<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-33807
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER 25, 1997
$128,693,906
(APPROXIMATE)
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.,
Depositor
WILSHIRE MORTGAGE FUNDING COMPANY VI, INC.,
Seller
WILSHIRE SERVICING CORPORATION,
Servicer
Wilshire Funding Corporation Mortgage-Backed Certificates, Series 1998-WFC2
The Wilshire Funding Corporation Mortgage-Backed Certificates, Series 1998-
WFC2 (the "CERTIFICATES") will represent beneficial interests in a trust
(the "TRUST"), the assets of which (the "TRUST FUND") will consist
primarily of a pool of fixed and adjustable rate, closed-end loans
secured by mortgages on residential one- to four-family properties,
multifamily properties, commercial properties and unimproved land
(the "MORTGAGE LOANS") purchased by Wilshire Funding
Corporation (the "WILSHIRE SELLER") in the ordinary course
of its business and conveyed, together with certain
related property described herein, to Wilshire Mortgage
Funding Company VI, Inc. (the "SELLER"). The Seller
will convey such property to Credit Suisse First
Boston Mortgage Securities Corp. (the
"DEPOSITOR"), which will convey it to the
Trust. The Trust will be created and the
Certificates will be issued pursuant to a
Pooling and Servicing Agreement, dated
as of June 1, 1998 (the "POOLING AND
SERVICING AGREEMENT"), among the
Depositor, Wilshire Mortgage
Funding Company VI, Inc., as
Seller, Wilshire Servicing
Corporation, as Servicer, and
Bankers Trust Company of
California, N.A., as Trustee and
Back-Up Servicer. See "Description
of the Certificates" herein.
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<TABLE>
<CAPTION>
INITIAL APPROXIMATE
CERTIFICATE INITIAL RATING FINAL
BALANCE OR PASS-THROUGH (FITCH/DCR/ SCHEDULED
NOTIONAL BALANCE RATE MOODY'S) DISTRIBUTION DATE(1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-I Certificates.. $ 22,664,858 5.86%(2) AAA/AAA/Aaa December 28, 2037
Class A-II Certificates. $ 33,552,979 8.06%(2) AAA/AAA/Aaa December 28, 2037
Class A-III
Certificates........... $ 40,302,593 7.00%(3) AAA/AAA/Aaa December 28, 2037
Class IO Certificates... $119,846,200 0.72%(4) AAA/AAA/Aaa December 28, 2037
Class M-1 Certificates.. $ 12,065,053 5.86%(2) AA+/AA/Aa2 December 28, 2037
Class M-2 Certificates.. $ 11,260,717 5.86%(2) A+/A/A2 December 28, 2037
Class M-3 Certificates.. $ 8,847,706 5.86%(2) BBB+/BBB/Baa2 December 28, 2037
</TABLE>
- -------------------------------------------------------------------------------
(1) The Final Scheduled Distribution Date is the Distribution Date occurring
in the second month following the month in which the latest scheduled
maturity date for any Mortgage Loan occurs. See "Certain Yield and
Prepayment Considerations" herein.
(2) The Pass-Through Rates with respect to the Class A-I, Class A-II and Class
M Certificates are variable, and will be calculated as set forth herein
under "Description of the Certificates--Distributions in Respect of
Interest and Principal--Interest Distribution Amounts."
(3) The Pass-Through Rate with respect to the Class A-III Certificates is
fixed, subject to the limitations set forth herein.
(4) The Class IO Certificates are "interest only" certificates and will not be
entitled to distributions of principal. Interest will accrue on the
Notional Amount of the Class IO Certificates at a variable Pass-Through
Rate calculated as set forth herein under "Description of the
Certificates--Distributions in Respect of Interest and Principal--Interest
Distribution Amounts."
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" HEREIN ON PAGE S-15 AND ON PAGE 18 OF THE PROSPECTUS. AN INVESTMENT
IN THE OFFERED CERTIFICATES MAY INVOLVE CERTAIN RISKS.
THE OFFERED CERTIFICATES (DEFINED HEREIN) WILL NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF THE DEPOSITOR, THE TRUSTEE, THE WILSHIRE SELLER, THE SELLER,
THE SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. THE OFFERED
CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Underwriter proposes to offer the Offered Certificates from time to time
in negotiated transactions or otherwise, at prices to be determined at the
time of sale. Proceeds to the Depositor from the sale of all Classes of
Offered Certificates will be approximately 101.83% of the Certificate
Principal Balance thereof, plus accrued interest thereon from June 1, 1998,
before deducting expenses payable by the Depositor. For further information
with respect to the plan of distribution and any discounts, commissions or
profits that may be deemed underwriting discounts or commissions, see
"Underwriting" herein.
The Offered Certificates are offered by Credit Suisse First Boston
Corporation (the "UNDERWRITER") when, as and if delivered to and accepted by
the Underwriter, subject to prior sale, withdrawal or modification of the
offer without notice, the approval of counsel and other conditions. It is
expected that the Offered Certificates will be delivered through the Same Day
Funds Settlement System of The Depository Trust Company ("DTC"), on or about
June 30, 1998.
CREDIT SUISSE FIRST BOSTON
The date of this Prospectus Supplement is June 24, 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
----------------
The Certificates will be part of a separate series of Conduit Mortgage and
Manufactured Housing Pass-Through Certificates being offered by the Depositor
from time to time pursuant to a Prospectus dated September 25, 1997 (the
"PROSPECTUS"), of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains important
information about the Offered Certificates that is not contained herein, and
prospective investors are urged to read both this Prospectus Supplement and
the Prospectus in full. Sales of the Offered Certificates may not be
consummated unless the purchaser has received both this Prospectus Supplement
and the Prospectus.
----------------
AVAILABLE INFORMATION
The Depositor, as sponsor of the Trust, has filed a Registration Statement
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), with the
Securities and Exchange Commission (the "COMMISSION") with respect to the
Certificates offered pursuant to this Prospectus Supplement and the related
Prospectus. This Prospectus Supplement and the related Prospectus, which form
a part of the Registration Statement, omit certain information contained in
such Registration Statement pursuant to the Rules and Regulations of the
Commission. The Registration Statement can be inspected and copied at the
Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington,
D.C., and the Commission's regional offices at Seven World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 or electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval system at the
Commission's web site (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued (which will occur under
the limited circumstances described herein), unaudited monthly and unaudited
annual reports concerning the Trust will be sent by the Trustee to Cede & Co.,
as the nominee of DTC and registered holder of the Offered Certificates. So
long as the Offered Certificates are in book-entry form, DTC will supply such
reports to Beneficial Owners (as defined herein) in accordance with its normal
procedures. Such reports will not contain financial information that has been
examined and reported upon by an independent or certified public accountant.
See "Description of the Certificates--Reports to Certificateholders" in the
Prospectus.
This Prospectus Supplement contains a number of defined terms, the meanings
of which are necessary for potential investors to understand in order for them
to evaluate an investment in the Offered Certificates. See the "Index of
Principal Definitions" in this Prospectus Supplement for the location of the
definitions of certain capitalized terms. See the "Index of Terms" in the
Prospectus for the location of the definitions of capitalized terms not
otherwise defined in this Prospectus Supplement.
S-2
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement.
Securities Issued........... The Certificates will be issued pursuant to a
pooling and servicing agreement (the "POOLING
AND SERVICING AGREEMENT") to be dated as of June
1, 1998 among the Depositor, the Servicer, the
Trustee and the Back-Up Servicer.
The Certificates will consist of the following
ten classes (each, a "CLASS"): (i) the Class A-I
Certificates, Class A-II Certificates and Class
A-III Certificates (collectively, the "CLASS A
CERTIFICATES"); (ii) the Class IO Certificates;
(iii) the Class M-1 Certificates, Class M-2
Certificates and Class M-3 Certificates
(collectively, the "CLASS M CERTIFICATES"); and
(iv) the Class B-1 Certificates, Class B-2
Certificates and Class B-3 Certificates
(collectively, the "CLASS B CERTIFICATES"). The
Class A Certificates and Class IO Certificates
are referred to herein collectively as the
"SENIOR CERTIFICATES." The Class M Certificates
and Class B Certificates are referred to herein
as the "SUBORDINATE CERTIFICATES." The Class A-I
Certificates and Subordinate Certificates are
referred to herein as the "GROUP I
CERTIFICATES."
The Trust will also issue a "residual interest"
with respect to each REMIC held by the Trust
(collectively, the "RESIDUAL CERTIFICATES").
Only the Senior Certificates and the Class M
Certificates (the "OFFERED CERTIFICATES") are
offered hereby.
Payments of principal and interest on the Group I
Certificates will derive primarily from the Pool
I Loans. Payments of principal and interest on
the Class A-II Certificates will derive
primarily from the Pool II Loans. Payments of
principal and interest on the Class A-III
Certificates will derive primarily from the Pool
III Loans. Payments of interest on the Class IO
Certificates will be determined as described
herein.
Securities Offered.......... The Offered Certificates (other than the Class IO
Certificates) will be issued in book-entry form
in minimum denominations of $25,000 and integral
multiples of $1 in excess thereof. The Class IO
Certificates will be issued in book-entry form
in minimum denominations of $1,000,000 (by
notional amount) and integral multiples of $1 in
excess thereof. The Offered Certificates
initially will be represented by certificates
registered in the name of Cede & Co., as the
nominee of DTC. See "Description of the
Certificates--Book-Entry Registration" herein
and "Risk Factors--Limitation on Exercise of
Rights Due to Book Entry Registration" in the
Prospectus.
S-3
<PAGE>
The Offered Certificates will evidence undivided
interests in the Mortgage Loans and all other
assets of the Trust Fund.
The Offered Certificates will not represent
interests in or obligations of the Depositor,
the Wilshire Seller, the Seller, the Servicer,
the Back-Up Servicer, the Trustee or any of
their respective affiliates. The Offered
Certificates will not be insured or guaranteed
by any governmental agency or instrumentality.
Cut-Off Date................ June 1, 1998, after application of all payments
due on or before such date (the "CUT-OFF DATE").
Closing Date................ On or about June 30, 1998 (the "CLOSING DATE").
Interest Accrual Period..... With respect to each Distribution Date, the
calendar month preceding such date. Interest on
the Certificates will be calculated on the basis
of a 360-day year consisting of twelve 30-day
months.
Depositor................... Credit Suisse First Boston Mortgage Securities
Corp., a Delaware corporation.
Seller...................... Wilshire Mortgage Funding Company VI, Inc., a
Delaware corporation (the "SELLER"). The
Mortgage Loans sold by the Seller were acquired
from the Wilshire Seller, an affiliate of the
Seller. References in the Prospectus to an
Unaffiliated Seller refer to the Seller.
Servicer.................... Wilshire Servicing Corporation, a Delaware
corporation (together with its permitted
successors and assigns, the "SERVICER"), an
affiliate of the Seller and the Wilshire Seller.
References in the Prospectus to the Master
Servicer refer to the Servicer herein.
Trustee..................... Bankers Trust Company of California, N.A., a
national banking association (the "TRUSTEE").
Distribution Dates and Distributions on the Certificates will be made on
Record Dates................ the 25th day of each month (or, if such 25th day
is not a Business Day, on the next succeeding
Business Day) (each, a "DISTRIBUTION DATE"),
commencing July 27, 1998. "BUSINESS DAY" shall
mean any day other than (i) a Saturday or
Sunday, or (ii) any day on which banking
institutions located in the States of New York,
California or Oregon are authorized or obligated
by law or executive order to close.
Distributions on each Distribution Date will be
made to the holders of record of the related
Offered Certificates (the "CERTIFICATEHOLDERS")
as of the close of business on the last day of
the calendar month immediately preceding such
Distribution Date (each, a "RECORD DATE"),
except that the final distribution in respect of
the Certificates will only be made upon
presentation and surrender of the Certificates
at the office or agency appointed by the Trustee
for that purpose in New York, New York.
S-4
<PAGE>
Distributions............... Interest Distributions. Holders of each Class of
Senior Certificates will be entitled to receive
interest distributions in an amount equal to one
month's interest at the applicable Pass-Through
Rate on the Certificate Principal Balance or
Notional Amount of such Class on each
Distribution Date in the manner and priority set
forth herein and to the extent of the Available
Distribution Amount for such Distribution Date.
Holders of each Class of the Class M Certificates
will be entitled to receive interest
distributions in an amount equal to one month's
interest at the applicable Pass-Through Rate on
the Certificate Principal Balance of such Class
on each Distribution Date in the manner and
priority set forth herein and to the extent
payable from the Available Distribution Amount
for such Distribution Date remaining after (i)
distributions of principal and interest to the
Senior Certificates and (ii) distributions of
interest and principal to any Class of Class M
Certificates having a higher payment priority.
Interest shortfalls resulting from mortgagor
prepayments and the Relief Act will be allocated
to all of the Offered Certificates in reduction
of their interest distributions to the extent
and in the manner set forth herein.
The Pass-Through Rate on the Class A-III
Certificates is fixed at 7.00% per annum,
subject to the limitations described herein. The
Pass-Through Rates on the remaining Classes of
Offered Certificates are variable and will be
calculated as set forth herein.
See "Description of the Certificates--
Distributions in Respect of Interest and
Principal--Interest Distribution Amounts"
herein.
Principal Distributions. Holders of the Class A
Certificates will be entitled to receive a
distribution of principal on each Distribution
Date, in the manner and priority set forth
herein, to the extent of the portion of the
Available Distribution Amount remaining after
distributions in respect of interest to the
holders of the Senior Certificates. If the
Available Distribution Amount is not sufficient,
after paying the full amount of interest due on
the Senior Certificates, to distribute to the
holders of the Class A Certificates the full
amount of principal to which they are entitled,
the shortfall will be allocated among the Class
A Certificates on a pro rata basis in accordance
with the amount of principal to which they would
otherwise be entitled.
Holders of each Class of the Subordinate
Certificates will be entitled to receive a
distribution of principal on each Distribution
Date, in the manner and priority set forth
herein, to the extent of the portion of the
Available Distribution Amount remaining after
(i) distributions in respect of interest and
principal to the holders of the Senior
Certificates and any Class of Subordinate
S-5
<PAGE>
Certificates having a higher payment priority,
and (ii) distributions in respect of interest to
the holders of such Class of Subordinate
Certificates.
See "Description of the Certificates--
Distributions in Respect of Interest and
Principal--Principal Distribution Amounts"
herein.
Mortgage Loans.............. The Mortgage Pool will consist of Mortgage Loans
with an approximate aggregate principal balance
outstanding as of the Cut-Off Date, after
deducting payments of principal due on or prior
to such date, of $160,867,386. The Mortgage
Loans are secured by first and junior liens on
fee simple or leasehold interests in (i) single
family residential real properties (representing
approximately 61.59% of the Mortgage Loans);
(ii) two- to four-family residential real
properties (representing approximately 4.63% of
the Mortgage Loans); (iii) multifamily
residential properties (representing
approximately 10.21% of the Mortgage Loans);
(iv) commercial properties (representing
approximately 8.67% of the Mortgage Loans); (v)
mixed use (residential and commercial)
properties (representing approximately 1.76% of
the Mortgage Loans); and (vi) unimproved land
(representing approximately 1.31% of the
Mortgage Loans (each such property, a "MORTGAGED
PROPERTY"). Approximately 9.82% of the Mortgage
Loans have a Due Date other than the first day
of each month.
The Mortgage Loans will be separated into three
pools ("POOL I," "POOL II" and "POOL III," and
each, a "POOL"), designated, respectively, as
the "POOL I LOANS," "POOL II LOANS" and "POOL
III LOANS." The Pool I Loans will consist of
adjustable rate Mortgage Loans that are
adjustable in accordance with the offered yields
on various maturities of U.S. Treasury
securities (each, a "CMT INDEX"). The Pool II
Loans will consist of adjustable rate Mortgage
Loans that are adjustable in accordance with a
variety of indices (each, an "Index"). The Pool
III Loans will consist of fixed-rate Mortgage
Loans.
As of the Cut-Off Date, approximately 6.89% of
the Mortgage Loans were 30 to 59 days delinquent
in payment of principal and interest and
approximately 2.31% of the Mortgage Loans were
60 to 89 days delinquent in payment of principal
and interest. A substantial number of the
Mortgage Loans have been delinquent more than
once in the twelve months preceding the Cut-Off
Date. A significant number of Mortgage Loans
have been modified or restructured in connection
with a delinquency or default on the related
Mortgage Loans.
All of the Mortgage Loans will be sold to the
Depositor by the Seller on or before the date of
initial issuance of the Certificates. The
Mortgage Loans were acquired by the Wilshire
Seller, which is an affiliate of the Seller,
from various entities.
See "Risk Factors" and "The Mortgage Loan Pools"
herein.
S-6
<PAGE>
Allocation of Losses; The credit enhancement provided for the benefit
Subordination............... of the Senior Certificates primarily consists of
the subordination provided by the Subordinate
Certificates. The credit enhancement provided
for the benefit of each Class of the Class M
Certificates primarily consists of the
subordination provided by all Classes of
Subordinate Certificates subordinate thereto.
Realized Losses on the Mortgage Loans will be
allocated as follows: first, to the Class B-3
Certificates; second, to the Class B-2
Certificates; third, to the Class B-1
Certificates; fourth, to the Class M-3
Certificates; fifth, to the Class M-2
Certificates; sixth, to the Class M-1
Certificates until, in each case, the
Certificate Principal Balance of each such Class
of Certificates is reduced to zero; and the
remainder of such Realized Losses will be
allocated to the Senior Certificates on a pro
rata basis, as described herein.
Investors in the Subordinate Certificates should
also be aware that, in order to increase the
period during which the Subordinate Certificates
remain available as credit enhancement to the
Senior Certificates, a disproportionate amount
of mortgagor prepayments and other unscheduled
recoveries with respect to the Mortgage Loans
will be allocated to the Class A Certificates at
least until and including the Distribution Date
occurring in June 2001, unless the Certificate
Principal Balance of the Class A Certificates
has been reduced to zero. This allocation has
the effect of accelerating the amortization of
the Class A Certificates while, in the absence
of Realized Losses on the Mortgage Loans,
increasing the respective percentage interest in
the Principal Balance of the Mortgage Loans
evidenced by the Subordinate Certificates.
The Offered Certificates are not insured or
guaranteed by any governmental agency or
instrumentality or by the Depositor, the
Wilshire Seller, the Seller, the Servicer, the
Trustee, the Back-Up Servicer or any affiliate
thereof.
See "Description of the Certificates--Allocation
of Losses; Subordination" herein.
Prepayment Interest If, on any Distribution Date, and as a result of
Shortfalls.................. full or partial principal prepayments on the
Mortgage Loans during the related Prepayment
Period, the amount of interest due on such
Mortgage Loans is less than a full month's
interest on such Mortgage Loans, the Servicer
will be required to remit to the Certificate
Account the lesser of (x) the amount of such
insufficiency due to such prepayments and (y)
the aggregate Servicing Fee payable on such
Distribution Date. The Servicer will be required
to remit such amount (each such amount,
"PREPAYMENT INTEREST") not later than the close
of business on each Servicer Remittance Date.
The excess of any such insufficiency over the
portion of the aggregate Servicing Fee described
above, is the "PREPAYMENT INTEREST SHORTFALL"
for such Distribution Date.
S-7
<PAGE>
The amount of any Prepayment Interest Shortfalls
with respect to any Distribution Date will be
deducted from the amount of interest due on all
Classes of the Certificates on such Distribution
Date on a pro rata basis as described herein.
Special Prepayment The rate and timing of principal payments on the
Considerations.............. Offered Certificates will differ, and will
depend on, among other things, the rate and
timing of principal payments (including
prepayments, defaults, liquidations and
purchases of Mortgage Loans due to a breach of
representation and warranty) on the Mortgage
Loans. As is the case with mortgage-backed
securities generally, the Offered Certificates
are subject to substantial inherent cash flow
uncertainties because the Mortgage Loans may be
prepaid at any time. Generally, when prevailing
interest rates increase, prepayment rates on
mortgage loans tend to decrease, resulting in a
slower return of principal to investors at a
time when reinvestment at such higher prevailing
rates would be desirable. Conversely, when
prevailing interest rates decline, prepayment
rates on mortgage loans tend to increase,
resulting in a faster return of principal to
investors at a time when reinvestment at
comparable yields may not be possible.
Investors in the Offered Certificates should be
aware that approximately 6.47% of the Mortgage
Loans will be secured by Junior Mortgage Loans.
Generally, Junior Mortgage Loans are not viewed
by Mortgagors as permanent financing.
Accordingly, such Mortgage Loans may experience
a higher rate of prepayment than first lien
mortgage loans.
The multiple Class structure of the Offered
Certificates results in the allocation of
payments among certain Classes as follows:
Class A Certificates: Scheduled and unscheduled
principal payments (including prepayments) on
the Pool I Loans will be distributed to the
Group I Certificates, except under certain
circumstances set forth herein. For example,
after the Certificate Principal Balance of the
Class A-I Certificates has been reduced to zero,
certain amounts of unscheduled principal
payments on the Pool I Loans will be distributed
to the Class A-II and Class A-III Certificates
under the circumstances set forth herein.
Scheduled and unscheduled principal payments on
the Pool II Loans and Pool III Loans will be
distributed to the Class A-II Certificates and
Class A-III Certificates, respectively, except
under certain circumstances set forth herein.
The principal distributions and the weighted
average lives of the Class A Certificates will
be affected by the rate and timing of
unscheduled principal payments (including
prepayments, defaults and liquidations) on the
Mortgage Loans.
S-8
<PAGE>
Investors in the Class A Certificates should also
be aware that, subject to certain conditions set
forth herein, unless the Aggregate Subordinate
Percentage (as defined herein) is at least twice
the Aggregate Subordinate Percentage as of the
Cut-Off Date, or the Certificate Principal
Balances of the Class A Certificates have been
reduced to zero, in each case prior to the
Distribution Date occurring in July 2008, all
unscheduled principal payments on the Pool I
Loans will be distributed to the Class A
Certificates, and prior to the Distribution Date
occurring in July 2012, and during certain
periods thereafter if certain loss and
delinquency tests have not been met, a
disproportionately large portion of such
unscheduled payments will be distributed to the
Class A Certificates. Such distributions of
principal payments will be allocated among the
Class A Certificates in the manner set forth
herein.
Group I Certificates and Class A-II Certificates.
Because the Pool I Loans and Pool II Loans have
different Net Mortgage Rates, the Pass-Through
Rates on the Group I Certificates and Class A-II
Certificates (which are affected by changes in
the weighted average of the Net Mortgage Rates
of the Pool I Loans and Pool II Loans,
respectively) may increase or decrease from time
to time due to prepayments, defaults and
liquidations on such Mortgage Loans. In
addition, Mortgage Loans with higher Mortgage
Rates are generally more likely to be prepaid at
a faster rate under most circumstances than are
Mortgage Loans having lower Mortgage Rates,
thereby resulting in a decrease in the Pass-
Through Rate with respect to the Group I
Certificates and Class A-II Certificates.
Class IO Certificates. The Pass-Through Rate on
the Class IO Certificates is affected by the
weighted average of the Net Mortgage Rates on
the Mortgage Loans in each Pool and other
factors as described herein, and may increase or
decrease from time to time due to prepayments,
defaults and liquidations on such Mortgage
Loans. A higher rate of prepayments on the
Mortgage Loans with higher Net Mortgage Rates
could result in a decrease in the Pass-Through
Rate on the Class IO Certificates.
Certificates with Subordination Features: As
described herein, during certain periods all or
a disproportionately large percentage of
unscheduled principal payments on the Mortgage
Loans in each Pool will be allocated to the
Class A Certificates and, during certain
periods, no unscheduled principal payments will
be distributed to any Class of Subordinate
Certificates. Subject to certain conditions set
forth herein, unless the Aggregate Subordinate
Percentage is at least twice the Aggregate
Subordinate Percentage as of the Cut-Off Date,
or the Certificate Principal Balances of the
Class A Certificates have been reduced to zero,
the Subordinate Certificates will not be
entitled to receive unscheduled principal
payments until the Distribution Date occurring
in July 2008, and will not be entitled to
receive any
S-9
<PAGE>
such payments during certain periods thereafter
if certain loss and delinquency tests have not
been met. To the extent that no unscheduled
principal payments are distributed on the
Subordinate Certificates, the subordination
afforded the Senior Certificates by the
Subordinate Certificates, in the absence of
offsetting Realized Losses allocated thereto,
will be increased, and the weighted average
lives of the Subordinate Certificates will be
longer than would have otherwise been the case.
See "Description of the Certificates--
Distributions in Respect of Interest and
Principal--Principal Distribution Amounts" and
"Certain Yield and Prepayment Considerations"
herein and "Maturity and Prepayment
Considerations" in the Prospectus. For further
information regarding the effect of principal
prepayments on the weighted average life of the
Offered Certificates, see the table entitled
"Percent of Initial Certificate Principal
Balance or Notional Amount Outstanding at
Various Prepayment Speeds" herein.
Special Yield The yield to maturity on the Offered Certificates
Considerations.............. will depend on, among other things, the rate and
timing of principal payments (including
prepayments, defaults, liquidations and
purchases of Mortgage Loans due to a breach of
representation and warranty) on the Mortgage
Loans and the allocation thereof to reduce the
Certificate Principal Balance of such Class.
Prepayment Interest Shortfalls will adversely
affect the yield to investors in the Offered
Certificates. See "Description of the
Certificates--Distributions in Respect of
Interest and Principal--Interest Distribution
Amounts" herein.
In general, if the Offered Certificates are
purchased at a premium and principal
distributions occur at a rate faster than the
rate assumed at the time of purchase, the
investor's actual yield to maturity will be
lower than anticipated at the time of purchase.
Conversely, if the Offered Certificates are
purchased at a discount and principal
distributions occur at a rate slower than the
rate assumed at the time of purchase, the
investor's actual yield to maturity will be
lower than anticipated at the time of purchase.
The multiple Class structure of the Offered
Certificates causes the yield of certain Classes
to be particularly sensitive to changes in the
rates of prepayment of the Mortgage Loans and
other factors, as follows:
Group I Certificates and Class A-II Certificates:
The Pass-Through Rates on the Group I
Certificates and Class A-II Certificates are
affected by changes in the weighted average of
the Net Mortgage Rates on the Pool I Loans and
Pool II Loans, respectively. Adjustments to the
Net Mortgage Rates of the Pool I Loans are based
on a CMT Index, and adjustments to the Net
Mortgage Rates of the Pool II Loans are based on
a variety of indices, in
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<PAGE>
each case as most recently made available as of
a fixed number of days prior to the adjustment
date. Accordingly, the yield to investors in the
Group I Certificates and Class A-II Certificates
may be affected on a delayed basis relative to
movements in the indices applicable to the Pool
I Loans and Pool II Loans. Although the Mortgage
Rate with respect to each Pool I Loan and Pool
II Loan may, (and in the case of the Class A-I,
Class A-II, and Class M-3 Certificates, will)
adjust to reflect changes in its related index,
such Mortgage Rate may be subject to a periodic
rate cap, maximum Mortgage Rate and minimum
Mortgage Rate. If an index increases
substantially between adjustment dates, the Net
Mortgage Rate may be lower than if the Net
Mortgage Rate was not subject to such caps.
Furthermore, because the Pass-Through Rates on
the Group I Certificates and Class A-II
Certificates are subject to adjustment, such
Pass-Through Rates may (and in the case of the
Class A-I, Class A-II and Class M-3
Certificates, will) generally decrease if the
indices with respect to the Pool I Loans and
Pool II Loans, as applicable, decline.
Class IO Certificates: The yield to investors on
the Class IO Certificates will be extremely
sensitive to the rate and timing of principal
payments on the Mortgage Loans (including
prepayments, defaults and liquidations), which
may fluctuate significantly over time. A faster
than expected rate of principal payments on the
Mortgage Loans (especially the Pool III Loans)
will have an adverse effect on the yield to such
investors and could result in the failure of
investors in the Class IO Certificates to fully
recover their initial investments. In addition,
the Pass-Through Rate on the Class IO
Certificates is primarily affected by the
weighted average of the Net Mortgage Rates on
the Pool III Loans, and may increase or decrease
from time to time due to prepayments, defaults
and liquidations on such Mortgage Loans. The
Pass-Through Rate on the Class IO Certificates
will also be affected by the weighted average of
the Net Mortgage Rates on the Pool I Loans and
the Pool II Loans as more fully described
herein. See "Description of the Certificates--
Distributions in Respect of Interest and
Principal" and "Certain Yield and Prepayment
Considerations" herein.
Class M-1 Certificates and Class M-2
Certificates: As set forth herein under
"Description of the Certificates--Distributions
in Respect of Interest and Principal--Interest
Distribution Amounts," the Pass-Through Rates
with respect to the Class M-1 and Class M-2
Certificates will be equal to the lesser of (i)
the Blended Rate (as defined herein) for Pool I
and (ii) One-Year CMT plus a fixed spread.
Investors in the Class M-1 or Class M-2
Certificates should be aware that because a
substantial percentage of the Pool I Loans have
initial Mortgage Rates that are less than the
sum of the related CMT Index and related margin,
and because adjustment of such initial Mortgage
Rates may be limited by the application of
periodic rate adjustment caps, maximum Mortgage
Rates or minimum Mortgage Rates, the initial
Pass-
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<PAGE>
Through Rates on the Class M-1 and Class M-2
Certificates will, and during certain periods
thereafter, such Pass-Through Rates may, be
equal to the Blended Rate with respect to Pool
I.
Certificates with Subordination Features: The
yield to investors on each Class of Subordinate
Certificates, and particularly on those Classes
of Subordinate Certificates with lower payment
priorities, will be extremely sensitive to
losses due to defaults on the Mortgage Loans
(and the timing thereof), to the extent such
losses are not covered by any other Class of
Subordinate Certificates having a lower payment
priority, because the entire amount of such
losses will be allocable to such Class or
Classes of Subordinate Certificates, as
described herein. Furthermore, as described
herein, the timing of receipt of principal and
interest by any Class of Subordinate
Certificates may be adversely affected by losses
even if such Class does not ultimately bear such
loss. In addition, because Pass-Through Rates on
the Class M-1 and Class M-2 Certificates are
based on an index equal to the weekly average
yield on U.S. Treasury securities adjusted to a
constant maturity of one year as reported by the
Federal Reserve Board ("ONE-YEAR CMT"), subject
to the limitations set forth herein, and will be
adjusted monthly, the yield to investors in such
Classes of Certificates will be affected by
changes in the level of One-Year CMT. The Pass-
Through Rates on the Class M-1 and Class M-2
Certificates may, and the Pass-Through Rates on
the Class M-3 Certificates will, be affected by
changes in the weighted average of the Net
Mortgage Rates on the Pool I Loans. The Pass-
Through Rates on the Class M Certificates may
also be affected by changes in the weighted
average of the Net Mortgage Rates on the Pool II
Loans and Pool III Loans, as more fully
described herein.
See "Certain Yield and Prepayment Considerations"
herein and "Yield Considerations" in the
Prospectus.
Advances.................... On each Servicer Remittance Date, the Servicer
will be required to advance funds (each, an
"ADVANCE") to cover any scheduled payment of
interest and principal due on a Mortgage Loan
during the related Due Period that was not
received on a timely basis by the Servicer for a
reason other than prepayment of such Mortgage
Loan; provided, however, that the Servicer will
not be required to make any such Advance if it
determines reasonably and in good faith that
such Advance would not be recoverable from
collections with respect to such Mortgage Loan.
The Trustee, as Back-Up Servicer, will be
obligated to make Advances unless it determines
reasonably and in good faith that such Advances
would not be recoverable. Advances by the
Servicer and the Back-Up Servicer will add to
the funds available for distribution to the
Certificateholders, but the Servicer and the
Back-Up Servicer will be entitled to
reimbursement for such Advances
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<PAGE>
from subsequent payments on the Mortgage Loans
or amounts held in the Collection Account.
Payments on Mortgage Loans.. All payments on the Mortgage Loans will be made
by the mortgagors to a lock-box account
established at Bank of America Oregon, N.A. (the
"LOCK-BOX ACCOUNT"). On each Business Day,
appropriate amounts on deposit in the Lock-box
Account will be transferred to the Collection
Account. The Servicer will be entitled to the
investment income with respect to all amounts on
deposit in the Collection Account, and will be
responsible for all losses on investments of
such amounts.
Servicing of the Mortgage Pursuant to the Pooling and Servicing Agreement,
Loans....................... the Servicer will be responsible for servicing,
managing and collecting payments on the Mortgage
Loans. The Servicer will carry out such
servicing activities in accordance with
customary servicing standards. In certain
limited circumstances, Wilshire Servicing
Corporation may be removed as Servicer, in which
event the Back-Up Servicer will be appointed as
successor servicer, subject to the terms of the
Pooling and Servicing Agreement. The Servicer
and the Trustee will be responsible for certain
administrative functions including, without
limitation, preparing certain reports and
computing the amounts owing to the
Certificateholders.
Optional Termination........ The Servicer (or, if Wilshire Servicing is the
Servicer, any affiliate of the Servicer, other
than the Wilshire Seller or the Seller,
designated by Wilshire Servicing Corporation)
will have the option, subject to certain
conditions, to cause the early termination of
the Trust and thereby cause early repayment of
the Certificates on any Distribution Date on
which the aggregate outstanding Principal
Balance of the Mortgage Loans held by the Trust
is reduced to 10% or less of the aggregate
outstanding principal balance of the Mortgage
Loans as of the Cut-Off Date.
Certain Federal Income Tax
Consequences...............
Two separate REMIC elections will be made with
respect to the Trust Fund for federal income tax
purposes. Upon the issuance of the Offered
Certificates, Orrick, Herrington & Sutcliffe
LLP, counsel to the Depositor, will deliver its
opinion generally to the effect that, assuming
compliance with all provisions of the Pooling
and Servicing Agreement, for federal income tax
purposes, REMIC I and REMIC II will each qualify
as a REMIC under Sections 860A through 860G of
the Code. The assets of REMIC I will consist of
the Mortgage Loans, any REO Properties, such
assets as from time to time are deposited in the
Certificate Account, any hazard or other
insurance policies with respect to the Mortgage
Loans and any proceeds thereof. For federal
income tax purposes, (i) the separate non-
certificated regular interests in REMIC I will
be the "regular interests" in REMIC I and will
constitute the assets of REMIC II, (ii) the
Class R-I Certificates will be the sole Class of
"residual interests" in
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<PAGE>
REMIC I, (iii) each Class of the Senior
Certificates and Subordinate Certificates will
be the "regular interests" in, and generally
will be treated as debt obligations of, REMIC
II, and (iv) the Class R-II Certificates will be
the sole Class of "residual interests" in REMIC
II.
For further information regarding the federal
income tax consequences of investing in the
Offered Certificates, see "Certain Federal
Income Tax Consequences" herein and in the
Prospectus.
ERISA Considerations........ No Plan fiduciary or other investor that proposes
to use Plan Assets to effect the purchase and
holding of the Offered Certificates may purchase
or acquire any Offered Certificates. See "ERISA
Considerations" herein and in the Prospectus.
Ratings..................... It is a condition to the original issuance of the
Offered Certificates that they receive the
following ratings from Fitch IBCA, Inc.
("FITCH"), Duff & Phelps Credit Rating Co.
("DCR") and Moody's Investors Service, Inc.
("MOODY'S").
<TABLE>
<CAPTION>
CLASS FITCH DCR MOODY'S
----- ----- --- -------
<S> <C> <C> <C> <C>
A-I AAA AAA Aaa
A-II AAA AAA Aaa
A-III AAA AAA Aaa
IO AAA AAA Aaa
M-1 AA+ AA Aa2
M-2 A+ A A2
M-3 BBB+ BBB Baa2
</TABLE>
Such ratings assess the likelihood of timely
payment of interest and the ultimate payment of
principal to the Certificateholders. There is no
assurance that any rating will not be lowered or
withdrawn if, in the judgment of the assigning
entity, circumstances in the future so warrant.
Legal Investment The Offered Certificates will not constitute
Considerations.............. "mortgage related securities" for purposes of
SMMEA. Accordingly, many institutions with legal
authority to invest in comparably rated
securities may not legally be authorized to
invest in the Offered Certificates.
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<PAGE>
RISK FACTORS
In addition to the matters described elsewhere in this Prospectus Supplement
and the Prospectus, prospective investors should carefully consider, among
other things, the following factors in connection with the purchase of the
Offered Certificates.
RISKS ASSOCIATED WITH THE MORTGAGE LOANS
Nature of the Mortgagors. Underwriting criteria is generally not available
with respect to the Mortgage Loans. Approximately 58.21% of the Mortgage Loans
were originated by lending institutions, whose underwriting standards
generally would have required the Mortgagor to submit documentation
demonstrating a good credit history. The Mortgagors with respect to the
remaining Mortgage Loans may have been made to Mortgagors who at the time of
origination had imperfect credit histories, including charged-off loans,
irregular employment and previous bankruptcy filings. As of the Cut-Off Date,
approximately 6.89% of the Mortgage Loans were 30 to 59 days delinquent in
payment of principal and interest and approximately 2.31% of the Mortgage
loans were 60 to 89 days delinquent in payment of principal and interest. A
substantial number of the Mortgage Loans have been delinquent more than once
in the twelve months preceding the Cut-Off Date. A significant number of
Mortgage Loans may have been modified or restructured in connection with a
delinquency or default on the related Mortgage Loans. Approximately 49.03% of
the Mortgage Loans were acquired by the Wilshire Seller from a primary
mortgage insurance company (or an affiliate thereof), which acquired the
Mortgage Loans in connection with claims made on a mortgage insurance policy
following a delinquency or default on such Mortgage Loans. The majority of
such Mortgage Loans were restructured. In addition, approximately 19.25% of
the Mortgage Loans have been modified.
As a result of the foregoing, the Mortgage Loans are likely to experience
rates of delinquency, foreclosure and bankruptcy that are higher, and that may
be substantially higher, than those experienced by mortgage loans whose
mortgagors have more reliable payment histories. See "The Mortgage Loan Pools"
herein.
Geographic Concentration. Approximately 58.07% of the Mortgaged Loans are
secured by Mortgaged Properties located in the State of California. In
addition, approximately 7.52% of the Mortgage Loans are secured by Mortgaged
Properties located in the State of New York. No more than 5% of the Mortgage
Loans are secured by Mortgaged Properties located in any other single State.
Repayments by borrowers and the market value of the Mortgaged Properties
could be affected by economic conditions generally or in regions where the
borrowers and the Mortgaged Properties are located, conditions in the real
estate market where the Mortgaged Properties are located, changes in
governmental rules and fiscal policies, acts of nature (including earthquakes,
which may result in uninsured losses), and other factors that are beyond the
control of borrowers. The Mortgage Loans generally do not require the
borrowers to maintain earthquake insurance. In addition, the economies of
certain States may be adversely affected to a greater degree than that of
other areas of the country by developments affecting industries concentrated
in such States. Moreover, the market value of real estate has fluctuated and
in the future is expected to fluctuate, in different regions of the United
States. Because of the lack of geographic diversity in the Mortgaged
Properties, losses on the Mortgage Loans may be higher than would be the case
if the location of the Mortgaged Properties were more diverse.
Loan-to-Value Ratios. The Mortgage Loans with higher Loan-to-Value Ratios
may also present a greater risk of loss. In particular, approximately 64.94%
of the Mortgage Loans are Mortgage Loans that have Loan-to-Value Ratios as of
the Cut-Off Date in excess of 80.00% and are not insured by a Primary Mortgage
Insurance Policy that might otherwise protect against such greater risk of
loss. Many of the Mortgage Loans have high Loan-to-Value Ratios because the
value of the related Mortgaged Property has declined at a faster rate than the
amortization of the related Mortgage Loan. No assurance can be given that the
value of such Mortgaged Properties will not continue to decline.
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<PAGE>
Mortgage loans with high Loan-to-Value Ratios may be more likely to
experience mortgagor default and foreclosure than mortgage loans with lower
Loan-to-Value Ratios. A high rate of foreclosure on Mortgage Loans with high
Loan-to-Value Ratios is likely to result in significant losses on such
Mortgage Loans. In addition, mortgage loans with high Loan-to-Value Ratios are
more likely to be subject to a judicial reduction of the loan amount in
bankruptcy or other proceedings than mortgage loans with lower Loan-to-Value
Ratios. If a court relieves a Mortgagor's obligation to repay amounts
otherwise due on a Mortgage Loan, the Servicer will not be required to make an
Advance in respect of such amounts, and any loss in respect thereof may reduce
the amounts available to be paid to the holders of the Offered Certificates.
See "Certain Legal Aspects of Mortgage Loans and Contracts" in the Prospectus.
Risks Associated with Multifamily and Commercial Mortgage Loans Generally.
Approximately 10.21% and 8.67% of the Mortgage Loans are secured by
Multifamily Properties and Commercial Properties, respectively. Mortgage loans
secured by multifamily and commercial properties are markedly different from
one- to four-family residential mortgage loans. Multifamily and commercial
lending is generally viewed as exposing a lender to greater risk of loss than
lending on the security of single-family residences, because such lending
typically involves larger loans to single borrowers or groups of related
borrowers than single family lending. In addition, unlike loans made on the
security of single family residences, repayment of loans made on multifamily
and commercial properties primarily depends upon the successful operation of
the related real estate project, the businesses operated by the tenants and
the creditworthiness of such tenants, i.e., the ability of the applicable
property to produce net income. The liquidation value of a multifamily or
commercial property is determined more by the capitalization of the property's
cash flow than by any absolute value of the buildings and improvements
thereon. Lenders typically look to the ratio of net cash flow to debt service
of a loan secured by income-producing property as an important measure of the
risk of default on such loan. A number of factors, many beyond the control of
the property owner, can affect the ability of an income-producing real estate
project to generate sufficient net operating income to pay debt service and/or
to maintain its value. Among these factors are (i) economic conditions
generally and in the local community; (ii) the age, quality, design of the
property and the degree to which it competes with other properties in the
area; (iii) changes or continued weakness in specific industry segments; (iv)
increases in operating costs; and (v) in the case of mortgaged properties that
are retail, industrial, warehouse or office properties, the degree to which
the project's revenue is dependent upon a single tenant or user, or small
group of tenants, tenants concentrated in a particular business or industry
and the competition to any such tenants. If leases are not renewed or
replaced, if tenants default, if rental rates decline, or if operating
expenses increase, the borrower's ability to repay the loan may be impaired
and the resale value of the property may decline. The age, construction
quality and design of a particular property may affect the occupancy level as
well as the rents that may be charged for individual leases. The effects of
poor construction quality or design will increase over time in the form of
increased maintenance and capital improvements. Even good construction will
deteriorate over time if the property managers do not schedule and perform
adequate maintenance in a timely fashion. If, during the terms of the Mortgage
Loans, competing properties of a similar type are built in the areas where the
Mortgaged Properties are located or similar properties in the vicinity of the
Mortgaged Properties are substantially updated or refurbished, the value and
net operating income of such Mortgaged Properties could be reduced. There is
no assurance that the value of any Mortgaged Property during the term of the
related Mortgage Loan will equal or exceed the appraised value determined in
connection with the origination of such Mortgage Loan.
Additionally, some of the Mortgaged Properties may not readily be converted
to alternative uses if such Mortgaged Properties become unprofitable due to
competition, age of the improvements, decreased demand, zoning restrictions or
other factors. If the operation of any such Mortgaged Properties becomes
unprofitable such that the borrower becomes unable to meet its obligations
under the related Mortgage Loan, the liquidation value of any such Mortgaged
Property may be substantially less, relative to the amount owing on the
related Mortgage Loan, than would be the case if such property were readily
adapted to other uses. Other multifamily residences and commercial properties
located in the same geographic area of the Mortgaged Properties compete with
the Mortgaged Properties to attract residents, customers and tenants.
Increased competition frequently leads to lowering of rents in a market and
could adversely affect income from, and the market value of, the Mortgaged
Properties.
S-16
<PAGE>
In addition, there are other factors, including changes in zoning or tax
laws, the availability of credit for refinancing, and changes in interest rate
levels that may adversely affect the value of a project (and thus the
borrower's ability to sell or refinance the property) without necessarily
affecting the ability to generate current income.
The considerations set forth above with respect to Multifamily Mortgage
Loans and Commercial Mortgage Loans are also applicable to Mixed-Use Mortgage
Loans, to the extent of the commercial nature thereof.
Non-Owner Occupied Properties. Approximately 1.31% and 2.58% of the Mortgage
Loans are secured by unimproved land and single-family residential property
held for investment, respectively. Such Mortgage Loans may present a greater
risk of loss, and the unimproved land may present a significantly greater risk
of loss, if the related Mortgagor experiences financial difficulties, because
such Mortgagor may be more likely to default on a Mortgage Loan secured by
non-owner occupied property than a mortgage loan secured by a primary
residence.
Balloon Loans. Approximately 15.05% of the Mortgage Loans may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., a Balloon Payment, as defined herein) at their
stated maturity. Mortgage loans with Balloon Payments involve a greater degree
of risk because the ability of a mortgagor to make a Balloon Payment typically
will depend upon its ability either to timely refinance the loan or to timely
sell the related Mortgaged Property. See "The Mortgage Loan Pools--General"
herein.
Junior Liens. Approximately 6.47% of the Mortgage Loans are secured by
junior liens on the related Mortgaged Properties, which liens will be
subordinate to the rights of the mortgagee under the related senior mortgage
or mortgages (such Mortgage Loans, the "JUNIOR MORTGAGE LOANS"). Accordingly,
the holder of a Junior Mortgage Loan will be subject to a loss of its mortgage
if the holder of a senior mortgage is successful in foreclosure of its
mortgage since no junior liens or encumbrances survive such a foreclosure.
Also, due to the priority of the senior mortgage, the holder of a Junior
Mortgage Loan may not be able to control the timing, method or procedure of
any foreclosure action relating to the Mortgaged Property. Investors should be
aware that any liquidation, insurance or condemnation proceeds received in
respect of such Junior Mortgage Loans will be available to satisfy the
outstanding balance of such Mortgage Loans only to the extent that the claims
of such senior mortgages have been satisfied in full, including any related
foreclosure costs. For additional information regarding mortgage loans secured
by junior liens see "Risk Factors" and "Certain Legal Aspects of the Mortgage
Loans and Contracts" in the Prospectus.
Negative Amortization Loans. Approximately 48.39% of the Pool II Loans may
be subject to negative amortization from time to time prior to their maturity
(such Mortgage Loans, the "NEGATIVE AMORTIZATION LOANS"). Such negative
amortization may result from either the adjustment of the Mortgage Rate on a
more frequent basis than the adjustment of the Monthly Payment or the
application of a cap on the size of the Monthly Payment. In the first case,
negative amortization results if an increase in the Mortgage Rate occurs prior
to an adjustment of the Monthly Payment on the related Mortgage Loan and such
increase causes accrued monthly interest on the Mortgage Loan to exceed the
Monthly Payment. In the second case, negative amortization results if an
increase in the Mortgage Rate causes one month's interest on a Mortgage Loan
to exceed the limit on the size of the Monthly Payment on such Mortgage Loan.
In the event that the Monthly Payment is not sufficient to pay one month's
interest on a Negative Amortization Loan, the amount of accrued interest that
exceeds the Monthly Payment on such Mortgage Loan (the "DEFERRED INTEREST") is
added to the Principal Balance of such Mortgage Loan and is to be repaid from
future Monthly Payments. Negative Amortization Loans do not provide for the
extension of their original stated maturity to accommodate changes in their
Mortgage Rate.
During a period of rising interest rates as well as immediately after
origination, the amount of interest accruing on the Principal Balance of a
Negative Amortization Loan may exceed the amount of the Monthly Payment
thereon. As a result, a portion of the accrued interest on such Negative
Amortization Loans may become Deferred Interest, which will be added to the
Principal Balance thereof and will bear interest at the applicable Mortgage
Rate. Any such increase in the Principal Balance of a Negative Amortization
Loan could increase the Loan-to-Value Ratio of the related Mortgage Loan. To
the extent that the addition of Deferred Interest to the
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Principal Balance of any Mortgage Loans causes the aggregate Principal Balance
of a Pool to increase after distributions have been made on any Distribution
Date, the amount of such increase will result in a corresponding increase in
the Certificate Principal Balance of the Class or Classes of Certificates that
were entitled to receive payments of principal with respect to the Mortgage
Loans in such Pool on such Distribution Date, in proportion to the respective
amounts of such entitlements, and a corresponding decrease in the respective
amounts distributable as interest on such Classes on such Distribution Date.
Any such increase in the Certificate Principal Balance of a Certificate will
lengthen the weighted average life thereof and may adversely affect yield to
the holders. In addition, with respect to certain Negative Amortization Loans,
during a period of declining interest rates, it might be expected that each
Monthly Payment on such a Mortgage Loan would exceed the amount of scheduled
principal and accrued interest on the Principal Balance thereof, and since
such excess will be applied to reduce the Certificate Principal Balance of the
related Class or Classes of Certificates, the weighted average life of such
Certificates will be reduced and may adversely affect yield to holders
thereof.
Approximately 2.52% of the Mortgage Loans are both Negative Amortization
Loans and Balloon Loans.
Limited Information. Information regarding the underwriting criteria applied
by the originators of the Mortgage Loans and the original values of the
Mortgaged Properties is not available. With respect to certain of the Mortgage
Loans, information regarding the occupancy status and purpose for such
Mortgage Loans is also unavailable.
Mortgage Loan Documentation Defects. Certain of the loan files being
transferred to the Trust (the "LOAN FILES") are known by the Wilshire Seller
to have one or more of the following documentation defects: (i) the Mortgage
Note was missing the proper endorsements; (ii) the Loan File did not contain
the original Mortgage or a copy thereof for the related Mortgage Loan; (iii)
the Loan File was missing intervening assignments; (iv) the Loan File was
missing a copy of certain assumptions, modifications or waivers and (v) the
Loan File was missing a copy of a title insurance policy (or other evidence of
title insurance) on the related Mortgage Loan. Notwithstanding the foregoing,
the Wilshire Seller will represent and warrant that each Loan File is complete
in all material respects and will be obligated to repurchase any Mortgage Loan
if such Mortgage Loan's value to the Trust, or the Trust's interest in such
Mortgage Loan, is materially adversely affected by such documentation defect.
Except as described below, no Mortgage Loan with respect to which a copy of
the original Mortgage is missing will be required to be repurchased unless and
until such Mortgage Loan is to be foreclosed upon and the related Mortgage is
unenforceable because the original Mortgage is not obtainable from the public
recording office. With respect to approximately 0.91% of the Mortgage Loans,
neither a copy of the title insurance policy (or other evidence of title
insurance) nor a copy of the original Mortgage is contained in the Loan File.
The Wilshire Seller, however, will be obligated to repurchase any Mortgage
Loan as to which neither a title insurance policy (or other evidence of title
insurance) or a copy of the original mortgage is obtained within one year
following the Closing Date.
MATURITY, YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of the Offered Certificates will depend on the rate
and timing of principal payments (including prepayments, liquidations due to
defaults, or breaches of representations and warranties) on the Mortgage Loans
and the price paid by Certificateholders. Such yield may be adversely affected
by a higher or lower than anticipated rate of prepayments on the Mortgage
Loans. Prepayments are influenced by a number of factors, including prevailing
mortgage market interest rates, local and regional economic conditions and
homeowner mobility. Because of the characteristics of the Mortgage Loans, the
Mortgage Loans' maturity and prepayment experience may differ from the
maturity and prepayment experience of other, more traditional, mortgage loans.
The disproportionate allocation of unscheduled principal payments, including
principal prepayments, to the Class A Certificates will have the effect of
slowing the amortization of the Subordinate Certificates relative to the
amortization of the Mortgage Loans, which is intended to cause the Certificate
Principal Balances of the Subordinate Certificates to remain outstanding and
available to absorb Realized Losses for a longer period than such Certificates
would have been had such disproportionate allocation not been in effect. As a
result, the
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weighted average life of each Class of Subordinate Certificates will likely be
longer, and the aggregate amount of Realized Losses allocated thereto is
likely to be greater, than otherwise would be the case. Because it is
impossible to accurately predict the timing and dollar amount of principal
prepayments on the Mortgage Loans, if any, that will be made, investors may
find it difficult to analyze the effect of prepayments on the yield and
weighted average life of the Offered Certificates of any given Class.
See "Certain Yield and Prepayment Considerations" herein.
CLASS IO CERTIFICATE YIELD CONSIDERATIONS
Investors in the Class IO Certificates should be aware that the yield to
maturity on such Certificates will be sensitive to both the timing of receipt
of prepayments and the overall rate of principal prepayments and defaults on
the Mortgage Loans, which rate may fluctuate significantly over time.
Investors in the Class IO Certificates should fully consider the risk that a
rapid rate of prepayments on the Mortgage Loans could result in the failure of
such investors to fully recover their investments.
SUBORDINATE CERTIFICATE YIELD CONSIDERATIONS
As described herein, during certain periods all or a disproportionately
large percentage of unscheduled principal payments on the Mortgage Loans will
be allocated among the related Class A Certificates and, during certain
periods, no unscheduled principal payments will be distributed to each Class
of Subordinate Certificates. Subject to certain conditions set forth herein,
unless the Aggregate Subordinate Percentage (as defined herein) is at least
twice the Aggregate Subordinate Percentage as of the Cut-Off Date, or the
Certificate Principal Balances of the Class A Certificates have been reduced
to zero, the Subordinate Certificates will not be entitled to receive
unscheduled principal payments at least until the Distribution Date occurring
in July 2008 and, to the extent that no unscheduled principal payments are
distributed on the Subordinate Certificates, the subordination afforded the
Senior Certificates by the Subordinate Certificates, in the absence of
offsetting Realized Losses allocated thereto, will be increased, and the
weighted average lives of the Subordinate Certificates will be extended.
The yield to investors on each Class of Subordinate Certificates, and
particularly on those Classes of Subordinate Certificates with lower payment
priorities, will be extremely sensitive to losses due to defaults on the
Mortgage Loans (and the timing thereof), to the extent such losses are not
covered by any Class of Subordinate Certificates having a lower payment
priority, because the entire amount of such losses will be allocable to such
Class or Classes of Subordinate Certificates, as described herein.
Furthermore, as described herein, the timing of receipt of principal and
interest by any Class of Subordinate Certificates may be adversely affected by
losses even if such Class does not ultimately bear such loss.
UNAUDITED REPORTS
Unaudited monthly and unaudited annual reports, prepared by the Servicer and
delivered by it to the Trustee, concerning the Trust will be sent by the
Trustee to Cede & Co., as nominee of DTC and, so long as the Offered
Certificates are in book-entry form, DTC will supply such reports to
Beneficial Owners in accordance with its normal procedures. However, such
reports will not contain financial information that has been examined and
reported upon by an independent or certified public accountant.
FAILURE TO REPURCHASE DEFECTIVE MORTGAGE LOANS
The Wilshire Seller will be obligated to repurchase Mortgage Loans as to
which there exists an uncured breach of certain of its representations and
warranties, which breach materially adversely affects the value of, or
interest of the Trust in, such Mortgage Loan. See "Description of the
Certificates--Assignment of Mortgage Loans" in the Prospectus. No assurance
can be given that the Wilshire Seller will, or will have the financial ability
to, repurchase any Mortgage Loan.
S-19
<PAGE>
LIMITED OBLIGATIONS
The Certificates will not represent an interest in or obligation of the
Depositor, the Servicer, the Wilshire Seller, the Seller, the Trustee, the
Back-Up Servicer or any of their affiliates. The only obligations of the
foregoing entities with respect to the Certificates or any Mortgage Loan will
be the obligations (if any) of the Wilshire Seller pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans and the
Servicer's servicing obligations under the Pooling and Servicing Agreement
(including the Servicer's limited obligation to make certain Advances). The
Certificates will not be guaranteed or insured by any governmental agency or
instrumentality, or by the Depositor, the Servicer, the Wilshire Seller, the
Seller, the Trustee, the Back-Up Servicer or any of their affiliates. Proceeds
of the assets included in the Trust Fund will be the sole source of payments
on the Certificates, and there will be no recourse to the Depositor, the
Servicer, the Wilshire Seller, the Seller, the Trustee, the Back-Up Servicer
or any other entity in the event that such proceeds are insufficient or
otherwise unavailable to make all payments provided for under the
Certificates.
LIMITATIONS AND REDUCTION OF CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the Senior Certificates
primarily consists of the subordination provided by the Subordinate
Certificates. The credit enhancement provided for the benefit of each Class of
the Class M Certificates primarily consists of the subordination provided by
all Classes of Subordinate Certificates subordinate thereto. None of the
Depositor, the Servicer, the Wilshire Seller, the Seller, the Trustee, the
Back-Up Servicer nor any of their affiliates will have any obligation to
replace or supplement such credit enhancement, or to take any other action to
maintain any rating of the Offered Certificates.
S-20
<PAGE>
THE MORTGAGE LOAN POOLS
GENERAL
All of the Mortgage Loans will be sold to the Depositor by the Seller on or
before the date of initial issuance of the Certificates. The Mortgage Loans
were acquired by the Wilshire Seller, which is an affiliate of the Seller,
from the various prior sellers. See "--Description of the Mortgage Loan
Sellers."
All percentages of the Mortgage Loans herein are based on the related
approximate aggregate outstanding principal balances thereof as of the Cut-Off
Date.
The Mortgage Pool will consist of Mortgage Loans with an approximate
aggregate principal balance outstanding as of the Cut-Off Date, after
deducting payments of principal due on such date, of $160,867,386. The
Mortgage Loans are secured by first and junior liens on fee simple or
leasehold interests in (i) single family residential real properties
(representing 61.59% of the Mortgage Loans); (ii) two- to four-family
residential real properties (representing 4.63% of the Mortgage Loans); (iii)
multifamily residential properties (representing 10.21% of the Mortgage
Loans); (iv) commercial properties (representing 8.67% of the Mortgage Loans);
(v) mixed use (residential and commercial) properties (representing 1.76% of
the Mortgage Loans); and (vi) unimproved land (representing 1.31% of the
Mortgage Loans (each such property, a "MORTGAGED PROPERTY"). 9.82% of the
Mortgage Loans have a Due Date other than the first day of each month.
The Mortgage Loans will be separated into three pools ("POOL I," "POOL II"
and "POOL III," and each, a "POOL"), designated, respectively, as the "POOL I
LOANS," "POOL II LOANS" and "POOL III LOANS." The Pool I Loans will consist of
adjustable rate Mortgage Loans (adjustable in accordance with the offered
yields on U.S. Treasury securities). The Pool II Loans will consist of
adjustable rate Mortgage Loans (adjustable in accordance with a variety of
indices). The Pool III Loans will consist of fixed-rate Mortgage Loans.
1.69% and 0.86% of the Mortgage Loans are insured by the FHA or guaranteed
by the Department of Veterans Affairs, respectively. 64.94% of the Mortgage
Loans are Mortgage Loans that have Loan-to-Value Ratios as of the Cut-Off Date
over 80% and are not insured by Primary Mortgage Insurance Policies.
With respect to Mortgage Loans that have been modified, references herein to
the date of origination shall, except in the case of the information presented
herein with respect to the seasoning of the Mortgage Loans, be deemed to be
the date of the most recent modification.
The Wilshire Seller will make certain limited representations and warranties
regarding the Mortgage Loans as of the date of issuance of the Certificates.
The Wilshire Seller will be required to repurchase any Mortgage Loan as to
which a breach of its representations and warranties with respect to such
Mortgage Loan occurs if such breach materially and adversely affects the
interests of the Certificateholders in any such Mortgage Loan.
15.05% of the Mortgage Loans will not fully amortize over their terms to
maturity (each such Mortgage Loan, a "BALLOON MORTGAGE LOAN"), leaving a
substantial portion of the original principal amount due and payable on the
respective scheduled maturity date (a "BALLOON PAYMENT"). The existence of a
Balloon Payment generally will require the related mortgagor to refinance such
Mortgage Loan or to sell the Mortgaged Property on or prior to the scheduled
maturity date. The ability of a mortgagor to accomplish either of these goals
will be affected by a number of factors, including the level of available
mortgage rates at the time of sale or refinancing, the mortgagor's equity in
the related Mortgaged Property, the financial condition of the mortgagor, tax
laws and prevailing general economic conditions. None of the Depositor, the
Servicer, the Wilshire Seller, the Seller or the Trustee is obligated to
refinance any Balloon Mortgage Loan.
The "LOAN-TO-VALUE RATIO" with respect to each Mortgage Loan (other than the
Junior Mortgage Loans) is equal to the outstanding principal balance of such
Mortgage Loan as of the Cut-Off Date, plus, in the case of each Junior
Mortgage Loan, the aggregate outstanding principal balance of each mortgage
loan senior thereto, divided by the value of the related Mortgaged Property as
determined in accordance with a broker's price opinion or appraisal obtained,
in most cases, not earlier than 18 months prior to the Cut-Off Date.
S-21
<PAGE>
POOL I
The Pool I Loans consist of 425 Mortgage Loans, with Mortgaged Properties
located in 29 states and the District of Columbia. As of the Cut-Off Date, the
Pool I Loans have: (i) an aggregate Principal Balance of approximately
$87,011,813; (ii) individual Principal Balances ranging from $6,148 to
$1,664,703; and (iii) an average Principal Balance of $204,734. As of the Cut-
Off Date, the Mortgage Rates on the Pool I Loans range from 4.000% per annum
to 12.125% per annum, with a weighted average Mortgage Rate of 6.478% per
annum.
The Pool I Loans have remaining terms to stated maturity ranging from 26
months to 472 months, a weighted average remaining term to stated maturity of
330 months and a weighted average term from origination of 25 months. No Pool
I Loan has a stated maturity later than October 1, 2037. 97.41% of the Pool I
Loans require Monthly Payments that will substantially amortize such Mortgage
Loans by their respective maturity dates and 2.59% of the Pool I Loans are
Balloon Loans.
The weighted average Loan-to-Value Ratio of the Pool I Loans is 103.21%.
2.85% of the Mortgage Loans in Pool I have been modified or restructured.
As of the Cut-Off Date, 1.91% and 1.32% of the Pool I Loans are secured by
Mortgaged Properties that are Multifamily Properties and Commercial
Properties, respectively. The Commercial Properties generally include retail,
office and industrial properties.
95.65% of the Pool I Loans have Mortgage Rates that adjust annually in
accordance with an index equal to the weekly average yield on U.S. Treasury
securities adjusted to a constant maturity of one year as reported by the
Federal Reserve Board ("ONE-YEAR CMT"). 2.10% of the Pool I Loans have
Mortgage Rates that adjust annually in accordance with the One-Year CMT after
an initial fixed rate period. 1.94% of the Pool I Loans have Mortgage Rates
that adjust at various intervals in accordance with an index equal to the
weekly average yield on U.S. Treasury securities adjusted to a constant
maturity of three years as reported by the Federal Reserve Board. The
remainder of the Pool I Loans have Mortgage Rates that adjust in accordance
with the offered yields on U.S. Treasury securities with maturities ranging
from six months to ten years. See the table entitled "Frequency of Mortgage
Rate Change of the Pool I Loans" below.
The Pool I Loans have a weighted average margin of 2.84% over the applicable
CMT Index. The margins for the Pool I Loans range from 0% to 6.00%. 67.62% of
the Pool I Loans have a periodic rate adjustment cap of 1.00%; 28.65% have a
periodic rate adjustment cap of 2.000%; and 3.17% have no periodic rate
adjustment cap. The weighted average number of months until the next reset
date is approximately 6 months. The weighted average maximum stated Mortgage
Rate is 12.22%, with maximum stated Mortgage Rates that range from 10.500% to
24.000%. The weighted average minimum stated Mortgage Rate is 6.28%, with
minimum stated Mortgage Rates that range from 1.500% to 12.125%.
None of the Pool I Loans is subject to a periodic payment cap or provides
for negative amortization.
See "Risk Factors" herein and in the Prospectus.
S-22
<PAGE>
The following tables describe the Pool I Loans and the related Mortgaged
Properties as of the Cut-Off Date.
PRINCIPAL BALANCES OF THE POOL I LOANS
<TABLE>
<CAPTION>
Range of
Pincipal Balancesr % of Aggregate
as of the Cut- Aggregate Principal
Off Number of Principal Balance of
Date Pool I Loans Balance Pool I
- ------------------ ------------ -------------- --------------
<S> <C> <C> <C>
Less than $50,000................... 25 $ 549,834.34 0.63%
50,001 - 100,000............... 52 3,908,603.86 4.49
100,001 - 150,000............... 80 9,896,505.90 11.37
150,001 - 200,000............... 55 9,470,477.50 10.88
200,001 - 250,000............... 101 22,556,841.42 25.92
250,001 - 300,000............... 55 14,900,929.71 17.13
300,001 - 350,000............... 24 7,765,203.86 8.92
350,001 - 400,000............... 10 3,699,284.82 4.25
400,001 - 450,000............... 5 2,130,421.12 2.45
450,001 - 500,000............... 6 2,857,940.03 3.28
500,001 - 750,000............... 8 4,608,192.29 5.30
750,001 - 1,000,000............... 2 1,772,957.06 2.04
1,000,001 - 2,000,000............... 2 2,894,620.64 3.33
--- -------------- ------
TOTAL............................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the average unpaid principal balance of the Pool I
Loans will be approximately $204,734.
MORTGAGE RATES ON THE POOL I LOANS
<TABLE>
<CAPTION>
% of Aggregate
Range of Aggregate Principal
Mortgage Number of Principal Balance of
Rates Pool I Loans Balance Pool I
-------- ------------ -------------- --------------
<S> <C> <C> <C>
6.00% or less...................... 250 $56,638,095.40 65.09%
6.01 - 6.50....................... 1 181,366.36 0.21
6.51 - 7.00....................... 38 8,148,468.42 9.36
7.01 - 7.50....................... 6 1,150,285.24 1.32
7.51 - 8.00....................... 68 12,472,209.34 14.33
8.01 - 8.50....................... 31 3,758,780.17 4.32
8.51 - 9.00....................... 15 3,414,450.38 3.92
9.01 - 9.50....................... 5 503,173.43 0.58
9.51 - 10.00....................... 3 52,565.29 0.06
10.01 - 11.00....................... 2 26,575.59 0.03
11.01 - 12.00....................... 5 631,130.96 0.73
12.01 - 13.00....................... 1 34,711,97 0.04
--- -------------- ------
TOTAL............................. 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Mortgage Rate on the Pool I
Loans will be approximately 6.478% per annum.
S-23
<PAGE>
MAXIMUM MORTGAGE RATES OF THE POOL I LOANS
<TABLE>
<CAPTION>
% of Aggregate
Aggregate Principal
Range of Maximum Number of Principal Balance of
Mortgage Rates Pool I Loans Balance Pool I
---------------- ------------ -------------- --------------
<S> <C> <C> <C>
No stated maximum rate.............. 6 $ 537,626.73 0.62%
10.01 - 11.00%...................... 3 143,471.36 0.16
11.01 - 12.00....................... 347 76,660,004.39 88.10
12.01 - 13.00....................... 18 4,553,791.39 5.23
13.01 - 14.00....................... 9 984,226.70 1.13
14.01 - 15.00....................... 15 1,832,897.33 2.11
15.01 - 16.00....................... 8 453,292.11 0.52
16.01 - 17.00....................... 12 1,587,410.96 1.82
17.01 - 18.00....................... 5 189,040.24 0.22
18.01 - 19.00....................... 1 34,711.97 0.04
19.01 or greater.................... 1 35,339.37 0.04
--- -------------- ------
TOTAL............................. 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Maximum Mortgage Rate on the
Pool I Loans will be approximately 12.22% per annum.
MINIMUM MORTGAGE RATES ON THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Minimum Number of Principal Principal
Mortgage Rates Pool I Loans Balance Balance of Pool I
---------------- ------------ -------------- -----------------
<S> <C> <C> <C>
No stated minimum rate............ 396 $84,237,625.37 96.81%
4.00% or less.................... 9 694,455.20 0.80
4.01 - 4.50..................... 2 608,483.65 0.70
4.51 - 5.00..................... 2 168,326.63 0.19
5.01 - 5.50..................... 1 64,616.41 0.07
5.51 - 6.00..................... 2 187,169.78 0.22
6.01 - 6.50..................... 1 90,902.59 0.10
7.51 - 8.00..................... 2 80,175.35 0.09
8.51 - 9.00..................... 2 168,632.80 0.19
9.51 - 10.00..................... 2 45,581.84 0.05
10.01 - 11.00..................... 3 478,044.57 0.55
11.01 - 12.00..................... 2 153,086.39 0.18
12.01 or greater.................. 1 34,711.97 0.04
--- -------------- ------
TOTAL........................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Minimum Mortgage Rate on the
Pool I Loans will be approximately 6.28% per annum.
S-24
<PAGE>
INTEREST RATE MARGINS ON THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Range of Margins Pool I Loans Balance Balance of Pool I
- ---------------- ------------ -------------- -----------------
<S> <C> <C> <C>
0.00%............................. 1 $ 136,624.12 0.16%
0.01 - 1.00....................... 1 12,045.72 0.01
1.01 - 2.00....................... 6 434,681.03 0.50
2.01 - 2.50....................... 47 10,227,175.10 11.75
2.51 - 3.00....................... 349 74,517,687.41 85.64
3.01 - 3.50....................... 11 889,761.36 1.02
3.51 - 4.00....................... 3 121,011.43 0.14
4.01 - 5.00....................... 1 6,983.45 0.01
5.01 or greater................... 6 665,842.93 0.77
--- -------------- ------
TOTAL........................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Interest Rate Margin on the Pool
I Loans will be approximately 2.84%.
FREQUENCY OF MORTGAGE RATE CHANGE OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Rate Change Number of Principal Principal
Frequency Pool I Loans Balance Balance of Pool I
- ----------- ------------ -------------- -----------------
<S> <C> <C> <C>
1 Month.......................... 1 $ 10,998.43 0.01%
6 Months......................... 3 146,095.25 0.17
1 Year........................... 406 85,116,710.29 97.82
2 Years.......................... 1 53,555.52 0.06
3 Years.......................... 14 1,684,453.06 1.94
--- -------------- ------
TOTAL.......................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-25
<PAGE>
FREQUENCY OF MORTGAGE PAYMENT CHANGE OF THE POOL I LOANS
<TABLE>
<CAPTION>
Payment Aggregate % of Aggregate
Change Number of Principal Principal
Frequency Pool I Loans Balance Balance of Pool I
--------- ------------ -------------- -----------------
<S> <C> <C> <C>
1 Month.......................... 1 $ 10,998.43 0.01%
6 Months......................... 3 146,095.25 0.17
1 Year........................... 406 85,116,710.29 97.82
2 Years.......................... 1 53,555.52 0.06
3 Years.......................... 14 1,684,453.06 1.94
--- -------------- ------
TOTAL.......................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
PERIODIC RATE CAP OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Periodic Number of Principal Principal
Rate Cap Pool I Loans Balance Balance of Pool I
-------- ------------ -------------- -----------------
<S> <C> <C> <C>
None............................. 14 $ 2,759,536.86 3.17%
1.000%........................... 273 58,838,755.77 67.62
1.750............................ 1 110,090.48 0.13
2.000............................ 134 24,931,719.04 28.65
2.500............................ 1 50,545.66 0.06
3.000............................ 2 321,164.74 0.37
--- -------------- ------
TOTAL.......................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
LOAN-TO-VALUE RATIOS OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Principal Principal
Loan-to-Value Ratios Pool I Loans Balance Balance of Pool I
-------------------- ------------ -------------- -----------------
<S> <C> <C> <C>
125.01% or greater................ 69 $13,211,546.32 15.18%
120.01 - 125.00................... 19 3,524,189.08 4.05
115.01 - 120.00................... 29 6,877,036.86 7.90
110.01 - 115.00................... 34 7,723,126.30 8.88
105.01 - 110.00................... 27 6,115,870.46 7.03
100.01 - 105.00................... 35 7,394,691.66 8.50
95.01 - 100.00................... 40 9,220,304.43 10.60
90.01 - 95.00................... 37 8,828,568.90 10.15
85.01 - 90.00................... 23 4,579,307.07 5.26
80.01 - 85.00................... 31 6,061,423.70 6.97
75.01 - 80.00................... 25 4,611,888.48 5.30
70.01 - 75.00................... 11 1,664,910.58 1.91
65.01 - 70.01................... 11 2,665,380.08 3.06
60.01 - 65.00................... 9 1,622,985.44 1.87
55.01 - 60.00................... 7 1,286,956.80 1.48
50.01 - 55.00................... 2 250,245.16 0.29
50.00 or less.................... 16 1,373,381.23 1.58
--- -------------- ------
TOTAL........................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Loan-to-Value Ratio of the Pool
I Loans will be approximately 103.21%.
S-26
<PAGE>
DELINQUENCY STATUS OF THE POOL I LOANS
<TABLE>
<CAPTION>
% of Aggregate
Delinquency Status Aggregate Principal
as of the Cut-Off Number of Principal Balance of
Date Pool I Loans Balance Pool I
- ------------------ ------------ -------------- --------------
<S> <C> <C> <C>
Current............................. 387 $80,744,032.47 92.80%
30 - 59 days........................ 28 5,218,403.27 6.00
60 - 89 days........................ 6 883,563.62 1.02
Bankruptcy.......................... 4 165,813.19 0.19
--- -------------- ------
TOTAL............................. 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
STATED TERM TO MATURITY OF THE POOL I LOANS
<TABLE>
<CAPTION>
Range of Stated Aggregate % of Aggregate
Term to Maturity Number of Principal Principal
(Months) Pool I Loans Balance Balance of Pool I
---------------- ------------ -------------- -----------------
<S> <C> <C> <C>
60 or less....................... 9 $ 2,227,101.89 2.56%
61 - 120......................... 6 314,215.56 0.36
121 - 180......................... 6 897,037.82 1.03
181 - 240......................... 15 1,157,047.92 1.33
241 - 300......................... 20 2,199,674.65 2.53
301 - 360......................... 364 79,171,122.59 90.99
361 or greater.................... 5 1,045,612.12 1.20
--- -------------- ------
TOTAL........................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average stated term to maturity of the
Pool I Loans will be approximately 330 months.
SEASONING OF THE POOL I LOANS
<TABLE>
<CAPTION>
Range of Aggregate % of Aggregate
Seasoning Number of Principal Principal
(Months) Pool I Loans Balance Balance of Pool I
--------- ------------ -------------- -----------------
<S> <C> <C> <C>
12 or less....................... 162 $33,806,314.78 38.85%
13 - 24.......................... 101 23,331,925.74 26.81
25 - 36.......................... 96 22,209,854.92 25.53
37 - 48.......................... 9 838,136.19 0.96
49 - 60.......................... 1 61,826.47 0.07
61 - 84.......................... 3 436,157.55 0.50
85 -120.......................... 23 3,997,742.49 4.59
121 or greater................... 30 2,329,854.41 2.68
--- -------------- ------
TOTAL.......................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average seasoning of the Pool I Loans
will be approximately 25 months.
S-27
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Geographic Area Pool I Loans Balance Balance of Pool I
- --------------- ------------ -------------- -----------------
<S> <C> <C> <C>
Arizona.......................... 2 $ 411,540.41 0.47%
Arkansas......................... 1 47,588.84 0.05
California....................... 245 63,665,674.91 73.17
Colorado......................... 1 82,588.06 0.09
Connecticut...................... 15 1,900,708.13 2.18
Delaware......................... 1 66,022.81 0.08
District of Columbia............. 1 210,596.09 0.24
Florida.......................... 8 845,204.45 0.97
Georgia.......................... 7 859,061.65 0.99
Illinois......................... 1 256,548.33 0.29
Kansas........................... 3 324,136.79 0.37
Kentucky......................... 1 541,703.00 0.62
Maine............................ 2 113,089.45 0.13
Maryland......................... 15 2,910,978.40 3.35
Massachusetts.................... 22 2,188,827.05 2.52
Michigan......................... 1 109,328.01 0.13
Nevada........................... 2 277,598.17 0.32
New Hampshire.................... 4 309,976.03 0.36
New Jersey....................... 26 3,494,063.98 4.02
New York......................... 25 3,878,507.31 4.46
North Carolina................... 2 40,860.28 0.05
Oregon........................... 1 119,516.14 0.14
Pennsylvania..................... 7 759,743.41 0.87
Rhode Island..................... 5 572,428.21 0.66
South Carolina................... 1 38,145.14 0.04
Tennessee........................ 1 35,339.37 0.04
Texas............................ 7 863,371.39 0.99
Virginia......................... 16 1,820,015.71 2.09
Washington....................... 1 218,729.51 0.25
Wyoming.......................... 1 49,921.52 0.06
--- -------------- ------
TOTAL.......................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
Not more than 2.55% of the Pool I Loans are in any single zip code area in
California.
S-28
<PAGE>
MORTGAGE LOAN PURPOSE OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Mortgage Loan Number of Principal Principal
Purpose Pool I Loans Balance Balance of Pool I
------------- ------------ -------------- -----------------
<S> <C> <C> <C>
Purchase........................ 50 $ 6,668,194.10 7.66%
Rate and Term Refinance......... 343 75,013,524.65 86.21
Equity Refinance................ 6 1,177,464.19 1.35
Construction/Permanent.......... 2 210,993.26 0.24
Home Improvement................ 1 10,998.43 0.01
Debt Consolidation.............. 7 836,651.92 0.96
Not Applicable(/1/)............. 15 3,005,493.00 3.45
Unknown......................... 1 88,493.00 0.10
--- -------------- ------
TOTAL......................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
*Percentages may not add to 100% due to rounding.
(/1/) Primarily includes Mortgage Loans backed by unimproved land, Multifamily
Properties, Commercial Properties and/or Mixed Use Properties.
PROPERTY TYPES OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Property Number of Principal Principal
Type Pool I Loans Balance Balance of Pool I
-------- ------------ -------------- -----------------
<S> <C> <C> <C>
2-4 Family....................... 17 $ 2,769,780.82 3.18%
Church........................... 1 13,064.61 0.02
Co-op............................ 3 205,067.94 0.24
Commercial....................... 5 1,148,579.34 1.32
Condominium...................... 38 4,832,565.37 5.55
Unimproved Land.................. 7 125,591.35 0.14
Multifamily...................... 1 1,664,702.18 1.91
Planned Unit Development......... 25 5,458,486.99 6.27
Single Family Detached........... 326 70,447,406.49 80.96
Townhouse........................ 2 346,567.46 0.40
--- -------------- ------
TOTAL.......................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
*Percentages may not add to 100% due to rounding.
OCCUPANCY STATUS OF THE POOL I LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Occupancy Status Pool I Loans Balance Balance of Pool I
---------------- ------------ -------------- -----------------
<S> <C> <C> <C>
Primary Residence................. 386 $80,156,113.36 92.12%
Second/Vacation Home.............. 2 196,931.53 0.23
Investment Properties............. 21 3,583,919.07 4.12
Unimproved Land................... 16 3,074,848.59 3.53
--- -------------- ------
TOTAL........................... 425 $87,011,812.55 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-29
<PAGE>
POOL II
The Pool II Loans consist of 213 Mortgage Loans, with Mortgaged Properties
located in 27 states. As of the Cut-Off Date, the Pool II Loans have: (i) an
aggregate Principal Balance of approximately $33,552,980; (ii) individual
Principal Balances ranging from $5,550 to $3,502,737; and (iii) an average
Principal Balance of $157,526. As of the Cut-Off Date, the Mortgage Rates on
the Pool II Loans range from 6.250% per annum to 17.312% per annum, with a
weighted average Mortgage Rate of 8.680% per annum.
The Pool II Loans have remaining terms to stated maturity ranging from one
month to 356 months, a weighted average remaining term to stated maturity of
171 months and a weighted average term from origination of 103 months. No Pool
II Loan has a stated maturity later than February 1, 2028. 64.04% of the Pool
II Loans require Monthly Payments that will substantially amortize such
Mortgage Loans by their respective maturity dates and 35.96% of the Pool II
Loans are Balloon Loans.
The weighted average Loan-to-Value Ratio of the Pool II Loans is 86.76%.
41.65% of the Mortgage Loans in Pool II have been modified or restructured.
48.39% of the Pool II Loans are Negative Amortization Loans.
As of the Cut-Off Date, 4.53%, 42.41% and 21.25% of the Pool II Loans are
secured by Mortgaged Properties that are Mixed-Use Properties, Multifamily
Properties and Commercial Properties, respectively. The Commercial Properties
generally include retail, office and industrial properties.
64.32% of the Pool II Loans have Mortgage Rates that adjust in accordance
with an index equal to the monthly weighted average cost of funds for member
institutions in the Eleventh District of the Federal Home Loan Bank System.
19.62% of the Pool II Loans have Mortgage Rates that adjust in accordance with
an index equal to the daily bank prime loan rate as reported by the Federal
Reserve Board. The remainder of the Pool II Loans have Mortgage Rates that
adjust in accordance with a variety of indices. The Mortgage Rates on the Pool
II Loans adjust at various intervals ranging from daily to once every five
years. See the table entitled "Frequency of Mortgage Rate Change of the Pool
II Loans" below.
The Pool II Loans have a weighted average margin of 2.80%. The margins for
the Pool II Loans range from 0.00% to 11.50%. 14.07% of the Pool II Loans have
a periodic rate adjustment cap of 1.00% and 10.66% have a periodic rate
adjustment cap of 2.00%. The weighted average number of months until the next
reset date is approximately two months. The weighted average maximum stated
Mortgage Rate is 16.135%, with maximum stated Mortgage Rates that range from
11.00% to 55.00%. The weighted average minimum stated Mortgage Rate is 7.01%,
with minimum stated Mortgage Rates that range from 1.75% to 15.00%. 43.34% of
the Pool II Loans have a periodic payment cap of 7.50%. 0.12% of the Pool II
Loans have a periodic payment cap of 10.00%.
See "Risk Factors" herein and in the Prospectus.
S-30
<PAGE>
The following tables describe the Pool II Loans and the related Mortgaged
Properties as of the Cut-Off Date.
PRINCIPAL BALANCES OF THE POOL II LOANS
<TABLE>
<CAPTION>
Range of % of Aggregate
rincipal BalancesP Aggregate Principal
as of the Cut- Number of Principal Balance of
Off Date Pool II Loans Balance Pool II
- ------------------ ------------- -------------- --------------
<S> <C> <C> <C>
Less than $50,000.................. 112 $ 2,446,959.23 7.29%
50,001 - 100,000.............. 52 3,736,230.20 11.14
100,001 - 150,000.............. 15 1,873,974.77 5.59
150,001 - 200,000.............. 10 1,699,063.36 5.06
200,001 - 250,000.............. 6 1,340,819.31 4.00
250,001 - 300,000.............. 2 538,486.49 1.60
300,001 - 350,000.............. 3 1,008,137.75 3.00
350,001 - 400,000.............. 2 726,064.68 2.16
400,001 - 450,000.............. 2 847,075.85 2.52
750,001 - 1,000,000.............. 1 835,557.17 2.49
1,000,001 - 2,000,000.............. 3 4,628,713.59 13.80
2,000,001 - 3,000,000.............. 3 7,337,536.54 21.87
3,000,001 - 4,000,000.............. 2 6,534,360.85 19.47
--- -------------- ------
TOTAL............................ 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the average unpaid principal balance of the Pool II
Loans will be approximately $157,526.
MORTGAGE RATES ON THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Number of Principal Principal
Mortgage Rates Pool II Loans Balance Balance of Pool II
-------------- ------------- -------------- ------------------
<S> <C> <C> <C>
6.01 - 6.50%.................. 1 $ 19,547.20 0.06%
6.51 - 7.00................... 1 2,553,190.98 7.61
7.01 - 7.50................... 12 11,763,513.05 35.06
7.51 - 8.00................... 38 5,556,479.24 16.56
8.01 - 8.50................... 23 1,238,796.84 3.69
8.51 - 9.00................... 11 883,921.34 2.63
9.01 - 9.50................... 10 394,117.69 1.17
9.51 - 10.00................... 20 3,225,028.40 9.61
10.01 - 11.00................... 53 3,849,338.47 11.47
11.01 - 12.00................... 15 1,762,451.97 5.25
12.01 - 13.00................... 12 1,558,674.47 4.65
13.01 - 14.00................... 10 531,303.12 1.58
14.01 - 15.00................... 5 195,895.79 0.58
15.01 - 16.00................... 1 8,368.00 0.02
17.00 - 18.00................... 1 12,353.23 0.04
--- -------------- ------
TOTAL......................... 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Mortgage Rate on the Pool II
Loans will be approximately 8.680% per annum.
S-31
<PAGE>
MAXIMUM MORTGAGE RATES OF THE POOL II LOANS
<TABLE>
<CAPTION>
% of Aggregate
Range of Aggregate Principal
Maximum Number of Principal Balance of
Mortgage Rates Pool II Loans Balance Pool II
-------------- ------------- -------------- --------------
<S> <C> <C> <C>
No stated maximum rate............. 42 $ 2,902,264.55 8.65%
10.01 - 11.00%..................... 1 248,208.71 0.74
11.01 - 12.00...................... 4 3,108,800.83 9.27
12.01 - 13.00...................... 4 3,060,237.73 9.12
13.01 - 14.00...................... 33 10,840,482.56 32.31
14.01 - 15.00...................... 36 1,392,389.62 4.15
15.01 - 16.00...................... 14 5,463,078.30 16.28
16.01 - 17.00...................... 9 426,213.63 1.27
17.01 - 18.00...................... 24 1,760,973.24 5.25
18.01 - 19.00...................... 4 283,213.05 0.84
19.01 or greater................... 42 4,067,117.57 12.12
--- -------------- ------
TOTAL............................ 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Maximum Mortgage Rate on the
Pool II Loans will be approximately 16.14% per annum.
MINIMUM MORTGAGE RATES ON THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Range of Minimum Number of Principal Principal
Mortgage Rates Pool II Loans Balance Balance of Pool II
---------------- ------------- -------------- ------------------
<S> <C> <C> <C>
No stated minimum rate.......... 130 $13,603,123.40 40.54%
4.00% or less.................. 6 4,285,719.73 12.77
4.01 - 4.50................... 1 42,364.48 0.13
5.00 - 5.50................... 3 3,453,035.83 10.29
5.51 - 6.00................... 2 884,044.25 2.63
6.01 - 6.50................... 1 2,640,137.09 7.87
6.51 - 7.00................... 3 155,885.65 0.46
7.01 - 7.50................... 19 630,668.39 1.88
7.51 - 8.00................... 3 1,563,075.46 4.66
8.01 - 8.50................... 1 57,402.49 0.17
8.51 - 9.00................... 2 179,651.13 0.54
9.01 - 9.50................... 1 73,068.74 0.22
9.51 - 10.00................... 5 2,242,133.24 6.68
10.01 - 11.00................... 11 1,379,873.27 4.11
11.01 - 12.00................... 6 883,086.60 2.63
12.01 or greater................ 19 1,479,710.04 4.41
--- -------------- ------
TOTAL......................... 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Minimum Mortgage Rate on the
Pool II Loans will be approximately 7.01% per annum.
S-32
<PAGE>
INTEREST RATE MARGINS ON THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Range of Margins Pool II Loans Balance Balance of Pool II
- ---------------- ------------- -------------- ------------------
<S> <C> <C> <C>
0.00%........................... 8 $ 318,633.05 0.95%
0.01 - 1.00..................... 8 372,191.53 1.11
1.01 - 2.00..................... 56 5,943,504.06 17.71
2.01 - 3.00..................... 77 21,005,505.99 62.60
3.01 - 4.00..................... 26 2,571,946.36 7.67
4.01 - 5.00..................... 15 1,497,447.92 4.46
5.01 or greater................. 23 1,843,750.88 5.50
--- -------------- ------
TOTAL......................... 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Interest Rate Margin on the
Pool II Loans will be approximately 2.80%.
FREQUENCY OF MORTGAGE RATE CHANGE OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Rate Change Number of Principal Principal
Frequency Pool II Loans Balance Balance of Pool II
----------- ------------- -------------- ------------------
<S> <C> <C> <C>
Daily.......................... 11 1,005,753.97 3.00%
1 Month........................ 109 $17,854,214.15 53.21
3 Months....................... 4 111,688.69 0.33
6 Months....................... 48 8,924,147.87 26.60
1 Year......................... 30 4,989,522.39 14.87
2 Years........................ 1 18,922.49 0.06
3 Years........................ 7 449,495.40 1.34
5 Years........................ 3 199,234.83 0.59
--- -------------- ------
TOTAL........................ 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
FREQUENCY OF MORTGAGE PAYMENT CHANGE OF THE POOL II LOANS
<TABLE>
<CAPTION>
Payment Aggregate % of Aggregate
Change Number of Principal Principal
Frequency Pool II Loans Balance Balance of Pool II
--------- ------------- -------------- ------------------
<S> <C> <C> <C>
1 Month........................ 55 $ 4,235,183.84 12.62%
3 Months....................... 1 68,340.57 0.20
6 Months....................... 48 8,924,147.87 26.60
1 Year......................... 98 19,657,654.79 58.59
2 Years........................ 1 18,922.49 0.06
3 Years........................ 7 449,495.40 1.34
5 Years........................ 3 199,234.83 0.59
--- -------------- ------
TOTAL........................ 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-33
<PAGE>
PERIODIC RATE CAP OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Periodic Number of Principal Principal
Rate Cap Pool II Loans Balance Balance of Pool II
-------- ------------- -------------- ------------------
<S> <C> <C> <C>
None........................... 163 $24,473,548.98 72.94%
0.500%......................... 4 194,414.10 0.58
0.750.......................... 2 121,207.50 0.36
1.000.......................... 17 4,720,231.76 14.07
1.500.......................... 4 311,682.04 0.93
2.000.......................... 20 3,575,142.78 10.66
3.000.......................... 3 156,752.63 0.47
--- -------------- ------
TOTAL........................ 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
NEGATIVE AMORTIZATION LIMIT OF THE POOL II LOANS
<TABLE>
<CAPTION>
Negative Aggregate % of Aggregate
Amortization Number of Principal Principal
Limit Pool II Loans Balance Balance of Pool II
------------ ------------- -------------- ------------------
<S> <C> <C> <C>
No Negative Amortization....... 137 $17,315,581.39 51.61%
100.00%........................ 30 12,212,754.93 36.40
110.00......................... 3 265,775.36 0.79
118.00......................... 1 1,380,112.31 4.11
125.00......................... 18 1,912,387.30 5.70
Unlimited...................... 24 466,368.50 1.39
--- -------------- ------
TOTAL........................ 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
LOAN-TO-VALUE RATIOS OF THE POOL II LOANS
<TABLE>
<CAPTION>
Range of Aggregate % of Aggregate
Loan-to-Value Number of Principal Principal
Ratios Pool II Loans Balance Balance of Pool II
------------- ------------- -------------- ------------------
<S> <C> <C> <C>
125.01% or greater.............. 65 $ 3,691,426.34 11.00%
120.01 - 125.00................. 5 300,947.27 0.90
115.01 - 120.00................. 9 1,828,023.82 5.45
110.01 - 115.00................. 7 487,103.15 1.45
105.01 - 110.00................. 4 500,804.99 1.49
100.01 - 105.00................. 7 612,094.79 1.82
95.01 - 100.00................. 6 1,414,633.75 4.22
90.01 - 95.00................. 10 6,493,863.22 19.35
85.01 - 90.00................. 8 1,100,722.49 3.28
80.01 - 85.00................. 7 3,114,313.27 9.28
75.01 - 80.00................. 5 437,460.26 1.30
70.01 - 75.00................. 10 2,492,146.44 7.43
65.01 - 70.00................. 8 458,031.39 1.37
60.01 - 65.00................. 8 6,322,472.93 18.84
55.01 - 60.00................. 12 749,740.17 2.23
50.01 - 55.00................. 3 163,947.99 0.49
50.00 or less.................. 39 3,385,247.52 10.09
--- -------------- ------
TOTAL......................... 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Loan-to-Value Ratio of the Pool
II Loans will be approximately 86.76%.
S-34
<PAGE>
DELINQUENCY STATUS OF THE POOL II LOANS
<TABLE>
<CAPTION>
% of Aggregate
Delinquency Status Aggregate Principal
as of the Cut-Off Number of Principal Balance of
Date Pool II Loans Balance Pool II
- ------------------ ------------- -------------- --------------
<S> <C> <C> <C>
Current............................ 188 $29,441,792.77 87.75%
30 - 59 days....................... 14 1,255,127.30 3.74
60 - 89 days....................... 8 615,939.41 1.84
Bankruptcy......................... 3 2,240,120.31 6.68
--- -------------- ------
TOTAL............................ 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
STATED TERM TO MATURITY OF THE POOL II LOANS
<TABLE>
<CAPTION>
Range of Stated Aggregate % of Aggregate
Term to Maturity Number of Principal Principal
(Months) Pool II Loans Balance Balance of Pool II
---------------- ------------- -------------- ------------------
<S> <C> <C> <C>
60 or less..................... 29 $ 6,839,771.63 20.38%
61 - 120....................... 72 7,395,629.14 22.04
121 - 180....................... 24 1,396,697.16 4.16
181 - 240....................... 23 4,646,902.29 13.85
241 - 300....................... 24 9,170,318.62 27.33
301 - 360....................... 41 4,103,660.95 12.23
--- -------------- ------
TOTAL......................... 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average stated term to maturity of the
Pool II Loans will be approximately 171 months.
SEASONING OF THE POOL II LOANS
<TABLE>
<CAPTION>
Range of Aggregate % of Aggregate
Seasoning Number of Principal Principal
(Months) Pool II Loans Balance Balance of Pool II
--------- ------------- -------------- ------------------
<S> <C> <C> <C>
12 or less.................... 2 $ 102,437.08 0.31%
13 - 24....................... 5 631,470.60 1.88
25 - 36....................... 2 473,076.03 1.41
37 - 48....................... 2 323,809.47 0.97
49 - 60....................... 6 3,266,338.34 9.73
61 - 84....................... 13 1,054,777.78 3.14
85 - 120...................... 129 22,726,314.70 67.73
121 or greater................. 54 4,974,755.79 14.83
--- -------------- ------
TOTAL........................ 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average seasoning of the Pool II Loans
will be approximately 103 months.
S-35
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE POOL II LOANS
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Number of Principal Principal
Geographic Area Pool II Loans Balance Balance of Pool II
- --------------- ------------- -------------- ------------------
<S> <C> <C> <C>
Alabama........................ 1 $ 43,343.53 0.13%
Arizona........................ 3 2,706,263.30 8.07
California..................... 72 21,920,477.37 65.33
Connecticut.................... 20 1,718,269.53 5.12
Delaware....................... 1 73,068.74 0.22
Florida........................ 8 476,985.31 1.42
Georgia........................ 6 372,202.09 1.11
Illinois....................... 2 134,649.17 0.40
Kansas......................... 1 75,738.49 0.23
Louisiana...................... 1 33,200.10 0.10
Maryland....................... 2 81,930.15 0.24
Massachusetts.................. 29 1,929,686.15 5.75
New Hampshire.................. 2 67,903.22 0.20
New Jersey..................... 5 415,895.35 1.24
New Mexico..................... 2 111,518.59 0.33
New York....................... 38 1,402,561.09 4.18
North Carolina................. 1 58,595.44 0.17
Ohio........................... 1 42,364.48 0.13
Oklahoma....................... 3 90,746.02 0.27
Pennsylvania................... 1 19,547.20 0.06
South Carolina................. 2 557,814.40 1.66
Texas.......................... 6 326,207.07 0.97
Utah........................... 1 65,506.32 0.20
Vermont........................ 1 214,486.39 0.64
Virginia....................... 1 68,606.36 0.20
Washington..................... 2 528,674.65 1.58
Wyoming........................ 1 16,739.28 0.05
--- -------------- ------
TOTAL........................ 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
*Percentages may not add to 100% due to rounding.
Not more than 13.28% of the Pool II Loans are in any single zip code area in
California.
S-36
<PAGE>
MORTGAGE LOAN PURPOSE OF THE POOL II LOANS
<TABLE>
<CAPTION>
% of Aggregate
Aggregate Principal
Mortgage Loan Number of Principal Balance of
Purpose Pool II Loans Balance Pool II
------------- ------------- -------------- --------------
<S> <C> <C> <C>
Purchase.......................... 80 $ 4,057,177.63 12.09%
Rate and Term Refinance........... 11 798,869.63 2.38
Equity Refinance.................. 8 993,579.95 2.96
Construction/Permanent............ 2 115,848.99 0.35
Home Improvement.................. 57 2,486,261.02 7.41
Debt Consolidation................ 12 1,053,211.28 3.14
Not Applicable(/1/)............... 38 23,710,070.87 70.66
Unknown........................... 5 337,960.42 1.01
--- -------------- ------
TOTAL........................... 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
*Percentages may not add to 100% due to rounding.
(/1/) Primarily includes Mortgage Loans backed by unimproved land, Multifamily
Properties, Commercial Properties and/or Mixed Use Properties.
PROPERTY TYPES OF THE POOL II LOANS
<TABLE>
<CAPTION>
% of Aggregate
Aggregate Principal
Property Number of Principal Balance of
Type Pool II Loans Balance Pool II
-------- ------------- -------------- --------------
<S> <C> <C> <C>
2-4 Family......................... 16 $ 1,235,569.76 3.68%
Co-op.............................. 25 477,800.86 1.42
Commercial......................... 15 7,131,175.54 21.25
Condominium........................ 26 1,207,992.95 3.60
Unimproved Land.................... 7 829,349.50 2.47
Multifamily........................ 10 14,229,624.15 42.41
Mixed Use.......................... 6 1,519,921.68 4.53
Planned Unit Development........... 4 558,123.71 1.66
Single Family Detached............. 102 6,273,331.96 18.70
Townhouse.......................... 2 90,089.68 0.27
--- -------------- ------
TOTAL............................ 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
*Percentages may not add to 100% due to rounding.
OCCUPANCY STATUS OF THE POOL II LOANS
<TABLE>
<CAPTION>
% of Aggregate
Aggregate Principal
Number of Principal Balance of
Occupancy Status Pool II Loans Balance Pool II
---------------- ------------- -------------- --------------
<S> <C> <C> <C>
Primary Residence................... 156 $ 8,355,903.49 24.90%
Second/Vacation Home................ 1 53,355.21 0.16
Investment Properties............... 17 1,362,991.72 4.06
Unimproved Land..................... 38 23,710,070.87 70.66
Unknown............................. 1 70,658.50 0.21
--- -------------- ------
TOTAL............................. 213 $33,552,979.79 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-37
<PAGE>
POOL III
The Pool III Loans consist of 548 Mortgage Loans, with Mortgaged Properties
located in 43 states, the District of Columbia and the Commonwealth of Puerto
Rico. As of the Cut-Off Date, the Pool III Loans have: (i) an aggregate
Principal Balance of approximately $40,302,594; (ii) individual Principal
Balances ranging from $5,117 to $2,602,402; and (iii) an average Principal
Balance of $73,545. The Mortgage Rates on the Pool III Loans range from 0.00%
per annum to 22.00% per annum, with a weighted average Mortgage Rate of 9.72%
per annum.
The Pool III Loans have remaining terms to stated maturity ranging from one
month to 439 months, a weighted average remaining term to stated maturity of
203 months and a weighted average term from origination of 84 months. No Pool
III Loan has a stated maturity later than January 1, 2035. 75.45% of the Pool
III Loans require Monthly Payments that will substantially amortize such
Mortgage Loans by their respective maturity dates and 24.55% of the Pool III
Loans are Balloon Loans.
The weighted average Loan-to-Value Ratio of the Pool III Loans is 85.62%.
35.99% of the Mortgage Loans in Pool III have been modified or restructured.
As of the Cut-Off Date, 3.26%, 1.30% and 14.07% of the Pool III Loans are
secured by Mortgaged Properties that are Mixed-Use Properties, Multifamily
Properties and Commercial Properties, respectively. The Commercial Properties
generally include retail, office and industrial properties.
See "Risk Factors" herein and in the Prospectus.
S-38
<PAGE>
The following tables describe the Pool III Loans and the related Mortgaged
Properties as of the Cut-Off Date.
PRINCIPAL BALANCES OF THE POOL III LOANS
<TABLE>
<CAPTION>
Range of % of Aggregate
Principal Balances Aggregate Principal
as of the Cut- Number of Principal Balance of
Off Date Pool III Loans Balance Pool III
------------------ -------------- -------------- --------------
<S> <C> <C> <C>
Less than $ 50,000............. 310 $ 7,909,446.94 19.63%
50,001 - 100,000............ 131 9,284,725.88 23.04
100,001 - 150,000............ 57 6,832,677.58 16.95
150,001 - 200,000............ 19 3,269,009.70 8.11
200,001 - 250,000............ 12 2,660,499.45 6.60
250,001 - 300,000............ 5 1,377,751.93 3.42
300,001 - 350,000............ 2 628,900.45 1.56
350,001 - 400,000............ 5 1,850,570.14 4.59
400,001 - 450,000............ 2 814,528.62 2.02
450,001 - 500,000............ 1 483,722.97 1.20
500,001 - 750,000............ 1 591,692.58 1.47
750,001 - 1,000,000............ 1 975,732.90 2.42
1,000,001 - 2,000,000............ 1 1,020,933.22 2.53
2,000,001 - 3,000,000............ 1 2,602,401.31 6.46
--- -------------- ------
TOTAL.......................... 548 $40,302,593.67 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the average unpaid principal balance of the Pool III
Loans will be approximately $73,545.
MORTGAGE RATES ON THE POOL III LOANS
<TABLE>
<CAPTION>
% of Aggregate
Range of Aggregate Principal
Mortgage Number of Principal Balance of
Rates Pool III Loans Balance Pool III
-------- -------------- -------------- --------------
<S> <C> <C> <C>
6.00% or less.................... 12 $ 1,428,569.96 3.54%
6.01 - 6.50..................... 2 155,742.44 0.39
6.51 - 7.00..................... 14 1,830,380.83 4.54
7.01 - 7.50..................... 25 2,327,318.71 5.77
7.51 - 8.00..................... 35 3,974,439.30 9.86
8.01 - 8.50..................... 33 2,283,347.59 5.67
8.51 - 9.00..................... 51 4,553,192.75 11.30
9.01 - 9.50..................... 39 3,861,640.66 9.58
9.51 - 10.00..................... 63 3,579,882.97 8.88
10.01 - 11.00..................... 90 6,208,423.11 15.40
11.01 - 12.00..................... 51 5,946,102.75 14.75
12.01 - 13.00..................... 46 1,807,191.72 4.48
13.01 - 14.00..................... 26 942,715.00 2.34
14.01 - 15.00..................... 20 590,286.26 1.46
15.01 - 16.00..................... 15 352,031.44 0.87
16.01 - 17.00..................... 8 135,236.80 0.34
17.01 - 18.00..................... 9 164,887.04 0.41
18.01 - 19.00..................... 5 107,266.57 0.27
19.01 or greater.................. 4 53,937.77 0.13
--- -------------- ------
TOTAL........................... 548 $40,302,593.67 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-39
<PAGE>
As of the Cut-Off Date, the weighted average Mortgage Rate on the Pool III
Loans will be approximately 9.720% per annum.
LOAN-TO-VALUE RATIOS OF THE POOL III LOANS
<TABLE>
<CAPTION>
Range of % of Aggregate
Loan-to- Aggregate Principal
Value Number of Principal Balance of
Ratios Pool III Loans Balance Pool III
-------- -------------- -------------- --------------
<S> <C> <C> <C>
125.01% or greater................ 83 $ 6,262,927.33 15.54%
120.01 - 125.00................. 9 704,065.78 1.75
115.01 - 120.00................. 12 639,357.57 1.59
110.01 - 115.00................. 11 737,923.94 1.83
105.01 - 110.00................. 14 1,317,434.27 3.27
100.01 - 105.00................. 18 1,197,725.17 2.97
95.01 - 100.00................. 28 1,797,492.22 4.46
90.01 - 95.00................. 21 1,516,374.74 3.76
85.01 - 90.00................. 23 1,808,988.18 4.49
80.01 - 85.00................. 30 2,625,291.25 6.51
75.01 - 80.00................. 30 1,933,781.04 4.80
70.01 - 75.00................. 37 3,961,744.37 9.83
65.01 - 70.00................. 28 2,419,189.24 6.00
60.01 - 65.00................. 34 2,873,352.85 7.13
55.01 - 60.00................. 25 1,319,793.05 3.27
50.01 - 55.00................. 16 3,331,064.46 8.27
50.00 or less.................... 129 5,856,088.21 14.53
--- -------------- ------
TOTAL........................... 548 $40,302,593.67 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average Loan-to-Value Ratio of the Pool
III Loans will be approximately 85.62%.
DELINQUENCY STATUS OF THE POOL III LOANS
<TABLE>
<CAPTION>
Delinquency % of Aggregate
Status as of Aggregate Principal
the Number of Principal Balance of
Cut-Off Date Pool III Loans Balance Pool III
------------ -------------- -------------- --------------
<S> <C> <C> <C>
Current.......................... 400 $31,585,507.66 78.37%
30 - 59 days..................... 64 4,606,349.25 11.43
60 - 89 days..................... 27 2,209,630.08 5.48
Bankruptcy....................... 57 1,901,106.68 4.72
--- -------------- ------
TOTAL.......................... 548 $40,302,593.67 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
S-40
<PAGE>
STATED TERM TO MATURITY OF THE POOL III LOANS
<TABLE>
<CAPTION>
Range of
Stated
Term % of Aggregate
to Aggregate Principal
Maturity Number of Principal Balance of
(Months) Pool III Loans Balance Pool III
-------- -------------- -------------- --------------
<S> <C> <C> <C>
60 or less....................... 95 $ 7,473,681.20 18.54%
61 - 120......................... 104 4,489,394.29 11.14
121 - 180......................... 97 6,355,533.75 15.77
181 - 240......................... 44 2,784,846.55 6.91
241 - 300......................... 79 6,919,764.78 17.17
301 - 360......................... 128 12,213,925.43 30.31
361 or greater.................... 1 65,447.67 0.16
--- -------------- ------
TOTAL........................... 548 $40,302,593.67 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average stated term to maturity of the
Pool III Loans will be approximately 203 months.
SEASONING OF THE POOL III LOANS
<TABLE>
<CAPTION>
% of Aggregate
Range of Aggregate Principal
Seasoning Number of Principal Balance of
(Months) Pool III Loans Balance Pool III
--------- -------------- -------------- --------------
<S> <C> <C> <C>
12 or less....................... 17 $ 1,208,610.01 3.00%
13 - 24......................... 28 3,591,508.39 8.91
25 - 36......................... 38 3,250,507.12 8.07
37 - 48......................... 22 2,311,913.09 5.74
49 - 60......................... 43 4,384,661.01 10.88
61 - 84......................... 80 6,383,097.59 15.84
85 - 120......................... 164 12,002,195.39 29.78
121 or greater.................... 156 7,170,101.07 17.79
--- -------------- ------
TOTAL........................... 548 $40,302,593.67 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
As of the Cut-Off Date, the weighted average seasoning of the Pool III Loans
will be approximately 84 months.
S-41
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE POOL III LOANS
<TABLE>
<CAPTION>
% of Aggregate
Aggregate Principal
Number of Principal Balance of
Geographic Area Pool III Loans Balance Pool III
- --------------- -------------- -------------- --------------
<S> <C> <C> <C>
Alabama........................... 17 $ 556,848.29 1.38%
Alaska............................ 2 127,577.33 0.32
Arizona........................... 5 773,590.02 1.92
Arkansas.......................... 2 75,961.52 0.19
California........................ 53 7,836,281.07 19.44
Canada............................ 8 69,808.71 0.17
Colorado.......................... 2 77,207.29 0.19
Connecticut....................... 29 2,353,981.63 5.84
Delaware.......................... 2 157,169.39 0.39
District of Columbia.............. 2 74,869.33 0.19
Florida........................... 42 2,250,261.51 5.58
Georgia........................... 46 1,618,129.40 4.01
Idaho............................. 1 45,390.57 0.11
Illinois.......................... 8 1,172,342.89 2.91
Indiana........................... 5 192,055.75 0.48
Iowa.............................. 1 22,283.68 0.06
Kansas............................ 1 8,633.15 0.02
Kentucky.......................... 1 58,738.77 0.15
Louisiana......................... 4 115,094.69 0.29
Maryland.......................... 10 410,809.08 1.02
Massachusetts..................... 36 2,575,975.66 6.39
Michigan.......................... 10 527,866.80 1.31
Minnesota......................... 4 303,470.73 0.75
Mississippi....................... 10 301,990.00 0.75
Missouri.......................... 5 139,967.54 0.35
Nebraska.......................... 2 114,998.18 0.29
Nevada............................ 6 634,841.90 1.58
New Hampshire..................... 3 125,763.49 0.31
New Jersey........................ 31 2,401,513.97 5.96
New York.......................... 82 6,823,274.61 16.93
North Carolina.................... 12 300,860.64 0.75
North Dakota...................... 1 49,990.43 0.12
Ohio.............................. 7 281,543.60 0.70
Oklahoma.......................... 3 220,495.78 0.55
Oregon............................ 3 2,915,615.04 7.23
Pennsylvania...................... 12 781,259.07 1.94
Puerto Rico....................... 3 106,354.73 0.26
Rhode Island...................... 3 197,077.82 0.49
South Carolina.................... 9 214,298.44 0.53
Tennessee......................... 16 493,370.75 1.22
Texas............................. 33 1,845,527.39 4.58
Utah.............................. 1 51,931.58 0.13
Vermont........................... 1 74,869.02 0.19
Virginia.......................... 11 599,624.71 1.49
Washington........................ 1 106,237.86 0.26
West Virginia..................... 2 116,839.86 0.29
--- -------------- ------
TOTAL........................... 548 $40,302,593.67 100.00%*
=== ============== ======
</TABLE>
- --------
* Percentages may not add to 100% due to rounding.
Not more than 2.54% of the Pool III Loans are in any single zip code area in
California.
S-42
<PAGE>
MORTGAGE LOAN PURPOSE OF THE POOL III LOANS
<TABLE>
<CAPTION>
% of Aggregate
Aggregate Principal
Mortgage Loan Number of Principal Balance of
Purpose Pool III Loans Balance Pool III
------------- -------------- -------------- --------------
<S> <C> <C> <C>
Purchase......................... 270 $18,711,969.07 46.43%
Rate and Term Refinance.......... 76 5,961,228.97 14.79
Equity Refinance................. 24 1,769,227.30 4.39
Construction/Permanent........... 4 473,115.03 1.17
Home Improvement................. 55 1,846,714.46 4.58
Debt Consolidation............... 46 1,822,556.18 4.52
Not Applicable(/1/).............. 58 8,996,200.30 22.32
Unknown.......................... 15 721,582.36 1.79
--- -------------- ------
TOTAL.......................... 548 $40,302,593.67 100.00%*
=== ============== ======
</TABLE>
- --------
*Percentages may not add to 100% due to rounding.
(/1/) Primarily includes Mortgage Loans backed by unimproved land, Multifamily
Properties, Commercial Properties and/or Mixed-Use Properties.
PROPERTY TYPES OF THE POOL III LOANS
<TABLE>
<CAPTION>
% of Aggregate
Aggregate Principal
Property Number of Principal Balance of
Type Pool III Loans Balance Pool III
-------- -------------- -------------- --------------
<S> <C> <C> <C>
2-4 Family........................ 40 $ 3,445,657.83 8.55%
Church............................ 2 211,673.09 0.53
Co-op............................. 31 1,245,514.06 3.09
Commercial........................ 20 5,669,168.61 14.07
Condominium....................... 46 2,883,008.69 7.15
Unimproved Land................... 21 1,153,267.63 2.86
Multifamily....................... 4 522,993.39 1.30
Mixed Use......................... 8 1,312,402.44 3.26
Planned Unit Development.......... 9 1,108,318.84 2.75
Single Family Detached............ 361 22,359,636.65 55.48
Townhouse......................... 6 390,952.44 0.97
--- -------------- ------
TOTAL........................... 548 $40,302,593.67 100.00%*
=== ============== ======
</TABLE>
- --------
*Percentages may not add to 100% due to rounding.
OCCUPANCY STATUS OF THE POOL III LOANS
<TABLE>
<CAPTION>
% of Aggregate
Aggregate Principal
Number of Principal Balance of
Occupancy Status Pool III Loans Balance Pool III
---------------- -------------- -------------- --------------
<S> <C> <C> <C>
Primary Residence.................. 444 $27,797,303.04 68.97%
Second/Vacation Home............... 5 388,558.83 0.96
Investment Properties.............. 40 3,031,167.03 7.52
Unimproved Land.................... 57 8,924,267.25 22.14
Unknown............................ 2 161,297.52 0.40
--- -------------- ------
TOTAL............................ 548 $40,302,593.67 100.00%*
=== ============== ======
</TABLE>
- --------
*Percentages may not add to 100% due to rounding.
S-43
<PAGE>
DESCRIPTION OF THE SELLER AND THE WILSHIRE SELLER
General. The Mortgage Loans were purchased by the Wilshire Seller in the
ordinary course of its business and conveyed, together with certain related
property described herein, to the Seller. The Seller will convey such property
to the Depositor, which will convey it to the Trust.
The Seller, a Delaware corporation, will be organized as a limited purpose
company on or before the Closing Date and will be substantially owned by the
Wilshire Seller. The Seller will be organized for limited purposes, which will
include purchasing loans and receivables and debt obligations secured by
collateral, and transferring such loans, receivables and debt obligations to
third parties and any activities incidental to and necessary or convenient for
the accomplishment of such purposes (including entering into and performing
its obligations under the Pooling and Servicing Agreement). The Seller will be
located at 1776 S.W. Madison Street, Portland, Oregon 97205, and its telephone
number will be (503) 223-5600.
The only obligations, if any, of the Seller with respect to the Certificates
may be pursuant to certain limited representations and warranties and limited
undertakings to enforce its rights against the Wilshire Seller under certain
circumstances. The Wilshire Seller will make certain representations and
warranties with respect to the Mortgage Loans. The Wilshire Seller will be
liable only with respect to the representations and warranties made with
respect to the Mortgage Loans. The Seller will have no servicing obligations
or responsibilities with respect to any Mortgage Loans or any of the assets of
the Trust. The Seller will not have on the Closing Date, nor is it expected in
the future to have, any significant assets.
The Wilshire Seller. The Wilshire Seller is a Delaware corporation formed in
November 1996. The Wilshire Seller is a subsidiary of Wilshire Financial
Services Group Inc. ("WFSG"), a publicly traded company engaged in a wide
variety of activities including the acquisition, origination, ownership and
securitization of loan portfolios, banking and non-traditional bankcard
processing.
The Wilshire Seller acquires pools of loans from a wide variety of sources,
including banks, savings institutions, finance companies, leasing companies,
mortgage companies, insurance companies, governmental agencies and its
affiliates. The Wilshire Seller generally obtains information on available
pools of loans from several sources, including referrals from sellers with
whom the Wilshire Seller has transacted business in the past. Pools of loans
generally are acquired in negotiated transactions or through sealed
competitive bids.
Prior to making an offer to purchase a pool of loans, the Wilshire Seller
conducts an extensive investigation and evaluation of the individual loans
comprising the pool of loans and/or the separate parcels of real estate in the
pool. This examination typically consists of an analysis of the information
provided by the seller (generally, the credit and collateral files for the
loans), other relevant material that may be available (including tax records)
and the underlying collateral. The Wilshire Seller compares this data with its
own mortgage loan database, which contains among other things, listings of
property values and loan loss experience in local markets for similar assets,
obtains value opinions from third parties and, in some cases, conducts site
inspections. In addition, the Wilshire Seller in many cases obtains a broker
price opinion on each parcel of real property. The Wilshire Seller also
reviews information on the local economy and real estate markets including the
amount of time generally required to complete foreclosure on real property in
the jurisdiction in which the property is located. In connection with its
review of a pool of loans being considered for acquisition, the Wilshire
Seller reviews each loan or property in such pool of loans and designs a
preliminary servicing plan for each loan and property that is intended to
maximize the cash flow from such loan or property.
The Wilshire Seller's senior acquisition personnel, who conduct the due
diligence review of each pool of loans being considered for purchase,
recommend to management the price to be offered for the pool by using a
proprietary modeling system that focuses on, among other things, the
anticipated future cash flow from each component loan or property. In
evaluating anticipated cash flow, the Wilshire Seller makes a number of
assumptions concerning the overall pool of loans based on its review of each
loan or property, including
S-44
<PAGE>
assumptions as to the percentage of loans to be foreclosed, the timing of the
receipt of payments and the expenses associated with servicing the loans. The
Wilshire Seller's investment committee, which consists of senior management
and the senior acquisition personnel who conduct the due diligence review,
makes a final determination as to the offering price. If an offer is accepted
by the seller, the Wilshire Seller and the seller generally enter into a loan
sale agreement, which generally contains representations and warranties by the
seller concerning the loans being sold and an agreement by the seller to
repurchase any loan found to be in breach of those representations and
warranties.
Each of the entities that sold the Mortgage Loans to the Wilshire Seller
(the "PRIOR SELLERS") had underwriting policies or standards applicable to the
origination or purchase of residential mortgage loans that may have differed
from those of other Prior Sellers. There can be no assurance that the Mortgage
Loans were originated or acquired in all cases in accordance with the related
Prior Seller's underwriting standards then in effect. None of the Depositor,
the Seller, the Wilshire Seller or the Servicer has complete and reliable
information regarding the origination and documentation requirements employed
by the Prior Sellers in connection with the origination of the Mortgage Loans.
It is uncertain how many of the Mortgage Loans were originated under limited
documentation programs, which typically omitted verification of certain
information regarding the related Mortgagor, such as the Mortgagor's
employment and income, or under so-called "no documentation" programs, which
typically omitted verification of the Mortgagor's assets as well as the
Mortgagor's employment and income.
SERVICING
Primary servicing will be provided by Wilshire Servicing Corporation
("WILSHIRE SERVICING"), with respect to the Mortgage Loans.
Wilshire Servicing is a Delaware corporation and a wholly owned subsidiary
of WFSG. Wilshire Servicing was formed in November 1996 to conduct the loan
servicing business of WFSG and currently services WFSG's portfolio as well as
portfolios for unaffiliated third parties. Currently, Wilshire Credit
Corporation ("WCC"), an affiliate of WFSG and Wilshire Servicing, subservices
such portfolios for Wilshire Servicing and will subservice the Mortgage Loans
underlying the Certificates. WCC is wholly owned by Andrew A. Wiederhorn and
Lawrence A. Mendelsohn, the principal shareholders of WFSG. WFSG has recently
indicated that it is considering acquiring WCC.
WCC is primarily engaged in the specialty loan servicing and resolution
business. At December 31, 1997, WCC was servicing approximately $2.8 billion
aggregate principal amount of loans and other assets. At September 30, 1997,
WCC had approximately 235 employees. WCC's principal executive offices are
located at 1776 S.W. Madison Street, Portland, Oregon 97205, and its telephone
number (503) 223-5600.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Loans is based
upon the Mortgage Loans as constituted at the close of business on the Cut-Off
Date, generally as adjusted for the scheduled principal payments due on or
before such date. Prior to the issuance of the Offered Certificates, Mortgage
Loans may be removed from the Mortgage Pool, if the Depositor deems such
removal necessary or appropriate. A limited number of other mortgage loans may
be included in the Mortgage Pool prior to the issuance of the Offered
Certificates. The Depositor believes that the information set forth herein
will be substantially representative of the characteristics of the Mortgage
Pool as it will be constituted at the time the Offered Certificates are
issued, although the range of Mortgage Rates and maturities and certain other
characteristics of the Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K, together with the Pooling and Servicing
Agreement, will be filed with the Securities and Exchange Commission within
fifteen days after the initial issuance of the Offered Certificates. In the
event Mortgage Loans are removed from or added to the Mortgage Pool as set
forth in the preceding paragraph, such removal or addition will be noted in
the Current Report on Form 8-K.
S-45
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will consist of the following ten classes (each, a
"CLASS"): (i) the Class A-I Certificates, the Class A-II Certificates and the
Class A-III Certificates (collectively, the "CLASS A CERTIFICATES"); (ii) the
Class IO Certificates; (iii) the Class M-1 Certificates, the Class M-2
Certificates and the Class M-3 Certificates (collectively, the "CLASS M
CERTIFICATES"); and (iv) the Class B-1 Certificates, the Class B-2
Certificates and the Class B-3 Certificates (collectively, the "CLASS B
CERTIFICATES"). The Class A Certificates and the Class IO Certificates are
referred to herein collectively as the "SENIOR CERTIFICATES." The Class M
Certificates and the Class B Certificates are referred to herein as the
"SUBORDINATE CERTIFICATES." The Class A-I Certificates and Subordinate
Certificates are referred to herein as the "GROUP I CERTIFICATES." The Trust
will also issue a "residual interest" with respect to each REMIC held by the
Trust (collectively, the "RESIDUAL CERTIFICATES"). See the "Index of Terms" in
the Prospectus for the meanings of capitalized terms and acronyms not
otherwise defined herein.
The Certificates in the aggregate will evidence the entire beneficial
ownership interest in the Trust Fund. The Trust Fund will consist of: (i) the
Mortgage Loans; (ii) such assets as from time to time are identified as
deposited in respect of the Mortgage Loans in the Collection Account and the
Certificate Account and belonging to the Trust Fund; (iii) property acquired
by foreclosure of such Mortgage Loans or deed in lieu of foreclosure; (iv) any
hazard or other insurance policies with respect to the Mortgage Loans; and (v)
all proceeds of the foregoing.
The Offered Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its Participants. The Offered Certificates
(other than the Class IO Certificates) will be issued in minimum denominations
of $25,000 and integral multiples of $1 in excess thereof. The Class IO
Certificates will be issued in book-entry form in minimum denominations of 20%
Percentage Interests.
The Offered Certificates will be represented by one or more certificates
registered in the name of the nominee of DTC. The Depositor has been informed
by DTC that DTC's nominee will be Cede & Co. ("CEDE"). No Beneficial Owner
will be entitled to receive a Definitive Certificate, except as set forth
herein under "Description of the Certificates--Book-Entry Registration."
Unless and until Definitive Certificates are issued for the Offered
Certificates under the limited circumstances described herein, all references
to actions by Certificateholders with respect to the Offered Certificates
shall refer to actions taken by DTC upon instructions from its Participants,
and all references herein to distributions, notices, reports and statements to
Certificateholders with respect to the Offered Certificates shall refer to
distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Offered Certificates, for distribution to Beneficial
Owners by DTC in accordance with DTC procedures.
BOOK-ENTRY REGISTRATION
General. The Offered Certificates will be initially issued through the book-
entry facilities of DTC or Cedel Bank, SA ("CEDEL") or the Euroclear System
("EUROCLEAR") (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems. The
record holder of the Offered Certificates will be Cede. CEDEL and Euroclear
will hold omnibus positions on behalf of their participants through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (the "DEPOSITARIES"), which in turn will hold such
positions in customers' securities accounts in the depositaries' names on the
books of DTC.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, which holds securities for its participating organizations ("DTC
PARTICIPANTS," and together with the CEDEL and Euroclear participating
organizations, "PARTICIPANTS") and facilitates the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in the accounts of Participants. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
S-46
<PAGE>
include certain other organizations. Other institutions that are not
Participants but clear through or maintain a custodial relationship with
Participants (such institutions, "INDIRECT PARTICIPANTS") have indirect access
to DTC's clearance system.
No person acquiring an interest in any Offered Certificate (each such
person, a "BENEFICIAL OWNER") will be entitled to receive a Certificate
representing such interest in registered, certificated form, unless either (i)
DTC ceases to act as depository in respect thereof and a successor depository
is not obtained, or (ii) the Depositor elects in its sole discretion to
discontinue the registration of such Certificates through DTC. Prior to any
such event, Beneficial Owners will not be recognized by the Trustee or the
Servicer as holders of the related Certificates for purposes of the Pooling
and Servicing Agreement, and Beneficial Owners will be able to exercise their
rights as owners of such Certificates only indirectly through DTC,
Participants and Indirect Participants. Any Beneficial Owner that desires to
purchase, sell or otherwise transfer any interest in the Offered Certificates
may do so only through DTC, either directly if such Beneficial Owner is a
Participant or indirectly through Participants and, if applicable, Indirect
Participants. Pursuant to the procedures of DTC, transfers of the beneficial
ownership of any Offered Certificates will be required to be made in the
minimum denominations specified herein. The ability of a Beneficial Owner to
pledge Offered Certificates to persons or entities that are not Participants
in the DTC system, or to otherwise act with respect to such Certificates, may
be limited because of the lack of physical certificates evidencing such
Certificates and because DTC may act only on behalf of Participants.
Because of time zone differences, the securities account of a CEDEL
Participant or Euroclear Participant as a result of a transaction with a DTC
Participant (other than a depositary holding on behalf of CEDEL or Euroclear)
will be credited during a subsequent securities settlement processing day
(which must be a business day for CEDEL or Euroclear, as the case may be)
immediately following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Euroclear Participant or CEDEL Participants on such
business day. Cash received in CEDEL or Euroclear as a result of sales of
securities by or through a CEDEL Participant or Euroclear Participant to a DTC
Participant (other than the depositary for CEDEL or Euroclear) will be
received with value on the DTC settlement date, but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant Depositaries; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver
instructions directly to the Depositaries.
CEDEL, a professional depository, holds securities for its participating
organizations ("CEDEL PARTICIPANTS") and facilitates the clearance and
settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. As a professional
depository, CEDEL is subject to regulation by the Luxembourg Monetary
Institute.
S-47
<PAGE>
Euroclear was created to hold securities for participants of Euroclear
("EUROCLEAR PARTICIPANTS") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "EUROCLEAR OPERATOR"), under contract
with Euroclear Clearance Systems S.C., a Belgian co-operative corporation (the
"CLEARANCE COOPERATIVE"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Clearance
Cooperative. The Clearance Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission. Securities clearance accounts and cash accounts with the
Euroclear Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "TERMS AND CONDITIONS"). The Terms
and Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts.
Distributions in respect of the Offered Certificates will be forwarded by
the Trustee to DTC, and DTC will be responsible for forwarding such payments
to Participants, each of which will be responsible for disbursing such
payments to the Beneficial Owners it represents or, if applicable, to Indirect
Participants. Accordingly, Beneficial Owners may experience delays in the
receipt of payments in respect of their Certificates. Under DTC's procedures,
DTC will take actions permitted to be taken by holders of any class of Offered
Certificates under the Pooling and Servicing Agreement only at the direction
of one or more Participants to whose account the Offered Certificates are
credited and whose aggregate holdings represent no less than any minimum
amount of Percentage Interests or voting rights required therefor. DTC may
take conflicting actions with respect to any action of Certificateholders of
any Class to the extent that Participants authorize such actions. None of the
Servicer, the Depositor, the Trustee or any of their respective affiliates
will have any liability for any aspect of the records relating to or payments
made on account of beneficial ownership interests in the Offered Certificates,
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Beneficial Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Offered Certificates may do so only through Participants and
Indirect Participants. In addition, Beneficial Owners will receive all
distributions of principal of and interest on the Offered Certificates from
the Paying Agent through DTC and Participants. Accordingly, Beneficial Owners
may experience delays in their receipt of payments. Unless and until
Definitive Certificates are issued for the Offered Certificates, it is
anticipated that the only registered Certificateholder of the Offered
Certificates will be Cede, as nominee of DTC. Beneficial Owners will not be
recognized by the Trustee or the Servicer as Certificateholders, as such term
is used in the Pooling and Servicing Agreement, and Beneficial Owners will be
permitted to receive information furnished to Certificateholders and to
exercise the rights of Certificateholders only indirectly through DTC, its
Participants and Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "RULES"), DTC is required to make book-entry transfers of
Offered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, such Offered Certificates.
Participants and Indirect Participants with which Beneficial Owners have
accounts with respect to such Offered Certificates similarly are required to
make book-entry transfers and receive and transmit such distributions on
behalf of their respective Beneficial Owners. Accordingly, although Beneficial
Owners will not possess physical certificates evidencing their interests in
the Offered Certificates, the Rules provide a mechanism by which Beneficial
Owners, through their Participants and Indirect Participants, will receive
distributions and will be able to transfer their interests in the Offered
Certificates. Transfers between Participants will occur in accordance with the
Rules. Transfers
S-48
<PAGE>
between CEDEL Participants and Euroclear Participants will occur in accordance
with their respective rules and operating procedures.
None of the Depositor, the Servicer or the Trustee will have any liability
for any actions taken by DTC or its nominee, including, without limitation,
actions for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Offered Certificates held by Cede, as
nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth herein.
Upon the occurrence of an event described herein in the third paragraph
under "Description of the Certificates--Book-Entry Registration--General," the
Trustee is required to notify, through DTC, Participants who have ownership of
Offered Certificates as indicated on the records of DTC of the availability of
Definitive Certificates for their Offered Certificates. Upon surrender by DTC
of the definitive certificates representing the Offered Certificates and upon
receipt of instructions from DTC for re-registration, the Trustee will reissue
the Offered Certificates as Definitive Certificates issued in the respective
principal amounts owned by individual Beneficial Owners, and thereafter the
Trustee and the Servicer will recognize the holders of such Definitive
Certificates as Certificateholders under the Pooling and Servicing Agreement.
DISTRIBUTIONS IN RESPECT OF INTEREST AND PRINCIPAL
Distributions on the Certificates in respect of interest and principal on
each Distribution Date will be made from the Available Distribution Amount.
The "AVAILABLE DISTRIBUTION AMOUNT" for any Distribution Date generally equals
the aggregate of (i) scheduled payments of principal and interest on each
Mortgage Loan (the "MONTHLY PAYMENT" ) due during the related Due Period and
received by the Servicer on or prior to the related Determination Date, net of
the Servicing Fee and the Trustee Fee for such Due Period, (ii) principal
prepayments and other unscheduled collections of principal, including
Liquidation Proceeds, Insurance Proceeds and the proceeds of the repurchase of
any Mortgage Loans, received during the related Prepayment Period, and (iii)
any Advances made by the Servicer and payments of any Prepayment Interest made
by the Servicer for such Distribution Date, in each case net of any amounts
that the Servicer is permitted to withdraw from the Custodial Account,
including but not limited to any unpaid Servicing Fees and any unreimbursed
Advances or servicing advances.
The "DUE DATE" with respect to each Mortgage Loan is the date on which the
monthly payment is due. The "DUE PERIOD" with respect to any Distribution Date
commences on the second day of the month preceding the month in which such
Distribution Date occurs and ends on the first day of the month in which such
Distribution Date occurs. The "PREPAYMENT PERIOD" with respect to any
Distribution Date is the calendar month preceding the month in which such
Distribution Date occurs. The "DETERMINATION DATE" with respect to any
Distribution Date is the 15th day of the month in which the Distribution Date
occurs or, if such day is not a Business Day, the following Business Day. The
"SERVICER REMITTANCE DATE" with respect to any Distribution Date is the
Business Day immediately preceding the related Distribution Date.
Payments of principal and interest on the Subordinate Certificates on each
Distribution Date shall be subordinate to the payment of principal and
interest, in the amounts described herein, on the Senior Certificates. Among
the Subordinate Certificates, amounts payable in respect of principal and
interest shall be distributed to each Class in accordance with its payment
priority (with the Class M-1 Certificates having the highest payment priority
and the Class B-3 Certificates having the lowest payment priority).
Interest Distribution Amounts. On each Distribution Date, the holders of the
Senior Certificates will be entitled to receive, to the extent of the
Available Distribution Amount, interest for the related Interest Accrual
Period at the applicable per annum rate (the "PASS-THROUGH RATE") set forth
herein on the Certificate Principal Balance or Notional Amount thereof as of
the day preceding such Distribution Date. As to any Distribution Date,
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<PAGE>
one month's interest at the applicable Pass-Through Rate for any Class of the
Class A Certificates on the Certificate Principal Balance thereof immediately
prior to such Distribution Date (less the amount of any Prepayment Interest
Shortfalls, Relief Act shortfalls and negative amortization on the Mortgage
Loans allocated thereto) is referred to as the "CLASS A-I INTEREST
DISTRIBUTION AMOUNT," "CLASS A-II INTEREST DISTRIBUTION AMOUNT" or "CLASS A-
III INTEREST DISTRIBUTION AMOUNT," as applicable. The Class A-I Interest
Distribution Amount, the Class A-II Interest Distribution Amount and the Class
A-III Interest Distribution Amount are referred to herein separately and
collectively as the "CLASS A INTEREST DISTRIBUTION AMOUNT."
The Pass-Through Rate with respect to the Class A-I Certificates and Class
A-II Certificates on any Distribution Date will be equal to the lesser of: (a)
the Weighted Average Pool Net Mortgage Rate for the related Pool; and (b) the
Blended Rate for such Pool. The "BLENDED RATE" for any Pool is equal to the
percentage per annum equivalent of a fraction, the numerator of which is equal
to the sum of:
(A) the product of:
(1) the Weighted Average Pool Net Mortgage Rate for the related Pool;
and
(2) the Non-Surplus Percentage of the aggregate Principal Balance of
the Mortgage Loans in the related Pool immediately prior to such
Distribution Date; and
(B) the product of:
(1) the Cross Support Weighted Average Net Mortgage Rate; and
(2) the amount, if any, by which the Certificate Principal Balance of
the related Class of Class A Certificates plus, in the case of Pool I,
the Subordinate Certificates, immediately prior to such Distribution
Date exceeds the aggregate Principal Balance of the Mortgage Loans in
the related Pool immediately prior to such Distribution Date (with
respect to such Pool, the related "POOL DEFICIT AMOUNT");
and the denominator of which is equal to the Certificate Principal Balance of
the related Class of Class A Certificates plus, in the case of Pool I, the
Subordinate Certificates, immediately prior to such Distribution Date.
The Pass-Through Rate with respect to the Class A-III Certificates on any
Distribution Date will be equal to the lesser of: (a) 7.00% per annum; and (b)
the Blended Rate for Pool III for such Distribution Date.
With respect to any Distribution Date and each Pool of Mortgage Loans, the
"WEIGHTED AVERAGE POOL NET MORTGAGE RATE" is equal to the weighted average of
the Net Mortgage Rates on the Mortgage Loans in such Pool as of the Due Dates
for such Mortgage Loans in the Due Period preceding the related Due Period,
weighted on the basis of the Principal Balance of each such Mortgage Loan
immediately prior to such Distribution Date. With respect to any Distribution
Date, the "CROSS SUPPORT WEIGHTED AVERAGE NET MORTGAGE RATE" is equal to the
percentage equivalent of a fraction the numerator of which is equal to the sum
of:
(A) the product of:
(1) the Pool Surplus Amount with respect to Pool I; and
(2) the Weighted Average Pool Net Mortgage Rate with respect to Pool
I;
(B) the product of:
(1) the Pool Surplus Amount with respect to Pool II; and
(2) the Weighted Average Pool Net Mortgage Rate with respect to Pool
II; and
(C) the product of:
(1) the Pool Surplus Amount with respect to Pool III; and
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<PAGE>
(2) the Weighted Average Pool Net Mortgage Rate with respect to Pool
III;
and the denominator of which is equal to the aggregate of the Pool Surplus
Amounts with respect to each Pool.
With respect to any Distribution Date and each Pool of Mortgage Loans, the
"POOL SURPLUS AMOUNT" is equal to the amount (but not less than zero) by which
the aggregate Principal Balance of the Mortgage Loans in the related Pool
exceeds the Certificate Principal Balance of the Group I, Class A-II or Class
A-III Certificates, as applicable.
On each Distribution Date, the holders of the Class IO Certificates will be
entitled to receive one month's interest at the Class IO Pass-Through Rate on
the Class IO Notional Amount with respect to such Distribution Date. The
"CLASS IO PASS-THROUGH RATE" with respect to each Distribution Date is a per
annum rate equal to the percentage equivalent of a fraction the numerator of
which is equal to the sum of:
(A) the product of:
(1) the excess of the Blended Rate for Pool I over the weighted
average of the Pass-Through Rates on the Class A-I, Class M-1 and Class
M-2 Certificates for such Distribution Date, weighted on the basis of
their respective Certificate Principal Balances immediately prior to
such Distribution Date; and
(2) the sum of the Certificate Principal Balances of Class A-I, Class
M-1 and Class M-2 Certificates;
(B) the product of:
(1) the excess of the Blended Rate for Pool II over the Pass-Through
Rate for the Class A-II Certificates for such Distribution Date; and
(2) the Certificate Principal Balance of the Class A-II Certificates;
and
(C) the product of:
(1) the excess of the Blended Rate for Pool III over the Pass-Through
Rate for the Class A-III Certificates for such Distribution Date; and
(2) the Certificate Principal Balance of the Class A-III
Certificates;
and the denominator of which is equal to the sum of the Certificate Principal
Balances of the Class A-I, Class A-II, Class A-III, Class M-1 and Class M-2
Certificates.
With respect to any Distribution Date, the "NOTIONAL AMOUNT" of the Class IO
Certificates shall be an amount equal to the aggregate Certificate Principal
Balance of the Class A-I, Class A-II, Class A-III, Class M-1 and Class M-2
Certificates immediately prior to such Distribution Date. The initial Class IO
Pass-Through Rate is approximately 0.72% per annum. One month's interest at
the Pass-Through Rate for the Class IO Certificates on the Notional Amount
(less any Prepayment Interest Shortfalls and Relief Act shortfalls allocated
thereto) is referred to herein as the "CLASS IO INTEREST DISTRIBUTION AMOUNT."
The "PRINCIPAL BALANCE" of any Mortgage Loan as of any date of determination
is equal to the outstanding principal balance thereof as of the Cut-Off Date,
reduced by all scheduled principal payments due on or before the Cut-Off Date,
that have not been received, plus, with respect to any Negative Amortization
Loan, the amount of any Deferred Interest on such Mortgage Loan that is added
to the Principal Balance thereof, and minus all amounts allocable to principal
that have been distributed to Certificateholders with respect to such Mortgage
Loan on or before such date of determination, and as further reduced to the
extent that any Realized Loss thereon has been allocated to one or more
Classes of Certificates on or before such date of determination.
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<PAGE>
On each Distribution Date, to the extent of the Available Distribution
Amount remaining after the payment of principal and interest to the Senior
Certificates and to each Class of Subordinate Certificates with a higher
payment priority, the holders of the Class M-1, Class M-2, Class M-3 and Class
B Certificates, in that order, will be entitled to receive distributions
allocable to interest in an amount equal to one month's interest at the
applicable Pass-Through Rate on the Certificate Principal Balance of such
Class of Certificates immediately preceding such Distribution Date. The Pass-
Through Rate with respect to the Class M-1 Certificates on any Distribution
Date is the lesser of (a) the Blended Rate for Pool I with respect to such
Distribution Date and (b) One-Year CMT as of the 45th day preceding such
Distribution Date plus 2.00% per annum. The Pass-Through Rate with respect to
the Class M-2 Certificates on any Distribution Date is the lesser of (a) the
Blended Rate for Pool I with respect to such Distribution Date, and (b) One-
Year CMT as of the 45th day preceding such Distribution Date plus 2.15% per
annum. The Pass-Through Rate with respect to the Class M-3 Certificates on any
Distribution Date is the Blended Rate for Pool I with respect to such
Distribution Date. Because a substantial percentage of the Pool I Loans have
initial Mortgage Rates that are less than the sum of the related CMT Index and
related margin, and because adjustment of such initial Mortgage Rates may be
limited by the application of periodic rate adjustment caps, maximum Mortgage
Rates and minimum Mortgage Rates, the initial Pass-Through Rates on the Class
M-1 and Class M-2 Certificates will, and during certain periods thereafter,
such Pass-Through Rates may, be equal to the Blended Rate with respect to Pool
I. The Pass-Through Rate for the Class B Certificates on any Distribution Date
is equal to the Blended Rate for Pool I with respect to such Distribution
Date. One month's interest at the applicable Pass-Through Rate for each of the
Class M-1, Class M-2, Class M-3 and Class B Certificates on the Certificate
Principal Balance of such Class of Certificates immediately preceding such
Distribution Date (less any Prepayment Interest Shortfalls, Relief Act
shortfalls and negative amortization on the Mortgage Loans allocated thereto)
is referred to herein as the "CLASS M-1 INTEREST DISTRIBUTION AMOUNT," the
"CLASS M-2 INTEREST DISTRIBUTION AMOUNT," the "CLASS M-3 INTEREST DISTRIBUTION
AMOUNT" and the "CLASS B INTEREST DISTRIBUTION AMOUNT," respectively.
The "SERVICING FEE" is the fee payable to the Servicers for servicing the
Mortgage Loans. The "TRUSTEE FEE" is the fee payable to the Trustee for acting
as Trustee pursuant to the Pooling and Servicing Agreement. The "NET MORTGAGE
RATE" on each Mortgage Loan is equal to the interest rate thereon (the
"MORTGAGE RATE") minus the sum of the per annum rates at which the Servicing
Fee (the "SERVICING FEE RATE") and the Trustee Fee (the "TRUSTEE FEE RATE")
accrue. The Servicing Fee Rate is 0.600% per annum and the Trustee Fee Rate is
0.015% per annum with respect to each of the Mortgage Loans.
To the extent that any portion of the interest due on a Class of
Certificates is not paid on a Distribution Date, such interest will be payable
on future Distribution Dates to the extent of available funds, but no
additional interest will be paid on such unpaid interest.
To the extent that any prepayment of a Mortgage Loan has occurred during a
Prepayment Period, a shortfall in interest could occur because interest is
paid by the Mortgagor only to the date of prepayment. Such shortfalls in
interest resulting from full and partial prepayments are required to be offset
to the extent of the Servicing Fee payable with respect to such Distribution
Date. To the extent any such shortfalls are not covered by the Servicer such
shortfall (the "PREPAYMENT INTEREST SHORTFALL") will be allocated to reduce
the Class A-I Interest Distribution Amount, Class A-II Interest Distribution
Amount, Class A-III Interest Distribution Amount, Class IO Interest
Distribution Amount, Class M-1 Interest Distribution Amount, Class M-2
Interest Distribution Amount, Class M-3 Interest Distribution Amount and Class
B Interest Distribution Amount for the related Distribution Date on a pro rata
basis in accordance with the respective amounts of interest due on such
Distribution Date absent such reduction. Interest shortfalls resulting from
the Relief Act (as hereinafter defined) will also be allocated to all of the
Certificates in reduction of their interest distributions on a pro rata basis.
The "INTEREST ACCRUAL PERIOD" for each Distribution Date will be the
calendar month preceding such date. Interest on the Certificates will be
calculated and payable on the basis of a 360-day year divided into twelve 30-
day months.
Principal Distribution Amounts.
On each Distribution Date, the holders of the Class A-I Certificates will be
entitled to receive from the Available Distribution Amount an amount (the
"CLASS A-I PRINCIPAL DISTRIBUTION AMOUNT"), which will be equal to the sum of:
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(i) the Adjusted Class A-I Percentage of the portion of the Available
Distribution Amount for such Distribution Date that is attributable to the
principal portion of Monthly Payments due on the Mortgage Loans in Pool I,
whether or not received by the Servicer; and
(ii) the Adjusted Class A-I Prepayment Percentage of the portion of the
Available Distribution Amount that is attributable to (a) any amounts
received in connection with the repurchase of a Mortgage Loan in Pool I
(less the portion of such repurchase proceeds allocable to interest, (b)
the aggregate net Liquidation Proceeds (net of any Liquidation Expenses)
and Insurance Proceeds received by the Servicer in connection with a
Mortgage Loan in Pool I, less the amounts allocable to principal of any
unreimbursed Advances previously made by the Servicer and less the portion
of such Liquidation Proceeds or Insurance Proceeds allocable to interest,
and (c) all full and partial principal prepayments by the Mortgagors of
Mortgage Loans in Pool I.
The "CLASS A-I PERCENTAGE" as of any Distribution Date is equal to the
Certificate Principal Balance of the Class A-I Certificates divided by the sum
of the aggregate Certificate Principal Balance of the Class A-I Certificates
and Subordinate Certificates immediately preceding such Distribution Date. The
"ADJUSTED CLASS A-I PERCENTAGE" for any Distribution Date is equal to the
Class A-I Percentage for such Distribution Date multiplied by the related Non-
Surplus Percentage for such Distribution Date. The "SURPLUS PERCENTAGE" for
any Pool on any Distribution Date is equal to 100% minus the Non-Surplus
Percentage for such Pool and such Distribution Date. The "NON-SURPLUS
PERCENTAGE" for any Pool on any Distribution Date is equal to a fraction,
expressed as a percentage (but not more than 100% or less than 0%), the
numerator of which is equal to the aggregate Certificate Principal Balance of
the related Class of Class A Certificates and, in the case of Pool I, the
Subordinate Certificates, and the denominator of which is equal to the
aggregate Principal Balance of the Mortgage Loans in the related Pool. The
"ADJUSTED CLASS A-I PREPAYMENT PERCENTAGE" for any Distribution Date is equal
to the Class A-I Prepayment Percentage for such Distribution Date multiplied
by the related Non-Surplus Percentage for such Distribution Date. The "DEFICIT
PERCENTAGE" for any Pool and any Distribution Date is equal to a fraction,
expressed as a percentage, the numerator of which is equal to the Pool Deficit
Amount for such Pool and such Distribution Date, and the denominator of which
is equal to the aggregate Pool Deficit Amounts for all Pools and such
Distribution Date. The "SENIOR PERCENTAGE" as of any Distribution Date is
equal to the aggregate Certificate Principal Balance of the Class A
Certificates divided by the sum of the aggregate Certificate Principal Balance
of all of the Certificates immediately preceding such Distribution Date. The
"CERTIFICATE PRINCIPAL BALANCE" of any Certificate as of any date of
determination is equal to the initial Certificate Principal Balance thereof
minus the sum of any distributions of principal thereon and the principal
portion of any Realized Losses allocated thereto on any prior Distribution
Date or, with respect to the Class of Subordinate Certificates outstanding
with the lowest payment priority, an amount equal to the Principal Balance of
the Mortgage Loans minus the Certificate Principal Balance of all other
Classes of Certificates then outstanding; provided that if, after
distributions of principal on any Distribution Date, the aggregate Principal
Balance of the Pool I Loans or Pool II Loans is increased as a result of
negative amortization on the Negative Amortization Loans, the Certificate
Principal Balance of the Class or Classes of Certificates that were entitled
to receive payments of principal with respect to the Mortgage Loans in such
Pool on such Distribution Date will be increased by such amount of negative
amortization, in proportion to the respective amounts of such entitlements,
and the respective amounts of interest distributable on each such Class of
Certificates on such Distribution Date will be reduced accordingly.
"INSURANCE PROCEEDS" means proceeds of any title, hazard or other insurance
policy covering any Mortgage Loan, other than (i) proceeds to be applied to
the restoration or repair of the related Mortgaged Property, (ii) proceeds
released to the related Mortgagor in accordance with the Pooling and Servicing
Agreement and (iii) proceeds released to the Servicer to reimburse the
Servicer for any Advances made in respect of the related Mortgage Loan
pursuant to the Servicing Agreement.
"LIQUIDATION EXPENSES" means expenses incurred by the Servicer in connection
with the liquidation of any defaulted Mortgage Loan.
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<PAGE>
"LIQUIDATION PROCEEDS" means amounts, other than Insurance Proceeds,
received in connection with the liquidation of defaulted Mortgage Loans,
whether through trustee's sale, foreclosure sale or otherwise, or amounts
received in connection with any condemnation or partial release of a Mortgaged
Property, other than amounts required to be paid to the Mortgagor pursuant to
the terms of the applicable Mortgage Loan or otherwise pursuant to law.
As of any Distribution Date, the "CLASS A-I PREPAYMENT PERCENTAGE" will be
the percentage indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE CLASS A-I PREPAYMENT PERCENTAGE
- ----------------- -------------------------------
<S> <C>
July 1998 through June 2008.................. 100%
July 2008 through June 2009.................. the applicable Class A-I Percentage, plus 70% of the
Subordinate Percentage;
July 2009 through June 2010.................. the applicable Class A-I Percentage, plus 60% of the
Subordinate Percentage;
July 2010 through June 2011.................. the applicable Class A-I Percentage, plus 40% of the
Subordinate Percentage;
July 2011 through June 2012.................. the applicable Class A-I Percentage, plus 20% of the
Subordinate Percentage; and
July 2012 and thereafter..................... the applicable Class A-I Percentage;
</TABLE>
provided, however, that (a) for any Distribution Date on which the Senior
Percentage is greater than the initial Senior Percentage, the Class A-I
Prepayment Percentage will be 100%; (b) for any Distribution Date on or after
July 2018, if any Class A Certificates are outstanding, the Class A-I
Prepayment Percentage will be 100%; and (c) no reduction of the Class A-I
Prepayment Percentage will occur on any Distribution Date unless:
(A) (i) as of such Distribution Date as to which any such reduction
applies, the aggregate Principal Balance of the Mortgage Loans delinquent
60 days or more (including for this purpose any Mortgage Loans in
foreclosure and Mortgage Loans with respect to which the related Mortgaged
Property has been acquired by the Trust Fund), averaged over the preceding
three months, as a percentage of the aggregate Principal Balance of all
Mortgage Loans averaged over the last three months, does not exceed 4%; and
(ii) as of such Distribution Date, cumulative Realized Losses with
respect to the Mortgage Loans do not exceed (a) 10% of the Certificate
Principal Balance of the Subordinate Certificates as of the Cut-Off Date
(the "ORIGINAL SUBORDINATE PRINCIPAL BALANCE") if such Distribution Date
occurs on or before June 2009, (b) 15% of the Original Subordinate
Principal Balance if such Distribution Date occurs between and including
July 2009 and June 2010, (c) 20% of the Original Subordinate Principal
Balance if such Distribution Date occurs between and including July 2010
and June 2011, (d) 25% of the Original Subordinate Principal Balance if
such Distribution Date occurs between and including July 2011 and June
2012, and (e) 30% of the Original Subordinate Principal Balance if such
Distribution Date occurs during or after July 2012; or
(B) (i) as of such Distribution Date, the aggregate Principal Balances of
Mortgage Loans delinquent 60 days or more (including for this purpose any
Mortgaged Loans in foreclosure and Mortgage Loans with respect to which the
related Mortgaged Property has been acquired by the Trust Fund) does not
exceed 50% of the aggregate Certificate Principal Balance of the
Subordinate Certificates as of such date; and
(ii) cumulative Realized Losses with respect to the Mortgage Loans do not
exceed (a) 25% of the Original Subordinate Principal Balance if such
Distribution Date occurs on or before June 2009, (b) 30% of the Original
Subordinate Principal Balance if such Distribution Date occurs between and
including July 2009 and June 2010, (c) 35% of the Original Subordinate
Principal Balance if such Distribution Date occurs between and including
July 2010 and June 2011, (d) 40% of the Original Subordinate Principal
Balance if such Distribution Date occurs between and including July 2011
and June 2012, and (e) 45% of the Original Subordinate Principal Balance if
such Distribution Date occurs during or after July 2012;
provided further that unless the condition set forth in clause (b) of the
proviso above is in effect and provided that the condition set forth in clause
(c) of the proviso above is satisfied, on any Distribution Date prior to the
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Distribution Date in July 2001 on which the Aggregate Subordinate Percentage
is equal to or greater than 80% (twice the Aggregate Subordinate Percentage as
of the Cut-Off Date), the Class A-I Prepayment Percentage will be the Class A-
I Percentage plus 50% of the Subordinate Percentage for such Distribution
Date, and on any Distribution Date on or after the Distribution Date in July
2001 on which the Aggregate Subordinate Percentage is equal to or greater than
approximately 80%, the Class A-I Prepayment Percentage will be the Class A-I
Percentage for such Distribution Date.
If on any Distribution Date the allocation to the Class A Certificates of a
disproportionate amount of full and partial principal prepayments and other
unscheduled amounts would reduce the outstanding Certificate Principal Balance
of the Class A Certificates below zero, the Class A-I Prepayment Percentage
for such Distribution Date will be limited to the percentage necessary to
reduce the Certificate Principal Balance of the Class A Certificates to zero
and the Subordinate Prepayment Percentage will be increased accordingly.
The "SUBORDINATE PERCENTAGE" as of any Distribution Date is equal to 100%
minus the Class A-I Percentage for such Distribution Date. The "ADJUSTED
SUBORDINATE PERCENTAGE" with respect to any Distribution Date is equal to the
Subordinate Percentage for such Distribution Date multiplied by the Non-
Surplus Percentage for Pool I for such Distribution Date. The "ADJUSTED
SUBORDINATE PREPAYMENT PERCENTAGE" with respect to any Distribution Date is
equal to the Subordinate Prepayment Percentage multiplied by the Non-Surplus
Percentage for Pool I. The "SUBORDINATE PREPAYMENT PERCENTAGE" is equal to 0%
for any Distribution Date prior to July 2008, 30% of the Subordinate
Percentage for any Distribution Date occurring from July 2008 to June 2009,
40% of the Subordinate Percentage for any Distribution Date occurring from
July 2009 to June 2010, 60% of the Subordinate Percentage for any Distribution
Date occurring from July 2010 to June 2011, 80% of the Subordinate Percentage
for any Distribution Date occurring from July 2011 to June 2012, and 100% of
the Subordinate Percentage thereafter; provided that for any Distribution Date
on which the Senior Percentage is greater than the initial Senior Percentage,
the Subordinate Prepayment Percentage will be 0%, and that no increase in the
Subordinate Prepayment Percentage will occur on any Distribution Date on which
the Class A-I Prepayment Percentage is not permitted to decrease in accordance
with the definition thereof; and provided further that on any Distribution
Date on which the Aggregate Subordinate Percentage is equal to or greater than
approximately 80%, the Subordinate Prepayment Percentage will be 50% of the
Subordinate Percentage if such Distribution Date is prior to July 2001, or the
Subordinate Percentage for such Distribution Date if such Distribution Date is
on or after July 2001. The "AGGREGATE SUBORDINATE PERCENTAGE" as of any
Distribution Date is equal to the aggregate Certificate Principal Balance of
the Subordinate Certificates as of such Distribution Date divided by the
aggregate Certificate Principal Balance of all Classes of Certificates as of
such Distribution Date.
On each Distribution Date, the holders of the Class A-II and Class A-III
Certificates will be entitled to receive from the Available Distribution
Amount, an amount (the "CLASS A-II PRINCIPAL DISTRIBUTION AMOUNT" and the
"CLASS A-III PRINCIPAL DISTRIBUTION AMOUNT," respectively), which will be
equal to the sum of:
(i) the Non-Surplus Percentage for the related Pool of the portion of the
Available Distribution Amount for such Distribution Date that is
attributable to the sum of (a) the principal portion of Monthly Payments on
the Mortgage Loans in the related Pool, whether or not received by the
Servicer, (b) any amounts received in connection with the repurchase of a
Mortgage Loan in the related Pool during the preceding calendar month (less
the portion of such repurchase proceeds allocable to interest), (c) the
aggregate net Liquidation Proceeds (net of any Liquidation Expenses) and
Insurance Proceeds received by the Servicer during the preceding calendar
month in connection with a Mortgage Loan in the related Pool, less the
amounts allocable to principal of any unreimbursed Advances previously made
by the Servicer (less the portion of such Liquidation Proceeds or Insurance
Proceeds allocable to interest), and (d) all full and partial principal
prepayments by the Mortgagors of Mortgage Loans in the related Pool during
the applicable Prepayment Period;
(ii) the related Surplus Percentages of the principal portion of all
Monthly Payments, whether or not received, and the related Surplus
Percentages of all unscheduled payments of principal on the Mortgage Loans
in Pool I and Pool III (in the case of the Class A-II Certificates) or in
Pool I and Pool II (in the case
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of the Class A-III Certificates) and included in the Available Distribution
Amount for such Distribution Date multiplied by the Deficit Percentage for
the related Pool;
(iii) the portion of the Surplus Percentage of all unscheduled payments
of principal on the Mortgage Loans in Pool II and Pool III that are not
allocated to the Subordinate Certificates in accordance with clause (iv) of
the definition of the Subordinate Principal Distribution Amount, below, to
be allocated first to the Class A-II Certificates, until the Certificate
Principal Balance thereof is reduced to zero, and second to the Class A-III
Certificates until the Certificate Principal Balance thereof is reduced to
zero; and
(iv) if the Certificate Principal Balance of the Class A-I Certificates
has been reduced to zero, the amounts described in clause (ii) of the
definition of the Class A-I Principal Distribution Amount, will be
allocated first to the Class A-II Certificates, until the Certificate
Principal Balance thereof is reduced to zero, and second to the Class A-III
Certificates until the Certificate Principal Balance thereof is reduced to
zero.
On each Distribution Date, the holders of the Subordinate Certificates in
the aggregate will be entitled to receive, from the Available Distribution
Amount after distributions with a higher payment priority have been made, an
amount (the "SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT") which will be equal
to the sum of:
(i) the Adjusted Subordinate Percentage of the portion of the Available
Distribution Amount with respect to such Distribution Date that is
attributable to the principal portion of Monthly Payments due on the
Mortgage Loans in Pool I, whether or not received by the Servicer;
(ii) the Adjusted Subordinate Prepayment Percentage of the portion of the
Available Distribution Amount that is attributable to (a) any amounts
received in connection with the repurchase of any Mortgage Loan in Pool I
(less the portion of such repurchase proceeds allocable to interest), (b)
the aggregate Liquidation Proceeds (net of any Liquidation Expenses) and
Insurance Proceeds received by the Servicer in respect of a Mortgage Loan
in Pool I, less the amounts allocable to principal of any unreimbursed
Advances previously made by the Servicer or the Master Servicer and less
the portion of such Liquidation Proceeds or Insurance Proceeds allocable to
interest, and (c) all full and partial principal prepayments by the
Mortgagors of Mortgage Loans in Pool I;
(iii) the Subordinate Percentage of the related Surplus Percentage of the
principal portion of the Monthly Payments due on the Mortgage Loans in Pool
II and Pool III, whether or not received, multiplied by the Deficit
Percentage for Pool I; and
(iv) the Subordinate Prepayment Percentage of the related Surplus
Percentage of the principal portion of all payments received on the
Mortgage Loans in Pool II and Pool III (other than the Monthly Payments)
multiplied by the Deficit Percentage for Pool I.
The Subordinate Principal Distribution Amount will be allocated among the
Subordinate Certificates in the amounts and in accordance with the priority of
distributions set forth below.
The holders of the Class IO Certificates will not be entitled to any
distributions of principal.
Priority of Distributions. On each Distribution Date, to the extent of the
Available Distribution Amount for such Distribution Date, the following
amounts will be distributed to the Certificateholders in the following order
of priority:
(a) concurrently, (i) to the Class IO Certificates, the Class IO Interest
Distribution Amount for such Distribution Date and any Class IO Interest
Distribution Amount remaining unpaid from any preceding Distribution Date
and (ii) to the Class A Certificates, the related Class A Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(b) concurrently, to the holders of the Class A Certificates, in
reduction of their Certificate Principal Balances, until the Certificate
Principal Balances thereof have been reduced to zero, the related Class A
Principal Distribution Amount; provided that any shortfall in amounts due
pursuant to this clause (b) will be allocated, among the Class A
Certificates on a pro rata basis;
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(c) to the holders of the Class M-1 Certificates, the Class M-1 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(d) to the holders of the Class M-1 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below;
(e) to the holders of the Class M-2 Certificates, the Class M-2 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(f) to the holders of the Class M-2 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below;
(g) to the holders of the Class M-3 Certificates, the Class M-3 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(h) to the holders of the Class M-3 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below;
(i) to the holders of the Class B-1 Certificates, the Class B-1 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(j) to the holders of the Class B-1 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below;
(k) to the holders of the Class B-2 Certificates, the Class B-2 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date;
(l) to the holders of the Class B-2 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below;
(m) to the holders of the Class B-3 Certificates, the Class B-3 Interest
Distribution Amount and any portion of such amount remaining unpaid from
any preceding Distribution Date; and
(n) to the holders of the Class B-3 Certificates, the portion of the
Subordinate Principal Distribution Amount set forth below.
The Subordinate Principal Distribution Amount will be allocated to the
Subordinate Certificates on a pro rata basis in accordance with their
respective Certificate Principal Balances; provided, however, that if, on any
Distribution Date, the Credit Support for any Class of Subordinate
Certificates is less than the Initial Credit Support for such Class, the
portion of Subordinate Principal Distribution Amount described in clauses (ii)
and (iv) of the definition thereof will be allocated among the Class of
Subordinate Certificates with the highest payment priority and those Classes
of Subordinate Certificates with respect to which the Credit Support is at
least equal to the Initial Credit Support, pro rata based on the respective
Certificate Principal Balances thereof, and that payments to such Subordinate
Certificates will be made in accordance with the payment priorities described
above.
With respect to any Class of Subordinate Certificates and any Distribution
Date, "CREDIT SUPPORT" shall mean the percentage equivalent of (a) the
aggregate Certificate Principal Balance of (i) such Class of Subordinate
Certificates and (ii) all Classes of Subordinate Certificates with lower
payment priorities than such Class of Subordinate Certificates divided by (b)
the aggregate Certificate Principal Balance of all the Certificates before the
allocation of any Realized Losses on such Distribution Date and prior to the
application of any distributions of principal to be made on such Distribution
Date. With respect to any Class of Subordinate Certificates, "INITIAL CREDIT
SUPPORT" shall mean the percentage equivalent of (a) the initial aggregate
Certificate Principal Balance of (i) such Class and (ii) all Classes of
Subordinate Certificates with lower payment priorities divided by (b) the
initial aggregate Certificate Principal Balance of all Classes of
Certificates.
Within a Class of Certificates, distributions of interest or principal will
be made in accordance with the Percentage Interest represented by each
Certificate of such Class. The undivided percentage interest (the
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"PERCENTAGE INTEREST") of an individual Certificate in distributions on the
related Class of Certificates will equal the percentage obtained from dividing
the Initial Certificate Principal Balance of such Certificate by the Initial
Certificate Principal Balance of the related Class (or, with respect to the
Class IO Certificates, the Percentage Interest set forth on the face of any
such Certificate).
ALLOCATION OF LOSSES; SUBORDINATION
The Subordination provided to the Senior Certificates by the Subordinate
Certificates and the Subordination provided to each Class of Class M
Certificates by the Class B Certificates and by any Class of Class M
Certificates subordinate thereto will cover Realized Losses on the Mortgage
Loans. Realized Losses will be allocated as follows: first, to the Class B-3
Certificates; second, to the Class B-2 Certificates; third, to the Class B-1
Certificates; fourth, to the Class M-3 Certificates; fifth, to the Class M-2
Certificates; and sixth, to the Class M-1 Certificates, in each case until the
Certificate Principal Balance of such Class of Certificates has been reduced
to zero; and thereafter, the entire amount of such Realized Losses among all
the remaining Classes of Class A Certificates on a pro rata basis.
Any allocation of a Realized Loss to a Certificate will be made by reducing
the Certificate Principal Balance thereof, in the case of the principal
portion of such Realized Loss, in each case until the Certificate Principal
Balance of such Class has been reduced to zero, and the accrued interest
thereon, in the case of the interest portion of such Realized Loss, by the
amount so allocated as of the Distribution Date occurring in the month
following the calendar month in which such Realized Loss was incurred. In
addition, any such allocation of a Realized Loss to a Subordinate Certificate
may also be made by operation of the payment priority to the Senior
Certificates set forth under "--Distributions in Respect of Interest and
Principal--Principal Distribution Amounts" and any Class of Class M
Certificates with a higher payment priority. As used herein, "SUBORDINATION"
refers to the provisions discussed above for the sequential allocation of
Realized Losses among the various Classes, as well as all provisions effecting
such allocations including the priorities for distribution of cash flows in
the amounts described herein.
An allocation of a Realized Loss on a "pro rata basis" among two or more
Classes of Certificates means an allocation to each such Class of Certificates
on the basis of its then outstanding Certificate Principal Balance prior to
giving effect to distributions to be made on such Distribution Date in the
case of an allocation of the principal portion of a Realized Loss, or based on
the Accrued Certificate Interest thereon in respect of such Distribution Date
in the case of an allocation of the interest portion of a Realized Loss.
With respect to any defaulted Mortgage Loan that is finally liquidated,
through foreclosure sale, disposition of the related Mortgaged Property if
acquired on behalf of the Certificateholders by deed in lieu of foreclosure,
or otherwise, the amount of loss realized, if any, will equal the portion of
the Principal Balance remaining, if any, plus interest thereon through the
last day of the month in which such Mortgage Loan was finally liquidated,
after application of all amounts recovered (net of amounts reimbursable to the
Servicer for Advances and expenses, including attorneys' fees) towards
interest and principal owing on the Mortgage Loan. Such amount of loss
realized is referred to herein as a "REALIZED LOSS." With respect to the
calculation of a Realized Loss on a Mortgage Loan subject to a Deficient
Valuation, the amount of the Realized Loss will be the difference between the
unpaid Principal Balance of the related Mortgage Loan immediately prior to
Deficient Valuation and the unpaid Principal Balance as reduced by the
Deficient Valuation. The term "DEFICIENT VALUATION" shall mean, with respect
to any Mortgage Loan, a valuation by a court of competent jurisdiction of the
Mortgaged Property in an amount less than the outstanding indebtedness under
the Mortgage Loan, which valuation results from a proceeding under the United
States Bankruptcy Code, as amended from time to time (the "BANKRUPTCY CODE"),
or any reduction pursuant to the Bankruptcy Code that results in a permanent
forgiveness of principal.
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CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yield to maturity and the aggregate amount of distributions on the
Offered Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans, the amount and timing of Mortgagor defaults
resulting in Realized Losses and by adjustments to the Mortgage Rates. Such
yield may be adversely affected by a higher or lower than anticipated rate of
principal payments on the Mortgage Loans in the Trust Fund. The rate of
principal payments on such Mortgage Loans will in turn be affected by the
amortization schedules of the Mortgage Loans, the rate and timing of principal
prepayments thereon by the Mortgagors, liquidations of defaulted Mortgage
Loans, purchases of Mortgage Loans due to certain breaches of representations
and warranties and any exercise by the Servicer (or its designee) of its
option to effect any early termination of the Trust when the outstanding
Principal Balance of the Mortgage Loans is reduced to 10% or less of the
outstanding principal balance of the Mortgage Loans as of the Cut-Off Date.
The timing of changes in the rate of prepayments, liquidations and repurchases
of the Mortgage Loans may, and the timing of Realized Losses will,
significantly affect the yield to an investor, even if the average rate of
principal payments experienced over time is consistent with an investor's
expectation. Since the rate and timing of principal payments on the Mortgage
Loans will depend on future events and on a variety of factors, no assurance
can be given as to such rate or the timing of principal payments on the
Offered Certificates.
The Mortgage Loans are generally prepayable at any time without penalty.
Prepayments, liquidations and purchases of the Mortgage Loans will result in
distributions to holders of the Offered Certificates of principal amounts
which would otherwise be distributed over the remaining terms of the Mortgage
Loans. Factors affecting prepayment (including defaults and liquidations) of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties, changes in
the value of the mortgaged properties, mortgage market interest rates and
servicing decisions. In addition, if prevailing mortgage rates fell
significantly below the Mortgage Rates on the Mortgage Loans, the rate of
prepayments (including refinancings) would be expected to increase.
Conversely, if prevailing mortgage rates rose significantly above the Mortgage
Rates on the Mortgage Loans, the rate of prepayments on the Mortgage Loans
would be expected to decrease. The rate of prepayments on the Mortgage Loans
with initial Mortgage Rates lower than the sum of the applicable index and
interest rate margin could also increase as the Mortgage Rates on such
Mortgage Loans increase to the sum of the applicable index and margin, even
where the level of the index remains constant or declines.
The Mortgage Loans generally are assumable under certain circumstances if,
in the sole judgment of the Servicer, the prospective purchaser of a Mortgaged
Property is creditworthy and the security for such Mortgage Loan is not
impaired by the assumption. In the event the Servicer does not approve an
assumption, the related Mortgaged Property will be due-on-sale. The Servicer
shall enforce any due-on-sale clause contained in any Mortgage Note or
Mortgage, to the extent permitted under applicable law and governmental
regulations; provided, however, if the Servicer determines that it is
reasonably likely that the Mortgagor will bring, or if any Mortgagor does
bring, legal action to declare invalid or otherwise avoid enforcement of a
due-on-sale clause contained in any Mortgage Note or Mortgage, the Servicer
shall not be required to enforce the due-on-sale clause or to contest such
action. The extent to which the Mortgage Loans are assumed by purchasers of
the Mortgaged Properties rather than prepaid by the related Mortgagors in
connection with the sales of the Mortgaged Properties will affect the weighted
average life of the related Offered Certificates and may result in a
prepayment experience on the Mortgage Loans that differs from that on other
conventional mortgage loans. See "Maturity and Prepayment Considerations" in
the Prospectus.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years, especially with respect to the Pool I Loans and Pool II Loans, as
increases in the monthly payments to an amount in excess of the monthly
payment required at the time of origination may result in a default rate
higher than that on level payment mortgage loans, particularly since the
Mortgagor under each such Pool I Loan
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and Pool II Loan was qualified on the basis of the Mortgage Rate in effect at
origination. The repayment of such Mortgage Loans will be dependent on the
ability of the Mortgagor to make larger monthly payments as the Mortgage Rate
increases. The repayment of the Mortgage Loans secured by Multifamily
Properties and Commercial Properties is dependent upon the ability of the
related Mortgaged Property to produce net income. A number of factors, many
beyond the control of the related borrower, can affect the ability of a real
estate project to generate sufficient net operating income to pay debt service
and/or to maintain its value. See "Risk Factors" herein and in the Prospectus.
With respect to the Mortgage Loans, the Junior Mortgage Loans are subordinate
to the rights of the mortgagee under the related senior mortgage or mortgages
and, therefore, the holder of a Junior Mortgage Loan will be subject to a loss
of its mortgage if the holder of a senior mortgage is successful in
foreclosure of its mortgage since no junior liens or encumbrances survive such
a foreclosure. Investors should be aware that any liquidation, insurance or
condemnation proceeds received in respect of such Junior Mortgage Loans will
be available to satisfy the outstanding balance of such Mortgage Loans only to
the extent that the claims of such senior mortgages have been satisfied in
full, including any related foreclosure costs. See "Risk Factors" herein and
in the Prospectus and "Certain Legal Aspects of the Mortgage Loans and
Contracts" in the Prospectus. Furthermore, the rate of default on Mortgage
Loans with high Loan-to-Value Ratios may be higher than for other types of
Mortgage Loans. As a result of the imperfect credit quality of a substantial
portion of the Mortgagors, the Mortgage Loans are likely to experience rates
of delinquency, foreclosure, bankruptcy and loss that are higher, and that may
be substantially higher, than those experienced by mortgage loans whose
mortgagors have more reliable credit histories. In addition, because of
certain of the Mortgagors' imperfect credit histories and their likely effect
on the delinquency, foreclosure, bankruptcy and loss experience of the
Mortgage Loans, the Mortgage Loans may be serviced in a manner intended to
result in a faster exercise of remedies, which may include foreclosure, in the
event Mortgage Loan delinquencies and defaults occur, than would be the case
if the Mortgage Loans were serviced in accordance with such other programs.
Furthermore, the rate and timing of prepayments, defaults and liquidations on
the Mortgage Loans will be affected by the general economic condition of the
region of the country in which the related Mortgaged Properties are located.
The risk of delinquencies and loss is greater and prepayments are less likely
in regions where a weak or deteriorating economy exists, as may be evidenced
by, among other factors, increasing unemployment or falling property values.
Approximately 58.07% of the Mortgage Loans are located in the State of
California. Such geographic concentration could increase the risk of loss on
the Mortgage Loans if general economic conditions in that region were to
deteriorate faster than in other regions.
The yield to investors on the Offered Certificates may also be adversely
affected by the allocation thereto of Prepayment Interest Shortfalls. In
addition, the yield to maturity of the Offered Certificates will depend on,
among other things, the price paid by the holders of the Offered Certificates
and the Pass-Through Rate. The extent to which the yield to maturity of a
Offered Certificate is sensitive to prepayments will depend, in part, upon the
degree to which it is purchased at a discount or premium. In general, if an
Offered Certificate is purchased at a premium and principal distributions
thereon occur at a rate faster than assumed at the time of purchase, the
investor's actual yield to maturity will be lower than that anticipated at the
time of purchase. Conversely, if Offered Certificate is purchased at a
discount and principal distributions thereon occur at a rate slower than that
assumed at the time of purchase, the investor's actual yield to maturity will
be lower than that anticipated at the time of purchase.
Approximately 48.39% of the Pool II Loans are Negative Amortization Loans.
During a period of rising interest rates as well as immediately after
origination, the amount of interest accruing on the Principal Balance of such
Mortgage Loans may exceed the amount of the Monthly Payment thereon. As a
result, a portion of the accrued interest on such Negative Amortization Loans
may become Deferred Interest, which will be added to the Principal Balance
thereof and will bear interest at the applicable Mortgage Rate. Any such
increase in the Principal Balance of a Negative Amortization Loan could
increase the loan-to-value ratio of the related Mortgage Loan. To the extent
that the addition of Deferred Interest to the Principal Balance of any
Mortgage Loans causes the aggregate Principal Balance of a Pool to increase
after distributions have been made on any Distribution Date, the Certificate
Principal Balance of the Class or Classes of Certificates that were entitled
to receive payments of principal with respect to the Mortgage Loans in such
Pool on such Distribution Date will be increased by such
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amount of negative amortization, in proportion to the respective amounts of
such entitlements, and the respective amounts of interest distributable on
each such Class of Certificates on such Distribution Date will be reduced
accordingly. Any such increase in the Certificate Principal Balance of a
Certificate will lengthen the weighted average life thereof and may adversely
affect yield to the holders. In addition, with respect to certain Negative
Amortization Loans, during a period of declining interest rates, each Monthly
Payment on such a Mortgage Loan may exceed the amount of scheduled principal
and accrued interest on the Principal Balance thereof. Any such excess will be
applied to reduce the Certificate Principal Balance of the related Class or
Classes of Certificates and the weighted average life of such Certificates
which in turn may adversely affect the yield to holders thereof.
Class A Certificates. Scheduled and unscheduled principal payments on the
Pool I Loans will be distributed to the Group I Certificates, except under
certain circumstances set forth herein. For example, after the Certificate
Principal Balance of the Class A-I Certificates has been reduced to zero, the
Adjusted Class A-I Prepayment Percentage of unscheduled principal payments on
the Pool I Loans will be distributed to the Class A-II and Class A-III
Certificates as set forth herein.
Scheduled and unscheduled principal payments on the Pool II Loans and Pool
III Loans will be distributed to the Class A-II Certificates and Class A-III
Certificates, respectively, except under certain circumstances set forth
herein.
The principal distributions and the weighted average lives of the Class A
Certificates will be affected by the rate and timing of unscheduled principal
payments (including prepayments, defaults and liquidations) on the Mortgage
Loans in the related Pool.
Investors in the Class A Certificates should also be aware that, subject to
certain conditions set forth herein, unless the Aggregate Subordinate
Percentage on any Distribution Date is equal to or exceeds approximately 80%
(twice the Aggregate Subordinate Percentage as of the Cut-off Date) or the
Certificate Principal Balances of the Class A Certificates have been reduced
to zero, prior to the Distribution Date occurring in July 2008, all
unscheduled principal payments on the Pool I Loans will be distributed to the
Class A Certificates, and prior to the Distribution Date occurring in July
2012, and during certain periods thereafter if certain loss and delinquency
tests have not been met, a disproportionately large portion of such
unscheduled payments will be distributed to the Class A Certificates. Such
distributions of principal payments will be allocated among the Class A
Certificates in the manner set forth herein.
Because the Pool I Loans and Pool II Loans have different Net Mortgage
Rates, the Pass-Through Rates on the Group I Certificates and Class A-II
Certificates (which are affected by the weighted average of the Net Mortgage
Rates of the Pool I Loans and Pool II Loans, respectively) may increase or
decrease from time to time due to prepayments, defaults and liquidations on
such Mortgage Loans. In addition, Mortgage Loans with higher Mortgage Rates
are generally more likely to be prepaid at a faster rate under most
circumstances than are Mortgage Loans having lower Mortgage Rates, thereby
resulting in a decrease in the Pass-Through Rate with respect to the Group I
Certificates and Class A-II Certificates.
The Pass-Through Rates on the Group I Certificates and Class A-II
Certificates are affected by changes in the weighted average of the Net
Mortgage Rates on the Pool I Loans and Pool II Loans, respectively.
Adjustments to the Net Mortgage Rates of the Pool I Loans and Pool II Loans
are based on the indices related to such Mortgage Loans as most recently made
available as of a fixed number of days prior to the adjustment date.
Accordingly, the yield to investors in the Group I Certificates and Class A-II
Certificates may be affected on a delayed basis relative to movements in the
indices applicable to the Pool I Loans and Pool II Loans. Although the
Mortgage Rate with respect to each Pool I Loan and Pool II Loan may, (and in
the case of the Class A-I, Class A-II and Class M-3 Certificates, will) adjust
to reflect changes in its related index, such Mortgage Rate is subject to any
applicable periodic rate cap, maximum Mortgage Rate and minimum Mortgage Rate.
If an index increases substantially between adjustment dates, the Net Mortgage
Rate may be lower than if the Net Mortgage Rate could be based on the index
without such caps. Furthermore, because the Pass-Through Rate on the Group I
Certificates and Class A-II Certificates is subject to adjustment, such Pass-
Through Rate may (and in the case
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of the Class A-I, Class A-II and Class M-3 Certificates, will) generally
decrease if the indices with respect to the Pool I Loans and Pool II Loans, as
applicable, decline for any subsequent adjustment dates. Since there can be no
assurance that the level of the Indices will correlate with the levels of
prevailing mortgage interest rates, it is possible that lower prevailing
mortgage rates, which might be expected to result in faster prepayments, could
occur concurrently with an increased level of any Index.
Although the Pass-Through Rate on the Class A-III Certificates is set at
7.00% per annum, such Pass-Through Rate could be reduced on any Distribution
Date if the Blended Rate for Pool III for such Distribution Date is less than
7.00% per annum. Similarly, if the Certificate Principal Balance of the Group
I Certificates or the Class A-II Certificates is greater than the Principal
Balance of the Pool I Loans or the Pool II Loans, as the case may be, and the
Blended Rate for the respective Pool is less the Weighted Average Net Mortgage
Rate for such Pool, the Pass-Through Rates on such Certificates could also be
reduced. Because the Blended Rate for any Pool is affected by the Weighted
Average Net Mortgage Rate of the Mortgage Loans in the related Pool and in
each other Pool where there exists a Pool Surplus, the Pass-Through Rate on
any Class of Certificates could be affected by the Weighted Average Net
Mortgage Rate for any other Pool under such circumstances.
Class IO Certificates. The yield to investors on the Class IO Certificates
will be extremely sensitive to the rate and timing of principal payments on
the Mortgage Loans (including prepayments, defaults and liquidations), which
may fluctuate significantly over time. A faster than expected rate of
principal payments on the Mortgage Loans (especially the Pool III Loans) will
have an adverse effect on the yield to such investors and could result in the
failure of investors in the Class IO Certificates to fully recover their
initial investments. In addition, the Pass-Through Rate on the Class IO
Certificates is primarily affected by the weighted average of the Net Mortgage
Rates on the Pool III Loans, and may increase or decrease from time to time
due to prepayments, defaults and liquidations on such Mortgage Loans. A higher
rate of prepayments on Pool III Loans with higher Net Mortgage Rates could
result in a decrease in the Pass-Through Rate on the Class IO Certificates. On
any Distribution Date, the amount of interest payable to the Class IO
Certificates with respect to the portion of the Notional Amount thereof
relating to the Class A-I, Class A-II, Class A-III, Class M-1 or Class M-2
Certificates may be zero.
Class M-1 Certificates and Class M-2 Certificates. As set forth herein under
"Description of the Certificates--Distributions in Respect of Interest and
Principal--Interest Distribution Amount," the Pass-Through Rates with respect
to the Class M-1 and Class M-2 Certificates will be equal to the lesser of (i)
the Blended Rate for Pool I and (ii) One-Year CMT plus a fixed spread.
Investors in the Class M-1 or Class M-2 Certificates should be aware that
because a substantial percentage of the Pool I Loans have initial Mortgage
Rates that are less than the sum of the related CMT Index and related margin,
and because adjustment of such initial Mortgage Rates may be limited by the
application of periodic rate adjustment caps, maximum Mortgage Rates and
minimum Mortgage Rates, the initial Pass-Through Rates on the Class M-1 and
Class M-2 Certificates will, and during certain periods thereafter, such Pass-
Through Rates may, be equal to the Blended Rate with respect to Pool I.
Certificates with Subordination Features. The Pass-Through Rates on the
Class M-1 and Class M-2 Certificates are based on One-Year CMT and,
accordingly, will be extremely sensitive to changes in the level of such
Index. Although the Mortgage Rates on the Pool I Loans are adjusted based on
various CMT Indices, such rates are adjusted with different frequencies and by
different margins over such various CMT Indices, and are subject to periodic
rate caps, maximum Mortgage Rates and minimum Mortgage Rates. As a result, the
Mortgage Rates on the Pool I Loans may be higher or lower than the applicable
Index plus the related margin on any Distribution Date. The Pass-Through Rates
on the Class M-1 and Class M-2 Certificates may, and the Pass-Through Rate on
the Class M-3 Certificates will, be affected by changes in the weighted
average of the Net Mortgage Rates on the Pool I Loans. The Pass-Through Rates
on the Class M Certificates may also be affected by changes in the weighted
average of the Net Mortgage Rates on Pool II Loans and Pool III Loans, as more
fully described herein. The Pass-Through Rates on the Class M-1 and Class M-2
Certificates may on any Distribution Date, and the Pass-Through Rate on the
Class M-3 Certificates will on each Distribution Date, be the Blended Rate for
Pool I.
S-62
<PAGE>
As described herein, during certain periods all or a disproportionately
large percentage of unscheduled principal payments on the Mortgage Loans in
each Pool will be allocated to the Class A Certificates and, during certain
periods, no unscheduled principal payments will be distributed to each Class
of Subordinate Certificates. Subject to certain conditions set forth herein,
unless the Certificate Principal Balances of the Class A Certificates have
been reduced to zero, or the Aggregate Subordinate Percentage is equal to or
greater than approximately 80%, the Subordinate Certificates will not be
entitled to receive unscheduled principal prepayments until the Distribution
Date occurring in July 2008 and will not be entitled to receive any such
payments during any periods if certain loss and delinquency tests have not
been met. To the extent that no principal payments are distributed on the
Subordinate Certificates, the Subordination afforded the Senior Certificates
by the Subordinate Certificates, in the absence of offsetting Realized Losses
allocated thereto, will be increased, and the weighted average lives of the
Subordinate Certificates will be extended.
The yield to investors on each class of Subordinate Certificates, and
particularly on those classes of Subordinate Certificates with lower payment
priorities, will be extremely sensitive to losses due to defaults on the
Mortgage Loans (and the timing thereof), to the extent such losses are not
covered by any Class of Subordinate Certificates having a lower payment
priority, because the entire amount of such losses that are covered by
subordination will be allocable to such Class or Classes of Subordinate
Certificates, as described herein. Furthermore, as described herein, the
timing of receipt of principal and interest by any Class of Subordinate
Certificates may be adversely affected by losses even if such Class does not
ultimately bear such loss.
As described under "Description of the Certificates--Allocation of Losses;
Subordination", amounts otherwise distributable to holders of one or more
Classes of the Subordinate Certificates may be made available to protect the
holders of the Class A Certificates and holders of any related Subordinate
Certificates with a higher payment priority against interruptions in
distributions due to certain Mortgagor delinquencies, to the extent not
covered by Advances. Such delinquencies may affect the yields to investors on
such Classes of the Subordinate Certificates, and, even if subsequently cured,
may affect the timing of the receipt of distributions by the holders of such
Classes of Subordinate Certificates.
Final Scheduled Distribution Date. The "FINAL SCHEDULED DISTRIBUTION DATE"
with respect to each class of Offered Certificates is December 28, 2037, which
date is the Distribution Date occurring in the second month following the
month in which the latest scheduled maturity date for any Mortgage Loan
occurs. No event of default, change in the priorities for distribution among
the various classes or other provisions under the Pooling and Servicing
Agreement will arise or become applicable solely by reason of the failure to
retire the entire Certificate Principal Balance of any class of Certificates
on or before its Final Scheduled Distribution Date.
MODELING ASSUMPTIONS
For purposes of preparing the tables below, the following assumptions (the
"MODELING ASSUMPTIONS") have been made:
(i) the Mortgage Loans are, for purposes of this analysis, grouped within
Pools by similar characteristics into a number of assumed collateral lines;
(ii) all scheduled payments on the Mortgage Loans are timely received on
the first day of each month, commencing June 1, 1998;
(iii) there are no defaults, losses or delinquencies on the Mortgage
Loans;
(iv) the Mortgage Loans prepay monthly at the specified constant annual
percentages of CPR;
(v) the Closing Date used for all calculations is June 30, 1998;
(vi) cash distributions are received by the Certificateholders on the
25th day of each month, commencing in July 1998;
(vii) all principal prepayments represent prepayments in full of the
Mortgage Loans and are received on the last day of each month commencing
June 30, 1998 and include 30 days' interest thereon;
S-63
<PAGE>
(viii) there are no repurchases of or substitutions for the Mortgage
Loans;
(ix) no early redemption of the Offered Certificates or early termination
of the Trust is effected;
(x) the Indices are as follows:
<TABLE>
<S> <C>
6 Month CMT 5.2900%
1 Year CMT 5.3700%
3 Year CMT 5.4700%
10 Year CMT 5.4400%
FHLBB Contract Rate 7.0900%
FHLBB Effective Rate 7.0400%
Prime 8.5000%
11th District COFI 4.9030%
1 Month LIBOR 5.6562%
6 Month LIBOR 5.7500%
6 Month CD Rate 5.6400%
National Median COFI 4.9100%
</TABLE>
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used herein with respect to the Mortgage Loans is
the "CONSTANT PREPAYMENT RATE" or "CPR" assumption, which represents an
assumed constant annualized rate of prepayment relative to the then-
outstanding balance of a pool of new mortgage loans.
Based upon the prepayment assumptions set forth below, the tables on the
following pages indicate the weighted average life of each Class of Offered
Certificates, and set forth the percentages of the initial Certificate
Principal Balance or initial Notional Amount of each Class.
CPR does not purport to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool
of mortgage loans, including the Mortgage Loans. The percentages of CPR in the
scenario assumptions described below do not purport to be predictions of the
anticipated relative rate of prepayment of the Mortgage Loans in any Pool.
<TABLE>
<CAPTION>
0% SLOW II SLOW I BASE FAST I FAST II
------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pool I........... 0% CPR 10.00% CPR 15.00% CPR 20.00% CPR 25.00% CPR 30.00% CPR
Pool II.......... 0% CPR 12.50% CPR 18.75% CPR 25.00% CPR 31.25% CPR 37.50% CPR
Pool III......... 0% CPR 10.00% CPR 15.00% CPR 20.00% CPR 25.00% CPR 30.00% CPR
</TABLE>
S-64
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OR NOTIONAL AMOUNT
OUTSTANDING AT VARIOUS PREPAYMENT SPEEDS
<TABLE>
<CAPTION>
CLASS A-I CLASS A-II
--------------------------------------- --------------------------------------
DISTRIBUTION
DATE 0% SLOW II SLOW I BASE FAST I FAST II 0% SLOW II SLOW I BASE FAST I FAST II
- ------------ ---- ------- ------ ---- ------ ------- --- ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percentage...... 100 100 100 100 100 100 100 100 100 100 100 100
June 25, 1999... 99 61 42 23 4 0 98 86 80 74 68 51
June 25, 2000... 98 26 0 0 0 0 85 65 52 23 0 0
June 25, 2001... 96 0 0 0 0 0 82 52 13 0 0 0
June 25, 2002... 93 0 0 0 0 0 75 25 0 0 0 0
June 25, 2003... 92 0 0 0 0 0 71 3 0 0 0 0
June 25, 2004... 90 0 0 0 0 0 55 0 0 0 0 0
June 25, 2005... 89 0 0 0 0 0 51 0 0 0 0 0
June 25, 2006... 87 0 0 0 0 0 49 0 0 0 0 0
June 25, 2007... 85 0 0 0 0 0 47 0 0 0 0 0
June 25, 2008... 83 0 0 0 0 0 44 0 0 0 0 0
June 25, 2009... 81 0 0 0 0 0 42 0 0 0 0 0
June 25, 2010... 79 0 0 0 0 0 39 0 0 0 0 0
June 25, 2011... 76 0 0 0 0 0 36 0 0 0 0 0
June 25, 2012... 73 0 0 0 0 0 33 0 0 0 0 0
June 25, 2013... 71 0 0 0 0 0 30 0 0 0 0 0
June 25, 2014... 67 0 0 0 0 0 26 0 0 0 0 0
June 25, 2015... 64 0 0 0 0 0 22 0 0 0 0 0
June 25, 2016... 60 0 0 0 0 0 18 0 0 0 0 0
June 25, 2017... 56 0 0 0 0 0 12 0 0 0 0 0
June 25, 2018... 52 0 0 0 0 0 8 0 0 0 0 0
June 25, 2019... 48 0 0 0 0 0 4 0 0 0 0 0
June 25, 2020... 43 0 0 0 0 0 2 0 0 0 0 0
June 25, 2021... 37 0 0 0 0 0 1 0 0 0 0 0
June 25, 2022... 32 0 0 0 0 0 0 0 0 0 0 0
June 25, 2023... 25 0 0 0 0 0 0 0 0 0 0 0
June 25, 2024... 19 0 0 0 0 0 0 0 0 0 0 0
June 25, 2025... 12 0 0 0 0 0 0 0 0 0 0 0
June 25, 2026... 4 0 0 0 0 0 0 0 0 0 0 0
June 25, 2027... 0 0 0 0 0 0 0 0 0 0 0 0
June 25, 2028... 0 0 0 0 0 0 0 0 0 0 0 0
June 25, 2029... 0 0 0 0 0 0 0 0 0 0 0 0
June 25, 2030... 0 0 0 0 0 0 0 0 0 0 0 0
June 25, 2031... 0 0 0 0 0 0 0 0 0 0 0 0
June 25, 2032... 0 0 0 0 0 0 0 0 0 0 0 0
June 25, 2033... 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years*.. 18.6 1.4 0.9 0.7 0.5 0.4 9.8 2.8 1.9 1.4 1.1 0.9
<CAPTION>
CLASS A-III
---------------------------------------
DISTRIBUTION
DATE 0% SLOW II SLOW I BASE FAST I FAST II
- ------------ ---- ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Initial
Percentage...... 100 100 100 100 100 100
June 25, 1999... 96 87 82 77 72 67
June 25, 2000... 93 76 67 60 49 27
June 25, 2001... 85 62 52 30 12 0
June 25, 2002... 82 54 34 23 9 0
June 25, 2003... 71 42 25 16 6 0
June 25, 2004... 68 32 21 12 4 0
June 25, 2005... 64 27 17 9 3 0
June 25, 2006... 62 23 14 7 2 0
June 25, 2007... 59 20 11 6 1 0
June 25, 2008... 54 16 9 4 1 0
June 25, 2009... 51 14 7 3 1 0
June 25, 2010... 46 11 5 2 0 0
June 25, 2011... 44 10 4 2 0 0
June 25, 2012... 38 7 3 1 0 0
June 25, 2013... 35 6 2 1 0 0
June 25, 2014... 32 5 2 1 0 0
June 25, 2015... 30 4 2 0 0 0
June 25, 2016... 27 3 1 0 0 0
June 25, 2017... 23 3 1 0 0 0
June 25, 2018... 20 2 1 0 0 0
June 25, 2019... 17 0 0 0 0 0
June 25, 2020... 14 0 0 0 0 0
June 25, 2021... 11 0 0 0 0 0
June 25, 2022... 9 0 0 0 0 0
June 25, 2023... 6 0 0 0 0 0
June 25, 2024... 4 0 0 0 0 0
June 25, 2025... 2 0 0 0 0 0
June 25, 2026... 1 0 0 0 0 0
June 25, 2027... 0 0 0 0 0 0
June 25, 2028... 0 0 0 0 0 0
June 25, 2029... 0 0 0 0 0 0
June 25, 2030... 0 0 0 0 0 0
June 25, 2031... 0 0 0 0 0 0
June 25, 2032... 0 0 0 0 0 0
June 25, 2033... 0 0 0 0 0 0
Weighted Average
Life in Years*.. 11.9 5.5 4.1 3.1 2.1 1.5
</TABLE>
- ----
* The weighted average life of the Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years from
the date of issuance of the Certificates to the related Distribution Date,
(ii) adding the results, and (iii) dividing the sum by the initial
respective Certificate Principal Balance for such Class of Certificates.
THIS TABLE HAS BEEN PREPARED BASED ON THE "MODELING ASSUMPTIONS" PRECEDING
THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND
PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE ACTUAL CHARACTERISTICS
AND PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
(Table continued on next page.)
S-65
<PAGE>
PERCENT OF INITIAL NOTIONAL AMOUNT OUTSTANDING AT VARIOUS PREPAYMENT SPEEDS
<TABLE>
<CAPTION>
CLASS IO*
---------------------------------------
DISTRIBUTION DATE 0% SLOW II SLOW I BASE FAST I FAST II
- ----------------- ---- ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage...................... 100 100 100 100 100 100
June 25, 1999........................... 98 84 77 70 63 56
June 25, 2000........................... 93 68 56 45 35 27
June 25, 2001........................... 88 54 40 28 20 14
June 25, 2002........................... 84 43 29 22 14 9
June 25, 2003........................... 79 33 23 16 10 6
June 25, 2004........................... 73 26 18 12 7 4
June 25, 2005........................... 70 23 15 9 5 3
June 25, 2006........................... 68 20 12 7 4 2
June 25, 2007........................... 66 17 10 6 3 1
June 25, 2008........................... 63 15 8 4 2 1
June 25, 2009........................... 60 13 7 3 1 1
June 25, 2010........................... 57 11 5 2 1 0
June 25, 2011........................... 54 9 4 2 1 0
June 25, 2012........................... 50 8 3 1 0 0
June 25, 2013........................... 47 6 3 1 0 0
June 25, 2014........................... 44 5 2 1 0 0
June 25, 2015........................... 41 5 2 1 0 0
June 25, 2016........................... 37 4 1 0 0 0
June 25, 2017........................... 33 3 1 0 0 0
June 25, 2018........................... 29 2 1 0 0 0
June 25, 2019........................... 25 2 0 0 0 0
June 25, 2020........................... 22 1 0 0 0 0
June 25, 2021........................... 18 1 0 0 0 0
June 25, 2022........................... 15 1 0 0 0 0
June 25, 2023........................... 12 1 0 0 0 0
June 25, 2024........................... 9 0 0 0 0 0
June 25, 2025........................... 5 0 0 0 0 0
June 25, 2026........................... 2 0 0 0 0 0
June 25, 2027........................... 0 0 0 0 0 0
June 25, 2028........................... 0 0 0 0 0 0
June 25, 2029........................... 0 0 0 0 0 0
June 25, 2030........................... 0 0 0 0 0 0
June 25, 2031........................... 0 0 0 0 0 0
June 25, 2032........................... 0 0 0 0 0 0
June 25, 2033........................... 0 0 0 0 0 0
Weighted Average Life in Years**........ 13.9 5.0 3.7 2.8 2.2 1.7
</TABLE>
- ----
* The Class IO Certificates have a Notional Amount.
** The weighted average life of the Certificates is determined by (i)
multiplying the amount of each notional principal reduction by the number
of years from the date of issuance of the Certificates to the related
Distribution Date, (ii) adding the results, and (iii) dividing the sum by
the initial Notional Amount for such Class of Certificates.
THIS TABLE HAS BEEN PREPARED BASED ON THE "MODELING ASSUMPTIONS" PRECEDING
THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND
PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE ACTUAL CHARACTERISTICS
AND PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
(Table continued from previous page and continued on next page.)
S-66
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OR NOTIONAL AMOUNT
OUTSTANDING AT VARIOUS PREPAYMENT SPEEDS
<TABLE>
<CAPTION>
CLASS M
---------------------------------------
DISTRIBUTION DATE 0% SLOW II SLOW I BASE FAST I FAST II
- ----------------- ---- ------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage...................... 100 100 100 100 100 100
June 25, 1999........................... 99 99 99 99 99 99
June 25, 2000........................... 98 98 98 98 97 94
June 25, 2001........................... 96 96 96 93 84 73
June 25, 2002........................... 93 92 88 70 59 48
June 25, 2003........................... 92 90 72 54 42 32
June 25, 2004........................... 90 81 57 40 30 21
June 25, 2005........................... 89 70 47 31 22 14
June 25, 2006........................... 87 62 39 24 16 10
June 25, 2007........................... 85 54 32 19 11 6
June 25, 2008........................... 83 47 26 14 8 4
June 25, 2009........................... 81 41 22 11 6 3
June 25, 2010........................... 79 35 18 9 4 2
June 25, 2011........................... 76 30 14 7 3 1
June 25, 2012........................... 73 26 12 5 2 1
June 25, 2013........................... 71 22 9 4 2 1
June 25, 2014........................... 67 19 8 3 1 0
June 25, 2015........................... 64 16 6 2 1 0
June 25, 2016........................... 60 13 5 2 1 0
June 25, 2017........................... 56 11 4 1 0 0
June 25, 2018........................... 52 9 3 1 0 0
June 25, 2019........................... 48 8 2 1 0 0
June 25, 2020........................... 43 7 2 0 0 0
June 25, 2021........................... 37 5 1 0 0 0
June 25, 2022........................... 32 4 1 0 0 0
June 25, 2023........................... 25 3 1 0 0 0
June 25, 2024........................... 19 2 0 0 0 0
June 25, 2025........................... 12 1 0 0 0 0
June 25, 2026........................... 4 0 0 0 0 0
June 25, 2027........................... 0 0 0 0 0 0
June 25, 2028........................... 0 0 0 0 0 0
June 25, 2029........................... 0 0 0 0 0 0
June 25, 2030........................... 0 0 0 0 0 0
June 25, 2031........................... 0 0 0 0 0 0
June 25, 2032........................... 0 0 0 0 0 0
June 25, 2033........................... 0 0 0 0 0 0
Weighted Average Life in Years*......... 18.6 10.9 8.1 6.4 5.4 4.6
</TABLE>
- ----
* The weighted average life of the Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years from
the date of issuance of the Certificates to the related Distribution Date,
(ii) adding the results, and (iii) dividing the sum by the initial
respective Certificate Principal Balance for such Class of Certificates.
THIS TABLE HAS BEEN PREPARED BASED ON THE "MODELING ASSUMPTIONS" PRECEDING
THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND
PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE ACTUAL CHARACTERISTICS
AND PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
(Table continued from previous page.)
S-67
<PAGE>
YIELD SENSITIVITY OF THE CLASS IO CERTIFICATES
To illustrate the significance of changes in the level of prepayments on the
yield of the Class IO Certificates, the table below indicates the pretax
yields (on a corporate bond equivalent basis) under the assumptions discussed
below at the different constant percentages of CPR indicated. It is not likely
that the Mortgage Loans will prepay at a constant level of CPR, that all of
the Mortgage Loans in each Pool will prepay at the same rate or that the level
of the Indices will remain constant.
The yield to investors in the Class IO Certificates will be extremely
sensitive to both the timing of receipt of prepayments and the overall rate of
principal payments, which rate may vary significantly from time to time.
Investors in the Class IO Certificates should be aware that a faster than
expected rate of prepayments could cause such investors to fail to fully
recover their initial investments.
The yields to investors set forth below were calculated based on the
Modeling Assumptions, except that it is assumed that the Certificates will be
retired on the first date on which the Servicer is permitted to cause an early
termination of the Trust. Any differences between such assumptions and the
actual characteristics and performance of the Mortgage Loans and of the
Certificates may result in yields being different from those shown in such
tables. Discrepancies between assumed and actual characteristics and
performance underscore the hypothetical nature of the tables, which are
provided only to give a general sense of the sensitivity of yields in varying
prepayment scenarios.
The pre-tax yields set forth in the following table were calculated by (i)
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Class IO Certificates would cause the
discounted present value of such assumed streams of cash flows to equal the
respective assumed purchase price set forth in the table below plus accrued
interest thereon from June 1, 1998 to (but not including) June 30, 1998, and
(ii) converting such monthly rates to a semi-annual corporate bond equivalent
rate. Such calculation does not take into account the interest rate at which
investors will be able to reinvest funds received by them and does not purport
to reflect the return on any investment in any such Classes when such
reinvestment rates are considered.
SENSITIVITY OF PRE-TAX YIELDS TO THE OPTIONAL TERMINATION DATE OF THE CLASS IO
CERTIFICATES TO PREPAYMENTS
<TABLE>
<CAPTION>
ASSUMED
PURCHASE
PRICE AS A
PERCENTAGE
OF
NOTIONAL SLOW
BALANCE 0% CPR II SLOW I BASE FAST I FAST II
---------- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
1.375% 50.355% 38.574% 31.721% 23.226% 10.441 % (5.459)%
1.625% 40.948% 29.530% 22.675% 14.069% 0.980 % (15.249)%
1.875% 34.140% 22.953% 16.040% 7.283% (6.078)% (22.588)%
</TABLE>
S-68
<PAGE>
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement dated as of June 1, 1998, among the Depositor, the Servicer, the
Trustee and the Back-Up Servicer. Reference is made to the Prospectus for
important information in addition to that set forth herein regarding the terms
and conditions of the Pooling and Servicing Agreement and the Offered
Certificates. The Offered Certificates will be transferable and exchangeable
at the corporate trust office of the Trustee, which will serve as Certificate
Registrar and Paying Agent. The Depositor will provide a prospective or actual
Certificateholder without charge, on written request, a copy (without
exhibits) of the Pooling and Servicing Agreement. Requests should be addressed
to Eleven Madison Avenue, New York, New York 10010. Pursuant to the Pooling
and Servicing Agreement, transfers of certain of the Certificates, including
the Residual Certificates, are subject to transfer restrictions as set forth
in the Pooling and Servicing Agreement. See "Certain Federal Income Tax
Consequences" herein and "Certain Federal Income Tax Consequences--REMIC Trust
Funds--Sales of REMIC Certificates" and "--Taxation of Owners of REMIC
Residual Certificates--Noneconomic REMIC Residual Certificates" in the
Prospectus. In addition to the circumstances described in the Prospectus, the
Depositor may terminate the Trustee for cause under certain circumstances. See
"Description of the Certificates--Certain Matters Regarding The Servicer, The
Depositor, The Trustee and The Special Servicer" in the Prospectus.
THE SERVICER
Wilshire Servicing Corporation will act as Servicer for the Certificates
pursuant to the Pooling and Servicing Agreement. For a general description of
Wilshire Servicing Corporation and its activities, see "The Mortgage Pool
Loans--Servicing."
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee for each Mortgage Loan is payable out of the interest
payments on such Mortgage Loan. The Servicing Fee is set forth herein under
"Description of the Certificates--Distributions in Respect of Interest and
Principal--Interest Distribution Amounts." The Servicer is obligated to pay
certain ongoing expenses associated with the Trust Fund and incurred by the
Servicer in connection with its responsibilities under the Pooling and
Servicing Agreement. See "Description of the Certificates--Servicing
Compensation and Payment of Expenses" in the Prospectus for information
regarding other possible compensation to the Servicer and for information
regarding expenses payable by the Servicer.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by holders of
Certificates evidencing a specified percentage of all undivided interests in
the Trust Fund may be taken by holders of Certificates entitled in the
aggregate to such percentage of the voting rights. 98% of all voting rights
will be allocated among all holders of the Certificates (other than the Class
IO Certificates and Residual Certificates) in proportion to their then
outstanding Certificate Principal Balances, 1% of all voting rights will be
allocated among the holders of the Class IO Certificates, and 0.5% and 0.5% of
all voting rights will be allocated among holders of the Class
R-I Certificates and Class R-II Certificates, respectively, in proportion to
the Percentage Interests evidenced by their respective Certificates. The
Pooling and Servicing Agreement will be subject to amendment without the
consent of the holders of the Residual Certificates in certain circumstances.
TERMINATION
The circumstances under which the obligations created by the Pooling and
Servicing Agreement will terminate in respect of the Offered Certificates are
described in "Description of the Certificates--Termination" in the Prospectus.
The Servicer (or, if Wilshire Servicing Corporation is the Servicer, any
affiliate of the Servicer,
S-69
<PAGE>
other than the Wilshire Seller or the Seller, designated by Wilshire
Servicing) will have the option, on any Distribution Date on which the
aggregate Principal Balance of the Mortgage Loans is less than 10% of the
aggregate principal balance of the Mortgage Loans as of the Cut-Off Date, to
purchase all remaining Mortgage Loans and other assets in the Trust Fund,
thereby effecting early retirement of the Offered Certificates. Any such
purchase of Mortgage Loans and other assets of the Trust Fund shall be made at
a price equal to the sum of (a) 100% of the unpaid principal balance of each
Mortgage Loan (or the fair market value of the related underlying Mortgaged
Properties with respect to defaulted Mortgage Loans as to which title to such
Mortgaged Properties has been acquired if such fair market value is less than
such unpaid principal balance) (net of any unreimbursed Advances attributable
to principal) as of the date of repurchase plus (b) accrued interest thereon
at the Net Mortgage Rate to, but not including, the Due Date in the Due Period
relating to the Distribution Date on which such repurchase price is
distributed. Distributions on the Certificates in respect of any such optional
termination will be paid, first, to the Senior Certificates, second, to the
Class M Certificates in the order of their payment priority and, third, to the
Class B Certificates. The proceeds of any such distribution may not be
sufficient to distribute the full amount to each Class of Certificates if the
purchase price is based in part on the fair market value of the underlying
Mortgaged Property and such fair market value is less than 100% of the unpaid
principal balance of the related Mortgage Loan.
Upon presentation and surrender of the Offered Certificates in connection
with the termination of the Trust Fund, the holders of the Offered
Certificates will receive an amount equal to the Certificate Principal Balance
of such Class plus one month's interest thereon at the then-applicable Pass-
Through Rate (or, with respect to the Class IO Certificates, one month's
interest on the Notional Amount thereof), plus any previously unpaid accrued
interest (reduced, as described above, in the case of the termination of the
Trust Fund resulting from a purchase of all the assets of the Trust Fund).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Two separate REMIC elections will be made with respect to the Trust Fund for
federal income tax purposes (the REMICs formed thereby being referred to as
"REMIC I" and "REMIC II," respectively). Upon the issuance of the Offered
Certificates, Orrick, Herrington & Sutcliffe LLP, counsel to the Depositor,
will deliver its opinion generally to the effect that, assuming compliance
with all provisions of the Pooling and Servicing Agreement, for federal income
tax purposes, REMIC I and REMIC II will each qualify as a REMIC under Sections
860A through 860G of the Code.
The assets of REMIC I will consist of the Mortgage Loans, any REO
Properties, such assets as from time to time are deposited in the Collection
Account and the Certificate Account, any hazard or other insurance policies
with respect to the Mortgage Loans and any proceeds of such policies. For
federal income tax purposes: (i) the separate non-certificated regular
interests in REMIC I will be the "regular interests" in REMIC I and will
constitute the assets of REMIC II; (ii) the Class R-I Certificates will be the
sole Class of "residual interests" in REMIC I; (iii) the Offered Certificates
and Class B Certificates will be the "regular interests" in, and generally
will be treated as debt obligations of, REMIC II; and (iv) the Class R-II
Certificates will be the sole Class of "residual interests" in REMIC II.
For federal income tax reporting purposes, the Class IO Certificates will be
treated (by the Trustee) as having been issued with original issue discount.
All other Classes of Offered Certificates (other than the Class M-3
Certificates) will be treated (by the Trustee) as having been issued at a
premium for federal income tax reporting purposes. The Class M-3 Certificates
will not be treated (by the Trustee) as having been issued with original issue
discount. The prepayment assumption that will be used in determining the rate
of accrual of original issue discount, market discount and premium, if any,
for federal income tax purposes will be based on the assumption that,
subsequent to the date of any determination, the Pool I Loans and Pool III
Loans will prepay at a rate equal to 20% CPR and the Pool II Loans will prepay
at a rate equal to 25% CPR. No representation is made that the Mortgage Loans
will prepay at that rate or at any other rate. See "Certain Federal Income Tax
Consequences--REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" in the Prospectus.
S-70
<PAGE>
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
REGULATIONS") under sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers
of the Offered Certificates should be aware that Section 1272(a)(6) of the
Code and the OID Regulations do not adequately address certain issues relevant
to, or applicable to, prepayable securities bearing a variable rate of
interest such as the Offered Certificates. In the absence of other authority,
certain principles of the OID Regulations applicable to variable rate debt
instruments may be applied in determining whether such Certificates should be
treated as issued with original issue discount and in adapting the provisions
of Section 1272(a)(6) of the Code to such Certificates for the purpose of
preparing reports furnished to Certificateholders and the IRS. Because of the
uncertainties concerning the application of Section 1272(a)(6) of the Code to
such Certificates and because the rules relating to debt instruments having a
variable rate of interest are limited in their application in ways that could
preclude their application to such Certificates even in the absence of Section
1272(a)(6) of the Code, the IRS could assert that the Offered Certificates
should be governed by some other method not yet set forth in regulations or
should be treated as having been issued with original issue discount.
Prospective purchasers of the Offered Certificates are advised to consult
their tax advisors concerning the tax treatment of such Certificates.
If any of the Offered Certificates were determined to have been issued with
original issue discount, a reasonable application of the principles of the OID
Regulations to such Certificates generally would be to report all income with
respect to such Certificates as original issue discount for each period,
computing such original issue discount (i) by assuming that the value of the
applicable index will remain constant for purposes of determining the original
yield to maturity of each such Class of Certificates and projecting future
distributions on such Certificates, thereby treating such Certificates as
fixed rate instruments to which the original issue discount computation rules
described in the Prospectus can be applied, and (ii) by accounting for any
positive or negative variation in the actual value of the applicable index in
any period from its assumed value as a current adjustment to original issue
discount with respect to such period. See "Certain Federal Income Tax
Consequences--REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" in the Prospectus.
In certain circumstances the OID Regulations permit the holder of a debt
instrument to recognize original issue discount under a method that differs
from that used by the issuer. Accordingly, the holder of an Offered
Certificate may be able to select a method for recognizing original issue
discount that differs from that used by the Servicer in preparing reports to
the Certificateholders and the IRS.
For further information regarding federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences--REMIC Trust Funds" in the Prospectus.
ERISA CONSIDERATIONS
Because the exemptive relief afforded by the Underwriter's PTE (or any
similar exemption that might be available) will not likely apply to the
purchase, sale or holding of the Offered Certificates, transfers of the
Offered Certificates to a Plan, to a trustee or other person acting on behalf
of any Plan, or to any other person using "Plan Assets" to effect such
acquisition will not be registered by the Trustee.
A written certification will not be required with respect to the purchase of
the Offered Certificates, provided that the Offered Certificates are DTC
Registered Certificates. Any purchaser of a DTC Registered Certificate will be
deemed to have represented by such purchase that such purchaser is not a Plan
and is not purchasing such Offered Certificates on behalf of or with "Plan
Assets" of any Plan. See "ERISA Considerations" in the Prospectus.
S-71
<PAGE>
RATINGS
It is a condition to the original issuance of the Certificates that they
receive the following ratings from Moody's Investors Service, Inc.
("MOODY'S"), Fitch IBCA, Inc. ("FITCH") and Duff & Phelps Credit Rating Co.
("DCR", and, collectively with Moody's and Fitch, the "RATING AGENCIES").
<TABLE>
<CAPTION>
FITCH DCR MOODY'S
CLASS RATING RATING RATING
----- ------ ------ -------
<S> <C> <C> <C>
A-I AAA AAA Aaa
A-II AAA AAA Aaa
A-III AAA AAA Aaa
IO AAA AAA Aaa
M-1 AA+ AA Aa2
M-2 A+ A A2
M-3 BBB+ BBB Baa2
</TABLE>
The ratings assigned to this issue do not constitute a recommendation to
purchase or sell these securities. Rather, they are indications of the
likelihood of the payment of principal and/or interest as set forth in the
transaction disclosure. The ratings do not address the effect on the
certificates' yield attributable to prepayments or recoveries on the
underlying mortgage loans.
The ratings assigned by DCR to mortgage pass-through certificates address
the likelihood of the receipt by certificateholders of all distributions to
which they are entitled under the transaction structure. Such ratings reflect
its analysis of the riskiness of the mortgage loans and its analysis of the
structure of the transaction as set forth in the operative documents. DCR's
ratings do not address the effect on the Certificates' yield attributable to
prepayments or recoveries on the underlying mortgage loans.
The ratings of Moody's and Fitch on mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all
distributions to which such certificateholders are entitled. Moody's and
Fitch's rating opinions address the structural, legal and issuer aspects
associated with the certificates, including the nature of the underlying
mortgage loans and the credit quality of the credit support provider, if any.
Moody's and Fitch's ratings on mortgage pass-through certificates do not
represent any assessment of the likelihood or rate of principal prepayments.
The ratings of the Rating Agencies do not address the possibility that, as a
result of principal prepayments, Certificateholders may receive a lower than
anticipated yield or that the holders of the Class IO Certificates may fail to
recover fully their initial investment.
The ratings assigned to the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A rating is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Offered
Certificates or, if it does, what rating would be assigned by such other
rating agency. The rating assigned by such other rating agency to the Offered
Certificates could be lower than the respective ratings assigned by the Rating
Agencies.
S-72
<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will not constitute "mortgage related securities"
for purposes of SMMEA.
The Depositor makes no representations as to the proper characterization of
any Class of the Offered Certificates for legal investment or other purposes,
or as to the ability of particular investors to purchase any Class of the
Offered Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any Class of Offered
Certificates. Accordingly, all institutions whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their
legal advisors in determining whether and to what extent any Class of the
Offered Certificates constitutes a legal investment or is subject to
investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
UNDERWRITING
Pursuant to the terms and conditions contained in the Underwriting
Agreement, dated June 25, 1998, (the "Underwriting Agreement"), Credit Suisse
First Boston Corporation (the "Underwriter") has agreed, subject to the terms
and conditions set forth therein, to purchase all of the Offered Certificates
offered hereby.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined, in each case, at the time of
sale. The Underwriter may effect such transactions by selling the Offered
Certificates to or through dealers and such dealers may receive compensation
in the form of underwriting discounts, concessions or commissions from the
Underwriter. In connection with the sale of the Offered Certificates, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting compensation. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Offered
Certificates may be deemed to be underwriters and any commissions received by
them and any profit on the resale of the Offered Certificates purchased by
them may be deemed to be underwriting discounts and commissions under the
Securities Act.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will be
obligated to purchase all of the Offered Certificates offered hereby if any
are purchased.
The Seller and the Depositor will each indemnify the Underwriter against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments that the Underwriter may be required to make in respect
thereof.
The Underwriter may engage in over-allotment, stabilizing transactions,
covering transactions and penalty bids in accordance with Regulation M under
the Securities Exchange Act of 1934 (the "Exchange Act"). Over-allotment
involves sales in excess of the offering size, which creates a short position
for the Underwriter. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Covering transactions involve purchases of the Offered Certificates
in the open market after the distribution has been completed in order to cover
short positions. Penalty bids permit the Underwriter to reclaim a selling
concession from a dealer when the Offered Certificates originally sold by such
dealer are purchased in a covering transaction to cover short positions. Such
stabilizing transactions, covering transactions and penalty bids may cause the
price of the Offered Certificates to be higher than it would otherwise be in
the absence of such transactions. These transactions, if commenced, may be
discontinued at any time.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Depositor and the Underwriter by
Orrick, Herrington & Sutcliffe LLP, New York, New York and for the Seller and
the Servicer by Proskauer Rose LLP, New York, New York.
S-73
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
Adjusted Class A-I Percentage........................................ S-53
Adjusted Class A-I Prepayment Percentage............................. S-53
Adjusted Subordinate Percentage...................................... S-55
Adjusted Subordinate Prepayment Percentage........................... S-55
Advance.............................................................. S-12
Aggregate Subordinate Percentage..................................... S-55
Available Distribution Amount........................................ S-49
Balloon Mortgage Loan................................................ S-21
Balloon Payment...................................................... S-21
Bankruptcy Code...................................................... S-58
Beneficial Owner..................................................... S-47
Blended Rate......................................................... S-50
Business Day......................................................... S-4
Cede................................................................. S-46
CEDEL................................................................ S-46
CEDEL Participants................................................... S-47
Certificate Principal Balance........................................ S-53
Certificateholders................................................... S-4
Certificates......................................................... S-1
Class................................................................ S-3, S-46
Class A Certificates................................................. S-3, S-46
Class A Interest Distribution Amount................................. S-50
Class A-I Interest Distribution Amount............................... S-50
Class A-II Interest Distribution Amount.............................. S-50
Class A-III Interest Distribution Amount............................. S-50
Class A-I Percentage................................................. S-53
Class A-I Prepayment Percentage...................................... S-54
Class A-I Principal Distribution Amount.............................. S-52
Class A-II Principal Distribution Amount............................. S-55
Class A-III Principal Distribution Amount............................ S-55
Class B Certificates................................................. S-3, S-46
Class B Interest Distribution Amount................................. S-52
Class IO Interest Distribution Amount................................ S-51
Class IO Pass-Through Rate........................................... S-51
Class M Certificates................................................. S-3, S-46
Class M-1 Interest Distribution Amount............................... S-52
Class M-2 Interest Distribution Amount............................... S-52
Class M-3 Interest Distribution Amount............................... S-52
Clearance Cooperative................................................ S-48
Closing Date......................................................... S-4
CMT Index............................................................ S-6
Commission........................................................... S-2
Constant Prepayment Rate............................................. S-64
CPR.................................................................. S-64
Credit Support....................................................... S-57
Cross Support Weighted Average Net Mortgage Rate..................... S-50
Cut-Off Date......................................................... S-4
DCR.................................................................. S-14, S-72
Deferred Interest.................................................... S-17
Deficient Valuation.................................................. S-58
</TABLE>
S-74
<PAGE>
<TABLE>
<S> <C>
Deficit Percentage................................................... S-53
Depositaries......................................................... S-46
Depositor............................................................ S-1
Determination Date................................................... S-49
Distribution Date.................................................... S-4
DTC.................................................................. S-1
DTC Participants..................................................... S-46
Due Date............................................................. S-49
Due Period........................................................... S-49
Euroclear............................................................ S-46
Euroclear Operator................................................... S-48
Euroclear Participants............................................... S-48
Final Scheduled Distribution Date.................................... S-63
Fitch................................................................ S-14, S-72
Group I Certificates................................................. S-3, S-46
Index................................................................ S-6
Indirect Participants................................................ S-47
Initial Credit Support............................................... S-57
Insurance Proceeds................................................... S-53
Interest Accrual Period.............................................. S-52
IRS.................................................................. S-71
Junior Mortgage Loans................................................ S-17
Liquidation Expenses................................................. S-53
Liquidation Proceeds................................................. S-54
Loan Files........................................................... S-18
Loan-to-Value Ratio.................................................. S-21
Lock-box Account..................................................... S-13
Modeling Assumptions................................................. S-63
Monthly Payment...................................................... S-49
Moody's.............................................................. S-14, S-72
Mortgage Loans....................................................... S-1
Mortgage Rate........................................................ S-52
Mortgaged Property................................................... S-6, S-21
Negative Amortization Loans.......................................... S-17
Net Mortgage Rate.................................................... S-52
Non-Surplus Percentage............................................... S-53
Notional Amount...................................................... S-51
Offered Certificates................................................. S-3
OID Regulations...................................................... S-71
One-Year CMT......................................................... S-22
Original Subordinate Principal Balance............................... S-54
Participants......................................................... S-46
Pass-Through Rate.................................................... S-49
Percentage Interest.................................................. S-58
Pool................................................................. S-6
Pool Deficit Amount.................................................. S-50
Pool I............................................................... S-6, S-21
Pool I Loans......................................................... S-6, S-21
Pool II.............................................................. S-6, S-21
Pool II Loans........................................................ S-6, S-21
Pool III............................................................. S-6, S-21
Pool III Loans....................................................... S-6, S-21
</TABLE>
S-75
<PAGE>
<TABLE>
<S> <C>
Pool Surplus Amount................................................... S-51
Pooling and Servicing Agreement....................................... S-1, S-3
Prepayment Interest................................................... S-7
Prepayment Interest Shortfall......................................... S-7, S-52
Prepayment Period..................................................... S-49
Principal Balance..................................................... S-51
Prior Sellers......................................................... S-45
Prospectus............................................................ S-2
Rating Agencies....................................................... S-72
Realized Loss......................................................... S-58
Record Date........................................................... S-4
REMIC I............................................................... S-70
REMIC II.............................................................. S-70
Residual Certificates................................................. S-3, S-46
Rules................................................................. S-48
Securities Act........................................................ S-2
Seller................................................................ S-1, S-4
Senior Certificates................................................... S-3, S-46
Senior Percentage..................................................... S-53
Servicer.............................................................. S-4
Servicer Remittance Date.............................................. S-49
Servicing Fee......................................................... S-52
Servicing Fee Rate.................................................... S-52
Subordinate Certificates.............................................. S-3, S-46
Subordinate Percentage................................................ S-55
Subordinate Prepayment Percentage..................................... S-55
Subordinate Principal Distribution Amount............................. S-56
Subordination......................................................... S-58
Surplus Percentage.................................................... S-53
Terms and Conditions.................................................. S-48
Trust................................................................. S-1
Trust Fund............................................................ S-1
Trustee............................................................... S-4
Trustee Fee........................................................... S-52
Trustee Fee Rate...................................................... S-52
Underwriter........................................................... S-1
WCC................................................................... S-45
Weighted Average Pool Net Mortgage Rate............................... S-50
WFSG.................................................................. S-44
Wilshire Seller....................................................... S-1
Wilshire Servicing.................................................... S-45
</TABLE>
S-76
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PER-
SON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESEN-
TATION NOT CONTAINED IN THIS PRO-
SPECTUS SUPPLEMENT OR THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMA-
TION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE DEPOSITOR OR THE UNDER-
WRITER. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY IN ANY JURISDICTION
TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER IN SUCH JURISDIC-
TION.
NEITHER THE DELIVERY OF THIS PRO-
SPECTUS 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
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Prospectus Supplement........................................... S-3
Risk Factors............................................................... S-15
The Mortgage Loan Pools.................................................... S-21
Description of the Certificates............................................ S-46
Certain Yield and Prepayment Considerations................................ S-59
Pooling and Servicing Agreement............................................ S-69
Certain Federal Income Tax Consequences.................................... S-70
ERISA Considerations....................................................... S-71
Ratings.................................................................... S-72
Legal Investment Considerations............................................ S-73
Underwriting............................................................... S-73
Certain Legal Matters...................................................... S-73
Index of Principal Definitions............................................. S-74
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Prospectus Supplement....................................................... 2
Additional Information...................................................... 2
Incorporation of Certain Information by Reference........................... 2
Summary of Terms............................................................ 4
Risk Factors................................................................ 18
The Trust Fund.............................................................. 23
The Depositor............................................................... 35
Use of Proceeds............................................................. 35
Yield Considerations........................................................ 36
Maturity and Prepayment Considerations...................................... 38
Description of the Certificates............................................. 40
Credit Support.............................................................. 67
Description of Insurance.................................................... 71
Certain Legal Aspects of the Mortgage Loans and Contracts................... 79
Certain Federal Income Tax Consequences..................................... 99
ERISA Considerations........................................................ 122
Legal Investment............................................................ 127
Plan of Distribution........................................................ 128
Legal Matters............................................................... 129
Index of Terms.............................................................. 130
</TABLE>
UNTIL THE DATE 90 DAYS FROM THE
DATE HEREOF, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECU-
RITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE RE-
QUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RE-
SPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CREDIT SUISSE FIRST BOSTON
MORTGAGE SECURITIES CORP.
Depositor
WILSHIRE MORTGAGE
FUNDING COMPANY VI, INC.,
Seller
WILSHIRE SERVICING CORPORATION,
Servicer
$128,693,906
(Approximate)
WILSHIRE FUNDING CORPORATION
Mortgage-Backed Certificates,
Series 1998-WFC2
PROSPECTUS SUPPLEMENT
CREDIT FIRST
SUISSE BOSTON
- -------------------------------------------------------------------------------
