment
loan agreements, as the case may be, may be affected by, among other things, a
decline in real estate values and changes in the mortgagors' or obligors'
financial condition. No assurance can be given that the values of the Mortgaged
Properties securing the Mortgage Loans, the values of the mortgaged properties
securing the mortgage loans underlying the Mortgage Certificates or the values
of the Manufactured Homes securing the Contracts, as the case may be, underlying
any Series of 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
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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 of 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 of and unpaid interest on the defaulted Mortgage Loans or Contracts.
In addition to the foregoing, certain geographic regions in 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 is 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 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 on and principal of 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.
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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 such 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 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 of 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 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 Contracts 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 herein as 'VA Loans'). All
Mortgage Loans will be evidenced by promissory notes or other evidence of
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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 types 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 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 of $150,001 through $200,000, 85% on any Mortgage Loan with an original
principal balance of $200,001 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
such Prospectus Supplement) 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. Except as otherwise provided in
the related Prospectus Supplement, the Loan-to-Value Ratio will be the ratio,
expressed as a percentage, of the principal amount of the Mortgage Loan at the
date of determination to the lesser of (a) the appraised value determined in an
appraisal obtained by the originator and (b) the sales price for such property
(the 'Original Value'). Unless otherwise specified in the related Prospectus
Supplement, with respect to a Mortgage Loan secured by a mortgage on a vacation
or second home or an investment property (other than Multifamily Property), no
income derived from the property will be considered for underwriting purposes,
the Loan-to-Value Ratio (taking into account any secondary financing) may not
exceed 80% and the original principal balance 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 of 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
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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 such 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 a 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 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
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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 under 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 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.
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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 involves larger loans to single borrowers or groups of related
borrowers than residential one- to four-family mortgage loans. Furthermore, the
repayment of loans secured by income producing properties is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired. 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 loans.
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 servicing such Mortgage Loans.
The Depositor will make certain representations and warranties regarding
the Mortgage Loans, but its assignment of the Mortgage Loans to the Trustee will
be without recourse. See 'Description of the 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.
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UNDERWRITING STANDARDS
Except in the case of certain Mortgage Loans originated by Unaffiliated
Sellers in accordance with their own underwriting criteria ('Closed Loans') or
such other standards as may be described in the applicable Prospectus
Supplement, all prospective Mortgage Loans will be subject to the underwriting
standards adopted by the Depositor. See ' -- Closed Loan Program' below for a
description of underwriting standards applicable to Closed Loans. Unaffiliated
Sellers will represent and warrant that Mortgage Loans originated by them and
purchased by the Depositor have been originated in accordance with the
applicable underwriting standards established by the Depositor or such other
standards as may be described in the applicable Prospectus Supplement. The
following discussion describes the underwriting standards of the Depositor with
respect to any Mortgage Loan that it purchases.
The mortgage credit approval process for one- to four-family residential
loans follows a standard procedure that generally complies with FHLMC and FNMA
regulations and guidelines (except that certain Mortgage Loans may have higher
loan amount and qualifying ratios) and applicable federal and state laws and
regulations. The credit approval process for Cooperative Loans follows a
procedure that generally complies with applicable FNMA regulations and
guidelines (except for the loan amounts and qualifying ratios) and applicable
federal and state laws and regulations. The originator of a Mortgage Loan (the
'Originator') generally will review a detailed credit application by the
prospective mortgagor designed to provide pertinent credit information,
including a current balance sheet describing assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report that summarizes the prospective mortgagor's credit history with
local merchants and lenders and any record of bankruptcy. In addition, an
employment verification is obtained from the prospective mortgagor's employer
wherein the employer reports the length of employment with that organization,
the current salary, and gives an indication as to whether it is expected that
the prospective mortgagor will continue such employment in the future. If the
prospective mortgagor is self-employed, he or she is required to submit copies
of signed tax returns. The prospective mortgagor may also be required to
authorize verification of deposits at financial institutions. In certain
circumstances, other credit considerations may cause the Originator or Depositor
not to require some of the above documents, statements or proofs in connection
with the origination or purchase of certain Mortgage Loans.
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.
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Certain of the types of Mortgage Loans that may be included in the Mortgage
Pools or 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
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
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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 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, 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
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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 and 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 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 installment or conditional sales contracts and installment
loan agreements 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 the
fixed annual percentage rates ('APRs') specified in such Prospectus Supplement.
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 Securityholders. 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 alone were servicing
such Contracts. The Contract documents, if so specified in the related
Prospectus Supplement, may be held for the benefit of the Trustee by a Custodian
(the 'Custodian') appointed pursuant to 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
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 of 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.'
Except as otherwise specified in the related Prospectus Supplement, 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
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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 related 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 related 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 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 a 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 other 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 such 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 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 will constitute the sole remedy available to the Securityholders or
the Trustee for a breach of the Master Servicer's or seller's insurability
representation.
If 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 (each, a
'Deleted Contract'), rather than repurchase the Contract as provided above, and
substitute in its place another Contract (each, a '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.
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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 will be equal to the original principal amount of the
Contract divided by the lesser of the 'appraised value' or the sales price for
the Manufactured Home.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on December 31,
1985, and is a wholly owned subsidiary of Credit Suisse First Boston Management
Corporation. Credit Suisse First Boston Mangement Corporation is a wholly owned
subsidiary of Credit Suisse First Boston, Inc. Credit Suisse First Boston
Corporation, which may act as an underwriter in offerings made hereby, as
described in 'Plan of Distribution' below, is also a wholly owned subsidiary of
Credit Suisse First Boston, Inc. The principal executive offices of the
Depositor are located at Eleven Madison Avenue, New York, NY 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 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 related 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
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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 on a
pool of (a) 30-year fixed-rate, level payment mortgages, to compute the yield as
if the pool were a single loan that is amortized according to a 30-year schedule
and is then prepaid in full at the end of the twelfth year and (b) 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 prepayments, 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 factors, 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
Subordinated 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 of and unpaid interest on 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 Contracts. 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 Property 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 Loans. 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.
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
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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.
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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 herein 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 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 form. 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
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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 such Series will constitute 'regular interests'
in the related REMIC. 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 one or
more Classes or Subclasses of Certificates that are 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.
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DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Beginning on the date specified in the related Prospectus Supplement,
distributions of principal of 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 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 of 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 payments
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
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to 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 the related 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
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
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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.
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
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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 a 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 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.
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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'). 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 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 will
constitute 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
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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 an Unaffiliated Seller in
respect of a Contract will have been made as of the date on which such
Unaffiliated 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 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 an Unaffiliated Seller, the Unaffiliated Seller's repurchase obligation
described below will not arise if, during the period commencing on the date of
sale of a Contract by the Unaffiliated 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.
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' will be 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
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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 the rating of
which 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 the Rating Agency rating
the Securities, (iii) certificates of deposit having a rating in the highest
rating category from the 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 the 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 a credit rating in the
highest rating category from the Rating Agency; (d) Eurodollar time deposits
that are obligations of institutions the time deposits of which carry a credit
rating in the highest rating category from the 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 the Rating Agency; and (f) any other investment with respect to
which the Rating Agency 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
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 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 the terms of the
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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. Except as otherwise provided in the related
Prospectus Supplement, the 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
Notes 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 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 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
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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. Except as otherwise provided in the related Prospectus
Supplement, 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 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, of 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
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(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.
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 on or after the Cut-off Date:
(i) all Obligor payments on account of principal, including principal
prepayments, of 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;
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(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
(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
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(vi) that portion of each collection of interest on a particular
Mortgage Loan in such Mortgage Pool or on a particular Contract in such
Contract Pool that represents (A) servicing compensation to the Master
Servicer, (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 of 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.
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
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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 (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 to be 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
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(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 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.
If specified in the related Prospectus Supplement, under the applicable
Servicing Agreement, the Master Servicer, either directly or through Servicers,
to the extent permitted by law, may establish and maintain an
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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 equal to the lesser of the maximum
insurable value of the improvements securing such Mortgage Loan or Contract or
the principal balance of such Mortgage Loan or Contract. Each Servicer or the
Master Servicer, as the case may be, shall also maintain on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan or
Contract, a Standard Hazard Insurance Policy in an amount that is at least equal
to the maximum insurable value of the improvements that are a part of the
Mortgaged Property or Manufactured Home. Any amounts collected by the Servicer
or the Master Servicer under any such policies (other than amounts to be applied
to the restoration or repair of the Mortgaged Property or Manufactured Home or
released to the borrower in accordance with normal servicing procedures) shall
be deposited in the related Servicing Account for deposit in the Certificate
Account or, in the case of the Master Servicer, shall be deposited directly into
the Certificate Account. Any cost incurred in maintaining any such insurance
shall not, for the purpose of calculating monthly distributions to
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.
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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
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.'
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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.'
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
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procedures as are deemed necessary or advisable to realize upon the defaulted
Mortgage Loan. If the proceeds of any liquidation of the Mortgaged Property or
Manufactured Home are less than the principal balance of the defaulted Mortgage
Loan or Contract, respectively, plus interest accrued thereon at the 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 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.
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The market value of any Multifamily Property obtained in foreclosure or by
deed in lieu of foreclosure will be based substantially on the operating income
obtained from renting the dwelling units. Since a default on a Mortgage Loan
secured by Multifamily Property is likely to have occurred because operating
income, net of expenses, is insufficient to make debt service payments on the
related Mortgage Loan, it can be anticipated that the market value of such
property will be less than was anticipated when such Mortgage Loan was
originated. To the extent that the equity in the property does not absorb the
loss in market value and such loss is not covered by other credit support, a
loss may be experienced by the related Trust Fund. With respect to Multifamily
Property consisting of an apartment building owned by a Cooperative, the
Cooperative's ability to meet debt service obligations on the Mortgage Loan, as
well as all other operating expenses, will be dependent in large part on the
receipt of maintenance payments from the tenant-stockholders, as well as any
rental income from units or commercial areas the Cooperative might control.
Unanticipated expenditures may in some cases have to be paid by special
assessments of the tenant-stockholders. The Cooperative's ability to pay the
principal amount of the Mortgage Loan at maturity may depend on its ability to
refinance the Mortgage Loan. The Depositor, the Unaffiliated Seller and the
Master Servicer will have no obligation to provide refinancing for any such
Mortgage Loan.
ENFORCEMENT OF `DUE-ON-SALE' CLAUSES; REALIZATION UPON DEFAULTED CONTRACTS
Each 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 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
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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 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
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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.
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 any director, officer, employee or agent of the
Depositor 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 or the Trustee nor any such person will be protected
against, in the case of the Depositor, any breach of representations or
warranties made by them, and in the case of 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 and the Trustee and any director, officer and employee or agent of
the Depositor or the Trustee shall be entitled to indemnification, by the Trust
Fund in the case of the Depositor 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
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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, 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.
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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 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 of 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
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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
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
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or changing in any manner or eliminating any of the provisions of such Agreement
or modifying in any manner the rights of Certificateholders of that Series;
provided, however, that no such amendment may (i) reduce in any manner the
amount of, or delay the timing of, or change the manner in which payments
received on Mortgage Certificates are required to be distributed in respect of
any Certificate, without the consent of the Holder of such Certificate or (ii)
reduce the aforesaid percentage of 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.
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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.
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,
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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.
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
contracts, 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 will be 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
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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.
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 Contracts 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 related Mortgage Loans or Contracts and/or on the Contracts 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 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
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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 Series of 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
make Advances 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. To the extent specified in the related Prospectus
Supplement, each Manufactured Home that secures a Contract will be covered by a
standard hazard insurance policy and other insurance policies to the extent
described in the related Prospectus Supplement. Any material changes in such
insurance from the description that follows or the description of any
Alternative Credit Support will be set forth in the applicable Prospectus
Supplement.
PRIMARY MORTGAGE INSURANCE POLICIES
To the extent specified in the related Prospectus Supplement, each
Servicing Agreement will require the Servicer to cause a Primary Mortgage
Insurance Policy to be maintained in full force and effect with respect to each
Mortgage Loan that is secured by a Single Family Property covered by the
Servicing Agreement requiring such insurance and to act on behalf of the Insured
with respect to all actions required to be taken by the Insured under each such
Primary Mortgage Insurance Policy. Any primary mortgage insurance or primary
credit
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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 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
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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 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.
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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 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
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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 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 lesser of the maximum insurable value of such Manufactured Home or the
principal balance due from the Obligor on the related Contract; 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.
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
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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, 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.
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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.
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
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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.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing installment or conditional sales
contracts and installment loan agreements which are general in nature. Because
such legal aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Mortgage Loans or Contracts is situated. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the Mortgage Loans and Contracts.
THE MORTGAGE LOANS
GENERAL
The Mortgage Loans (other than the Cooperative Loans) comprising or
underlying the Trust Assets for a Series will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the state
in which the underlying property is located. The filing of a mortgage, deed of
trust or deed to secure debt creates a lien or title interest upon the real
property covered by such instrument and represents the security for the
repayment of an obligation that is customarily evidenced by a promissory note.
It is not prior to the lien for real estate taxes and assessments or other
charges imposed under governmental police powers. Priority with respect to such
instruments depends on their terms, the knowledge of the parties to the mortgage
and generally on the order of recording with the applicable state, county or
municipal office. There are two parties to a mortgage: the mortgagor, who is the
borrower and homeowner, and the mortgagee, who is the lender. In a mortgage
state, the mortgagor delivers to the mortgagee a note or bond evidencing the
loan and the mortgage. Although a deed of trust is similar to a mortgage, a deed
of trust has three parties: the borrower-homeowner 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
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the costs and expenses incurred in enforcing the obligation. Certain state laws
control the amount of foreclosure expenses and costs, including attorneys' fees,
which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of a number of factors, including the difficulty a
potential buyer at the sale would have in determining the exact status of title
and the fact that the physical condition of the property may have deteriorated
during the foreclosure proceedings, it is uncommon for a third party to purchase
the property at the foreclosure sale. Rather, it is common for the lender to
purchase the property from the trustee or receiver for a credit bid less than or
equal to the unpaid principal amount of the note, accrued and unpaid interest
and the expenses of foreclosure. Thereafter, subject to the right of the
borrower in some states to remain in possession during the redemption period,
the lender will assume the burdens of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender commonly will obtain the services of
a real estate broker and pay the broker a commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property. Any
loss may be reduced by the receipt of mortgage insurance proceeds.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of
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
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property taxes, maintenance expenses and other capital or ordinary expenses. An
ownership interest in a cooperative and accompanying occupancy rights are
financed through a cooperative share loan evidenced by a promissory note and
secured by a security interest in the occupancy agreement or proprietary lease
and in the related cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement,
and a financing statement covering the proprietary lease or occupancy agreement
and the cooperative shares is filed in the appropriate state and local offices
to perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See ' -- Realizing upon Cooperative Loan Security' below.
TAX ASPECTS OF COOPERATIVE LOANS
In general, a 'tenant-stockholder' (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a 'cooperative housing corporation'
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation representing
his proportionate share of certain interest expenses and certain real estate
taxes allowable as a deduction under Section 216(a) of the Code to the
corporation under Sections 163 and 164 of the Code. In order for a corporation
to qualify under Section 216(b)(1) of the Code for its taxable year in which
such items are allowable as a deduction to the corporation, such section
requires, among other things, that at least 80% of the gross income of the
corporation be derived from its tenant-stockholder. By virtue of this
requirement the status of a corporation for purposes of Section 216(b)(1) of the
Code must be determined on a year-to-year basis. Consequently, there can be no
assurance that cooperatives relating to the Cooperative Loans will qualify under
such section for any particular year. In the event that such a cooperative fails
to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under Section 216(a) of the Code with
respect to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue over
a period of years appears remote.
REALIZING UPON COOPERATIVE LOAN SECURITY
The cooperative shares and proprietary lease or occupancy agreement owned
by the tenant-stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be cancelled by the cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
which are owed to the cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the cooperative to terminate such
lease or agreement in the event the borrower defaults in the performance of
covenants thereunder. The lender and the cooperative will typically enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment subject,
however, to the cooperative's right to sums due under such proprietary lease or
occupancy agreement or that have become liens on the shares relating to the
proprietary lease or occupancy agreement. The total amount owed to the
cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could
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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.
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
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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.
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
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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 will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders to
foreclose if the default under the mortgage instrument is not monetary, such as
the borrower failing to adequately maintain or insure the property or the
borrower executing a second mortgage or deed of trust affecting the property. In
other cases, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under the deeds of trust receive notices in addition to
the statutorily-prescribed minimum requirements. For the most part, these cases
have upheld the notice provisions as being reasonable or have found that the
sale by a trustee under a deed of trust or under a mortgage having a power of
sale does not involve sufficient state action to afford constitutional
protections to the borrower.
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ENVIRONMENTAL CONSIDERATIONS
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, a secured party which takes a deed in lieu of
foreclosure or purchases a mortgaged property at a foreclosure sale may become
liable in certain circumstances for the costs of remedial action ('Cleanup
Costs') if hazardous wastes or hazardous substances have been released or
disposed of on the property. Such Cleanup Costs may be substantial. It is
possible that such costs could become a liability of the Trust Fund and reduce
the amounts otherwise distributable to the 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 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
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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 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
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Home or, in the case of Manufactured Homes registered in states which provide
for notation of lien on the certificate of title, 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 installment or 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 Contract 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 Contract before release of the lien. Under the applicable Agreement, the
Master Servicer, on behalf of the Depositor, will be 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 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
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laws impose requirements applicable to the origination and lending pursuant to
the Contracts, including the Truth in Lending Act, the Federal Trade Commission
Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal
Credit Opportunity Act, the Fair Debt Collection Practices Act and the Uniform
Consumer Credit Code. In the case of some of these laws, the failure to comply
with their provisions may affect the enforceability of the related Contract.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF 'DUE-ON-SALE' CLAUSES
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Depositor or the Master Servicer
and permit the acceleration of the maturity of the Contracts by the Depositor or
the Master Servicer upon any such sale or transfer that is not consented to.
Unless otherwise specified in the related Prospectus Supplement, the Depositor
or the Master Servicer expects that it will permit most transfers of
Manufactured Homes and not accelerate the maturity of the related Contracts. In
certain cases, the transfer may be made by a delinquent Obligor in order to
avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Depositor
desires to accelerate the maturity of the related Contract, the Depositor's
ability to do so will depend on the enforceability under state law of the
'due-on-sale' clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of 'due-on-sale'
clauses applicable to the Manufactured Homes. In some states the Depositor or
the Master Servicer may be prohibited from enforcing a 'due-on-sale' clause in
respect of certain Manufactured Homes.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ('Title V'), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan that is secured
by a first lien on certain kinds of manufactured housing. The Contracts would be
covered if they satisfy certain conditions, among other things, governing the
terms of any prepayments, late charges and deferral fees and requiring a 30-day
notice period prior to instituting any action leading to repossession of or
foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision that expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
In any state in which application of Title V was expressly rejected or a
provision limiting discount points or other charges has been adopted, no
Contract which imposes finance charges or provides for discount points or
charges in excess of permitted levels has been included in the Trust Assets or
Fund. The Depositor, or the party specified in the related 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, Brown & Wood LLP,
San Francisco, California, or other counsel to the Depositor specified in the
related Prospectus Supplement (each, 'Special Tax Counsel'), 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 Special Tax 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
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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 related pass-through or interest 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 1275 and in
Treasury regulations issued under the original issue discount provisions of the
Code (the 'OID Regulations'), and the Treasury regulations issued under the
provisions of the Code relating to REMICs (the 'REMIC Regulations').
II. REMIC TRUST FUNDS
A. CLASSIFICATION OF REMIC TRUST FUNDS
With respect to each Series of REMIC Certificates relating to a REMIC
Mortgage Pool, Special Tax Counsel will deliver its 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 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 ' -- 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
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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)(4)(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 ' -- Non-REMIC Trust
Funds -- Characterization of Investments in Trust Certificates -- Buydown
Mortgage Loans.' Moreover, if 95% or more of the Assets qualify for any of the
foregoing treatments, the REMIC Certificates (and income thereon) will qualify
for the corresponding status in their entirety. Investors should be aware that
the investment of amounts in any Reserve Fund or GPM Fund in non-qualifying
assets would, and holding property acquired by foreclosure pending sale might,
reduce the amount of the REMIC Certificates that would qualify for the foregoing
treatment. The REMIC Regulations provide that payments on Mortgage Loans held
pending distribution are considered part of the Mortgage Loans for purposes of
Code Section 856(c)(4)(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, Special Tax Counsel 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
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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)(4)(A), and assets
described in Code Section 7701(a)(19)(C), and whether the income on such
Certificates is interest described in Code Section 856(c)(3)(B), the Tiered
REMICs will be treated as one REMIC.
D. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
Except as otherwise stated in this discussion, the REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC Mortgage Pool and not as ownership interests in the REMIC
Mortgage Pool or its Assets. In general, interest, original issue discount and
market discount paid or accrued on a REMIC Regular Certificate will be treated
as ordinary income to the holder of such REMIC Regular Certificate.
Distributions in reduction of the stated redemption price at maturity of the
REMIC Regular Certificate will be treated as a return of capital to the extent
of such holder's basis in such REMIC Regular Certificate. Holders of REMIC
Regular Certificates that otherwise report income under a cash method of
accounting will be required to report income with respect to REMIC Regular
Certificates under an accrual method.
1. Original Issue Discount
Certain REMIC Regular Certificates may be issued with 'original issue
discount' within the meaning of Code Section 1273(a). Any holders of REMIC
Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with a constant yield method that takes into account the compounding
of interest, in advance of the receipt of the cash attributable to such income.
The Master Servicer will report annually (or more frequently if required) to the
Internal Revenue Service (the '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 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
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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 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.
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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 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 a 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
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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 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
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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 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
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ordinary income. Such purchaser also may be required to defer a portion of its
interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such REMIC Regular Certificate. Any
such deferred interest expense is, in general, allowed as a deduction not later
than the year in which the related market discount income is recognized. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
A REMIC Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated redemption
price at maturity will be considered to be purchased at a premium. The holder of
such a REMIC Regular Certificate may elect to amortize such premium under the
constant yield method. The OID Regulations also permit Certificateholders to
elect to include all interest, discount and premium in income based on a
constant yield method, further treating the Certificateholder as having made the
election to amortize premium generally, as described above. The Committee Report
indicates a Congressional intent that the same rules that will apply to accrual
of market discount on installment obligations will also apply in amortizing bond
premium under Code Section 171 on installment obligations such as the REMIC
Regular Certificates.
Treasury regulations under Code Section 171 were issued on December 30,
1997 ('Bond Premium Amortization Regulations') which generally provide that
amortizable bond premium is amortized over the term of a note by offsetting the
qualified stated interest allocable to an accrual period with the amortizable
bond premium allocable to such period using a specified constant yield method.
To the extent that the amortizable bond premium allocated to an accrual period
exceeds the qualified stated interest allocable to such period, the excess is
deductible under Code Section 171 to the extent such excess does not exceed the
difference between (i) prior interest inclusions over (ii) prior amortizable
bond premium deductions on the bond ('Bond Premium Amortization Limit'), with
the excess over the Bond Premium Amortization Limit carried forward to the next
accrual period and treated as amortizable bond premium allocable to that period.
The Bond Premium Amortization Regulations are effective for notes acquired on or
after March 2, 1998. However, if a holder makes the election to amortize bond
premium for the taxable year containing March 2, 1998, or any subsequent taxable
year, the Treasury regulations would apply to debt instruments held on or after
the first day for the taxable year in which the election is made.
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 or Contracts, 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
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Residual Owner owned such REMIC Residual Certificate. For this purpose, the
daily portion will be determined by allocating to each day in the calendar
quarter, using a 30 days per month/90 days per quarter/360 days per year
counting convention, its ratable portion of the taxable income or net loss of
the REMIC Mortgage Pool for such quarter, and by allocating the daily portions
among the Residual Owners (on such day) in accordance with their percentage of
ownership interests on such day. Any amount included in the gross income of, or
allowed as a loss to, any Residual Owner by virtue of the rule referred to in
this paragraph will be treated as ordinary income or loss. Purchasers of REMIC
Residual Certificates should be aware that taxable income from such Certificates
may exceed cash distributions with respect thereto in any taxable year. For
example, if the Mortgage Loans are acquired by a REMIC at a discount, then the
holder of a residual interest may recognize income without corresponding cash
distributions. This result could occur because a payment produces recognition by
the REMIC of discount on the Mortgage Loan while all or a portion of such
payment could be used in whole or in part to make principal payments on REMIC
Regular Certificates issued without substantial discount. Taxable income may
also be greater in earlier years as a result of the fact that interest expense
deductions, expressed as a percentage of the outstanding principal amount of the
REMIC Regular Certificates, will increase over time as the lower yielding
sequences of Certificates are paid, whereas interest income with respect to any
given Mortgage Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such Certificate will be taken into account
in determining the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or according
to some other method. Because of the uncertainty concerning the treatment of
such payments, holders of REMIC Residual Certificates should consult their tax
advisers concerning the treatment of such payments for income tax purposes.
2. Taxable Income or Net Loss of the REMIC Trust Fund
The taxable income or net loss of the REMIC Mortgage Pool will reflect a
netting of income from the Mortgage Loans, any cancellation of indebtedness
income due to the allocation of Realized Losses to REMIC Regular Certificates,
and the deductions and losses allowed to the REMIC Mortgage Pool. Such taxable
income or net loss for a given calendar quarter will be determined in the same
manner as for an individual having the calendar year as his taxable year and
using the accrual method of accounting, with certain modifications. The first
modification is that a deduction will be allowed for accruals of interest
(including original issue discount) on the REMIC Regular Certificates. Second,
market discount equal to the excess of any Mortgage Loan's adjusted issue price
(as determined 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.
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
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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.
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
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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, (i) 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 (ii) 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.
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
applicable Agreement, such organizations generally are prohibited from owning
Residual Certificates. See ' -- Sales of REMIC Certificates' below.
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7. Real Estate Investment Trusts
If the applicable Prospectus Supplement so provides, a Mortgage Pool may
hold Mortgage Loans bearing interest based wholly or partially on Mortgagor
profits, Mortgaged Property appreciation, or similar contingencies. Such
interest, if earned directly by a 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.
9. Partnership Holders
Special rules for electing partnerships with at least 100 members were
adopted in the Taxpayer Relief Act of 1997 (the '1997 Act'). There are special
rules relating to such electing partnerships that hold REMIC Residual
Certificates. Large partnerships which have or are considering making this
election should consult with their tax advisors concerning the consequences of
holding a REMIC Residual Certificate.
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.
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.
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
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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 (i) 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, (ii) any tax-exempt entity (other than a Code Section 521
cooperative) which is not subject to the tax on unrelated business income and
(iii) 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 applicable 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 penalty 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.
The 1997 Act provides that for taxable years beginning after December 31,
1997, all partners of certain electing partnerships having 100 or more partners
('electing large partnerships') will be treated as disqualified organizations
for purposes of the tax imposed on pass-through entities if such electing large
partnerships hold residual interests in a REMIC. However, the electing large
partnership would be entitled to exclude the excess inclusion income from gross
income for purposes of determining the taxable income of the partners. When
applicable, the provisions would also disallow 70% of an electing large
partnership's miscellaneous itemized deductions, including deductions for
servicing and guaranty fees and any expenses of the REMIC, although the
remaining deductions would generally be allowed at the partnership level and
would not be subject to the 2% floor applicable to individual partners. See 'G.
Pass-Through of Servicing Fees' below.
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
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such expenses to any extent in determining liability for alternative minimum
tax. Accordingly, REMIC Residual Certificates, and REMIC Regular Certificates
receiving an allocation of servicing compensation, may not be appropriate
investments for individuals, estates or trusts, and such persons should
carefully consult with their own tax advisers regarding the advisability of an
investment in such Certificates.
A 'single-class REMIC' is a REMIC that either (i) would be treated as an
investment trust under the provisions of Treasury Regulation Section
301.7701-4(c) in the absence of a REMIC election, or (ii) is substantially
similar to such an investment trust and is structured with the principal purpose
of avoiding the allocation of investment expenses to holders of REMIC Regular
Certificates. The Depositor intends (subject to certain exceptions which, if
applicable, will be stated in the applicable Prospectus Supplement) to treat
each REMIC Mortgage Pool as other than a 'single-class REMIC,' consequently
allocating servicing compensation expenses and related income amounts entirely
to REMIC Residual Certificates and in no part to REMIC Regular Certificates.
H. PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES
The Code imposes a tax on REMIC Mortgage Pools equal to 100% 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
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not have, it appears that this provision will only require information
pertaining to the appropriate proportionate method of accruing market discount.
The responsibility for complying with the foregoing reporting rules will be
borne by the Master Servicer.
For purposes of the administrative provisions of the Code, REMIC Pools will
be treated as partnerships and the holders of Residual Certificates will be
treated as partners. The Master Servicer will file federal income tax
information returns on behalf of the related REMIC Pool, and will be designated
as agent for and will act on behalf of the 'tax matters person' with respect to
the REMIC Pool in all respects.
As agent for the tax matters person, the Master Servicer will, subject to
certain notice requirements and various restrictions and limitations, generally
have the authority to act on behalf of the REMIC and the Residual Owners in
connection with the administrative and judicial review of items of income,
deduction, gain or loss of the REMIC Mortgage Pool, as well as the REMIC
Mortgage Pool's classification. Residual Owners will generally be required to
report such REMIC Mortgage Pool items consistently with their treatment on the
REMIC Mortgage Pool's federal income tax information return and may in some
circumstances be bound by a settlement agreement between the Master Servicer, as
agent for the tax matters person, and the IRS concerning any such REMIC Mortgage
Pool item. Adjustments made to the REMIC Mortgage Pool tax return may require a
Residual Owner to make corresponding adjustments on its return, and an audit of
the REMIC Mortgage Pool's tax return, or the adjustments resulting from such an
audit, could result in an audit of a Residual Owner's return.
K. BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES
Payments of interest and principal on REMIC Regular Certificates, as well
as payment of proceeds from the sale of REMIC Certificates, may be subject to
the 'backup withholding tax' under Code Section 3406 at a rate of 31% 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 (i) 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, (ii) the holder of such Certificate signs a
statement under penalty of perjury that certifies that such holder is a non-U.S.
Person, and provides the name and address of such holder and (iii) 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 (unless, in
the case of a partnership, future Treasury regulations provide otherwise) 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).
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.
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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
(i) that the REMIC will distribute to the transferee Residual Certificateholder
amounts that will equal at least 30% of each excess inclusion and (ii) 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.
Recently issued Treasury regulations (the 'Final Withholding Regulations'),
which are generally effective with respect to payments made after December 31,
1998, consolidate and modify the current certification requirements and means by
which a holder may claim exemption from United States federal income tax
withholding and provide certain presumptions regarding the status of holders
when payments to the holders cannot be reliably associated with appropriate
documentation provided to the payor. All holders of REMIC Regular Certificates
and REMIC Residual Certificates should consult their tax advisers regarding the
application of the Final Withholding Regulations.
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
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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 '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 'V. Tax
Characterization as a Partnership.'
A. CLASSIFICATION OF TRUST FUNDS
With respect to each series of Trust Certificates, Special Tax Counsel 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)(4)(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
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, Special Tax Counsel 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, (i) 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 (ii) a REIT
which owns a Trust Interest Certificate will be considered to own 'real estate
assets' within the meaning of Code Section 856(c)(4)(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
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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)(4)(A). Purchasers and their
tax advisers are advised to review Section 1.856-5(c)(1)(i) of the Treasury
regulations, which specifies that if a mortgage loan is secured by both real
property and by other property and the value of the real property alone equals
or exceeds the amount of the loan, then all interest income will be treated as
'interest on obligations secured by mortgages on real property' within the
meaning of Code Section 856(c)(3)(B).
C. TAXATION OF OWNERS OF TRUST FRACTIONAL CERTIFICATES
Each holder of a Trust Fractional Certificate (a 'Trust Fractional
Certificateholder') will be treated as the owner of an undivided percentage
interest in the principal of, and possibly a different undivided percentage
interest in the interest portion of, each of the Trust Funds included in a
Mortgage Pool. Accordingly, each Trust Fractional Certificateholder must report
on its federal income tax return its allocable share of income from its
interests, as described below, at the same time and in the same manner as if it
had held directly interests in the Mortgage Loans and received directly its
share of the payments on such Mortgage Loans. Because those 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 Depositor 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
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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, Special Tax Counsel 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
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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 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
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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. Under
the 1997 Act, gain or loss from the termination of a mortgage will be treated as
capital gain or loss.
Code Sections 1272 through 1275 provide rules for the current inclusion in
income of original issue discount on obligations issued by natural persons on or
after March 2, 1984. Generally those sections provide that original issue
discount should be included in income on the basis of a constant yield to
maturity. However, the application of the original issue discount rules to
mortgages is unclear in certain respects. The Treasury Department has issued the
OID Regulations relating to original issue discount, which generally address the
treatment of mortgages issued on or after April 4, 1994. The OID Regulations
would provide a new de minimis rule for determining whether certain
self-amortizing installment obligations, such as the Mortgage Loans, are to be
treated as having original issue discount. Such obligations would have original
issue discount if the points charged at origination (or other loan discount)
exceeded the greater of 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 -- 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
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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 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.
The Bond Premium Amortization Regulations generally provide that
amortizable bond premium is amortized over the term of a note by offsetting the
qualified stated interest allocable to an accrual period with the amortizable
bond premium allocable to such period using a specified constant yield method.
To the extent that the amortizable bond premium allocated to an accrual period
exceeds the qualified stated interest allocable to such period, the excess is
deductible under Code Section 171 to the extent such excess does not exceed the
difference between (i) prior interest inclusions over (ii) the Bond Premium
Amortization Limit, with the excess over the Bond Premium Amortization Limit
carried forward to the next accrual period and treated as amortizable bond
premium allocable to that period. The Bond Premium Amoritzation Regulations are
effective for notes acquired on or after March 2, 1998. However, if a holder
makes the election to amortize bond premium for the taxable year containing
March 2, 1998, or any subsequent taxable year, the Treasury regulations would
apply to debt instruments held on or after the first day for the taxable year in
which the election is made.
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, Special Tax Counsel 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.
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Accordingly, and subject to the discussion under 'Application of Stripped Bond
Rules,' each Trust Interest Certificateholder is treated as owning its allocable
share of the entire Interest Coupon from the Mortgage Loans, will report income
as described below, and may deduct its allocable share of the servicing and
related fees and expenses paid to or retained by the Depositor at the same time
and in the same manner as such items would have been reported under the Trust
Interest Certificateholder's tax accounting method had it held directly an
interest in the Interest Coupon from the Mortgage Loans, received directly its
share of the amounts received with respect to the Mortgage Loans and paid
directly its share of the servicing and related fees and expenses. An
individual, estate or trust holder of a Trust Interest Certificate will be
allowed a deduction for servicing fees in determining its regular tax liability
only to the extent that the aggregate of such holder's miscellaneous itemized
deductions exceeds two percent of such holder's adjusted gross income, and will
be allowed no deduction for such fees in determining its liability for
alternative minimum tax. Amounts, if any, received by Trust Interest
Certificateholders in lieu of amounts due with respect to any Mortgage Loan but
not received by the Master Servicer from the Mortgagor will be treated for
federal income tax purposes as having the same character as the payment which
they replace.
1. Application of Stripped Bond Rules
A Trust Interest Certificate will consist of an undivided interest in the
Interest Coupon of each of the Mortgage Loans. With respect to each Series of
Certificates, Special Tax Counsel 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.'
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 under
' -- 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.
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Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information on
an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount
either on a Mortgage Loan by Mortgage Loan basis or on a payment by payment
basis taking account of an allocation of their basis in the Certificates among
the interests in the various Mortgage Loans represented by such Certificates
according to their respective fair market values. The effect of an aggregate
computation for the inclusion of original issue discount in income may be to
defer the recognition of losses due to early prepayments relative to a
computation on a Mortgage by Mortgage basis. Investors should be aware that it
may not be possible to reconstruct after the fact sufficient mortgage by
mortgage information should a computation on that basis be required by the IRS.
Because the treatment of the Trust Interest Certificates under current law
and the potential application of the 1996 Contingent Debt Regulations are both
complicated and uncertain, Trust Interest Certificateholders should consult
their tax advisers to determine the proper method of reporting amounts received
or accrued on Trust Interest Certificates.
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 1997 Act provides that the prepayment rules of Code
Section 1272(a)(6), discussed above, will also apply to pools of debt
instruments the yield on which may be affected 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.
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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 (unless, in the case of a partnership, future Treasury
regulations provide otherwise), or a United States estate or trust, will not
generally be subject to 30% United States withholding tax, provided that such
Certificateholder (i) does not own, directly or indirectly, 10% or more of, and
is not a controlled foreign corporation (within the meaning of Code Section 957)
related to, each of the issuers of the 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.
Recently issued Treasury regulations (the 'Final Withholding Regulations'),
which are generally effective with respect to payments made after December 31,
1998, consolidate and modify the current certification requirements and means by
which a holder may claim exemption from United States federal income tax
withholding and provide certain presumptions regarding the status of holders
when payments to the holders cannot be reliably associated with appropriate
documentation provided to the payor. All holders of REMIC Regular Certificates
and REMIC Residual Certificates should consult their tax advisers regarding the
application of the Final Withholding Regulations.
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, Special Tax Counsel 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. Special Tax Counsel 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.
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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. Special Tax Counsel 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 Special Tax Counsel 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 Special Tax
Counsel 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 Special Tax Counsel 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, Special Tax Counsel 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 Special Tax Counsel 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.
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
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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
Special Tax Counsel 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 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
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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. Special Tax Counsel 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, Special Tax Counsel
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
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
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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).
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
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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 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.
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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.
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.
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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 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
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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 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.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
imposes certain restrictions on employee benefit plans subject to ERISA ('ERISA
Plans') and on those persons who are ERISA fiduciaries with respect to the
assets of such ERISA Plans. In accordance with the general fiduciary standards
of ERISA, an ERISA Plan fiduciary should consider whether an investment in the
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 '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 EXEMPTION 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
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(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 Securities 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 indemnify Certificateholders
of the applicable Series against pass-through payment reductions resulting from
property damage or defaults in loan payments. With respect to the third general
condition of PTCE 83-1, the Depositor intends to use its best efforts to
establish a compensation system which will produce for the Depositor total
compensation that will not exceed adequate consideration for forming the
Mortgage Pool and selling the Certificates. However, the Depositor does not
guarantee that its systems will be sufficient to meet the second and third
general conditions (described above) with respect to any Exempt Series.
If an Exempt Series of Certificates is subdivided into two or more Classes
or Subclasses which are entitled to disproportionate allocations of the
principal and interest payments on the Mortgage Loans held by the applicable
Trust Fund, the availability of the exemption afforded by PTCE 83-1 may be
adversely affected, as described in the applicable Prospectus Supplement.
Moreover, if the Certificateholders of any Class or Subclass of Certificates are
entitled to pass-through payment of principal (but no or only nominal interest)
or interest (but no or only nominal principal), it appears that PTCE 83-1 will
not exempt Plans which acquire Certificates of that Class or Subclass from the
prohibited transaction rules of ERISA and Section 4975 of the Code.
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 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
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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, a division of The McGraw-Hill Companies, Inc., Moody's Investors
Service, Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc. and (2)
purchased by investors, other than Plans, for at least one year prior to a
Plan's acquisition of Certificates in reliance upon the Underwriter's PTE;
(c) at the time of such acquisition, the Class of Certificates
acquired by the Plan has received a rating in one of the rating categories
referred to in condition (b) above;
(d) the Trustee is not an affiliate of any member of the Restricted
Group (as defined below);
(e) the 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);
(g) the acquisition of the Certificates by a Plan is on terms
(including the price for the Securities) 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 and will not apply, 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
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(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 July 21, 1997, the DOL published in the Federal Register a final
amendment to the Underwriter's PTE which extends 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 generally allows 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 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) in order to ensure that the characteristics of the Additional
Loans are substantially similar to the original obligations which were
transferred to the Trust, 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 certain 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; and
(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.
Whether 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
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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 CERTIFICATES
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 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 provides an
exemption for a particular Plan investor, 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 investor 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 and who is considering the use of
'plan assets' of any Plan to purchase 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.
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
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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
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
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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
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
Certain legal matters in connection with the Securities offered hereby,
including material federal income tax consequences, will be passed upon for the
Depositor and for the Underwriters by Stroock & Stroock & Lavan LLP, New York,
New York, Brown & Wood LLP, San Francisco, California or such other counsel
specified in the related Prospectus Supplement.
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INDEX OF TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ----------------------------------------------- ----
<S> <C>
Accrual Distribution Amount.................... 34
Advances....................................... 13
AFR............................................ 89
Agreement...................................... 21
Alternative Credit Support..................... 9
Approved Sale.................................. 67
APR............................................ 25
ARM Loans...................................... 18
Asset Value.................................... 32
Assets......................................... 81
Bond Premium Amortization Limit................ 87
Bond Premium Amortization Regulations.......... 87
Buy-Down Fund.................................. 12
Buy-Down Loans................................. 19
Cede........................................... 17
Certificate Account............................ 40
Certificate Principal Balance.................. 3
Certificateholders............................. 21
Class.......................................... 1
Cleanup Costs.................................. 76
Closed-End Loans............................... 4
Closed Loans................................... 22
Closing Date................................... 83
Code........................................... 14
Collection Account............................. 40
Contract Loan-to-Value Ratio................... 7
Contract Pool.................................. 1
Contract Schedule.............................. 36
Contracts...................................... 1
Converted Mortgage Loan........................ 19
Cooperative.................................... 4
Cooperative Dwelling........................... 5
Cooperative Loans.............................. 4
Credit Suisse First Boston Corporation's PTE... 116
Custodial Account.............................. 40
Custodial Agreement............................ 25
Custodian...................................... 25
Cut-off Date................................... 17
Deferred Interest.............................. 19
Definitive Securities.......................... 17
Deficiency Event............................... 54
Deleted Contract............................... 26
Deleted Mortgage Certificates.................. 35
Deleted Mortgage Loans......................... 36
Depositor...................................... 1
Determination Date............................. 43
Discount Security.............................. 8
Distribution Date.............................. 5
DOL............................................ 117
DTC -- Depository Trust Company................ 17
Due Date....................................... 18
Due Period..................................... 34
<PAGE>
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<S> <C>
Escrow Account................................. 46
ERISA.......................................... 114
ERISA Plans.................................... 114
Exempt Series.................................. 115
FHA............................................ 1
FHA Experience................................. 27
FHA Loans...................................... 18
First Boston................................... 116
Garn-St Germain Act............................ 75
GPM Fund....................................... 12
GPM Loans...................................... 19
Home Equity Loans.............................. 4
Indenture...................................... 31
Indenture Trustee.............................. 31
Initial Deposit................................ 11
Insurance Proceeds............................. 41
Insured........................................ 49
Insured Series................................. 116
Interest Coupon................................ 102
Interest Distribution.......................... 33
Interest Rate.................................. 3
Interest Weighted Class........................ 3
Interest Weighted Subclass..................... 3
IRS............................................ 83
L/C Bank....................................... 9
L/C Percentage................................. 9
Letter of Credit............................... 8
Liquidating Loan............................... 9
Liquidation Proceeds........................... 41
Loan-to-Value Ratio............................ 18
Loss........................................... 63
Manufactured Home.............................. 7
Master Servicer................................ 1
Mortgage Certificates.......................... 1
Mortgage Loans................................. 5
Mortgage Notes................................. 18
Mortgage Pool.................................. 80
Mortgage Rates................................. 6
Mortgaged Property............................. 6
Mortgagor...................................... 6
Mortgagor Bankruptcy Bond...................... 8
Multi-Class Securities......................... 3
Multifamily Property........................... 5
Multiple Variable Rate......................... 85
1988 Act....................................... 91
1986 Act....................................... 87
1996 Contingent Debt Regulations............... 86
1996 Proposed Regulations...................... 97
Nonexempt Assets............................... 115
Nonexempt Series............................... 115
non-U.S. Person................................ 94
Notes.......................................... 1
Noteholders.................................... 21
Obligor........................................ 29
</TABLE>
121
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TERM PAGE
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<S> <C>
OID Regulations................................ 80
Original Value................................. 6
Originator..................................... 22
Other Pools.................................... 116
Parties in Interest............................ 114
Percentage Interest............................ 1
Performance Bond............................... 26
Plan Assets Regulation......................... 115
Plans.......................................... 114
Policy Statement............................... 121
Pool Insurance Policy.......................... 8
Pool Insurer................................... 10
Pooling and Servicing Agreement................ 30
Pre-Funded Amount.............................. 38
Pre-Funding Account............................ 38
Pre-Funding Period............................. 118
Premium Security............................... 7
Prepayment Assumption.......................... 83
Primary Insurer................................ 42
Primary Mortgage Insurance Policy.............. 10
Primary Mortgage Insurer....................... 49
Principal Distribution......................... 33
Principal Prepayments.......................... 11
Principal Weighted Class....................... 4
Principal Weighted Subclass.................... 4
Proposed Premium Regulations................... 88
PTCE 83-1...................................... 115
Purchase Price................................. 38
Rating Agency.................................. 1
Record Date.................................... 33
Reference Agreement............................ 31
REIT........................................... 81
REMIC.......................................... 1
REMIC Certificateholders....................... 81
REMIC Certificates............................. 80
REMIC Mortgage Pool............................ 80
REMIC Provisions............................... 80
REMIC Regulations.............................. 80
REMIC Regular Certificate...................... 80
REMIC Residual Certificate..................... 80
Required Reserve............................... 12
Reserve Fund................................... 8
Residual Certificates.......................... 3
Residual Owner................................. 87
Restricted Group............................... 118
Retained Yield................................. 98
Revolving Credit Line Loans.................... 4
Sale and Servicing Agreement................... 1
Securities..................................... 3
Securities Act................................. 32
Security Guarantee Insurance................... 13
Securityholder................................. 17
Senior Securities.............................. 8
<CAPTION>
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Senior Class................................... 3
Senior Prepayment Percentage................... 80
Senior Subclass................................ 3
Series......................................... 1
Servicemen's Readjustment Act.................. 20
Servicer....................................... 21
Servicing Account.............................. 40
Servicing Agreement............................ 21
Single-Class REMIC............................. 94
Single Family Property......................... 5
Single Variable Rate........................... 83
SMMEA.......................................... 120
SBJPA -- of 1996............................... 89
SPA............................................ 28
Special Distributions.......................... 5
Special Hazard Insurance Policy................ 13
Special Tax Counsel............................ 79
Standard Hazard Insurance Policy............... 46
Standard Terms................................. 30
Stated Principal Balance....................... 3
Stated Principal Distribution Amount........... 34
Stripped Bond Rules............................ 100
Stripped Interest.............................. 102
Stripped Mortgage Loan......................... 99
Subclass....................................... 1
Subordinated Amount............................ 8
Subordinated Securities........................ 8
Subordinated Class............................. 3
Subordinated Pool.............................. 11
Subordinated Subclass.......................... 3
Substitute Contract............................ 26
Substitute Mortgage Certificates............... 35
Substitute Mortgage Loans...................... 36
Thrift Institutions............................ 89
Tiered REMICS.................................. 82
Title V........................................ 79
Trust.......................................... 1
Trust Assets................................... 5
Trust Agreement................................ 1
Trust Certificates............................. 80
Trustee........................................ 1
Trust Fractional Certificateholder............. 99
Trust Fractional Certificate................... 80
Trust Fund..................................... 4
Trust Interest Certificate..................... 80
Trust Interest Certificateholder............... 102
Unaffiliated Sellers........................... 22
Underwriters................................... 121
UCC............................................ 73
Unstripped Mortgage Loans...................... 101
U. S. Person................................... 96
VA............................................. 1
VA Loans....................................... 18
</TABLE>
122
<PAGE>
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____________________________________ ___________________________________
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 AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE DEPOSITOR SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary......................................... S-3
Risk Factors.................................... S-14
The Contract Pool............................... S-17
IndyMac, Inc.................................... S-20
Yield and Prepayment Considerations............. S-22
Description of the Certificates................. S-30
Use of Proceeds................................. S-45
Certain Legal Aspects of the Contracts.......... S-46
Certain Federal Income Tax Consequences......... S-48
ERISA Considerations............................ S-50
Legal Investment Considerations................. S-51
Underwriting.................................... S-51
Notice to Canadian Residents.................... S-52
Legal Matters................................... S-53
Ratings......................................... S-53
Index of Principal Terms........................ S-54
PROSPECTUS
Prospectus Supplement........................... 2
Additional Information.......................... 2
Incorporation of Certain Information by
Reference..................................... 2
Summary......................................... 3
Risk Factors.................................... 15
The Trust Fund.................................. 17
The Depositor................................... 27
Use of Proceeds................................. 27
Maturity, Prepayment and Yield Considerations... 27
Description of the Securities................... 31
Credit Support.................................. 58
Description of Insurance........................ 62
Certain Legal Aspects of the Mortgage Loans and
Contracts..................................... 70
Certain Federal Income Tax Consequences......... 79
ERISA Considerations............................ 114
Legal Investment................................ 119
Plan of Distribution............................ 120
Legal Matters................................... 120
Index of Terms.................................. 121
</TABLE>
UNTIL JUNE 3, 1998, 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.
Credit Suisse First Boston
Mortgage Securities Corp.,
Depositor
$139,648,100
IndyMac Manufactured Housing Contract
Pass-Through Certificates, Series 1998-1
[Logo]
IndyMac, Inc.
Seller and Servicer
PROSPECTUS SUPPLEMENT
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
____________________________________ ___________________________________
